Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.
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Transcript of Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.
![Page 1: Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.](https://reader036.fdocuments.in/reader036/viewer/2022062409/56649ea85503460f94bac04a/html5/thumbnails/1.jpg)
Tax Update
∙ Midwest IASA∙ Ankeny, IA∙ September 17, 2015
Brandy Vannoy, CPA, Partner
![Page 2: Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.](https://reader036.fdocuments.in/reader036/viewer/2022062409/56649ea85503460f94bac04a/html5/thumbnails/2.jpg)
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Agenda
• New/Proposed Legislation
• Other Updates
• Recent Court Cases
• Tax Sharing Agreements
![Page 3: Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.](https://reader036.fdocuments.in/reader036/viewer/2022062409/56649ea85503460f94bac04a/html5/thumbnails/3.jpg)
![Page 4: Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.](https://reader036.fdocuments.in/reader036/viewer/2022062409/56649ea85503460f94bac04a/html5/thumbnails/4.jpg)
![Page 5: Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.](https://reader036.fdocuments.in/reader036/viewer/2022062409/56649ea85503460f94bac04a/html5/thumbnails/5.jpg)
![Page 6: Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.](https://reader036.fdocuments.in/reader036/viewer/2022062409/56649ea85503460f94bac04a/html5/thumbnails/6.jpg)
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New/Proposed Legislation
• Overview
• Review 2014 Camp Proposals
• Main provisions affecting insurance companies
- Reduce top corporate tax rate to 25%
- Repeal Alternative Minimum Tax (AMT) and revise Net Operating Loss (NOL) rules
- Eliminate exclusion of performance-based compensation under IRC 162(m)
- Life reserves – increase in discount rate to compute tax reserves
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New Proposed Legislation
• Main provisions affecting insurance companies (cont.)
- Non-life reserves – increase in rate, loss payment pattern lengthening, no company election
- Increase in DAC percentages
- Change in proration rules
- Remove benefits for small life and non-life insurers
- Limit Corporate-Owned Life Insurance (COLI) interest expense exception to 20% owners for new contracts
- Repeal IRC 847
![Page 8: Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.](https://reader036.fdocuments.in/reader036/viewer/2022062409/56649ea85503460f94bac04a/html5/thumbnails/8.jpg)
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New Proposed Legislation
• Obama Administration FY 2016 budget proposal
- Submitted on February 2, 2015
- Reaffirmed support for reduction of top US corporate income tax rate
- Included a number of items aimed at insurance industry tax reform
- Would affect both foreign and domestic insurers
![Page 9: Tax Update ∙ Midwest IASA ∙ Ankeny, IA ∙ September 17, 2015 Brandy Vannoy, CPA, Partner.](https://reader036.fdocuments.in/reader036/viewer/2022062409/56649ea85503460f94bac04a/html5/thumbnails/9.jpg)
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New Proposed Legislation
• Foreign Insurers
- Limit deductions for reinsurance premiums paid to foreign affiliates
- Exclusion for ceding commissions received or reinsurance recovered in same proportion that premium deduction denied
- Election to treat premiums and associated investment income as Effectively Connected Income (ECI)
- Would be effective for tax years beginning after December 31, 2015
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New Proposed Legislation
• Domestic Insurers
- Tax on large (assets +$50B) financial institutions
- Carryback and carryforward periods
- Derivatives
- Proration
- COLI
- Sales of Life Insurance contracts
- Would be effective for tax years beginning after December 31, 2015
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Recent Court Cases
• Validus Reinsurance, Ltd. V. United States, No. 14081 (D.C. Cir. May 26, 2015)
- Cascading and Federal Excise Tax (FET) under IRC 4371
- Reinsurance vs. Retrocession
• Securitas Holdings, Inc. v. Commissioner, T.C. Memo 2014-225 (October 29, 2014)
- Allowed deduction for premiums paid to a captive insurance company
- Similar to Rent-A-Center v. Commissioner (January 14, 2014)
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Acuity Case
A Mutual Insurance Company, and Subsidiaries v. Commissioner (U.S. Tax Court, Dkt. No. 9421-11, TC Memo. 2013-209, September 4, 2013)
• Big win for taxpayers!!!!
• Facts of Acuity
• Court Ruling
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Acuity Case – Key Observations
NAIC and ASOP standards support “fair and reasonable”
Subsequent favorable development does not mean loss reserve estimate was unreasonable
Actuaries everywhere
• 5 different actuaries involved in the case
• After consideration of opining actuary and company’s independent actuaries, court stated “our inquiry ends” without consideration of IRS actuaries
Documentation key
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Loss Reserves
Documentation
IRS requests in exam
Support for method
Compliance with NAIC guidance and ASOP
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Other Updates
• FATCA reporting of US insurance premiums
• Accounting Method Changes and Procedures
- Rev. Proc. 2015-13 and Rev. Proc. 2015-14
- New procedural rules for filing method changes
‒ Taxpayers Under Examination
‒ Shortened IRC 481(a) adjustment periods
• Increase in IRS examinations of insurance companies
• Increase in investments in Master Limited Partnerships (MLPs) or other alternative investments
• State tax credits
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Tax Sharing Agreements
• Systematic, rational, and consistent
• Three Basic Reasons
- Earnings & Profits
- Stock Basis
- To determine how to split the actual liability and intercompany settlements
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Tax Sharing Agreements
• Earnings & Profits – IRC 1552(a)
1. Contribution to Consolidated Taxable Income
2. Separate Return Tax Liability
3. Allocation of Tax Increases from Consolidation
4. With Approval from the Secretary
• Tax Attribute Absorption Methods – Treas. Reg. 1.1502-33(d)
‒ “Wait and See”
‒ “Percentage Method”
‒ Other Approved Methods
• Stock Basis