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.