America’s Community Bankers say they will fight hard this year together with insurers to keep the proposed corporate-owned life insurance tax out of the budget.

Jim O’Connor, tax counsel with the ACB, said at the group’s annual legislation conference in Washington recently that most of the abuses that led to earlier legislation have been eliminated, and further restrictions on deductions for life insurance purchases are not needed.

"We want some closure on this," he said.

The Treasury has proposed this year a repeat of a $1.9 billion tax on corporate-owned and bank-owned life insurance by closing off deductions for employees, officers and directors of the company. The only eligible persons would be those who had a 20% stake or more in the company.

The law was changed in 1996 and 1997 as a result of companies like Wal-Mart using the provision to insure their employees and take large deductions, said O’Connor.

The changes eliminated the ability of companies to borrow against the policies and deduct the interest, he said. FAS 106, which was enacted by the Financial Accounting Standards Board in December 1990 requires financial institutions to estimate their future costs of providing employees health coverage. The COLI provision allows companies to offset some of that hit to capital, O’Connor said.

Last year a $500 million provision nearly made it into the IRS restructuring act but was pulled at the last minute after staffers found a more lucrative compromise. The ACB said they will "stay vigilant" to ensure it doesn’t return this year.