Title 26 — Internal Revenue Code
Part III · Chapter 1 — Normal Taxes and Surtaxes
§ 101. Certain death benefits
Statutory text
Proceeds of life insurance contracts payable by reason of death
General rule
Except as otherwise provided in paragraphs (2) and (3), subsection (d), subsection (f), and subsection (j), gross income does not include amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured.
Transfer for valuable consideration
In the case of a transfer for a valuable consideration, by assignment or otherwise, of a life insurance contract or any interest therein, the amount excluded from gross income by paragraph (1) shall not exceed an amount equal to the sum of the actual value of such consideration and the premiums and other amounts subsequently paid by the transferee. The preceding sentence shall not apply in the case of such a transfer—
if such contract or interest therein has a basis for determining gain or loss in the hands of a transferee determined in whole or in part by reference to such basis of such contract or interest therein in the hands of the transferor, or
if such transfer is to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer.
The term “other amounts” in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).
Exception to valuable consideration rules for commercial transfers
In general
The second sentence of paragraph (2) shall not apply in the case of a transfer of a life insurance contract, or any interest therein, which is a reportable policy sale.
Reportable policy sale
For purposes of this paragraph, the term “reportable policy sale” means the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer’s interest in such life insurance contract. For purposes of the preceding sentence, the term “indirectly” applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract.
[(b) Repealed. Pub. L. 104–188, title I, § 1402(a), , 110 Stat. 1789]
Interest
If any amount excluded from gross income by subsection (a) is held under an agreement to pay interest thereon, the interest payments shall be included in gross income.
Payment of life insurance proceeds at a date later than death
General rule
The amounts held by an insurer with respect to any beneficiary shall be prorated (in accordance with such regulations as may be prescribed by the Secretary) over the period or periods with respect to which such payments are to be made. There shall be excluded from the gross income of such beneficiary in the taxable year received any amount determined by such proration. Gross income includes, to the extent not excluded by the preceding sentence, amounts received under agreements to which this subsection applies.
Amount held by an insurer
An amount held by an insurer with respect to any beneficiary shall mean an amount to which subsection (a) applies which is—
held by any insurer under an agreement provided for in the life insurance contract, whether as an option or otherwise, to pay such amount on a date or dates later than the death of the insured, and
equal to the value of such agreement to such beneficiary
as of the date of death of the insured (as if any option exercised under the life insurance contract were exercised at such time), and
as discounted on the basis of the interest rate used by the insurer in calculating payments under the agreement and mortality tables prescribed by the Secretary.
Application of subsection
This subsection shall not apply to any amount to which subsection (c) is applicable.
[(e) Repealed. Pub. L. 98–369, div. A, title IV, § 421(b)(2), , 98 Stat. 794]
Proceeds of flexible premium contracts issued before payable by reason of death
In general
Any amount paid by reason of the death of the insured under a flexible premium life insurance contract issued before shall be excluded from gross income only if—
under such contract—
the sum of the premiums paid under such contract does not at any time exceed the guideline premium limitation as of such time, and
any amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) is not at any time less than the applicable percentage of the cash value of such contract at such time, or
by the terms of such contract, the cash value of such contract may not at any time exceed the net single premium with respect to the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at such time.
Guideline premium limitation
For purposes of this subsection—
Guideline premium limitation
The term “guideline premium limitation” means, as of any date, the greater of—
the guideline single premium, or
the sum of the guideline level premiums to such date.
Guideline single premium
The term “guideline single premium” means the premium at issue with respect to future benefits under the contract (without regard to any qualified additional benefit), and with respect to any charges for qualified additional benefits, at the time of a determination under subparagraph (A) or (E) and which is based on—
the mortality and other charges guaranteed under the contract, and
interest at the greater of an annual effective rate of 6 percent or the minimum rate or rates guaranteed upon issue of the contract.
Guideline level premium
The term “guideline level premium” means the level annual amount, payable over the longest period permitted under the contract (but ending not less than 20 years from date of issue or not later than age 95, if earlier), computed on the same basis as the guideline single premium, except that subparagraph (B)(ii) shall be applied by substituting “4 percent” for “6 percent”.
Computational rules
In computing the guideline single premium or guideline level premium under subparagraph (B) or (C)—
the excess of the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) over the cash value of the contract shall be deemed to be not greater than such excess at the time the contract was issued,
the maturity date shall be the latest maturity date permitted under the contract, but not less than 20 years after the date of issue or (if earlier) age 95, and
the amount of any endowment benefit (or sum of endowment benefits) shall be deemed not to exceed the least amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at any time under the contract.
Adjustments
The guideline single premium and guideline level premium shall be adjusted in the event of a change in the future benefits or any qualified additional benefit under the contract which was not reflected in any guideline single premiums or guideline level premium previously determined.
Other definitions and special rules
For purposes of this subsection—
Flexible premium life insurance contract
The terms “flexible premium life insurance contract” and “contract” mean a life insurance contract (including any qualified additional benefits) which provides for the payment of one or more premiums which are not fixed by the insurer as to both timing and amount. Such terms do not include that portion of any contract which is treated under State law as providing any annuity benefits other than as a settlement option.
Premiums paid
The term “premiums paid” means the premiums paid under the contract less any amounts (other than amounts includible in gross income) to which section 72(e) applies. If, in order to comply with the requirements of paragraph (1)(A), any portion of any premium paid during any contract year is returned by the insurance company (with interest) within 60 days after the end of a contract year—
the amount so returned (excluding interest) shall be deemed to reduce the sum of the premiums paid under the contract during such year, and
notwithstanding the provisions of section 72(e), the amount of any interest so returned shall be includible in the gross income of the recipient.
Applicable percentage
The term “applicable percentage” means—
140 percent in the case of an insured with an attained age at the beginning of the contract year of 40 or less, and
in the case of an insured with an attained age of more than 40 as of the beginning of the contract year, 140 percent reduced (but not below 105 percent) by one percent for each year in excess of 40.
Cash value
The cash value of any contract shall be determined without regard to any deduction for any surrender charge or policy loan.
Qualified additional benefits
The term “qualified additional benefits” means any—
guaranteed insurability,
accidental death benefit,
family term coverage, or
waiver of premium.
Premium payments not disqualifying contract
The payment of a premium which would result in the sum of the premiums paid exceeding the guideline premium limitation shall be disregarded for purposes of paragraph (1)(A)(i) if the amount of such premium does not exceed the amount necessary to prevent the termination of the contract without cash value on or before the end of the contract year.
Net single premium
In computing the net single premium under paragraph (1)(B)—
the mortality basis shall be that guaranteed under the contract (determined by reference to the most recent mortality table allowed under all State laws on the date of issuance),
interest shall be based on the greater of—
an annual effective rate of 4 percent (3 percent for contracts issued before ), or
the minimum rate or rates guaranteed upon issue of the contract, and
the computational rules of paragraph (2)(D) shall apply, except that the maturity date referred to in clause (ii) thereof shall not be earlier than age 95.
Correction of errors
If the taxpayer establishes to the satisfaction of the Secretary that—
the requirements described in paragraph (1) for any contract year was not satisfied due to reasonable error, and
reasonable steps are being taken to remedy the error,
the Secretary may waive the failure to satisfy such requirements.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
Treatment of certain accelerated death benefits
In general
For purposes of this section, the following amounts shall be treated as an amount paid by reason of the death of an insured:
Any amount received under a life insurance contract on the life of an insured who is a terminally ill individual.
Any amount received under a life insurance contract on the life of an insured who is a chronically ill individual.
Treatment of viatical settlements
In general
If any portion of the death benefit under a life insurance contract on the life of an insured described in paragraph (1) is sold or assigned to a viatical settlement provider, the amount paid for the sale or assignment of such portion shall be treated as an amount paid under the life insurance contract by reason of the death of such insured.
Viatical settlement provider
In general
The term “viatical settlement provider” means any person regularly engaged in the trade or business of purchasing, or taking assignments of, life insurance contracts on the lives of insureds described in paragraph (1) if—
such person is licensed for such purposes (with respect to insureds described in the same subparagraph of paragraph (1) as the insured) in the State in which the insured resides, or
in the case of an insured who resides in a State not requiring the licensing of such persons for such purposes with respect to such insured, such person meets the requirements of clause (ii) or (iii), whichever applies to such insured.
Terminally ill insureds
A person meets the requirements of this clause with respect to an insured who is a terminally ill individual if such person—
meets the requirements of sections 8 and 9 of the Viatical Settlements Model Act of the National Association of Insurance Commissioners, and
meets the requirements of the Model Regulations of the National Association of Insurance Commissioners (relating to standards for evaluation of reasonable payments) in determining amounts paid by such person in connection with such purchases or assignments.
Chronically ill insureds
A person meets the requirements of this clause with respect to an insured who is a chronically ill individual if such person—
meets requirements similar to the requirements referred to in clause (ii)(I), and
meets the standards (if any) of the National Association of Insurance Commissioners for evaluating the reasonableness of amounts paid by such person in connection with such purchases or assignments with respect to chronically ill individuals.
Special rules for chronically ill insureds
In the case of an insured who is a chronically ill individual—
In general
Paragraphs (1) and (2) shall not apply to any payment received for any period unless—
such payment is for costs incurred by the payee (not compensated for by insurance or otherwise) for qualified long-term care services provided for the insured for such period, and
the terms of the contract giving rise to such payment satisfy—
the requirements of section 7702B(b)(1)(B), and
the requirements (if any) applicable under subparagraph (B).
For purposes of the preceding sentence, the rule of section 7702B(b)(2)(B) shall apply.
Other requirements
The requirements applicable under this subparagraph are—
those requirements of section 7702B(g) and section 4980C which the Secretary specifies as applying to such a purchase, assignment, or other arrangement,
standards adopted by the National Association of Insurance Commissioners which specifically apply to chronically ill individuals (and, if such standards are adopted, the analogous requirements specified under clause (i) shall cease to apply), and
standards adopted by the State in which the policyholder resides (and if such standards are adopted, the analogous requirements specified under clause (i) and (subject to section 4980C(f)) standards under clause (ii), shall cease to apply).
