§ 817 Treatment of variable contracts

OLRC 119-134 · eCFR 2026-10-19 · 5 regs · 5 amending Acts · cited by 6 sections

Enacted 1984 · Pub. L. 98-369 Amended · 5 Acts

198419861988199619972004(a) Increases and decreases in reserves(b) Adjustment to basis of assets held in segregated asset account(c) Separate accounting(d) Variable contract defined(e) Pension plan contracts treated as paying annuity(f) Other special rules(g) Variable annuity contracts treated as annuity contracts(h) Treatment of certain nondiversified contracts
Prior provisions 2
  • A prior section 817, added Pub. L. 86–69, § 2(a), June 25, 1959, 73 Stat. 132; amended Pub. L. 94–455, title XIV, § 1402(b)(1)(M), (2), title XIX, §§ 1901(a)(100), 1951(b)(11)(A), Oct. 4, 1976, 90 Stat. 1732, 1781, 1839, related to rules regarding certain gains and losses, prior to the general revision of this part by Pub. L. 98–369, § 211(a).
  • Another prior section 817, act Aug. 16, 1954, ch. 736, § 817, as added Mar. 13, 1956, ch. 83, § 2, 70 Stat. 46, related to denial of double deductions, prior to the general revision of this part by Pub. L. 86–69, § 2(a).
Connections Cited by 6 · Cites 6
§ 817 Treatment of variable contracts
§ 1.817-1 Taxable years affected.§ 1.817-2 Treatment of capital gains and losses.§ 1.817-3 Gain on property held on December 31, 1958, and certain substituted property acquired after 1958.§ 1.817-4 Special rules.§ 1.817-5 Diversification requirements for variable annuity, endowment, and life insurance contracts.
Final rules 2

    (a) Increases and decreases in reserves For purposes of subsections (a) and (b) of section 807, the sum of the items described in section 807(c) taken into account as of the close of the taxable year with respect to any variable contract shall, under regulations prescribed by the Secretary, be adjusted—

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      (1) by subtracting therefrom an amount equal to the sum of the amounts added from time to time (for the taxable year) to the reserves separately accounted for in accordance with subsection (c) by reason of appreciation in value of assets (whether or not the assets have been disposed of), and

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        (2) by adding thereto an amount equal to the sum of the amounts subtracted from time to time (for the taxable year) from such reserves by reason of depreciation in value of assets (whether or not the assets have been disposed of).

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          The deduction allowable for items described in paragraphs (1) and (6) of section 805(a) with respect to variable contracts shall be reduced to the extent that the amount of such items is increased for the taxable year by appreciation (or increased to the extent that the amount of such items is decreased for the taxable year by depreciation) not reflected in adjustments under the preceding sentence.

          (b) Adjustment to basis of assets held in segregated asset account In the case of variable contracts, the basis of each asset in a segregated asset account shall (in addition to all other adjustments to basis) be—

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            (1) increased by the amount of any appreciation in value, and

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              (2) decreased by the amount of any depreciation in value,

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                to the extent such appreciation and depreciation are from time to time reflected in the increases and decreases in reserves or other items referred to in subsection (a) with respect to such contracts.

                (c) Separate accounting For purposes of this part, a life insurance company which issues variable contracts shall separately account for the various income, exclusion, deduction, asset, reserve, and other liability items properly attributable to such variable contracts. For such items as are not accounted for directly, separate accounting shall be made—

                Amended 2004
                • 2004 Pub. L. 108-218 Pub. L. 108–218, in introductory provisions, struck out “(other than section 809)” after “For purposes of this part”.
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                  (1) in accordance with the method regularly employed by such company, if such method is reasonable, and

                  (2) in all other cases, in accordance with regulations prescribed by the Secretary.

                  (d) Variable contract defined For purposes of this part, the term “variable contract” means a contract—

                  NOT“If a contract ceases to reflect current investment return and current market value, such contract shall not be considered as meeting the requirements of paragraph (3)” Closing words
                  Textual readingALL OF= a variable contract

                  (1) which provides for the allocation of all or part of the amounts received under the contract to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company,

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                    (2) which—

                    “a contract—” Enclosing § 817(d)
                    Textual readingANY OF= paragraph (2) requirement met

                    (A) provides for the payment of annuities,

                    (B) is a life insurance contract, or

                    (C) provides for funding of insurance on retired lives as described in section 807(c)(6), and

                    Amended 1996
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                      (3) under which—

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                        (A) in the case of an annuity contract, the amounts paid in, or the amount paid out, reflect the investment return and the market value of the segregated asset account,

                        (B) in the case of a life insurance contract, the amount of the death benefit (or the period of coverage) is adjusted on the basis of the investment return and the market value of the segregated asset account, or

                        (C) in the case of funds held under a contract described in paragraph (2)(C), the amounts paid in, or the amounts paid out, reflect the investment return and the market value of the segregated asset account.

                        Amended 1996

                        If a contract ceases to reflect current investment return and current market value, such contract shall not be considered as meeting the requirements of paragraph (3) after such cessation. Paragraph (3) shall be applied without regard to whether there is a guarantee, and obligations under such guarantee which exceed obligations under the contract without regard to such guarantee shall be accounted for as part of the company’s general account.

                        Amended 1986
                        • 1986 Pub. L. 99-514 Pub. L. 99–514, § 1821(t)(1), inserted at end “Paragraph (3) shall be applied without regard to whether there is a guarantee, and obligations under such guarantee which exceed obligations under the contract without regard to such guarantee shall be accounted for as part of the company’s general account.”
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                          (e) Pension plan contracts treated as paying annuity A pension plan contract which is not a life, accident, or health, property, casualty, or liability insurance contract shall be treated as a contract which provides for the payments of annuities for purposes of subsection (d).

