Catastrophic Risk Transfer Act of 2021 or the CART Act
This bill establishes a system for the taxation of catastrophic risk transfer companies and their security holders to ensure sufficient capital to cover catastrophic insurance losses. The bill defines catastrophic risk as a risk of loss that has a low likelihood of occurring but that would be large in amount.
The bill defines catastrophic risk transfer company as any domestic corporation created and regulated under state law with the purpose of entering into one or more insurance or reinsurance agreements covering catastrophic risk.
[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5734 Introduced in House (IH)]
<DOC>
117th CONGRESS
1st Session
H. R. 5734
To amend the Internal Revenue Code of 1986 to establish a system for
the taxation of catastrophic risk transfer companies to ensure
sufficient capital to cover catastrophic insurance losses, and for
other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
October 26, 2021
Mr. Himes (for himself, Mrs. Murphy of Florida, Mr. Luetkemeyer, and
Mr. LaHood) introduced the following bill; which was referred to the
Committee on Ways and Means, and in addition to the Committee on the
Judiciary, for a period to be subsequently determined by the Speaker,
in each case for consideration of such provisions as fall within the
jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to establish a system for
the taxation of catastrophic risk transfer companies to ensure
sufficient capital to cover catastrophic insurance losses, and for
other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Catastrophic Risk Transfer Act of
2021'' or the ``CART Act''.
SEC. 2. TAXATION OF CATASTROPHIC RISK TRANSFER COMPANIES.
(a) In General.--Subchapter M of chapter 1 of the Internal Revenue
Code of 1986 is amended by adding at the end the following new part:
``PART V--CATASTROPHIC RISK TRANSFER COMPANIES
``Sec. 860M. Catastrophic risk transfer companies.
``Sec. 860N. Taxation of catastrophic risk transfer companies.
``Sec. 860O. Taxation of security holders of catastrophic risk transfer
company; limitations applicable to
dividends received from catastrophic risk
transfer company.
``Sec. 860P. Dividends paid by catastrophic risk transfer company after
close of taxable year.
``SEC. 860M. CATASTROPHIC RISK TRANSFER COMPANIES.
``(a) General Rule.--For purposes of this subtitle, the term
`catastrophic risk transfer company' means any domestic corporation
which--
``(1) is--
``(A) created or organized under the laws of a
State which has enacted a State law which enables the
organization and licensure of a special purpose insurer
(whether or not designated as such under such State
law) which is capable of carrying out the activities
described in paragraph (2), and
``(B) regulated and licensed as such a special
purpose insurer by the State commissioner of insurance
or other State official charged with regulation of
insurance within the State,
``(2) the principal purpose of which is the carrying out of
the activities of catastrophic risk transfer, but only if--
``(A) substantially all of such activities relate
to business other than general annuity business, and
``(B) such activities are limited to--
``(i) issuing equity and debt securities,
``(ii) owning qualified investments, and
``(iii) entering into one or more insurance
or reinsurance agreements covering catastrophic
risks from persons who are not related to such
corporation at any time during the period
beginning with the date such agreements are
entered into and ending with the last day of
the period such agreements are in effect, and
``(3) is authorized by the State commissioner of insurance
or other State official charged with regulation of insurance
within the State to carry out the activities of catastrophic
risk transfer.
``(b) Limitations.--A corporation shall not be considered a
catastrophic risk transfer company for any taxable year unless--
``(1) it files with its return for the taxable year an
election to be a catastrophic risk transfer company or has made
such election for a previous taxable year,
``(2) at least 90 percent of its gross income is derived
from--
``(A) investment income from qualified investments,
and
``(B)(i) reinsurance premiums received from a
regulated insurance company, or
``(ii) insurance premiums from--
``(I) a governmental agency,
``(II) a company the assets of which exceed
$100,000,000, or
``(III) a company that is transferring a
sufficiently large pool of a single type of
underlying risk that the insurance of such pool
of risk would on a stand-alone basis constitute
operation of an insurance business under part
II of subchapter L, and
``(3) the limit of the insurance or reinsurance being
provided is fully collateralized.
``(c) Special Rule for Series Issuances.--If a catastrophic risk
transfer company (within the meaning of subsection (a)), or a protected
cell of such company, issues a series or class of securities which
primarily has recourse to, or is primarily linked to, a designated
reinsurance agreement and pool of collateral or assets, such series or
class shall be treated as a separate corporation for purposes of this
title (other than determining whether the requirements of subsection
(a) are met).