Per diem payments
A payment shall not fail to be described in subparagraph (A) by reason of being made on a per diem or other periodic basis without regard to the expenses incurred during the period to which the payment relates.
Limitation on exclusion for periodic payments
For limitation on amount of periodic payments which are treated as described in paragraph (1), see section 7702B(d).
Definitions
For purposes of this subsection—
Terminally ill individual
The term “terminally ill individual” means an individual who has been certified by a physician as having an illness or physical condition which can reasonably be expected to result in death in 24 months or less after the date of the certification.
Chronically ill individual
The term “chronically ill individual” has the meaning given such term by section 7702B(c)(2); except that such term shall not include a terminally ill individual.
Qualified long-term care services
The term “qualified long-term care services” has the meaning given such term by section 7702B(c).
Physician
The term “physician” has the meaning given to such term by section 1861(r)(1) of the Social Security Act (42 U.S.C. 1395x(r)(1)).
Exception for business-related policies
This subsection shall not apply in the case of any amount paid to any taxpayer other than the insured if such taxpayer has an insurable interest with respect to the life of the insured by reason of the insured being a director, officer, or employee of the taxpayer or by reason of the insured being financially interested in any trade or business carried on by the taxpayer.
Survivor benefits attributable to service by a public safety officer who is killed in the line of duty
In general
Gross income shall not include any amount paid as a survivor annuity on account of the death of a public safety officer (as such term is defined in section 1204 of the Omnibus Crime Control and Safe Streets Act of 1968, as in effect immediately before the enactment of the National Defense Authorization Act for Fiscal Year 2013) killed in the line of duty—
if such annuity is provided, under a governmental plan which meets the requirements of section 401(a), to the spouse (or a former spouse) of the public safety officer or to a child of such officer; and
to the extent such annuity is attributable to such officer’s service as a public safety officer.
Exceptions
Paragraph (1) shall not apply with respect to the death of any public safety officer if, as determined in accordance with the provisions of the Omnibus Crime Control and Safe Streets Act of 1968—
the death was caused by the intentional misconduct of the officer or by such officer’s intention to bring about such officer’s death;
the officer was voluntarily intoxicated (as defined in section 1204 of such Act) at the time of death;
the officer was performing such officer’s duties in a grossly negligent manner at the time of death; or
the payment is to an individual whose actions were a substantial contributing factor to the death of the officer.
Certain employee death benefits payable by reason of death of certain terrorist victims or astronauts
In general
Gross income does not include amounts (whether in a single sum or otherwise) paid by an employer by reason of the death of an employee who is a specified terrorist victim (as defined in section 692(d)(4)).
Limitation
In general
Subject to such rules as the Secretary may prescribe, paragraph (1) shall not apply to amounts which would have been payable after death if the individual had died other than as a specified terrorist victim (as so defined).
Exception
Subparagraph (A) shall not apply to incidental death benefits paid from a plan described in section 401(a) and exempt from tax under section 501(a).
Treatment of self-employed individuals
For purposes of paragraph (1), the term “employee” includes a self-employed individual (as defined in section 401(c)(1)).
Relief with respect to astronauts
The provisions of this subsection shall apply to any astronaut whose death occurs in the line of duty.
Treatment of certain employer-owned life insurance contracts
General rule
In the case of an employer-owned life insurance contract, the amount excluded from gross income of an applicable policyholder by reason of paragraph (1) of subsection (a) shall not exceed an amount equal to the sum of the premiums and other amounts paid by the policyholder for the contract.
Exceptions
In the case of an employer-owned life insurance contract with respect to which the notice and consent requirements of paragraph (4) are met, paragraph (1) shall not apply to any of the following:
Exceptions based on insured’s status
Any amount received by reason of the death of an insured who, with respect to an applicable policyholder—
was an employee at any time during the 12-month period before the insured’s death, or
is, at the time the contract is issued—
a director,
a highly compensated employee within the meaning of section 414(q) (without regard to paragraph (1)(B)(ii) thereof), or
a highly compensated individual within the meaning of section 105(h)(5), except that “35 percent” shall be substituted for “25 percent” in subparagraph (C) thereof.
Exception for amounts paid to insured’s heirs
Any amount received by reason of the death of an insured to the extent—
the amount is paid to a member of the family (within the meaning of section 267(c)(4)) of the insured, any individual who is the designated beneficiary of the insured under the contract (other than the applicable policyholder), a trust established for the benefit of any such member of the family or designated beneficiary, or the estate of the insured, or
the amount is used to purchase an equity (or capital or profits) interest in the applicable policyholder from any person described in clause (i).
Employer-owned life insurance contract
In general
For purposes of this subsection, the term “employer-owned life insurance contract” means a life insurance contract which—
is owned by a person engaged in a trade or business and under which such person (or a related person described in subparagraph (B)(ii)) is directly or indirectly a beneficiary under the contract, and
covers the life of an insured who is an employee with respect to the trade or business of the applicable policyholder on the date the contract is issued.
For purposes of the preceding sentence, if coverage for each insured under a master contract is treated as a separate contract for purposes of sections 817(h), 7702, and 7702A, coverage for each such insured shall be treated as a separate contract.
Applicable policyholder
For purposes of this subsection—
In general
The term “applicable policyholder” means, with respect to any employer-owned life insurance contract, the person described in subparagraph (A)(i) which owns the contract.
Related persons
The term “applicable policyholder” includes any person which—
bears a relationship to the person described in clause (i) which is specified in section 267(b) or 707(b)(1), or
is engaged in trades or businesses with such person which are under common control (within the meaning of subsection (a) or (b) of section 52).
Notice and consent requirements
The notice and consent requirements of this paragraph are met if, before the issuance of the contract, the employee—
is notified in writing that the applicable policyholder intends to insure the employee’s life and the maximum face amount for which the employee could be insured at the time the contract was issued,
provides written consent to being insured under the contract and that such coverage may continue after the insured terminates employment, and
is informed in writing that an applicable policyholder will be a beneficiary of any proceeds payable upon the death of the employee.
Definitions
For purposes of this subsection—
Employee
The term “employee” includes an officer, director, and highly compensated employee (within the meaning of section 414(q)).
Insured
The term “insured” means, with respect to an employer-owned life insurance contract, an individual covered by the contract who is a United States citizen or resident. In the case of a contract covering the joint lives of 2 individuals, references to an insured include both of the individuals.
Legislative history
Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.
Aug. 16, 1954, ch. 736, 68A Stat. 26 · 68A Stat. 26
Enacted · 26 U.S.C. § 101
Aug. 16, 1954, ch. 736, 68A Stat. 26
Source evidence
Code source credit
Aug. 16, 1954, ch. 736, 68A Stat. 26Technical Amendments Act of 1958
Pub. L. 85–866 title I § 23(d) · 72 Stat. 1606
Substituted · 26 U.S.C. § 101(b)(2)(B)
Pub. L. 85–866 substituted “This subparagraph shall not apply to total distributions payable (as defined in section 402(a)(3) which are paid to a distributee within one taxable year of the distributee by reason of the employee’s death—” for “(other than total distributions payable, as defined in section 402(a)(3), which are paid to distributee, by a stock bonus, pension, or profit-sharing trust described in section 401(a) which is exempt from tax under section 501(a), or under an annuity contract under a plan which meets the requirements of paragraphs (3), (4), (5), and (6) of section 401(a), within one taxable year of the distributee by reason of the employee’s death)”
Added · 26 U.S.C. § 101(b)(2)(B)
Pub. L. 85–866 added cls. (i), (ii), and (iii)
Source evidence
Code amendment note
Subsec. (b)(2)(B). Pub. L. 85–866 substituted “This subparagraph shall not apply to total distributions payable (as defined in section 402(a)(3) which are paid to a distributee within one taxable year of the distributee by reason of the employee’s death—” for “(other than total distributions payable, as defined in section 402(a)(3), which are paid to distributee, by a stock bonus, pension, or profit-sharing trust described in section 401(a) which is exempt from tax under section 501(a), or under an annuity contract under a plan which meets the requirements of paragraphs (3), (4), (5), and (6) of section 401(a), within one taxable year of the distributee by reason of the employee’s death)”, and added cls. (i), (ii), and (iii).Enacted provision · exact public law section
