Monthly LRA Update: October 2021

LEGISLATIVE DEVELOPMENTS

Government Infrastructure and Tax Legislation Update

Congress continues to work on two separate spending and tax plans:

• H.R.3684 – Infrastructure Investment and Jobs Act (link) is a bi-partisan infrastructure bill scored at $1.2 trillion. It passed in the Senate on August 10. The House was expected to vote on it on September 30, however, that vote was postponed late last night as Democrats continue to try to align progressive and moderate factions in the House to obtain support for both plans.
• Build Back Better Act is a $3.5 trillion plan that Democrats will seek to pass through a budget reconciliation process without any Republican support.

On September 25 the House Budget Committee advanced Build Back Better Act bill. It will now head to the House Rules Committee where further changes are expected before it is brought to a vote on the House floor.

It is the $3.5 trillion plan that includes changes to the corporate tax regime. At present, the bill would increase the tax rate for large firms from 21% to 26.5%.

We continue to monitor for any other tax provisions related to life insurance or executive benefits. We haven’t observed any yet, and the insurance companies we’ve checked in with are not expecting any other provisions to arise.

TAX DEVELOPMENTS

IRS Priority Guidance Plan – Additional Guidance for Reportable Policy Sales

On September 9 the IRS released an updated 2021-2022 Priority Guidance Plan. The updated list of priorities included an item related to the so-called Reportable Policy Sales regulations:

Regulations under §§101 and 6050Y relating to §1035 exchanges and certain corporate acquisitions.

It is not entirely clear what aspects of the existing regulations (which were issued in October 2019) the IRS intends to address. From our perspective, it was peculiar that the IRS had determined that a §1035 exchange would constitute a “transfer of an interest in a life insurance contract.” Some parties have pressed the IRS to modify that interpretation.

Additionally, the October 2019 regulations required that any life insurance policies acquired through a business acquisition that was structured as an asset purchase must be assessed for an exemption from the reportable policy sale implications. Many parties have encouraged the IRS to modify this regulation and treat all business acquisitions as being exempt from reportable policy sale treatment.

We will monitor for any guidance that the IRS may issue on this topic.

REGULATORY DEVELOPMENTS

Bank Regulators Extend Comment Period on Proposed Risk Management Guidance for Third-Party Relationships

In our July LRA Update, we covered the proposed interagency guidance on managing third-party relationships. Originally, the comment period was set to expire on September 17.

However, on September 7 the banking regulators announced an extension to the comment period to October 18.At this point, we have not observed any noteworthy comments. Comment submissions can be reviewed here.