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Life Health > Life Insurance

Obama Proposes Tax Changes

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WASHINGTON–The Obama administration has proposed changing estate, gift-tax, annuity and life insurance tax rules to raise some of the revenue needed to pay for expanding access to subsidized health coverage.

If implemented, the proposed revisions would raise $12.7 billion in revenue over 10 years, administration officials predict.

The administration proposal apparently would affect the estate and gift tax system by requiring consistent valuation for transfer and income tax purposes, modifying rules on valuation discounts, and requiring a minimum term for grantor-retained annuity trusts, according to officials at the Association for Advanced Life Underwriting, Falls Church, Va.

The proposal also would modify the rules that apply to “certain life insurance contracts,” change the dividends-received deduction for “certain life insurance company separate accounts,” and expand the pro-rata interest expense disallowance.

The administration is justifying the changes by arguing that they target “valuation games played by those facing estate and gift taxes that allow them to undervalue transferred property.”

More details are supposed to come out later this afternoon.


William Sweetnam, a principal at the Groom Law Group, Washington, says the proposal might have a “big–and adverse–financial impact on companies” that buy corporate-owned life insurance.

“The provision, if enacted, would make it exceptionally expensive for companies to purchase these type of policies for their executives and employees,” Sweetnam says. The proposal would increase the cost of COLI by disallowing part of the interest expense incurred when companies buy contracts insuring executives and employees, he said.

The only exemption would be for a company that is buying a COLI policy insuring an individual who owns 20% or more of a business, Sweetnam said.

Life Settlements

The “green book” that the administration released today also has suggested that the Obama administration will be calling for reporting requirement changes that could affect life settlement transactions. The reporting changes could yield $812 million in revenue over 10 years, the administration estimates.

The administration seems to be saying that individuals selling life insurance policies would have to include sale proceeds in taxable income.

The Dividends-Received Deduction

The dividends-received deduction involves tax code provisions designed to prevent double taxation of corporate earnings, according to an official at the American Council of Life Insurers, Washington. For many years, life insurers have been taking a deduction relating to assets held in separate accounts.


Sarah Spear, director of policy and public affairs at the AALU, says the insurance industry’s work is “cut out for us.”

ACLI President Frank Keating also has expressed concern.

“Seventy-five million American families rely on the products offered by life insurers for their financial and retirement security,’ Keating says. “This is absolutely the wrong time to make it more expensive for families to obtain the security and peace of mind our products provide.”


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