| |
By William
D. Sheldon, General Counsel, SCF Arizona
 AASCIF
member insurers who are exempt from federal taxation under I.R.C. § 501(c)(27)(B)
have been acutely aware this year of efforts by the Property Casualty
Institute (PCI) to push legislation that would amend the federal
tax code. The code has been in effect since January 1, 1998. In
order to qualify, the organization must meet the following requirements:
(1) created and operated exclusively under State law to provide
workers compensation insurance which is either required by state
law or state law must provide significant disincentives if employers
fail to purchase such insurance, as well as coverage related to
workers compensation insurance; (2) provides workers compensation
coverage to any employer in the state (including both employees
working in the state, as well as those temporarily working out
of state) which seeks such insurance and meets other reasonable
requirements thereto; (3) receives a financial commitment from
the state either in the form of an extension of the full faith
and credit of the state to the organization’s initial debt,
or, a provision of the organization’s initial operating capital;
(4) for taxable periods after August 5, 1997, has assets, all of
which revert to the state upon dissolution, or, the organization
is not allowed to dissolve under state law; and (5) its board of
directors or oversight body are appointed by the chief executive
officer or other executive branch official of the state, by the
state legislature, or both.
PCI’s proposed changes as of May of 2006 were as follows:
·
Amend subsection (B)(i)(I) to limit the exemption to funds that
provide workers compensation insurance “to employers in a
single state”;
·
Amend subsection (B)(ii)(the “all-comers” limitation)
to require an exempt fund to provide insurance to any employer
in the state that is “required to provide such insurance
by state law or has a significant incentive under state law to
purchase such insurance,” rather than to any employer that “meets
other reasonable requirements related thereto”;
·
Add a new subsection (B)(v) to require, as a condition of the exemption,
that no part of the net earnings of such organization inures to
the benefit of any private shareholder, individual, or employer”;
and
·
Add a new subsection (C) that would require any exempt organization
that provides workers compensation insurance to qualify under this
section or §501(c)(15) (which applies to insurers with gross
proceeds of $600,000 or less). The purpose of this provision is
in part to require exempt state funds to file returns with the
Internal Revenue Service.
Although subsequent versions of draft proposals have been offered
with the apparent intent of allaying qualifying compensation funds’ fears,
the basic proposal has not substantively changed. The most critical
dangers are (1) loss of the ability to turn away employers who
have a history of not paying premium or properly reporting payroll,
have a horrendous safety record, have no willingness to develop
a safety program or have risks that simply cannot be adequately
underwritten; (2) loss of the ability to provide a dividend where
otherwise permitted by state law; (3) loss of significant business
if state funds can no longer cover employers with employees temporarily
assigned out of state. No proposed legislation is currently in
play. However, next year the tax code will be revised and AASCIF
members need to be vigilant and assure that the important role
state compensation funds perform in state economies is well understood
by those who can make a difference.
|
