Nationwide and Lincoln Financial announced last week that they had received private letter rulings. But private letter rulings are, actually, private: The IRS deletes the requesters' identifying information before posting the main ruling text on the web. It's possible that many insurers other than Nationwide and Lincoln Financial also have received similar private letter rulings. Great American Life, a unit of American Financial Group Inc., announced today that it, too, has received a private letter ruling. Great American Life's ruling covers payment of asset-based advisory fees from an indexed annuity contract that's filed as a non-variable contract.
A private letter ruling applies only to the taxpayer that requested it. Other taxpayers have to get their own private letter rulings. That could give insurers private letter rulings a head start over competitors.
All of the companies that have talked about their private letter rulings so far have said they told the IRS they'd limit the advisory fees to 1.5% of the contract's account value per year.
Great American said in its letter ruling announcement that it's been working with other life insurers to obtain the new tax treatment since 2017. Freeman Durham, senior counsel at Great American Insurance Group - Annuities, said in a statement that Great American Life helped IRS officials understand how fee-based indexed annuities work. "It's rewarding to see the ruling finalized and know that we're opening up new doors for advisors and their clients," Durham said.
If more fee-based financial professionals offer clients help with annuities, that could increase competition for commission-based agents. But, if more fee-based financial professionals work with annuities, that could increase their awareness of annuities, and temper any financial incentive they might have to bash annuities. That could lead to a different climate for all financial professionals who work with annuities. — Read 7 Things to Know About IRS Private Letter Rulings, on ThinkAdvisor. — Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.
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