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                            (f) Other special rules

                            (1) Life insurance reserves For purposes of subsection (b)(1)(A) of section 816, the reflection of the investment return and the market value of the segregated asset account shall be considered an assumed rate of interest.

                            (2) Additional separate computations Under regulations prescribed by the Secretary, such additional separate computations shall be made, with respect to the items separately accounted for in accordance with subsection (c), as may be necessary to carry out the purposes of this section and this part.

                            (g) Variable annuity contracts treated as annuity contracts For purposes of this part, the term “annuity contract” includes a contract which provides for the payment of a variable annuity computed on the basis of—

                            (1) recognized mortality tables, and

                            (2)

                            “a contract which provides for the payment of a variable annuity computed on the basis of—” Enclosing § 817(g)
                            Textual readingANY OF= an annuity contract

                            (A) the investment experience of a segregated asset account, or

                            (B) the company-wide investment experience of the company.

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                              Paragraph (2)(B) shall not apply to any company which issues contracts which are not variable contracts.

                              (h) Treatment of certain nondiversified contracts

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                                (1) In general For purposes of subchapter L, section 72 (relating to annuities), and section 7702(a) (relating to definition of life insurance contract), a variable contract (other than a pension plan contract) which is otherwise described in this section and which is based on a segregated asset account shall not be treated as an annuity, endowment, or life insurance contract for any period (and any subsequent period) for which the investments made by such account are not, in accordance with regulations prescribed by the Secretary, adequately diversified.

                                Amended 1986
                                • 1986 Pub. L. 99-514 Pub. L. 99–514, § 1821(m)(2), struck out last sentence which read as follows: “For purposes of this paragraph and paragraph (2), beneficial interests in a regulated investment company or in a trust shall not be treated as 1 investment if all of the beneficial interests in such company or trust are held by 1 or more segregated asset accounts of 1 or more insurance companies.”
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                                  (2) Safe harbor for diversification A segregated asset account shall be treated as meeting the requirements of paragraph (1) for any quarter of a taxable year if as of the close of such quarter—

                                  (A) it meets the requirements of section 851(b)(3), and

                                  Amended 1997
                                  • 1997 Pub. L. 105-34 Pub. L. 105–34, § 1271(b)(8)(A), substituted “851(b)(3)” for “851(b)(4)”.

                                  (B) no more than 55 percent of the value of the total assets of the account are assets described in section 851(b)(3)(A)(i).

                                  Amended 1997
                                  • 1997 Pub. L. 105-34 Pub. L. 105–34, § 1271(b)(8)(B), substituted “851(b)(3)(A)(i)” for “851(b)(4)(A)(i)”.

                                  (3) Special rule for investments in United States obligations To the extent that any segregated asset account with respect to a variable life insurance contract is invested in securities issued by the United States Treasury, the investments made by such account shall be treated as adequately diversified for purposes of paragraph (1).

                                  Amended 1986
                                  • 1986 Pub. L. 99-514 Pub. L. 99–514, § 1821(m)(1), added pars. (3) and (4), redesignated former par. (4) as (5), and struck out former par. (3) which read as follows: “In the case of a segregated asset account with respect to variable life insurance contracts, paragraph (1) shall not apply in the case of securities issued by the United States Treasury which are owned by a regulated investment company or by a trust all the beneficial interests in which are held by 1 or more segregated asset accounts of the company issuing the contract.”
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                                    (4) Look-through in certain cases For purposes of this subsection, if all of the beneficial interests in a regulated investment company or in a trust are held by 1 or more—

                                    “if all of the beneficial interests in a regulated investment company or in a trust are held by 1 or more—” Opening words
                                    Textual readingANY OF= look-through to fund assets applies

                                    (A) insurance companies (or affiliated companies) in their general account or in segregated asset accounts, or

                                    (B) fund managers (or affiliated companies) in connection with the creation or management of the regulated investment company or trust,

                                    the diversification requirements of paragraph (1) shall be applied by taking into account the assets held by such regulated investment company or trust.

                                    Amended 1986
                                    • 1986 Pub. L. 99-514 Pub. L. 99–514, § 1821(m)(1), added pars. (3) and (4), redesignated former par. (4) as (5), and struck out former par. (3) which read as follows: “In the case of a segregated asset account with respect to variable life insurance contracts, paragraph (1) shall not apply in the case of securities issued by the United States Treasury which are owned by a regulated investment company or by a trust all the beneficial interests in which are held by 1 or more segregated asset accounts of the company issuing the contract.”
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                                      (5) Independent investment advisors permitted Nothing in this subsection shall be construed as prohibiting the use of independent investment advisors.

                                      Amended 1986
                                      • 1986 Pub. L. 99-514 Pub. L. 99–514, § 1821(m)(1), added pars. (3) and (4), redesignated former par. (4) as (5), and struck out former par. (3) which read as follows: “In the case of a segregated asset account with respect to variable life insurance contracts, paragraph (1) shall not apply in the case of securities issued by the United States Treasury which are owned by a regulated investment company or by a trust all the beneficial interests in which are held by 1 or more segregated asset accounts of the company issuing the contract.”

                                      (6) Government securities funds In determining whether a segregated asset account is adequately diversified for purposes of paragraph (1), each United States Government agency or instrumentality shall be treated as a separate issuer.

                                      Amended 1988