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...

The IRS cautions freelancers and other self-employed individuals to stay on top of the deadlines for filing federal tax returns and the due dates for making payments. Miss just one, says the IRS, and it might exact a sizable...
Bipartisan Cooperation on Tax Refund FraudAs noted in Politico, Senators Wyden and Hatch have introduced a tax refund fraud bill. According to a summary from Senator Hatch's office, the bill would enhance "the...
Camp Hopes Estate Tax Will Be on Its Way OutAn article in Bloomberg said that Republicans are considering voting this year to repeal the U.S. estate tax, according to House Ways and Means Chairman Dave Camp (R.-Mich.). He...

Upcoming CPE Webinars

Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.