Insurer merger does not restart life policy tax tests

Plain-English summary

Two affiliated life insurance companies planned to merge, with one company surviving and assuming the other's policies. The policy terms would not change, and the surviving company would not issue replacement contracts to policyholders. Based on those representations and the further representation that the merger would qualify as a section 332 liquidation, the IRS ruled that the merger would not change the policies' original issue, entry, or purchase dates for the listed life insurance and annuity provisions. It also would not require the policies to be retested or begin new testing periods under sections 264, 7702, or 7702A.

Ruling snapshot

• Question: Does a merger between affiliated life insurers change policy dates or restart federal tax testing periods?
• Outcome: Approved
• Key authorities: IRC §§ 72, 101, 264, 332, 7702, 7702A, 816

Full text (IRS public release)

Internal Revenue Service                                         Department of the Treasury
                                                                 Washington, DC 20224

Number: 201617004                                                Third Party Communication: None
Release Date: 4/22/2016                                          Date of Communication: Not Applicable
Index Number: 72.07-00, 72.19-00, 72.22-
              00, 101.05-00, 264.03-00,                          Person To Contact:
              264.04-00, 264.05-00,                              ------------------, ID No. ----------------
              7702.00-00, 7702.17-00,                            Telephone Number:
              7702A.03-03                                        --------------------
                                                                 Refer Reply To:
-------------------------------------------                      CC:FIP:B04
--------------------------                                       PLR-125924-15
---------------------------------                                Date:
                                                                 January 20, 2016
----------------------------
--------------------------------------

In Re-----------------------------------------------------
--------------------------------------------------------
---------------------------------------




Legend

Date 1                              =         --------------------------

Date 2                              =         ----------------

Date 3                              =        ------------------------------------------------------------------------
                                    -------------------------------------------------------------------------

Date 4                              =         ------

Date 5                              =         ---------------------

Taxpayer                            =         ----------------------------------
                                    -------------------------------

Company A                           =         ---------------------------------------------
                                    -------------------------------

Company B                           =         ---------------------------------------------------------
                                    -------------------------------

State 1                             =         --------

                                                           2

State 2                             =        -----------

Geographical Area 1                 =         ---------------------------------------------------
--------------------------------------------------------------------------------------------------------

Geographical Area 2                 =        ------------------------------------------------------------------------
                                    ---------------------------------

Separate Accounts A & B =                     -----------------------------------------------------
-----------------------------------------------------------------------------------------------------

Life Insurance Contract             =        ----------------

Annuity Contracts                   =         --------------------------------------
------------------------------------------------------------------------------------------------


Dear --------------:

       This letter responds to your request for a ruling concerning the federal income
tax consequences of a proposed transaction.

         Company A is a stock life insurance company organized and operated under the
laws of State 1. Company A represents that it qualifies as a life insurance company
under section 816(a) of the Internal Revenue Code and that it is licensed to operate in
Geographical Area 1. Company A’s primary business is the issuance and reinsurance
of life insurance and annuity contracts. Company A joins in the filing of a consolidated
federal income tax return with Taxpayer, who is the common parent of the affiliated
group that includes Company A.

        Company B was organized and operated under the laws of State 2 and re-
domesticated to State 1 on Date 1. Company B is a stock life insurance company and
represents that it qualifies as a life insurance company under section 816(a). Company
B is licensed to operate in Geographical Area 2. Company B’s primary business is the
issuance and reinsurance of life insurance and annuity contracts, including Life
Insurance Contract and Annuity Contracts (collectively, the “Policies”). On Date 2,
Company B became a wholly-owned subsidiary of Company A. Company B joins in the
filing of a consolidated federal income tax return with Taxpayer, who is the common
parent of the affiliated group that includes Company B. Company B currently sponsors
two separate accounts, Separate Accounts A & B. The variable life insurance policies
and variable annuities, included in the Policies, funded through the Separate Accounts
are registered as securities under the Securities Act of 1933. Since Date 3, Company B
has not issued any additional Life Insurance Contracts and since Date 4, Company B

PLR-125924-15                                 3

has not issued any additional Annuity Contracts.

        In order to operate more efficiently and to reduce administrative and other costs,
the operations of Company A and Company B will be combined through a proposed
merger (“proposed merger”). Under the proposed merger, Company A and Company B
will enter into an agreement under which Company B will merge with and into Company
A on or about Date 5.

       After the proposed merger, Company A will remain as the surviving company;
Company B will no longer exist. Company A will possess all the rights, duties and
obligations of Company B and will administer the Policies.

       Taxpayer represents that, other than the change in the identity of the insurer,
there will be no changes to the terms of the Policies; Company A will not issue new life
insurance or annuity contracts to the owners of the Policies in exchange for their
existing Policies.

       Taxpayer also represents that 1) the Policies qualify as “life insurance contracts”
or “annuity contracts”, as applicable, for federal income tax purposes and 2) the
proposed merger will qualify as a complete liquidation within the meaning of section
332.

      Based solely upon the information submitted and the representations set forth
above, we rule as follows concerning the transaction described above:

       1.     The proposed merger will have no effect on the date that the Policies were
issued, entered into or purchased for purposes of sections 72(e)(4), 72(e)(5),72(e)(10),
72(e)(12), 72(q), 72(s), 72(u), 72(v), 101(f), 264(a)(2), 264(a)(3), 264(a)(4), 264(c),
264(f), 7702, and 7702A; and

       2.     The proposed merger also will not require retesting or the start of a new
test period under sections 264(d)(1), 7702(f)(7)(B)-(E), and 7702A(c).

      The rulings contained in this letter are based upon information and
representations submitted by the taxpayer 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.

       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 the taxpayer(s) requesting it. Section 6110(k)(3) of

PLR-125924-15                                  4

the Code provides that it may not be used or cited as precedent. A copy of this letter
must be attached to any income tax return to which it is relevant.
In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to the taxpayer representative.


                                           Sincerely,



                                           John Glover
                                           Senior Counsel, Branch 4
                                           Office of Associate Chief Counsel
                                           (Financial Institutions & Products)