If a corporation owns a annuity, what is the tax ramifications?

• A. There is tax deferral on earnings.
• B. There is no tax deferral benefit on any earnings.
• C. Earnings are tax-free.
• D. Gains are taxed as capital gains only.

Answer: (B)

Ownership determines tax treatment. The tax deferral benefit of annuities is primarily for individual owners, not for corporations. When a corporation owns an annuity, the earnings inside the contract are treated as corporate investment income and are taxed as ordinary income when realized. Distributions are taxed as ordinary income rather than at capital gains rates, and the earnings inside aren’t available at preferential tax-free or tax-deferral treatment. So, there is no tax deferral benefit on any earnings for a corporate owner.