The IRS today released an advance version of Notice 2016-32 that provides guidance to taxpayers regarding the diversification requirements under section 817(h) for a segregated asset account that invests in a government money market fund (MMF).
Read Notice 2016-32 [PDF 78 KB]
The IRS notice provides an alternative diversification criterion so that a segregated asset account that invests in a government MMF can meet the diversification requirement. Therefore, the IRS and Treasury Department have determined that variable contracts should be able to offer government MMFs as an investment option and Reg. section 1.817-5 is intended to be amended to reflect this.
Notice 2016-32 provides the following:
In July 2014, the Securities and Exchange Commission (SEC) adopted new rules, effective on October 14, 2016, under which the only money market funds that will use a stable net asset value and will not be subject to fees and gates will be government money market funds. With today’s notice, the IRS and Treasury have adopted a practical interpretation of the section 817(h) diversification requirement that allows life insurance companies to issue variable policies with the option to invest in stable net asset value money market funds with no fees or gates.
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