(d) Amounts Received as Death Benefits.— Section 101 (b) (2) (B) (relating to nonforfeitable rights) is amended to read as follows: “(B) Nonforfeitable rights.— Paragraph (1) shall not apply to amounts with respect to which the employee possessed, immediately before his death, a nonforfeitable right to receive the amounts while living. This subparagraph shall not apply to total distributions payable (as defined in 26 USC 402. section 402 (a) (3)) which are paid to a distributee within one taxable year of the distributee by reason of the employee’s death— “(i) by a stock bonus, pension, or profit-sharing trust described in section 401 (a) which is exempt from tax 26 USC 401, 501. under section 501 (a), “(ii) under an annuity contract under a plan which meets the requirements of paragraphs (3), (4), (5), and (6) of section 401 (a), or “(iii) under an annuity contract purchased by an employer which is an organization referred to in section 26 USC 503. 503 (b) (1), (2), or (3) and which is exempt from tax under section 501 (a), but only with respect to that portion of such total distributions payable which bears the same ratio to the amount of such total distributions payable which is (without regard to this subsection) includible in gross income, as the amounts contributed by the employer for such annuity contract which are excludable 26 USC 403. from gross income under section 403 (b) bear to the total amounts contributed by the employer for such annuity contract.”Self-Employed Individuals Tax Retirement Act of 1962
Pub. L. 87–792 § 7(c)(1) · 76 Stat. 809
Substituted · 26 U.S.C. § 101(b)(2)(B)(ii)
Pub. L. 87–792, § 7(c)(1), substituted “described in section 403(a)” for “which meets the requirements of paragraphs (3), (4), (5), and (6) of section 401(a)”
Source evidence
Code amendment note
Subsec. (b)(2)(B)(ii). Pub. L. 87–792, § 7(c)(1), substituted “described in section 403(a)” for “which meets the requirements of paragraphs (3), (4), (5), and (6) of section 401(a)”.Enacted provision · exact public law section
(1) by striking out clause (ii) of paragraph (2)(B) and inserting in lieu thereof the following: “(ii) under an annuity contract under a plan described in section 403(a), or”; and 26 USC 403.Self-Employed Individuals Tax Retirement Act of 1962
Pub. L. 87–792 § 7(c)(2) · 76 Stat. 809
Added · 26 U.S.C. § 101(b)(3)
Pub. L. 87–792, § 7(c)(2), added par. (3)
Source evidence
Code amendment note
Subsec. (b)(3). Pub. L. 87–792, § 7(c)(2), added par. (3).Enacted provision · exact public law section
(2) by adding at the end thereof the following new paragraph: “(3) Self-employed individual not considered an employee.— For purposes of this subsection, the term ‘employee’ does not include an individual who is an employee within the meaning of section 401(c)(1)(relating to self-employed individuals).” Ante, p. 811.Pub. L. 89–365 § 1(c) · 80 Stat. 32
Changed · 26 U.S.C. § 101(b)(2)(D)
Pub. L. 89–365 provided that par. (1) shall not apply in the case of an annuity under chapter 73 of title 10 if the individual who made the election under that chapter died after attaining retirement age
Source evidence
Code amendment note
Subsec. (b)(2)(D). Pub. L. 89–365 provided that par. (1) shall not apply in the case of an annuity under chapter 73 of title 10 if the individual who made the election under that chapter died after attaining retirement age.Enacted provision · exact public law section
(1) part III of subchapter B of chapter 1 of the Internal Revenue Code of 1954 (relating to items specifically excluded from gross income) is amended by redesignating section 122 as section 123, and by inserting after section 121 the following new section: “SEC. 122. CERTAIN REDUCED UNIFORMED SERVICES RETIREMENT PAY. “(a) General Rule.— In the case of a member or former member of the uniformed services of the United States who has made an 70A Stat. 109. 10 USC 1431–1446. election under chapter 73 of title 10 of the United States Code to receive a reduced amount of retired or retainer pay, gross income does not include the amount of any reduction after December 31, 1965, in his retired or retainer pay by reason of such election. “(b) Special Rule.— “(1) Amount excluded from gross income.— In the case of any individual referred to in subsection (a), all amounts received after December 31, 1965, as retired or retainer pay shall be excluded from gross income until there has been so excluded an amount equal to the consideration for the contract. The preceding sentence shall apply only to the extent that the amounts received would, but for such sentence, be includible in gross income. “(2) Consideration for the contract.— For purposes of paragraph 68A Stat. 20; 76 Stat. 821. (1) and section 72(o), the term ‘consideration for the contract’ means, in respect of .any individual, the sum of— “(A) the total amount of the reductions before January 1, 1966, in his retired or retainer pay by reason of an election under chapter 73 of title 10 of the United States Code, and “(B) any amounts deposited at any time by him pursuant 70A Stat. 110. to section 1438 of such title 10.”Tax Reform Act of 1969
Pub. L. 91–172 title I § 101(j)(l) · 83 Stat. 487
Substituted · 26 U.S.C. § 101(b)(2)(B)(iii)
Pub. L. 91–172 substituted references to section 170(b)(1)(A) (ii) and (vi), and to religious organizations, for references to section 503(b)(1), (2), or (3)
Source evidence
Code amendment note
Subsec. (b)(2)(B)(iii). Pub. L. 91–172 substituted references to section 170(b)(1)(A) (ii) and (vi), and to religious organizations, for references to section 503(b)(1), (2), or (3).Enacted provision · exact public law section
(j) Technical, Conforming, and Clerical Amendments.— (1) Section 101(b)(2)(B)(iii) (relating to nonforfeitable rights) is amended by striking out “section 503(b)(1), (2), or (3)” and inserting in lieu thereof “section 170(b)(1)(A)(ii) or (vi) or which is a religious organization (other than a trust)”. (2) Section 170(i) (relating to disallowance of deductions in certain cases) (as redesignated by section 201(a)(1)(A) of this Act) is amended— (A) by striking out paragraph (1), and (B) by striking out “(2) For disallowance” and inserting in lieu thereof “For disallowance”. (3) Section 501(a) (relating to exemption from taxation) is amended by striking out “502, 503, or 504” and inserting in lieu thereof “502 or 503”. (4) Section 501(b) (relating to tax on unrelated business income) is amended to read as follows: “(b) Tax on Unrelated Business Income and Certain Other Activities.— An organization exempt from taxation under subsection (a) shall be subject to tax to the extent provided in parts II and III of this subchapter, but (notwithstanding parts II and III of this subchapter) shall be considered an organization exempt from income taxes for the purpose of any law which refers to organizations exempt from income taxes.” (5) Section 501(c)(16) (relating to list of exempt organizations) 68A Stat. 165. 26 USC 501. is amended by striking out “part III” and inserting in lieu thereof “part IV”. (6) Section 501(e) (relating to cooperative hospital service 82 Stat. 269. organizations) is amended by striking out in the last sentence thereof “section 503(b)(5).” and inserting in lieu thereof “section 170(b)(1)(A)(iii).”. (7) Section 503(a)(1) (relating to general rule) is amended to 74 Stat. 535. read as follows: “(1) General rule.— “(A) An organization described in section 501(c)(17) 74 Stat. 534. 68A Stat. 163. shall not be exempt from taxation under section 501(a) if it has engaged in a prohibited transaction after December 31, 1959. “(B) An organization described in section 401(a) shall not be exempt from taxation under section 501(a) if it has engaged in a prohibited transaction after March 1, 1954.” (8) Section 503(a)(2) (relating to taxable years affected by 68A Stat. 166. denial of exemption) is amended by striking out “section 501(c)(3) or (17)” and inserting in lieu thereof “section 501(c)(17)”. (9) Section 503(d) (relating to future status of organizations denied exemption) is amended by striking out “section 501(c)(3) or (17)” and inserting in lieu thereof “section 501(c)(17)”. (10) Section 503(g) (relating to special rule for loans) is amended by striking out “subsection (c)(1),” and inserting in lieu thereof “subsection (b)(1),”. (11) Section 503(h) (relating to special rules relating to lending 72 Stat. 1629. by section 401(a) and section 501(c)(17) trusts to certain persons) is amended— (A) by striking out in the heading thereof “Special rules relating to lending by section 401(a) and section 501(c)(17) trusts to certain persons.—”, and inserting in lieu thereof “Special rules.—”, (B) by striking out “subsection (c)(1),” and inserting in lieu thereof “subsection (b)(1),”, (C) by striking out “acquired by a trust described in section 401(a) or section 501(c)(17)”, and (D) by striking out in paragraph (3) “subsection (c)” and inserting in lieu thereof “subsection (b)”. (12) Section 503(i) (relating to loans with respect to which 72 Stat. 1630. employers are prohibited from pledging certain assets) is amended— (A) by striking out “Subsection (c)(1)” and inserting in lieu thereof “Subsection (b)(1)”, and (B) by striking out “subsection (h)” and inserting in lieu thereof “subsection (e)”. (13) Section 503(j)(1) (relating to prohibited transactions) 76 Stat. 827. is amended by striking out “subsection (c)” and inserting in lieu thereof “subsection (b)”. (14) Section 503 (relating to requirements of exemption) is amended by striking out subsections (b), (e), and (f) and by redesignating subsections (c), (d), (g), (h), (i), and (j) (as amended), as subsections (b), (c), (d), (e), (f), and (g), respectively. (15) Section 504 (relating to denial of exemption) is repealed. Repeal 68A Stat. 168. (16) Section 542(a)(2) (relating to stock ownership requirement) is amended— (A) by striking out in the second sentence “section 503(b)” and inserting in lieu thereof “section 401(a), 501(c)(17), or 509(a)”, and (B) by amending the third sentence to read as follows: “The preceding sentence shall not apply in the case of an organization or trust organized or created before July 1, 1950, if at all times on or after July 1, 1950, and before the close of the taxable year such organization or trust has owned all of the common stock and at least 80 percent of the total number of shares of all other classes of stock of the corporation.” (17) Section 663(a)(2) (relating to charitable, etc., distributions) is amended by striking out “section 681” and inserting in lieu thereof “sections 508(d), 681, and 4948(c)(4)”. (18) Section 681(b) and (c) (relating to operations of trusts and accumulated income) is repealed. (19) Section 681(d) (relating to cross reference) is redesignated as subsection (b), and as so redesignated is amended by striking out “section 503(e)” and inserting in lieu thereof “sections 508(d) and 4948(c)(4)”. (20) Section 878 (relating to foreign educational, charitable, and certain other exempt organizations) is amended by— (A) striking out “unrelated business income of”, and (B) striking out “trusts, see section 512(a)” and inserting in lieu thereof “organizations, see sections 512(a) and 4948”. (21) Section 884 (relating to cross references) is amended by striking out paragraph (1) and by redesignating paragraphs (2), (3), (4), (5), and (6) as paragraphs (1), (2), (3), (4), and (5), respectively. (22) Section 1443 (relating to foreign tax-exempt organizations) is amended by— (A) inserting “(a) Income Subject to Section 511.