``(d) Failure To Satisfy Gross Income Test.--
``(1) Disclosure requirement.--A catastrophic risk transfer
company which fails to meet the requirement of paragraph (2) of
subsection (b) for any taxable year shall nevertheless be
considered to have satisfied the requirement of such paragraph
for such taxable year if--
``(A) following the catastrophic risk transfer
company identification of the failure to meet such
requirement for such taxable year, a description of
each item of its gross income described in such
paragraph is set forth in a schedule for such taxable
year filed in the manner provided by the Secretary, and
``(B) the failure to meet such requirement is due
to reasonable cause and not due to willful neglect.
``(2) Imposition of tax on failures.--If paragraph (1)
applies to catastrophic risk transfer company for any taxable
year, there is hereby imposed on such company a tax in an
amount equal to the excess of--
``(A) the gross income of such company which is not
derived from sources referred to in subsection (b)(2),
over
``(B) one-ninth of the gross income of such company
which is derived from such sources.
``(e) Definitions.--For purposes of this part--
``(1) Catastrophic risk.--
``(A) In general.--The term `catastrophic risk'
means a risk of loss which has a low likelihood of
occurring but which will be large in amount.
``(B) Special rules.--For purposes of subparagraph
(A)--
``(i) in the case of direct insurance, a
risk of loss shall not be treated as large in
amount unless such loss would exceed
$25,000,000 if it occurs, and
``(ii) in the case of mortality risk, the
risk of loss transferred may be taken into
account under subparagraph (A) only if it
involves a pool of mortality or longevity
risks.
``(2) Investments and income.--
``(A) Qualified investment.--The term `qualified
investment' means--
``(i) cash,
``(ii) interests in money market funds, and
``(iii) investment-grade debt securities
and funds primarily holding such debt
securities.
``(B) Investment income.--The term `investment
income' means interest that is accrued or received on,
distributions in connection with, or proceeds from the
disposition of, qualified investments.
``(3) Regulated insurance company.--The term `regulated
insurance company' means any company which is licensed to
engage in the business of insurance in a State and which is
subject to State law which regulates insurance (within the
meaning of section 514(b)(2) of the Employee Retirement Income
Security Act of 1974, as in effect on the date of the enactment
of this section).
``(4) Related person.--A person shall be treated as related
person to another person if such person bears a relationship to
such other person described in section 267(b) or 707(b).
``SEC. 860N. TAXATION OF CATASTROPHIC RISK TRANSFER COMPANIES.
``(a) Requirements Applicable to Catastrophic Risk Transfer
Companies.--The provisions of this part (other than subsection (c) of
this section) shall not be applicable to a catastrophic risk transfer
company for a taxable year unless--
``(1) the deduction for dividends paid during the taxable
year (as defined in section 561) equals or exceeds 90 percent
of its catastrophic risk transfer company taxable income for
the taxable year determined without regard to subsection
(b)(2)(C), and
``(2) as of the close of the taxable year, the catastrophic
risk transfer company has no earnings and profits accumulated
in any taxable year to which the provisions of this part (or
the corresponding provisions of prior law) did not apply to it.
``(b) Method of Taxation of Companies.--
``(1) Imposition of tax on catastrophic risk transfer
companies.--There is hereby imposed for each taxable year upon
the catastrophic risk transfer company taxable income of every
catastrophic risk transfer company a tax computed as provided
in section 11, as though the catastrophic risk transfer company
taxable income were the taxable income referred to in section
11.
``(2) Catastrophic risk transfer company taxable income.--
The catastrophic risk transfer company taxable income shall be
the taxable income of the catastrophic risk transfer company
adjusted as follows:
``(A) The net operating loss deduction provided in
section 172 shall not be allowed.
``(B) The deductions for corporations provided in
part VIII (except section 248) in subchapter B (section
241 and following, relating to the deduction for
dividends received, etc.) shall not be allowed.
``(C) The deduction for dividends paid (as defined
in section 561) shall be allowed.
``(D) The taxable income shall be computed without
regard to section 443(b) (relating to computation of
tax on change of annual accounting period).
``(E) The taxable income shall be computed without
regard to section 454(b) (relating to short-term
obligations issued on a discount basis) if the company
so elects in a manner prescribed by the Secretary.
