§ 842. Foreign companies carrying on insurance business

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1954

   Aug. 16, 1954, ch. 736, 68A Stat. 267 · 68A Stat. 267

   Enacted · 26 U.S.C. § 842

   Aug. 16, 1954, ch. 736, 68A Stat. 267

   Source evidence

   Code source credit
   Aug. 16, 1954, ch. 736, 68A Stat. 267

2. 1959

   Life Insurance Company Income Tax Act of 1959

   Pub. L. 86–69 § 3(f)(1) · 73 Stat. 112

   Struck · 26 U.S.C. § 842

   Pub. L. 86–69 struck out reference to section 811

   Source evidence

   Code amendment note
   Pub. L. 86–69 struck out reference to section 811.

   Enacted provision · exact public law section
   (1) Sections 842 and 1504(b)(2) of such Code are each 26 USC 842, 1504, 891. amended by striking out “, 811,”. Section 891 of such Code is amended by striking out “811,”.

3. 1966

   Foreign Investors Tax Act of 1966

   Pub. L. 89–809 title I § 104(i)(1) · 80 Stat. 1539

   Substituted · 26 U.S.C. § 842

   Pub. L. 89–809 substituted provisions covering the taxability of foreign corporations that are carrying on an insurance business within the United States which would qualify under part I, II, or III of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation for provisions that the gross income of insurance companies subject to the tax imposed by section 802 or 831 shall not be determined in the manner provided in part I of subchapter N (relating to determination of sources of income)

   Source evidence

   Code amendment note
   Pub. L. 89–809 substituted provisions covering the taxability of foreign corporations that are carrying on an insurance business within the United States which would qualify under part I, II, or III of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation for provisions that the gross income of insurance companies subject to the tax imposed by section 802 or 831 shall not be determined in the manner provided in part I of subchapter N (relating to determination of sources of income).

   Enacted provision · exact public law section
   (1) Section 842 (relating to computation of gross income) is 68A Stat. 267. amended to read as follows: “SEC. 842. FOREIGN CORPORATIONS CARRYING ON INSURANCE BUSINESS. “If a foreign corporation carrying on an insurance business within the United States would qualify under part I, II, or III of this subchapter for the taxable year if (without regard to income not effectively 26 USC 801–832. connected with the conduct of any trade or business within the United States) it were a domestic corporation, such corporation shall be taxable under such part on its income effectively connected with its conduct of any trade or business within the United States. With respect to the remainder of its income, which is from sources within the United States, such a foreign corporation shall be taxable as provided in section 881.” Ante, p. 1555

4. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 title X § 1024(c)(11) · 100 Stat. 2085

   Struck · 26 U.S.C. § 842

   Pub. L. 99–514 struck out reference to part III of this subchapter

   Source evidence

   Code amendment note
   Pub. L. 99–514 struck out reference to part III of this subchapter.

   Enacted provision · exact public law section
   (11) Section 842 is amended by striking out “part I, II, or III” and inserting in lieu thereof “part I or II”.

5. 1987

   Pub. L. 100–203 title X § 10242(a) · 101 Stat. 1330

   1. Substituted · 26 U.S.C. § 842

      Pub. L. 100–203 substituted “companies” for “corporations” in section catchline

   2. Amended · 26 U.S.C. § 842

      Pub. L. 100–203 amended text generally. Prior to amendment, text read as follows: “If a foreign corporation carrying on an insurance business within the United States would qualify under part I or II of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation, such corporation shall be taxable under such part on its income effectively connected with its conduct of any trade or business within the United States. With respect to the remainder of its income, which is from sources within the United States, such a foreign corporation shall be taxable as provided in section 881.”

   Source evidence

   Code amendment note
   Pub. L. 100–203 substituted “companies” for “corporations” in section catchline and amended text generally. Prior to amendment, text read as follows: “If a foreign corporation carrying on an insurance business within the United States would qualify under part I or II of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation, such corporation shall be taxable under such part on its income effectively connected with its conduct of any trade or business within the United States. With respect to the remainder of its income, which is from sources within the United States, such a foreign corporation shall be taxable as provided in section 881.”

