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)
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.