Funding Agreement Interest is Included in Policy Interest

A memorandum on the topic of whether interest paid on funding agreements is qualified as policy interest was released by the IRS earlier. According to this memorandum, the IRS concluded that interest paid on funding agreement issued by a life insurance company qualified as policy interest, for the reason that it was “interest on amounts left on deposit with the company” under I.R.C. section 812(b)(2)(D). Thus it should be excluded from company’s share of net investment income. The IRS also addressed in the memorandum that this definition should be broadly applied to “any interest paid to a depositor or any customer under any contractual deposit arrangement.”

See IRS Office of Chief Counsel Memorandum, No. 20144702F (November 21, 2014).

Posted by Jiaqi Wang, Associate Editor, Wealth Strategies Journal.

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