INSURANCE COMPANY TAX-FREE EXCHANGES NOT SUBJECT TO REPORTING REQUIREMENTS.

Rev. Proc. 92-26

SECTION I. PURPOSE

This revenue procedure informs insurance companies that, in certain tax-free exchanges under section 1035 of the Internal Revenue Code, the issuing company is not subject to the reporting requirements of section 6047(d).

SEC. 2. BACKGROUND

Section 6047(d) of the Code requires a corporation that issues any contract under which designated distributions (as defined in section 3405(d)(1)) may be made to file the appropriate returns and reports regarding the contract with the Secretary of the Treasury, with the participants and beneficiaries of such contract, and with such other persons as may be prescribed in forms or regulations.

Section 3405(d)(1)(A) of the Code defines the term "designated distribution" to mean any payment or distribution from or under an employer deferred compensation plan, an individual retirement plan, or a commercial annuity. A designated distribution, however, does not include "the portion of a distribution which it is reasonable to believe is not includible in gross income." Section 3405(d)(1)(B). The term "commercial annuity" means "an annuity, endowment, or life insurance contract issued by an insurance company licensed to do business under the laws of any State." Section 3405(d)(6). Thus, a corporation issuing life insurance contracts is required to file the appropriate returns and reports regarding the contracts as prescribed by the regulations.

Section 35.3405-1, Q & A (E-8), of the Temporary Employment Tax and Collection of Income Tax at Source Regulations Under the Tax Equity and Fiscal Responsibility Act of 1982 states that reporting is required any time there is a designated distribution to which section 3405 of the Code applies. Additionally, an exchange (including a tax- free exchange under section 1035) of insurance contracts under which any designated distribution may be made is a reportable event even though a designated distribution does not occur in connection with the exchange. The regulations state that "[t]o insure proper reporting when a designated distribution is made under the new contract, it is anticipated that the issuer of the contract to be exchanged will provide the information necessary to compute the amount to be withheld to the policyholder and to the issuer of the new contract."

A tax-free exchange under section 1035(a) of the Code is the exchange of (1) a contract of life insurance for another contract of life insurance or for an endowment or annuity contract; (2) a contract of endowment insurance either for another contract of endowment insurance that provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or for an annuity contract; and (3) an annuity contract for an annuity contract. See also section 1.1035-1 of the Income Tax Regulations.

When a policyholder engages in a section 1035 exchange of a contract solely for a new contract issued by the same company, all of the information necessary to compute the amount to be withheld from a designated distribution under the new contract is known to the policyholder and the issuer of the new contract. If the exchange does not result in a designated distribution, no purpose is served in reporting the exchange to the Service, the policyholder, or the company issuing the new contract, provided adequate records are maintained regarding the policyholder's basis in the contracts.

SEC. 3. SCOPE

This revenue procedure applies to any insurance company that issues (either before or after publication of this revenue procedure):

(a) a life insurance contract solely in exchange for another life insurance, endowment, or annuity contract previously issued by the company;

(b) an endowment contract solely in exchange for either another contract of endowment insurance previously issued by the company that provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or for an annuity contract previously issued by the company; or

(c) an annuity contract solely in exchange for an annuity contract previously issued by the company.

SEC. 4. PROCEDURE

An insurance company is not required under section 6047(d) of the Code and section 35.3405-1, Q & A (E-8), of the regulations to report a policyholder's exchange of a life insurance, endowment, or annuity contract solely for a new life insurance, endowment, or annuity contract issued by the same company in a tax-free exchange under section 1035 that does not result in a designated distribution, provided that the company maintains adequate records regarding the policyholder's basis in the contracts.

SEC. 5. INQUIRES

Inquiries in regard to this revenue procedure should refer to its number and be addressed to the Commissioner of Internal Revenue, Attention: Office of Financial Institutions and Products, Branch 4, CC:FI&P:4, P.O. Box 7616, Benjamin Franklin Station, Washington, D.C. 20224.

SEC. 6. DRAFTING INFORMATION

The principal author of this revenue procedure is Ann H. Logan of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue procedure contact her on (202) 566-3478 (not a toll-free call).