The Internal Revenue Service is changing its procedures for dealing with life insurance contracts, annuity contracts, and variable life and annuity contracts that accidentally fail to meet federal standards for those products.
The IRS has published 4 draft model closing agreements, which policyholders can use to remedy accidental failures to meet federal cash value requirements, asset diversification requirements and other requirements.
The draft model closing agreements appear in Notice 2007-15.
The IRS also has released a package of technical changes to the rules governing efforts to fix problems with modified endowment contracts, or a life or annuity contract that fails to meet the “7-pay test.”
A contract fails to meet the test if, at any time during the first 7 contract years, “the accumulated amount paid under the contract exceeds the sum of the net level premiums which would have to be paid on or before such time if the contract were to provide for paid up ‘future benefits’ after the payment of 7 level annual premiums,” officials write in the notice.
The MEC update, described in Revenue Procedure 2007-19, replaces the bond yield benchmark used in calculations of MEC general account total returns, and it changes the address of the office that receives MEC closing agreement payments.
In Notice 2007-15, IRS officials ask members of the public for comments about other ways to improve the procedures taxpayers can use to remedy accidental failures of federal life and annuity contract requirements.
A copy of the document containing the closing agreements and the request for comments is on the Web at
The MEC rules update is on the Web at Document Link