—” before “In the case of”, and (B) adding subsection (b) to read as follows: “(b) Income Subject to Section 4948.— In the case of income of Ante, p. 518. a foreign organization subject to the tax imposed by section 4948(a), this chapter shall apply, except that the deduction and withholding shall be at the rate of 4 percent and shall be subject to such conditions as may be provided under regulations prescribed by the Secretary or his delegate.” (23) Section 2039(c)(3) (relating to exemption of annuities under certain trusts and plans) is amended by striking out “section 503(b)(1), (2), or (3),” and inserting in lieu thereof “section Post, p. 550. 170(b)(1)(A) (ii) or (vi), or which is a religious organization (other than a trust),”. (24) Section 2517(a)(3) (relating to general rule for certain annuities under qualified plans) is amended by striking out “section 503(b)(1), (2), or (3),” and inserting in lieu thereof “section 170(b)(1)(A) (ii) or (vi), or which is a religious organization (other than a trust),”. (25) Section 4057(b) (relating to the definition of nonprofit educational organization) is amended by striking out “section 503(b)(2)” and inserting in lieu thereof “section 170(b)(1)(A)(ii)”. (26) Section 4221(d)(5) (relating to the definition of nonprofit 72 Stat. 1282. 26 USC 4221. educational organization) is amended by striking out “section 503(b)(2)” and inserting in lieu thereof “section 170(b)(1)(A)(ii)”. (27) Section 4253(h) (relating to nonprofit hospitals) is amended by striking out “section 503(b)(5)” and inserting in lieu thereof “section 170(b)(1)(A)(iii)”. Post, p. 550. (28) Section 4294(b) (relating to the definition of nonprofit educational organization) is amended by striking out “section 503(b)(2)” and inserting in lieu thereof “section 170(b)(1)(A)(ii)”. (29) Section 5214(a)(3)(A) (relating to purposes for withdrawal of distilled spirits from bonded premises free of tax or without payment of tax) is amended by striking out “section 503(b)(2)” and inserting in lieu thereof “section 170(b)(1)(A)(ii)”. (30) Section 6033(b)(4) (as redesignated by subsection (d)(2) of this section) (relating to certain balance sheet items on Ante, p. 520. returns by exempt organizations) is amended by striking out “and” at the end thereof. (31) Section 6033(c) (relating to cross reference) is amended by inserting the following at the end thereof: “For reporting requirements as to certain liquidations, dissolutions, terminations, and contractions, see section 6043(b). For provisions relating to penalties for failure to file a return required by this section, see section 6652(d).” Ante, p. 522. (32) Section 6034 (relating to returns by certain trusts) is 68A Stat. 742. amended by striking out all of such section before paragraph (1) of subsection (a) and inserting in lieu thereof the following: “SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(a) OR CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 642(c). “(a) General Rule.— Every trust described in section 4947(a) or Ante, p. 517. Post, p. 558. claiming a charitable, etc., deduction under section 642(c) for the taxable year shall furnish such information with respect to such taxable year as the Secretary or his delegate may by forms or regulations prescribe, including—”. (33) Section 6034(a)(1) (relating to returns by certain trusts) is amended by striking out “(showing separately the amount of such deduction which was paid out and the amount which was permanently set aside for charitable, etc., purposes during such year)”. (34) Section 6034 (relating to returns by certain trusts) is amended by adding the following new subsection at the end thereof: “(c) Cross Reference.— “For provisions relating to penalties for failure to file a return required by this section, see section 6652(d).” (35) Section 6043 (relating to return regarding corporate dissolution 68A Stat. 746. or liquidation) is amended— (A) by striking out the heading and inserting in lieu thereof (B) by striking out “Every corporation” and inserting in lieu thereof “(a) Corporations.—Every corporation”, and (C) by adding the following new subsections at the end thereof: “(b) Exempt Organizations.— Every organization which for any of its last 5 taxable years preceding its liquidation, dissolution, termination, or substantial contraction was exempt from taxation under 68A Stat. 163. 25 USC 501. section 501(a) shall file such return and other information with respect to such liquidation, dissolution, termination, or substantial contraction as the Secretary or his delegate shall by forms or regulations prescribe; except that— “(1) no return shall be required under this subsection from churches, their integrated auxiliaries, conventions or associations of churches, or any organization which is not a private foundation Ante, p. 496. (as defined in section 509(a)) and the gross receipts of which in each taxable year are normally not more than $5,000, and “(2) the Secretary or his delegate may relieve any organization from such filing where he determines that such filing is not necessary to the efficient administration of the internal revenue laws or, with respect to an organization described in section 401(a), where the employer who established such organization files such a return. “(c) Cross Reference.— “For provisions relating to penalties for failure to file a return required by subsection (b), see section 6652(d).” (36) Section 6104(b) (relating to inspection of annual information returns) is amended by striking out “sections 6033(b) and 6034,” and inserting in lieu thereof “sections 6033, 6034, and 6056,”. (37) Section 6161(b) (relating to the amount determined as a deficiency when granting an extension of time) is amended— (A) by striking out in paragraph (1) “chapter 1 or 12,” Ante, p. 498. and inserting in lieu thereof “chapter 1, 12, or 42,”, and (B) by striking out “chapter 1,” the last time it appears and inserting in lieu thereof “chapter 1 or 42,”. (38) Section 6201(d) (relating to deficiency proceedings) is amended by striking out “and gift taxes”, and inserting in lieu thereof “gift, and chapter 42 taxes”. (39) Section 6211(b)(2) (relating to the term “rebate”) is amended by striking out “subtitles A or B” and inserting in lieu thereof “subtitle A or B or chapter 42”. (40) Section 6212(a) (relating to notice of deficiency) is amended by striking out “subtitles A or B” and inserting in lieu thereof “subtitle A or B or chapter 42”. (41) Section 6212(b)(1) (relating to address for notice of deficiency) is amended— (A) by striking out in the title thereof “and gift taxes” and inserting in lieu thereof “and gift taxes and taxes imposed by chapter 42”, (B) by striking out “subtitle A or chapter 12,” and inserting in lieu thereof “subtitle A, chapter 12, or chapter 42,”, and (C) by inserting “chapter 42,” after “chapter 12,” the last place it appears. (42) Section 6213(a) (relating to restrictions applicable to deficiencies; petition to Tax Court) is amended by inserting “or chapter 42” after “subtitle A or B”. (43) Section 6214 (relating to determination by the Tax Court) is amended by relettering subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Taxes Imposed by Section 507 or Chapter 42.— The Tax Court, in redetermining a deficiency of any tax imposed by section 507 Ante, p. 492. or chapter 42 for any period, act, or failure to act, shall consider such Ante, p. 498. facts with relation to the taxes under chapter 42 for other periods, acts, or failures to act as may be necessary correctly to redetermine the amount of such deficiency, but in so doing shall have no jurisdiction to determine whether or not the taxes under chapter 42 for any other period, act, or failure to act have been overpaid or underpaid.” (44) Section 6214(d) (as relettered) is amended by inserting Ante, p. 530. “, chapter 42,” after “chapter”. (45) Section 6344(a)(1) (relating to certain cross references) 68A Stat. 789. 26 USC 6344. is amended by inserting “and taxes imposed by chapter 42,” after “gift taxes,”. (46) Section 6503(a)(1) (relating to issuance of statutory notice of deficiency) is amended by striking out “and gift taxes” and inserting in lieu thereof “gift and chapter 42 taxes”. (47) Section 6512(a) (relating to effect of petition to Tax Court) is amended— (A) by striking out “and gift taxes” and inserting in lieu thereof “gift, and chapter 42 taxes”, and (B) by striking out “or of estate tax in respect of the taxable estate of the same decedent,” and inserting in lieu thereof “of estate tax in respect of the taxable estate of the same decedent, or of tax imposed by chapter 42 with respect to any act (or failure to act) to which such petition relates,”. (48) Section 6512(b)(1) (relating to jurisdiction to determine overpayment determined by Tax Court) is amended by striking out “or of estate tax in respect of the taxable estate of the same decedent,” and inserting in lieu thereof “of estate tax in respect of the taxable estate of the same decedent, or of tax imposed by chapter 42 with respect to any act (or failure to act) to which such petition relates,”. (49) Section 6601(d) (relating to suspension of interest in certain cases) is amended— (A) by striking out in the title thereof “and Gift Tax Cases.” and inserting in lieu thereof “Gift, and Chapter 42 Tax Cases.”, and (B) by striking out “and gift taxes” and inserting in lieu thereof “gift, and chapter 42 taxes”. (50) Section 6653(c)(1) (relating to definition of underpayment) is amended— (A) by striking out in the heading thereof “and gift taxes.” and inserting in lieu thereof “gift, and chapter 42 taxes.”, and (B) by striking out “and gift taxes” the last time it appears and inserting in lieu thereof “gift, and chapter 42 taxes”. (51) Section 6659(b) (relating to procedure for assessing certain additions to tax) is amended by striking out “and gift taxes” and inserting in lieu thereof “gift, and chapter 42 taxes”. (52) Section 6676(b) (relating to deficiency procedures not to 75 Stat. 829. apply) is amended by striking out “and gift taxes” and inserting in lieu thereof “gift, and chapter 42 taxes”. (53) Section 6677(b) (relating to deficiency procedures not to 76 Stat. 988. apply) is amended by striking out “and gift taxes” and inserting in lieu thereof “gift, and chapter 42 taxes”. (54) Section 6679(b) (relating to deficiency procedures not to apply) is amended by striking out “and gift taxes” and inserting in lieu thereof “gift, and chapter 42 taxes”. (55) Section 6682(b) (relating to deficiency procedures not to apply) is amended by striking out “and gift taxes” and inserting in lieu thereof “gift, and chapter 42 taxes”. (56) Section 7422(e) (relating to stay of proceeding in civil actions for refund) is amended by striking out “or gift tax” the first time it appears and inserting in lieu thereof “gift tax, or tax imposed by chapter 42”. (57) Section 7454 (relating to burden of proof in fraud and transferee cases) is amended— (A) by striking out “FRAUD AND TRANSFEREE CASES” and inserting in lieu thereof “FRAUD, FOUNDATION MANAGER, AND TRANSFEREE CASES”, (B) by redesignating subsection (b) as subsection (c), and (C) by inserting after subsection (a) the following new subsection: “(b) Foundation Managers.