Jul 29 ,2025
Decoding Form 720: The Excise Tax on Policies Issued by Foreign Insurers
Decoding Form 720: The Excise Tax on Policies Issued by Foreign Insurers
Filing the Form 720 Excise Tax on Policies of Non-U.S. Insurers: Unauthorized Insurance Policies
For U.S. taxpayers with foreign insurance policies, having the policy itself does not mean they necessarily comply with the provision. The IRS demands certain disclosures, one of which is miscalled and perhaps the most neglected: the excise tax on foreign insurance policies, declared using Form 720—Quarterly Federal Excise Tax Return. This article decodes for you the necessary things you should know about that requirement such that your tax strategy complies with federal regulations.
What Form 720 Is and Who Should File It
So, in general, Form 720 is used to collect federal excise taxes on insurance premiums from U.S. individuals or business entities, trusts, or partnerships that purchase insurance or reinsurance from a foreign insurer that is not authorized to do business within the boundaries of the United States.
Rationale behind the Taxation of Foreign Insurance Policies
The federal excise tax is imposed to discourage the use of foreign insurers as a means of tax avoidance. It also becomes salient if a policy was purchased from a non-U.S. carrier that is not licensed to do business in the United States. It includes property, casualty, life insurance, annuities, or reinsurance policies in which there is a connection to a U.S. risk.
Filing Requirements for Form 720
The excise tax shall be reported quarterly on Form 720, particularly under the “Foreign Insurance” line item in part II of that form. You must:
* submit the total premium paid to foreign insurers,
* calculate and enter the corresponding tax rate (1% or 4%), and
* File the form by the last day of the month following the quarter closed (e.g., Q1 ends March 31; file by April 30).
Mistakes Within Common strings and How to Rectify Them
Most of these companies fail to file out of ignorance, as most think there will be no obligation to file because they are not involved with foreign reinsurers or even offshore captives; some just assume that because the foreign entity is based outside of the United States, it is IRS-exempt or, even worse, miscalculate the others to be excused from excise tax. Working with a tax advisor knowledgeable in cross-border insurance taxation ensures full compliance.
* Keep true records of all transactions relating to foreign insurance?
* Find out whether the foreign insurer is authorized or exempt.
* You may consider using the IRS e-file system for the speedier processing and confirmation.
Understanding and declaring the excise tax on foreign insurance policies through Form 720 is not optional; it is compulsory by law. Be it an individual with overseas assets or a business that manages global exposure to risk, proper compliance ensures peace of mind and shields one from penalties. Know yourself, work with experts, and make sure your cross-border insurance decisions are tax compliant.
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