``(F) There shall be deducted an amount equal to
the tax imposed by subsection (d)(2) of section 860M
for the taxable year.
``(G) There will be allowed as a deduction loss
adjustment expenses and expenses of--
``(i) modeling firms, claims reviewers,
loss reserve specialists, attorneys,
accountants, actuaries, indenture trustees
(including reinsurance trustees and paying
agents), independent directors, administrators
of the catastrophic risk transfer company,
rating agencies of any securities issued by the
catastrophic risk transfer company, reset and
calculation agents, reporting agencies, data
providers, model escrow agents, securities
listings, and securities listing agents, and
``(ii) other professionals or service
providers, or other out-of-pocket costs
incurred with issuing securities, reasonably
related thereto.
``(3) Section 311(b) not to apply to certain
distributions.--Section 311(b) shall not apply to any
distribution by a catastrophic risk transfer company to which
this part applies, if such distribution is in redemption of its
stock or securities upon the demand of the holder.
``(4) Time certain dividends taken into account.--For
purposes of this title, any dividend declared by a catastrophic
risk transfer company during any calendar year and payable to
security holders of record on a specified date in such a year
shall be deemed--
``(A) to have been received by each security holder
on December 31 of such calendar year, and
``(B) to have been paid by such company on December
31 of such calendar year (or, if earlier, as provided
in section 860P).
The preceding sentence shall apply only if such dividend is
actually paid by the company prior to the 15th day of the 9th
month of the following calendar year.
``(c) Earnings and Profits.--
``(1) Distributions to meet requirements of subsection
(a)(2).--Any distribution which is made in order to comply with
the requirements of subsection (a)(2)--
``(A) shall be treated for purposes of this
subsection and subsection (a)(2) as made from earnings
and profits which, but for the distribution, would
result in a failure to meet such requirements (and
allocated to such earnings on a first-in, first-out
basis), and
``(B) to the extent treated under subparagraph (A)
as made from accumulated earnings and profits, shall
not be treated as a distribution for purposes of
subsection (b)(2)(C) and section 860P.
``(2) Catastrophic risk transfer company.--For purposes of
this subsection, the term `catastrophic risk transfer company'
includes a domestic corporation which is a catastrophic risk
transfer company determined without regard to the requirements
of subsection (a).
``(d) Procedures Similar to Deficiency Dividend Procedures Made
Applicable.--
``(1) In general.--If--
``(A) there is a determination that the provisions
of this part do not apply to a catastrophic risk
transfer company for any taxable year (hereafter in
this subsection referred to as the `non-CART year'),
and
``(B) such catastrophic risk transfer company meets
the distribution requirements of paragraph (2) with
respect to the non-CART year,
then, for purposes of applying subsection (a)(2) to subsequent
taxable years, the provisions of this part shall be treated as
applying to such catastrophic risk transfer company for the
non-CART year. If the determination under subparagraph (A) is
solely as a result of the failure to meet the requirements of
subsection (a)(2), the preceding sentence shall also apply for
purposes of applying subsection (a)(2) to the non-CART year and
the amount referred to in paragraph (2)(A)(i) shall be the
portion of the accumulated earnings and profits which resulted
in such failure.
``(2) Distribution requirements.--
``(A) In general.--The distribution requirements of
this paragraph are met with respect to any non-CART
year if, within the 90-day period beginning on the date
of the determination (or within such longer period as
the Secretary may permit), the catastrophic risk
transfer company makes 1 or more qualified designated
distributions and the amount of such distributions is
not less than the excess of--
``(i) the portion of the accumulated
earnings and profits of the catastrophic risk
transfer company (as of the date of the
determination) which are attributable to the
non-CART year, over
``(ii) any interest payable under paragraph
(3).
``(B) Qualified designated distribution.--For
purposes of this paragraph, the term `qualified
designated distribution' means any distribution made by
the catastrophic risk transfer company if--
``(i) section 301 applies to such
distribution, and
``(ii) such distribution is designated (at
such time and in such manner as the Secretary
shall by regulations prescribe) as being taken
into account under this paragraph with respect
to the non-CART year.
``(C) Effect on dividends paid deduction.--Any
qualified designated distribution shall not be included
in the amount of dividends paid for purposes of
computing the dividends paid deduction for any taxable
year.
