S. 1987 — A bill to amend the Internal Revenue Code of 1986 to provide special rules for purposes of determining if financial guaranty insurance companies are qualifying insurance corporations under the passive foreign investment company rules.

This section establishes special rules under the passive foreign investment company (PFIC) rules (i.e., IRC §1297(f)) treating qualifying financial guaranty insurance companies as active insurance corporations rather than PFICs. (As background, PFIC rules subject U.S. shareholders of qualifying foreign corporations to punitive taxes on passive income and gains unless an election is made; qualifying insurance corporations are exempt if they meet specified active insurance tests, including minimum applicable insurance liabilities relative to total assets.) Specifically, the section allows such companies to include unearned premium reserves in applicable insurance liabilities if (1) generally accepted accounting principles (GAAP) prohibit reporting loss reserves exceeding unearned premiums, (2) the company's applicable financial statement reports financial guaranty exposure of at least 15-to-1 (net debt service to total assets) or State or local bond exposure of at least 9-to-1 (net unpaid principal to total assets), and (3) reserves relate only to insurance within single risk limits under the Financial Guaranty Insurance Guideline (using total shareholders' equity); deems such companies to satisfy the alternative facts-and-circumstances test; and applies to taxable years beginning after December 31, 2024, with a transition rule excluding a specified grace period from U.S. shareholders' holding periods for certain prior-year stock. The section also requires separate reporting on applicable financial statements (or in their calculation) of specified items used in the new tests and mandates that U.S. persons claiming a specified non-publicly traded foreign corporation is not a PFIC must report required information to the Secretary of the Treasury (applicable to reports after December 31, 2024).