PLR 200720004: Group annuity contract retains its tax classification

Plain-English summary

Two taxpayers asked whether a group annuity contract still qualified as an annuity after changes to its terms and an increase in certificate holders. They also asked whether a later IRS ruling about risk distribution changed an earlier determination about their contract. The taxpayers represented that the contract remained substantially the same, apart from a separate account and specified language changes. The IRS concluded that it still qualified as an annuity contract under IRC § 72 and for the insurance company tax rules in Subchapter L. The ruling is based on those representations and gives no opinion on other tax consequences.

Ruling snapshot

• Question: Does the revised group contract continue to qualify as an annuity for the stated federal tax purposes?
• Outcome: Approved on the taxpayers' representations.
• Key authorities: IRC § 72 and Subchapter L; Rev. Rul. 2005-40.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200720004
Third Party Communication: None
Release Date: 5/18/2007
Date of Communication: Not Applicable
Index Number:72.00-00, 72.14-00, 801.00-00 Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:FIP:B04
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PLR-106101-07; PLR-154184-06
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Date:
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February 12, 2007
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Taxpayer 1 = ---------------------------------------------- Taxpayer 2 = --------------------------------------------------------

Dear -----------------------------------------------

This is in response to the letter of November 17, 2006 from your authorized representative seeking a ruling that the contract issued by Taxpayer continues to qualify as an annuity contract under § 72 of the Internal Revenue Code and for purposes of Subchapter L of Chapter 1 of Subtitle A of the Code.

FACTS

On February 8, 2000, we issued a letter ruling that a group annuity contract issued to Taxpayer 1 constituted an annuity contract for purposes of § 72 and was held by Taxpayer 1 for a natural person within the meaning of § 72(u) (released as PLR 200018046). 1 Taxpayers represent that the group annuity contract presently in force is substantially the same as that considered in PLR 200018046; the only changes being the addition of a separate account and modification of some contractual language, for example, language adding a miscreant rule, changing the timing of expense payments, modifying the consent rules, and addressing qualified domestic relations orders.

Taxpayer 1 and Taxpayer 2 represent that the group annuity contract that was the subject of PLR 200018046 was issued by Taxpayer 2 and that Taxpayer 2
PLR-106101-07
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computes its taxable income in the manner prescribed by Part I of Subchapter L. Taxpayer 1 and Taxpayer 2 represent that the number of certificate holders of the group annuity contract has increased from 100x at the time of PLR 200018046 to now exceed 200x.

RULING REQUESTED

Taxpayer 1 and Taxpayer 2 request a ruling that the group annuity contract continues to qualify as an annuity contract under § 72 and for purposes of Subchapter L.

LAW, ANALYSIS, AND RULING

The crux of Taxpayers’ request is whether the holding of Rev. Rul. 2005-40, 2005-27 I.R.B. 4, affects the ruling of PLR 200018046.1 Rev. Rul. 2005-40 concludes that the risk distribution required for an arrangement to constitute insurance for federal income tax purposes is absent if risks are not distributed among other insureds or policyholders.

Based on the representations of Taxpayer 1 and Taxpayer 2, we conclude that the group annuity contract continues to qualify as an annuity contract under § 72 and for purposes of Subchapter L.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

This ruling is directed only to Taxpayers. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Forms 2848, Power of Attorney and Declaration of Representative, on file with this office, a copy of this letter is being sent to each Taxpayer and to each Taxpayer’s authorized representatives.

A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, for a return(s) filed electronically this requirement is satisfied by attaching a statement to the return(s) that provides the date and control number of the letter ruling.

1
See, e.g., § 11.04(5), Rev. Proc. 2006-1, 2006-1 I.R.B. 1, 49.
PLR-106101-07
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The rulings contained in this letter are based upon information and representations submitted by Taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

Sincerely,

Associate Chief Counsel
(Financial Institutions & Products)

By: _______
Donald J. Drees, Jr.
Acting Chief
Branch 4