WASHINGTON BUREAU — A new House bill, H.R. 3399, would let life insurers with non-life affiliates file consolidated income tax returns.
The bill was introduced by Reps. John Larson, D-Conn., and Patrick Tiberi, R-Ohio, before the House left last week for a one-month recess.
The current rules, in effect since the early 1990s, increase the tax bills for insurance company groups that file consolidated returns when at least one group member is a life insurer.
The rules affect the way the groups offset income and losses on consolidated returns.
Under one rule, a life insurer cannot be included in a consolidated tax return with non-life companies until the life company has been affiliated with the group for 5 years. Under the second rule, net operating losses of a non-life member cannot be used to offset the life insurer’s income unless the non-life member has been part of the group for 5 years.
A third rule, the “35% rule,” applies after the two 5-year rule thresholds are met.
Under the 35% rule, a life insurer’s income can be offset by a non-life affiliate’s net operating losses, but only to a limited degree.
The offset is limited to the lesser of (a) 35% of the non-life affiliate’s losses or (b) 35% of the life insurer’s taxable income.
The American Council of Life Insurers, Washington, is supporting H.R. 3399.
The current rules fail to reflect tax changes made in 1984, which eliminated the concerns that originally led Congress to penalize insurance groups that included life insurers, the ACLI says.
“This outdated quirk in the tax code imposes an expensive and unnecessary burden on affiliated groups simply because one member is a life insurer,” ACLI President Frank Keating says in a statement. “This burden does not apply to any other business either in the U.S. or overseas.”