,i #aacth ,,congress #ast ,session ,h4 ,r4 #edi ,,in ,,the ,,house ,,of ,,representatives ,february #f1 #bjac ,mr4 ,grimm 7for himself1 ,mr4 ,pascrell1 ,mr4 ,rooney1 and ,mr4 ,deutch7 introduced the following bill2 which was referred to the ,committee on ,ways and ,means ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to provide for the creation of policyholder disaster protection funds1 ,catastrophe ,savings ,accounts1 and tax credits for natural disaster mitigation expenditures4 #a4 ,short title ,this ,act may be cited as the ,homeowner ,catastrophe ,protection ,act of #bjac4 ,i ,policyholder ,disaster ,protection ,funds #aja4 ,findings ,the ,congress makes the following findings3 7#a7 ,rising costs resulting from natural disasters are placing an increasing strain on the ability of property and casualty insurance companies to assure payment of homeowners' claims and other insurance claims arising from major natural disasters now and in the future4 7#b7 ,present tax laws do not provide adequate incentives to assure that natural disaster insurance is provided or1 where such insurance is provided1 that funds are available for payment of insurance claims in the event of future catastrophic losses from major natural disasters1 as present law requires an insurer wishing to accumulate surplus assets for this purpose to do so entirely from its after-tax retained earnings4 7#c7 ,revising the tax laws applicable to the property and casualty insurance industry to permit carefully controlled accumulation of pretax dollars in separate reserve funds devoted solely to the payment of claims arising from future major natural disasters will provide incentives for property and casualty insurers to make natural disaster insurance available1 will give greater protection to the ,nation's homeowners1 small businesses1 and other insurance consumers1 and will help assure the future financial health of the ,nation's insurance system as a whole4 7#d7 ,implementing these changes will reduce the possibility that a significant portion of the private insurance system would fail in the wake of a major natural disaster and that governmental entities would be required to step in to provide relief at taxpayer expense4 #c4 ,creation of policyholder disaster protection funds2 contributions to and distributions from funds2 other rules 7a7 ,contributions to policyholder disaster protection funds ,subsection 7c7 of section #hcb of the ,internal ,revenue ,code of #aihf 7relating to the taxable income of insurance companies other than life insurance companies7 is amended by striking and at the end of paragraph 7#ab71 by striking the period at the end of paragraph 7#ac7 and inserting 2 and1 and by adding at the end the following new paragraph3 7#ad7 the qualified contributions to a policyholder disaster protection fund during the taxable year4 4 7b7 ,distributions from policyholder disaster protection funds ,paragraph 7#a7 of section #hcb7;b7 of such ,code is amended by striking and at the end of subparagraph 7,d71 by striking the period at the end of subparagraph 7,e7 and inserting 1 and1 and by adding at the end the following new subparagraph3 7,f7 the amount of any distributions from a policyholder disaster protection fund during the taxable year1 except that a distribution made to return to the qualified insurance company any contribution which is not a qualified contribution 7as defined in subsection 7h77 for a taxable year shall not be included in gross income if such distribution is made prior to the filing of the tax return for such taxable year4 4 7c7 ,definitions and other rules relating to policyholder disaster protection funds ,section #hcb of such ,code 7relating to insurance company taxable income7 is amended by adding at the end the following new subsection3 7h7 ,definitions and other rules relating to policyholder disaster protection funds ,for purposes of this section-- 7#a7 ,policyholder disaster protection fund ,the term policyholder disaster protection fund 7hereafter in this subsection referred to as the fund7 means any custodial account1 trust1 or any other arrangement or account-- 7,a7 which is established to hold assets that are set aside solely for the payment of qualified losses1 and 7,b7 under the terms of which-- 7i7 the assets in the fund are required to be invested in a manner consistent with the investment requirements applicable to the qualified insurance company under the laws of its jurisdiction of domicile1 7ii7 the net income for the taxable year derived from the assets in the fund is required to be distributed no less frequently than annually1 