Financial Industry Regulators Define Key Terms in Crackdown on Tax Evasion
In a bid to combat tax evasion, financial regulators have defined key terms related to cash value insurance contracts and pre-existing accounts. These new definitions will help improve transparency and reporting requirements for financial institutions, aiming to identify and track high-value accounts, as well as those that are excluded from certain regulations.
Cash Value Insurance Contracts
A cash value insurance contract is defined as an insurance policy that has a cash value component, excluding indemnity reinsurance contracts between two insurance companies. The cash value of the policy refers to the amount that the policyholder can receive upon surrender or termination of the contract, without any deductions for surrender charges or policy loans.
Pre-Existing Accounts
A pre-existing account is defined as a financial account maintained by a reporting financial institution as of December 31st, 2015. It also includes accounts held by individuals who have other accounts with the same institution that are treated as pre-existing accounts. The opening of such accounts does not require new customer information from the account holder.
New Accounts
A new account is defined as a financial account maintained by a reporting financial institution opened on or after January 1st, 2016, unless it is treated as a pre-existing account.
Excluded Accounts
The regulations also define excluded accounts, which include:
- Retirement or pension accounts that meet certain requirements
- Must be subject to regulation and tax-favored treatment
- Information reporting required to tax authorities
- Withdrawals typically conditioned on reaching a specified retirement age, disability, or death, or penalties apply for early withdrawals
The new definitions aim to improve compliance and transparency in the financial industry, helping regulators to better track high-value accounts and prevent tax evasion. These regulations come into effect from January 1st, with the goal of improving reporting requirements for financial institutions and enhancing efforts to combat tax evasion.