About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

PAD-82-33 1 (1982-04-14)

handle is hein.gao/gaobabdcw0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 PROGRAM ANALYSIS DIVISION B-206899 APRIL 14,1982 The Honorable Dan Rostenkowski Chairman, Joint Committee on Taxation Congress of the United States Dear Mr. Chairman: Subject: Modified Coinsurance and Its Use by Some Life Insurance Companies to Reduce Taxes (PAD-82-33) On December 23, 1981, your committee asked us to analyze the characteristics of modified coinsurance transactions and the extent of their use by life insurance companies. To conduct this analysis, we studied data on Federal income taxes incurred as well as modified coinsurance reported for the period 1978-80. Our sample consisted of 42 large life insurance companies used in our earlier study, Billions of Dollars Are Involved In Tax- ation Of The Life Insurance Industry--Some Corrections In The Law Are Needed, PAD-81-1. Our analysis indicates that life insurance companies have increased their use of modified coinsur- ance and have reduced their tax burdens. Furthermore, we are unable to identify any factors other than the increased use of modified coinsurance that could explain the observed decrease in tax liability. BACKGROUND Modified coinsurance is an arrangement in which insurance companies share risk. By entering into these arrangements under section 820 of the Internal Revenue Code, some insurance compan- ies--primarily large mutual companies--are able to convert their investment income, on which they pay tax, into underwriting in- come, on which they pay little if any tax. The additional under- writing income is not usually taxed because mutual companies cre- dit it to owners/policyholders in the form of deductible dividends. Section 820 was intended to prevent double taxation when modified coinsurance arrangements are used. Without a section 820 election, double taxation could occur because both the original insurer and the company sharing the risk would be subject to tax on some of the same income. However, section 820 was never in- tended to serve as a mechanism for reducing tax liabilities. (971468)

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most