Treasury to Exempt P-C Premiums from FATCA

Last week, the Department of Treasury and the Internal Revenue Service (IRS) issued draft regulations to exclude non-cash value property-casualty insurance premiums from requirements under the Foreign Account Tax Compliance Act (FATCA).

The Big “I” supports the draft regulation, which would help alleviate complex and unnecessary compliance burdens faced by p-c insurance agents and brokers that place international risks.

FATCA, which went effect in 2015, requires any U.S. entity conducting business with a foreign financial institution to gather certification forms to show that the foreign financial institution is not holding untaxed U.S. money. If the U.S. company conducting the transaction cannot obtain the certification, it is required to withhold 30% of payment.

Although the goal of FATCA is to crack down on international cash value accounts that are being exploited to avoid U.S. taxes, the IRS has previously deemed non-cash value p-c insurance premiums financial transactions that fall under FATCA. The Treasury proposal seeks to reverse this and properly classify p-c insurance premiums as non-financial. Cash value insurance policies, such as a life insurance policy with an investment component, would still be covered under FATCA.

FATCA has created compliance issues for those who place complex U.S. risks with international components. Following the international path of these premiums related to U.S. risks and complying with the FATCA certification process is very cumbersome and costly. Also, the requirements provide little to no benefit because insurance with no investment component (i.e. p-c insurance) is not used to evade U.S. taxes.

The proposal is open for a 60-day public comment period and is expected to be finalized early next year. However, the proposal notes that taxpayers may generally rely on the proposed regulations until final regulations are issued.

If finalized in its current form, the rule would apply not only to future tax years but also retroactively to all open tax years.

For more information on FATCA, Big “I” members can log in to access an FAQ document.

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