The Internal Revenue Services has developed a system that could help U.S. life insurers comply with part of the Tax Cuts and Jobs Act of 2017 (TCJA).
The new system, described in IRS Revenue Procedure 2019-34, is supposed to give life insurers a quick way to change accounting methods that conflict with the new TCJA policy acquisition cost tax rules.
(Related: How Trump’s Tax Act Could Affect Annuity Issuers)
The TCJA changed the tax rules for life insurers’ reserves, and for how life insurers handle “policy acquisition expenses.”
“Policy acquisition expenses” include many types of costs related to selling and onboarding a new life insurance policy or annuity contract, including the payment of sales commissions to agents, brokers and distributors.
Normally, the IRS requires companies to use the same accounting methods every year, to reduce the risk that companies will try to cut their tax bills by changing their accounting methods.
Now, however, life insurers need to be able to change their accounting methods quickly to comply with the TCJA changes, IRS officials say in the new revenue procedure.
In January, the IRS published one revenue procedure, Revenue Procedure 2019-10, to help life insurers with the effects of the TCJA on reserve accounting.