§842 — Foreign companies carrying on insurance business
24 cases·4 followed·2 distinguished·1 overruled·17 cited—17% support
Statute Text — 26 U.S.C. §842
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.
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—
the required United States assets of such company, and
the domestic investment yield applicable to such company for such year.
For purposes of paragraph (1), the required United States assets of any foreign company for any taxable year is an amount equal to the product of—
the mean of such foreign company’s total insurance liabilities on United States business, and
the domestic asset/liability percentage applicable to such foreign company for such year.
For purposes of this paragraph—
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).
In the case of a company taxable under part II, the term “total insurance liabilities” means the sum of unearned premiums and unpaid losses.
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—
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
the denominator of which is the mean of the total insurance liabilities of the same companies.
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—
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
the denominator of which is the mean of the assets of the same companies.
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).
For purposes of subparagraph (A), the term “worldwide current investment yield” means the percentage obtained by dividing—
the net investment income of the company from all sources, by
the mean of all assets of the company (whether or not held in the United States).
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.
For purposes of this subsection, the term “net investment income” means—
gross investment income (within the meaning of section 834(b)), reduced by
expenses allocable to such income.
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—
the amount of the increase in effectively connected income of the company resulting from subsection (b), bears to
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.
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).
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.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations—
providing for the proper treatment of segregated asset accounts,
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),
providing for the proper treatment of investments in domestic subsidiaries, and
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.
24 Citing Cases
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Memo LEXIS 129, at *9-*10; see also Baral v.
1990), we set forth the following frame of reference for determining what is new matter within the meaning of Rule 142(a): Rule 142(a) provides that the burden of proof is on petitioner, "except that, in respect of any new matter, increases in deficiency, and affirmative defenses, pleaded in his answer, it shall be upon the respondent." A new position taken by respondent is not necessarily a "new matter" if it merely clarifies or 7(...continued
r v. Commissioner, T.C. Memo. 1993-431, affd. without published opinion 50 F.3d 12 (8th Cir. 1995). Petitioner makes a further reference to placing the burden of proof on respondent in respect of the absence of income from insurance includable under sec. 842, a reference which, under the circumstances herein, we think is irrelevant. We also note that, for purposes of this proceeding, respondent does not contend that petitioner maintained an office or place of business in the United States, engag