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8000 - FDIC Miscellaneous Statutes and Regulations
{{6-30-83 p.9543}}
TITLE 26—INTERNAL REVENUE
CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT
OF THE TREASURY
Subchapter A—Income Tax
Part 1—Income Tax; Taxable Years Beginning After December
31, 1953
AUTHORITY: The provisions of this Part 1 issued under the Internal
Revenue Code of 1954, as amended, 68 Stat. 730 (volume 68A), 26 U.S.C.
401-408.
SOURCE: The provisions of this Part 1 appear at 45 Fed. Reg. 52795,
August 8, 1980 and 45 Fed. Reg. 56802, August 26, 1980.
* * * * *
§ 1.408-6 Disclosure statements for individual retirement
arrangements.
(a) In general--(1) General rule. Trustees and issuers
of individual retirement accounts and annuities are, under the
authority of section 408(i), required to provide disclosure statements.
This section sets forth these requirements.
(b)--(c) [Reserved]
(d) Requirements. (1)--(3) [Reserved]
(4) Disclosure statements--(i) Under the
authority contained in section 408(i), a disclosure statement shall be
furnished in accordance with the provisions of this subparagraph by the
trustee of an individual retirement account described in section 408(a)
or the issuer of an individual retirement annuity described in section
408(b) or of an endowment contract described in section 408(b) to the
individual (hereinafter referred to as the "benefited
individual") for whom such an account, annuity, or contract is, or
is to be, established.
(ii)(A)(1) The trustee or issuer shall furnish, or
cause to be furnished, to the benefited individual, a disclosure
statement satisfying the requirements of subdivisions (iii) through
(viii) of this subparagraph, as applicable, and a copy of the governing
instrument to be used in establishing the account, annuity, or
endowment contract. The copy of such governing instrument need not be
filled in with financial and other data pertaining to the benefited
individual; however, such copy must be complete in all other respects.
The disclosure statement and copy of the governing instrument must be
received by the benefited individual at least seven days preceding the
earlier of the date of establishment or purchase of the account,
annuity, or endowment contract. A disclosure statement or copy of the
governing instrument required by this subparagraph may be received by
the benefited individual less than seven days preceding, but no later
than, the earlier of the date of establishment or purchase, if the
benefited individual is permitted to revoke the account, annuity, or
endowment contract pursuant to a procedure which satisfies the
requirements of subdivision (ii)(A)(2) of this subparagraph.
(2) A procedure for revocation satisfies the
requirements of this subdivision (ii)(A)(2) of this
subparagraph if the benefited individual is permitted to revoke the
account, or endowment contract by mailing or delivering, at his option,
a notice of revocation on or before a day not less than seven days
after the earlier of the date of establishment or purchase and, upon
revocation, is entitled to a return of the entire amount of the
consideration paid by him for the account, annuity, or endowment
contract without adjustment for such items as sales commissions,
administrative expenses or fluctuation in market value. The procedure
may require that the notice be in writing or that it be oral, or it may
require both a written and an oral notice. If an oral notice is
required or permitted, the procedure must permit it to be delivered by
telephone call during normal business hours. If a written notice is
required or permitted, the procedure must provide that, if mailed, it
shall be deemed mailed on the date of the postmark (or if sent by
certified or registered mail, the date of certification or
registration) if it is deposited in the mail in the United States in an
envelope, or other appropriate wrapper, first class postage pre-paid,
properly addressed.
