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USC Title 26 enacted through 2008

§ 817. Treatment of variable contracts

 
(a)
Increases and decreases in reserves
 
For purposes of subsections (a) and (b) of section 807, the sum of the items described in section 807(c) taken into account as of the close of the taxable year with respect to any variable contract shall, under regulations prescribed by the Secretary, be adjusted -
 
(1)
by subtracting therefrom an amount equal to the sum of the amounts added from time to time (for the taxable year) to the reserves separately accounted for in accordance with subsection (c) by reason of appreciation in value of assets (whether or not the assets have been disposed of), and
 
(2)
by adding thereto an amount equal to the sum of the amounts subtracted from time to time (for the taxable year) from such reserves by reason of depreciation in value of assets (whether or not the assets have been disposed of).
 
The deduction allowable for items described in paragraphs (1) and (6) of section 805(a) with respect to variable contracts shall be reduced to the extent that the amount of such items is increased for the taxable year by appreciation (or increased to the extent that the amount of such items is decreased for the taxable year by depreciation) not reflected in adjustments under the preceding sentence.
 
(b)
Adjustment to basis of assets held in segregated asset account
 
In the case of variable contracts, the basis of each asset in a segregated asset account shall (in addition to all other adjustments to basis) be -
 
(1)
increased by the amount of any appreciation in value, and
 
(2)
decreased by the amount of any depreciation in value,
 
to the extent such appreciation and depreciation are from time to time reflected in the increases and decreases in reserves or other items referred to in subsection (a) with respect to such contracts.
 
(c)
Separate accounting
 
For purposes of this part, a life insurance company which issues variable contracts shall separately account for the various income, exclusion, deduction, asset, reserve, and other liability items properly attributable to such variable contracts. For such items as are not accounted for directly, separate accounting shall be made -
 
(1)
in accordance with the method regularly employed by such company, if such method is reasonable, and
 
(2)
in all other cases, in accordance with regulations prescribed by the Secretary.
 
(d)
Variable contract defined
 
For purposes of this part, the term "variable contract" means a contract -
 
(1)
which provides for the allocation of all or part of the amounts received under the contract to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company,
 
(2)
which -
 
(A)
provides for the payment of annuities,
 
(B)
is a life insurance contract, or
 
(C)
provides for funding of insurance on retired lives as described in section 807(c)(6), and
 
(3)
under which -
 
(A)
in the case of an annuity contract, the amounts paid in, or the amount paid out, reflect the investment return and the market value of the segregated asset account,
 
(B)
in the case of a life insurance contract, the amount of the death benefit (or the period of coverage) is adjusted on the basis of the investment return and the market value of the segregated asset account, or
 
(C)
in the case of funds held under a contract described in paragraph (2)(C), the amounts paid in, or the amounts paid out, reflect the investment return and the market value of the segregated asset account.
 
If a contract ceases to reflect current investment return and current market value, such contract shall not be considered as meeting the requirements of paragraph (3) after such cessation. Paragraph (3) shall be applied without regard to whether there is a guarantee, and obligations under such guarantee which exceed obligations under the contract without regard to such guarantee shall be accounted for as part of the company's general account.
 
(e)
Pension plan contracts treated as paying annuity
 
A pension plan contract which is not a life, accident, or health, property, casualty, or liability insurance contract shall be treated as a contract which provides for the payments of annuities for purposes of subsection (d).
 
(f)
Other special rules
 
(1)
Life insurance reserves
 
For purposes of subsection (b)(1)(A) of section 816, the reflection of the investment return and the market value of the segregated asset account shall be considered an assumed rate of interest.
 
(2)
Additional separate computations
 
Under regulations prescribed by the Secretary, such additional separate computations shall be made, with respect to the items separately accounted for in accordance with subsection (c), as may be necessary to carry out the purposes of this section and this part.
 
(g)
Variable annuity contracts treated as annuity contracts
 
For purposes of this part, the term "annuity contract" includes a contract which provides for the payment of a variable annuity computed on the basis of -
 
(1)
recognized mortality tables, and
 
(2)
 
(A)
the investment experience of a segregated asset account, or
 
(B)
the company-wide investment experience of the company.
 
Paragraph (2)(B) shall not apply to any company which issues contracts which are not variable contracts.
 
