We interrupt the almost end to the April 15th version of your tax season to bring to your attention PLR 202114002, which was dated January 13, 2021, but issued on April 9th. This is a taxpayer-liberal PLR, which provides that a business referred to as an “insurance agent or broker” was a qualified trade or business for §1202 purposes (i.e., the 100% exclusion of gain recognition for the sale of qualifying C corporation stock).

What is especially interesting about this PLR is that there are two potentially relevant provisions that the IRS could have used to knock the above business out of the §1202 box: (1) §1202(e)(3)(A), which excludes “brokerage services” from qualification, and (2) §1202(e)(3)(B), which excludes an “insurance” business from qualification. The IRS barely paid lip service to the insurance business exclusion, merely referring to the Code section but with no discussion as to why the business wasn’t an “insurance” business. Apparently, the insurance business must be one that issues the policies (e.g., Northwestern Mutual, Prudential, etc.); however, most of those businesses likely fail the $50 million gross asset test anyway. Insofar as brokerage services were concerned, the IRS found that the administrative services required to be performed, such as reporting claims and keeping records of policy holders, was sufficiently different from a “mere intermediary facilitating a transaction between two parties” to find a qualified trade or business in the PLR. (As an aside, note that Reg. §1.199A-5(b)(2)(x) excludes insurance agents and brokers from SSTB characterization.) Note that the insurance business in the PLR is largely described as a property and casualty business with no mention of life insurance. While an insurance agent/broker that “sells” life insurance products only likely does not perform the same level of service as a property and casualty agent/broker, one would think that the IRS thought process would be the same for a life insurance business.