Billions of Dollars are Involved in Taxation of the Life Insurance Industry--Some Corrections in the Law are Needed

摘要

The income of U.S. life insurance companies is taxed under a special subchapter of the Internal Revenue Code that was enacted in 1959 and tailored to the life insurance industry as it then existed. In the last 20 years many changes occurred in the industry, not only in its structure but also in the products it offers. The economic environment in which life companies operate has also changed. These changes in the industry and economy have rendered certain provisions of the Act inappropriate and in need of revision. In this report GAO examines the life insurance industry and considers how it has changed since 1959. The complex rules by which company income is taxed are explained in detail. Several problems in the law are carefully presented. Income tax data from a sample of company tax returns are analyzed, and the effects on tax burdens of some alternatives to the current rules are discussed. The report concludes with three specific recommendations for changes in the law and identifies six additional issues for study by the Congress.