A stock life insurance company, properly organized and operated under applicable state law and qualifying as a life insurance company under IRC Sec. 816(a), requested two rulings in regards to a new term certain annuity option with variable payments (the “New Annuity Option”) with non-qualified deferred variable annuity contracts (the “Contracts”): 1) To the extent that each Periodic Payment exceeds the contract payment amount, the excess will be treated as an amount not received as an annuity on or after the annuity starting date and will be includable in gross income; but such amount up to and including the contract amount is treated as an annuity payment and will be excludable from gross income. and 2) No amount will be includable in gross income before it is actually paid under the New Annuity Option per the date the Owner elects the New Annuity Option.

The IRS responded with PLR 201424014, finding the requested rulings to be accurate. The PLR analyzed the rulings under IRC Secs. 72 and 264, and Income Tax Regulations 1.72-2, 1.72-4, and 1-451-2. The PLR states in relevant part that: 1) Each Periodic Payment received under the New Annuity Option is an “amount received as an annuity” under IRC Sec. 72(b)(1) to the extent that it does not exceed the originally anticipated contract amount; and 2) No amount will be includable in gross income before it is actually paid under the New Annuity Option per the date the Owner elects the New Annuity Option.

Posted by Christopher Lee, Associate Editor, Wealth Strategies Journal