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Tax Analysts reported in a July 2 article that the Tax Court issued a 92-page opinion on June 30 determining that the investor control doctrine “is still relevant even in light of section 817(h) diversification rules, settling a nearly 30-year debate on the issue.”

Buchanan Ingersoll & Rooney Tax Shareholder Susan E. Seabrook told the publication that this is the first court opinion “to explicitly explain that the investor control doctrine survived the adoption of the diversification rules for variable contracts, such that both continue to exist, affirming what the IRS has been saying for years but some practitioners have contested.”

“This is a high-level win for the government,” she said.

The article reported on the recent fiscal 2016 budget proposal the Obama administration recommended and how the proposal would “require the reporting of the policyholder's taxpayer identity number, the policy number, the inside buildup, the total contract's value, and the portion of that value that was invested in any private accounts.”

Referring to the circumstances in Webber v. Commissioner, Seabrook told the publication, “the separate account reporting that was suggested by the administration would be a tool for the IRS to identify potential investor control issues. If the reporting requirements in the budget proposal were implemented, the IRS would be able to identify who might have this issue.”

She continued, "Imagine trying to identify arrangements that are potentially problematic and figure out what is underneath a private separate account without having anything to start with.” 

Read the full article - “Investor Control Doctrine Survives in Post-Diversification World” (Tax Analysts, July 2, 2015). Subscription required.