Following a hearing in the Committee on Ways and Means in the U.S. House of Representatives earlier this month, the Financial Services Committee held a hearing on tax reform. The Financial Services Committee has jurisdiction over many insurance related issues.

The Big “I” and a coalition of other producer groups submitted a statement for the record for the hearing. The coalition also submitted a statement to the previous Ways and Means Committee hearing.

A key provision of the new tax law focused on small businesses creates a section in the individual tax code (26 U.S.C. §199A) that allows for a 20% deduction on “qualified business income” for owners and shareholders of pass-through businesses.

Two-thirds of Big “I” member agencies are organized as pass-through entities, and many should be able to benefit from the new deduction in whole or in part. However, it is currently unclear whether insurance agencies and brokerages will be able to receive the full benefit of this deduction. The Big “I” and other producer groups are seeking clarity on this issue from the Treasury Department.

The outstanding issue for many Big “I” member agencies is if the sale and servicing of insurance is considered a “specified service trade or business” in any implementing regulations or guidance on the new law. This is important because an owner or shareholder of a “specified service trade or business” with annual taxable income above $415,000 (joint) and $207,500 (single) is prohibited from using the new deduction.

In April, the coalition sent a letter to key Treasury Department officials and met with the department. As a follow-up from the meeting, the coalition recently sent another letter to the Treasury Department. The department has stated it intends to issue clarifying rules later this year. The Big “I” is advocating that any implementing regulations or guidance treats agents and brokers appropriately.

The Big “I” believes that Congress did not intend to limit insurance agency owners from receiving the full benefits of the pass-through deduction because Congress specifically excluded the word “insurance” from the definition of a “specified service trade or business” in the new law. Furthermore, interpreting the pass-through provisions of the law in a narrow and exclusionary manner is against the broad public policy goals of the law: to create jobs and grow the economy.

Jennifer Webb is Big “I” federal government affairs counsel.