IRS Posts Annuity Advisory Fee Letter Rulings With a Twist

The Internal Revenue Service (IRS) has issued two new private letter rulings that may affect what a life insurer can pay annuity holders’ fee-based advisors directly from the annuity assets.

The IRS appears to have sent  both of the letters to the same company: a life insurer that wants to offer three types of deferred annuity contracts.

Resources

• Copies of the new letter rulings are available here and here.
• An earlier article about annuity advisory fee letter rulings is available here.

The life insurer wants to pay the purchasers’ fee-based advisors directly from the plan assets, without the annuity holder having to pay federal income taxes on the money flowing from the annuity to the advisor.

From last August through November, the IRS put out many letter rulings answering similar questions. The taxpayers who asked those questions all said they’d cap the advisor fees at 1.5% of the annuity contract’s cash value per year.

In the new life insurer requests for IRS advice, which appear to be similar to the old requests, the life insurer has whited out the annual advisor fee caps.

It’s not clear from the letters whether the annual fee cap associated with those requests for advice is actually 1.5%, or if it’s some other number

Letter Ruling Background

The private letter ruling program gives taxpayers and tax advisors a way to get informal advice from the IRS staff about how to apply the tax rules.

When the IRS issues a “private letter ruling,” the ruling represents one official’s views on one taxpayer’s situation.

Other life insurers can read the rulings and send in similar requests for advice, but, to make use of the advice with confidence, a life insurer must get its own private letter ruling.

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

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