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INTERNAL REVENUE SERVICE — REVENUE RULING
REV. RUL. 80-274, 1980-2 C.B. 27
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SUBJECT: Investor Control Doctrine — Group Annuity Contracts & Bank CDs.

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ISSUE:
Whether policyholders under group annuity contracts who select specific bank 
certificates of deposit (CDs) as the underlying investment are treated as owners 
of those CDs for federal income tax purposes.

FACTS:
A life insurance company enters into group annuity agreements with depositors of 
a savings and loan association. Under the contract, premium payments are held in 
a separate account and invested exclusively in certificates of deposit issued by 
the specific savings and loan designated by the policyholder. The policyholder 
possesses the right to direct the insurer to withdraw funds or surrender the CDs 
upon maturity.

HOLDING & LEGAL ANALYSIS:
1. Incident of Ownership: The policyholder's position is substantially identical 
   to that of an individual directly purchasing a certificate of deposit from the 
   savings institution.

2. Insurer as Conduit: The insurer's control over the separate account assets is 
   nominal. The policyholder directs the choice of bank, term, and investment vehicle.

3. Tax Treatment: The policyholder is deemed the owner of the CDs for federal tax 
   purposes. Interest paid on the CDs is currently includible in the policyholder's 
   gross income under IRC §61.

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SIGNIFICANCE TO PPLI:
Rev. Rul. 80-274 confirmed that limiting investment choices to specific assets 
pre-selected or designated by the policyholder invalidates tax deferral.
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