[Senate Report 114-16]
[From the U.S. Government Publishing Office]
Calendar No. 39
114th Congress } { Report
SENATE
1st Session } { 114-16
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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).
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