FEATURE: STMENTS • and inexpensive blocker of UBTI. A PPVA investment account eliminates UBTI by changing the character of the underlying IDF investment from UBTI to passive income. IRC Sec- tion 72(u)(1) states that the income earned in an annuity owned by a non-natural person won't be tax- deferred, but, instead, will be currently taxable as annuity income. The PPVA investment account should enable tax- exempt entities to invest without penalty in investments that would otherwise introduce UBTI. The IRS has issued several favorable private letter rulings to tax-exempt organizations. including endow- ments and foundations, which have supported a PPVA investment account's ability to block UBTI.' Current UBTI blocker arrangements should be reviewed and compared to a PPVA investment account, particularly offshore arrangements that can be complex, expensive and potentially subject to greater scrutiny. How It Works IRC Section 72 states that a PPVA qualifies for tax treat- ment as an annuity ill 1. It's administered by an insurance company and allows for the systematic distribution of principal over a period of payments' and 2. Its investment offerings arc structured as IDFs that arc available only to qualified insurance companies.' PPVA investment account values arc treated as sepa- rate account assets and, therefore, aren't subject to the claims of an insurance company's creditor. The reallocation of PPVA account assets from one IDF to another shouldn't be a taxable event, and the PPVA account can be transferred tax-free under IRC Section 1035 from one insurance company's administra- tion platform to anther's. Because there arc generally no upfront fees relating to PPVA investment accounts, this transfer is a frictionless transaction. Withdrawals from a PPVA account are taxed on a last-in, first-out basis (with the taxable gain recognized until all that remains is the cost basis), and there's a 10 percent excise tax on gains for wi