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INTERNAL REVENUE SERVICE — REVENUE RULING
REV. RUL. 2003-91, 2003-2 C.B. 347
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SUBJECT: Investor Control Safe Harbor for Variable Contracts & PPLI.

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ISSUE:
Whether a policyholder under a variable life insurance or annuity contract is the 
tax owner of assets held in segregated sub-accounts managed by independent investment 
advisers.

FACTS:
An insurance company issues variable contracts. Premiums are held in separate accounts 
divided into multiple sub-accounts. Each sub-account invests in an underlying fund 
managed by an independent investment adviser. The sub-account funds are NOT available 
to the general public and can be purchased ONLY through variable insurance contracts.
The policyholder may allocate premiums among up to 12 sub-accounts. However:
  a) There is NO agreement or arrangement between the policyholder and the insurer 
     or investment manager regarding individual investment selection.
  b) The policyholder cannot communicate directly with the investment manager regarding 
     specific trade execution.
  c) The insurance company and manager retain sole, absolute discretion over the buying, 
     selling, and holding of individual securities.

HOLDING & LEGAL ANALYSIS (SAFE HARBOR):
1. Safe Harbor Established: The IRS held that the policyholder does NOT possess 
   impermissible investor control under these facts.

2. Key Protective Factors:
   - Sub-account funds are NOT available to the general public.
   - Investment discretion rests EXCLUSIVELY with the independent investment manager.
   - No direct policyholder trade directives or manager communications exist.
   - Policyholder rights are limited to allocating values among predefined sub-accounts.

3. Tax Deferral Preserved: The insurance company is treated as the tax owner of 
   the separate account assets. Inside buildup remains tax-deferred under §7702/§72.

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SIGNIFICANCE TO PPLI:
Rev. Rul. 2003-91 is the primary modern safe harbor ruling for PPLI and PPVA 
structures, establishing the blueprint for compliant separate account management.
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