The Taxation of the Property/Casualty Insurance Industry

Testimony was given on the taxation of the property/casualty insurance industry. GAO found that, as a result of certain tax advantages: (1) many property/casualty insurance companies have not paid federal income taxes for a number of years and have qualified for refunds or have been able to carry-back or carry-forward losses for tax purposes; (2) insurance companies can exclude interest income from tax-exempt securities and deduct 85 percent of their dividends received from domestic sources; and (3) the special loss reporting status of insurance companies makes them attractive subsidiaries for companies seeking to reduce their tax liability. Therefore, GAO believes that Congress should consider amending the tax code to provide that, for tax purposes: (1) loss reserves are discounted in calculating the loss reserve deductions; and (2) acquisition costs are allocated over the life of related contracts so that costs are matched with premium payments generated by contracts. Finally, GAO believes that Congress should consider whether or not the special tax preference for mutual property/casualty insurance companies should be retained in its present form.