7iii7 an excess balance drawdown amount is required to be distributed to the qualified insurance company no later than the close of the taxable year following the taxable year for which such amount is determined1 7iv7 a catastrophe drawdown amount may be distributed to the qualified insurance company if distributed prior to the close of the taxable year following the year for which such amount is determined1 7v7 a ,state required drawdown amount may be distributed1 and 7vi7 no distributions from the fund are required or permitted other than the distributions described in clauses 7ii7 through 7v7 and the return to the qualified insurance company of contributions that are not qualified contributions4 7#b7 ,qualified insurance company ,the term qualified insurance company means any insurance company subject to tax under section #hca7;a74 7#c7 ,qualified contribution ,the term qualified contribution means a contribution to a fund for a taxable year to the extent that the amount of such contribution1 when added to the previous contributions to the fund for such taxable year1 does not exceed the excess of-- 7,a7 the fund cap for the taxable year1 over 7,b7 the fund balance determined as of the close of the preceding taxable year4 7#d7 ,excess balance drawdown amounts ,the term excess balance drawdown amount means the excess 7if any7 of-- 7,a7 the fund balance as of the close of the taxable year1 over 7,b7 the fund cap for the following taxable year4 7#e7 ,catastrophe drawdown amount 7,a7 ,in general ,the term catastrophe drawdown amount means an amount that does not exceed the lesser of the amount determined under subparagraph 7,b7 or 7,c74 7,b7 ,net losses from qualifying events ,the amount determined under this subparagraph shall be equal to the qualified losses for the taxable year determined without regard to clause 7ii7 of paragraph 7#h77;,a74 7,c7 ,gross losses in excess of threshold ,the amount determined under this subparagraph shall be equal to the excess 7if any7 of-- 7i7 the qualified losses for the taxable year1 over 7ii7 the lesser of-- 7,i7 the fund cap for the taxable year 7determined without regard to paragraph 7#i77;,e771 or 7,,ii7 #cj percent of the qualified insurance company's surplus as regards policyholders as shown on the company's annual statement for the calendar year preceding the taxable year4 7,d7 ,special drawdown amount following a recent catastrophe loss year ,if for any taxable year included in the reference period the qualified losses exceed the amount determined under subparagraph 7,c77ii71 the catastrophe drawdown amount shall be an amount that does not exceed the lesser of the amount determined under subparagraph 7,b7 or the amount determined under this subparagraph4 ,the amount determined under this subparagraph shall be an amount equal to the excess 7if any7 of-- 7i7 the qualified losses for the taxable year1 over 7ii7 the lesser of-- 7,i7 #a_/c of the fund cap for the taxable year 7determined without regard to paragraph 7#i77;,e771 or 7,,ii7 #aj percent of the qualified insurance company's surplus as regards policyholders as shown on the company's annual statement for the calendar year preceding the taxable year4 7,e7 ,reference period ,for purposes of subparagraph 7,d71 the reference period shall be determined under the following table3 ,for a taxable year,the reference period beginning in--shall be-- #bjae and later ,the #c preceding taxable years4 #bjad ,the #b preceding taxable years4 #bjac ,the preceding taxable year4 #bjab or before ,no reference period applies4 7#f7 ,state required drawdown amount ,the term ,state required drawdown amount means any amount that the department of insurance for the qualified insurance company's jurisdiction of domicile requires to be distributed from the fund1 to the extent such amount is not otherwise described in paragraph 7#d7 or 7#e74 7#g7 ,fund balance ,the term fund balance means-- 7,a7 the sum of all qualified contributions to the fund1 7,b7 less any net investment loss of the fund for any taxable year or years1 and 7,c7 less the sum of all distributions under clauses 7iii7 through 7v7 of paragraph 7#a77;,b74 7#h7 ,qualified losses 7,a7 ,in general ,the term qualified losses means1 with respect to a taxable year-- 7i7 the amount of losses and loss adjustment expenses incurred in the qualified lines of business specified in paragraph 7#i71 net of reinsurance1 as reported in the qualified insurance company's annual statement for the taxable year1 that are attributable to one or more qualifying events 7regardless of when such qualifying events occurred71 7ii7 the amount