Treasury, IRS Issue Guidance on Life, Annuity Insurance and Annuity Contracts

This week, the Treasury Department and the Internal Revenue Service (IRS) finalized a regulation that would limit the use of life insurance and annuity contracts as a way to avoid current taxation of investment earnings.

The regulation, together with other guidance previously issued, will prevent taxpayers from turning otherwise taxable investments in hedge funds and other entities into tax-deferred or tax-free investments by purchasing the investments through a life insurance or annuity contract.

Life insurance and annuity contracts receive favorable tax treatment in recognition of the importance of protecting loved ones against the potentially devastating financial consequences of death or the risk of exhausting savings while in retirement. The regulation finalized today, together with other guidance previously issued, provides guidance that will help taxpayers purchasing a life insurance or annuity contract to be secure in the knowledge that the contract complies with the tax laws. This regulation is part of the effort to modernize the rules for these contracts in recognition of the developments that have occurred in the financial markets in recent years.

The regulation finalized today was originally proposed in 2003. In response to comments from the public, the transition period for existing contracts that are affected by the regulation is four calendar quarters, which is two calendar quarters longer than the period originally proposed. The preamble to the regulation also acknowledges valuable input from commentators that may serve as the basis for additional guidance in the future.

View the regulations here (PDF)

You may like these other stories...

Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...
IRS chief: New rule on the way for tax-exempt groupsIRS Commissioner John Koskinen told the USA Today on Monday that the agency will likely rewrite a proposed rule regulating the political activities of nonprofit groups to...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.