"Some of the base broadeners in the Camp draft are very substantial, particularly the calculation of tax reserves, further limitations on the dividends-received deductions, and a cutback on the ability to use COLI or corporate-owned life insurance.
* Insurers' Concerns: Among them are changes to tax reserve calculations, increased limitations on the dividends-received deductions and a cutback on the ability to use corporate-owned life insurance.
In an investment note, Keefe Bruyette & Woods analysts project the cost of the dividends-received deductions provisions at 5% to 10% of annual earnings for some life insurers, depending on the percentage of income gained from separate accounts in annuities.
Another would modify the rules that apply to "certain life insurance contracts," change the dividends-received deduction for certain life insurance company separate accounts and expand the pro-rata interest expense disallowance.
However, the gross receipts test does not apply if the corporation's cumulative deductions (excluding the NOL carryover and carryback deduction and the special dividends-received deductions
) exceed its cumulative gross income during the five-year testing period (Sec.
246A, corporations that borrowed money to finance stock purchases could combine the interest-expense and dividends-received deductions
(DRDs) to receive a double deduction, allowing them to virtually eliminate their tax liability on debt-financed dividend income.
Statutory changes (31) allow taxpayers to elect to claim dividends-received deductions
(DRDs) from insurance companies at least 80% owned for years open to statute ending on or after Dec.
1.1374-2 (a) (2) defines the taxable income limitation as the S corporation's taxable income determined by using all rules applying to C corporations, but without regard to the net operating loss (NOL) and dividends-received deductions
. In determining its taxable income for prelimitation amount and taxable income limitation purposes, Regs.
corporations generating income in the form of dividends entitled to dividends-received deductions
, and other similar items.