SECTION 4. REQUEST FOR

COMMENTS

.01 The Treasury Department and Internal Revenue Service request comments to assist in the development of further guidance concerning the taxation of annuity and life insurance contracts with a longterm care insurance feature. For example:

(a) What issues arise when the owner of an annuity contract with a long-term care insurance feature decides to annuitize the contract? Are the policyholder’s rights under the long-term care insurance feature typically the same or different before and after the annuity starting date? How should long-term care insurance charges be accounted for after the annuity starting date? How should the exclusion ratio be determined?

(b) For the purpose of determining whether the long-term care features of an annuity contract qualify as an insurance contract and thus as a qualified long-term care insurance contract, what is the appropriate characterization of long-term care payments that cause a reduction in a contract’s cash value? Are there common features or contract designs that would lend themselves to guidance on determining whether enough insurance risk is

present for the long-term care features to qualify as an insurance contract?

(c) Is guidance needed on the partial exchange of the right to some or all of the payments under an immediate annuity contract for a qualified long-term care insurance contract? If so, how is such an exchange effected? Under what circumstances should such an exchange be treated as tax-free under § 1035? How should the basis and investment in the contract be apportioned between the qualified long-term care insurance contract received in the exchange and the rights still held in the exchanged annuity?

(d) What changes, if any, are needed to existing guidance (including publications, forms, and instructions) on information reporting and record keeping to assist issuers of life insurance, annuity, or qualified long-term care insurance contracts in meeting their obligations with regard to the amendments made by section 844 of the PPA?

.02 Comments should be submitted in writing on or before November 9, 2011 and should contain a reference to this Notice 2011–68. Comments may be submitted to CC:PA:LPD:PR (Notice 2011–68), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washing

2011–36 I.R.B. 207 September 6, 2011