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Insurers Push for Delay in Effective Dates For Tax Treatment of Mixed Straddles

Tuesday, October 8, 2013
Oct. 4 --Insurers asked the Internal Revenue Service to delay the effective dates for temporary rules on the tax treatment of identified mixed straddle (IMS) transactions.

The industry needs more time to implement plans for recognizing capital gains before the significant capital losses they incurred in the 2008 and 2009 financial crisis expire, PricewaterhouseCoopers LLP and the American Council of Life Insurers said.

In letters to the IRS and Treasury Department regulators, the companies said it is urgent that the immediate effective date of Aug. 1 temporary rules (T.D. 9627) be delayed

Those rules fundamentally changed the longstanding tax treatment of IMS transactions in which gain recognition was denied for assets that became part of such a straddle.

Insurance companies make long-term promises to pay benefits to policyholders in the future and acquire bonds to fund and ultimately satisfy the long-term insurance liabilities. Bond portfolios are constructed based on extensive research to meet regulatory and internal standards for risk and diversification, the companies said.

The institutions are classic buy-and-hold investors who hold portfolio bonds to maturity absent other events compelling disposition, PwC said in its Sept. 12 letter .

Without careful planning, they can end up being taxed on amounts in excess of their economic income. Impaired sales of bonds result in losses that are capital for tax purposes, while the remaining bonds in the portfolio generate ordinary income.

That can be managed by recognizing capital gains in assets that have appreciated in value.

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