When variable annuity contract tax reserves are greater than the net surrender value and less than the statutory reserves, life insurers should use the tax reserve figures to calculate the effects of decreases in VA separate account reserves on gross income.
IRS officials give those instructions in Revenue Ruling 2007-54, an analysis of some of the rules that govern the reserve calculations used in computations of life insurance company gross income figures.
The ruling deals with the situation of an insurer that is calculating taxes for a VA contract set up in such a way that some or all of the reserves are treated as being part of the separate account reserves.
The ruling also deals with a separate situation in which the facts are similar but the VA contract provides a minimum guaranteed death benefit in addition to the VA benefits.
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The contract described in the situations does not provide “supplemental benefits” or involve any “qualified substandard risks,” officials write in the revenue ruling.