49–010 

Calendar No. 39 

114TH CONGRESS REPORT " ! SENATE 1st Session 114–16 

A BILL TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO INCREASE 

THE LIMITATION ON ELIGIBILITY FOR THE ALTERNATIVE TAX FOR CERTAIN SMALL INSURANCE COMPANIES 

APRIL 14, 2015.—Ordered to be printed 

Mr. HATCH, from the Committee on Finance, 

submitted the following 

R E P O R T 

[To accompany S. 905] 

The Committee on Finance, having considered an original bill, S. 

905, to amend the Internal Revenue Code of 1986 to increase the 

limitation on eligibility for the alternative tax for certain small insurance companies, having considered the same, reports favorably 

thereon without amendment and recommends that the bill do pass. 

CONTENTS 

Page 

I. LEGISLATIVE BACKGROUND ..................................................................... 1 

II. EXPLANATION OF THE BILL ...................................................................... 2 

A. Modification to Alternative Tax for Certain Small Insurance Companies (sec. 1 of the bill and sec. 831(b) of the Code) ..................... 2 

B. Increase Continuous Levy Authority on Payments to Medicare 

Providers and Suppliers (sec. 2 of the bill and sec. 6331 of 

the Code) ............................................................................................. 3 

III. BUDGET EFFECTS OF THE BILL ............................................................... 5 

IV. VOTES OF THE COMMITTEE ...................................................................... 7 

V. REGULATORY IMPACT AND OTHER MATTERS ..................................... 7 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED 8 

I. LEGISLATIVE BACKGROUND 

The Committee on Finance, having considered S. 905, a bill to 

amend the Internal Revenue Code of 1986 to increase the limitation on eligibility for the alternative tax for certain small insurance 

companies, reports favorably thereon without amendment and recommends that the bill do pass. 

Background and need for legislative action 

Background.—Based on a proposal recommended by Senator 

Grassley, the Senate Committee on Finance marked up original 


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1 Unless otherwise stated, all section references are to the Internal Revenue Code of 1986, as 

amended (the ‘‘Code’’). 

legislation (a bill to amend the Internal Revenue Code of 1986 to 

increase the limitation on eligibility for the alternative tax for certain small insurance companies) on February 11, 2015, and with a 

majority present, ordered the bill favorably reported, with amendments on that date. A related bill, S. 1346, was introduced in the 

113th Congress by Senators Harkin, Grassley, Klobuchar, Rockefeller, and Blunt. 

Need for legislative action.—The $1,200,000 ceiling on net or direct written premiums, which limits a property and casualty insurance company’s eligibility to elect the alternative tax under section 

831(b) of the Internal Revenue Code, has not been adjusted for inflation since it was set in 1986. The need to provide an inflation 

adjustment should be addressed by setting the amount at 

$2,200,000, with indexing of the amount starting after 2015. Further, there may be a need to address abuse of captive insurance 

companies for estate planning purposes. A Treasury Department 

study should be conducted of abuse of captive insurance companies 

for estate planning purposes, so Congress can better understand 

the scope of this problem and whether legislation is necessary to 

address it. In addition, it has been reported that many thousands 

of Medicare providers and suppliers have outstanding Federal employment and income tax liability, which contribute to the tax gap. 

The permissible percentage of payments to a Medicare provider 

subject to levy should be increased. 

II. EXPLANATION OF THE BILL 

A. MODIFICATION TO ALTERNATIVE TAX FOR CERTAIN SMALL INSURANCE COMPANIES (SEC. 1 OF THE BILL AND SEC. 831(B) OF THE

CODE) 

PRESENT LAW

Under present law, the taxable income of a property and casualty 

insurance company is the sum of the amount earned from underwriting income and from investment income (as well as gains and 

other income items), reduced by allowable deductions. For this purpose, underwriting income and investment income are computed on 

the basis of the underwriting and investment exhibit of the annual 

statement approved by the National Association of Insurance Commissioners. Insurance companies are subject to tax at regular corporate income tax rates. 

In lieu of the tax otherwise applicable, certain property and casualty insurance companies may elect to be taxed only on taxable 

investment income under section 831(b).1 The election is available 

to mutual and stock companies with net written premiums or direct written premiums (whichever is greater) that do not exceed 

$1,200,000. 

REASONS FOR CHANGE

The Committee has observed that the $1,200,000 ceiling on net 

or direct written premiums, which limits eligibility to elect the alternative tax under section 831(b), has not been adjusted for inflaVerDate Sep 11 2014 01:38 Apr 17, 2015 Jkt 490010 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\SR016.XXX SR016

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2Tax Reform Act of 1986, Pub. L. No. 99–514, sec. 1024. The 1986 Act repealed the special 

rates, deductions and exemptions for small mutual companies under prior law, and substituted 

a single provision, the section 831(b) alternative tax. For more background, see Joint Committee 

on Taxation, General Explanation of the Tax Reform Act of 1986 (JCS–10–87), May 4, 1987, 

pages 619–621, and the legislative history cited there. 3Sec. 6331(a). Levy specifically refers to the legal process by which the IRS orders a third 

party to turn over property in its possession that belongs to the delinquent taxpayer named in 

a notice of levy. 4 Ibid. 

