Skip to main content

Tax Policy: Allocation of Taxes Within the Life Insurance Industry

GGD-90-19 Published: Oct 19, 1989. Publicly Released: Oct 19, 1989.
Jump To:
Skip to Highlights

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.

Full Report

Office of Public Affairs

Topics

Federal taxesIncome taxesInsurance companiesLife insuranceMathematical analysisProposed legislationSecuritiesStatistical methodsTax lawDividends