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Aflac Seeks Resolution of Life Insurance Company Expense Allocation

FEB. 8, 2021

Aflac Seeks Resolution of Life Insurance Company Expense Allocation

DATED FEB. 8, 2021
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February 8, 2021

Honorable Charles P. Rettig
Commissioner of Internal Revenue
CC:PA:LPD:PR (REG-101657-20)
Room 5203
Internal Revenue Service
P.O. Box 7664
Ben Franklin Station
Washington, DC 20044

Re: REG-101657-20 — Proposed Treas. Reg. § 1.861-14(h)

Dear Commissioner Rettig:

On September 29, 2020, the Treasury Department and the IRS issued proposed Treas. Reg. § 1.861-14(h) which provides that, in computing income for purposes of the foreign tax credit, § 818(f)(1) items (primarily life insurance reserve deductions) “are allocated and apportioned as if all members of the life subgroup were a single corporation (“life subgroup method”).” The proposed regulation further provides a one-time election for taxpayers to choose to apply the “separate entity method” rather than the “life subgroup method” in allocating and apportioning § 818(f)(1) items.

In the Special Analysis section of REG-101657-20, the Treasury and the IRS explain their reasoning as follows:

Comments received supported both methods and the Treasury and the IRS have concluded that the life subgroup method should generally be used, because it minimizes opportunities for abuse and is more consistent with the general rules allocating expenses among affiliated group members. However, recognizing that the single [separate] entity method also has merit, the proposed regulations permit a taxpayer to make a one-time election to use the separate entity method for all life insurance members in the affiliated group.

We agree with the Treasury and the IRS for the reasons set forth in our February 14, 2020 comment letter concerning the earlier 2019 proposed regulation that would have required the use of the separate entity method to allocate § 818(f)(1) items. As stated in that letter and supported by the above explanation of the Treasury and the IRS, we strongly believe that the life subgroup method minimizes opportunities for abuse and is most consistent with the language and legislative history of § 864(e)(6) — which the 2020 proposed regulation is intended to implement.

We also recognize that over the years there has been a split in the life insurance industry as to whether § 818(f)(1) items should be allocated using the life subgroup method or the separate entity method. Considering this long-existing split in the industry, we believe that providing a one-time election to use the separate entity method is appropriate. After all these years, Prop. Reg. § 1.861-14(h), when finalized, will put the question of how to allocate § 818(f)(1) items to rest.

We believe that our views are consistent with the views of the rest of the life insurance industry. In its February 18, 2020 comment letter on the 2019 proposed regulations, the American Council of Life Insurers (“ACLI”) stated that it favored an elective approach. We understand that the ACLI supports the newly proposed regulation.

We thank you for reconsidering the 2019 proposed regulation and proposing a regulation that resolves the long-standing question of how to allocate § 818(f)(1) items for foreign tax credit purposes.

Respectfully submitted,

Dan Trsic
Vice President-Director of Tax

Cc:

Jeffrey Van Hove
Acting Assistant Secretary (Tax Policy)
Department of the Treasury

Mark Mazur
Deputy Assistant Secretary (Tax Policy)
Department of Treasury

Kevin Nichols
Acting International Tax Counsel
Department of the Treasury

Jason Yen
Associate International Tax Counsel, Office of International Tax Counsel
Department of Treasury

Angela Walitt
Attorney-Advisor, Office of Tax Policy
Department of Treasury

Colin Campbell
Attorney-Advisor, Office of Tax Policy
Department of Treasury

William Paul
Acting Chief Counsel
Internal Revenue Service

Peter H. Blessing
Associate Chief Counsel (International)
Internal Revenue Service

Barbara Felker
Branch Chief, Office of Associate Chief Counsel (International)
Internal Revenue Service

Jeffrey P. Cowan
Attorney-Advisor, Office of Associate Chief Counsel (International)
Internal Revenue Service

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