5Sec. 6334. 

6Sec. 6331(d). 

tion since it was set in 1986.2 The Committee believes that setting 

the amount at $2,200,000 reflects inflation from that year, and that 

the amount should be adjusted over time for inflation. 

The Committee notes that the provision does not include a related proposal that would narrow eligibility to elect the alternative 

tax in a manner intended to address abuse potential, but that may 

cause problems for certain States. The Committee therefore wants 

the Treasury Department to study the abuse of captive insurance 

companies for estate planning purposes, so Congress can better understand the scope of this problem and whether legislation is necessary to address it. 

EXPLANATION OF PROVISION

The provision modifies the section 831(b) eligibility rule for a 

property and casualty insurance company to elect to be taxed only 

on taxable investment income. The provision increases the amount 

of the limit on net written premiums or direct written premiums 

(whichever is greater) from $1,200,000 to $2,200,000 and indexes 

this amount for inflation starting in 2016. The base year for calculating the inflation adjustment is 2013. 

The provision directs the Treasury Department to study the 

abuse of captive insurance companies for estate planning purposes, 

so Congress can better understand the scope of this problem and 

whether legislation is necessary to address it. A written report is 

to be submitted to the Senate Committee on Finance not later than 

February 11, 2016. The report is to include legislative recommendations for addressing any such abuses. 

EFFECTIVE DATE

The provision is effective for taxable years beginning after the 

date of enactment. 

B. INCREASE CONTINUOUS LEVY AUTHORITY ON PAYMENTS TO MEDICARE PROVIDERS AND SUPPLIERS (SEC. 2 OF THE BILL AND SEC. 

6331 OF THE CODE) 

PRESENT LAW

In general 

Levy is the administrative authority of the IRS to seize a taxpayer’s property, or rights to property, to pay the taxpayer’s tax liability.3 Generally, the IRS is entitled to seize a taxpayer’s property by levy if a Federal tax lien has attached to such property,4

the property is not exempt from levy,5 and the IRS has provided 

both notice of intention to levy 6 and notice of the right to an administrative hearing (the notice is referred to as a ‘‘collections due 


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7Sec. 6330. The notice and the hearing are referred to collectively as the CDP requirements. 

8Secs. 6331(e) and 6343. 

9Sec. 6321. 

10Secs. 6331(d)(3) and 6861. 11Sec. 6330(f). 12Pub. L. No. 105–34. 13Sec. 6331(h)(3). 14Pub. L. No. 113–295, Division B. 

process notice’’ or ‘‘CDP notice’’ and the hearing is referred to as 

the ‘‘CDP hearing’’) 7 at least 30 days before the levy is made. A 

levy on salary or wages generally is continuously in effect until released.8 A Federal tax lien arises automatically when: (1) a tax assessment has been made; (2) the taxpayer has been given notice of 

the assessment stating the amount and demanding payment; and 

(3) the taxpayer has failed to pay the amount assessed within 10 

days after the notice and demand.9

The notice of intent to levy is not required if the Secretary finds 

that collection would be jeopardized by delay. The standard for determining whether jeopardy exists is similar to the standard applicable when determining whether assessment of tax without following the normal deficiency procedures is permitted.10

The CDP notice (and pre-levy CDP hearing) is not required if: (1) 

the Secretary finds that collection would be jeopardized by delay; 

(2) the Secretary has served a levy on a State to collect a Federal 

tax liability from a State tax refund; (3) the taxpayer subject to the 

levy requested a CDP hearing with respect to unpaid employment 

taxes arising in the two-year period before the beginning of the taxable period with respect to which the employment tax levy is 

served; or (4) the Secretary has served a Federal contractor levy. 

In each of these four cases, however, the taxpayer is provided an 

opportunity for a hearing within a reasonable period of time after 

the levy.11

Federal payment levy program 

To help the IRS collect taxes more effectively, the Taxpayer Relief Act of 1997 12 authorized the establishment of the Federal Payment Levy Program (‘‘FPLP’’), which allows the IRS to continuously 

levy up to 15 percent of certain ‘‘specified payments’’ by the Federal 

government if the payees are delinquent on their tax obligations. 

