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Title 26 — Internal Revenue CodeRelease 119-73

§817A Special rules for modified guaranteed contracts

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter L— - Insurance Companies › Part PART I— - LIFE INSURANCE COMPANIES › Subpart Subpart E— - Definitions and Special Rules › § 817A

Last updated Apr 6, 2026|Official source

Summary

Sets special tax rules for "modified guaranteed contracts" and the assets in their segregated accounts. A specific rule in section 807(e)(1)(A)(ii) does not apply to these contracts. Any gain or loss on a segregated asset is treated as ordinary income or loss. If a life insurance company holds a segregated asset at the end of a tax year, the company must treat the asset as if it were sold at its fair market value on the last business day of that year and report the gain or loss for that year. When applying section 816(b)(1)(A) to these contracts, the assumed interest rate may be set with reference to market interest rates. A "modified guaranteed contract" is a contract where amounts go into a state‑segregated, market‑valued account, that provides annuities or is a life or certain pension contract, has reserves valued at market for annual statements, and offers a net surrender value or policyholder’s fund (see section 807(e)(1)). A "segregated asset" is an asset held in that segregated account. The Secretary may issue rules about market value adjustments (sections 72, 7702, 7702A, 807(e)(1)(B)), yearly interest rates (sections 807(c)(3) and 807(d)(2)(B)), which assets get ordinary treatment, transfers to/from the segregated account, and other needed matters.

Full Legal Text

Title 26, §817A

Internal Revenue Code — Source: USLM XML via OLRC

(a)In the case of a modified guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not apply.
(b)(1)In the case of any life insurance company, for purposes of this subtitle—
(A)Any gain or loss with respect to a segregated asset shall be treated as ordinary income or loss, as the case may be.
(B)If any segregated asset is held by such company as of the close of any taxable year—
(i)such company shall recognize gain or loss as if such asset were sold for its fair market value on the last business day of such taxable year, and
(ii)any such gain or loss shall be taken into account for such taxable year.
(2)For purposes of paragraph (1), the term “segregated asset” means any asset held as part of a segregated account referred to in subsection (d)(1) under a modified guaranteed contract.
(c)For purposes of applying section 816(b)(1)(A) to any modified guaranteed contract, an assumed rate of interest shall include a rate of interest determined, from time to time, with reference to a market rate of interest.
(d)For purposes of this section, the term “modified guaranteed contract” means a contract not described in section 817—
(1)all or part of the amounts received under which are allocated to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company and is valued from time to time with reference to market values,
(2)which—
(A)provides for the payment of annuities,
(B)is a life insurance contract, or
(C)is a pension plan contract which is not a life, accident, or health, property, casualty, or liability contract,
(3)for which reserves are valued at market for annual statement purposes, and
(4)which provides for a net surrender value or a policyholder’s fund (as defined in section 807(e)(1)).
(e)The Secretary may prescribe regulations—
(1)to provide for the treatment of market value adjustments under section 72, 7702, 7702A, and 807(e)(1)(B),
(2)to determine the interest rates applicable under section 807(c)(3) and 807(d)(2)(B) with respect to a modified guaranteed contract annually, in a manner appropriate for modified guaranteed contracts and, to the extent appropriate for such a contract, to modify or waive the applicability of section 811(d),
(3)to provide rules to limit ordinary gain or loss treatment to assets constituting reserves for modified guaranteed contracts (and not other assets) of the company,
(4)to provide appropriate treatment of transfers of assets to and from the segregated account, and
(5)as may be necessary or appropriate to carry out the purposes of this section.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2017—Subsec. (e)(2). Pub. L. 115–97 substituted “and 807(d)(2)(B)” for “, 807(d)(2)(B), and 812”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2017 AmendmentAmendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13518(c) of Pub. L. 115–97, set out as a note under section 812 of this title.

Effective Date

Pub. L. 104–188, title I, § 1612(c), Aug. 20, 1996, 110 Stat. 1847, provided that: “(1) In general.—The

Amendments

made by this section [enacting this section] shall apply to taxable years beginning after December 31, 1995. “(2) Treatment of net adjustments.—Except as provided in paragraph (3), in the case of any taxpayer required by the

Amendments

made by this section to change its calculation of reserves to take into account market value adjustments and to mark segregated assets to market for any taxable year—“(A) such changes shall be treated as a change in method of accounting initiated by the taxpayer, “(B) such changes shall be treated as made with the consent of the Secretary, and “(C) the adjustments required by reason of section 481 of the Internal Revenue Code of 1986, shall be taken into account as ordinary income by the taxpayer for the taxpayer’s first taxable year beginning after
December 31, 1995. “(3) Limitation on loss recognition and on deduction for reserve increases.—“(A) Limitation on loss recognition.—“(i) In general.—The aggregate loss recognized by reason of the application of section 481 of the Internal Revenue Code of 1986 with respect to section 817A(b) of such Code (as added by this section) for the first taxable year of the taxpayer beginning after
December 31, 1995, shall not exceed the amount included in the taxpayer’s gross income for such year by reason of the excess (if any) of—“(I) the amount of life insurance reserves as of the close of the prior taxable year, over “(II) the amount of such reserves as of the beginning of such first taxable year, to the extent such excess is attributable to subsection (a) of such section 817A. Notwithstanding the preceding sentence, the adjusted basis of each segregated asset shall be determined as if all such losses were recognized. “(ii) Disallowed loss allowed over period.—The amount of the loss which is not allowed under clause (i) shall be allowed ratably over the period of 7 taxable years beginning with the taxpayer’s first taxable year beginning after
December 31, 1995. “(B) Limitation on deduction for increase in reserves.—“(i) In general.—The deduction allowed for the first taxable year of the taxpayer beginning after
December 31, 1995, by reason of the application of section 481 of such Code with respect to section 817A(a) of such Code (as added by this section) shall not exceed the aggregate built-in gain recognized by reason of the application of such section 481 with respect to section 817A(b) of such Code (as added by this section) for such first taxable year. “(ii) Disallowed deduction allowed over period.—The amount of the deduction which is disallowed under clause (i) shall be allowed ratably over the period of 7 taxable years beginning with the taxpayer’s first taxable year beginning after
December 31, 1995. “(iii) Built-in gain.—For purposes of this subparagraph, the built-in gain on an asset is the amount equal to the excess of—“(I) the fair market value of the asset as of the beginning of the first taxable year of the taxpayer beginning after
December 31, 1995, over “(II) the adjusted basis of such asset as of such time.”

Reference

Citations & Metadata

Citation

26 U.S.C. § 817A

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73