``(3) Interest charge.--
``(A) In general.--If paragraph (1) applies to any
non-CART year of a catastrophic risk transfer company,
such catastrophic risk transfer company shall pay
interest at the underpayment rate established under
section 6621--
``(i) on an amount equal to 50 percent of
the amount referred to in paragraph (2)(A)(i),
and
``(ii) for the period--
``(I) which begins on the last day
prescribed for payment of the tax
imposed for the non-CART year
(determined without regard to
extensions), and
``(II) which ends on the date the
determination is made.
``(B) Coordination with subtitle f.--Any interest
payable under subparagraph (A) may be assessed and
collected at any time during the period during which
any tax imposed for the taxable year in which the
determination is made may be assessed and collected.
``(4) Provisions not to apply in the case of fraud.--The
provisions of this subsection shall not apply if the
determination contains a finding that the failure to meet any
requirement of this part was due to fraud with intent to evade
tax.
``(5) Determination.--For purposes of this subsection, the
term `determination' has the meaning given to such term by
section 860(e). Such term also includes a determination by the
catastrophic risk transfer company filed with the Secretary
that the provisions of this part do not apply to the
catastrophic risk transfer company for a taxable year.
``(e) Definitions.--For purposes of this part--
``(1) the terms `dividend' and `distribution' shall include
payments made to holders of debt securities, and
``(2) the term `security holder' shall include holders of
equity and debts securities issued by a catastrophic risk
transfer company.
``SEC. 860O. TAXATION OF SECURITY HOLDERS OF CATASTROPHIC RISK TRANSFER
COMPANY; LIMITATIONS APPLICABLE TO DIVIDENDS RECEIVED
FROM CATASTROPHIC RISK TRANSFER COMPANY.
``(a) Character of Dividends.--Each catastrophic risk transfer
company shall identify in a statement issued to each security holder
the portion of its dividends paid with respect to the year, under the
rules of section 860N, which are attributable to the following types of
income of the catastrophic risk transfer company:
``(1) Interest.
``(2) Tax-exempt interest.
``(3) Qualified dividend income, within the meaning of
subparagraph (B) of section 1(h)(11) of this title.
``(4) Dividends other than qualified dividend income.
``(5) Capital gains.
``(6) Insurance or reinsurance premiums.
``(b) Look Through for Taxation of Dividends.--
``(1) General.--Except as provided in subsection (n) of
section 871 or subsection (f) of section 881 of this title,
each security holder shall be subject to taxation under this
title on the dividends received from a catastrophic risk
transfer company in the same manner as if such security holder
had received the portions of each dividend identified on the
statement provided under subsection (a) directly.
``(2) Dividend income.--In computing any deduction under
section 243 with respect to the portion of a dividend
identified on the statement under subsection (a) as dividend
income referenced in paragraphs (3) or (4) of such subsection,
such portion shall be treated as received from a corporation
which is not a 20-percent owned corporation.
``(3) Capital gain income.--The portion of a dividend
identified on the statement under subsection (a) as capital
gain income referenced in paragraph (5) of such subsection
shall be treated by the security holders as a gain from the
sale or exchange of a capital asset held for more than 1 year.
``SEC. 860P. DIVIDENDS PAID BY CATASTROPHIC RISK TRANSFER COMPANY AFTER
CLOSE OF TAXABLE YEAR.
``(a) General Rule.--For purposes of this chapter, if a
catastrophic risk transfer company--
``(1) declares a dividend on or before the later of--
``(A) the 15th day of the 9th month following the
close of the taxable year, or
``(B) in the case of an extension of time for
filing the company's return for the taxable year, the
due date for filing such return taking into account
such extension, and
``(2) distributes the amount of such dividend to security
holders in the 12-month period following the close of such
taxable year and not later than the date of the first dividend
payment of the same type of dividend made after such
declaration,
the amount so declared and distributed shall, except as provided in
subsection (b) and to the extent the company elects in such return in
accordance with regulations prescribed by the Secretary, be considered
as having been paid during such taxable year.
``(b) Receipt by Security Holder.--Amounts to which subsection (a)
applies shall be treated as received by the security holder in the
taxable year in which the distribution is made.''.
