RP-2011-38 -- partial exchange of annuity contracts

Revenue Procedure 2011-38 modifies and supersedes the guidance concerning the treatment under sections 1035 and 72 of the partial exchange of an annuity contract.  Specifically, the revenue procedure provides that the direct transfer of a portion of the cash surrender value of an existing annuity contract for a second annuity contract will be treated as a tax-free exchange under section 1035 if no amount, other than an amount received as an annuity for a period of 10 years or more or during one or more lives, is received during the 180 days beginning on the date of the transfer.  A subsequent direct transfer is not taken into account.  Other transactions will be characterized consistent with their substance.  Prior to this revenue procedure's effective date, Rev. Proc. 2008-24 will be applied with the clarification that the conditions described in section 4.01(b) or Rev. Proc. 2008-24 will be treated as satisfied if the condition was satisfied on the date of the withdrawal or surrender.