IRS written determination 201436005

us-irs-private-letter-rulings-201436005IRS written determination 201436005Guidance

Abrir fonte

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201436005
Release Date: 9/5/2014
Index Number: 61.00-00, 817.00-00
---------------
------------
------------------------------------------------------------
-----------
------------------------------------------------------------
------------------------
-------------------------------------------
--------------------------------
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
------------------------, ID No. ----------------
Telephone Number:
-------------------
Refer Reply To:
CC:FIP:B04
PLR-111931-14
Date:
May 29, 2014
Insurance Fund=----------------------------------------------------------------------------------------------------------
-------------
Trust=--------------------------------
State =---------------
Date =-----------------
Retail Fund=-------------------------------------------------------------
Adviser=-----------------------------------------------------------------------
Subadviser=--------------------------------------------
Index=-------------------------------------------------------------
Dear ---- ------:
This is in response to the letter submitted by your authorized representatives dated
March 14, 2014, requesting a ruling concerning the tax ownership of Insurance Fund, a
series of Trust, for federal income tax purposes.
FACTS
Trust
Trust is a statutory trust formed under the laws of the State on Date. Trust is registered
with the Securities and Exchange Commission (the “SEC”) as an open-end investment
company under the Investment Company Act of 1940, as amended (the “1940 Act”).
Trust currently has nine series. Each of the nine series has a differing investment
objective and strategy. Each of the nine series has elected to be taxable as a regulated
investment company under Subchapter M of the Internal Revenue Code (“Code”) and to
be treated as a separate corporation pursuant to section 851(g)(1).

PLR-111931-14
2
RetailFund is one of the nine series. Retail Fund is publicly available to investors other
than through purchase of a life insurance contract or variable annuity contract within the
meaning of section 817(d).
Adviser and Subadvisers of Fund
Adviser is a registered investment adviser under the Investment Advisers Act of 1940,
as amended. Advisor has entered into an investment subadvisory agreement with
Subadviser to provide investment advisory services to Trust. In its capacity as manager
of Insurance Fund, Subadviser, or its affiliate, will contribute seed money to Insurance
Fund.
Insurance Fund
Insurance Fund is a new series of Trust that the Subadviser intends to introduce.
Insurance Fund will elect to be treated as a regulated investment company under
Subchapter M of the Code.
Insurance Fund will be offered exclusively to insurance company segregated asset
accounts to serve as an investment vehicle for life insurance contracts or variable
annuity contracts within the meaning of section 817(d) (“Variable Contracts”) and
possibly to permitted holders as described in Treas. Reg. §1.817-5(f)(3) (“Permitted
Holders”). Each Variable Contract holder will be able to allocate its amounts held in a
segregated asset account among the ten series, including Retail Fund and Insurance
Fund.
Retail Fund and the Insurance Fund will have identical investment objectives and
strategies. Subadviser will make investment decisions at the same time for both Retail
Fund and Investment Fund. Trades in both Retail Fund and Insurance Fund will
generally occur simultaneously, subject to the diversification requirements under section
817(h) that apply to Insurance Fund, but not Retail Fund.
The investment returns of Insurance Fund and Retail Fund will potentially deviate.
Because Insurance Fund will be a source of investment for variable annuity contracts,
which are not eligible for the alternative diversification rules with respect to U.S.
Treasury securities under section 817(h)(3), Investment Fund and Retail Fund may
differ in their investment in U.S. Treasury securities. Retail Fund has and will continue
to invest in U.S. Treasury securities without regard to these rules. It is anticipated,
therefore, that the investment returns of Retail Fund and Insurance Fund will deviate as
a result of the fact that Insurance Fund will not be able to invest as significantly in U.S.
Treasury securities as Retail Fund and other differences between Retail Fund and
Insurance Fund. In addition, there may be differences in current or expectedcash
flows, sizes of Insurance Fund and Retail Fund, and other operational or financial
circumstances that might result in differing portfolios and investment returns.
Retail Fund and Insurance Fund will each offer multiple classes of shares that may
differ based on differing levels of distribution and, or, shareholder service fees. The

