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ACLI Identifies Impact of Transition Tax Guidance on Life Insurers

FEB. 14, 2018

ACLI Identifies Impact of Transition Tax Guidance on Life Insurers

DATED FEB. 14, 2018
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February 14, 2018


David J. Kautter
Assistant Secretary for Tax Policy
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

Dana Trier
Deputy Assistant Secretary (Tax Policy)
Assistant Secretary for Tax Policy
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

L.G. "Chip" Harter
Deputy Assistant Secretary (International Tax)
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

Marjorie Rollinson
Associate Chief Counsel, International
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224

Re: Notices 2018-7 and 2018-13 regarding determining amounts included in gross income by a United States shareholder by reason of section 965

Dear Messrs. Kautter, Trier, Harter, and Ms. Rollinson:

On behalf of the American Council of Life Insurers ("ACLI"),1 we are writing with recommendations for implementation of section 965 of the Internal Revenue Code.2 Our recommendations offer reasons for why the guidance implementing the transition tax should be modified to address issues unique to the financial services sector, especially as they relate to the life insurance industry. We thank you for soliciting feedback and providing the opportunity for dialogue, and welcome the opportunity to discuss these items in further detail. We believe our recommendations will assist you to issue guidance effectively and efficiently to implement new section 965.

We appreciate modifications made to Notice 2018-7 in Notice 2018-13,3 which address some of the concerns raised by SIFMA in its letter dated December 22, 20174 regarding the allocation of income and expenses for purposes of section 965. Notice 2018-13 addressed in part the concerns raised in that letter by providing an "alternative method for calculation of determining the post-1986 earnings and profits of a specified foreign corporation in section 3.02 of Notice 2018-13”. The issue of allocating year-end obligations which accrue during the year, however, remain unaddressed, which causes considerable concerns for companies in the financial services sector like life insurers. Ratable allocation of such expenses under the alternative method would more accurately reflect the earnings and profits of specified foreign corporations. We request the issuance of guidance that applies an approach similar to Reg. 1.1502-76(b)(2)(iv) (by allowing income taxes to be allocated based on the income to which the tax relates) and Reg. 1.1502-76(b)(2)(ii) and (iii) (with respect to other expenses that accrue after the applicable measurement date).5

We also write to highlight another issue of importance to life insurance companies, namely, the determination of cash and cash equivalent amounts on a consolidated basis. Notice 2018-7 states that “all members of a consolidated group that are United States shareholders will be treated as a single United States shareholder for purposes of determining the aggregate foreign cash position of the consolidated group and for purposes of taking such aggregate foreign cash position into account under section 965(c)(1).” This presents a unique issue for United States shareholders that have Specified Foreign Corporations (“SFC”) engaged in the life insurance business that could have more cash and cash equivalents than all SFCs of the consolidated group. Life insurance companies are often restricted from lending cash to affiliates and this rule is harmful overall to companies that actively invest as a part of their business. Therefore, we request that United States shareholders with SFCs engaged in the life insurance business be permitted to determine cash and cash equivalent amounts at the U.S. shareholder level for purposes of section 965.

We appreciate your time on, and attention to, these recommendations. We welcome the opportunity to discuss our recommendations and to work with you on these issues to assist in the prompt issuance of guidance to implement section 965.

Sincerely

Peter J. Bautz

Mandana Parsazad

Regina Rose

American Council of Life Insurers
Washington, DC

CC:
Brett York
Attorney-Advisor
Department of Treasury

Leni C. Perkins
Attorney-advisor
Internal Revenue Service

FOOTNOTES

1The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association with approximately 290 member companies operating in the United States and abroad. ACLI advocates in state, federal, and international forums for public policy that supports the industry marketplace and the policyholders that rely on life insurers' products for financial and retirement security. ACLI members offer life insurance, annuities, retirement plans, long-term care and disability income insurance, and reinsurance, representing 95 percent of industry assets, 93 percent of life insurance premiums, and 98 percent of annuity considerations in the United States. Learn more at www.acli.com.

2As amended by “an Act to Provide for Reconciliation pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018”, P.L. 115-97.

3Notice 2018-07, 2018-4 I.R.B. 317 and Notice 2018-13, 2018-6 I.R.B. 341.

4SIFMA's December 22, 2017 letter to Messrs. Kautter, Trier, and Harter noting that taxpayers should be permitted to use ratable allocation to determine amounts subject to the deemed repatriation tax.

5Consistent with the allocation of foreign income taxes for purposes of the 965(a) inclusion, such allocated foreign income taxes should be eligible as section 901 foreign tax credits (subject to section 965(g) disallowance).

END FOOTNOTES

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