Self-Insurance Enhancement Act of 1986

Self-Insurance Enhancement Act of 1986 - Title I: Expansion of Risk Retention Coverage - Amends the Product Liability Risk Retention Act of 1981 to exempt risk retention groups and purchasing groups (businesses which organize to purchase personal risk and liability insurance on a group basis) from State laws which prohibit, regulate, or otherwise discriminate against such groups. Requires such groups' members to be similarly situated with respect to their exposure to the risk of liability.

Permits risk retention groups which are not chartered, licensed, or certified as liability insurance companies by any State to continue to provide insurance to cover product liability or completed operations liability as defined before the enactment of this Act. Requires risk retention groups to comply with State trade practices laws.

Allows the insurance commissioner of any State in which a risk retention group is doing business to examine the group's financial condition if the commissioner of the jurisdiction in which the group is chartered has not begun such an examination.

Subjects such groups to State no-fault automobile insurance requirements. Limits the authority to provide insurance under such Act to liability insurance.

Requires a specified notice on all risk retention group policies.

Title II: Amendments of Internal Revenue Code of 1954 - Amends the Internal Revenue Code to allow an eligible taxpayer a deduction for contributions during the taxable year made to a qualified liability trust. Defines eligible taxpayer as a business not covered by any liability policy, whose liability insurance was cancelled, or a business unable to obtain liability insurance.

Provides that the qualified liability trust shall pay liability claims against the taxpayer, and no part of the corpus or income of the trust shall be used for, or diverted to, any purpose other than the payment of claims or related expenses. Provides that the liability trust shall be exempt from taxation. Imposes a penalty tax on any distributions from the trust to the taxpayer and includes such amounts in the income of the taxpayer where the trust is required to distribute amounts in excess of its reasonably anticipated needs.

Provides an exception to the restriction of making consolidated tax returns for companies which provide insurance, reinsurance, or administrative services for risk retention groups or purchasing groups.