The Treasury Department and IRS recently issued its 2009-2010 priority guidance plan, listing the projects it plans to finish by the end of June 2010. Of particular interest to our life insurance clients are the following projects:
- Guidance on insurance contracts that mature after an insured reaches age 100. The IRS had issued Notice 2009-47, 2009-1 C.B. 1083, providing a proposed safe harbor for such contracts and seeking comments on this issue;
- A revenue ruling on tax-free exchanges of life insurance contracts under IRC § 264(f) which was listed as a priority item on last year’s list. IRC § 264(f), subject to a significant exception, disallows an interest deduction on a policyholder’s indebtedness which bears a certain ratio to the average unborrowed cash values of the policyholder’s life and annuity policies “issued” after June 8, 1997 to the sum of the average unborrowed cash values of such policies and the average adjusted bases of all other assets;
- Guidance for annuity contracts that have a long-term care component. IRC § 7702B(e) provides that, subject to IRS regulations, the portion of any life insurance or annuity contract providing long-term care insurance coverage by a rider on or as part of such contract shall be treated as a separate contract; and
- Guidance on the tax treatment of a partial exchange or annuitization of an annuity contract.