IRS PERMITS TAX-FREE REINVESTMENT OF SURRENDERED ANNUITY CONTRACTS OF TROUBLED INSURANCE COMPANIES UNDER REVENUE RULING 90-24

- 1 - June 22, 1992 TO: PENSION MEMBERS NO. 14-92 RE: IRS PERMITS TAX-FREE REINVESTMENT OF SURRENDERED ANNUITY CONTRACTS OF TROUBLED INSURANCE COMPANIES UNDER REVENUE RULING 90-24 __________________________________________________________ As you know, Revenue Ruling 90-24 provides that employees generally can transfer all or part of their accumulations from one section 403(b) investment to another tax free. (See Institute Memorandum to Board of Governors No. 13-90 and Pension Members No. 8-90, dated February 22, 1990.) Attached is a copy of Revenue Procedure 92-44, which provides that the IRS will deem Revenue Ruling 90-24 to apply to a transaction in which cash is distributed from an annuity contract issued by a troubled insurance company and the proceeds are reinvested in another policy or contract, including a section 403(b)(7) custodial account. In order to qualify for such treatment, certain conditions must be satisfied. First, the affected contract must be issued by an insurance company that is subject to a rehabilitation, conservatorship, insolvency or similar state proceeding at the time of the cash distribution. Second, the taxpayer must withdraw 100 percent of the cash distribution to which the taxpayer is entitled in full settlement of the taxpayer’s rights under the contract (or, if less, the maximum amount permitted to be withdrawn pursuant to the state proceeding). Third, the transaction must have otherwise qualified for tax-free treatment under Revenue Ruling 90-24 if it had been accomplished by way of a direct transfer. Fourth, the cash distribution must be invested in a single contract or custodial account not later than 60 days after the receipt of the cash distribution (or, if later, September 13, 1992). If the cash distribution is restricted by the state proceeding to an amount less than the taxpayer is entitled to in full settlement of his or her rights under the affected contract, the taxpayer must assign all rights to any future distributions under the first contract to the issuer of the new contract. Also attached is Revenue Procedure 92-44A, which notes that - 2 - Revenue Procedure 92-44, as originally released by the Service, would have limited the permissible reinvestment vehicles to annuity contracts. At the Institute’s urging, the revenue procedure was revised to include references to section 403(b)(7) custodial accounts. We will keep you informed of further developments. Kathy D. Ireland Associate Counsel - Pension Attachments