§817A — Special rules for modified guaranteed contracts
Statute Text — 26 U.S.C. §817A
In the case of a modified guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not apply.
In the case of any life insurance company, for purposes of this subtitle—
Any gain or loss with respect to a segregated asset shall be treated as ordinary income or loss, as the case may be.
If any segregated asset is held by such company as of the close of any taxable year—
such company shall recognize gain or loss as if such asset were sold for its fair market value on the last business day of such taxable year, and
any such gain or loss shall be taken into account for such taxable year.
Proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under the preceding sentence. The Secretary may provide by regulations for the application of this subparagraph at times other than the times provided in this subparagraph.
For purposes of paragraph (1), the term “segregated asset” means any asset held as part of a segregated account referred to in subsection (d)(1) under a modified guaranteed contract.
For purposes of applying section 816(b)(1)(A) to any modified guaranteed contract, an assumed rate of interest shall include a rate of interest determined, from time to time, with reference to a market rate of interest.
For purposes of this section, the term “modified guaranteed contract” means a contract not described in section 817—
all or part of the amounts received under which are allocated to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company and is valued from time to time with reference to market values,
which—
provides for the payment of annuities,
is a life insurance contract, or
is a pension plan contract which is not a life, accident, or health, property, casualty, or liability contract,
for which reserves are valued at market for annual statement purposes, and
which provides for a net surrender value or a policyholder’s fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817, such portion shall be treated for purposes of this section as a separate contract.
The Secretary may prescribe regulations—
to provide for the treatment of market value adjustments under sections 72, 7702, 7702A, and 807(e)(1)(B),
to determine the interest rates applicable under sections 807(c)(3) and 807(d)(2)(B) with respect to a modified guaranteed contract annually, in a manner appropriate for modified guaranteed contracts and, to the extent appropriate for such a contract, to modify or waive the applicability of section 811(d),
to provide rules to limit ordinary gain or loss treatment to assets constituting reserves for modified guaranteed contracts (and not other assets) of the company,
to provide appropriate treatment of transfers of assets to and from the segregated account, and
as may be necessary or appropriate to carry out the purposes of this section.
Treasury Regulations
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Treas. Reg. §1.817A-0Table of contents
This section lists the captions that appear in section § 1.817A-1:
(a) Definitions.
(1) Modified guaranteed contract.
(2) Temporary guarantee period.
(3) Equity-indexed modified guaranteed contract.
(4) Non-equity-indexed modified guaranteed contract.
(5) Current market rate for non-equity-indexed modified guaranteed contract.
(6) Current market rate for equity-indexed modified guaranteed contract. [Reserved]
(b) Applicable interest rates for non-equity-indexed modified guaranteed contracts.
(1) Tax reserves during temporary guarantee period.
(2) Required interest during temporary guarantee period.
(3) Application of section 811(d).
(4) Periods after the end of the temporary guarantee period.
(5) Examples.
(c) Applicable interest rates for equity-indexed modified guaranteed contracts. [Reserved]
(d) Effective date.
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Treas. Reg. §1.817A-0(a)Definitions.
Definitions.
(1) Modified guaranteed contract.
(2) Temporary guarantee period.
(3) Equity-indexed modified guaranteed contract.
(4) Non-equity-indexed modified guaranteed contract.
(5) Current market rate for non-equity-indexed modified guaranteed contract.
(6) Current market rate for equity-indexed modified guaranteed contract. [Reserved]
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Treas. Reg. §1.817A-0(b)Applicable interest rates for non-equity-indexed modified guaranteed contracts.
Applicable interest rates for non-equity-indexed modified guaranteed contracts.
(1) Tax reserves during temporary guarantee period.
(2) Required interest during temporary guarantee period.
(3) Application of section 811(d).
(4) Periods after the end of the temporary guarantee period.
(5) Examples.
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Treas. Reg. §1.817A-0(c)Applicable interest rates for equity-indexed modified guaranteed contracts.
Applicable interest rates for equity-indexed modified guaranteed contracts. [Reserved]
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Treas. Reg. §1.817A-0(d)Effective date.
Effective date.
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Treas. Reg. §1.817A-1Certain modified guaranteed contracts
(a) Definitions—(1) Modified guaranteed contract. The term modified guaranteed contract (MGC) is defined in section 817A(d) as an annuity, life insurance, or pension plan contract (other than a variable contract described in section 817) under which all or parts of the amounts received under the contract are allocated to a segregated account. Assets and reserves in this segregated account must be valued from time to time with reference to market values for annual statement purposes. Further, an MGC must provide either for a net surrender value or for a policyholder's fund (as defined in section 807(e)(1)). If only a portion of a contract is not described in section 817, such portion is treated as a separate contract for purposes of applying section 817A.