(b) Exemption From Withholding Taxes on Nonresident Aliens and
Foreign Corporations.--
(1) Nonresident aliens.--Section 871 of the Internal
Revenue Code of 1986 is amended by redesignating subsection (n)
as subsection (o) and by inserting after subsection (m) the
following:
``(n) Exemption for Qualified Investment Income Dividends of
Catastrophic Risk Transfer Companies.--
``(1) In general.--Except as provided in paragraph (2), no
tax shall be imposed under paragraph (1)(A) of subsection (a)
on any qualified investment income dividend received from a
catastrophic risk transfer company which meets the requirements
of section 860M(a) for the taxable year with respect to which
the dividend is paid.
``(2) Exceptions.--Paragraph (1) shall not apply--
``(A) to any qualified investment income dividend
received from a catastrophic risk transfer company by a
person to the extent such dividend is attributable to
investment income received by such company on
indebtedness issued by such person or by any
corporation or partnership with respect to which such
person is a 10-percent shareholder,
``(B) to any qualified investment income dividend
with respect to stock of a catastrophic risk transfer
company unless the person who would otherwise be
required to deduct and withhold tax from such dividend
under chapter 3 receives a statement (which meets
requirements similar to the requirements of subsection
(h)(5)) that the beneficial owner of such stock is not
a United States person, and
``(C) to any qualified investment income dividend
paid to any person within a foreign country (or any
such dividend payment addressed to, or for the account
of, persons within such foreign country) during any
period described in subsection (h)(6) with respect to
such country.
Subparagraph (C) shall not apply to any dividend with respect
to any stock which was acquired on or before the date of the
publication of the Secretary's determination under subsection
(h)(6).
``(3) Qualified investment income dividend.--For purposes
of this paragraph, the term `qualified investment income
dividend' means the portion of any dividend distributed by a
catastrophic risk transfer company--
``(A) which is attributable to investment income
from qualified investments earned during a taxable year
in which the catastrophic risk transfer company meets
the requirements of subsection (b) of section 860M and
subsection (a) of section 860N, and
``(B) which is reported by the company as a
qualified investment income dividend in written
statements furnished to its security holders.''.
(2) Foreign corporations.--Section 881 of such Code is
amended by redesignating subsection (f) as subsection (g) and
by inserting after subsection (e) the following:
``(f) Exemption for Qualified Investment Income Dividends of
Catastrophic Risk Transfer Companies.--
``(1) In general.--Except as provided in paragraph (2), no
tax shall be imposed under paragraph (1)(A) of subsection (a)
on any qualified investment income dividend received from a
catastrophic risk transfer company which meets the requirements
of section 860M(a) for the taxable year with respect to which
the dividend is paid.
``(2) Exceptions.--Paragraph (1) shall not apply any
dividend described in section 871(n)(2).
``(3) Qualified investment income dividend.--For purposes
of this paragraph, the term `qualified investment income
dividend' has the same meaning given such term by section
871(n)(3).''.
(c) Conforming Amendment.--The table of parts for subchapter M of
chapter 1 of the Internal Revenue Code of 1986 is amended by adding at
the end the following new item:
``part v-catastrophic risk transfer companies.''.
SEC. 3. STATE TAXATION OF REINSURANCE PREMIUMS OF CATASTROPHIC RISK
TRANSFER COMPANIES.
(a) Prevention of Double Taxation.--A taxing jurisdiction other
than the State under the laws of which a catastrophic risk transfer
company is created or organized shall not impose a premium tax on any
premiums paid to, or received by, such company on a policy of
reinsurance.
(b) Coordination of Rate of Premium Tax With Tax on Foreign
Reinsurers.--If a State allowed under subsection (a) imposes a premium
tax on a catastrophic risk transfer company on premiums on a policy of
reinsurance, the amount of such tax shall not exceed the tax which
would have been imposed under section 4371 of the Internal Revenue Code
of 1986 if such premiums were paid to a foreign insurer or reinsurer.
(c) Definitions.--For purposes of this section--
(1) Catastrophic risk transfer company.--The term
``catastrophic risk transfer company'' has the meaning given
such term by section 860M of the Internal Revenue Code of 1986.
(2) Policy of reinsurance.--The term ``policy of
reinsurance'' has the meaning given such term by section
4372(f) of such Code.
(3) Taxing jurisdiction.--The term ``taxing jurisdiction''
means any of the several States, the District of Columbia, or
any territory or possession of the United States, any
municipality, city, county, or any other political subdivision
within the territorial limits of the United States with the
authority to impose a premium tax on a policy of reinsurance.
<all>
Introduced in House
Introduced in House
Referred to the Committee on Ways and Means, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Committee on Ways and Means, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
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