REVENUE RULING 77-286
1977-2 C.B. 228

[IRS Annotation]
Life insurance company; interest paid on deposit administration funds. Interest credited by a life insurance company to funds accumulated for an employer under a deposit administration contract that provides for a limited annuity purchase rate guarantee lasting for only a stated initial period qualifies as interest paid within the meaning of section 805(e)(1) of the Code.

Rev. Rul. 77-286
The taxpayer, a life insurance company, maintains a deposit administration contract for X, an employer, for the benefit of X's employees. The deposit administration contract contains a limited annuity purchase rate guarantee lasting for a stated initial period. The taxpayer receives X's contributions (purchase payments) but these contributions are not immediately applied to provide annuities but rather are accumulated by the taxpayer to purchase annuities for X's employees upon retirement under the term of the deposit administration contract. The taxpayer pays interest on the funds accumulated under the deposit administration contract and such interest is added to the fund. However, since the contract does not provide for permanent purchase rate guarantees during the employees' active lives, it does not constitute an annuity contract during its accumulation phase, and accordingly, the funds held under the deposit administration contract do not qualify as life insurance reserves under section 801(b) of the Internal Revenue Code of 1954.

Held, the interest credited by the taxpayer on the funds accumulated under the deposit administration contract qualifies as "interest paid" within the meaning of section 805(e)(1) of the Code.