— In any proceeding involving the Ante, p. 515. issue whether a foundation manager (as defined in section 4946(b)) has ‘knowingly’ participated in an act of self-dealing (within the meaning of section 4941), participated in an investment which jeopardizes the carrying out of exempt purposes (within the meaning of section 4944), or agreed to the making of a taxable expenditure (within the meaning of section 4945), the burden of proof in respect of such issue shall be upon the Secretary or his delegate.” (58) The table of parts for subchapter F of chapter 1 is amended to read as follows: “Subchapter F.— Exempt Organizations “Part I. General rule. “Part II. Private foundations. “Part III. Taxation of business income of certain exempt organizations. “Part IV. Farmers’ cooperatives. “Part V. Shipowners’ protection and indemnity associations.” (59) The table of chapters for subtitle D is amended by adding at the end thereof the following new item: “Chapter 42. Private foundations.” (60) The table of sections for subchapter B of chapter 68 is amended by adding at the end thereof the following new items: “Sec. 6684. Repeated liability for tax under chapter 42. “Sec. 6685. Assessable penalties with respect to private foundation annual reports.” (61) The table of sections for part I of subchapter F of chapter 1 is amended by striking out the item relating to section 504. (62) The heading of subchapter B of chapter 63 is amended by striking out “and Gift Taxes” and inserting in lieu thereof “Gift, and Certain Excise Taxes”. (63) The table of subchapters for chapter 63 is amended by striking out “and gift taxes” in the item relating to subchapter B and inserting in lieu thereof “gift, and certain excise taxes”. (64) The table of subparts for part III of subchapter A of chapter 61 is amended by adding at the end thereof the following new item: “Subpart D. Information concerning private foundations.”Employee Retirement Income Security Act of 1974
Pub. L. 93–406 § 2005(c)(15) · 88 Stat. 829
Substituted · 26 U.S.C. § 101(b)(2)(B)
Pub. L. 93–406, § 2005(c)(15), substituted “a lump sum distribution (as defined in section 402(e)(4)” for “total distributions payable (as defined in section 402(a)(3)) which are paid to a distributee within one taxable year of the distributee by reason of the employee’s death”
Source evidence
Code amendment note
Subsec. (b)(2)(B). Pub. L. 93–406, § 2005(c)(15), substituted “a lump sum distribution (as defined in section 402(e)(4)” for “total distributions payable (as defined in section 402(a)(3)) which are paid to a distributee within one taxable year of the distributee by reason of the employee’s death”.Enacted provision · exact public law section
(15) Section 101(b)(2)(B) is amended by striking out “total 26 USC 101. distributions payable (as defined in section 402(a)(3)) which are paid to a distribute within one taxable year of the distribute by reason of the employee’s death” and inserting in lieu thereof “a lump sum distribution (as defined in section 402(e)(4))”.Employee Retirement Income Security Act of 1974
Pub. L. 93–406 § 2007(b)(3) · 88 Stat. 829
Substituted · 26 U.S.C. § 101(b)(2)(D)
Pub. L. 93–406, § 2007(b)(3), substituted “if the member or former member of the uniformed services by reason of whose death such annuity is payable” for “if the individual who made the election under such chapter”
Source evidence
Code amendment note
Subsec. (b)(2)(D). Pub. L. 93–406, § 2007(b)(3), substituted “if the member or former member of the uniformed services by reason of whose death such annuity is payable” for “if the individual who made the election under such chapter”.Enacted provision · exact public law section
(3) Section 101(b)(2)(D) is amended by striking out “if the 26 USC 101. individual who made the election under such chapter” and inserting in lieu thereof “if the member or former member of the uniformed services by reason of whose death such annuity is payable”.Pub. L. 94–455 § 1906(b)(13)(A) · 90 Stat. 1520
Struck · 26 U.S.C. § 101(d)(1)
Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”
Source evidence
Code amendment note
Subsec. (d)(1). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.Enacted provision · exact public law section
(A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”.Pub. L. 94–455 § 1901(a)(16) · 90 Stat. 1520
Struck · 26 U.S.C. § 101(f)
Pub. L. 94–455, § 1901(a)(16), struck out subsec. (f) relating to effective date of section
Source evidence
Code amendment note
Subsec. (f). Pub. L. 94–455, § 1901(a)(16), struck out subsec. (f) relating to effective date of section.Enacted provision · exact public law section
(16) Amendment of section 101.— Section 101 is amended by 26 USC 101. striking out subsection (f) (relating to effective date of section).Pub. L. 97–248 § 266(b) · 96 Stat. 324
Substituted · 26 U.S.C. § 101(a)(1)
Pub. L. 97–248, § 266(b), substituted “, subsection (d), and subsection (f)” for “and in subsection (d)”
Source evidence
Code amendment note
Subsec. (a)(1). Pub. L. 97–248, § 266(b), substituted “, subsection (d), and subsection (f)” for “and in subsection (d)”.Enacted provision · exact public law section
(b) Conforming Amendment.— Paragraph (1) of section 101(a) 26 USC 101. (relating to proceeds of life insurance contracts payable by reason of death) is amended by striking out “and in subsection (d)” and inserting in lieu thereof “, subsection (d), and subsection (f)”.Pub. L. 97–248 § 239 · 96 Stat. 324
Amended · 26 U.S.C. § 101(b)(3)
Pub. L. 97–248, § 239, amended par. (3) generally
Substituted · 26 U.S.C. § 101(b)(3)
Pub. L. 97–248, § 239, substituting “Treatment of self-employed individuals” for “Self-employed individual not considered an employee” in heading
Amended · 26 U.S.C. § 101(b)(3)
Pub. L. 97–248, § 239, designating existing provisions as subparagraph (A) and, as so designated
Added · 26 U.S.C. § 101(b)(3)
Pub. L. 97–248, § 239, adding heading and exception for subpar. (B)
Added · 26 U.S.C. § 101(b)(3)
Pub. L. 97–248, § 239, adding subparagraph (B)
Source evidence
Code amendment note
Subsec. (b)(3). Pub. L. 97–248, § 239, amended par. (3) generally, substituting “Treatment of self-employed individuals” for “Self-employed individual not considered an employee” in heading, designating existing provisions as subparagraph (A) and, as so designated, adding heading and exception for subpar. (B), and adding subparagraph (B).Enacted provision · exact public law section
SEC. 239. ALLOWANCE OF EXCLUSION OF DEATH BENEFIT FOR SELF-EMPLOYED INDIVIDUALS. Paragraph (3) of section 101(b) (relating to self-employed individual 26 USC 101. not considered as employee) is amended to read as follows: “(3) Treatment of self-employed individuals.— For purposes of this subsection— “(A) Self-employed individual not considered employee.— Except as provided in subparagraph (B), the term ‘employee’ does not include a self-employed individual described in section 401(c)(1). “(B) Special rule for certain lump sum distributions.— In the case of any lump sum distribution described in the second sentence of paragraph (2)(B), the term ‘employee’ includes a self-employed individual described in section 401(c)(1).”Pub. L. 97–248 § 266(a) · 96 Stat. 324
Added · 26 U.S.C. § 101(f)
Pub. L. 97–248, § 266(a), added subsec. (f)
Source evidence
Code amendment note
Subsec. (f). Pub. L. 97–248, § 266(a), added subsec. (f).Enacted provision · exact public law section
(a) In General.— Section 101 (relating to exclusion from gross 26 USC 101. income for certain death benefits) is amended by adding at the end thereof the following new subsection: “(f) Proceeds of Flexible Premium Contracts Payable by Reason of Death.— “(1) In general.— Any amount paid by reason of the death of the insured under a flexible premium life insurance contract shall be excluded from gross income only if— “(A) under such contract— “(i) the sum of the premiums paid under such contract does not at any time exceed the guideline premium limitation as of such time, and “(ii) any amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) is not at any time less than the applicable percentage of the cash value of such contract at such time, or “(B) by the terms of such contract, the cash value of such contract may not at any time exceed the net single premium with respect to the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at such time. “(2) Guideline premium limitation.— For purposes of this subsection— “(A) Guideline premium limitation.— The term ‘guideline premium limitation’ means, as of any date, the greater of— “(i) the guideline single premium, or “(ii) the sum of the guideline level premiums to such date. “(B) Guideline single premium.— The term ‘guideline single premium’ means the premium at issue with respect to future benefits under the contract (without regard to any qualified additional benefit), and with respect to any charges for qualified additional benefits, at the time of a determination under subparagraph (A) or (E) and which is based on— “(i) the mortality and other charges guaranteed under the contract, and “(ii) interest at the greater of an annual effective rate of 6 percent or the minimum rate or rates guaranteed upon issue of the contract. “(C) Guideline level premium.— The term ‘guideline level premium’ means the level annual amount, payable over the longest period permitted under the contract (but ending not less than 20 years from date of issue or not later than age 95, if earlier), computed on the same basis as the guideline single premium, except that subparagraph (B)(ii) shall be applied by substituting ‘4 percent’ for ‘6 percent’. “(D) Computational rules.