Payment Amortization Schedule

In the wake of the Supreme Courts ruling in the Newark Morning Ledger case, legislation requiring a 14 year write off for intangible assets has moved again to the front burner.

Vetoed a year ago by then President Bush, the provision has been inserted into package of proposed tax increases and appears ready to move out of the House Ways and Means Committee and onto the House floor. Given need for the tax package and previous congressional support, it seems likely the 14 year payment amortization schedule will be adopted.

The amortization provision may prove to be a mixed blessing for the diverse insurance industry. Insurance agents, for instance, see the 14 year write off as positive, even if the period is longer than most for agent's depreciation for their customer lists. Agents support the 14 year period because it provides a solution to their long running dispute with the Internal Revenue Service over the depreciation of their lists. The average life of an agent's customer list is normally seven years. While they might lose some money spreading the life of the list over 14 years, agent's appear to be willing to cut their losses by striking a deal that at least resolves many of their IRS disputes, thereby reducing their IRS litigation related costs.

This proposal will implement much needed simplification in the costly process of determining which intangibles are depreciable and how long they can be written off, said Paul Equale, senior vice president of government affairs for the Independent Insurance Agents of America. If enacted, agents will no longer have to jump through IRS applied hoops to depreciate intangibles, he added. But don't start dancing in the streets, because this vote is only the first hurdle in a very long race.

The 14 year amortization provision at issue may also have an effect on the insurance industry's practice of assumption reinsurance, according to some experts. They reason that when an assumption reinsurance transaction takes place, part of the premium paid goes toward the chance that the assuming company may be able to sell additional insurance to the acquired policyholders.

The same reasoning might apply to general industry merger and acquisition activity as well. For insurers that operate on a mortgage banking level, the 14 year period is seen as a way to lose money. The 14 year amortization period is far longer than the seven to 10 years that many services take to amortize their mortgage servicing rights, mortgage bankers say.