by which such losses and loss adjustment expenses attributable to such qualifying events have been reduced for reinsurance received and recoverable1 plus 7iii7 any nonrecoverable assessments1 surcharges1 or other liabilities that are borne by the qualified insurance company and are attributable to such qualifying events4 7,b7 ,qualifying event ,for purposes of subparagraph 7,a71 the term qualifying event means any event that satisfies clauses 7i7 and 7ii74 7i7 ,event ,an event satisfies this clause if the event is #a or more of the following3 7,i7 ,windstorm 7hurricane1 cyclone1 or tornado74 7,,ii7 ,earthquake 7including any fire following74 7,,iii7 ,winter catastrophe 7snow1 ice1 or freezing74 7,,iv7 ,fire4 7,v7 ,tsunami4 7,,vi7 ,flood4 7,,vii7 ,volcanic eruption4 7,,viii7 ,hail4 7ii7 ,catastrophe designation ,an event satisfies this clause if the event-- 7,i7 is designated a catastrophe by ,property ,claim ,services or its successor organization1 7,,ii7 is declared by the ,president to be an emergency or disaster1 or 7,,iii7 is declared to be an emergency or disaster in a similar declaration by the chief executive official of a ,state1 possession1 or territory of the ,united ,states1 or the ,district of ,columbia4 7#i7 ,fund cap 7,a7 ,in general ,the term fund cap for a taxable year is the sum of the separate lines of business caps for each of the qualified lines of business specified in the table contained in subparagraph 7,c7 7as modified under subparagraphs 7,d7 and 7,e774 7,b7 ,separate lines of business cap ,for purposes of subparagraph 7,a71 the separate lines of business cap1 with respect to a qualified line of business specified in the table contained in subparagraph 7,c71 is the product of-- 7i7 net written premiums reported in the annual statement for the calendar year preceding the taxable year in such line of business1 multiplied by 7ii7 the fund cap multiplier applicable to such qualified line of business4 7,c7 ,qualified lines of business and their respective fund cap multipliers ,for purposes of this paragraph1 the qualified lines of business and fund cap multipliers specified in this subparagraph are those specified in the following table3 ,line of ,business on ,annual,fund ,cap ,statement ,blank3,multiplier3 ,fire#j4be ,allied#a4be ,farmowners ,multiple ,peril#j4be ,homeowners ,multiple ,peril#j4ge ,commercial ,multi ,peril 7non-liability portion7#j4ej ,earthquake#ac4jj ,inland ,marine#j4be4 7,d7 ,subsequent modifications of the annual statement blank ,if1 with respect to any taxable year beginning after the effective date of this subsection1 the annual statement blank required to be filed is amended to replace1 combine1 or otherwise modify any of the qualified lines of business specified in subparagraph 7,c71 then for such taxable year subparagraph 7,c7 shall be applied in a manner such that the fund cap shall be the same amount as if such reporting modification had not been made4 7,e7 #bj-year phase-in ,notwithstanding subparagraph 7,c71 the fund cap for a taxable year shall be the amount determined under subparagraph 7,c71 as adjusted pursuant to subparagraph 7,d7 7if applicable71 multiplied by the phase-in percentage indicated in the following table3 ,taxable year beginning in3,phase-in percentage to be applied to fund cap computed under subparagraphs 7,a7 and 7,b73 #bjabe percent #bjacaj percent #bjadae percent #bjaebj percent #bjafbe percent #bjagcj percent #bjahce percent #bjaidj percent #bjbjde percent #bjbaej percent #bjbbee percent #bjbcfj percent #bjbdfe percent #bjbegj percent #bjbfge percent #bjbghj percent #bjbhhe percent #bjbiij percent #bjcjie percent #bjca and later#ajj percent4 7#aj7 ,treatment of investment income and gain or loss 7,a7 ,contributions in kind ,a transfer of property other than money to a fund shall be treated as a sale or exchange of such property for an amount equal to its fair market value as of the date of transfer1 and appropriate adjustment shall be made to the basis of such property4 ,section #bfg shall apply to any loss realized upon such a transfer4 7,b7 ,distributions in kind ,a transfer of property other than money by a fund to the qualified insurance company shall not be treated as a sale or exchange or other disposition of such property4 ,the basis of such property immediately after such transfer shall be the greater of the basis of such property immediately before such transfer or the fair market value of such property on the date of such transfer4 7,c7 ,income with respect to fund assets ,items of income of the type described in paragraphs 7#a77;,b71 7#a77;,c71 and 7#b7 of subsection 