SECTION 2. BACKGROUND

.01 Section 7702 of the Code defines the term “life insurance contract” for purposes of the Code. Section 7702(a) provides that a “life insurance contract” is any contract that is a life insurance contract under the applicable law, but only if such contract either (1) meets the cash value accumulation test of § 7702(b), or (2) both meets the guideline premium requirements of § 7702(c) and falls within the cash value corridor of § 7702(d). Section 7702 was added to the Code by the Deficit Reduction Act of 1984, P.L. 98–369.

.02 A contract meets the cash value accumulation test of § 7702(b) if, by the terms of the contract, the cash surrender value of the contract may not at any time exceed the net single premium that would have to be paid at that time to fund future benefits under the contract.

.03 A contract meets the guideline premium requirements of § 7702(c) if the sum of the premiums paid under the contract does not at any time exceed the guideline premium limitation as of that time. The guideline premium limitation as of any date is the greater of the guideline single premium, or the sum of the guideline level premiums to that date. The guideline single premium is the premium that would be required on the date the contract is issued to fund the future benefits under the contract.

.04 A contract falls within the cash value corridor of § 7702(d) if the death benefit under the contract at any time is not less than the applicable percentage of the cash surrender value, as determined under the table set forth in § 7702(d)(2). Under that table, the applicable percentage for an insured with an attained age of 95 is 100 percent.

.05 Section 7702(e) provides computational rules that must be used for purposes of § 7702, other than for purposes of applying the cash value corridor. In particular, under § 7702(e)(1)(B) the maturity date (including the date on which any death benefit is payable) under a contract is deemed to be no earlier than the day on

2009–24 I.R.B. 1083 June 15, 2009

whether or not a contract is issued or materially changed fewer than 7 years before the date the insured attains age 100.

(h) A change in benefits under (or in other terms of) a life insurance contract that occurs on or after the date the insured attains age 100 would not be treated as a material change for purposes of § 7702A(c)(3) or as an adjustment event for purposes of § 7702(f)(7).

(i) Notwithstanding the methodologies of this section 3.02(a)-(h), a contract that remains in force would additionally be required to provide at all times a death benefit equal to or greater than 105 percent of the cash value.

.03 Effective date . The proposed safe harbor would be effective as of the date of publication in the Internal Revenue Bulletin.

.04 Status as administrative guid- ance . Until the proposed safe harbor is formally adopted by the Service, the proposed safe harbor is not an “administrative pronouncement” as that term is used in § 1.6662–4(d)(3)(iii) of the regulations; it may not be relied upon as an official interpretation of §§ 7702 or 7702A.