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In an ever-globalizing world, U.S. tax payers are looking abroad for their insurance needs.  According to UHY partner Christopher Byrne, while taxpayers may find certain benefits from policies issued by a foreign insurer that they might not find domestically, many find themselves with a rude awakening when they are hit with a surprise surcharge from the IRS.  Pursuant to Internal Revenue Code § 4371(2), a one percent excise tax is charged on the premium paid on a policy for life, sickness, or accident insurance or an annuity contract. 
Internal Revenue Code § 4372 defines a foreign insurer or reinsurer as a nonresident alien individual, foreign partnership or foreign corporation.  This definition excludes foreign governments, municipalities or other entities exercising taxing power.  The definition for a “policy of life, sickness, or accident insurance or annuity contract” is broad and means any policy or other instrument called by whatever name whereby a contract of insurance or an annuity contract is made, continued, or renewed with respect to the life or hazards to the person of a citizen or resident of the United States.
To comply with the code, a taxpayer must file Form 720 Quarterly Federal Excise Tax Return and pay a one percent tax on the total premium paid.  Tax is due on the last day of the month following the end of the quarter in which the premium is paid.