(2) Temporary guarantee period. An MGC may temporarily guarantee a return other than the permanently guaranteed crediting rate for a period specified in the contract (the temporary guarantee period). During the temporary guarantee period, the amount paid to the policyholder upon surrender is usually increased or decreased by a market value adjustment, which is determined by a formula set forth under the terms of the MGC.
(3) Equity-indexed modified guaranteed contract. An equity-indexed MGC is an MGC, as defined in paragraph (a)(1) of this section, that provides a return during or at the end of the temporary guarantee period based on the performance of stocks, other equity instruments, or equity-based derivatives.
(4) Non-equity-indexed modified guaranteed contract. A non-equity-indexed MGC is an MGC, as defined in paragraph (a)(1) of this section, that provides a return during or at the end of the temporary guarantee period not based on the performance of stocks, other equity instruments, or equity-based derivatives.
(b) Waiver of section 811(d) for certain non-equity-indexed modified guaranteed contracts. Section 811(d) is waived during the temporary guarantee period when applied to non-equity-indexed MGCs.
(c) Applicability dates. Paragraph (b) of this section applies to taxable years beginning after October 13, 2020. However, a taxpayer may choose to apply the rules of paragraph (b) of this section for a taxable year beginning after December 31, 2017, the effective date of the revision of section 807 by Public Law 115-97, and on or before October 13, 2020, provided the taxpayer consistently applies the rules of paragraph (b) of this section to that taxable year and all subsequent taxable years. See section 7805(b)(7). For taxable years beginning on or before October 13, 2020, see paragraph (b) of this section as contained in 26 CFR part 1 revised as of April 1, 2020.
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Treas. Reg. §1.817A-1(a)Definitions—(1) Modified guaranteed contract.
Definitions—(1) Modified guaranteed contract. The term modified guaranteed contract (MGC) is defined in section 817A(d) as an annuity, life insurance, or pension plan contract (other than a variable contract described in section 817) under which all or parts of the amounts received under the contract are allocated to a segregated account. Assets and reserves in this segregated account must be valued from time to time with reference to market values for annual statement purposes. Further, an MGC must provide either for a net surrender value or for a policyholder's fund (as defined in section 807(e)(1)). If only a portion of a contract is not described in section 817, such portion is treated as a separate contract for purposes of applying section 817A.
(2) Temporary guarantee period. An MGC may temporarily guarantee a return other than the permanently guaranteed crediting rate for a period specified in the contract (the temporary guarantee period). During the temporary guarantee period, the amount paid to the policyholder upon surrender is usually increased or decreased by a market value adjustment, which is determined by a formula set forth under the terms of the MGC.
(3) Equity-indexed modified guaranteed contract. An equity-indexed MGC is an MGC, as defined in paragraph (a)(1) of this section, that provides a return during or at the end of the temporary guarantee period based on the performance of stocks, other equity instruments, or equity-based derivatives.
(4) Non-equity-indexed modified guaranteed contract. A non-equity-indexed MGC is an MGC, as defined in paragraph (a)(1) of this section, that provides a return during or at the end of the temporary guarantee period not based on the performance of stocks, other equity instruments, or equity-based derivatives.
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Treas. Reg. §1.817A-1(b)Waiver of section 811(d) for certain non-equity-indexed modified guaranteed contracts.
Waiver of section 811(d) for certain non-equity-indexed modified guaranteed contracts. Section 811(d) is waived during the temporary guarantee period when applied to non-equity-indexed MGCs.
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Treas. Reg. §1.817A-1(c)Applicability dates.
Applicability dates. Paragraph (b) of this section applies to taxable years beginning after October 13, 2020. However, a taxpayer may choose to apply the rules of paragraph (b) of this section for a taxable year beginning after December 31, 2017, the effective date of the revision of section 807 by Public Law 115-97, and on or before October 13, 2020, provided the taxpayer consistently applies the rules of paragraph (b) of this section to that taxable year and all subsequent taxable years. See section 7805(b)(7). For taxable years beginning on or before October 13, 2020, see paragraph (b) of this section as contained in 26 CFR part 1 revised as of April 1, 2020.
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