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IRS Revises Tax Treatment Of Reinsurers

by Glen Shapiro, LawAndTax-News.com, New York

28 September 2004

The US Treasury Department and the IRS on Friday issued Notice 2004-65, which removes certain reinsurance arrangements involving Producer-Owned Reinsurance Companies (PORCs) from the list of transactions identified as "listed transactions" for purposes of the disclosure, list-maintenance, and registration requirements.

PORCs are typically offshore entities that reinsure risks of customers of a related service provider, lender, or retailer.

Many PORCs took the position that they were entitled to the special tax benefits available only to small insurance companies, and based on information that many of these arrangements were being used to shift income improperly to the reinsurance companies for the purposes of avoiding income tax, the IRS and the Treasury Department identified PORC arrangements as listed transactions in Notice 2002-70.

However, speaking last week, IRS Commissioner Mark W. Everson explained that:

"Based on disclosures by taxpayers and examination of tax returns, we have determined problems associated with these transactions are not as prevalent as initially believed. Accordingly, we are no longer classifying them as listed transactions."

However, he went on to add that:

"We will continue to scrutinize PORC arrangements through the normal audit process, particularly those with pricing issues."

The full text of the revised tax shelter list can be found in the Tax News Resources section.

 

 






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