AVA Method

[david rigby]

This may seem petty, but as usual, actuaries disagree. Here goes:

In selecting an AVA, I have chosen one of the pre-approved methods in Rev. Proc. 2000-40. Note that each of Approvals 11, 12, 15, 16, and 17 uses the phrase "...no greater than 120% and no less than 80% of fair market value...". However, I have chosen a slight difference: use of a corridor of 90% to 110%. Does anyone think this distinction means I am not using a pre-approved method?

[MGB]

I would say that it is not a pre-approved method. Any divergence from the stated methods should be construed as a different method.

[david rigby]

For those interested, this question was submitted for the 2003 Gray Book, and it received an answer. The question posed was "Does the use of any corridor other than the 80% to 120% invalidate the automatic approval?

Response

"Yes. The automatic approvals under the Revenue Procedure specifically refer to the 80%/120% corridor. Thus, the use under the proposed method of any narrower corridor invalidates the automatic approval for the change in funding method.

Note that the proposed method change would likely receive approval if submitted under Rev. Proc. 2000-41."

Opinion

This IRS response is probably a result of the exact wording of the Rev. Proc. It is not a common sense result. A better solution would have been for the Rev. Proc to have authorized any symmetric corridor within the 80% / 120% range. It seems likely that this will happen only thru a formal revision to the Rev. Proc. itself.