The Staff of the Senate Finance Committee, “Economic Security: Health, Retirement, Life Insurance, Fringe Benefits and Executive Compensation,” 113th Cong., 1st Sess. (May 23, 2013), released a summary of some of the tax reform proposals that would be considered by the Committee, which include material changes in the taxation of retirement plan distributions and life insurance policies and benefits. These changes may not make it past the Committee, but it does show how Congress is examining tax increases that seem to target “the wealthy” but in fact will impact most estate plans.
The following are among the items considered as part of overall tax reform:
(1) Requiring inherited IRAs to be distributed within five years (with exceptions for a beneficiary within 10 years of the account holder’s age, individuals who are disabled or with special needs, a minor, or the IRA holder’s spouse);
(2) Currently taxing the annual increase in the inside build-up on life insurance contracts;
(3) Denying exclusion for death benefit payments above a specified amount;
(4) Currently taxing the annual increase in the inside build-up on annuity contracts;
(5) Expanding the pro rata interest expense disallowance for corporate-owned life insurance;
(6) Requiring that every person who acquires a life insurance contract without having a substantial family, business, or financial relationship with the insured, apart from the interest in the insurance contract itself, must report to the Treasury the name, address, and taxpayer identification number of the seller and the recipient, the date of the sale, the name of the issuer, the policy number, and the amount of each payment, and report to the recipients and the issuer the name, address, and telephone number of the information contact of the person required to make this return, and the other information shown on the return (though the insurer would not need to be informed as to the payments for the contract). The insurer, upon receipt of the required information from the seller, would be required to report to the Treasury and to the seller the name, address, and identification number of the seller, the investment in the contract with respect to the seller, and the policy number, and to make a return reporting any death benefits paid on a policy that was the subject of a reportable policy sale;
(7) Clarifying that there is an adjustment to the basis in a life insurance policy “for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract.” (See Rev Rul 2009-13, 2009-21 IRB 1029);
(8) Rendering inapplicable to the acquisition of a life insurance policy by a person who has no substantial family, business, or financial relationship with the insured, apart from the interest in the insurance contract itself, all of the exceptions to the transfer for value rule; and
(9) Increasing the $50,000 limit for employer-provided group term life insurance.