Insurers To Lobby Treasury For Excise Tax Delay

WASHINGTON–Insurance industry officials will meet with Treasury tax officials tomorrow and urge them to delay or rescind Internal Revenue Service guidance requiring domestic insurers to pay an excise tax every time a premium is ceded to a foreign insurer or reinsurer.

Unless rescinded, the Treasury guidance will go into effect Oct. 1. It was published by the agency in late March and, according to industry lawyers, represents a long-held IRS position. It will give carriers that haven't complied with the law until Oct. 1 to voluntarily file.

The meeting will be with Eric Solomon, assistant secretary of the Treasury for tax policy.

Representing the industry will be representatives of the Reinsurance Association of America and lawyers from the Washington Advocates Group, a group representing the RAA and six other property-casualty and life insurance industry trade groups.

A memo from the insurance interests to the government states they want the ruling to “be withdrawn, and the cascade [taxation] theory abandoned well in advance of the October 1 deadline for the so-called “voluntary compliance initiative,” so that taxpayers “will not file returns and pay cascade taxes that are unjustified,” the memo said.

The legal memo, which is the basis of their presentation to officials, was sent to Mr. Solomon and other Treasury officials July 9.

It states that the IRS guidance is “a strained construction of the statute,” and that it is “inconsistent with the statutory purpose, legislative history and the canons of construction” of the law which the guidance interprets.

“The ruling contrasts sharply with the long-standing treatment of the federal excise tax as a tax imposed only once, when premiums are transferred from a U.S. party to a foreign insurer.”

The memo also contends that “application of the tax to independent, extraterritorial transactions constitutes overreaching that is unlikely to be approved by the courts.”

The memo said the trade groups “represent companies that collectively underwrite substantially all of the life insurance and property casualty insurance and reinsurance written in the U.S.”

Besides the RAA, the trade groups represented include the Reinsurance Association of America; the American Council of Life Insurers; the American Insurance Association; the Association of Bermuda Insurers and Reinsurers; the Council of Insurance Agents & Brokers; the National Association of Mutual Insurance Companies; and the Property Casualty Insurance Association of America. They are all based in Washington, D.C.

Under the new guidance a 1 percent excise tax will be imposed on subsequent cedings, on top of the original 4 percent tax, creating a “cascading” effect, according to industry lawyers and lobbyists.

The revenue ruling (2008-15) was published in The Federal Register on March 24. The guidance sets out the IRS position that the federal excise tax on insurance and reinsurance premiums imposed by Sec. 4371 of the IRS Code of 1986 is indeed a so-called “cascading” tax.