SECTION 4. SCOPE

.01 Applicability. Except as provided in sections 4.02 and 4.03 of this revenue procedure, the issuer of a contract can use this revenue procedure to remedy the failure of the contract to comply with the requirements of § 7702A. See section 8 of this revenue procedure, below, for its date of expiration.

.02 Inapplicability. This revenue procedure does not apply to a MEC if—

(1) the contract insures the life of any individual (other than a “key person” as defined in § 264(e)(3)) who is or was (a) an officer, director, or employee of, or

(b) financially interested in, any trade or business carried on by the contract holder;

(2) the contract’s status as a MEC resulted from a failure to comply with the requirements of § 7702A that—

(a) are attributable to one or more defective interpretations or positions that the Service determines to be a significant feature of a program to sell investment oriented contracts, or

(b) arises where the controlling statutory provision, as supplemented by any legislative history or guidance published by the Service, is clear on its face and the Service determines that failure to follow the provision results in a significant increase in the investment orientation of a contract; or

(3) except as provided in this section 4.02(3), the issuer previously entered into a closing agreement to remedy a failure of any contract to comply with the requirements of § 7702A. Upon an application by the issuer setting forth unusual or special facts and circumstances, the Service in its sole discretion may waive the limitation imposed by this section 4.02(3). However, the Service will not waive the limitation if the issuer requests to enter into a closing agreement to cure the same or similar failures to comply with the requirements of § 7702A that were identified in a previous closing agreement. Examples of unusual or special facts and circumstances include:

(a) The issuer analyzed each of its contracts as of the date of its first submission under this revenue procedure, using all of the legal and factual assumptions described in its first submission, and requested a closing agreement for all of its contracts eligible for relief under this revenue procedure to remedy the contracts’ failure comply with the requirements of § 7702A. The issuer subsequently acquired a company that had inadvertently issued contracts that failed to comply with the requirements of § 7702A, which had not previously requested a closing agreement to remedy the failure of any of its contracts to comply with the requirements of § 7702A. In this situation, the issuer may request a closing agreement with respect to all of the acquired company’s contracts that otherwise are eligible for relief under this revenue procedure.

(b) The issuer analyzed each of its contracts as of the date of its first submis

sion under this revenue procedure, using all legal and factual assumptions described in its first submission, and requested a closing agreement for each contract eligible for relief under this revenue procedure. The issuer subsequently discovers that it inadvertently failed to identify other legal and factual assumptions not described in its first submission, which would cause the same and additional contracts to fail to comply with the requirements of § 7702A. In this situation, the issuer may request a closing agreement for all of its contracts otherwise eligible for relief under this revenue procedure to remedy the contracts’ failure to comply with the requirements of § 7702A based on the combination of its previously and its newly identified legal and factual assumptions.

.03 Examples. Pursuant to section 4.02(2) of this revenue procedure, this revenue procedure does not apply to a MEC if—

(1) the contract provides for paid-up future benefits after the payment of less than 7 level annual premiums,

(2) the amount paid under the contract in any contract year of the testing period exceeds 300 percent of the 7-pay premium for the contract year, or

(3) the cash surrender value of the contract (within the meaning of § 7702(f)(2)(A)) exceeded (or was illustrated or projected to exceed) the contract holder’s investment in the contract (as defined in § 72(e)(6)) within 3 years after the issuance of the contract and the assumed 7-pay premium for the contract was more than 150 percent of the correct 7-pay premium for the contract.