AIG, MetLife Deal Faces Tax Dispute: Report

NEW YORK (TheStreet) -- The $15 billion sale of American International Group's (AIG) foreign life-insurance unit American Life Insurance Co. to MetLife(MET) faces a tax dispute hurdle that may require an approval from the Internal Revenue Service, the Wall Street Journal reports, citing sources familiar with the matter.

The dispute under review is whether Alico is exempted from a 2004 IRS ruling which requires insurers to withhold U.S. taxes on income distributed to foreign clients who own their annuities and life-insurance products.

Alico has considered itself exempt from the IRS ruling since it only sells policies to non-U.S. citizens who reside abroad and it earns more than 80% of its income overseas, the Journal reports.

AIG, the government-controlled insurer, has asked the IRS for a "private letter ruling" to confirm its interpretation that Alico is exempt from the U.S. tax-withholding requirement. However, Treasury officials have informed AIG that the company won't get any special treatment from the IRS, sources told the Journal.

If the IRS rules against Alico it could severely limit its ability to do business overseas because its insurance products would be less attractive to its foreign clients if they are subject to U.S. taxes on the income they receive.

An IRS spokesman declined to comment for the newspaper.

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