(h)
Treatment of certain nondiversified contracts
 
(1)
In general
 
For purposes of subchapter L, section 72 (relating to annuities), and section 7702(a) (relating to definition of life insurance contract), a variable contract (other than a pension plan contract) which is otherwise described in this section and which is based on a segregated asset account shall not be treated as an annuity, endowment, or life insurance contract for any period (and any subsequent period) for which the investments made by such account are not, in accordance with regulations prescribed by the Secretary, adequately diversified.
 
(2)
Safe harbor for diversification
 
A segregated asset account shall be treated as meeting the requirements of paragraph (1) for any quarter of a taxable year if as of the close of such quarter -
 
(A)
it meets the requirements of section 851(b)(3), and
 
(B)
no more than 55 percent of the value of the total assets of the account are assets described in section 851(b)(3)(A)(i).
 
(3)
Special rule for investments in United States obligations
 
To the extent that any segregated asset account with respect to a variable life insurance contract is invested in securities issued by the United States Treasury, the investments made by such account shall be treated as adequately diversified for purposes of paragraph (1).
 
(4)
Look-through in certain cases
 
For purposes of this subsection, if all of the beneficial interests in a regulated investment company or in a trust are held by 1 or more -
 
(A)
insurance companies (or affiliated companies) in their general account or in segregated asset accounts, or
 
(B)
fund managers (or affiliated companies) in connection with the creation or management of the regulated investment company or trust,
 
the diversification requirements of paragraph (1) shall be applied by taking into account the assets held by such regulated investment company or trust.
 
(5)
Independent investment advisors permitted
 
Nothing in this subsection shall be construed as prohibiting the use of independent investment advisors.
 
(6)
Government securities funds
 
In determining whether a segregated asset account is adequately diversified for purposes of paragraph (1), each United States Government agency or instrumentality shall be treated as a separate issuer.








Tax Code (Internal Revenue Code) Section Index


U.S. GAAP by Codification Topic
 
105 GAAP Hierarchy
105 GAAP History

205 Presentation of Financial Statements
205-20 Discontinued Operations
210 Balance Sheet
210-20 Offsetting
220 Comprehensive Income
225 Income Statement
225-20 Extraordinary and Unusual Items
230 Statement of Cash Flows
250 Accounting Changes and Error Corrections
260 Earnings per Share
270 Interim Reporting

310 Impairment of a Loan
320 Investment Securities
320 Other-Than-Temporary Impairments, FSP FAS 115-2
320-10-05 Overview of Investments in Other Entities
320-10-35 Reclassification of Investments in Securities
323-10 Equity Method Investments
323-30 Investments in Partnerships and Joint Ventures
325-20 Cost Method Investments
330 Inventory

340-20 Capitalized Advertising Costs
350-20 Goodwill
350-30 Intangibles Other than Goodwill
350-40 Internal-Use Software
350-50 Website Development Costs
360 Property, Plant and Equipment
360-20 Real Estate Sales

410 Asset Retirement and Environmental Obligations
420 Exit or Disposal Cost Obligations
450 Contingencies
450-20 Loss Contingencies
450-30 Gain Contingencies
480 Redeemable Financial Instruments

505-20 Stock Dividends, Stock Splits
505-30 Treasury Stock

605 SEC Staff Accounting Bulletin, Topic 13
605-25 Revenue Recognition - Multiple Element Arrangements

715-30 Defined Benefit Plans - Pension
718 Share-Based Payment
730 Research and Development
730-20 Research and Development Arrangements

805 Business Combinations
810 Consolidation
810 Noncontrolling Interests
810 Consolidation of Variable Interest Entities, SFAS 167

815 Derivatives and Hedging Overview

820 Fair Value Measurements
820 Fair value when the markets are not active, FSP FAS 157-4
825 Fair Value Option

830 Foreign Currency Matters
830-20 Foreign Currency Transactions
830-30 Translation of Financial Statements
835 Interest
835-20 Capitalization of Interest
835-30 Imputation of Interest

840 Leases
840-20 Operating Leases
840-30 Capital Leases
840-40 Sale-Leaseback Transactions
845 Nonmonetary Transactions

855 Subsequent Events
860-20 Sale of Financial Assets, SFAS 166
860-50 Servicing Assets and Liabilities, SFAS 156

985-20 Costs of software to be sold


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