Revenue Ruling 2005-25 is an IRS ruling that addresses defective life insurance contracts that were intended to meet the statutory definition of life insurance under Section 7702 but failed due to errors, such as incorrect mortality or expense assumptions. The ruling outlines circumstances under which policy issuers may correct these contracts without immediate adverse income tax consequences to policyholders, provided certain conditions are met. It clarifies the IRS position that good-faith errors, once identified and remedied, can be handled through a formal correction program rather than automatic disqualification. Revenue Procedure 2008-42 later expands on the administrative process for these corrections.

Within insurance company tax and actuarial departments, Revenue Ruling 2005-25 serves as a foundational piece of guidance when evaluating whether discovered policy defects can be corrected. Carriers consult the ruling, often with outside counsel, to determine eligibility for correction programs and to design remediation steps. Advisors rarely cite the ruling directly to clients, but may be informed when carriers adjust policy values to maintain tax-favored treatment. Awareness of Revenue Ruling 2005-25 reassures practitioners that there is an established framework for dealing with inadvertent Section 7702 failures in a structured way.