An Internal Revenue Service official says a life insurance company’s efforts to restructure a real estate separate account looks fine.
The separate account invests in real estate for group annuities. Under Section 818(a) of the Internal Revenue Code, all of the group annuities involved are pension contracts. The life insurer sells the group annuities to defined benefit pension plans, 401(k) plans and other retirement plans.
The life insurer wants to use most of the assets in the real estate separate account to start a real estate investment partnership based in another state. A sister company would set up a limited liability company that would control the partnership. Outside institutional investors and wealthy individuals could invest in the partnership along with the life insurer’s separate account.
- A copy of IRS Written Determination 202041005 is available here.
- An article about IRS letter rulings on annuity advisory fees is available here.
Alexis MacIvor, a branch chief with the IRS Office of Associate Chief Council, told the life insurer that it has structured the proposed real estate investment partnership in such a way that the life insurer and the real estate management sister company would control the separate account investment decisions.
Because the life insurer and the real estate management sister company would control the separate account investment decisions, the life insurer “will be the owner of the assets held by the separate account for federal income tax purposes,” MacIvor writes.
IRS officials use private letter rulings to give interpretations of tax rules to specific taxpayers and tax advisors. A private letter ruling may how show the IRS is approaching an issue, but it does not set a binding precedent.