The Internal Revenue Service ("IRS") recently issued two Notices concerning life insurance contracts. In Notice 2009-47, the IRS requested comments on a proposed safe harbor regarding the application of Internal Revenue Code ("IRC") Sections 7702 (definition of life insurance) and 7702A (definition of modified endowment contracts) to life insurance contracts that continue after an insured attains age 100. The IRS also requested comments in situations where a life insurance contract matures after the insured has attained age 100.  

The need for IRS guidance arises from the fact that the new 2001 CSO tables extend to age 121 while the computational rules of IRC Section 7702 assume a contract matures between ages 95 and 100. Under a proposed safe harbor, the IRS would not challenge the qualification of a contract as a life insurance contract under IRC Section 7702, or assert that a contract is a MEC under IRC Section 7702A, if the contract satisfies all of the "Age 100 Testing Methodologies" set forth in the Notice. One of the requirements of the safe harbor is that a contract that remains in force after age 100 would be required to provide at all times a death benefit equal to or greater than 105 percent of the cash value.  

Comments should be submitted on or before October 13, 2009. The safe harbor becomes effective once it is formally adopted by the IRS.  

In Notice 2009-48, the IRS provides guidance concerning the treatment of employer-owned life insurance contracts under IRC Sections 101(j) and 6039I (information reporting with respect to employer-owned life insurance contracts). The Notice, in Question and Answer format, clarifies the definition of "employer-owned life insurance contract" and provides guidance with respect to (1) the exceptions to the application of Section 101(j); (2) satisfaction of the notice and consent requirements; (3) the transition rule that applies IRC Section 101(j) to life insurance contracts issued after August 17, 2006, except for a contract issued after that date pursuant to an IRC Section 1035 exchange for a contract issued on or before that date; (4) what changes to a contract are sufficiently material to cause the contract to lose its grandfathered status; and (5) the information reporting requirements of IRC Section 6039I.  

The Notice is effective June 15, 2009. Further, the IRS states that it will not challenge a taxpayer who made a good faith effort to comply with IRC Section 101(j) based on a reasonable interpretation of that provision before that date. No guidance is given as to what constitutes a "reasonable interpretation" of IRC Section 101(j).