rr-07-58.pdf

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Part I

Section 817.—Treatment of Variable Contracts

26 CFR 1.817-5: Diversification requirements for variable annuity, endowment, and life
insurance contracts
(Also §§ 408(p), 408(q), 408A, 415(m), 457(f).)

Rev. Rul. 2007-58

This revenue ruling supplements Rev. Rul. 94-62, 1994-2 C.B. 164, by listing
additional arrangements that each qualify as a “qualified pension or retirement plan” for
purposes of § 1.817-5(f)(3)(iii) of the Income Tax Regulations.
BACKGROUND
Under section 817(h) of the Internal Revenue Code, a segregated asset account
upon which a variable annuity or life insurance contract is based must be adequately
diversified in order for the variable contract to be treated as an annuity under § 72 or as
a life insurance contract under § 7702. Section 817(h)(4) and § 1.817-5(f) provide that
in certain cases diversification may be satisfied under a "look-through" rule. If the
look-through rule applies with respect to a beneficial interest in a regulated investment
company, for example, the diversification requirements are applied by taking into

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account the assets held by the regulated investment company. One of the
requirements for applying the look-through rule under § 1.817-5(f)(2)(i) is that all of the
beneficial interests in a regulated investment company, partnership or trust be held by
one or more insurance companies. For purposes of determining whether this
requirement is satisfied, § 1.817-5(f)(3)(iii) provides that beneficial interests held by the
trustee of a qualified pension or retirement plan are disregarded.
Rev. Rul. 94-62 provides that, solely for purposes of § 1.817-5(f)(3)(iii), the term
"qualified pension or retirement plan" includes the following arrangements:
1. A plan described in § 401(a) that includes a trust exempt from tax under
§ 501(a);
2. An annuity plan described in § 403(a);
3. An annuity contract described in § 403(b), including a custodial account
described in § 403(b)(7);
4. An individual retirement account described in § 408(a);
5. An individual retirement annuity described in § 408(b);
6. A governmental plan within the meaning of § 414(d) or an eligible deferred
compensation plan within the meaning of § 457(b);
7. A simplified employee pension of an employer that satisfies the requirements
of § 408(k);
8. A plan described in § 501(c)(18);
9. Any other trust, plan, account, contract, or annuity that the Internal Revenue
Service has determined in a letter ruling to be within the scope of § 1.817-5(f)(3)(iii).

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Whether an arrangement is described in § 1.817-5(f)(3)(iii) is based on the
meaning and purpose of §§ 817 and 818. Since the issuance of Rev. Rul. 94-62, the
Service has determined that certain additional arrangements may be treated as
“qualified pension or retirement plans” for purposes of § 1.817-(5)(f)(3)(iii).
HOLDING
In addition to the nine arrangements identified in Rev. Rul. 94-62 and solely for

purposes of § 1.817-5(f)(3)(iii), the term “qualified pension or retirement plan” includes
the following five arrangements: a simple retirement account described in § 408(p); a
deemed IRA described in § 408(q); a Roth IRA described in § 408A; a § 415(m) plan
that is also a “governmental plan” within the meaning of § 414(d); and a § 457(f) plan
that has as its sponsor either (i) a charitable organization described in § 818(a)(4), or (ii)
a governmental organization described in § 818(a)(4), whose employees are described
in § 403(b)(1)(A)(ii)). Accordingly, the list of arrangements that are treated as "qualified
pension or retirements plans" within the meaning of § 1.817-5(f)(3)(iii) is supplemented
to read as follows:
1. A plan described in § 401(a) that includes a trust exempt from tax under
§ 501(a);

2. An annuity plan described in § 403(a);

3. An annuity contract described in § 403(b), including a custodial account
described in § 403(b)(7);

4. An individual retirement account described in § 408(a);

5. An individual retirement annuity described in § 408(b);

6. A governmental plan within the meaning of § 414(d) or an eligible deferred
compensation plan within the meaning of § 457(b);

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7. A simplified employee pension of an employer that satisfies the requirements
of § 408(k);

8. A plan described in § 501(c)(18);

9. A simple retirement account described in § 408(p);

10. A deemed IRA described in § 408(q);

11. A Roth IRA described in § 408A;

12. A § 415(m) plan that is also a “governmental plan” within the meaning of
§ 414(d);

13. A § 457(f) plan that has as its sponsor either (i) a charitable organization
described in § 818(a)(4), or (ii) a governmental organization described in § 818(a)(4),
whose employees are described in § 403(b)(1)(A)(ii); and

14. Any other trust, plan, account, contract, or annuity that the Internal Revenue
Service has determined in a letter ruling to be within the scope of § 1.817-5(f)(3)(iii).

EFFECT ON OTHER REVENUE RULING(S)
Rev. Rul. 94-62 is supplemented.

DRAFTING INFORMATION
The principal author of this revenue ruling is Melissa S. Luxner of the Office of
Associate Chief Counsel (Financial Institutions & Products). For further information
regarding this revenue ruling, contact Melissa S. Luxner at (202) 622-3970 (not a toll-
free call).