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.
26 U.S. Code § 817A - Special rules for modified guaranteed contracts
(a) Computation of reserves
(b) Segregated assets under modified guaranteed contracts marked to market
(1) In generalIn the case of any life insurance company, for purposes of this subtitle—
(B) If any segregated asset is held by such company as of the close of any taxable year—
(2) Segregated asset
(c) Special rule in computing life insurance reserves
(d) Modified guaranteed contract definedFor purposes of this section, the term “modified guaranteed contract” means a contract not described in section 817—
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
(e) RegulationsThe Secretary may prescribe regulations—
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),
2017—Subsec. (e)(2). Pub. L. 115–97 substituted “and 807(d)(2)(B)” for “, 807(d)(2)(B), and 812”.
Effective Date of 2017 Amendment
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—
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
“(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—
the amount of such reserves as of the beginning of such first taxable year,
“(B) Limitation on deduction for increase in reserves.—
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.—
“(iii)Built-in gain.—For purposes of this subparagraph, the built-in gain on an asset is the amount equal to the excess of—
the adjusted basis of such asset as of such time.”