   Enacted provision · exact public law section
   (a) In General.— Section 842 (relating to foreign corporations carrying on insurance business) is amended to read as follows: “SEC. 842. FOREIGN COMPANIES CARRYING ON INSURANCE BUSINESS. “(a) Taxation Under This Subchapter.— If a foreign company carrying on an insurance business within the United States would qualify under part I or II of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation, such company shall be taxable under such part on its income effectively connected with its conduct of any trade or business within the United States. With respect to the remainder of its income which is from sources within the United States, such a foreign company shall be taxable as provided in section 881. “(b) Minimum Effectively Connected Net Investment Income.— “(1) In general.— In the case of a foreign company taxable under part I or II of this subchapter for the taxable year, its net investment income for such year which is effectively connected with the conduct of an insurance business within the United States shall be not less than the product of— “(A) the required United States 115115 Copy read “U.S.”. assets of such company, and “(B) the domestic investment yield applicable to such company for such year. “(2) Required u.s. assets.— “(A) In general.— For purposes of paragraph (1), the required United States115115 Copy read “U.S.”. assets of any foreign company for any taxable year is an amount equal to the product of— “(i) the mean of such foreign company’s total insurance liabilities on United States business, and “(ii) the domestic asset/liability percentage applicable to such foreign company for such year. “(B) Total insurance liabilities.— For purposes of this paragraph— “(i) Companies taxable under part i 116116 Copy read “part I.—”..— In the case of a company taxable under part I, the term ‘total insurance liabilities’ means the sum of the total reserves (as defined in section 816(c)) plus (to the extent not included in total reserves) the items referred to in paragraphs (3), (4), (5), and (6) of section 807(c). “(ii) Companies taxable under part 117117 Copy read “part II ”.— ii.— In the case of a company taxable under part II, the term ‘total insurance liabilities’ means the sum of unearned premiums and unpaid losses. “(C) Domestic asset/liability percentage.— The domestic asset/liability percentage applicable for purposes of subparagraph (A)(ii) to any foreign company for any taxable year is a percentage determined by the Secretary on the basis of a ratio— “(i) the numerator of which is the mean of the assets of domestic insurance companies taxable under the same part of this subchapter as such foreign company, and “(ii) the denominator of which is the mean of the total insurance liabilities of the same companies. “(3) Domestic investment yield.— The domestic investment yield applicable for purposes of paragraph (1)(B) to any foreign company for any taxable year is the percentage determined by the Secretary on the basis of a ratio— “(A) the numerator of which is the net investment income of domestic insurance companies taxable under the same part of this subchapter as such foreign company, and “(B) the denominator of which is the mean of the assets of the same companies held for the production of such income. “(4) Election to use worldwide yield.— “(A) In general.— If the foreign company makes an election under this paragraph, such company’s worldwide current investment yield shall be taken into account in lieu of the domestic investment yield for purposes of paragraph (1)(B). “(B) Worldwide current investment yield.— For purposes of subparagraph (A), the term ‘worldwide current investment yield’ means the percentage obtained by dividing— • “(i) the net investment income of the company from all sources, by “(ii) the mean of all assets of the company (whether or not held in the United States) held for the production of investment income. “(C) Election.— An election under this paragraph shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary. “(5) Net investment income.— For purposes of this subsection, the term ‘net investment income’ means— “(A) gross investment income (within the meaning of section 834(b)), reduced by “(B) expenses allocable to such income. “(c) Special Rules for Purposes of Subsection (b).— “(1) Coordination with small life insurance company deduction.— In the case of a foreign company taxable under part I, subsection (b) shall be applied before computing the small life insurance company deduction. “(2) Reduction in section 88 i taxes — “(A) In general.— The tax under section 881 (determined without regard to this paragraph) shall be reduced (but not below zero) by an amount which bears the same ratio to such tax as— “(i) the amount of the increase in effectively connected income of the company resulting from subsection (b), bears to “(ii) the amount which would be subject to tax under section 881 if the amount taxable under such section were determined without regard to sections 103 and 894. “(B) Limitation on reduction.— The reduction under subparagraph (A) shall not exceed the increase in taxes under part I or II (as the case may be) by reason of the increase in effectively connected income of the company resulting from subsection (b). “(3) Adjustment to limitation on deduction for policy-holder dividends in the case of foreign mutual life insurance companies.— For purposes of section 809, the equity base of any foreign mutual life insurance company as of the close of any taxable year shall be increased by the excess of— “(A) the required United States 118118 Copy read “U.S.”. assets of the company (determined under subsection (b)(2)), over “(B) the mean of the assets held in the United States during the taxable year. “(4) Data used in determining domestic asset/liability percentages and domestic investment yeilds.— Each domestic asset/liability percentage, and each domestic investment yield, for any taxable year shall be based on such representative data with respect to domestic insurance companies for the second preceding taxable year as the Secretary considers appropriate. “(d) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations— “(1) providing for the proper treatment of segregated asset accounts, “(2) providing for proper adjustments in succeeding taxable years where the company’s actual net investment income for any taxable year which is effectively connected with the conduct of an insurance business within the United States exceeds the amount required under subsection (b)(1), and “(3) providing for the proper treatment of investments in domestic subsidiaries.”

6. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 2004(q)(2)(A) · 102 Stat. 3342

   Struck · 26 U.S.C. § 842(b)(3)(B)

   Pub. L. 100–647, § 2004(q)(2)(A), struck out “held for the production of such income” after “same companies”

   Source evidence

   Code amendment note
   Subsec. (b)(3)(B). Pub. L. 100–647, § 2004(q)(2)(A), struck out “held for the production of such income” after “same companies”.

   Enacted provision · exact public law section
   (A) Subparagraph (B) of section 842(b)(3) of the 1986 Code is amended by striking out “held for the production of such income”.

7. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 2004(q)(2)(B) · 102 Stat. 3342

   Struck · 26 U.S.C. § 842(b)(4)(B)(ii)

   Pub. L. 100–647, § 2004(q)(2)(B), struck out “held for the production of investment income” after “United States)”

   Source evidence

   Code amendment note
   Subsec. (b)(4)(B)(ii). Pub. L. 100–647, § 2004(q)(2)(B), struck out “held for the production of investment income” after “United States)”.

   Enacted provision · exact public law section
   (B) Subparagraph (B) of section 842(b)(4) of the 1986 Code is amended by striking out “held for the production of investment income”.

8. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 2004(q)(3) · 102 Stat. 3342

   Added · 26 U.S.C. § 842(d)(4)

   Pub. L. 100–647, § 2004(q)(3), added par. (4)

   Source evidence

   Code amendment note
   Subsec. (d)(4). Pub. L. 100–647, § 2004(q)(3), added par. (4).

   Enacted provision · exact public law section
   (3) Subparagraph (d) of section 842 of the 1986 Code is amended by striking out “and” at the end of paragraph (2), by striking out the period at the end of paragraph (3) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new paragraph: “(4) which may provide that, in the case of companies taxable under part II of this subchapter, determinations under subsection (b) will be made separately for categories of such companies established in such regulations.”

9. 1989

   Revenue Reconciliation Act of 1989

   Pub. L. 101–239 title VII § 7821(d)(2) · 103 Stat. 2106

   Substituted · 26 U.S.C. § 842(c)(4)

   Pub. L. 101–239 substituted “yields” for “yeilds” in heading

   Source evidence

   Code amendment note
   Subsec. (c)(4). Pub. L. 101–239 substituted “yields” for “yeilds” in heading.

   Enacted provision · exact public law section
   (2) The heading for paragraph (4) of section 842(c) is amended by striking “yeilds” and inserting “yields”.

10. 2004

    Pension Funding Equity Act of 2004

    Pub. L. 108–218 title II § 205(b)(6) · 118 Stat. 596

    1. Redesignated · 26 U.S.C. § 842(c)(3); 26 U.S.C. § 842(c)(4)

       Pub. L. 108–218 redesignated par. (4) as (3)

    2. Struck · 26 U.S.C. § 842(c)(3); 26 U.S.C. § 842(c)(4)

       Pub. L. 108–218 struck out heading and text of former par. (3). Text read as follows: “For purposes of section 809, the equity base of any foreign mutual life insurance company as of the close of any taxable year shall be increased by the excess of—

    Source evidence

    Code amendment note
    Subsec. (c)(3), (4). Pub. L. 108–218 redesignated par. (4) as (3) and struck out heading and text of former par. (3). Text read as follows: “For purposes of section 809, the equity base of any foreign mutual life insurance company as of the close of any taxable year shall be increased by the excess of—

    “(A) the required United States assets of the company (determined under subsection (b)(2)), over “(B) the mean of the assets held in the United States during the taxable year.”

    Enacted provision · exact public law section
    (6) Subsection (c) of section 842 of such Code 26 USC 842. is amended by striking paragraph (3) and by redesignating paragraph (4) as paragraph (3).

11. 2017

    Pub. L. 115–97 title I § 13512(b)(7) · 131 Stat. 2054

    1. Redesignated · 26 U.S.C. § 842(c)

       Pub. L. 115–97 redesignated pars. (2) and (3) as (1) and (2), respectively

    2. Struck · 26 U.S.C. § 842(c)

       Pub. L. 115–97 struck out former par. (1). Prior to amendment, text of par. (1) read as follows: “In the case of a foreign company taxable under part I, subsection (b) shall be applied before computing the small life insurance company deduction.”

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 115–97 redesignated pars. (2) and (3) as (1) and (2), respectively, and struck out former par. (1). Prior to amendment, text of par. (1) read as follows: “In the case of a foreign company taxable under part I, subsection (b) shall be applied before computing the small life insurance company deduction.”

    Enacted provision · exact public law section
    (7) Section 842(c) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13512(c) of Pub. L. 115–97, set out as a note under section 453B of this title.

13 of 14 references resolved to an enrolled provision · 1 partial