According to the latest Internal Revenue Service (IRS) release, segregated asset accounts on which a variable annuity or life insurance contract is based must be adequately diversified for the variable contract to be treated as an annuity under Â§ 72 of the U.S. Tax Code or as a life insurance contract under Â§ 7702.
Tuesday’s IRS document said Section 817(h) (4) and Â§ 1.817-5(f) indicate that in certain cases diversification may be satisfied under a “look-through” rule. One of the requirements for applying the look-through rule under Â§ 1.817-5(f) (2) (i) is that all of the beneficial interests in a regulated investment company, partnership or trust be held by one or more insurance companies, according to the IRS.
To determine whether this requirement is satisfied, Â§ 1.817-5(f) (3) (iii) provides that beneficial interests held by the trustee of a “qualified pension or retirement plan” are disregarded.
In addition to the nine arrangements identified in the 1994 IRS ruling to use as part of a Â§ 1.817-5(f)(3)(iii) determination, the term “qualified pension or retirement plan” now includes five additional arrangements described in Tuesday’s release, according to the tax agency.
The new IRS pronouncement is here .