[Federal Register Volume 67, Number 4 (Monday, January 7, 2002)]
[Proposed Rules]
[Pages 707-709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-325]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 46

[REG-125450-01]
RIN 1545-AY93


Liability For Insurance Premium Excise Tax

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed amendments to the regulations 
relating to liability for the insurance premium excise tax. This 
document affects persons who make, sign, issue, or sell a policy of 
insurance, indemnity bond, annuity contract, or policy of reinsurance 
issued by any foreign insurer or reinsurer. This document also provides 
a notice of public hearing on these proposed regulations.

DATES: Written or electronic comments, requests to speak and outlines 
of topics to be discussed at the public hearing scheduled for March 19, 
2002, at 10 a.m. must be received by February 26, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU (REG-125450-01), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered Monday through Friday 
between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU (REG-125450-01), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the Internet by selecting the ``Tax Regs'' option on 
the IRS Home Page, or by submitting comments directly to the IRS 
Internet site at http://www.irs.gov/tax_regs/regslist.html. The public 
hearing will be held in room 4718, Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Amanda Ehrlich, (202) 622-3880; concerning submissions, the hearing, 
and/or to be placed on the building access list to attend the hearing, 
Treena Garrett, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    The insurance premium excise tax imposed by section 4371 originated 
as a stamp tax on certain insurance policies in the Act of February 24, 
1919, Title IX, section 1100. This provision was re-enacted unchanged 
in the Revenue Act of 1924, as section 800; in the Revenue Act of 1926, 
as section 800; and in the Internal Revenue Code of 1939 (1939 Code), 
as section 1804. Section 1809(a) of the 1939 Code required the tax 
imposed by section 1804 to be paid ``by any person who makes, signs, 
issues, [or] sells * * * any of the documents [or] instruments * * * 
[including insurance policies subject to tax] * * * or for whose use or 
benefit the same are made, signed, issued, [or] sold * * *.'' Section 
1809(b)(1) of the 1939 Code required the tax to be paid by the purchase 
of stamps to be affixed to taxable documents.
    The insurance premium excise tax imposed by section 1804 of the 
1939 Code was reenacted in the Internal Revenue Code of 1954 (1954 
Code) as section 4371. Section 1809(a) and (b)(1) of the 1939 Code 
(relating to who is

[[Page 708]]

liable for the tax and how it is to be paid) were reenacted as sections 
4383 and 4374 of the 1954 Code, respectively. Section 4383 of the 1954 
Code was renumbered as section 4384 by the Excise Technical Changes Act 
of 1958.
    Section 4374 was amended in 1965 to authorize the Secretary or the 
Secretary's delegate to provide by regulations that the tax imposed by 
section 4371 shall be paid on the basis of a return, instead of by 
stamp. Excise Tax Reduction Act of 1965, Public Law 89-44, section 
804(a), 79 Stat. 136, 160 (1965). Pursuant to this statutory 
authorization, the Secretary promulgated 26 CFR 46.4374-1 in 1970, 
which provides that the tax imposed by section 4371 shall be paid on 
the basis of a return and remitted by the person who pays the premium 
to a foreign insurer or reinsurer. TD 7023; 1970-1 C.B. 233, 236. For 
these purposes, the person who makes payment of the premium is the 
resident person who actually transferred the money, check, or its 
equivalent to the foreign insurer or reinsurer. The regulation further 
provided a reference to section 4384 for purposes of determining the 
persons liable for the tax. Sec. 46.4374-1(a).
    The Tax Reform Act of 1976 (1976 Act) combined sections 4374 and 
4384 into a single Code section, and eliminated any references therein 
to the payment of the tax by stamps. Tax Reform Act of 1976, Public Law 
94-455, section 1904(a)(12), 90 Stat. 1520, 1812-14 (1976). The 1976 
Act repealed section 4374, which had required payment of the tax by 
stamps or by return pursuant to regulations. It renumbered section 4384 
as section 4374, which imposes liability for the tax. Finally, the 1976 
Act amended the new section 4374 to require payment of the tax by 
return. The regulations under section 4374 have not been changed to 
reflect the 1976 statutory amendments.
    Some taxpayers have taken the position, contrary to the statute, 
that Sec. 46.4374-1 (which does not reflect the 1976 legislative 
changes) imposes liability and requires payment of tax only if a 
premium is paid by a resident of the United States. This interpretation 
ignores the cross-reference in Sec. 46.4374-1(a) to prior Code section 
4384 for purposes of determining the persons who are liable for the 
tax. The proposed regulations revise Sec. 46.4374-1(a) to conform the 
regulations to the 1976 statutory amendments by providing that any 
person who makes, signs, issues, or sells any of the documents and 
instruments subject to the tax, or for whose use or benefit the same 
are made, signed, issued, or sold, is liable for the tax imposed by 
section 4371. Section 46.4374-1(c) also provides that the tax imposed 
by section 4371 shall be paid on the basis of a return by the person 
who makes payment of the premium to a foreign insurer or reinsurer or 
to any nonresident agent, solicitor, or broker. If the tax is not paid 
by the person who paid the premium, the tax imposed by section 4371 
shall be paid on the basis of a return by any person who makes, signs, 
issues, or sells any of the documents or instruments subject to the tax 
imposed by section 4371, or for whose use or benefit such document or 
instrument is made, signed, issued, or sold.

