Mutuals Lose Sec. 809 Tax Fight For 2004
Washington
The nations approximately 50 mutual life insurance companies have lost an effort to escape payment of a tax on dividends paid to policyholders this year under a 1984 law that sought to balance the interests of stock and mutual insurers, and there is some doubt whether the mutuals will continue their effort since Congress voted earlier this year to terminate the tax effective January 2005.
The provision is known as Sec. 809 of the IRS Code. A provision suspending it for 2004 was added to the expanded middle class tax bill by Senate conferees to the measure, but adding the provision was rejected by House conferees late Wednesday; the revised bill was passed by both the House and Senate Thursday.
The provision forces mutual life insurers to effectively prepay tax on income later distributed to policyholders in the form of dividends, lawyers and lobbyists for Massachusetts Mutual Life Insurance have contended in leading the fight to have the provision terminated. An industry lobbyist who declined to be named but represents a number of the institutions who have lobbied fiercely and effectively to terminate the provision said the Joint Tax Committee estimates the cost to mutual insurers this year at $50 million. However, since the provision can be averaged out because the provision has been suspended for the past three years, it is difficult to say precisely how much it will cost the industry in taxes for this year.
"It is not clear if there is any savings associated with suspending it for 2004 because it takes three years to aggregate total cost," the lobbyist said.
The mutual industry was successful in adding a provision ending the tax effective January 2005 to a pension bill passed earlier this year.
A provision suspending the tax for this year is included in the so-called FSC/ETI bill (foreign sales corporation/extraterritorial income tax regime) that is also the subject of a House-Senate conference, but there are deep concerns about whether Congress will get to that bill this year.
