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INTERNAL REVENUE SERVICE — REVENUE RULING
REV. RUL. 2003-92, 2003-2 C.B. 350
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SUBJECT: Investor Control & Public Availability of Partnership Interests in PPLI.

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ISSUE:
Whether a policyholder under a variable contract is treated as the tax owner of 
interests in a non-registered partnership held in a separate sub-account if those 
partnership interests are available for purchase outside of an insurance contract.

FACTS ANALYZED (TWO SCENARIOS):
- Situation 1: Insurer's separate account holds interests in a non-registered 
  partnership (hedge fund / PE fund) that offers partnership interests directly 
  to accredited investors or qualified purchasers outside of insurance contracts. 
  (Publicly Available)
- Situation 2: Insurer's separate account holds interests in a non-registered 
  partnership whose interests are available ONLY through insurance company 
  separate accounts (Insurance-Dedicated Fund / IDF). (Non-Public)

HOLDING & LEGAL ANALYSIS:
1. Violation in Situation 1: In Situation 1, because partnership interests are 
   available to investors outside an insurance contract, the "public availability 
   doctrine" applies. The policyholder is deemed the tax owner of the partnership 
   interests, destroying tax deferral.

2. Compliance in Situation 2: In Situation 2, because the partnership is an 
   Insurance-Dedicated Fund (IDF) restricted exclusively to insurance company 
   separate accounts, the public availability test is satisfied, preserving tax deferral.

3. Rule Clarification: The public availability test applies equally to non-registered 
   partnerships (hedge funds, private equity funds, private credit funds) as it does 
   to registered mutual funds.

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SIGNIFICANCE TO PPLI:
Rev. Rul. 2003-92 mandates that hedge funds and alternative investments held inside 
PPLI MUST be structured as Insurance-Dedicated Funds (IDFs) closed to the general public.
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