[Senate Report 114-16]
[From the U.S. Government Publishing Office]


                                                        Calendar No. 39
114th Congress     }                                    {        Report
                                 SENATE
 1st Session       }                                    {        114-16

======================================================================

 
   A BILL TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO INCREASE THE 
  LIMITATION ON ELIGIBILITY FOR THE ALTERNATIVE TAX FOR CERTAIN SMALL 
                          INSURANCE COMPANIES

                                _______
                                

                 April 14, 2015.--Ordered to be printed

                                _______
                                

               Mr. Hatch, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 905]

    The Committee on Finance, having considered an original 
bill, S. 905, to amend the Internal Revenue Code of 1986 to 
increase the limitation on eligibility for the alternative tax 
for certain small insurance companies, having considered the 
same, reports favorably thereon without amendment and 
recommends that the bill do pass.

                                CONTENTS

                                                                   Page
 I. LEGISLATIVE BACKGROUND............................................1
II. EXPLANATION OF THE BILL...........................................2
        A. Modification to Alternative Tax for Certain Small 
            Insurance Companies (sec. 1 of the bill and sec. 
            831(b) of the Code)..................................     2
        B. Increase Continuous Levy Authority on Payments to 
            Medicare Providers and Suppliers (sec. 2 of the bill 
            and sec. 6331 of the Code)...........................     3
III.BUDGET EFFECTS OF THE BILL........................................5

IV. VOTES OF THE COMMITTEE............................................7
 V. REGULATORY IMPACT AND OTHER MATTERS...............................7
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED.............8

                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, having considered S. 905, a bill 
to amend the Internal Revenue Code of 1986 to increase the 
limitation on eligibility for the alternative tax for certain 
small insurance companies, reports favorably thereon without 
amendment and recommends that the bill do pass.

Background and need for legislative action

    Background.--Based on a proposal recommended by Senator 
Grassley, the Senate Committee on Finance marked up original 
legislation (a bill to amend the Internal Revenue Code of 1986 
to increase the limitation on eligibility for the alternative 
tax for certain small insurance companies) on February 11, 
2015, and with a majority present, ordered the bill favorably 
reported, with amendments on that date. A related bill, S. 
1346, was introduced in the 113th Congress by Senators Harkin, 
Grassley, Klobuchar, Rockefeller, and Blunt.
    Need for legislative action.--The $1,200,000 ceiling on net 
or direct written premiums, which limits a property and 
casualty insurance company's eligibility to elect the 
alternative tax under section 831(b) of the Internal Revenue 
Code, has not been adjusted for inflation since it was set in 
1986. The need to provide an inflation adjustment should be 
addressed by setting the amount at $2,200,000, with indexing of 
the amount starting after 2015. Further, there may be a need to 
address abuse of captive insurance companies for estate 
planning purposes. A Treasury Department study should be 
conducted of abuse of captive insurance companies for estate 
planning purposes, so Congress can better understand the scope 
of this problem and whether legislation is necessary to address 
it. In addition, it has been reported that many thousands of 
Medicare providers and suppliers have outstanding Federal 
employment and income tax liability, which contribute to the 
tax gap. The permissible percentage of payments to a Medicare 
provider subject to levy should be increased.

                      II. EXPLANATION OF THE BILL


    A. Modification to Alternative Tax for Certain Small Insurance 
       Companies (sec. 1 of the bill and sec. 831(b) of the Code)


                              PRESENT LAW

    Under present law, the taxable income of a property and 
casualty insurance company is the sum of the amount earned from 
underwriting income and from investment income (as well as 
gains and other income items), reduced by allowable deductions. 
For this purpose, underwriting income and investment income are 
computed on the basis of the underwriting and investment 
exhibit of the annual statement approved by the National 
Association of Insurance Commissioners. Insurance companies are 
subject to tax at regular corporate income tax rates.
    In lieu of the tax otherwise applicable, certain property 
and casualty insurance companies may elect to be taxed only on 
taxable investment income under section 831(b).\1\ The election 
is available to mutual and stock companies with net written 
premiums or direct written premiums (whichever is greater) that 
do not exceed $1,200,000.
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    \1\Unless otherwise stated, all section references are to the 
Internal Revenue Code of 1986, as amended (the ``Code'').
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                           REASONS FOR CHANGE

