SECTION 3. INTERIM GUIDANCE

.01 Reserve Ratio Test. For purposes of determining under § 816(a) whether an insurance company satisfies the 50 percent of reserves test for qualification as a life insurance company for taxable years ending on or after December 31, 2009—

(a) the Standard Scenario Amount determined under AG 43 is included in life insurance reserves as defined in § 816(b) and total reserves as defined in § 816(c); and

(b) a taxpayer that delays implementation of AG 43 with permission of its domiciliary insurance commissioner under section V of AG 43 must consistently delay implementation for purposes of determining life insurance reserves and total reserves under § 816(b) and (c).

.02 Statutory Reserve Cap . For purposes of applying the statutory reserve cap of § 807(d)(1) for taxable years ending on or after December 31, 2009 —

(a) the term “statutory reserves” under § 807(d)(6) includes the Standard Scenario Amount determined under AG 43. Thus, a reserve will not be excluded from statutory reserves under § 807(d)(6) solely because the reserve represents the Standard Scenario Amount determined under AG 43, provided the requirements of § 807(d)(6) are otherwise met. For example, under § 807(d)(6) statutory reserves do not include any amount attributable to a deferred and uncollected premium if the establishment of such reserve is not permitted under § 811(c); and

(b) to the extent that a taxpayer delays implementation of AG 43 with permission of its domiciliary insurance commissioner under section V of AG 43, it must consistently delay implementation for purposes of determining the amount of statutory reserves under § 807(d)(6).

.03 Federally-Prescribed Reserve . For purposes of determining the amount of the reserve under § 807(d)(2) with respect to a contract falling within the scope of AG 43 and issued on or after December 31, 2009, the provisions for determining the Standard Scenario Amount are taken into account, and the provisions for determining the CTE Amount are not taken into account. Accordingly—

(a) for a contract issued before December 31, 2009, the tax reserve method under § 807(d)(2)(A) and (d)(3) is the method applicable to such contract when issued, as prescribed under relevant actuarial guidance in effect before the adoption of AG 43; and

(b) for a contract falling within the scope of AG 43 and issued on or after December 31, 2009, the tax reserve method with respect to such a contract under § 807(d)(2)(A) and (d)(3) is the method prescribed in AG 43 for determining the Standard Scenario Amount, applied using the appropriate valuation interest rate under § 807(d)(2)(B) and other adjustments to the method described below. See, e.g., AG 43, Appendix 3;

(c) the PSAIR under § 807(d)(2)(B)(ii) and (d)(4)(B) with respect to such a contract is the highest assumed interest rate permitted to be used in computing the Standard Scenario Amount for annuity contracts falling within the scope of AG 43 under the insurance laws of at least 26 states, as of the beginning of the calendar year in which the contract was issued;

(d) the prevailing commissioners’ standard tables with respect to such a contract under § 807(d)(2)(C) and (d)(5) means the most recent commissioners’ standard tables prescribed by the NAIC that are permitted to be used in computing the Standard Scenario Amount for such a contract under AG 43 under the insurance laws of at least 26 states when the contract was issued; and

(e) whether a taxpayer delays implementation of AG 43 with permission of its domiciliary insurance commissioner under section V of that guideline has no effect on the determination of the amount of the reserve under § 807(d)(2).

.04 Ten-year spread . If the amount determined under § 807(d)(1) as of the last day of the first taxable year ending on or

2010–15 I.R.B. 549 April 12, 2010

DRAFTING INFORMATION

The principal author of this notice is Chris Lieu of the Office of the Associate

Chief Counsel (Financial Institutions & Products). For further information regarding this notice, contact Mr. Lieu at (202) 622–3970 (not a toll-free call).

April 12, 2010 550 2010–15 I.R.B.