P&C Insurers Reiterate Concerns About Business Interest Regs

September 29, 2020

Secretary of the Treasury
c/o Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, DC 20224

Re: Comments on T.D. 9905

Dear Sir/Madam:

These comments are filed with respect to T.D. 9905 which contains final regulations on limitations for business interest expense deductions under section 163(j) of the Internal Revenue Code of 1986, as amended. They are filed on behalf of a group of property/casualty insurance companies that file consolidated returns both with and without life insurance companies, This group previously filed comments on the proposed regulations (REG-106089-18). This letter is to reiterate one of the prior recommendations and explain why the recommendation is consistent with the general rules adopted in the final regulations.

Treas. Reg. § 1.163(J)-4(d)(2)(i) provides that there is a single section 163(j) limitation for members of a consolidated group, the absorption of which is governed by Treas. Reg. § 1.163(j)-5(b)(3)(ii). This is the same rule that was contained in the proposed regulations. The Preamble acknowledges the receipt of prior comments which request confirmation that there is a single section 163(j) limitation for all members included in a life/nonlife consolidated return under Treas. Reg. § 1.1502-47, despite the general rule under those regulations requiring initial subgroup calculations. The Preamble states:

Application of Section 163(j) to Life-Nonlife Groups

Proposed § 1.163(j)-4(d)(2) provides that a consolidated group has a single section 163(j) limitation and that, for purposes of calculating the group's ATI, the relevant taxable income is the group's consolidated taxable income. However, § 1.1502-47 requires consolidated groups whose members include life insurance companies and other companies (life-nonlife groups) to adopt a subgroup method to determine consolidated taxable income. (One subgroup is the group's nonlife companies; the other subgroup is the group's life insurance companies.) Under the subgroup method, each subgroup initially computes its own consolidated taxable income, and there are limitations on a life-nonlife group's ability to offset one subgroup's income with the other subgroup's loss. In light of the apparent tension between proposed § 1.163(j)-4(d)(2) and the subgroup method in § 1.1502-47, one commenter asked for clarification that there are not separate section 163(j) limitations for each subgroup in a life-nonlife group. The subject matter of this comment is beyond the scope of the final regulations.

We believe the final regulations already apply the single entity rule to a life/nonlife consolidated group. Treas. Reg. § 1.163(j)-1(b)(7) provides that references to a consolidated group has the meaning provided in Treas. Reg. § 1.1502-1(h) which defines the term “consolidated group” as a group filing (or required to file) consolidated returns for the tax year. Therefore, this reference includes a life/nonlife consolidated group. However, because our experience is that the subgroup approach to life/nonlife consolidation often creates confusion as to how to apply limitations on deductions, we request confirmation that the single limitation applies to life/nonlife consolidated groups.

We appreciate your taking into consideration our comments.

Respectfully submitted,

Peter H. Winslow

Lori J. Jones

Scribner, Hall & Thompson, LLP
Washington, DC