    The Committee has observed that the $1,200,000 ceiling on 
net or direct written premiums, which limits eligibility to 
elect the alternative tax under section 831(b), has not been 
adjusted for inflation since it was set in 1986.\2\ The 
Committee believes that setting the amount at $2,200,000 
reflects inflation from that year, and that the amount should 
be adjusted over time for inflation.
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    \2\Tax Reform Act of 1986, Pub. L. No. 99-514, sec. 1024. The 1986 
Act repealed the special rates, deductions and exemptions for small 
mutual companies under prior law, and substituted a single provision, 
the section 831(b) alternative tax. For more background, see Joint 
Committee on Taxation, General Explanation of the Tax Reform Act of 
1986 (JCS-10-87), May 4, 1987, pages 619-621, and the legislative 
history cited there.
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    The Committee notes that the provision does not include a 
related proposal that would narrow eligibility to elect the 
alternative tax in a manner intended to address abuse 
potential, but that may cause problems for certain States. The 
Committee therefore wants the Treasury Department to study the 
abuse of captive insurance companies for estate planning 
purposes, so Congress can better understand the scope of this 
problem and whether legislation is necessary to address it.

                        EXPLANATION OF PROVISION

    The provision modifies the section 831(b) eligibility rule 
for a property and casualty insurance company to elect to be 
taxed only on taxable investment income. The provision 
increases the amount of the limit on net written premiums or 
direct written premiums (whichever is greater) from $1,200,000 
to $2,200,000 and indexes this amount for inflation starting in 
2016. The base year for calculating the inflation adjustment is 
2013.
    The provision directs the Treasury Department to study the 
abuse of captive insurance companies for estate planning 
purposes, so Congress can better understand the scope of this 
problem and whether legislation is necessary to address it. A 
written report is to be submitted to the Senate Committee on 
Finance not later than February 11, 2016. The report is to 
include legislative recommendations for addressing any such 
abuses.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after the date of enactment.

B. Increase Continuous Levy Authority on Payments to Medicare Providers 
      and Suppliers (sec. 2 of the bill and sec. 6331 of the Code)


                              PRESENT LAW

In general

    Levy is the administrative authority of the IRS to seize a 
taxpayer's property, or rights to property, to pay the 
taxpayer's tax liability.\3\ Generally, the IRS is entitled to 
seize a taxpayer's property by levy if a Federal tax lien has 
attached to such property,\4\ the property is not exempt from 
levy,\5\ and the IRS has provided both notice of intention to 
levy\6\ and notice of the right to an administrative hearing 
(the notice is referred to as a ``collections due process 
notice'' or ``CDP notice'' and the hearing is referred to as 
the ``CDP hearing'')\7\ at least 30 days before the levy is 
made. A levy on salary or wages generally is continuously in 
effect until released.\8\ A Federal tax lien arises 
automatically when: (1) a tax assessment has been made; (2) the 
taxpayer has been given notice of the assessment stating the 
amount and demanding payment; and (3) the taxpayer has failed 
to pay the amount assessed within 10 days after the notice and 
demand.\9\
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    \3\Sec. 6331(a). Levy specifically refers to the legal process by 
which the IRS orders a third party to turn over property in its 
possession that belongs to the delinquent taxpayer named in a notice of 
levy.
    \4\Ibid.
    \5\Sec. 6334.
    \6\Sec. 6331(d).
    \7\Sec. 6330. The notice and the hearing are referred to 
collectively as the CDP requirements.
    \8\Secs. 6331(e) and 6343.
    \9\Sec. 6321.
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    The notice of intent to levy is not required if the 
Secretary finds that collection would be jeopardized by delay. 
The standard for determining whether jeopardy exists is similar 
to the standard applicable when determining whether assessment 
of tax without following the normal deficiency procedures is 
permitted.\10\
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    \10\Secs. 6331(d)(3) and 6861.
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    The CDP notice (and pre-levy CDP hearing) is not required 
if: (1) the Secretary finds that collection would be 
jeopardized by delay; (2) the Secretary has served a levy on a 
State to collect a Federal tax liability from a State tax 
refund; (3) the taxpayer subject to the levy requested a CDP 
hearing with respect to unpaid employment taxes arising in the 
two-year period before the beginning of the taxable period with 
respect to which the employment tax levy is served; or (4) the 
Secretary has served a Federal contractor levy. In each of 
these four cases, however, the taxpayer is provided an 
opportunity for a hearing within a reasonable period of time 
after the levy.\11\
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    \11\Sec. 6330(f).
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Federal payment levy program