PLR-111931-14
3
investment advisory fee will be the same for Retail Fund and Insurance Fund. Under
the currently contemplated fee structure, Class I of Retail Fund will have the same
expense structure as Class III of Insurance Fund, but the other classes’ fee structures
will likely differ between Retail Fund and Insurance Fund.
Insurance Fund’s Investment Objective
Insurance Fund’s investment objective is to provide investment results that, before fees
and expenses, correspond generally to the performance of the Index. The Index’s
objective is to provide consistent long-term, risk adjusted outperformance with the goal
of capturing more upside in rising equity markets, and limiting the downside, including
up to 100 percent cash allocation during market downturns. Retail Fund has the same
investment objectives as Insurance Fund.
Insurance Fund’s Diversification
Insurance Fund will comply with the diversification requirements of section 817(h) and
Treas. Reg. §1.817-5(b).
Variable Contract Holders
Other than a Variable Contract holder’s ability to allocate premiums and transfer its
amounts held in an insurance company’s segregated asset account among the
account’s investment options, all investment decisions concerning Insurance Fund will
be made by Subadviser, subject to the approval of the Trust’s board of trustees. A
Variable Contract holder will not be able to direct Insurance Fund’s investments in any
particular asset or recommend a particular investment or investment strategy, and there
will not be any agreement or plan between the Adviser or the Subadviser and a Variable
Contract holder regarding a particular investment. A Variable Contract holder will only
have knowledge of Insurance Fund’s specific assets on a delayed basis based on
information provided on the Subadviser’s website (within 60 days after the end of each
fiscal quarter) and in periodic filings with the SEC. A Variable Contract holder will have
no legal, equitable, direct or indirect interest in any of the assets of Insurance Fund;
rather, a Variable Contract holder will have only a contractual claim against the
insurance company issuing the respective Variable Contract pursuant to the terms of
that Variable Contract
Representations
In addition to the facts described above, Adviser has also made the following
representations:
1. Except as otherwise permitted by Treas. Reg. §1.817-5(f)(3), all of the beneficial
interests in Insurance Fund will be held directly or indirectly by one or more
segregated asset accounts of one or more insurance companies and public
access to Insurance Fund will be available exclusively through the purchase of a
Variable Contract;

PLR-111931-14
4
2. The life insurance companies whose segregated asset accounts will hold shares
of Insurance Fund will be life insurance companies within the meaning of section
816(a);
3. Each segregated asset account that will hold shares of Insurance Fund will be a
separate account registered with the SEC as a unit investment trust under the
1940 Act or which will be exempt from registration under the 1940 Act;
4. Insurance Fund will satisfy the diversification requirements of section 817(h) and
Treas. Reg. §1.817-5(b);
5. There is not, and there will not be, any arrangement, plan, contract or agreement
between the Adviser or Subadviser and any Variable Contract holder regarding
the availability of Insurance Fund as a subaccount under the Variable Contract,
or the specific assets to be held by Insurance Fund or Retail Fund;
6. Other than a Variable Contract holder’s ability to allocate Variable Contract
premiums and transfer amounts in the insurance company segregated asset
account to and from the insurance company subaccount corresponding to
Insurance Fund, all investment decisions concerning Insurance Fund will be
made by the Adviser and Subadviser, subject to supervision by the Trust’s board
of trustees;
7. A Variable Contract holder will not be able to direct Insurance Fund’s investment
in any particular asset or recommend a particular investment or investment
strategy, and there will not be any agreement or plan between the Adviser or
Subadviser and a Variable Contract holder regarding a particular investment of
Insurance Fund;
8. No Variable Contract holder will be able to communicate directly or indirectly with
the Adviser or Subadviser concerning the selection, quality or rate of return on
any specific investment or ground of investments held by Insurance Fund;
9. A Variable Contract holder will not have any current knowledge of Insurance
Fund’s specific assets. A Variable Contract holder will not have any legal,
equitable, direct or indirect ownership in any of the assets of Insurance Fund. A
Variable Contract holder only will have a contractual claim against the insurance
company offering the Variable Contract to receive cash from the insurance
company under the terms of his or her Variable Contract;
10.All of the shares of Insurance Fund will be held directly or indirectly by
segregated asset accounts of life insurance companies that are held in
connection with variable contracts, or other Permitted Holders described in
Treas. Reg. §1.817-5(f)(3), and therefore qualify for the exception from federal
excise tax provided by section 4982(f), unless a Variable Contract holder is

