[Federal Register Volume 67, Number 229 (Wednesday, November 27, 2002)]
[Rules and Regulations]
[Pages 70845-70846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30139]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 46

[TD 9024]
RIN 1545-AY93


Liability For Insurance Premium Excise Tax

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations under section 4374 
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.

DATES: Effective Date: These regulations are effective November 27, 
2002.
    Applicability Date: These regulations are applicable to premiums 
paid on or after November 27, 2002.

FOR FURTHER INFORMATION CONTACT: David Lundy at (202) 622-3880 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On January 7, 2002, the IRS and Treasury published a notice of 
proposed rulemaking (REG-125450-01), 2002-5 IRB 457) in the Federal 
Register (67 FR 707) under section 4374 relating to the insurance 
premium excise tax imposed by section 4371 on certain policies issued 
by foreign insurance and reinsurance companies. One comment letter 
responding to the notice of proposed rulemaking was received. After 
consideration of these comments, the proposed regulations are adopted 
as final regulations as revised by this Treasury decision.

[[Page 70846]]

Explanation of Provisions

    These final section 4374 regulations clarify the persons who are 
liable for payment of the insurance premium excise tax and conform the 
regulations to the amendments made to section 4374 by the Tax Reform 
Act of 1976 (90 Stat. 1525). In particular, these regulations clarify 
that liability for the excise tax is incurred by 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.
    One commentator suggested that the final regulation restrict 
application of the section 7270 penalty to a failure to pay the excise 
tax by the person who remitted the tax to the foreign insurer or 
reinsurer. Section 46.4374-1(d) of the regulation only is a cross-
reference to section 7270, which section imposes a penalty of double 
the amount of tax when an underpayment results from an intention to 
evade the tax. Substantive guidance on the application of section 7270 
is beyond the scope of this regulation, and accordingly, no change to 
the regulation was made as a result of this suggestion.
    The same commentator suggested that the final regulation clarify 
whether the insured person under an insurance policy may be liable for 
the excise tax if all or a portion of the risks from such policy are 
reinsured with a foreign reinsurer on the basis that the insured may be 
treated as a person for whose benefit the reinsurance policy was made, 
signed, issued or sold. In response to the commentator's suggestion, 
Sec.  46.4374-1(a) of these regulations has been revised to provide 
that in the case of a reinsurance policy other than assumption 
reinsurance, the insured person on the underlying insurance policy, the 
risk of which is covered in whole or in part by such reinsurance 
policy, shall not constitute a person for whose use or benefit the 
reinsurance policy was made, signed, issued or sold. In these cases, 
when an insurer or reinsurer reinsures a risk with a foreign reinsurer, 
the insurer or reinsurer generally is the person for whose use or 
benefit the reinsurance policy is issued or sold for purposes of 
section 4374.

Effective Date

    The final regulations are effective for premiums paid on or after 
November 27, 2002.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also 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 
these regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Therefore, a Regulatory Flexibility Analysis is not required. 
Pursuant to section 7805(f) of the Internal Revenue Code, the notice of 
proposed rulemaking preceding these regulations was submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business.

Drafting Information

    The principal author of these regulations is David Lundy 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.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 46 is 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. For purposes of this section, in 
the case of a reinsurance policy that is subject to the tax imposed by 
section 4371(3), other than assumption reinsurance, the insured person 
on the underlying insurance policy, the risk of which is covered in 
whole or in part by such reinsurance policy, shall not constitute a 
person for whose use or benefit the reinsurance policy is made, signed, 
issued, or sold.
    (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 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 November 27, 2002.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: November 13, 2002.
Pamela F. Olson,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 02-30139 Filed 11-26-02; 8:45 am]
BILLING CODE 4830-01-P