Business Regulation and Consumer Protection:

Allocation of Taxes Within the Life Insurance Industry

T-GGD-90-3: Published: Oct 19, 1989. Publicly Released: Oct 19, 1989.

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GAO discussed the Internal Revenue Code (IRC), focusing on whether: (1) it adequately measured life insurance dividend earnings for taxation purposes; and (2) a predetermined split of the life insurance industry's tax bill between mutual and stock life companies at 55 percent and 45 percent, respectively, was sound tax policy. GAO noted that IRC imposed taxes that: (1) were higher for mutual companies in low-earning years and lower when earnings were high; (2) burdened low-earnings companies more by instituting industry segment averages to arrive at each company's taxes; and (3) depended disproportionately on the performance and behavior of larger mutual companies. GAO believes that the pertinent IRC section should be deleted and replaced by a prepayment approach on policyholder dividends to eliminate the need for computation of insurance companies' earnings.

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