PLR-111931-14
5
treated as a shareholder of Insurance Fund pursuant to the investor control
requirements for purposes of sections 61 and 817 of the Code and Revenue
Ruling 81-225, 1981-2 C.B. 12, and Revenue Ruling 82-54, 1982-1 C.B. 11; and
11.It is currently anticipated that certain classes of shares of Insurance Fund will
have a different fee arrangement for shareholder services or the distribution of
shares (or both) as compared to share classes of Retail Fund, but some classes
of Insurance Fund will have the same fee structure as Retail Fund.
LAW
Investor Control Rules
If the separate account assets underlying the variable contract are considered the
assets of the life insurance company that issues the contract and not the property of the
contract holder, section 817 governs the tax treatment of the contract. If the separate
account assets underlying the contract are considered the assets of the contract holder,
the contract holder is taxed on the income derived from the investment assets under
section 61.
In general, the holder of legal title is the owner of the property and is taxed on the
income derived from the property. However, if a person other than the holder of legal
title possesses the “benefits and burdens” of ownership, that person is attributed
ownership of property for tax purposes. See, e.g., Frank Lyon Company v. United
States, 435 U.S. 561 (1978); Helvering v. Clifford, 309 U.S. 331 (1940). The Supreme
Court summarized this principle in Corliss v. Bowers, 381 U.S. 376, 378 (1930), stating
that “taxation is not so much concerned with the refinements of title as it is with actual
command over the property taxed - the actual benefit for which the tax is paid.”
The Service applied these general tax ownership principles in a series of “investor
control” rulings. Rev. Rul. 77-85, 1977-1 C.B. 12, Rev. Rul. 80-274, 1980-2 C.B. 27,
Rev. Rul. 81-225, 1981-2 C.B. 12, Rev. Rul. 82-54, 1982-1 C.B. 11, Rev. Rul. 2003-91,
2003-2 C.B. 347, and Rev. Rul. 2003-92, 2003-2 C.B. 350. The rulings stand for the
proposition that contract holders possessing control over the investment of the separate
account assets (in addition to the other benefits and burdens of contract ownership) are
the owners of separate account assets for federal income tax purposes even if the
insurance company retains possession of and legal title to those assets.
In Rev. Rul. 77-85, the Service concluded that if the contract holder of an “investment
annuity” contract may select and control the investment assets in the separate account
of the life insurance company, then the contract holder is treated as the owner of those
assets for federal income tax purposes and is taxed on the income derived from the
investment assets. In the ruling, the individual contract holder of a variable annuity
contract retained the right to direct the custodian of the account supporting that variable
annuity to sell, purchase and exchange securities or other assets held in the custodial
account. The contract holder also was able to exercise an owner's right to vote account

PLR-111931-14
6
securities either through the custodian or individually. The Service found that the
contract holder possessed “significant incidents of ownership” over the assets held in
the custodial account, and thus, concluded that the policyholder was the owner of those
assets for federal income tax purposes.
In Rev. Rul. 80-274, the contract holder transferred existing investments to an insurance
company in return for an annuity contract and could withdraw all or a portion of the cash
surrender value of the contract at any time prior to the annuity starting date. The
Service, applying Rev. Rul. 77-85, concluded that the contract holder’s position was
substantially identical to what it would have been had the investment been directly
maintained or established, and thus, the contract holder was theowner of the
investment for federal income tax purposes.
In Rev. Rul. 81-225, the Service described four situations in which the contract holder is
considered the owner of mutual fund shares held by insurance companies in connection
with annuity contracts and one situation in which the insurance company is the owner of
the mutual fund shares for federal income tax purposes. In the four situations in which
the contract holder is considered the owner of the mutual fund shares, the shares are
available for purchase other than through the purchase of an annuity contract. In those
situations, the Service concluded that the contract holder had investment control over
the mutual fund shares and that the contract holder’s position in each situation was
substantially identical to what it would have been had the mutual fund shares been
purchased directly by the contract holders. Conversely, in the situation in which the
mutual fund shares were only available through the purchase of an annuity contract, the
insurance company was the owner for federal income tax purposes.
In Rev. Rul. 82-54, the contract holder of certain annuity contracts could allocate
premium payments among three funds and had an unlimited right to change those
allocations prior to the maturitydate of the annuity contract. Interests in the funds were
not available for purchase by the general public, but were instead only available through
the purchase of an annuity contract. The Service concluded that the purchaser’s ability
to choose among general investment strategies (for example, between stock, bonds, or
money market instruments) either at the time of the initial purchase or subsequent
thereto, did not constitute control sufficient to cause the contract holders to be treated
as the owners of the mutual fund shares for federal income tax purposes.
In 1984, the Eight Circuit addressed the tax ownership issue in the context of a variable
annuity contract. Christoffersen v. United States, 749 F.2d 513 (8th Cir. 1984). The
taxpayers, upon purchasing the contract, could allocate premiums among mutual funds
and could change the allocation at any time. The taxpayers bore the full investment risk
and could withdraw any or all of the investment upon seven days notice. In addition, the
taxpayer wasnot required to exercise the annuity feature of the contract. The Eighth
Circuit concluded that the taxpayers “surrendered few of the rights of ownership or
control over assets of the sub-account.” Id. at 515. The court held that, for federal
income tax purposes, the taxpayers, not the issuing insurance company, owned the

