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IRS Posts Annuity Fee Letter Rulings

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The Internal Revenue Service (IRS) today posted a collection of nine private letter rulings that could give fee-based and fee-only annuity advisors a boost.

The IRS rulings will let nine life insurers — and only those nine life insurers — offer customers a cheaper, easier process for paying fees to annuity advisors, when the customers hold the annuities outside of retirement arrangements that qualify for special IRS tax treatment.

The insurers can now pay advisory fees directly to the annuity owners’ advisors from the annuity contract assets, without the owners having to include the fee payment amounts in their own taxable income.

(Related: Fee-Based Annuities Get IRS No)

Annuity owners who put their annuities inside “tax qualified plans,” or plans that qualify for special tax treatment, have already been able to use similar advisory fee payment mechanisms without having to put the payment amounts in their taxable income.

Lincoln Financial, Nationwide Mutual, Great American Life and Allianz Life reported that they had received advisory fee letter rulings this summer.

It’s not clear whether the nine letter rulings posted today went to nine separate corporate families. It’s possible, for example, that one large corporate family with three separate life insurance company subsidiaries could have sent the IRS three separate requests for letter rulings, and that some corporate families have already received two or more advisory fee letter rulings.

It’s also not clear how many advisory fee letter rulings the IRS has issued. The IRS could have provided similar letter rulings that are still in the review pipeline and have not been posted on the web.

Letter Ruling Basics

A “private letter ruling” is a document that shows how one IRS official has applied the tax rules to one taxpayer’s situation.

Life insurers who like the looks of the new letter rulings can use the text when writing requests for their own letter rulings.

But, if life insurers want to help annuity buyers keep advisory fees out of taxable income, they have to apply for their own letter rulings. They can’t apply Nationwide’s private letter ruling to their own advisory fee payment mechanisms.

Letter Ruling Details

The IRS does not give any company or law firm names in the versions of the letter rulings now posted.

John Glover, senior counsel for financial institutions and products at the IRS, is listed as the author of all of the nine letters.

Most of the taxpayers that made the requests for letter rulings appear to be life insurance company subsidiaries of other companies.

At least one of the taxpayers appears to be a life insurance company that’s a parent company in its own right.

All of the taxpayers asked for permission for arrangements involving deferred annuities. None asked for a ruling on an arrangement involving immediate annuities.

Some of the taxpayers asked for permission to apply the ruling to variable annuity contracts, but others may be intending to apply the ruling only to non-variable contracts.

All of the taxpayers said they would limit the annual advisory fee payment amounts to 1.5% of the contract’s cash value.


The IRS has posted the first nine letter rulings, with the title “Annuities: Endowment and Life Insurance (Included v. Not Included in Gross Income),” here.

— Read IRS Rules for Nationwide and Lincoln on Annuity Advisory Feeson ThinkAdvisor.

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