CHICAGO - The annuity industry is expecting to receive a formal statement soon from the Internal Revenue Service as to whether partial 1035 exchanges are allowable.

The traditional stance of the IRS has been that a 1035 exchange - with its favorable tax treatment - can only be done if a person is switching a whole annuity to another annuity, industry lawyers said. But, a tax court decision in December 1998 allowed a partial 1035. In the case, Dona Elizabeth Conway vs. Commissioner of Internal Revenue, filed Dec. 30, 1998, the court found that because the transaction was from one annuity to another and the two contracts were written for the same person, the transfer was non-taxable under Rule 1035.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.