PLR-111931-14
7
mutual fund shares that funded the variable annuity and, thus, the taxpayers were
required to include in gross income any gains, dividends, or other income derived from
the mutual fundshares.
In Rev. Rul. 2003-91, the Service concluded that the variable contract holder did not
have sufficient control over segregated account assets to be deemed the owner of the
assets. The variable contract was funded by a separate account that was divided into
twelve subaccounts. Each subaccount offered a different investment strategy. Interests
in the subaccounts were available solely through the purchase of a variable life or
variable annuity contract that qualified as a variable contract under section 817(d). The
investment activities of each subaccount were managed by an independent investment
adviser. There was no arrangement, plan, contract, or agreement between the contract
holder and the issuing insurance company or between the contract holder and the
independent investment adviser regarding the availability of a particular subaccount, the
investment strategy of any subaccount, or the assets to be held by a particular
subaccount. Other than a contract holder’s right to allocate premiums and transfer
funds among the available subaccounts, all investment decisions concerning the
subaccounts were made by the issuing insurance company or the independent
investment adviser in their sole and absolute discretion. A contract holder had no legal,
equitable, direct, or indirect interest in any of the assets held by a subaccount but had
only a contractual claim against the issuing insurance company to collect cash in the
form of death benefits or cash surrender values under the contract. The Service
concluded that, based on all the facts and circumstances, the contract holder did not
have direct or indirect control over the separate account or any subaccount asset, and
therefore the contract holder did not possess sufficient incidents of ownership over the
assets supporting the variable contracts to be deemed the owner of the assets for
federal income tax purposes.
In Revenue Ruling 2003-92, the purchasers of variable annuity and variable life
insurance contracts were able to allocate their premiums among ten different sub-
accounts. Each sub-account invested in a partnership. In the factual scenario in which
the partnership interests were available other than through the purchase of a variable
annuity or life insurance contract, the Service concluded that the contract holders were
the owners of the interests in the partnerships. In contrast, if the partnership interests
were only available through the purchase of a variable annuity or life insurance contract,
the Service concluded that the insurance company was the owner of the interests in the
partnerships.
ANALYSIS
In the revenue rulings discussed above, the Service took the position that if the holder
of a variable life insurance policy or variable annuity contract possesses sufficient
incidents of ownership over the assets supporting the policy or contract, the contract
holder is viewed for federal income tax purposes as the owner of the underlying assets
and, as a result, is currently taxed on any income and gains attributable to the

PLR-111931-14
8
underlying assets. The determination of whether the holder of a variable life insurance
policy or variable annuity contract possesses sufficient incidents of ownership over the
assets of the separate account underlying the variable life insurance contract or variable
annuity contract depends on all the relevant facts and circumstances. See Rev. Rul.
2003-91.
In the instant case, the Variable Contract holders do not have any control over
Insurance Fund’s investments. The investment decisions of Insurance Fund are made
by Insurance Fund’s Adviser and Subadviser in their sole and absolute discretion and
are subject to change without notice to or approval by the Variable Contract holders.
The Variable Contract holders in this case do not have any more control over the assets
held under their contract than was the case in Rev. Rul. 82-54 or Rev. Rul. 2003-91.
Insurance Fund is not an indirect means of allowing a Variable Contract holder to invest
in a publically-available fund.
CONCLUSION
Based on the authority cited herein and the representations and facts presented by
Insurance Fund, the formation and operation of Insurance Fund as described herein
and its establishment as a separate series within the same Trust as Retail Fund will not
cause the Variable Contract holders to be treated as the owners of the shares of
Insurance Fund for federal income tax purposes.
Except as expressly provided herein, no opinion is expressed concerning the tax
consequences of any aspect of any transaction or item discussed or referenced inthis
letter.
The rulings contained in this letter are based upon information and representations
submitted by Taxpayer. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.
This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the
Codeprovides that it may not be used or cited as precedent.

PLR-111931-14
9
Pursuant to the power of attorney on file with this office, a copy of this letter is being
sent to your authorized representatives.
Sincerely,
/s/
Donald J. Drees, Jr.
Senior Technician Reviewer, Branch 4
(Financial Institutions & Products)
cc:

Continue sua pesquisa no ChatGPT ou Claude

Conecte o Omnilex para pesquisar o corpus jurídico pelo seu assistente de IA.