NCOIL issues letter to IRS denouncing proposed micro-captive changes
The NCOIL believes the proposed changes are in violation of the McCarran-Ferguson Doctrine.
The National Council of Insurance Legislators (NCOIL) announced June 27 that it had submitted a comment letter to the Internal Revenue Service (IRS) denouncing proposed changes to Section 831(b) of the U.S. Tax Code.
The proposed rule (109309-22) targets micro-captives, which the IRS has called “abusive” and “schemes that lack many of the attributes of genuine insurance,” and would create loss-ratio requirements of 65%, as well as loan back limitations and 10-year retroactive provisions for these entities.
In its letter to the IRS, the NCOIL claimed these regulations are in violation of the McCarran-Ferguson Doctrine.
The McCarran-Ferguson Act – passed by Congress in 1945 – gave states the right to control insurance regulation. The act, in part, states: “No Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or a tax upon such business.”
Federal antitrust laws apply “to the extent that such business is not regulated by State law.”
However, the act also lays out three requirements that must be met for the antitrust exemption to apply:
- The activity in question must fall within the business of insurance.
- The activity must be regulated by state law.
- The activity must not involve boycott, coercion or intimidation.
“The Proposed Rule undermines the well-established and continually reaffirmed framework of the state-based system of insurance regulation,” Arkansas Representative Deborah Ferguson, DDS, NCOIL president, said in a release. “This system has created the strongest, safest, and most successful insurance market in the world, and it is imperative that state insurance legislators and regulators work together to prevent federal encroachment that has no basis in law.”
While acknowledging IRS concerns regarding the way certain companies utilize 831(b), NCOIL explained in a press release that it believes the IRS goes too far with these changes in an attempt to “insert itself into captive insurance companies’ loss ratios.”
“We at NCOIL urge the IRS to retract the Proposed Rule and return to the drawing board to address its stated concerns in a way that is narrow, tailored, non-retroactive, and most importantly does not violate the McCarran-Ferguson Doctrine by infringing on the Congressionally-delegated rights of the States to regulate the business of insurance,” NCOIL CEO, Commissioner Tom Considine stated in the release.
A public hearing on the proposed changes is slated for July 19.