[Congressional Record Volume 149, Number 65 (Monday, May 5, 2003)]
[Senate]
[Pages S5735-S5736]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. NICKLES (for himself, Mr. Conrad, and Mr. Bunning):
  S. 992. A bill to amend the Internal Revenue Code of 1986 to repeal 
the provision taxing policyholder dividends of mutual life insurance 
companies and to repeal the policyholders surplus account provisions; 
to the Committee on Finance.

[[Page S5736]]

  Mr. NICKLES. Mr. President, I rise today to introduce legislation to 
simplify the taxation of life insurance companies. I am joined by my 
colleague from North Dakota, Mr. Conrad, and my colleague from 
Kentucky, Mr. Bunning.
  Our legislation repeals Sections 809 and Section 815 of the Internal 
Revenue Code. These provisions are no longer relevant given the 
significant changes in the life insurance industry over the past 25 
years, and repeal will simplify the tax code.
  Section 809 was enacted in 1984 as a part of major revisions to the 
laws governing life insurance companies. It was intended to ensure that 
mutual life insurance companies do not have a competitive tax advantage 
over stock life insurance companies. At that time, mutual life 
insurance companies dominated the market. Now, however, mutuals account 
for only 10 percent of the industry, and there are very few large 
mutuals in existence. Section 809 reduces the amount of policyholder 
dividends a mutual insurance company can deduct according to a complex 
formula based on the previous 3 years' earnings of stock companies. 
Section 809 is burdensome and raises very little revenue. Because its 
original purpose is no longer valid, our bill would repeal the 
provision permanently. In last year's economic stimulus bill, Congress 
temporarily suspended Section 809. In addition, President Bush included 
in his fiscal year 2003 budget submission a proposal to repeal Section 
809 permanently.
  Section 815 has an even longer history, dating back to 1959. Tax 
changes in 1959 created an accounting mechanism called a ``policyholder 
surplus account'' for stock life insurance companies. Stock companies 
were permitted to defer tax on one-half of their underwriting income as 
long as that income was not distributed to shareholders. This income 
was accounted for through the policyholder surplus account, PSA. In 
1984, Congress eliminated deferral of tax on underwriting income, but 
did not address the issue of PSAs. The amounts in these accounts, which 
are just an accounting entry, and do not contain real money, remain 
subject to tax if certain triggering events occur. Because virtually no 
company is willing to ``trigger'' the tax on the account, Section 815 
also raises little or no revenue. It does, however, directly inhibit 
the business decisions of stock companies with PSAs.
  Congress has worked hard over the last few years to modernize laws 
governing the financial services industry to encourage growth and 
enhance competitiveness. Elimination of outdated tax provisions such as 
Sections 809 and 815 will complement this effort and provide more 
rational taxation of life insurance companies.
  I urge my colleagues to join us in this initiative.
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