{{6-39-83 p.9544}}
(B) If after a disclosure statement has been furnished, or caused
to be furnished, to the benefited individual pursuant to paragraph
(d)(4)(ii)(A) of this section and--
(1) On or before the earlier of the date of
establishment or purchase, or
(2) On or before the last day on which the benefited
individual is permitted to revoke the account, annuity, or endowment
contract (if the benefited individual has a right to revoke the
account, annuity, or endowment contract pursuant to the rules of
subdivision (ii)(A) of this subparagraph), there becomes effective a
material adverse change in the information set forth in such disclosure
statement or a material change in the governing instrument to be used
in establishing the account, annuity, or contract, the trustee or
issuer shall furnish, or cause to be furnished, to the benefited
individual such amendments to any previously furnished disclosure
statement or governing instrument as may be necessary to adequately
inform the benefited individual of such change. The trustee or issuer
shall be treated as satisfying this subdivision (ii)(B) of this
subparagraph only if material required to be furnished by this
subdivision is received by the benefited individual at least seven days
preceding the earlier of the date of establishment or purchase of the
account, annuity, or endowment contract or if the benefited individual
is permitted to revoke the account, annuity, or endowment contract on
or before a date not less than seven days after the date on which such
material is received, pursuant to a procedure for revocation otherwise
satisfying the provisions of subdivision (ii)(A)(2) of this
subparagraph.
(C) If the governing instrument is amended after the account,
annuity, or endowment contract is no longer subject to revocation
pursuant to subdivision (ii)(A) or (B) of this subparagraph, the
trustee or issuer shall not later than the 30th day after the later of
the date on which the amendment is adopted or becomes effective,
deliver or mail to the last known address of the benefited individual a
copy of such amendment and, if such amendment affects a matter
described in subdivisions (iii) through (viii) of this subparagraph, a
disclosure statement with respect to such matter meeting the
requirements of subdivision (iv) of this subparagraph.
(D) For purposes of subdivision (ii) (A) and (B) of this
subparagraph, if a disclosure statement, governing instrument, or an
amendment to either, is mailed to the benefited individual, it shall be
deemed (in the absence of evidence to the contrary) to be received by
the benefited individual seven days after the date of mailing.
(E) In the case of a trust described in section 408(c) (relating
to certain retirement savings arrangements for employees or members of
associations of employees), the following special rules shall be
applied:
(1) For purposes of this subparagraph, references to
the benefited individual's account, annuity, or endowment contract
shall refer to the benefited individual's interest in such trust, and
(2) The provisions of subdivision (ii) of this
subparagraph shall be applied by substituting "the date on which the
benefited individual's interest in such trust commences" for "the
earlier of the date of establishment or purchase" wherever it
appears therein.
Thus, for example, if an employer establishes a trust described in
section 408(c) for the benefit of employees, and the trustee furnishes
an employee with a disclosure statement and a copy of the governing
instrument (as required by this subparagraph) on the date such
employee's interest in the trust commences, such employee must be given
a right to revoke such interest within a period of at least seven days.
If any contribution has been made within such period (whether by the
employee or by the employer), the full amount of such contribution must
be paid to such employee pursuant to subdivision (ii)(A)(2)
of this subparagraph.
(iii) The disclosure statement required by this subparagraph shall
set forth in nontechnical language the following matters as such
matters relate to the account, annuity, or endowment contract (as the
case may be);
(A) Concise explanations of--
(1) The statutory requirements prescribed in section
408(a) (relating to an individual retirement account) or section 408(b)
(relating to an individual retirement annuity
{{6-30-83 p.9545}}and an
endowment contract), and any additional requirements (whether or not
required by law) that pertain to the particular retirement savings
arrangement.
(2) The income tax consequences of establishing an
account, annuity, or endowment contract (as the case may be) which
meets the requirements of section 408(a) relating to an individual
retirement account) or section 408(b) (relating to an individual
retirement annuity and an endowment contract), including the
deductibility of contributions to, the tax treatment of distributions
(other than premature distributions) from, the availability of income
tax free rollovers to and from, and the tax status of such account,
annuity, or endowment contract.
(3) The limitations and restrictions on the deduction
for retirement savings under section 219, including the ineligibility
of certain individuals who are active participants in a plan described
in section 219(b)(2)(A) or for whom amounts are contributed under a
contract described in section 219(b)(2)(B) to make deductible
contributions to an account or for an annuity or endowment contract.
(4) The circumstances under which the benefited
individual may revoke the account, annuity, or endowment contract, and
the procedure therefor (including the name, address, and telephone
number of the person designated to receive notice of such revocation).
Such explanation shall be prominently displayed at the beginning of the
disclosure statement.