7b7 that are derived from the assets held in a fund1 as well as losses from the sale or other disposition of such assets1 shall be considered items of income1 gain1 or loss of the qualified insurance company4 ,notwithstanding paragraph 7#a77;,f7 of subsection 7b71 distributions of net income to the qualified insurance company pursuant to paragraph 7#a77;,b77ii7 of this subsection shall not cause such income to be taken into account a second time4 7#aa7 ,net income2 net investment loss ,for purposes of paragraph 7#a77;,b77ii71 the net income derived from the assets in the fund for the taxable year shall be the items of income and gain for the taxable year1 less the items of loss for the taxable year1 derived from such assets1 as described in paragraph 7#aj77;,c74 ,for purposes of paragraph 7#g71 there is a net investment loss for the taxable year to the extent that the items of loss described in the preceding sentence exceed the items of income and gain described in the preceding sentence4 7#ab7 ,annual statement ,for purposes of this subsection1 the term annual statement shall have the meaning set forth in section #hdf7;f77#c74 7#ac7 ,exclusion of premiums and losses on certain puerto rican risks ,notwithstanding any other provision of this subsection1 premiums and losses with respect to risks covered by a catastrophe reserve established under the laws or regulations of the ,commonwealth of ,puerto ,rico shall not be taken into account under this subsection in determining the amount of the fund cap or the amount of qualified losses4 7#ad7 ,regulations ,the ,secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection1 including regulations-- 7,a7 which govern the application of this subsection to a qualified insurance company having a taxable year other than the calendar year or a taxable year less than #ab months1 7,b7 which govern a fund maintained by a qualified insurance company that ceases to be subject to this part1 and 7,c7 which govern the application of paragraph 7#i77;,d74 4 7d7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjac4 ,,ii ,catastrophe ,savings ,accounts #bja4 ,catastrophe ,savings ,accounts 7a7 ,in general ,subchapter ,f of chapter #a of the ,internal ,revenue ,code of #aihf 7relating to exempt organizations7 is amended by adding at the end the following new part3 ,,ix ,catastrophe ,savings ,accounts #ecj;,a4 ,catastrophe ,savings ,accounts 7a7 ,general rule ,a ,catastrophe ,savings ,account shall be exempt from taxation under this subtitle4 ,notwithstanding the preceding sentence1 such account shall be subject to the taxes imposed by section #eaa 7relating to imposition of tax on unrelated business income of charitable organizations74 7b7 ,catastrophe ,savings ,account ,for purposes of this section1 the term ,catastrophe ,savings ,account means a trust created or organized in the ,united ,states for the exclusive benefit of an individual or his beneficiaries and which is designated 7in such manner as the ,secretary shall prescribe7 at the time of the establishment of the trust as a ,catastrophe ,savings ,account1 but only if the written governing instrument creating the trust meets the following requirements3 7#a7 ,except in the case of a qualified rollover contribution-- 7,a7 no contribution will be accepted unless it is in cash1 and 7,b7 contributions will not be accepted in excess of the account balance limit specified in subsection 7c74 7#b7 ,the trustee is a bank 7as defined in section #djh7n77 or another person who demonstrates to the satisfaction of the ,secretary that the manner in which that person will administer the trust will be consistent with the requirements of this section4 7#c7 ,the interest of an individual in the balance of his account is nonforfeitable4 7#d7 ,the assets of the trust shall not be commingled with other property except in a common trust fund or common investment fund4 7c7 ,account balance limit ,the aggregate account balance for all ,catastrophe ,savings ,accounts maintained for the benefit of an individual 7including qualified rollover contributions7 shall not exceed-- 7#a7 in the case of an individual whose qualified deductible is not more than #a1jjj1 #b1jjj1 and 7#b7 in the case of an individual whose qualified deductible is more than #a1jjj1 the amount equal to the lesser of-- 7,a7 #ae1jjj1 or 7,b7 twice the amount of the individual's qualified deductible4 7d7 ,definitions ,for purposes of this section-- 7#a7 ,qualified catastrophe expenses ,the term qualified catastrophe expenses means expenses paid or incurred by reason of a major disaster that has been declared by the ,president under section #dja of the ,robert ,t4 ,stafford ,disaster ,relief and ,emergency ,assistance ,act4 7#b7 ,qualified deductible ,with respect to an individual1 the term qualified deductible means the annual deductible for the individual's homeowners' insurance policy4 7#c7 ,qualified rollover contribution ,the term qualified rollover contribution means a contribution to a ,catastrophe ,savings ,account-- 7,a7 from another such account of the same beneficiary1 but only if such amount is contributed not later than the #fjth day after the distribution from such other account1 and 7,b7 from a ,catastrophe ,savings ,account of a spouse of the beneficiary of the account to which the contribution is made1 but only if such amount is contributed not later than the #fjth day after the distribution from such other account4 7e7 ,tax treatment of distributions 7#a7 ,in general ,any distribution from a ,catastrophe ,savings ,account shall be includible in the gross income of the distributee in the manner as provided in section #gb4 7#b7 ,distributions for qualified catastrophe expenses 7,a7 ,in general ,no amount shall be includible in gross income under paragraph 7#a7 if the qualified catastrophe expenses of the distributee during the taxable year are not less than the aggregate distributions during the taxable year4 7,b7 ,distributions in excess of expenses ,if such aggregate distributions exceed such expenses during the taxable year1 the amount otherwise includible in gross income under paragraph 7#a7 shall be reduced by the amount which bears the same ratio to the amount which would be includible in gross income under paragraph 7#a7 7without regard to this subparagraph7 as the qualified catastrophe expenses bear to such aggregate distributions4 7#c7 ,additional tax for distributions not used for qualified catastrophe expenses ,the tax imposed by this chapter for any taxable year on any taxpayer who receives a payment or distribution from a ,catastrophe ,savings ,account which is includible in gross income shall be increased by #aj percent of the amount which is so includible4 7#d7 ,retirement distributions ,no amount shall be includible in gross income under paragraph 7#a7 7or subject to an additional tax under paragraph 7#c77 if the payment or distribution is made on or after the date on which the distributee attains age #fb4 7f7 ,tax treatment of accounts ,rules similar to the rules of paragraphs 7#b7 and 7#d7 of section #djh7;e7 shall apply to any ,catastrophe ,savings ,account4 4 7b7 ,tax on excess contributions 7#a7 ,in general ,subsection 7a7 of section #digc of the ,internal ,revenue ,code of #aihf 7relating to tax on excess contributions to certain tax-favored accounts and annuities7 is amended by striking or at the end of paragraph 7#d71 by inserting or at the end of paragraph 7#e71 and by inserting after paragraph 7#e7 the following new paragraph3 7#f7 a ,catastrophe ,savings ,account 7as defined in section #ecj;,a71 4 7#b7 ,excess contribution ,section #digc of such ,code is amended by adding at the end the following new subsection3 7h7 ,excess contributions to ,catastrophe ,savings ,accounts ,for purposes of this section1 in the case of ,catastrophe ,savings ,accounts 7within the meaning of section #ecj;,a71 the term excess contributions means the amount by which the aggregate account balance for all ,catastrophe ,savings ,accounts maintained for the benefit of an individual exceeds the account balance limit defined in section #ecj;,a7c77#a74 4 7c7 ,conforming amendment ,the table of parts for subchapter ,f of chapter #a of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new item3 ,part ,,ix4 ,catastrophe ,savings ,accounts 4 7d7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjac4 ,,iii ,tax credit for natural disaster mitigation property #cja4 ,nonrefundable personal credit for natural disaster mitigation property 7a7 ,in general ,subpart ,a of part ,,iv of subchapter ,a of chapter #a of the ,internal ,revenue ,code of #aihf is amended by inserting after section #be;,d the following new section3 #be;,e4 ,natural disaster mitigation property 7a7 ,allowance of credit ,in the case of an individual1 there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to #be percent of the qualified natural disaster mitigation property expenditures made by the taxpayer during such taxable year in connection with a qualified principal residence of the taxpayer4 7b7 ,maximum credit ,the credit allowed under subsection 7a7 with respect to any principal residence of the taxpayer for any taxable year shall not exceed the excess of-- 7#a7 #e1jjj 