SECTION 5. REQUEST FOR

COMMENTS

Treasury and the IRS request comments regarding the CHNA requirements described in this notice. In addition to the comments specifically requested above, comments are also specifically requested regarding the definitions of a hospital organization, a hospital facility, a CHNA, a community served by a hospital facility, an implementation strategy, conducted (for purposes of the CHNA), and adopted (for purposes of the implementation strategy).

Comments should be submitted on or before September 23, 2011. Please include Notice 2011–52 on the cover page. Comments should be sent to the following address:

July 25, 2011 66 2011–30 I.R.B.

nuity. The amendment applies to amounts received in taxable years beginning after December 31, 2010.

.08 Since 2008, Treasury and the Service have learned of several practical issues that diminish the effectiveness of Rev. Proc. 2008–24. For example, some taxpayers have commented that it is not clear how the “occurred between” standard should be applied with regard to several of the conditions that are enumerated in § 72(q)(2) or to similar life events. Other taxpayers have commented that the alternative characterization of a transfer that does not qualify as a tax-free exchange is unclear, and that a 12-month waiting period produces administrative difficulties in some situations where an income tax return already was filed for the year in which the transfer took place. Still others have argued that Treasury and the Service should provide relief for payments received as an annuity under an annuity contract involved in a partial exchange. As a result of the recent amendment of § 72(a), a taxpayer may partially annuitize a single annuity contract and apply an exclusion ratio, rather than the income-first rule of § 72(e), to amounts received as an annuity under the annuitized portion of the contract.

.09 Treasury and the Service have determined that it is in the interest of sound tax administration to modify the guidance provided by Rev. Proc. 2008–24 to address these issues. Accordingly, this revenue procedure makes the following changes to Rev. Proc. 2008–24: First, the 12-month period referred to in section 4.01(a) of Rev. Proc. 2008–24 is reduced to 180 days. Second, the rule requiring that one of the enumerated § 72(q) conditions be met (or that a similar life event occur) is eliminated. Third, the limitations on amounts withdrawn from or received under an annuity contract involved in a partial exchange do not apply to amounts received as an annuity for a period of 10 years or more or during one or more lives. Fourth, the automatic characterization of a transfer as either a tax-free exchange under § 1035 or a distribution taxable under § 72(e) followed by a payment for a second contract is eliminated. Under this approach, if a direct transfer of a portion of the cash surrender value of an existing annuity contract for a second annuity contract does not meet the 180-day test described above, the

annuity contract. The legislative history of § 1035 states that exchange treatment is appropriate for “individuals who have merely exchanged one insurance policy for another better suited to their needs.” H.R. Rep. No. 1337, 83d Cong., 2d Sess. 81 (1954). Section 1.1035–1 of the Income Tax Regulations provides that “the exchange, without recognition of gain or loss, of an annuity contract for another annuity contract under § 1035(a)(3) is limited to cases where the same person or persons are the obligee or obligees under the contract received in the exchange as under the original contract.”

.02 If, in addition to an annuity contract, a taxpayer receives other property or money in exchange for a second annuity contract, then gain (if any) is recognized to the extent of the sum of money and the fair market value of other property received, but loss (if any) is not recognized to any extent. Section 1035(d)(1) (cross referencing § 1031(b) and (c)); § 1.1031(b)–1(a); § 1031(c)–1.

.03 Section 72(e) governs the federal tax treatment of any amount received under an annuity contract that is not received as an annuity if no other income tax provision applies with respect to such amount. Under § 72(e)(2), such amounts generally are taxed on an income-first basis. Section 72(e)(12) provides that all annuity contracts issued by the same company to the same policyholder during any calendar year are treated as a single annuity contract for purposes of § 72(e).

.04 In Conway v. Commissioner, 111 T.C. 350 (1998), acq ., 1999–2 C.B. xvi, the Tax Court held that the direct exchange by an insurance company of a portion of an existing annuity contract to an unrelated insurance company for a new annuity contract was a tax-free exchange under § 1035. Such a transaction is sometimes referred to as a “partial exchange.” See also Rev. Rul. 2007–24, 2007–1 C.B. 1282 (receipt of a check under a nonqualified annuity contract and endorsement of the check to a second company as consideration for a second annuity contract treated as a distribution under § 72(e), rather than as a taxfree exchange under § 1035); Rev. Rul. 2002–75, 2002–2 C.B. 812 (assignment of an entire annuity contract for deposit into a preexisting annuity contract treated as a tax-free exchange under § 1035).

.05 In Rev. Rul. 2003–76, 2003–2 C.B. 355, a taxpayer directly transferred a portion of the cash surrender value of an existing annuity contract (the original contract) for a new contract issued by a second insurance company. The ruling concludes that the transfer was a tax-free exchange under § 1035, and that the basis and investment in the contract for the original contract immediately before the exchange was required to be allocated ratably between the original contract and the new contract based on the percentage of the cash value transferred to purchase the new contract.

.06 Rev. Proc. 2008–24 set forth circumstances under which a direct transfer of a portion of the cash surrender value of an existing annuity contract for a second annuity contract would be treated as a tax-free exchange under § 1035. Under the revenue procedure, a transfer was treated as a tax-free exchange if no amount was withdrawn from, or received in surrender of, either of the contracts involved in the exchange during the 12 months beginning on the date of the transfer, or if the taxpayer demonstrated that one of the conditions described by § 72(q)(2)(A), (B), (C), (E), (F), (G), (H), or (J) or any similar life event “occurred between” the date of the transfer and the date of the withdrawal or surrender. A transfer within the scope of Rev. Proc. 2008–24 that was not treated as a tax-free exchange under § 1035 was instead treated as a taxable distribution under § 72(e), followed by a payment for the second contract. Rev. Proc. 2008–24 superseded interim guidance provided by Notice 2003–51, 2003–2 C.B. 361. .07 Section 2113 of the Small Business Jobs Act, P.L. 111–240, added § 72(a)(2) of the Internal Revenue Code to provide rules for the partial annuitization of a single annuity contract. Section 72(a)(2) provides that, if any amount is received as an annuity for 10 years or more or during one or more lives under any portion of an annuity, endowment or life insurance contract— (a) that portion is treated as a separate contract for purposes of § 72; (b) the investment in the contract generally is allocated pro rata between each portion of the contract from which amounts are received as an annuity and the portion from which amounts are not so received; and (c) a separate annuity starting date is determined with respect to each portion of the contract from which amounts are received as an an

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2008–24 will continue to apply to transfers that are completed before that date, with the clarification of the requirement of section 4.01(b) that one of the prescribed conditions of § 72(q)(2) have “occurred between” the date of the transfer and the date of the withdrawal or surrender will be treated as satisfied if the condition was satisfied as of the date of the withdrawal or surrender. Thus, for example, an individual who attained the age of 59 ¹ /2 before both the date of the transfer and the date of the withdrawal or surrender has satisfied the condition of § 72(q)(2)(A) and will be treated as satisfying section 4.01(b) of Rev. Proc. 2008–24.