(B) Statements to the effect that--
(1) If the benefited individual or his beneficiary
engages in a prohibited transaction, described in section 4975(c) with
respect to an individual retirement account, the account will lose its
exemption from tax by reason of section 408(e)(2)(A), and the benefited
individual must include in gross income, for the taxable year during
which the benefited individual or his beneficiary engages in the
prohibited transaction the fair market value of the account.
(2) If the owner of an individual retirement annuity
or endowment contract described in section 408(b) borrows any money
under, or by use of, such annuity or endowment contract, then, under
section 408(e)(3), such annuity or endowment contract loses its section
408(b) classification, and the owner must include in gross income, for
the taxable year during which the owner borrows any money under, or by
use of, such annuity or endowment contract, the fair market value of
the annuity or endowment contract.
(3) If a benefited individual uses all or any portion
of an individual retirement account as security for a loan, then, under
section 408(e)(4), the portion so used is treated as distributed to
such individual and the benefited individual must include such
distribution in gross income for the taxable year during which he so
uses such account.
(4) An additional tax of 10 percent is imposed by
section 408(f) on distributions (including amounts deemed distributed
as the result of a prohibited loan or use as security for a loan) made
before the benefited individual has attained age 591/2, unless
such distribution is made on account of death or disability, or unless
a rollover contribution is made with such distribution.
(5) Sections 2039(e) (relating to exemption from
estate tax of annuities under certain trusts and plans) and 2517
(relating to exemption from gift tax of specified transfers of certain
annuities under qualified plans) apply (including the manner in which
such sections apply) to the account, annuity, or endowment contract.
(6) Section 402(a)(2) and (e) (relating to tax on lump
sum distributions) is not applicable to distributions from an account,
annuity, or endowment contract.
(7) A minimum distribution is required under section
408(a) (6) or (7) and 408(b) (3) or (4) (including a brief explanation
of the amount of minimum distribution) and that if the amount
distributed from an account, annuity, or endowment contract during the
taxable year of the payee is less than the minimum required during such
year, an excise tax, which shall be paid by the payee, is imposed under
section 4974, in an amount equal to 50 percent of the excess of the
minimum required to be distributed over the amount actually distributed
during the year.
{{6-30-83 p.9546}}
(8) An excise tax is imposed under section 4973 on
excess contributions (including a brief explanation of an excess
contribution).
(9) The benefited individual must file Form 5329
(Return for Individual Retirement Savings Arrangement) with the
Internal Revenue for each taxable year during which the account,
annuity, or endowment contract is maintained.
(10) The account or contract has or has not (as the
case may be) been approved as to form for use as an account, annuity,
or endowment contract by the Internal Revenue Service. For purposes of
this subdivision, if a favorable opinion or determination letter with
respect to the form of a prototype trust, custodial account, annuity,
or endowment contract has been issued by the Internal Revenue Service,
or the instrument which establishes an individual retirement trust
account or an individual retirement custodial account utilizes the
precise language of a form currently provided by the Internal Revenue
Service (including any additional language permitted by such form),
such account or contract may be treated as approved as to form.
(11) The Internal Revenue Service approval is a
determination only as to the form of the account, annuity, or endowment
contract, and does not represent a determination of the merits of such
account, annuity, or endowment contract.
(12) The proceeds from the account, annuity or
endowment contract may be used by the benefited individual as a
rollover contribution to another account or annuity or retirement bond
in accordance with the provisions of section 408(d)(3).
(13) In the case of an endowment contract described in
section 408(b), no deduction is allowed under section 219 for that
portion of the amounts paid under the contract for the taxable year
properly allocable to the cost of life insurance.
(14) If applicable, in the event that the benefited
individual revokes the account, annuity, or endowment contract,
pursuant to the procedure described in the disclosure statement (see
subdivision (A)(4) of this subdivision (iii)), the benefited
individual is entitled to a return of the entire amount of the
consideration paid by him for the account, annuity, or endowment
contract without adjustment for such items as sales commissions,
administrative expenses or fluctuation in market value.
(15) Further information can be obtained from any
district office of the Internal Revenue Service.
