NAMIC Defends Small Company Tax Rules
By Steven Brostoff, Washington Editor
NU Online News Service, April 3, 11:25 a.m. EST?The National Association of Mutual Insurance Companies is hoping that a recent report of abuse involving small property-casualty company tax rules will not derail legislative efforts to update the rules.
"It doesn't help," said Monte Ward, vice president of federal affairs with the Indianapolis-based NAMIC, referring to a recent New York Times article which reported that some wealthy individuals are using the small p-c company tax exemption as a way to earn millions in tax-free income without actually underwriting insurance.
But despite the article, Mr. Ward said, there is a legitimate need for legislation, S. 735, which would increase the amount of the exemption.
Mr. Ward said he could not speak to the legitimacy of the reports of abuse, but added any time there is tax exemption, the potential for abuse is there.
But that does not negate the real need to increase the exemption for small companies that serve rural communities, he said.
Under current law, p-c insurance companies with $350,000 or less in direct or net written premium are tax exempt. Companies with premiums between $350,000 and $1.2 million can elect to be taxed solely on their investment income.
S. 735 would increase the thresholds to $575,000 and $1.971 million, respectively.
Sen. Christopher Bond, R-Mo., is the lead sponsor of S. 735. In a statement on the floor of the Senate, he said the legislation is necessary to allow small insurance companies serving rural communities in Missouri and other farming states to remain competitive.
National Underwriter called Sen. Bond's office for a comment on how the controversy would affect the legislation, or whether the Senator might add any anti-abuse language, but the call was not returned.
One source, who asked not to be identified, said his understanding is that the issue involving abuse is actually one of enforcement. The source said that the Internal Revenue Service already has the authority to deny the tax exemption to insurance companies that are set up as a sham solely to avoid taxes.
The question, he said, is whether IRS has the resources to do the job effectively.
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