The Internal Revenue Service will not accuse an insurer of violating investment diversification requirements simply because it participates in the Treasury Department’s new money market fund guarantee program.

Insurers have been talking to government officials about whether their money market funds can join the temporary fund guarantee program or should join the program, and on what terms.

The IRS writes today in IRS Notice 2008-92 that money market funds with “beneficial interests … held exclusively by one or more segregated asset accounts of one or more insurance companies” can participate in the program without violating Internal Revenue Code rules that require variable life and variable annuity contracts to have a minimum number of different investments in their portfolios.

The IRS and Treasury have decided that they “will not assert that participation in the program by an insurance-dedicated money market fund causes a violation of the diversification requirements of Section 817(h) [of the Internal Revenue Code] in the case of a segregated asset account that invests in the insurance-dedicated money market fund,” officials write in the notice.