Treasury and the IRS, on April 2, published proposed regulations under Section 807, addressing changes to the computation and reporting of life insurance reserves that resulted from the 2017 tax reform act (the Act). Although the regulations may not impose a significant burden, or substantially change the rules in the short term, the regulations will be impactful in the long term as the IRS develops new issues in examination and implements new reporting requirements.
At first blush, the effect of the proposed regulations may strike insurance companies as modest. The exclusion of asset adequacy reserves from deductible life insurance reserves is not new. The procedures for changes in basis for computing reserves already are provided in Rev. Proc. 2019-10. Reporting required for life insurance reserves, and separate account items, is authorized by the regulations, but not set forth with specificity. The obsolescence of many regulations and rulings under prior law already is known. At the same time, the proposed regulations include helpful clarifications, particularly concerning the status of GPV reserves as tax-deductible reserves, netting of Section 481(a) adjustments, and the treatment of a company whose status changes from a life to a nonlife insurance company.
The regulations raise a number of issues for further consideration. If not addressed in final regulations, these issues could arise in examination, or be addressed in other guidance:
Insurance Tax Leader, PwC US