To the extent that information on the matters described in
subdivisions (iii) (A) and (B) of this subparagraph is provided in a
publication of the Internal Revenue Service relating to individual
retirement savings arrangements, such publication may be furnished by
the trustee or issuer in lieu of providing information relating to such
matters in a disclosure statement.
(C) The financial disclosure required by paragraph (d)(4)(v),
(vi), and (vii) of this section.
(iv) In the case of an amendment to the terms of an account,
annuity, or endowment contract described in paragraph (d)(4)(i) of this
section, the disclosure statement required by this subparagraph need
not repeat material contained in the statement furnished pursuant to
paragraph (d)(4)(iii) of this section, but it must set forth in
nontechnical language those matters described in paragraph (d)(4)(iii)
of this section which are affected by such amendment.
(v) With respect to an account, annuity, or endowment contract
described in paragraph (d)(4)(i) of this section (other than an account
or annuity which is to receive only a rollover contribution described
in paragraph (d)(4)(vi) of this section and to which no deductible
contributions will be made), the disclosure statement must be set forth
in cases where either an amount is guaranteed over period of time (such
as in the case of a nonparticipating endowment or annuity contract), or
a projection of growth of the value of the account, annuity, or
endowment contract can reasonably be made (such as in the case of a
participating endowment or annuity contract (other than a variable
annuity) or passbook savings account), the following:
(A) To the extent that an amount is guaranteed,
{{6-30-83 p.9547}}
(1) The amount, determined without regard to any
portion of a contribution which is not deductible, that would be
guaranteed to be available to the benefited individual if
(i) level annual contributions in the amount of $1,000 were
to be made on the first day of each year, and (ii) the
benefited individual were to withdraw in a single sum the entire amount
of such account, annuity, or endowment contract at the end of each of
the first five years during which contributions are to be made, at the
end of the year in which the benefited individual attains the ages of
60, 65, and 70, and at the end of any other year during which the
increase of the guaranteed available amount is less than the increase
of the guaranteed available amount during any preceding year for any
reason other than decrease of cessation of contributions, and
(2) A statement that the amount described in
subdivision (v)(A)(1) of this subparagraph is guaranteed,
and the period for which guaranteed;
(B) To the extent a projection of growth of the value of the
account, annuity, or endowment contract can reasonably be made but the
amounts are not guaranteed,
(1) The amount, determined without regard to any
portion of a contribution which is not deductible, and upon the basis
of an earnings rate no greater than, and terms no different from, those
currently in effect, that would be available to the benefited
individual if (i) level annual contributions in the amount
of $1,000 were to be made on the first day of each year, and
(ii) the benefited individual were to withdraw in a single
sum the entire amount of such account, annuity, or endowment contract
at the end of each of the first five years during which contributions
are to be made, at the end of each of the years in which the benefited
individual attains the ages of 60, 65, and 70, and at the end of any
other year during which the increase of the available amount is less
than the increase of the available amount during any preceding year for
any reason other than decrease or cessation of contributions, and
(2) A statement that the amount described in paragraph
(d)(4)(v)(B)(1) of this section is a projection and is not
guaranteed and a statement of the earnings rate and terms on the basis
of which the projection is made;
(C) The portion of each $1,000 contribution attributable to the
cost of life insurance, which would not be deductible, for each year
during which contributions are to be made; and
(D) The sales commission (including any commission attributable
to the sale of life insurance), if any, to be charged in each year,
expressed as a percentage of gross annual contributions (including any
portion attributable to the cost of life insurance) to be made for each
year.
