insurance business
(7) Exclusion of active businesses of qualified C corporations (A) In general In the case of a taxpayer which is a qualified C corporation— (i) each qualifying business carried on by such taxpayer shall be treated as a separate activity, and (ii) subsection (a) shall not apply to losses from such business. (B) Qualified C corporation For purposes of subparagraph (A), the term “qualified C corporation” means any corporation described in subparagraph (B) of subsection (a)(1) which is not— (i) a personal holding company (as defined in section 542(a) ), or (ii) a personal service corporation (as defined in section 269A(b) but determined by substituting “5 percent” for “10 percent” in section 269A(b)(2)). (C) Qualifying business For purposes of this paragraph, the term “qualifying business” means any active business if— (i) during the entire 12-month period ending on the last day of the taxable year, such corporation had at least 1 full-time employee substantially all the services of whom were in the active management of such business, (ii) during the entire 12-month period ending on the last day of the taxable year, such corporation had at least 3 full-time, nonowner employees substantially all of the services of whom were services directly related to such business, (iii) the amount of the deductions attributable to such business which are allowable to the taxpayer solely by reason of sections 162 and 404 for the taxable year exceeds 15 percent of the gross income from such business for such year, and (iv) such business is not an excluded business. (D) Special rules for application of subparagraph (C) (i) Partnerships in which taxpayer is a qualified corporate partner In the case of an active business of a partnership, if— (I) the taxpayer is a qualified corporate partner in the partnership, and (II) during the entire 12-month period ending on the last day of the partnership’s taxable year, there was at least 1 full-time employee of the partnership (or of a qualified corporate partner) substantially all the services of whom were in the active management of such business, then the taxpayer’s proportionate share (determined on the basis of its profits interest) of the activities of the partnership in such business shall be treated as activities of the taxpayer (and clause (i) of subparagraph (C) shall not apply in determining whether such business is a qualifying business of the taxpayer). (ii) Qualified corporate partner For purposes of clause (i), the term “qualified corporate partner” means any corporation if— (I) such corporation is a general partner in the partnership, (II) such corporation has an interest of 10 percent or more in the profits and losses of the partnership, and (III) such corporation has contributed property to the partnership in an amount not less than the lesser of $500,000 or 10 percent of the net worth of the corporation. For purposes of subclause (III), any contribution of property other than money shall be taken into account at its fair market value. (iii) Deduction for owner employee compensation not taken into account For purposes of clause (iii) of subparagraph (C), there shall not be taken into account any deduction in respect of compensation for personal services rendered by any employee (other than a non-owner employee) of the taxpayer or any member of such employee’s family (within the meaning of section 318(a)(1) ). (iv) Special rule for banks For purposes of clause (iii) of subparagraph (C), in the case of a bank (as defined in section 581 ) or a financial institution to which section 591 applies— (I) gross income shall be determined without regard to the exclusion of interest from gross income under section 103, and (II) in addition to the deductions described in such clause, there shall also be taken into account the amount of the deductions which are allowable for amounts paid or credited to the accounts of depositors or holders of accounts as dividends or interest on their deposits or withdrawable accounts under section 163 or 591. (v) Special rule for life insurance companies (I) In general Clause (iii) of subparagraph (C) shall not apply to any insurance business of a qualified life insurance company. (II) Insurance business For purposes of subclause (I), the term “insurance business” means any business which is not a noninsurance business (within the meaning of section 453B(e)(3) ). (III) Qualified life insurance company For purposes of subclause (I), the term “qualified life insurance company” means any company which would be a life insurance company as defined in section 816 if unearned premiums were not taken into account under subsections (a)(2) and (c)(2) of section 816. (E) Definitions For purposes of this paragraph— (i) Non-owner employee The term “non-owner employee” means any employee who does not own, at any time during the taxable year, more than 5 percent in value of the outstanding stock of the taxpayer. For purposes of the preceding sentence, section 318 shall apply, except that “5 percent” shall be substituted for “50 percent” in section 318(a)(2)(C). (ii) Excluded business The term “excluded business” means— (I) equipment leasing (as defined in paragraph (6)), and (II) any business involving the use, exploitation, sale, lease, or other disposition of master sound recordings, motion picture films, video tapes, or tangible or intangible assets associated with literary, artistic, musical, or similar properties. (iii) Special rules relating to communications industry, etc. (I) Business not excluded where taxpayer not completely at risk A business involving the use, exploitation, sale, lease, or other disposition of property described in subclause (II) of clause (ii) shall not constitute an excluded business by reason of such subclause if the taxpayer is at risk with respect to all amounts paid or incurred (or chargeable to capital account) in such business. (II) Certain licensed businesses not excluded For purposes of subclause (II) of clause (ii), the provision of radio, television, cable television, or similar services pursuant to a license or franchise granted by the Federal Communications Commission or any other Federal, State, or local authority shall not constitute an excluded business by reason of such subclause. (F) Affiliated group treated as 1 taxpayer For purposes of this paragraph— (i) In general Except as provided in subparagraph (G), the component members of an affiliated group of corporations shall be treated as a single taxpayer. (ii) Affiliated group of corporations The term “affiliated group of corporations” means an affiliated group (as defined in section 1504(a) ) which files or is required to file consolidated income tax returns. (iii) Component member The term “component member” means an includible corporation (as defined in section 1504) which is a member of the affiliated group. (G) Loss of 1 member of affiliated group may not offset income of personal holding company or personal service corporation Nothing in this paragraph shall permit any loss of a member of an affiliated group to be used as an offset against the income of any other member of such group which is a personal holding company (as defined in section 542(a) ) or a personal service corporation (as defined in section 269A(b) but determined by substituting “5 percent” for “10 percent” in section 269A(b)(2)).