IRS Avoids Life PBR Pronouncements In VA Notice

The IRS has decided that, for purposes of applying the statutory reserve cap) for taxable years ending on or after Dec. 31, 2009, the term “statutory reserves”" includes the A.G. 43 “Standard Scenario Amount,” officials write.

“Thus, officials write, “a reserve will not be excluded from statutory reserves … solely because the reserve represents the Standard Scenario Amount determined under A.G. 43, provided” that other requirements are met, officials write.

Officials also provide a method for calculating the “federally prescribed reserve” that is tied to the Standard Scenario Amount rather than the Conditional Tail Expectation Amount.

“The Standard Scenario Amount determined under A.G. 43 will be treated as a life insurance reserve for Federal income tax purposes if the requirements of that guideline, including the account value return assumptions, are met,” officials conclude.

If the IRS decides to change methods, it will apply the new methods only to future actions and will not punish insurers retroactively, officials write.

“No inference should be drawn from this notice regarding any federal tax issues that arise under any actuarial guideline other than A.G. 43 or that could arise under Life PBR,” officials write. “In addition, this notice is not intended to address any other federal tax issues implicated in the adoption of A.G. 43 by the NAIC.”

The American Council of Life Insurers, Washington, is still analyzing the ruling, but Steven Brostoff, an ACLI spokesman, says the group is glad that the IRS and its parent, the U.S. Treasury Department, has released the guidance.

“It addresses some basic questions, and that will be helpful to life insurance companies,” Brostoff says in a statement. “We look forward to the release of further guidance on the issues left open in Notice 2010-29, and we offer our assistance on those and other issues.”