CART Act of 2025

This bill would change federal tax law to set up clear tax rules for “catastrophic risk transfer companies.” These are state‑licensed, special‑purpose insurers that raise money by selling stock or bonds, invest that money, and enter insurance or reinsurance deals to cover catastrophic insurance losses. To qualify, most of their income must come from investments and premiums from regulated insurers, government agencies, or very large companies, their coverage must be fully backed by collateral, and they must elect into this system on their tax return.

To keep this special tax status each year, a company must pay out at least 90% of its taxable income as dividends and avoid building up profits from years it didn’t qualify. It pays corporate income tax on a modified base: it can deduct dividends it pays and certain costs (like claims and professional fees tied to issuing its securities), but it cannot use net operating losses or some corporate deductions . The bill also sets timing rules so some dividends declared after year‑end can still count for the prior year, while investors count income when they actually receive it . If a company slips on the income‑source test, it can disclose and pay a special tax; if it fails other requirements, it can make catch‑up distributions and pay interest to get back in compliance. Relief does not apply in cases of fraud . Each “series” of securities tied to a specific reinsurance deal can be treated like its own company for tax purposes. Investors receive a breakdown of each dividend by type (interest, capital gains, etc.) and are taxed as if they received those items directly; the rules also cover certain payments to bondholders.

• Who is affected: State‑licensed special‑purpose insurers that take on catastrophic risks, their investors, and the regulated insurers, government agencies, or very large companies that buy protection from them.
• What changes: A new federal tax framework with a 90% payout rule, limits on certain deductions, timing rules for dividends, “look‑through” taxation for investors, and correction paths (with taxes/interest) if a company falls short .
• When it applies: Each taxable year a company elects in and meets the requirements; some dividends declared and paid within set windows can count for the prior year .