LRA Updates

ACCOUNTING DEVELOPMENTS FASB Statement No. 157 In recent months advocates of fair value accounting have been challenged by groups that blame fair value accounting for exacerbating the credit crises (by requiring banks to lower valuations of certain assets, including illiquid assets such as mortgage backed securities).  The following is a chronological summary of key developments…

REGULATORY DEVELOPMENTS Troubled Asset Relief Program Treasury’s $700 billion financial bailout plan as currently proposed would extend to types of assets beyond mortgage-backed securities and would include insurance companies and foreign banks with significant U.S. operations.  This may ultimately benefit banks in two ways – those directly owning troubled assets and those owning BOLI issued…

LEGISLATIVE DEVELOPMENTS Corporate Executive Compensation Accountability and Transparency Act On April 15th, SB 2866 was introduced by Senator Reid (on behalf Senator Clinton).  If enacted, The ‘Corporate Executive Compensation Accountability and Transparency Act’ would require, among other things, an amendment to IRC § 409A imposing a $1 million annual aggregate limitation on amounts deferred (and…

TAX DEVELOPMENTS IRS Revenue Procedure – Tax Treatment of Certain Tax-Free Exchanges of Annuity Contracts In March, the IRS updated Notice 2003-51 by issuing a revenue procedure, Rev. Proc. 2008-24.  These clarifications are generally quite favorable and although both Notice 2003-51 and Rev. Proc. 2008-24 deal with annuity contracts, they may have important implications for partial…

TAX DEVELOPMENTS IRS Notice 2007-100 On December 3, 2007 the IRS issued Notice 2007-100 explaining the terms and extent of its correction program for unintentional operational failures under Code Section 409A.  This is an important program since certain violations may avoid the draconian penalties otherwise applicable under 409A (note there are no exceptions for de…

REGULATORY DEVELOPMENTS OCC Informal Clarification regarding SA BOLI RWA Constraint We have received both verbal and written clarification from the OCC regarding a possible ambiguity contained within OCC Bulletin 2004-56 regarding the proper application of risk weights to a separate account BOLI policy. OCC 2004-56 states that the minimum risk-weight for the carrying value of a…

JUDICIAL DEVELOPMENTS Xcel Energy Settlement with the IRS Xcel Energy was the first pre-1986 “leveraged COLI” case to be disputed by the IRS. Although the IRS had successfully attacked the tax deductibility of post TRA 86 leveraged COLI cases, they had previously not attempted to pursue these earlier, grandfathered plans. Xcel had prevailed in a preliminary court…

TAX DEVELOPMENTS IRS Provides Transition Relief Related to 409A On September 11, the IRS issued Notice 2007-78 announcing limited transition relief related to 409A final regulations. Essentially, while they did provide an extension to 12/31/2008 to adopt documents that comply with 409A, plans must still operate under the final regulations beginning January 1, 2008.

TAX DEVELOPMENTS IRS Releases 409A Corrections The Treasury and IRS published corrections to the final regulations that were published in April 2007 relating to IRC § 409A. The corrections were released and became effective July 31, 2007. The Treasury and IRS also published notice of proposed rulemaking regarding regulations under IRC § 402(a). The rules as…

TAX DEVELOPMENTS 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…