— In computing the guideline single premium or guideline level premium under subparagraph (B) or (C)— “(i) the excess of the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) over the cash value of the contract shall be deemed to be not greater than such excess at the time the contract was issued, “(ii) the maturity date shall be the latest maturity date permitted under the contract, but not less than 20 years after the date of issue or (if earlier) age 95, and “(iii) the amount of any endowment benefit (or sum of endowment benefits) shall be deemed not to exceed the least amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at any time under the contract. “(E) Adjustments.— The guideline single premium and guideline level premium shall be adjusted in the event of a change in the future benefits or any qualified additional benefit under the contract which was not reflected in any guideline single premiums or guideline level premium previously determined. “(3) Other definitions and special rules.— For purposes of this subsection— “(A) Flexible premium life insurance contract.— The terms ‘flexible premium life insurance contract’ and ‘contract’ mean a life insurance contract (including any qualified additional benefits) which provides for the payment of one or more premiums which are not fixed by the insurer as to both timing and amount. Such terms do not include that portion of any contract which is treated under State law as providing any annuity benefits other than as a settlement option. “(B) Premiums paid.— The term ‘premiums paid’ means the premiums paid under the contract less any amounts (other than amounts includible in gross income) to which section 72(e) applies. If, in order to comply with the requirements of paragraph (1)(A), any portion of any premium paid during any contract year is returned by the insurance company (with interest) within 60 days after the end of a contract year— “(i) the amount so returned (excluding interest) shall be deemed to reduce the sum of the premiums paid under the contract during such year, and “(ii) notwithstanding the provisions of section 72(e), the amount of any interest so returned shall be includible in the gross income of the recipient. “(C) Applicable percentage.— The term ‘applicable percentage’ means— “(i) 140 percent in the case of an insured with an attained age at the beginning of the contract year of 40 or less, and “(ii) in the case of an insured with an attained age of more than 40 as of the beginning of the contract year, 140 percent reduced (but not below 105 percent) by one percent for each year in excess of 40. “(D) Cash value.— The cash value of any contract shall be determined without regard to any deduction for any surrender charge or policy loan. “(E) Qualified additional benefits.— The term ‘qualified additional benefits’ means any— “(i) guaranteed insurability, “(ii) accidental death benefit, “(iii) family term coverage, or “(iv) waiver of premium. “(F) Premium payments not disqualifying contract.— The payment of a premium which would result in the sum of the premiums paid exceeding the guideline premium limitation shall be disregarded for purposes of paragraph (1)(A)(i) if the amount of such premium does not exceed the amount necessary to prevent the termination of the contract without cash value on or before the end of the contract year. “(G) Net single premium.— In computing the net single premium under paragraph (1)(B)— “(i) the mortality basis shall be that guaranteed under the contract (determined by reference to the most recent mortality table allowed under all State laws on the date of issuance), “(ii) interest shall be based on the greater of— “(I) an annual effective rate of 4 percent (3 percent for contracts issued before July 1, 1983), or “(II) the minimum rate or rates guaranteed upon issue of the contract, and “(iii) the computational rules of paragraph (2)(D) shall apply, except that the maturity date referred to in clause (ii) thereof shall not be earlier than age 95. “(H) Correction of errors.— If the taxpayer establishes to the satisfaction of the Secretary that— “(i) the requirements described in paragraph (1) for any contract year was not satisfied due to reasonable error, and “(ii) reasonable steps are being taken to remedy the error, the Secretary may waive the failure to satisfy such requirements. “(I) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.”Tax Reform Act of 1984
Pub. L. 98–369 § 713(e) · 98 Stat. 494
Amended · 26 U.S.C. § 101(b)(3)(B)
Pub. L. 98–369, § 713(e), amended subpar. (B) generally
Substituted · 26 U.S.C. § 101(b)(3)(B)
Pub. L. 98–369, § 713(e), substituting “certain distributions” for “certain lump sum distributions” in heading
Substituted · 26 U.S.C. § 101(b)(3)(B)
Pub. L. 98–369, § 713(e), substituting “amount paid or distributed” for “lump sum distribution described in the second sentence of paragraph (2)(B)” in introductory text
Added · 26 U.S.C. § 101(b)(3)(B)
Pub. L. 98–369, § 713(e), adding cls. (i) and (ii)
Source evidence
Code amendment note
Subsec. (b)(3)(B). Pub. L. 98–369, § 713(e), amended subpar. (B) generally, substituting “certain distributions” for “certain lump sum distributions” in heading, substituting “amount paid or distributed” for “lump sum distribution described in the second sentence of paragraph (2)(B)” in introductory text and adding cls. (i) and (ii).Enacted provision · exact public law section
(e) Amendment Related to Section 239.— Subparagraph (B) of section 101(b)(3) (relating to treatment of self-employed individuals for exclusion of employees’ death benefits) is amended to read as follows: “(B) Special rule for certain distributions.— In the case of any amount paid or distributed— “(i) by a trust described in section 401(a) which is exempt from tax under section 501(a), or “(ii) under a plan described in section 403(a), the term ‘employee’ includes a self-employed individual described in section 401(c)(1).”Tax Reform Act of 1984
Pub. L. 98–369 § 421(b)(2) · 98 Stat. 494
Repealed · 26 U.S.C. § 101(e)
Pub. L. 98–369, § 421(b)(2), repealed subsec. (e) relating to payments of alimony or of income of an estate or trust in case of divorce, etc
Source evidence
Code amendment note
Subsec. (e). Pub. L. 98–369, § 421(b)(2), repealed subsec. (e) relating to payments of alimony or of income of an estate or trust in case of divorce, etc.Enacted provision · exact public law section
(2) Repeal of section 101(e).— Subsection (e) of section 101 (relating to alimony, etc., payments) is hereby repealed.Tax Reform Act of 1984
Pub. L. 98–369 § 221(b)(2)(B) · 98 Stat. 494
Inserted · 26 U.S.C. § 101(f)
Pub. L. 98–369, § 221(b)(2)(B), inserted “issued before January 1, 1985” in heading
Source evidence
Code amendment note
Subsec. (f). Pub. L. 98–369, § 221(b)(2)(B), inserted “issued before January 1, 1985” in heading.Enacted provision · exact public law section
(B) The subsection heading of subsection (f) of section 101 is amended by striking out “Flexible Premium Contracts” and inserting in lieu thereof “Flexible Premium Con-tracts Issued Before January 1, 1985”.Tax Reform Act of 1984
Pub. L. 98–369 § 221(b)(2)(A) · 98 Stat. 494
Inserted · 26 U.S.C. § 101(f)(1)
Pub. L. 98–369, § 221(b)(2)(A), inserted “issued before January 1, 1985” in introductory text
Source evidence
Code amendment note
Subsec. (f)(1). Pub. L. 98–369, § 221(b)(2)(A), inserted “issued before January 1, 1985” in introductory text.Enacted provision · exact public law section
(A) Paragraph (1) of section 101(f) is amended by striking out “flexible premium life insurance contract” and inserting in lieu thereof “flexible premium life insurance con-tract issued before January 1, 1985”.Tax Reform Act of 1986
Pub. L. 99–514 § 1001(a) · 100 Stat. 2085
Amended · 26 U.S.C. § 101(d)(1)
Pub. L. 99–514, § 1001(a), amended second sentence generally, which prior to amendment read as follows: “There shall be excluded from the gross income of such beneficiary in the taxable year received—
Source evidence
Code amendment note
Subsec. (d)(1). Pub. L. 99–514, § 1001(a), amended second sentence generally, which prior to amendment read as follows: “There shall be excluded from the gross income of such beneficiary in the taxable year received—“(A) any amount determined by such proration, and “(B) in the case of the surviving spouse of the insured, that portion of the excess of the amounts received under one or more agreements specified in paragraph (2)(A) (whether or not payment of any part of such amounts is guaranteed by the insurer) over the amount determined in subparagraph (A) of this paragraph which is not greater than $1,000 with respect to any insured.”
Enacted provision · exact public law section
(a) In General.— The second sentence of paragraph (1) of section 101(d) (relating to payment of life insurance proceeds at a date later than death) is amended to read as follows: “There shall be excluded from the gross income of such beneficiary in the taxable year received any amount determined by such proration.”Tax Reform Act of 1986
Pub. L. 99–514 § 1001(c)(2) · 100 Stat. 2085
Substituted · 26 U.S.C. § 101(d)(2)(B)
Pub. L. 99–514, § 1001(c)(2), substituted “equal” for “is equal” in introductory provisions
Source evidence
Code amendment note
Subsec. (d)(2)(B). Pub. L. 99–514, § 1001(c)(2), substituted “equal” for “is equal” in introductory provisions.Enacted provision · exact public law section
(2) Subparagraph (B) of section 101(d)(2) is amended by striking out “is equal” and inserting in lieu thereof “equal”.Tax Reform Act of 1986
Pub. L. 99–514 § 1001(b) · 100 Stat. 2085
Amended · 26 U.S.C. § 101(d)(2)(B)(ii)
Pub. L. 99–514, § 1001(b), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: “as discounted on the basis of the interest rate and mortality tables used by the insurer in calculating payments under the agreement.”
Source evidence
Code amendment note
Subsec. (d)(2)(B)(ii). Pub. L. 99–514, § 1001(b), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: “as discounted on the basis of the interest rate and mortality tables used by the insurer in calculating payments under the agreement.”Enacted provision · exact public law section
(b) Determination of Amount Held by Insurer.— Clause (ii) of section 101(d)(2)(B) is amended to read as follows: “(ii) as discounted on the basis of the interest rate used by the insurer in calculating payments under the agreement and mortality tables prescribed by the Secretary.”Tax Reform Act of 1986
Pub. L. 99–514 § 1001(c)(1) · 100 Stat. 2085
Redesignated · 26 U.S.C. § 101(d)(3); 26 U.S.C. § 101(d)(4)
Pub. L. 99–514, § 1001(c)(1), redesignated par. (4) as (3)
Struck · 26 U.S.C. § 101(d)(3); 26 U.S.C. § 101(d)(4)
Pub. L. 99–514, § 1001(c)(1), struck out former par. (3), “Surviving spouse”, which read as follows: “For purposes of this subsection, the term ‘surviving spouse’ means the spouse of the insured as of the date of death, including a spouse legally separated but not under a decree of absolute divorce.”
