26 U.S.C. § 817A: Special rules for modified guaranteed contracts

In the case of a modified guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not apply. Any gain or loss with respect to a segregated asset shall be treated as ordinary income or loss, as the case may be. 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 any such gain or loss shall be taken into account for such taxable year. 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. 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. 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, provides for the payment of annuities, is a life insurance contract, or is a pension plan contract which is not a life, accident, or health, property, casualty, or liability contract, for which reserves are valued at market for annual statement purposes, and which provides for a net surrender value or a policyholder’s fund (as defined in section 807(e)(1)). to provide for the treatment of market value adjustments under sections 72, 7702, 7702A, and 807(e)(1)(B), to determine the interest rates applicable under sections 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), 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, to provide appropriate treatment of transfers of assets to and from the segregated account, and as may be necessary or appropriate to carry out the purposes of this section. The amendments made by this section [enacting this section] shall apply to taxable years beginning after December 31, 1995 . such changes shall be treated as a change in method of accounting initiated by the taxpayer, such changes shall be treated as made with the consent of the Secretary, and 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 . the amount of life insurance reserves as of the close of the prior taxable year, over the amount of such reserves as of the beginning of such first taxable year, 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 . 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. 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 . 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 the adjusted basis of such asset as of such time.”