The IRC Section 953(d) election is a federal tax election available to foreign insurance companies.
A foreign insurance company that is also a controlled foreign corporation (CFC) can file an election under Section 953(d) to elect to be treated as a domestic corporation for U.S. tax purposes.
If a foreign insurance corporation makes the 953(d) election, it is subject to U.S. federal income taxes on its worldwide income. However, the foreign insurance corporation will no longer be subject to branch profits tax (BPT) or the federal excise tax (FET) imposed on insurance premiums paid to foreign insurers.
The insurance company would cease filing Form 5471 because it is no longer a foreign corporation for federal tax purposes. The corporation would file either Form 1120-PC or Form 1120-L, depending upon the type of insurance company.
In most cases, the foreign insurer is 100% owned by a U.S. parent corporation, and the subsidiary elects to be included in the parent company’s consolidated tax return Form 1120 (US Corporation Income Tax Return).
Example of Section 953(d) Election
Fake Company, Inc. is a Delaware corporation that sells automobiles. Fake Company, Inc. was advised to open a captive insurance company. The company established a wholly owned Bermuda captive insurance company, Bermuda Captive Ltd. Because Fake Company, Inc. owns 100% of the foreign corporation stock, the Bermuda entity is a CFC for federal tax purposes.
The captive filed a Section 953(d) election, which the IRS approved. The captive completed Form 1122 to consent to be included in the consolidated return for the parent corporation.