(vi) With respect to an account or annuity described in paragraph
(d)(4)(i) of this section to which a rollover contribution described in
section 402(a)(5)(A), 403(a)(4)(A), 408(d)(3)(A) or 409(b)(3)(C) will
be made, the disclosure statement must set forth, in cases where an
amount is guaranteed over a period of time (such as in the case of a
non-participating annuity contract, or a projection of growth of the
value of the account or annuity can reasonably be made (such as in the
case of a participating annuity contract (other than a variable
annuity) or a passbook savings account), the following:
(A) To the extent guaranteed,
(1) The amount that would be guaranteed to be
available to the benefited individual if (i) Such a rollover
contribution in the amount of $1,000 were to be made on the first day
of the year, (ii) No other contribution were to be made, and
(iii) The benefited individual were to withdraw in a single
sum the entire amount of such account or annuity at the end of each of
the first five years after the contribution is made, at the end of the
year in which the benefited individual attains the ages of 60, 65, and
70, and at the end of any other year during which the increase of the
guaranteed available amount is less than the increase of the guaranteed
available amount during any preceding year, and
(2) A statement that the amount described in paragraph
(d)(vi)(A)(1) of this section is guaranteed;
(B) To the extent that a projection of growth of the value of the
account or annuity can reasonably be made but the amounts are not
guaranteed,
{{6-30-83 p.9548}}
(1) The amount, determined upon the basis of an
earnings rate no greater than, and terms no different from, those
currently in effect, that would be available to the benefited
individual if (i) such a rollover contribution in the amount
of $1,000 were to be made on the first day of the year, (ii)
no other contribution were to be made, and (iii) the
benefited individual were to withdraw in a single sum the entire amount
of such account or annuity at the end of each of the first five years
after the contribution is made, at the end of each of the years in
which the benefited individual attains the ages 60, 65, 70, and at the
end of any other year during which the increase of the available amount
is less than the increase of the available amount during any preceding
year, and
(2) A statement that the amount described in paragraph
(d)(4)(vi)(B)(1) of this section is a projection and is not
guaranteed and a statement of the earnings rate and terms on the basis
of which the projection is made; and
(C) The sales commission, if any, to be charged in each year,
expressed as a percentage of the assumed $1,000 contribution.
(vii) With respect to an account, annuity, or endowment contract
described in paragraph (d)(4)(i) of this section, in all cases not
subject to paragraph (d)(4)(v) or (vi) of this section (such as in the
case of a mutual fund or variable annuity), the disclosure statement
must set forth information described in subdivisions (A) through (C) of
this subdivision (vii) based (as applicable with respect to the type or
types of contributions to be received by the account, annuity, or
endowment contract) upon the assumption of (1) level annual
contributions of $1,000 on the first day of each year, (2) a rollover
contribution of $1,000 on the first day of the year and no other
contributions, or (3) a rollover contribution of $1,000 on the first
day of the year plus level annual contributions of $1,000 on the first
day of each year.
(A) A description (in nontechnical language) with respect to the
benefited individual's interest in the account, annuity, or endowment
contract, of:
(1) Each type of charge, and the amount thereof, which
may be made against a contribution,
(2) The method for computing and allocating annual
earnings, and
(3) Each charge (other than those described in
complying with paragraph (d)(4)(vii)(A)(1) of this section)
which may be applied to such interest in determining the net amount of
money available to the benefited individual and the method of computing
each such charge;
(B) A statement that growth in value of the account, annuity, or
endowment contract is neither guaranteed nor projected; and
(C) The portion of each $1,000 contribution attributable to the
cost of life insurance, which would not be deductible, for every year
during which contributions are to be made.
(viii) A disclosure statement, or an amendment thereto, furnished
pursuant to the provisions of this subparagraph may contain information
in addition to that required by paragraph (d)(4)(iii) through (vii) of
this section. However, such disclosure statement will not be considered
to comply with the provisions of this subparagraph if the substance of
such additional material or the form in which it is presented causes
such disclosure statement to be false or misleading with respect to the
information required to be disclosed by this paragraph.
(ix) The provisions of section 6693, relating to failure to
provide reports on individual retirement accounts or annuities, shall
apply to any trustee or issuer who fails to furnish, or cause to be
furnished, a disclosure statement, a copy of the governing instrument,
or an amendment to either, as required by this paragraph.
(x) This section shall be effective for disclosure statements and
copies of governing instruments mailed, or delivered without mailing,
after February 14, 1977.
{{10-31-07 p.9549}}
(xi) This section does not reflect the amendments made by section
1501 of the Tax Reform Act of 1976 (90 Stat. 1734) relating to
retirement savings for certain married individuals.
