By
Washington
In rapid fire succession, the life insurance industry found itself on the defensive on a variety of tax fronts last week, with Congress expected to take a close look at corporate uses of life insurance.
On split-dollar and corporate-owned life insurance, as well as the politically-hot issue of estate tax repeal, the industry began preparing for what could be a major, emotional legislative battle in the next few months.
“The industry is facing some real challenges,” says Morris Goff, director of government affairs for the National Association of Insurance and Financial Advisors.
“But NAIFA is on top of the developments,” he says. “We have faced these challenges before and have always met them.”
“Attacks have been made before on industry products,” adds Jack Dolan, a spokesman for the American Council of Life Insurers. “Unfortunately, those attacks continue.
“We are continuing to fight,” Dolan says. “We are making our case that our products are vital to address consumer and business needs.”
The backdrop for the activity on life insurance taxation is the controversy over the collapse of Enron, and the view of some that life insurance can be used to provide tax-favored executive compensation.
Indeed, during the investigation of Enron’s collapse, it was revealed that the companys former chairman, Kenneth Lay, had a large split-dollar policy.
This led some members of the Senate–particularly Sens. Blanche Lincoln, D-Ark., and Finance Committee Chairman Max Baucus, D-Mont.–to begin questioning the use of split-dollar.
In fact, the Finance Committee scheduled a hearing on executive compensation for April 18, during which split-dollar was an issue to be discussed.
Details of what happened are still sketchy, but sources told National Underwriter that a witness who was scheduled to testify on split-dollar cancelled his appearance before the committee at the last minute.
The reasons for the cancellation are unclear but some on Capitol Hill say they believe the witness was pressured into cancelling.
This angered Lincoln and Baucus so much that during the hearing Lincoln asked Baucus for a separate hearing devoted to split-dollar, Baucus agreed.
At press time, a date for the hearing had not been set.
One industry source, who asked not to be identified, says at the end of the day, he does not believe the controversy over split-dollar will result in legislation.
The fact is, he says, that the Treasury Department already has a handle on this issue, knows where the ambiguities are and is working on ways to resolve them.
Despite all the outrage over split-dollar, he says, Congress is starting to realize there is not a lot of revenue to be raised from split-dollar.