(Bloomberg) — U.S. life insurers take billions of dollars in undeserved tax deductions by shifting capital to states with looser reserve requirements and the practice should be halted by the Internal Revenue Service, a New York regulator said.
Benjamin Lawsky, superintendent of the state’s Department of Financial Services, criticized the “insurance inversions” in a letter last month to U.S. Treasury Secretary Jacob Lew. Lawsky said insurers have completed $48 billion in such “shadow” deals in New York and more than $300 billion nationwide. He didn’t name any firms in the letter.
“Life insurers are trying to have their cake and eat it too,” Lawsky wrote in the Nov. 21 letter. “The firms siphon off cash for other purposes through these insurance inversions, then still take the full tax deduction on the original amount of reserves. This loophole defies any form of logic or common sense.”