Ezel / IRS Rulings / 200920053

CCA 200920053: Section 72 controlled the tax consequences of an insurance contract surrender

Number
200920053
Outcome
Advice
Document type
Chief Counsel Advice
IRS subject
Annuities: Endowment and Life Insurance (Included v. Not Included in Gross Income)
Topics
Retirement plans, IRAs, and annuities
Code sections
§ 72, § 1035
Ruling dated
April 7, 2009
Publicly released
May 15, 2009
Source
View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2009, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2009
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

Chief Counsel addressed the tax consequences of surrendering an insurance contract. The email distinguished a private letter ruling about a section 1035 exchange of one contract for two contracts in which no cash was received. It advised that section 72(e)(5)(E) instead governed the surrender in the question presented. The email described the taxable amount under section 72(e)(5)(A) as the difference between the cash received and the investment in the contract, with that investment defined under section 72(e)(6) by premiums paid less amounts previously excluded. Based on the undisclosed facts, Counsel said the taxpayer had reached the correct answer.

Ruling snapshot

  • Question: How should the taxpayer determine the tax consequences of surrendering an insurance contract?
  • Outcome: Advice given: apply section 72’s cash-over-investment rule, and the taxpayer’s answer was correct on the undisclosed facts.
  • Key authorities: IRC §§ 72(e)(5)(A), 72(e)(5)(E), 72(e)(6), 1035.

Full text (IRS public release)

ID: CCA-407231-09 Number: 200920053
Release Date: 5/15/2009
Office: ----------
UILC: 72.00-00

From: -------------
Sent: Tuesday, April 07, 2009 2:31 PM
To: -----------------
Cc: ----------------------------
Subject: MEC Surrender Charges

the plr dealt with a 1035 exchange of 1 contract into 2 contracts in which no cash was received. the question was how to equitably apportion cash value and basis among the 2 contracts for purposes of a future taxable event. your fact pattern deals with surrender of an insurance contract and the tax consequences are governed by 72e5E which says 72e5A includes in income the difference between what was received in cash and the amount of the investment in the contract. the investment in the contract is defined under 72e6 as what you paid in premiums (less anything previously excluded). so based on your facts taxpayer has the correct answer.

be glad to chat anytime. we can set up a specific time if you prefer. ---

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