Tax News

CCH (cch.taxgroup.com) reports:

Under a new safe harbor insurance companies will not have to take into account increases in policy cash values of certain life insurance contracts described in Code Sec. 264(f)(4)(A) ("I-COLI Contracts") for purposes of applying the insurance company proration rules. Under the proration rules set forth in Code Secs. 805(a)(4), 807(a)(2), 807(b)(1), 812
and 832(b)(5)
certain tax-favored income must be prorated between an insurance company and its policyholders to more clearly reflect income. This includes tax-exempt interest, intercorporate dividends, and increases in policy cash values of life insurance and endowment contracts to which Code Sec. 264(f) applies.
In response to questions concerning the interpretation of the phrase "contracts to which Code Sec. 264(f) applies", the safe harbor provides that the proration rules will not apply to increases in policy cash values of I-COLI contracts covering no more than 35 percent of the total aggregate number of individuals described in Code Sec. 264(f)(4)(A) at any time during the taxable year. However, such contracts remain subject to IRS challenge under other provisions and judicial doctrines, including the business purpose doctrine.
This procedure is effective September 11, 2007. The IRS is requesting comments by December 31, 2007, about the need for additional guidance in this area. If, in response to comments, additional guidance is published it will apply prospectively.
Rev. Proc. 2007-61, 2007FED ¶46,631
Other References:
Code Sec. 264
CCH Reference - 2007FED ¶14,008.01
Code Sec. 805
CCH Reference - 2007FED ¶25,780.027
Code Sec. 807
CCH Reference - 2007FED ¶25,821.01
Code Sec. 812
CCH Reference - 2007FED ¶25,913.10
Code Sec. 832
CCH Reference - 2007FED ¶26,157.35