Group Seeks Clarification of Effective Date for Insurance Regs

May 9, 2019

The Honorable Steven Mnuchin
Secretary of the Treasury
U.S. Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

The Honorable Charles Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224

CC: PA:LPD:PR (REG-103083-18)
Room 5203
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station, Washington, D.C. 20044

Re: CC:PA:LPD:PR (REG-103083-18)/Notice of Proposed Rulemaking with Respect to Information Reporting for Certain Life Insurance Contract Transactions and Modifications to the Transfer for Valuable Consideration Rules (REG-103083-18) (“Proposed Reportable Policy Sale Regulations”)

Dear Secretary Mnuchin and Commissioner Rettig:

Since 1957, AALU has been the leading organization of financial professionals who provide life insurance and retirement planning solutions for individuals, families, and businesses. Our more than 4,000 members nationwide are financial security professionals who focus on life insurance, annuities, and investments for long-term financial planning, retirement, charitable giving, deferred compensation, and employee benefit services. Life insurance products offer essential benefits to 75 million American families and thousands of businesses — providing protection, financial security, and peace-of-mind. AALU's members are leading advisors to businesses of all sizes throughout the U.S. that own and use life insurance for critical financial and retirement security needs.

AALU appreciates this opportunity to comment on the Proposed Reportable Policy Sale Regulations.¹ In particular, the guidance contained in the Proposed Reportable Policy Sale Regulations as to what constitutes a “reportable policy sale” in Proposed Treasury Regulation section 1.101-1 is very important to businesses that own life insurance.

Since the enactment of section 101(a)(3), such businesses have been looking for greater clarity on this topic — and the Proposed Reportable Policy Sale Regulations go a great way towards providing such clarity.

It is consequential, therefore, that the proposed applicability date articulated in Proposed Treasury Regulation section 1.101-6(b) 101-6(b) be clarified so businesses that own life insurance and that have undertaken mergers, acquisitions, joint-ventures, and other strategic transactions in 2018 may rely on the Proposed Reportable Policy Sale Regulations as to what is considered a “reportable policy sale” for any purpose (including, as is currently proposed, with respect to information reporting).

Since the enactment of the Tax Cuts and Jobs Act (“TCJA”) businesses that own life insurance have understood that ordinary course business transactions (e.g., mergers, acquisitions, etc.) involving businesses that own life insurance contracts were not intended by Congress to fall within the meaning of a “reportable policy sale.” Given the potentially broad manner in which section 101(a)(3) could conceivably be interpreted, the rules describing a reportable policy sale in the Proposed Reportable Policy Sale Regulations are very helpful in confirming Congress' narrow intent.

Notwithstanding, there is some uncertainty as to whether the proposed rules apply to transactions entered into after the enactment of the TCJA, but before the date the rules are made final (“Post-TCJA Period”).

To address this concern, AALU requests that the Treasury Department (“Treasury”) and Internal Revenue Service (“IRS”) clarify that the proposed effective date of the rules issued with respect to section 101(a)(3) apply to all transfers of life insurance contracts, or interests therein, made after December 31, 2017. If Treasury and the IRS decline to adopt this suggestion, AALU requests, in the alternative, that the IRS and Treasury modify the proposed effective date to allow taxpayers to rely upon the rules in Proposed Treasury Regulation section 1.101-1 for transactions undertaken after December 31, 2017 and before the date that Treasury adopts final rules in this regard. In both cases, AALU requests that the IRS and/or Treasury provide notice to taxpayers before the issuance of final rules indicating that either the effective date will be extended in the manner identified above or that taxpayers will be allowed to rely upon the rules pending the issuance of final rules.

AALU commends your work to provide taxpayers with additional clarity with respect to Reportable Policy Sale regulations. We welcome the opportunity to further discuss these comments with Treasury or the IRS. Please feel free to contact; Chris Morton at (202) 772-2494, or morton@aalu.org; or Armstrong Robinson at (202) 772-2493, or robinson@aalu.org.

Sincerely,

Marc Cadin
President & CEO
AALU
Washington, DC

cc:
David Kautter
Krishna Vallabhaneni
Kathryn M. Sneade