July 2007


IRS Private Letter Ruling Regarding Exchange of Individual Certificates under a Master Group Contract

In PLR 200715006, the IRS affirmed a corporate policy owner’s right to obtain IRC Section 1035 exchange tax treatment while exchanging individual certificates under a master group contract for individual policies. Although the IRS has not opined on this specific fact pattern previously, their conclusion is not surprising in light of previous PLRs regarding inverse exchanges (i.e. individual policies for individual certificates under a master group policy). It is worth noting that the exchange in question was not considered a new purchase subject to IRC section 101(j) (COLI Best Practices). Also, because it only dealt with employees who remained actively employed at the time of the exchange, the question of the applicability of 264(f) was not addressed.