Monthly LRA Update: September 2022

LEGISLATIVE DEVELOPMENTS

Inflation Reduction Act of 2022

On August 16 President Biden signed the Inflation Reduction Act of 2022 into law. The new law is expected to raise approximately $472 billion to pay for deficit reduction, clean energy and climate investments. It includes $369 billion for investments in climate and energy policies and $64 billion to extend a policy under the Affordable Care Act to reduce health insurance costs.

As noted last month, the Act adopts a new 15% corporate alternative minimum tax (AMT) for companies that report more than $1 billion in book income. The law does not have any provisions that directly impact life insurance tax rules.

Regarding the new AMT regime, it is based on reported financial statement income with a few limited adjustments. Therefore, BOLI income will be included in the determination of Adjusted Financial Statement Income for AMT purposes.

However, as was the case with the previous AMT regime that existed before the Tax Cuts and Jobs Act, the new AMT only applies if the AMT tax is greater than a firm’s regular tax liability, and payment of AMT tax generates a minimum tax credit under Sec. 53 that the taxpayer can then use against regular tax liabilities in future years.

The AMT becomes effective for tax years that begin after December 31, 2022.

California Legislature Passes Unclaimed Property Voluntary Compliance Program

On August 17 the California legislature passed A.B. 2280 which would amend the state’s unclaimed property statutes. Specifically, the bill looks to establish a “Voluntary Compliance Program” to encourage more businesses to report unclaimed property to the state. The bill notes that the present law assessment of 12% per annum interest rate to businesses on overdue unclaimed property transfers to the state serves as a “deterrent” to holders of unclaimed property because of the potentially large interest assessment they could incur by reporting the property.

Section 1513 of the California Code of Civil Procedure sets forth the conditions for businesses to determine what types of property must be escheated and time frames for when the property is supposed to be reported.

Circling back to A.B. 2280, under the Voluntary Compliance Program, certain first-time filers can be eligible for a waiver of the interest assessment. A.B. 2280 was presented to the Governor on August 23 and, as of August 31, is still awaiting his signature for enactment.

Useful link: The California State Controller published a booklet on the state’s Unclaimed Property Law and Regulations in April 2022.

OTHER DEVELOPMENTS

Senate Finance Committee to Investigate Private Placement Life Insurance

On August 15 the Senate Finance Committee Chair Ron Wyden (D-OR) announced an investigation into the use of private placement life insurance (“PPLI”) by the wealthiest Americans “… to avoid and evade taxes.” The announcement included a copy of a letter submitted to Lombard International seeking information on Lombard’s business practices.

In addition to questions specific to the size and scope of Lombard’s PPLI business, the questions posed included

• Is investment in PPLI products marketed to new or existing clients, including clients of parent company Blackstone, as a means to minimize or eliminate ordinary income, capital gains or estate taxes? If so, please explain the legal basis for why these products help minimize or eliminate taxes.
• Has Lombard ever marketed or told clients that PPLI products could be used as “insurance wrappers” to conceal ownership of offshore assets? If so, were clients advised of the need to declare ownership of accounts linked to these products to the appropriate regulators?

The letter appears focused on the individual, high-net worth market for PPLI and makes no reference to legitimate business uses of life insurance.

Lombard was asked to respond by August 31.

NAIC Adopts Regulatory Considerations Applicable to Private Equity-Owned Insurers

On August 12 the NAIC Financial Condition (E) Committee adopted Regulatory Considerations Applicable (But Not Exclusive) to Private Equity Owned Insurers (Link – See Attachments 13-14). The summary identifies regulatory considerations but does not prioritize their levels of importance.