    To help the IRS collect taxes more effectively, the 
Taxpayer Relief Act of 1997\12\ authorized the establishment of 
the Federal Payment Levy Program (``FPLP''), which allows the 
IRS to continuously levy up to 15 percent of certain 
``specified payments'' by the Federal government if the payees 
are delinquent on their tax obligations. With respect to 
payments to vendors of goods, services, or property sold or 
leased to the Federal government, the continuous levy may be up 
to 100 percent of each payment.\13\ For payments to Medicare 
providers and suppliers, the levy is up to 15 percent for 
payments made within 180 days after December 19, 2014. For 
payments made after that date, the levy is up to 30 
percent.\14\
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    \12\Pub. L. No. 105-34.
    \13\Sec. 6331(h)(3).
    \14\Pub. L. No. 113-295, Division B.
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    Under FPLP, the IRS matches its accounts receivable records 
with Federal payment records maintained by Treasury's Bureau of 
Fiscal Service (``BFS''), such as certain Social Security 
benefit and Federal wage records. When these records match, the 
delinquent taxpayer is provided both the notice of intention to 
levy and the CDP notice. If the taxpayer does not respond after 
30 days, the IRS can instruct BFS to levy the taxpayer's 
Federal payments. Subsequent payments are continuously levied 
until such time that the tax debt is paid or the IRS releases 
the levy.

                           REASONS FOR CHANGE

    It has been reported that many thousands of Medicare 
providers and suppliers have outstanding Federal employment and 
income tax liability, which contribute to the tax gap. 
Consequently, the Committee believes that it is appropriate to 
increase the permissible percentage of payments to a Medicare 
provider subject to levy.

                        EXPLANATION OF PROVISION

    The provision provides that the present limitation of 30 
percent of certain specified payments be increased by an amount 
sufficient to offset the estimated revenue loss of the 
provision described in Part A, above.

                             EFFECTIVE DATE

    The provision is effective for payments made after 180 days 
after the date of enactment.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 308(a)(1) of the 
Congressional Budget and Impoundment Control Act of 1974, as 
amended (the ``Budget Act''), the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of the bill as reported.
    The provisions are estimated to reduce Federal fiscal year 
budget receipts by the following amounts for the period 2015-
2025:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that no provisions of the bill as reported 
involve new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that the provisions affect the levels of tax 
expenditures (see revenue table in part A., above).

            C. Consultation with Congressional Budget Office

    In accordance with section 402 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The letter from the 
Congressional Budget Office will be provided separately.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority present, a bill to amend the Internal Revenue Code of 
1986 to increase the limitation on eligibility for the 
alternative tax for certain small insurance companies, was 
ordered favorably reported by voice vote on February 11, 2015.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill as amended.

Impact on individuals and businesses, personal privacy and paperwork

    The bill modifies the alternative tax election for certain 
small property and casualty insurance companies by increasing 
the $1,200,000 limit on net or direct written premiums to 
$2,200,000 and indexing this amount for inflation starting in 
2016. It also increases the IRS's continuous levy authority on 
payments to Medicare providers and suppliers. The provisions of 
the bill are not expected to impose additional administrative 
requirements or regulatory burdens on individuals or 
businesses.
    The provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the tax provisions of the 
reported bill do not contain Federal private sector mandates or 
Federal intergovernmental mandates on State, local, or tribal 
governments within the meaning of Public Law 104-4, the 
Unfunded Mandates Reform Act of 1995. The costs required to 
comply with each Federal private sector mandate generally are 
no greater than the aggregate estimated budget effects of the 
provision.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. The staff of the Joint Committee on Taxation has 
determined that there are no provisions that are of widespread 
applicability to individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of Rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  [all]