With respect to payments to vendors of goods, services, or property 

sold or leased to the Federal government, the continuous levy may 

be up to 100 percent of each payment.13 For payments to Medicare 

providers and suppliers, the levy is up to 15 percent for payments 

made within 180 days after December 19, 2014. For payments 

made after that date, the levy is up to 30 percent.14

Under FPLP, the IRS matches its accounts receivable records 

with Federal payment records maintained by Treasury’s Bureau of 

Fiscal Service (‘‘BFS’’), such as certain Social Security benefit and 

Federal wage records. When these records match, the delinquent 

taxpayer is provided both the notice of intention to levy and the 

CDP notice. If the taxpayer does not respond after 30 days, the IRS 

can instruct BFS to levy the taxpayer’s Federal payments. Subsequent payments are continuously levied until such time that the 

tax debt is paid or the IRS releases the levy. 


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REASONS FOR CHANGE

It has been reported that many thousands of Medicare providers 

and suppliers have outstanding Federal employment and income 

tax liability, which contribute to the tax gap. Consequently, the 

Committee believes that it is appropriate to increase the permissible percentage of payments to a Medicare provider subject to levy. 

EXPLANATION OF PROVISION

The provision provides that the present limitation of 30 percent 

of certain specified payments be increased by an amount sufficient 

to offset the estimated revenue loss of the provision described in 

Part A, above. 

EFFECTIVE DATE

The provision is effective for payments made after 180 days after 

the date of enactment. 

III. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATES

In compliance with paragraph 11(a) of rule XXVI of the Standing 

Rules of the Senate and section 308(a)(1) of the Congressional 

Budget and Impoundment Control Act of 1974, as amended (the 

‘‘Budget Act’’), the following statement is made concerning the estimated budget effects of the revenue provisions of the bill as reported. 

The provisions are estimated to reduce Federal fiscal year budget 

receipts by the following amounts for the period 2015–2025: 


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B. BUDGET AUTHORITY AND TAX EXPENDITURES

Budget authority 

In compliance with section 308(a)(1) of the Budget Act, the Committee states that no provisions of the bill as reported involve new 

or increased budget authority. 

Tax expenditures 

In compliance with section 308(a)(1) of the Budget Act, the Committee states that the provisions affect the levels of tax expenditures (see revenue table in part A., above). 

C. CONSULTATION WITH CONGRESSIONAL BUDGET OFFICE

In accordance with section 402 of the Budget Act, the Committee 

advises that the Congressional Budget Office has not submitted a 

statement on the bill. The letter from the Congressional Budget Office will be provided separately. 

IV. VOTES OF THE COMMITTEE 

In compliance with paragraph 7(b) of rule XXVI of the Standing 

Rules of the Senate, the Committee states that, with a majority 

present, a bill to amend the Internal Revenue Code of 1986 to increase the limitation on eligibility for the alternative tax for certain 

small insurance companies, was ordered favorably reported by 

voice vote on February 11, 2015. 

V. REGULATORY IMPACT AND OTHER MATTERS 

A. REGULATORY IMPACT

Pursuant to paragraph 11(b) of rule XXVI of the Standing Rules 

of the Senate, the Committee makes the following statement concerning the regulatory impact that might be incurred in carrying 

out the provisions of the bill as amended. 

Impact on individuals and businesses, personal privacy and paperwork 

The bill modifies the alternative tax election for certain small 

property and casualty insurance companies by increasing the 

$1,200,000 limit on net or direct written premiums to $2,200,000 

and indexing this amount for inflation starting in 2016. It also increases the IRS’s continuous levy authority on payments to Medicare providers and suppliers. The provisions of the bill are not expected to impose additional administrative requirements or regulatory burdens on individuals or businesses. 

The provisions of the bill do not impact personal privacy. 

B. UNFUNDED MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the tax provisions of the reported bill do not contain Federal private sector mandates or Federal intergovernmental mandates on State, local, or tribal governments within the meaning of Public Law 104–4, the Unfunded 

Mandates Reform Act of 1995. The costs required to comply with 


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each Federal private sector mandate generally are no greater than 

the aggregate estimated budget effects of the provision. 

C. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (‘‘IRS Reform Act’’) requires the staff of the 

Joint Committee on Taxation (in consultation with the Internal 

Revenue Service and the Treasury Department) to provide a tax 

complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House 

Committee on Ways and Means, or any committee of conference if 

the legislation includes a provision that directly or indirectly 

amends the Internal Revenue Code and has widespread applicability to individuals or small businesses. The staff of the Joint 

Committee on Taxation has determined that there are no provisions that are of widespread applicability to individuals or small 

businesses. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS 

REPORTED 

In the opinion of the Committee, it is necessary in order to expedite the business of the Senate, to dispense with the requirements 

of paragraph 12 of Rule XXVI of the Standing Rules of the Senate 

(relating to the showing of changes in existing law made by the bill 

as reported by the Committee). 

Æ 


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