Proposed Effective Date

    These regulations are proposed to apply to premiums paid on or 
after the date final regulations are published in the Federal Register.

Special Analysis

    It has been determined that section 553(b) of the Administrative 
Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, 
and because the regulation does not impose a collection of information 
on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
does not apply.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) that are submitted timely to the IRS. Treasury 
and the IRS request comments on the clarity of the proposed rule and 
how it may be made easier to understand. All comments will be made 
available for public inspection and copying.
    A public hearing has been scheduled for March 19, 2002 at 10 a.m., 
in room 4718, Internal Revenue Building, 1111 Constitution Ave., NW., 
Washington, DC. All visitors must present photo identification to enter 
the building. Because of access restrictions, visitors will not be 
admitted beyond the immediate entrance area more than 15 minutes before 
the hearing starts. For information about having your name placed on 
the building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to this hearing. Persons 
who wish to present oral comments at the hearing must submit written 
comments and an outline of the topics to be discussed and the time to 
be devoted to each topic (signed original and eight (8) copies) by 
February 26, 2002. A period of 10 minutes will be allotted to each 
person for making comments. An agenda showing the scheduling of the 
speakers will be prepared after the deadline for receiving outlines has 
passed. Copies of the agenda will be available free of charge at the 
hearing.

Drafting Information

    The principal author of these regulations is Amanda Ehrlich of the 
Office of Associate Chief Counsel (International). However, other 
personnel from the IRS and Treasury Department participated in their 
development.

List of Subjects in 26 CFR Part 46

    Excise taxes, Insurance, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 46 is proposed to be amended as follows:

PART 46--EXCISE TAX ON POLICIES ISSUED BY FOREIGN INSURERS AND 
OBLIGATIONS NOT IN REGISTERED FORM

    Paragraph 1. The authority citation for part 46 continues to read 
as follows:

    Authority: 26 U.S.C. 7805.

    Par. 2. Section 46.4374-1 is revised to read as follows:


Sec. 46.4374-1  Liability for tax.

    (a) In general. Any person who makes, signs, issues, or sells any 
of the documents and instruments subject to the tax, or for whose use 
or benefit the same are made, signed, issued, or sold, shall be liable 
for the tax imposed by section 4371.
    (b) When liability for tax attaches. The liability for the tax 
imposed by section 4371 shall attach at the time the premium payment is 
transferred to the foreign insurer or reinsurer (including transfers to 
any bank, trust fund, or similar recipient, designated by the foreign 
insurer or reinsurer), or to any nonresident agent, solicitor, or 
broker. A person required to pay tax under this section may remit such 
tax before the time the tax attaches if he keeps records consistent 
with such practice.
    (c) Payment of tax. The tax imposed by section 4371 shall be paid 
on the basis of a return by the person who makes payment of the premium 
to a foreign insurer or reinsurer or to any nonresident agent, 
solicitor, or broker. If the tax is not paid by the person who paid the 
premium, the tax imposed by section 4371 shall be paid on the basis of 
a return by any person who makes, signs, issues, or sells any of the 
documents or instruments subject to the

[[Page 709]]

tax imposed by section 4371, or for whose use or benefit such document 
or instrument is made, signed, issued, or sold.
    (d) Penalty for failure to pay tax. Any person who fails to comply 
with the requirements of this section with intent to evade the tax 
shall, in addition to other penalties provided therefor, pay a fine of 
double the amount of tax. (See section 7270.)
    (e) Effective date. This section is applicable for premiums paid on 
or after the date final regulations are published in the Federal 
Register.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 02-325 Filed 1-4-02; 8:45 am]
BILLING CODE 4830-01-P