The pending $15 billion sale of a unit of American International Group
The paper, quoting people familiar with the matter, said the problem was a dispute about whether AIG's unit American Life Insurance Co (Alico) will remain exempt from a 2004 IRS ruling.
The ruling requires insurers to withhold U.S. taxes on income distributed to foreign clients who own their annuities and life-insurance products, the paper said.
Alico, which sells life insurance and retirement products to 19 million customers in 54 countries, has considered itself exempt from the IRS ruling since it earns more than 80 percent of its income overseas, the paper said.
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, the Wall Street Journal cited sources as saying.
It said the tax issue could put the Department of the Treasury, as overseer of the Internal Revenue Service, in an awkward situation.
Treasury officials have told AIG that the company won't get any special treatment from the IRS, the paper said.
However, AIG officials do not believe a sale would stick MetLife, the largest publicly traded U.S. life insurer, with a big tax liability, the paper said.
AIG, Metlife and IRS could not be reached for comment.
(Reporting by Archana Shankar in Bangalore; Editing by Dan Lalor)