n-10-01.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Section 807(e)(4) Exception for §338 Regulations

Notice 2010-1

Section 1.338-1(b)(1) of the Income Tax Regulations provides that after an
election under §338(g) or §338(h)(10) of the Internal Revenue Code, new target is
generally treated as a new corporation unrelated to old target for purposes of subtitle A
of the Code. Section 1.338-1(b)(2) provides exceptions for provisions in subtitle A
under which new target and old target are treated as the same corporation. Sections
1.338-1(b)(2)(i) through (vii) enumerate seven such exceptions. Section 1.338-
1(b)(2)(viii) authorizes the addition of other exceptions by designation of such in the
Internal Revenue Bulletin. This notice designates such an exception.

Section 807(e)(4)(A) provides that in the case of a "qualified foreign contract," the
amount of the reserve under §807 is not less than the minimum reserve required by the
laws, regulations, or administrative guidance of the regulatory authority of the foreign
country in which the foreign life insurance branch of the domestic life insurance
company has its principal place of business. For this purpose, §807(e)(4)(B) defines a
"qualified foreign contract" as a contract issued by a foreign life insurance branch (which
has its principal place of business in a foreign country) of a domestic life insurance
company if (1) the contract is issued on the life or health of a resident of that country;

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(2) the domestic life insurance company was required by the foreign country (as of the
time it began operations in the country) to operate in the country through a branch; and
(3) the foreign country is not contiguous to the United States.

The Internal Revenue Service and Treasury believe it would be inappropriate to
treat new target as a new corporation unrelated to old target for purposes of
§807(e)(4)(B). The fact that §1.338-1(b)(1) would otherwise treat new target as a new
corporation for Federal income tax purposes does not result in a change in the terms of
the contracts that are qualified foreign contracts within the meaning of §807(e)(4)(B),
nor does it alter the requirements of the regulatory authority of the foreign country that
were in effect when old target's foreign life insurance branch began operations in that
country. Cf. §1.338-1(b)(2)(vii) (treating new target and old target as the same
corporation for purposes of electing to use an insurance company's historical loss
payment pattern to compute discounted unpaid losses).

Accordingly, pursuant to the authority of §1.338-1(b)(2)(viii), for purposes of
§807(e)(4), new target and old target, within the meaning of §1.338-2(c)(17), are treated
as the same corporation.

This notice is effective for qualified stock purchases occurring on or after
December 10, 2009. In addition, taxpayers may elect to apply this Notice to any
qualified stock purchase with respect to which the election under §338(g) or §338(h)(10)
is due on or after such date by treating new target and old target as the same
corporation for purposes of §807(e)(4).

The principal author of this notice is Jean Brenner of the Office of Associate

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Chief Counsel (Corporate). For further information regarding this notice contact Ms.
Brenner on (202) 622-4732 (not a toll-free call).