Tax Policy: Allocation of Taxes Within the Life Insurance Industry
GGD-90-19
Published: Oct 19, 1989. Publicly Released: Oct 19, 1989.
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Highlights
Pursuant to a congressional request, GAO reviewed: (1) how section 809 of the Internal Revenue Code affected the income tax split between stock and mutual life insurance companies and within the mutual segment itself; and (2) alternative methods of taxing mutual life insurance companies.
Recommendations
Matter for Congressional Consideration
Matter | Status | Comments |
---|---|---|
Congress should delete section 809 from the tax code, accept the prepayment approach at the company level, and legislate a tax on the earnings part of dividends attributed to the individual policyholder. Congress should impose the tax on these earnings at the company level as a proxy for the tax on individual policyholders. |
Closed – Not Implemented
|
Congress has, at least for the time being, decided to let section 809 stand. |
To calculate the earnings part of policyholder dividends, Congress should specify a proportion of policyholder dividends to be included in the taxable income of mutual and stock life insurance companies. This proportion should be based on the dividend payout behavior of stockholder-owned corporations but could be adjusted upward to allow for capital gains. The proportion should be reexamined periodically. |
Closed – Not Implemented
|
Congress has, at least for the time being, decided to let section 809 stand. |
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Federal taxesIncome taxesInsurance companiesLife insuranceMathematical analysisProposed legislationSecuritiesStatistical methodsTax lawDividends