[Congressional Record Volume 145, Number 59 (Wednesday, April 28, 1999)]
[Extensions of Remarks]
[Page E798]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   INTRODUCTION OF THE FORMER INSURANCE AGENTS TAX EQUITY ACT OF 1999

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                           HON. JERRY WELLER

                              of illinois

                    in the house of representatives

                       Wednesday, April 28, 1999

  Mr. WELLER. Mr. Speaker, I come to the floor today with my 
colleagues, Mr. Kleczka, Mr. McCrery, Mr. Neal, Mr. Ramstad and Ms. 
Baldwin, to introduce the Former Insurance Agents Tax Equity Act of 
1999, a bill designed to expand a provision in the Taxpayer Relief Act 
of 1997 (TRA) that ensured that certain retired insurance agents are 
not unfairly subjected to self-employment tax. This bill will continue 
our efforts and will bring consistency and fairness to the tax 
treatment of similarly-situated former insurance agents.
  Congress, recognizing that valued, long-time insurance agents with 
certain termination contracts were being improperly subjected to self-
employment tax, enacted a provision in the TRA designed to clarify that 
termination payments received by former agents are exempt from self-
employment tax.
  In particular, the TRA amended Sec. 1402 of the Internal Revenue Code 
to provide that an agent's eligibility for termination payments could 
be tied to the agent's length of service. Unfortunately, the provision 
did not also allow for the actual amounts of the payments to depend on 
an agent's length of service. As a result, some termination payments 
are exempt from self-employment tax, but others are not since insurance 
companies structure their agreements with agents in slightly different 
ways.
  Some companies tie a former agent's eligibility for termination 
payments to his or her length of service with the company. While the 
agent's eligibility for payments is tied to length of service, the 
actual amount of the termination payment is not. Under current law, 
these former agents could receive termination payments indefinitely 
without incurring self-employment tax. (The payments, of course, 
continue to be subjected to income taxes.)
  Other companies structure their agreements slightly differently. 
These companies limit the period in which a former agent receives 
payments and they vary the amount of the payments according to each 
agent's length of service and performance during his or her last year 
of service. This payment structure is designed to encourage agent 
loyalty since agents are rewarded for long-term service with the 
company. However, since the amount of payment is tied to the agent's 
length of service, these payments would be subject to self-employment 
tax under current law.
  There is no policy justification for providing different tax 
treatment for these substantially similar arrangements. Both types of 
contracts seek to satisfy the same goal of rewarding loyal, long-time 
agents with more compensation. It should not matter for tax purposes 
whether this result is achieved by varying the actual amount of 
compensation rather than the term of compensation.
  The Former Insurance Agents Tax Equity Act of 1999 simply would 
strike language in the Internal Revenue Code that prevents companies 
from using a former agent's length of service in determining the amount 
of termination payment the agent will receive. In doing so, this bill 
provides equitable tax treatment for similarly-situated former agents.
  This provision is supported by thousands of insurance agents around 
the country, as well as the National Association of Life Underwriters, 
the Coalition of Exclusive Agents, and the National Association of 
Independent Insurers. This issue affects a small number of agents and 
any revenue implications of making this clarification should be 
negligible.
  In the interest of ensuring that termination payments to former 
insurance agents are treated fairly and consistently under our tax 
laws, I hope that you will join me in supporting the Former Insurance 
Agents Tax Equity Act of 1999.

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