WASHINGTON — The Obama administration has come out with more details about tax proposals that could affect many sectors of the financial services industry.
An early look at the full proposal, included in Fiscal Year 2010 budget documents, shows that it would require settlement companies and investors that buy in-force life policies to report transactions involving policies with $1 million or more in face value to the Internal Revenue Service, and to the seller.
The goal of the provision is to ensure compliance with the tax code by improving the reporting of tax-related information, according to officials at the American Council of Life Insurers, Washington.
“The reporting requirement imposes no new taxes on either the sellers of insurance policies or the buyers,” the ACLI officials say. “The provision is simply a new reporting requirement.”
Another Obama administration provision would repeal the exception from the pro-rata interest expense disallowance rule for contracts covering a business’s employees, officers or directors.
The one exception would apply to an individual who owns 20% or more of a business that is the contract owner or the contract beneficiary.
The provision would keep the affected entities from deducting otherwise deductible interest expense by using a formula based on the ratio of the value of the life insurance contracts to the business’s total assets.
If, for example, an entity had 10% of its assets in life insurance, 10% of otherwise deductible interest would be disallowed, according to officials at the Association for Advanced Life Underwriting, Falls Church, Va.
The proposal would apply to policies issued after the date of enactment, and officials are estimating it could raise about $8.4 billion from 2010 to 2019.
An AALU official has called that provision an “attack on life insurance owned by businesses.”
The Obama administration proposal also would change the dividends-received deduction for “certain life insurance company separate accounts.”