[Codified to 26 C.F.R. § 1.408--6]
* * * * *
§ 1.597--8 Transitional rules for federal financial assistance.
(a) Scope. This section provides transitional rules for
the tax consequences of federal financial assistance received or
accrued on or after May 10, 1989, if the assistance payment relates to
an acquisition that occurred before that date.
(b) Transitional rules. The tax consequences of any
payment of federal financial assistance received or accrued on or after
May 10, 1989, are governed by the applicable provisions of section 597
that were in effect prior to the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") if either--
(1) The payment--
(i) Is pursuant to an acquisition of a bank or domestic building
and loan association before May 10, 1989,
(ii) Is provided pursuant to an assistance agreement executed
before May 10, 1989,
(iii) Is provided to a party to that agreement or to such other
party as the Commissioner may determine appropriate by letter ruling or
other written guidance, and
(iv) Would, if provided before May 10, 1989, have been governed
by applicable provisions of section 597 that were in effect prior to
FIRREA; or
(2) The payment--
(i) Represents a prepayment of (or a payment in lieu of) a fixed
or contingent right to federal financial assistance that would have
satisfied the conditions of paragraphs (b)(1)(i), (ii) and (iv) of this
section, and
(ii) Is provided to a party described in paragraph (b)(1)(iii) of
this section.
(c) Definition of federal financial assistance. Federal
financial assistance for purposes of this section has the meaning
prescribed by section 597(c) as amended by FIRREA.
(d) Examples. The following examples illustrate the
provisions of this section:
Example 1. X corporation acquired Y, a domestic building
and loan association on September 10, 1988. Pursuant to a written
agreement executed at the time of the acquisition, Y received federal
financial assistance that included a note bearing a market rate of
interest, the right to future payments if certain assets were sold at a
loss, and the right to future payments if the income produced by
certain assets was less than an agreed upon amount. On December 1,
1991, an agreement was executed in which Y relinquished its rights to
federal financial assistance under the September 10, 1988 agreement in
return for a lump sum payment. The lump sum payment represented a
prepayment of the principal and accrued but unpaid interest for the
note, and the rights to the contingent future loss and income payments.
The entire prepayment is excluded from the income of Y because it is a
prepayment of federal financial assistance and the assistance (i) would
have been provided pursuant to an acquisition that occurred before May
10, 1989, would have been provided pursuant to an assistance agreement
executed before May 10, 1989, and would, if it had been provided prior
to May 10, 1989, have been governed by a pre-FIRREA version of section
597; and (ii) the prepayment is paid to a party to the assistance
agreement.
Example 2. The facts are the same as those in
Example 1, except that the note bears an above market rate
of interest and part of the lump sum represents a premium payment for
the note. The portion of the lump sum allocable to the premium payment
is also excluded from the income of Y because the payment represents
the present value of the right to future federal financial assistance
in the form of interest.
Example 3. The facts are the same as those in
Example 1, except that a portion of the lump sum payment
represents compensation for additional expenses Y may incur in the
future because of termination of the September 10, 1988 agreement. The
portion of the lump sum payment allocable to the compensation for
additional expenses must be included
{{10-31-07 p.9550}}in the
income of Y because it is not a prepayment of federal financial
assistance provided for by a written agreement entered into prior to
May 10, 1989.
Example 4. The facts are the same as those in
Example 1, except that instead of a new assistance
agreement, the September 10, 1988 assistance agreement was modified on
December 1, 1991. The modified agreement provided new federal financial
assistance in addition to the amounts previously agreed to. None of the
new federal financial assistance is governed by this regulation because
the new assistance was not provided for by a written agreement entered
into prior to May 10, 1989. The modification does not, however, affect
the tax treatment of assistance provided for by the agreement prior to
its modification.
(e) Effective Date. This section is effective April 23,
1992 for assistance received or accrued on or after May 10, 1989 in
connection with acquisitions before that date.
[Codified to 26 C.F.R. § 1.597--8]
[Source: Section 1.597--8T added at 57 Fed. Reg. 14795, April 23,
1992; redesignated and amended at 58 Fed. Reg. 18149, April 8, 1993]
[The page following this is 9595.]
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