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Safe harbor extended, mortality tables of life insurance contracts

Safe harbor extended, mortality tables

The IRS today released an advance version of Rev. Proc. 2018-20 that extends a safe harbor to life insurance contracts that have mortality guarantees based on the 2017 Commissioners’ Standard Ordinary Mortality Tables (CSO tables) and any other prevailing CSO table that extends beyond age 100 years.

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Rev. Proc. 2018-20 [PDF 50 KB] extends the “age 100 safe harbor testing methodologies” as previously provided by Rev. Proc. 2010-28.

Background

The prior revenue procedure (Rev. Proc. 2010-28) adopted safe harbor testing methodologies for life insurance contacts: (1) that have mortality guarantees based on the 2001 CSO tables; and (2) that may continue in force after the day on which the insured attains age 100 years. 

The 2017 CSO tables became the prevailing CSO tables on January 1, 2017. Unlike the prior tables, the 2001 and the 2017 CSO tables extend to age 121 years.  

Either the 2001 CSO tables or the 2017 CSO tables may be used for contracts issued on or after January 1, 2017, and before January 1, 2020. The 2017 CSO tables generally must be used for purposes of applying the reasonable mortality change requirements of section 7702(c)(3)(B)(i) with regard to contracts issued on or after January 1, 2020. 

Rev. Proc. 2018-20

Following the issuance of the 2017 CSO tables, the IRS and Treasury Department have determined that it is in the interest of sound tax administration to extend the safe harbor adopted in Rev. Proc. 2010-28 to life insurance contracts that (1) have mortality guarantees based upon prevailing commissioners’ standard tables that extend beyond age 100, such as the  2001 CSO tables and the 2017 CSO tables, and (2) may continue in force after the day on which the insured individual attains age 100 years.

The IRS will not challenge the qualifications of a contract as a life insurance contract under section 7702 (or will not assert that a contract is a modified endowment contract under section 7702A) if the contract satisfies the requirements of those provisions using the “age 100 safe harbor testing methodologies.”

Rev. Proc. 2018-20 describes the “age 100 safe harbor testing methodologies” requirements, and modifies and supersedes the guidance provided by Rev. Proc, 2010-28. Today’s revenue procedure further states that there is no adverse inference with respect to a contract not qualifying as a life insurance contract because it fails to satisfy the safe harbor requirements.

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