Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Life Insurance

Industry To Press Anew On Consolidated Tax Returns

Your article was successfully shared with the contacts you provided.

The life insurance industry has decided to relaunch its efforts to have Congress pass legislation allowing life insurance companies with property-casualty affiliates to file consolidated tax returns.

The Financial Services Roundtable, which is playing a key role in the campaign, said the industry has decided to renew this battle–which has been under way in one form or another since 1958–because its efforts to get two other long-standing tax headaches off the books, Secs. 809 and 815, ultimately had been successful.

Roundtable lobbyists are looking to win support from all industry trade groups for the campaign, which it hopes to begin when Congress returns from its Presidents’ Day recess.

According to Scott Talbott, a senior vice president for government affairs at the Roundtable, the trade group is looking for additional co-sponsors for legislation introduced last year in both houses of Congress and also is preparing “talking point” documents for submission to members of Congress when they return from recess.

“This is a priority issue for the Financial Services Roundtable,” Talbott said. “We are seeking to coordinate with other trade groups and companies to get this done this year.

“While it may be an uphill battle this year,” he conceded, “we will not be deterred. We hope our efforts this year will set a firmer stage for success, perhaps in the next Congress.”

Sec. 809, which affects mutual insurance companies, and Sec. 815, which affects stock insurance companies, have been rendered moot by several laws. These tax laws were imposed by Congress in 1984 as a way of creating a level playing field between the two entities.

Mutual companies were able to suspend payments under Sec. 809 for short periods in the late 1990s and early years of this century, and finally were able to get it off the books through a law passed in 2004. The same law gives stock companies the opportunity to reorganize over the next two years and therefore escape payments under the provision, time enough the industry believes to wipe the pre-1984 debt off their books.

As a result, according to Talbott, industry tax officials now are turning their attention to the consolidated returns issue. “Life insurance companies feel it is time to renew the effort to get consolidated return reform, or, at least, modernization of the rules,” he said. “This is an administrative issue about what can be reported on the corporate income tax return,” he said.

The vehicles for providing for consolidated returns are H.R. 3019, a bipartisan bill with a host of sponsors, including Reps. Jim Ramstad, R-Minn., Charles Rangel, D-N.Y., Nancy Johnson, R-Conn., Phil English, R-Pa., J.D. Hayworth, R-Ariz., Tom Reynolds, R-N.Y., Kenny Hulshof, R-Mo., Earl Pomeroy, D-N.D., Walter Jones, R-N.C., and Michael McNulty, D-N.Y.

Similar legislation, S. 1293, has many sponsors in the Senate, including Sens. Jim Bunning, R-Ky., Trent Lott, R-Miss., Kent Conrad, D-N.D., and Gordon Smith, R-Ore.

The legislation the industry now wants off the books was passed in 1976.

While most corporations with diversified businesses can file consolidated tax returns, life insurance companies cannot do so unless they have been affiliated for five years.

Second, non-life insurance affiliate losses, including current year losses and any carryover losses that may offset insurance company taxable income, are limited to the lesser of 35% of life insurance taxable income or 35% of the non-life insurance company’s losses.

According to officials of several insurance companies, the reason is that because of strong regulation, it is rare that life insurance companies are not profitable, and the IRS is concerned that insurance companies will acquire businesses that are unprofitable for a current year only as a means of reducing its taxes.

“It is incorrect to characterize these reforms as a tax cut,” Talbott said. “This is about removing artificial barriers on groups of companies with a life insurance affiliate.”

Reform will put these companies “on the same footing as those companies that do not have a life insurance affiliate,” he said. “These barriers are artificial, outdated and arcane. They distort the investors’ view of the corporate group that includes a life insurance company.”

Talbott pointed to documents that say the historical argument against allowing life insurance companies to file consolidated returns is that life insurance companies are not taxed on the same basis as non-life companies.

But, supporters for reform contend, “this is unfounded today.” They note that prior to 1958, life insurance companies were taxed under special formulas that did not take their underwriting income or loss into account.

However, in 1959, the contention goes, legislation was enacted that “took a major step toward taxing life insurance companies on both their investment and underwriting income,” according to arguments made in 2001 by former Rep. Phil Crane, R-Ill., when he introduced a bill seeking to end the differences between taxing life insurance companies and other entities.

Further changes made in 1984 and 1986 “have resulted in these companies paying tax at regular income tax rates on their total income,” Crane argued.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.