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S4279119th CongressWALLET

PPLI Abuse Act

Sponsored By: Senator Wyden, Ron [D-OR]

Introduced

Summary

Would create a new federal tax and reporting regime for certain private placement life and annuity contracts. It defines "Applicable Private Placement Contracts" and changes how holders, issuers, and foreign reporting rules would treat those contracts for tax and compliance purposes.

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  • Holders of these contracts would be treated as owning a share of the segregated asset account and must include their share of net income or net loss. Excess distributions would be ordinary income and the holder's basis would adjust for premiums, includible income, and allowable losses.
  • Issuers would have to back each contract by proportionate assets in segregated accounts that support at least 25 contracts. Premiums and reserves related to these contracts would not qualify as life-insurance premiums or reserves under existing life-insurance tax rules.
  • Issuers and reinsurers would face new reporting and disclosure duties, including an initial return due within 30 days after the later of 180 days post-enactment or the date a contract becomes an APPC, and annual returns. Failures could trigger a $1 million base penalty plus $1 million for each 30-day penalty period. The bill would also fold these contracts and segregated accounts into Foreign Account Tax Compliance Act rules, affecting foreign reporting and certain payments one year after enactment.

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Bill Overview

Analyzed Economic Effects

5 provisions identified: 0 benefits, 3 costs, 2 mixed.

APPC holders taxed like owners

If enacted, the bill would stop treating APPCs as tax-preferred life insurance or annuity contracts. Holders would be treated as if they owned a pro rata share of the segregated account assets and would include their share of net income or net loss for tax. Payouts above your applicable adjusted basis would be taxable as ordinary income. The bill would also change how basis, transfers for consideration, premiums, and reserves are calculated.

New APPC reporting and big penalties

The bill would require issuers and reinsurers to file an initial APPC return by the "applicable date" (30 days after the later of 180 days after enactment or the date the contract became an APPC). Issuers would file annual returns and must send payee statements by January 31 with income, losses, distributions, and basis details. A new civil penalty would apply for failures to file: $1,000,000 plus $1,000,000 for each 30-day penalty period ending before correction. Regulated entities and SEC filers would also need to disclose the filing obligation to regulators or in periodic reports, or be treated as failing to file.

APPCs treated as FATCA financial accounts

The bill would amend FATCA to count certain APPCs and their segregated asset accounts as "financial accounts." It would also add a life-insurance entity classification for FATCA and narrow an exception so fewer payments are excluded. Those FATCA changes would apply to payments made one year after enactment. The change would increase withholding and reporting duties for foreign banks, issuers, and other payers connected to APPCs.

Segregated accounts must back 25 contracts

The bill would require segregated asset accounts that back APPCs to support at least 25 private placement contracts. Each contract in the account would have to be supported only by assets in that account and each asset must back contracts in the same proportion. All private placement contracts held by the same person or related persons would be aggregated for this rule. The Treasury would be able to issue anti-avoidance and related rules.

Which private contracts become APPCs

This bill would define which variable life or annuity contracts count as an "applicable private placement contract" (APPC). It would treat contracts sold under private placement suitability rules as APPCs and would name issuers and reinsurers as "reporting issuers." Most APPC tax rules would take effect on the date of enactment. If your contract was issued on or before enactment, you would have 180 days to convert, exchange, or cancel it to avoid APPC treatment. FATCA changes to payments would apply one year after enactment.

Sponsors & CoSponsors

Sponsor

Wyden, Ron [D-OR]

OR • D

Cosponsors

There are no cosponsors for this bill.

Roll Call Votes

No roll call votes available for this bill.

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