Tax treatment of assets held by life insurance company in separate accounts after restructuring 

September 4: The IRS publicly issued a private letter ruling (PLR) concluding that, after a proposed restructuring, certain assets held by the taxpayer—a life insurance company—in segregated, separate asset accounts may be treated as owned by the taxpayer. However, others (non-pension contract owners) are treated as the owners of the separate account assets that fund non-pension contracts. PLR 201235001 [PDF 58 kb] (posted August 31, 2012, and dated May 30, 2012)

*Private letter rulings are taxpayer-specific rulings furnished by the IRS National Office in response to requests made by taxpayers and/or IRS officials and can only be relied upon by the taxpayer to whom issued. It is important to note that, pursuant to section 6110(k)(3), such items cannot be used or cited as precedent. Nonetheless, such rulings can provide useful information about how the IRS may view certain issues.


The taxpayer issued group annuity accounts based on segregated asset accounts, and with respect to which two types of contracts are sold: (1) pension contracts and (2) non-pension contracts.


Under a proposed restructuring, the taxpayer plans to change how it holds the assets in the separate accounts.


The IRS distinguished the tax treatment afforded pension contracts from the tax treatment afforded non-pension contracts, and concluded that after the proposed restructuring:


  • With respect to the pension contracts—the taxpayer will be considered the owner for federal income tax purposes of the separate account assets (assuming that the taxpayer is the owner of the assets that fund the pension contracts prior to the restructuring)
  • With respect to the non-pension contracts—the non-pension contract owners will be treated as the owners of the separate account assets that fund the non-pension contracts (the interests in this separate account are not available exclusively through the purchase of a pension contract from the taxpayer, and thus the non-pension contract owners are considered the owners of the interests in the second separate account for federal income tax purposes)


©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.


The KPMG logo and name are trademarks of KPMG International.


KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.


The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


Direct comments, including requests for subscriptions, to us-kpmgwnt@kpmg.com.
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.

Subscribe

Current and future KPMG clients may subscribe to TaxNewsFlash email alerts.


Email your contact information.

Contact Us

Media/reprint requests


Technical concerns and questions

Other TaxNewsFlash publications


TaxNewsFlash - United States

TaxNewsFlash-United States by month