NU Online News Service, Feb. 7, 2005, 3:10 p.m. EST

A federal agency is starting to implement a new law that could help policyholder-owned life insurers.[@@]

The tax break will set a factor called the “differential earnings rate” to 0 for mutual life insurers for the taxable year starting 2004 and the “financial recomputed differential” to 0 for 2003.

The changes eliminate a tax on dividends paid to mutual life insurance companies’ policyholders.

Congress already has exempted mutual life insurers from the tax for taxable years starting in 2001, 2002 and 2003, and it recently passed another law that will eliminate the tax for 2005 and later years.

President Bush put the provision eliminating the tax for 2004 into effect when he signed the Pension Funding Equity Act of 2004.

Katherine Hossofsky, an IRS financial institutions and products specialists, has described the change in the 2004 differential earnings rate in IRS Notice 2005-18.

The notice is on the Web at http://www.irs.gov/pub/irs-drop/n-05-18.pdf