26 U.S.C. § 845 — Certain reinsurance agreements

Page 1945 TITLE 26—INTERNAL REVENUE CODE § 846 of Pub. L. 94–455, set out as a note under section 1504 of this title. EFFECTIVE DATE Section applicable only to taxable years beginning after Dec. 31, 1954, see Effective Date of 1956 Amend- ment note set out under section 316 of this title. [§ 844. Repealed. Pub. L. 115–97, title I, § 13511(b)(2)(A), Dec. 22, 2017, 131 Stat. 2142] Section, added Pub. L. 91–172, title IX, § 907(c)(1), Dec. 30, 1969, 83 Stat. 716; amended Pub. L. 94–455, title XIX, §§ 1901(b)(25), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1798, 1834; Pub. L. 98–369, div. A, title II, § 211(b)(11), July 18, 1984, 98 Stat. 755; Pub. L. 99–514, title X, § 1024(c)(12), title XVIII, § 1899A(20), Oct. 22, 1986, 100 Stat. 2408, 2959; Pub. L. 101–239, title VII, § 7841(d)(16), Dec. 19, 1989, 103 Stat. 2429, related to special loss carryover rules. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal applicable to losses arising in taxable years beginning after Dec. 31, 2017, see section 13511(c) of Pub. L. 115–97, set out as an Effective Date of 2017 Amend- ment note under section 381 of this title. § 845. Certain reinsurance agreements (a) Allocation in case of reinsurance agreement involving tax avoidance or evasion In the case of 2 or more related persons (with- in the meaning of section 482) who are parties to a reinsurance agreement (or where one of the parties to a reinsurance agreement is, with re- spect to any contract covered by the agreement, in effect an agent of another party to such agreement or a conduit between related per- sons), the Secretary may— (1) allocate between or among such persons income (whether investment income, pre- mium, or otherwise), deductions, assets, re- serves, credits, and other items related to such agreement, (2) recharacterize any such items, or (3) make any other adjustment, if he determines that such allocation, re- characterization, or adjustment is necessary to reflect the proper amount, source, or character of the taxable income (or any item described in paragraph (1) relating to such taxable income) of each such person. (b) Reinsurance contract having significant tax avoidance effect If the Secretary determines that any reinsur- ance contract has a significant tax avoidance ef- fect on any party to such contract, the Sec- retary may make proper adjustments with re- spect to such party to eliminate such tax avoid- ance effect (including treating such contract with respect to such party as terminated on De- cember 31 of each year and reinstated on Janu- ary 1 of the next year). (Added Pub. L. 98–369, div. A, title II, § 212(a), July 18, 1984, 98 Stat. 757; amended Pub. L. 108–357, title VIII, § 803(a), Oct. 22, 2004, 118 Stat. 1569.) Editorial Notes AMENDMENTS 2004—Subsec. (a). Pub. L. 108–357 substituted ‘‘amount, source, or character’’ for ‘‘source and char- acter’’ in concluding provisions. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108–357, title VIII, § 803(b), Oct. 22, 2004, 118 Stat. 1569, provided that: ‘‘The amendments made by this section [amending this section] shall apply to any risk reinsured after the date of the enactment of this Act [Oct. 22, 2004].’’ EFFECTIVE DATE Pub. L. 98–369, div. A, title II, § 217(d), July 18, 1984, 98 Stat. 762, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) Subsection (a) of section 845 of the Internal Rev- enue Code of 1986 [formerly I.R.C. 1954] (as added by this title) shall apply with respect to any risk rein- sured on or after September 27, 1983. ‘‘(2) Subsection (b) of section 845 of such Code (as so added) shall apply with respect to risks reinsured after December 31, 1984.’’ § 846. Discounted unpaid losses defined (a) Discounted losses determined (1) Separately computed for each accident year The amount of the discounted unpaid losses as of the end of any taxable year shall be the sum of the discounted unpaid losses (as of such time) separately computed under this section with respect to unpaid losses in each line of business attributable to each accident year. (2) Method of discounting The amount of the discounted unpaid losses as of the end of any taxable year attributable to any accident year shall be the present value of such losses (as of such time) determined by using— (A) the amount of the undiscounted unpaid losses as of such time, (B) the applicable interest rate, and (C) the applicable loss payment pattern. (3) Limitation on amount of discounted losses In no event shall the amount of the dis- counted unpaid losses with respect to any line of business attributable to any accident year exceed the aggregate amount of unpaid losses with respect to such line of business for such accident year included on the annual state- ment filed by the taxpayer for the year ending with or within the taxable year. (4) Determination of applicable factors In determining the amount of the discounted unpaid losses attributable to any accident year— (A) the applicable interest rate shall be the interest rate determined under sub- section (c) for the calendar year with which such accident year ends, and (B) the applicable loss payment pattern shall be the loss payment pattern deter- mined under subsection (d) which is in effect for the calendar year with which such acci- dent year ends. (b) Determination of undiscounted unpaid losses For purposes of this section— (1) In general Except as otherwise provided in this sub- section, the term ‘‘undiscounted unpaid losses’’ means the unpaid losses shown in the