SERVICE PROVIDES GUIDANCE RELATING TO COMPUTATION OF RESERVES USED BY LIFE INSURANCE COMPANIES TO DETERMINE INCOME OR LOSS.

Rev. Rul. 88-16

Section 10241 of the Revenue Act of 1987 amended section 807(d)(2)(B) of the Internal Revenue Code (relating to the method of computing reserves for purposes of determining the income or loss of a life insurance company). Prior to the amendment, the interest rate to be applied in computing the amount of a life insurance company's federally prescribed life insurance reserves for any contract was the "prevailing state assumed interest rate" (generally, the highest assumed interest rate permitted to be used in at least 26 States in computing life insurance reserves for insurance or annuity contracts of that type as of the beginning of the calendar year in which the contract is issued). As amended, section 807(d)(2)(B) provides that the interest rate used to compute a life insurance company's life insurance reserves is the greater of the applicable federal interest rate or the prevailing state assumed interest rate. The amendment to section 807 is effective for contracts issued in taxable years beginning after December 31, 1987.