Source evidence
Code amendment note
Subsec. (d)(3), (4). Pub. L. 99–514, § 1001(c)(1), redesignated par. (4) as (3), and struck out former par. (3), “Surviving spouse”, which read as follows: “For purposes of this subsection, the term ‘surviving spouse’ means the spouse of the insured as of the date of death, including a spouse legally separated but not under a decree of absolute divorce.”Enacted provision · exact public law section
(1) Subsection (d) of section 101 is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3).Small Business Job Protection Act of 1996
Pub. L. 104–188 § 1402(a) · 110 Stat. 1755
Struck · 26 U.S.C. § 101(b)
Pub. L. 104–188, § 1402(a), struck out subsec. (b) which related to employees’ death benefits
Source evidence
Code amendment note
Subsec. (b). Pub. L. 104–188, § 1402(a), struck out subsec. (b) which related to employees’ death benefits.Enacted provision · exact public law section
(a) In General.— Subsection (b) of section 101 is hereby repealed.Small Business Job Protection Act of 1996
Pub. L. 104–188 § 1402(b)(1) · 110 Stat. 1755
Substituted · 26 U.S.C. § 101(c)
Pub. L. 104–188, § 1402(b)(1), substituted “subsection (a)” for “subsection (a) or (b)”
Source evidence
Code amendment note
Subsec. (c). Pub. L. 104–188, § 1402(b)(1), substituted “subsection (a)” for “subsection (a) or (b)”.Enacted provision · exact public law section
(1) Subsection (c) of section 101 is amended by striking “subsection (a) or (b)” and inserting “subsection (a)”.Pub. L. 104–191 title III § 331(a) · 110 Stat. 1936
Added · 26 U.S.C. § 101(g)
Pub. L. 104–191 added subsec. (g)
Source evidence
Code amendment note
Subsec. (g). Pub. L. 104–191 added subsec. (g).Enacted provision · exact public law section
(a) In General.— Section 101 (relating to certain death benefits) is amended by adding at the end the following new subsection: “(g) Treatment of Certain Accelerated Death Benefits.— “(1) In general.— For purposes of this section, the following amounts shall be treated as an amount paid by reason of the death of an insured: “(A) Any amount received under a life insurance contract on the life of an insured who is a terminally ill individual. “(B) Any amount received under a life insurance contract on the life of an insured who is a chronically ill individual. “(2) Treatment of viatical settlements.— “(A) In general.— If any portion of the death benefit under a life insurance contract on the life of an insured described in paragraph (1) is sold or assigned to a viatical settlement provider, the amount paid for the sale or assignment of such portion shall be treated as an amount paid under the life insurance contract by reason of the death of such insured. “(B) Viatical settlement provider.— “(i) In general.— The term ‘viatical settlement provider’ means any person regularly engaged in the trade or business of purchasing, or taking assignments of, life insurance contracts on the lives of insureds described in paragraph (1) if— “(I) such person is licensed for such purposes (with respect to insureds described in the same subparagraph of paragraph (1) as the insured) in the State in which the insured resides, or “(II) in the case of an insured who resides in a State not requiring the licensing of such persons for such purposes with respect to such insured, such person meets the requirements of clause (ii) or (iii), whichever applies to such insured. “(ii) Terminally ill insureds.— A person meets the requirements of this clause with respect to an insured who is a terminally ill individual if such person— “(I) meets the requirements of sections 8 and 9 of the Viatical Settlements Model Act of the National Association of Insurance Commissioners, and “(II) meets the requirements of the Model Regulations of the National Association of Insurance Commissioners (relating to standards for evaluation of reasonable payments) in determining amounts paid by such person in connection with such purchases or assignments. “(iii) Chronically ill insureds.— A person meets the requirements of this clause with respect to an insured who is a chronically ill individual if such person— “(I) meets requirements similar to the requirements referred to in clause (ii)(I), and “(II) meets the standards (if any) of the National Association of Insurance Commissioners for evaluating the reasonableness of amounts paid by such person in connection with such purchases or assignments with respect to chronically ill individuals. “(3) Special rules for chronically ill insureds.— In the case of an insured who is a chronically ill individual— “(A) In general.— Paragraphs (1) and (2) shall not apply to any payment received for any period unless— “(i) such payment is for costs incurred by the payee (not compensated for by insurance or otherwise) for qualified long-term care services provided for the insured for such period, and “(ii) the terms of the contract giving rise to such payment satisfy— “(I) the requirements of section 7702B(b)(1)(B), and “(II) the requirements (if any) applicable under subparagraph (B). For purposes of the preceding sentence, the rule of section 7702B(b)(2)(B) shall apply. “(B) Other requirements.— The requirements applicable under this subparagraph are— “(i) those requirements of section 7702B(g) and section 4980C which the Secretary specifies as appl3dng to such a purchase, assignment, or other arrangement, “(ii) standards adopted by the National Association of Insurance Commissioners which specifically apply to chronically ill individuals (and, if such standards are adopted, the analogous requirements specified under clause (i) shall cease to apply), and “(iii) standards adopted by the State in which the policyholder resides (and if such standards are adopted, the analogous requirements specified under clause (i) and (subject to section 4980C(f)) standards under clause (ii), shall cease to apply). “(C) Per diem payments.—A payment shall not fail to be described in subparagraph (A) by reason of being made on a per diem or other periodic basis without regard to the expenses incurred during the period to which the payment relates. “(D) Limitation on exclusion for periodic payments.— “For limitation on amount of periodic payments which are treated as described in paragraph (1), see section 7702B(d).”. “(4) Definitions.— For purposes of this subsection— “(A) Terminally ill individual.— The term ‘terminally ill individual’ means an individual who has been certified by a physician as having an illness or physical condition which can reasonably be expected to result in death in 24 months or less after the date of the certification. “(B) Chronically ill individual.— The term ‘chronically ill individual’ has the meaning given such term by section 7702B(c)(2); except that such term shall not include a terminally ill individual. “(C) Qualified long-term care services.— The term ‘qualified long-term care services’ has the meaning given such term by section 7702B(c). “(D) Physician.— The term ‘physician’ has the meaning given to such term by section 1861(r)(1) of the Social Security Act (42 U.S.C. 1395x(r)(1)). “(5) Exception for business-related policies.— This subsection shall not apply in the case of any amount paid to any taxpayer other than the insured if such taxpayer has an insurable interest with respect to the life of the insured by reason of the insured being a director, officer, or employee of the taxpayer or by reason of the insured being financially interested in any trade or business carried on by the taxpayer.”.Pub. L. 105–34 § 1084(b)(2) · 111 Stat. 788
Inserted · 26 U.S.C. § 101(a)(2)
Pub. L. 105–34, § 1084(b)(2), inserted at end “The term ‘other amounts’ in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).”
Source evidence
Code amendment note
Subsec. (a)(2). Pub. L. 105–34, § 1084(b)(2), inserted at end “The term ‘other amounts’ in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).”Enacted provision · exact public law section
(2) Coordination with transfers for value.— Paragraph (2) of section 101(a) is amended by adding at the end the following new flush sentence: “The term ‘other amounts’ in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).”.Pub. L. 105–34 § 1528(a) · 111 Stat. 788
Added · 26 U.S.C. § 101(h)
Pub. L. 105–34, § 1528(a), added subsec. (h)
Source evidence
Code amendment note
Subsec. (h). Pub. L. 105–34, § 1528(a), added subsec. (h).Enacted provision · exact public law section
(a) In General.— Section 101 (relating to certain death benefits) is amended by adding at the end the following new subsection: “(h) Survivor Benefits Attributable to Service by a Public Safety Officer who is Killed in the Line of Duty.— “(1) In general.— Gross income shall not include any amount paid as a survivor annuity on account of the death of a public safety officer (as such term is defined in section 1204 of the Omnibus Crime Control and Safe Streets Act of 1968) killed in the line of duty— “(A) if such annuity is provided, under a governmental plan which meets the requirements of section 401(a), to the spouse (or a former spouse) of the public safety officer or to a child of such officer; and “(B) to the extent such annuity is attributable to such officer’s service as a public safety officer. “(2) Exceptions.— Paragraph (1) shall not apply with respect to the death of any public safety officer if, as determined in accordance with the provisions of the Omnibus Crime Control and Safe Streets Act of 1968— “(A) the death was caused by the intentional misconduct of the officer or by such officer’s intention to bring about such officer’s death; “(B) the officer was voluntarily intoxicated (as defined in section 1204 of such Act) at the time of death; “(C) the officer was performing such officer’s duties in a grossly negligent manner at the time of death; or “(D) the payment is to an individual whose actions were a substantial contributing factor to the death of the officer.”.Victims of Terrorism Tax Relief Act of 2001
Pub. L. 107–134 title I § 102(a) · 115 Stat. 2427
Added · 26 U.S.C. § 101(i)
Pub. L. 107–134 added subsec. (i)
Source evidence
Code amendment note
Subsec. (i). Pub. L. 107–134 added subsec. (i).Enacted provision · exact public law section
SEC. 102. EXCLUSION OF CERTAIN DEATH BENEFITS.Military Family Tax Relief Act of 2003
Pub. L. 108–121 § 110(b)(2) · 117 Stat. 1335
Inserted · 26 U.S.C. § 101(i)
Pub. L. 108–121, § 110(b)(2), inserted “or astronauts” after “victims” in heading
Source evidence
Code amendment note
Subsec. (i). Pub. L. 108–121, § 110(b)(2), inserted “or astronauts” after “victims” in heading.Enacted provision · exact public law section
(2) Clerical amendment.— The heading for subsection (i) of section 101 is amended by inserting “or Astronauts” after “Victims”.Military Family Tax Relief Act of 2003
Pub. L. 108–121 § 110(b)(1) · 117 Stat. 1335
Added · 26 U.S.C. § 101(i)(4)
Pub. L. 108–121, § 110(b)(1), added par. (4)
Source evidence
Code amendment note
Subsec. (i)(4). Pub. L. 108–121, § 110(b)(1), added par. (4).Enacted provision · exact public law section
(1) In general.— Subsection (i) of section 101 (relating to certain death benefits) is amended by adding at the end the following new paragraph: “(4) Relief with respect to astronauts.— The Applicability. provisions of this subsection shall apply to any astronaut whose death occurs in the line of duty.” .Pub. L. 109–280 § 863(c)(1) · 120 Stat. 780
