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.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.