Frequently Asked Questions
Who is eligible for the Foreign Insurance Company Domestic Election?
Must be a CFC, qualify as an insurance company under Subchapter L, and waive all treaty benefits.
How does the Foreign Insurance Company Domestic Election work?
Allows a foreign insurance CFC to elect to be treated as a domestic corporation for US tax purposes, potentially allowing it to join a consolidated return and use domestic tax benefits.
What law authorizes the Foreign Insurance Company Domestic Election?
The Foreign Insurance Company Domestic Election is authorized under IRC §953(d) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §953
Source: Internal Revenue Code, Title 26, United States Code
§ 953. Insurance income(a) Insurance income(1) In generalFor purposes of section 952(a)(1), the term “insurance income” means any income which—(A) is attributable to the issuing (or reinsuring) of an insurance or annuity contract, and
(B) would (subject to the modifications provided by subsection (b)) be taxed under subchapter L of this chapter if such income were the income of a domestic insurance company.
(2) ExceptionSuch term shall not include any exempt insurance income (as defined in subsection (e)).
(b) Special rulesFor purposes of subsection (a)—(1) The following provisions of subchapter L shall not apply:(A) So much of section 805(a)(8) as relates to the deduction allowed under section 172.
(B) Section 832(c)(5) (relating to certain capital losses).
(2) The items referred to in—(A) section 803(a)(1) (relating to gross amount of premiums and other considerations),
(B) section 803(a)(2) (relating to net decrease in reserves),
(C) section 805(a)(2) (relating to net increase in reserves), and
(D) section 832(b)(4) (relating to premiums earned on insurance contracts),
shall be taken into account only to the extent they are in respect of any reinsurance or the issuing of any insurance or annuity contract described in subsection (a)(1).
(3) Reserves for any insurance or annuity contract shall be determined in the same manner as under section 954(i).
(4) All items of income, expenses, losses, and deductions shall be properly allocated or apportioned under regulations prescribed by the Secretary.
(c) Special rule for certain captive insurance companies(1) In generalFor purposes only of taking into account related person insurance income—(A) the term “United States shareholder” means, with respect to any foreign corporation, a United States person (as defined in section 957(c)) who owns (within the meaning of section 958(a)) any stock of the foreign corporation,
(B) the term “controlled foreign corporation” has the meaning given to such term by section 957(a) determined by substituting “25 percent or more” for “more than 50 percent”, and
(C) the pro rata share referred to in section 951(a)(1)(A) shall be determined under paragraph (5) of this subsection.
(2) Related person insurance incomeFor purposes of this subsection, the term “related person insurance income” means any insurance income (within the meaning of subsection (a)) attributable to a policy of insurance or reinsurance with respect to which the person (directly or indirectly) insured is a United States shareholder in the foreign corporation or a related person to such a shareholder.
(3) Exceptions(A) Corporations not held by insuredsParagraph (1) shall not apply to any foreign corporation if at all times during the taxable year of such foreign corporation—(i) less than 20 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, and
(ii) less than 20 percent of the total value of such corporation,
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