7half such amount in the case of a married individual filing a separate return71 over 7#b7 the aggregate amounts allowed as a credit under this section to the taxpayer 7or the taxpayer's spouse7 with respect to such residence for all prior taxable years4 7c7 ,limitation based on amount of tax ,in the case of a taxable year to which section #bf7;a77#b7 does not apply1 the credit allowed under subsection 7a7 for any taxable year shall not exceed the excess of-- 7#a7 the sum of the regular tax liability 7as defined in section #bf7;b77 plus the tax imposed by section #ee1 over 7#b7 the sum of the credits allowable under this subpart 7other than this section and sections #bc1 #bd1 and #be;,b7 and section #bg for the taxable year4 7d7 ,qualified natural disaster mitigation property expenditure ,for purposes of this section1 the term qualified natural disaster mitigation property expenditure means an expenditure for-- 7#a7 property to improve the strength of a roof deck attachment1 7#b7 property to create a secondary water barrier to prevent water intrusion1 7#c7 property to improve the durability of a roof covering1 7#d7 property to brace gable-end walls1 7#e7 property to reinforce the connection between a roof and supporting wall1 7#f7 property to protect openings from penetration by windborne debris1 7#g7 property to protect exterior doors and garages1 7#h7 property to improve the natural resiliency of the property1 including the restoration1 establishment1 or enhancement of aquatic resources 7having the meanings given such terms by part #ccb of title #cc of the ,code of ,federal ,regulations71 as prescribed by the ,secretary after consultation with the ,administrator of the ,environmental ,protection ,agency and the ,assistant ,secretary of the ,army for ,civil ,works1 7#i7 seismic retrofitting1 including property to increase resistance to seismic activity1 ground motion1 or soil failure due to earthquakes1 or 7#aj7 such other measures to mitigate natural disaster damage to homes1 as prescribed by the ,secretary after consultation with the ,administrator of the ,federal ,emergency ,management ,agency and1 to the extent applicable1 in accordance with section #ab7;d7 of the ,national ,technology ,transfer and ,advancement ,act of #aiie 7#ae ,u4,s4,c4 #bgb note2 ,public ,law #ajd-aac74 7e7 ,qualified principal residence ,for purposes of this section1 the term qualified principal residence means the principal residence of the taxpayer 7within the meaning of section #aba7 if such residence-- 7#a7 is assessed by the locality in which it is located at a value which does not exceed #cjj percent of the national median home price 7determined as of the close of the taxable year for which the credit determined under this section is allowed71 and 7#b7 is not severe repetitive loss property 7as defined in section #acfa;,a of the ,national ,flood ,insurance ,act 7#db ,u4,s4,c4 #dajb;a7b7774 7f7 ,rules related to inspections and labor costs ,for purposes of this section-- 7#a7 ,inspection requirement ,an expenditure shall be taken into account in determining the qualified natural disaster mitigation property expenditures made by the taxpayer during the taxable year only if the installation of the property with respect to which such expenditure is made has been completed in a manner that is deemed to be adequate by an inspector that is licensed or certified by the ,state or other governmental authority1 or its designee1 having jurisdiction over inspectors in the area where the installed property is located4 7#b7 ,labor and inspection costs ,for purposes of this section1 expenditures for labor costs properly allocable to the onsite preparation1 assembly1 or original installation of the property described in subsection 7d7 7including the cost of inspections referred to in paragraph 7#a77 shall be taken into account in determining the qualified natural disaster mitigation property expenditures made by the taxpayer during the taxable year4 7g7 ,basis adjustment ,for purposes of this section1 if a credit is allowed under this section for any expenditure with respect to any property1 the increase in the basis of such property which would 7but for this subsection7 result from such expenditure shall be reduced by the amount of the credit so allowed4 4 7b7 ,conforming amendment ,the table of sections for subpart ,a of part ,,iv of subchapter ,a of chapter #a of such ,code is amended by inserting after the item relating to section #be;,d the following new item3 ,sec4 #be;,e4 ,natural disaster mitigation property4 4 7c7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjac4