Notice 2008-19

industry-wide? (ii) What is the relevance
of a tax or regulatory characterization of
Proposed AG VACARVM and Proposed
Life PBR as CARVM or CRVM,
respectively, for purposes of applying
section 807? Does such a characterization
limit or broaden the discretion of the
Treasury Department and IRS to provide
guidance? (For example, if Proposed
AG VACARVM and Proposed Life
PBR are characterized as CARVM or
CRVM, respectively, for regulatory
purposes, could the Treasury Department
and IRS nevertheless conclude they
do not constitute CARVM or CRVM
as Congress envisioned those terms to
apply in 1984; alternatively, if Proposed
AG VACARVM and Proposed Life PBR
were not characterized as CARVM or
CRVM, respectively, for purposes of
applying section 807, could Proposed
AG VACARVM and Proposed Life PBR
nonetheless be required as the appropriate
tax reserve method under the authority
of section 807(d)(3)(A)(iv)); (iii) what
criteria or other parameters would limit
the selection of scenarios taken into
account in determining the CTE amount
(under Proposed AG VACARVM) or the
stochastic reserve (under Proposed Life
PBR); and (iv) In the case of Proposed Life
PBR, what is the appropriate treatment
of company-specific expense, lapse and
margin assumptions for purposes of
applying section 807? For example, are
such assumptions permitted to be taken
into account at all, either for purposes
of the federally-prescribed reserve or
the statutory reserve cap? If so, what
limits apply to a taxpayer’s discretion with
respect to those assumptions, and would a
10-year spread result under section 807(f)
from the unlocking of those assumptions
in later years?
.02 The Treasury Department and IRS
are concerned about the use of a gross
premium valuation methodology in the
case of Proposed Life PBR, because such
a methodology generally is not permitted
under existing authorities. See, e.g., Maryland Casualty Co. v. U.S., 251 U.S. 342
(1920), § 1.801–4(e), Rev. Rul. 77–451,
1977–2 C.B. 224. In general, a gross
premium valuation takes into account the
present value of all cash flows under the
contract, including future death benefits,
future surrender benefits, premiums, future profits, and future expenses. Thus, a

2008–5 I.R.B.

reserve determined using a gross premium
valuation may include amounts, such as
future expenses and margins, that are not
now included in life insurance reserves for
federal income tax purposes. How will a
gross premium valuation under Proposed
Life PBR differ from current valuation
methods? Is the discretion to permit a
gross premium valuation methodology for
federal income tax purposes limited by
sections 461 and 811, or by the deficiency
reserve rule of section 807(d)(3)(C)?
Are similar issues raised in the case of
Proposed AG VACARVM? If not, are expense, policy owner behavior, surrender
rates, and other parameters nonetheless
included in the valuation of reserves under
Proposed AG VACARVM?
03. The Treasury Department and the
IRS are concerned that, except in the case
of the standard scenario under Proposed
AG VACARVM, the proposed methods
contemplate revising certain parameters
and assumptions on an annual basis. How
is this procedure consistent with the existing statutory framework that contemplates
that such parameters and assumptions are
determined as of the date a contract is
issued, and, in general, are not adjusted
thereafter? Would such annual changes in
assumptions constitute a change of basis
subject to a 10-year spread under section
807(f)?
.04 Comments should be submitted in
writing on or before May 5, 2008, and
should contain a reference to this Notice
2008–18. Comments may be submitted
to CC:PA:LPD:PR (Notice 2008–18),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Alternatively
comments may be submitted electronically via the following e-mail address:
[email protected].
Please include “Notice 2008–18” in
the subject line of any electronic
communications.
.05 Submissions may be hand-delivered
Monday through Friday between the hours
of 8 a.m. and 4 p.m. to CC:PA:LPD:PR
(Notice 2008–18), Courier’s Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC 20224. All
comments will be available for public inspection and copying.

366

DRAFTING INFORMATION
The principal author of this notice is
James A. Polfer of the Office of the Associate Chief Counsel (Financial Institutions
& Products). For further information regarding this notice, contact Mr. Polfer at
(202) 622–3970 (not a toll-free call).

Cell Captive Insurance
Arrangements: Insurance
Company Characterization
and Certain Federal Tax
Elections
Notice 2008–19
SECTION 1. PURPOSE
Rev. Rul. 2008–8, this Bulletin, provides guidance on the standards for determining whether an arrangement between
a participant and cell of a Protected Cell
Company (defined below) constitutes insurance for federal income tax purposes,
and whether amounts paid to the cell are
deductible as “insurance premiums” under
§ 162 of the Internal Revenue Code. The
purpose of this notice is to request comments on further guidance to address issues that arise if those arrangements do
constitute insurance, specifically (a) the
status of such a cell as an insurance company within the meaning of §§ 816(a) and
831(c), and (b) some of the consequences
of a cell’s status as an insurance company.
SECTION 2. BACKGROUND
.01 Under §§ 816(a) and 831(c), an insurance company is any company more
than half the business of which during the
taxable year is the issuing of insurance
or annuity contracts or the underwriting
of risks underwritten by insurance companies. Although its name, charter powers, and subjection to State insurance laws
are significant in determining the business
which a company is authorized and intends to carry on, it is the character of
the business actually done in the taxable
year which determines whether a company
is taxable as an insurance company under
the Internal Revenue Code. Treas. Reg.
§ 1.801–3(a)(1).

February 4, 2008

.02 A taxpayer that qualifies as an insurance company is treated as a corporation under § 7701(a)(3), even if it would
not otherwise be classified as a corporation
for state law purposes or under other provisions of the Code. Thus, for example,
in Rev. Rul. 83–132, 1983–2 C.B. 270,
a non-corporate business entity was held
to be an insurance company, and therefore a “corporation” within the meaning of
§ 7701(a)(3), because its primary and predominant business activity was underwriting insurance risks.
.03 An insurance company is subject to
tax under either Part I or Part II of Subchapter L, as applicable, and is eligible to
make a number of elections. For example, § 831(b) permits certain small insurance companies other than life insurance
companies to elect to be taxed only on taxable investment income (and not on underwriting income); § 846(e) permits an insurance company to compute discounted unpaid losses using the company’s historical
payment patterns, rather than the historical
payment patterns determined by the Secretary under § 846(d); and § 953(d) generally
permits a controlled foreign corporation to
elect to be treated as a domestic corporation if it would qualify to be taxed under
subchapter L (that is, as an insurance company) if it were a domestic corporation.
See also Rev. Proc. 2003–47, 2003–2 C.B.
55 (setting forth procedural rules regarding
the election under § 953(d)).
.04 A number of jurisdictions have
statutes that provide for the chartering of
a legal entity commonly known as a protected cell company, segregated account
company or segregated portfolio company (“Protected Cell Company”). Rev.
Rul. 2008–8, this Bulletin, sets forth facts
that are typical of arrangements involving
Protected Cell Companies and provides
guidance on how to determine whether
such an arrangement qualifies as insurance
for federal income tax purposes.
.05 Section 3 of this Notice sets forth
proposed guidance that would address (a)
when a cell of a Protected Cell Company
is treated as an insurance company for federal income tax purposes, and (b) some of
the consequences of the treatment of a cell
as an insurance company. The proposed
guidance, if adopted, may take the form of
a regulation, revenue ruling, revenue procedure, or other Internal Revenue Bulletin
publication.

February 4, 2008

SECTION 3. PROPOSED GUIDANCE
.01 In general. The proposed guidance
would include a rule to the effect that a
cell of a Protected Cell Company would be
treated as an insurance company separate
from any other entity if:
(a) the assets and liabilities of the cell
are segregated from the assets and liabilities of any other cell and from the assets
and liabilities of the Protected Cell Company such that no creditor of any other
cell or of the Protected Cell Company may
look to the assets of the cell for the satisfaction of any liabilities, including insurance
claims (except to the extent that any other
cell or the Protected Cell Company has a
direct creditor claim against such cell); and
(b) based on all the facts and circumstances, the arrangements and other activities of the cell, if conducted by a corporation, would result in its being classified as
an insurance company within the meaning
of §§ 816(a) or 831(c).
.02 Effect of insurance company treatment at the cell level. Consistent with the
proposed rule:
(a) Any tax elections that are available
by reason of a cell’s status as an insurance
company would be made by the cell (or,
in certain circumstances, by the parent of
a consolidated group) and not by the Protected Cell Company of which it is a part;
(b) The cell would be required to apply
for and receive an employer identification
number (EIN) if it is subject to U.S. tax
jurisdiction;
(c) The activities of the cell would be
disregarded for purposes of determining
the status of the Protected Cell Company
as an insurance company for federal income tax purposes;
(d) The cell (or, in certain circumstances, the parent of a consolidated group)
would be required to file all applicable
federal income tax returns and pay all
required taxes with respect to its income;
and
(e) A Protected Cell Company would
not take into account any items of income,
deduction, reserve or credit with respect
to any cell that is treated as an insurance
company under section 3.01.
.03 No inference. No inference should
be drawn regarding the treatment of a cell
that does not meet the requirements to be
treated as an insurance company separate
from any other entity under section 3.01

367

or regarding the treatment of the Protected
Cell Company of which it is a part.
.04 Effective date. The proposed guidance would be effective for the first taxable
year beginning more than 12 months after
the date the guidance is published in final
form.
SECTION 4. REQUEST FOR
COMMENTS
Statutes under which Protected Cell
Companies are chartered differ among various jurisdictions, and cell arrangements
differ among taxpayers due to variations
in contractual terms. In order to ensure
that entity classification and federal tax
elections for Protected Cell Companies are
both legally correct and administrable in
all cases, the Service requests comments
on the proposed guidance described in
section 3 of this Notice. In particular, the
Service requests comments on (a) what
transition rules may be appropriate or necessary for Protected Cell Companies, or
cells of such companies, if a Protected
Cell Company is not currently following the rule in section 3.01, or if a cell
of such a company qualifies as an insurance company for some taxable years
but not for others; (b) what reporting, if
any, would be necessary on the part of
an individual cell to ensure that a Protected Cell Company has the information
needed to comply with section 3.02(c)
and (e); (c) whether different or special
rules should apply with respect to foreign
entities, including controlled foreign corporations; (d) whether further guidance
would be needed concerning the proper
treatment of Protected Cell Companies
and their cells under the rules regarding
consolidated returns. The Service also
requests comments on what guidance,
if any, would be appropriate concerning
similar segregated arrangements that do
not involve insurance. Written comments
may be submitted to the Office of the
Associate Chief Counsel (Financial Institutions & Products), Attention: Chris
Lieu (Notice 2007–YY), Room 3552,
CC:FIP:4, Internal Revenue Service,
1111 Constitution Avenue, NW, Washington, DC 20224. Alternatively, taxpayers
may submit comments electronically to
[email protected].
The Service requests any comments by
May 4, 2008.

2008–5 I.R.B.

DRAFING INFORMATION
The principal author of this notice is
Chris Lieu of the Office of the Associate
Chief Counsel (Financial Institutions &
Products). For further information regarding this notice, contact Mr. Chris Lieu at
(202) 622–3970 (not a toll-free call).

26 CFR 301.7216: Disclosure or use of information
by preparers of returns.
(Also 26 CFR 301.7216–3; section 6713).

Rev. Proc. 2008–12
SECTION 1. PURPOSE
This revenue procedure provides guidance to tax return preparers regarding the
format and content of consents to disclose
and consents to use tax return information
with respect to taxpayers filing a return
in the Form 1040 series, e.g., Form 1040,
Form 1040NR, Form 1040A, or Form
1040EZ, under section 301.7216–3 of the
Regulations on Procedure and Administration (26 CFR Part 301). This revenue
procedure also provides specific requirements for electronic signatures when a
taxpayer executes an electronic consent to
the disclosure or use of the taxpayer’s tax
return information.
SECTION 2. BACKGROUND
.01 In general, section 7216(a) of the
Internal Revenue Code imposes criminal penalties on tax return preparers who
knowingly or recklessly make unauthorized disclosures or uses of information
furnished in connection with the preparation of an income tax return. A violation
of section 7216 is a misdemeanor, with
a maximum penalty of up to one year
imprisonment or a fine of not more than
$1,000, or both, together with the costs of
prosecution. Section 7216(b) establishes
exceptions to the general rule in section
7216(a) and also authorizes the Secretary
to promulgate regulations prescribing additional permitted disclosures and uses.
.02 Section 6713(a) prescribes a related
civil penalty for unauthorized disclosures
or uses of information furnished in connection with the preparation of an income tax
return. The penalty for violating section

2008–5 I.R.B.

6713 is $250 for each disclosure or use, not
to exceed a total of $10,000 for a calendar
year. Section 6713(b) provides that the exceptions in section 7216(b) also apply to
section 6713.
.03 Section 301.7216–3 provides that,
unless section 7216 or § 301.7216–2
specifically permits the disclosure or use
of tax return information, a tax return preparer may not disclose or use a taxpayer’s
tax return information prior to obtaining a consent from the taxpayer. Section 301.7216–3(a) provides that consent
must be knowing and voluntary. Section
301.7216–3(a)(3)(i) prescribes the form
and content requirements that all consents
to disclose or use must include.
.04 Section 301.7216–3(a)(3)(ii) provides that the Secretary may, by publication in the Internal Revenue Bulletin,
prescribe additional requirements for tax
return preparers regarding the format and
content of consents to disclose and consents to use tax return information with
respect to taxpayers filing a return in the
Form 1040 series, as well as the requirements for a valid signature on an electronic
consent under section 7216. This revenue procedure provides such additional
requirements.
SECTION 3. SCOPE
This revenue procedure applies to
all tax return preparers, as defined in
§ 301.7216–1(b)(2), who seek consent to
disclose or use tax return information pursuant to § 301.7216–3 with respect to taxpayers who file a return in the Form 1040
series, e.g., Form 1040, Form 1040NR,
Form 1040A, or Form 1040EZ.
SECTION 4. FORM AND CONTENT
OF A CONSENT TO DISCLOSE OR A
CONSENT TO USE FORM 1040 TAX
RETURN INFORMATION
.01 Separate Written Document. Except as provided by § 301.7216–3(c)(1)
(special rule for multiple disclosures or
uses within a single consent form), and
described in section 4.05, below, a taxpayer’s consent to each separate disclosure or use of tax return information must
be contained on a separate written document, which can be furnished on paper
or electronically. For example, the separate written document may be provided as

368

an attachment to an engagement letter furnished to the taxpayer.
.02 A consent furnished to the taxpayer
on paper must be provided on one or more
sheets of 81/2 inch by 11 inch or larger
paper. All of the text on each sheet of
paper must pertain solely to the disclosure
or use the consent authorizes, and the sheet
or sheets, together, must contain all the
elements described in section 4.04 and, if
applicable, comply with section 4.06. All
of the text on each sheet of paper must also
be in at least 12-point type (no more than
12 characters per inch).
.03 An electronic consent must be provided on one or more computer screens.
All of the text placed by the preparer on
each screen must pertain solely to the disclosure or use of tax return information authorized by the consent, except for computer navigation tools. The text of the
consent must meet the following specifications: the size of the text must be at
least the same size as, or larger than, the
normal or standard body text used by the
website or software package for direction,
communications or instructions and there
must be sufficient contrast between the text
and background colors. In addition, each
screen or, together, the screens must—
(1) contain all the elements described
in section 4.04 and, if applicable, comply
with section 4.06,
(2) be able to be signed as required by
section 5 and dated by the taxpayer, and
(3) be able to be formatted in a readable
and printer-friendly manner.
.04 Requirements for Every Consent.
In addition to the requirements provided in
§ 301.7216–3, consents to disclose or use
Form 1040 series tax return information
must satisfy the following requirements—
(1) Mandatory statements in the consent. The following statements must be
included in a consent under the circumstances described below, except that a tax
return preparer may substitute the preparer’s name where “we” or “our” is used.
(a) Consent to disclose tax return information in context other than tax preparation or auxiliary services. Unless a tax
return preparer is obtaining a taxpayer’s
consent to disclose the taxpayer’s tax return information to another tax return preparer for the purpose of performing services that assist in the preparation of, or
provide auxiliary services (as defined in
§ 301.7216–1(b)(2)(ii)) in connection with

February 4, 2008