SECTION 2. BACKGROUND

.01 Section 7702 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).

.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. The guideline level premium is the level annual premium, computed on the same basis as the guideline single premium but with a lower interest rate, 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, as determined under the table set forth in § 7702(d)(2), of the cash surrender value.

2Section 13517 of Public Law 115-97 amended §§ 807(d) and 7702(f)(10) of the Code. References in this revenue procedure to “prevailing commissioners’ standard tables” refer to the term as defined in § 807(d)(5) for taxable years beginning on or before December 31, 2017, and as defined in § 7702(f)(10) for taxable years beginning after December 31, 2017.

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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 which the insured attains age 95, and no later than the day on which the insured attains age 100. Section 1.7702–2 of the Income Tax Regulations provides guidance on determining the attained age of the insured for this purpose.

.06 Section 7702A(a) provides that a life insurance contract is a modified endowment contract (“MEC”) if the contract is entered into on or after June 21, 1988, and fails to meet the 7-pay test, or is received in exchange for a contract that is a MEC. A contract fails to meet the 7-pay test if the accumulated amount paid under the contract at any time during the first 7 contract years exceeds the sum of the net level premiums that would have to be paid on or before such time if the contract were to provide for paid-up future benefits (including death benefits) after the payment of 7 level annual premiums. Under § 7702A(c)(1)(B), the determination of the 7 level annual premiums generally is made by applying the computational rules of § 7702(e), including the rule requiring a deemed maturity date no earlier than the day on which the insured attains age 95 and no later than the day on which the insured attains age 100.

.07 The 2017 CSO tables became the prevailing commissioners’ standard tables on January 1, 2017. For tax purposes, the 2017 CSO tables generally must be used for purposes of applying the reasonable mortality charge requirements of § 7702(c) (3)(B)(i) with regard to contracts issued on or after January 1, 2020. See Notice 2016– 63, 2016–45 I.R.B. 683. Either the 2001 CSO tables or the 2017 CSO tables may be used for contracts issued on or after January 1, 2017, and before January 1, 2020. Id. The 2001 CSO tables generally must be used for purposes of applying the reasonable mortality charge requirements of § 7702(c)(3) (B)(i) with regard to contracts issued on or

after January 1, 2009, and before January 1, 2017. Id. .08 Unlike the 1958 Commissioners’ Standard Ordinary Mortality Tables (“1958 CSO tables”) and the 1980 Commissioners’ Standard Ordinary Mortality Tables (“1980 CSO tables”), the 2001 CSO tables and 2017 CSO tables extend to age 121. As a result, an increasing number of issuers now develop contracts that may continue in force beyond age 100, even though the qualification of a contract as a life insurance contract (and as a MEC) under §§ 7702 and 7702A is tested using computational rules that deem the contract to mature between the day on which the insured attains age 95 and the day on which the insured attains age 100. .09 The 2001 CSO Maturity Age Task Force of the Taxation Section of the Society of Actuaries (“Task Force”) recommended a series of computational rules for compliance with the requirements of §§ 7702 and 7702A in a manner that is actuarially sound in the case of contracts that may continue in force beyond age 100. See 2001 CSO Implementation Un- der IRC Sections 7702 and 7702A, 2 Taxing Times 23 (May 2006).

.10 Notice 2009–47, 2009–24 I.R.B. 1083, proposed a safe harbor drawn from the recommendations of the Task Force, with modifications. Specifically, the notice addressed the application of §§ 7702 and 7702A to a contract that may continue in force after the day on which the insured attains age 100. The notice also requested comments on related matters.

.11 The Treasury Department and the Internal Revenue Service (“IRS”) subsequently determined that it was in the interest of sound tax administration to adopt the safe harbor that was proposed in Notice 2009–47, with modifications, in the form of a revenue procedure. Rev. Proc. 2010–28 adopted, with modifications, the safe harbor testing methodologies proposed in Notice 2009–47 for life insurance contracts that (1) have mortality guarantees based upon the 2001 CSO tables, and (2) may continue in force after the day on which the insured attains age 100. Rev. Proc. 2010–28 did not address the other issues on which comments were requested in Notice 2009–47.

.12 Following the issuance of the 2017 CSO tables, the Treasury Department and

the IRS have determined that it is in the interest of sound tax administration to extend the safe harbor adopted in Rev. Proc. 2010–28 to life insurance contracts that (1) have mortality guarantees based upon prevailing commissioners’ standard tables that extend beyond age 100, such as the 2001 CSO tables and the 2017 CSO tables, and (2) may continue in force after the day on which the insured individual attains age 100.