SOURCE: Foreign Insurance Excise Tax - Audit Technique Guide, April 2008, as found at http://www.irs.gov/businesses/small/art ... 63,00.html NOTE: This document is not an official pronouncement of the law or the position of the Service and can not be used, cited, or relied upon as such. This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.
Closing Agreement Information
Closing agreements, letters of credit and residency lists are obtained and maintained by the Internal Revenue Service. However, because of concern over the restrictions on the disclosure of tax return information, the Service does not publish this information, either internally or externally. If an agent needs to verify whether a foreign insurer has a closing agreement or letter of credit, contact the Foreign Insurance EIS. Provide the EIS with the name, city, and country of residence of the foreign insurer as well as the taxable year(s) at issue.
Income Tax Return Sources
There are three sources included in income tax returns. Each source provides information which may be used to determine the issues to be reviewed in a foreign insurance excise audit.
Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations. Schedule M, Line 1, reports sales of foreign products (inventory) from the Controlled Foreign Corporation to its domestic affiliated companies. These transactions could include foreign insurance premiums within cost of goods sold for insurance while the product is in transit. Schedule M, Line 11, contains premiums received for insurance or reinsurance. Schedule M, Line 23 contains premiums paid for insurance or reinsurance. The Form 5471 is attached to the corporate income tax return.
Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Part IV, Line 12, reports purchases of the U.S. reporting corporation from its foreign related party. These purchases may include foreign insurance premiums within cost of goods sold for insurance while the product is in transit. Part IV, Line 20, contains premiums paid for insurance or reinsurance. The Form 5472 is attached to the corporate income tax return.
Form 851, Affiliations Schedule, is attached to the corporate income tax return and lists all affiliates, as well as the type of business of each affiliate, of the parent company.
Form 1120F, U.S. Income Tax Return of a Foreign Corporation. The form notes the country of incorporation of a foreign insurer. Even if the country is not a taxable country, the foreign insurer may reinsure and be subject to cascading tax.