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119-hr-1481119th CongressWALLET

CART Act of 2025

Sponsored By: Representative LaHood, Darin [R-IL-16]

Introduced

Summary

Creates a tax and regulatory regime for domestic catastrophic risk transfer companies (CRTCs). It sets rules for specially licensed U.S. insurers to collateralize and transfer very large, low‑probability losses, generally defined as losses above $25 million, and defines how those firms and their investors are taxed.

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  • CRTC firms: Must be state‑licensed special purpose insurers that fully collateralize reinsurance. They may issue equity and debt and hold qualified investments. They must earn at least 90% of gross income from investment income or specified premiums and face a penalty tax if they fail the income test equal to the excess nonqualifying income over one-ninth of qualifying income, with a reasonable-cause exception.
  • Investors and security holders: Are taxed on a look‑through basis so dividend components are split into interest, tax-exempt interest, qualified dividends, other dividends, capital gains (treated as long‑term), and amounts tied to insurance premiums. The bill creates limited withholding exemptions for qualified investment income dividends to non‑U.S. holders with specified exceptions.
  • State and local taxes: Other taxing jurisdictions may not impose premium taxes on reinsurance premiums paid to a CRTC. If a jurisdiction nevertheless taxes those premiums the amount cannot exceed the tax that would apply under Internal Revenue Code section 4371 for foreign reinsurers.

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Bill Overview

Analyzed Economic Effects

4 provisions identified: 1 benefits, 0 costs, 3 mixed.

New companies to transfer disaster risk

The bill would define and allow a new kind of company called a catastrophic risk transfer company (CRTC). These would be state‑licensed special purpose insurers that issue securities and enter reinsurance deals with unaffiliated parties. It would also limit who can tax reinsurance premiums paid to a CRTC. Only the state where the CRTC is organized could tax them, or other states would be capped at a set federal level. This would take effect upon enactment.

How CRTC dividends are taxed

If you hold CRTC securities, the company would tell you what part of each dividend is interest, tax‑exempt interest, qualified dividends, capital gains, or premiums. You would be taxed as if you received those parts directly, and the capital gains part could be long‑term. A CRTC could also elect to treat some late‑declared dividends as paid in the prior year, or as paid on December 31 if actually paid by the 15th day of the 9th month of the next year. For some non‑U.S. investors, qualified investment income dividends would not face U.S. withholding or certain nonresident taxes, with exceptions. These rules would take effect upon enactment.

CRTC penalties and cure options

If a CRTC fails the 90% income test, it could disclose details and show reasonable cause. If accepted, it would owe a tax equal to non‑qualified income minus one‑ninth of qualified income. If a year is later found to be a non‑CART year, the company could avoid harsher treatment by making qualified distributions within 90 days and paying interest on half of the related earnings and profits; this cure would not apply if there was fraud. The bill would also treat certain series mainly tied to a reinsurance deal and collateral as separate corporations. Distributions to meet the rules would be ordered from earnings and profits that would otherwise cause failure and may not count for the dividends‑paid deduction. Redemptions on holder demand would not trigger section 311(b). This would take effect upon enactment.

Tax rules for CRTC companies

A company would need to elect CRTC status each year and meet a 90% gross income test. At least 90% must come from qualified investment income or from certain fully collateralized insurance or reinsurance premiums, including from government agencies or companies with over $100,000,000 in assets, or large single‑risk pools. If it qualifies, CRTC income would be taxed under corporate rules with special adjustments. The bill would allow the dividends‑paid deduction and certain professional and issuance costs, but would disallow many other corporate deductions and any net operating loss deduction. This would take effect upon enactment.

Sponsors & CoSponsors

Sponsor

LaHood, Darin [R-IL-16]

IL • R

Cosponsors

  • Rep. Himes, James A. [D-CT-4]

    CT • D

    Sponsored 2/21/2025

  • Rep. Pettersen, Brittany [D-CO-7]

    CO • D

    Sponsored 2/24/2025

Roll Call Votes

No roll call votes available for this bill.

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