Substituted · 26 U.S.C. § 101(a)(1)
Pub. L. 109–280, § 863(c)(1), substituted “subsection (f), and subsection (j)” for “and subsection (f)”
Source evidence
Code amendment note
Subsec. (a)(1). Pub. L. 109–280, § 863(c)(1), substituted “subsection (f), and subsection (j)” for “and subsection (f)”.Enacted provision · exact public law section
(1) Paragraph (1) of section 101(a) of the Internal Revenue Code of 1986 26 USC 101. is amended by striking “and subsection (f)” and inserting “subsection (f), and subsection (j)”.Pub. L. 109–280 § 863(a) · 120 Stat. 780
Added · 26 U.S.C. § 101(j)
Pub. L. 109–280, § 863(a), added subsec. (j)
Source evidence
Code amendment note
Subsec. (j). Pub. L. 109–280, § 863(a), added subsec. (j).Enacted provision · exact public law section
(a) In General.— Section 101 of the Internal Revenue Code of 1986 (relating to certain death benefits) is amended by adding at the end the following new subsection: “(j) Treatment of Certain Employer-Owned Life Insurance Contracts.— “(1) General rule.— In the case of an employer-owned life insurance contract, the amount excluded from gross income of an applicable policyholder by reason of paragraph (1) of subsection (a) shall not exceed an amount equal to the sum of the premiums and other amounts paid by the policyholder for the contract. “(2) Exceptions.— In the case of an employer-owned life insurance contract with respect to which the notice and consent requirements of paragraph (4) are met, paragraph (1) shall not apply to any of the following: “(A) Exceptions based on insured’s status.— Any amount received by reason of the death of an insured who, with respect to an applicable policyholder— “(i) was an employee at any time during the 12-month period before the insured’s death, or “(ii) is, at the time the contract is issued— “(I) a director, “(II) a highly compensated employee within the meaning of section 414(q) (without regard to paragraph (1)(B)(ii) thereof), or “(III) a highly compensated individual within the meaning of section 105(h)(5), except that ‘35 percent’ shall be substituted for ‘25 percent’ in subparagraph (C) thereof. “(B) Exception for amounts paid to insured’s heirs.— Any amount received by reason of the death of an insured to the extent— “(i) the amount is paid to a member of the family (within the meaning of section 267(c)(4)) of the insured, any individual who is the designated beneficiary of the insured under the contract (other than the applicable policyholder), a trust established for the benefit of any such member of the family or designated beneficiary, or the estate of the insured, or “(ii) the amount is used to purchase an equity (or capital or profits) interest in the applicable policyholder from any person described in clause (i). “(3) Employer-owned life insurance contract.— “(A) In general.— For purposes of this subsection, the term ‘employer-owned life insurance contract’ means a life insurance contract which— “(i) is owned by a person engaged in a trade or business and under which such person (or a related person described in subparagraph (B)(ii)) is directly or indirectly a beneficiary under the contract, and “(ii) covers the life of an insured who is an employee with respect to the trade or business of the applicable policyholder on the date the contract is issued. For purposes of the preceding sentence, if coverage for each insured under a master contract is treated as a separate contract for purposes of sections 817(h), 7702, and 7702A, coverage for each such insured shall be treated as a separate contract. “(B) Applicable policyholder.— For purposes of this subsection— “(i) In general.— The term ‘applicable policyholder’ means, with respect to any employer-owned life insurance contract, the person described in subparagraph (A)(i) which owns the contract. “(ii) Related persons.— The term ‘applicable policyholder’ includes any person which— “(I) bears a relationship to the person described in clause (i) which is specified in section 267(b) or 707(b)(1), or “(II) is engaged in trades or businesses with such person which are under common control (within the meaning of subsection (a) or (b) of section 52). “(4) Notice and consent requirements.— The notice and consent requirements of this paragraph are met if, before the issuance of the contract, the employee— “(A) is notified in writing that the applicable policyholder intends to insure the employee’s life and the maximum face amount for which the employee could be insured at the time the contract was issued, “(B) provides written consent to being insured under the contract and that such coverage may continue after the insured terminates employment, and “(C) is informed in writing that an applicable policyholder will be a beneficiary of any proceeds payable upon the death of the employee. “(5) Definitions.— For purposes of this subsection— “(A) Employee.— The term ‘employee’ includes an officer, director, and highly compensated employee (within the meaning of section 414(q)). “(B) Insured.— The term ‘insured’ means, with respect to an employer-owned life insurance contract, an individual covered by the contract who is a United States citizen or resident. In the case of a contract covering the joint lives of 2 individuals, references to an insured include both of the individuals.” .Dale Long Public Safety Officers’ Benefits Improvements Act of 2012
Pub. L. 112–239 div. A title X § 1086(b)(3)(B) · 126 Stat. 1632
Inserted · 26 U.S.C. § 101(h)(1)
Pub. L. 112–239 inserted “, as in effect immediately before the enactment of the National Defense Authorization Act for Fiscal Year 2013” after “1968” in introductory provisions
Source evidence
Code amendment note
Subsec. (h)(1). Pub. L. 112–239 inserted “, as in effect immediately before the enactment of the National Defense Authorization Act for Fiscal Year 2013” after “1968” in introductory provisions.Enacted provision · exact public law section
(B) in section 101(h)(1), by inserting after “1968” the following: “, as in effect immediately before the enactment of the National Defense Authorization Act for Fiscal Year 2013”.Pub. L. 115–97 § 13522(b) · 131 Stat. 2054
Substituted · 26 U.S.C. § 101(a)(1)
Pub. L. 115–97, § 13522(b), substituted “paragraphs (2) and (3)” for “paragraph (2)”
Source evidence
Code amendment note
Subsec. (a)(1). Pub. L. 115–97, § 13522(b), substituted “paragraphs (2) and (3)” for “paragraph (2)”.Enacted provision · exact public law section
(b) Conforming Amendment.— Paragraph (1) of section 101(a) is amended by striking “paragraph (2)” and inserting “paragraphs (2) and (3)”.Effective date note
Pub. L. 115–97, title I, § 13522(c), Dec. 22, 2017, 131 Stat. 2152, provided that: “The amendments made by this section [amending this section] shall apply to transfers after December 31, 2017.”Pub. L. 115–97 § 13522(a) · 131 Stat. 2054
Added · 26 U.S.C. § 101(a)(3)
Pub. L. 115–97, § 13522(a), added par. (3)
Source evidence
Code amendment note
Subsec. (a)(3). Pub. L. 115–97, § 13522(a), added par. (3).Enacted provision · exact public law section
(a) In General.— Subsection (a) of section 101 is amended by inserting after paragraph (2) the following new paragraph: “(3) Exception to valuable consideration rules for commercial transfers.— “(A) In general.— The second sentence of paragraph (2) shall not apply in the case of a transfer of a life insurance contract, or any interest therein, which is a reportable policy sale. “(B) Reportable policy sale.— For purposes of this paragraph, the term ‘reportable policy sale’ means the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer’s interest in such life insurance contract. For purposes of the preceding sentence, the term ‘indirectly’ applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract.” .Effective date note
Pub. L. 115–97, title I, § 13522(c), Dec. 22, 2017, 131 Stat. 2152, provided that: “The amendments made by this section [amending this section] shall apply to transfers after December 31, 2017.”
42 of 43 references resolved to an enrolled provision · 1 partial
Editorial Notes
References in Text
The Omnibus Crime Control and Safe Streets Act of 1968, referred to in subsec. (h), is Pub. L. 90–351, , 82 Stat. 197. Section 1204 of the Act is classified to section 10284 of Title 34, Crime Control and Law Enforcement. Section 1204 of the Act, as in effect immediately before the enactment of the National Defense Authorization Act for Fiscal Year 2013, means section 1204 prior to its amendment by Pub. L. 112–239, div. A, title X, § 1086(b)(1)(E), , 126 Stat. 1967. For complete classification of this Act to the Code, see Short Title of 1968 Act note set out under section 10101 of Title 34 and Tables.
Codification
Another section 1084(b) of Pub. L. 105–34 amended sections 805, 807, 812, and 832 of this title.
Amendments1958–2017 · 16 rounds
2017
Subsec. (a)(1). Pub. L. 115–97, § 13522(b), substituted “paragraphs (2) and (3)” for “paragraph (2)”.
Subsec. (a)(3). Pub. L. 115–97, § 13522(a), added par. (3).
2013
Subsec. (h)(1). Pub. L. 112–239 inserted “, as in effect immediately before the enactment of the National Defense Authorization Act for Fiscal Year 2013” after “1968” in introductory provisions.
2006
Subsec. (a)(1). Pub. L. 109–280, § 863(c)(1), substituted “subsection (f), and subsection (j)” for “and subsection (f)”.
Subsec. (j). Pub. L. 109–280, § 863(a), added subsec. (j).
2003
Subsec. (i). Pub. L. 108–121, § 110(b)(2), inserted “or astronauts” after “victims” in heading.
Subsec. (i)(4). Pub. L. 108–121, § 110(b)(1), added par. (4).
2002
Subsec. (i). Pub. L. 107–134 added subsec. (i).
1997
Subsec. (a)(2). Pub. L. 105–34, § 1084(b)(2), inserted at end “The term ‘other amounts’ in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).”
Subsec. (h). Pub. L. 105–34, § 1528(a), added subsec. (h).
1996
Subsec. (b). Pub. L. 104–188, § 1402(a), struck out subsec. (b) which related to employees’ death benefits.
Subsec. (c). Pub. L. 104–188, § 1402(b)(1), substituted “subsection (a)” for “subsection (a) or (b)”.
Subsec. (g). Pub. L. 104–191 added subsec. (g).
1986
Subsec. (d)(1). Pub. L. 99–514, § 1001(a), amended second sentence generally, which prior to amendment read as follows: “There shall be excluded from the gross income of such beneficiary in the taxable year received—
“(A) any amount determined by such proration, and
“(B) in the case of the surviving spouse of the insured, that portion of the excess of the amounts received under one or more agreements specified in paragraph (2)(A) (whether or not payment of any part of such amounts is guaranteed by the insurer) over the amount determined in subparagraph (A) of this paragraph which is not greater than $1,000 with respect to any insured.”
Subsec. (d)(2)(B). Pub. L. 99–514, § 1001(c)(2), substituted “equal” for “is equal” in introductory provisions.
Subsec. (d)(2)(B)(ii). Pub. L. 99–514, § 1001(b), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: “as discounted on the basis of the interest rate and mortality tables used by the insurer in calculating payments under the agreement.”
Subsec. (d)(3), (4). Pub. L. 99–514, § 1001(c)(1), redesignated par. (4) as (3), and struck out former par. (3), “Surviving spouse”, which read as follows: “For purposes of this subsection, the term ‘surviving spouse’ means the spouse of the insured as of the date of death, including a spouse legally separated but not under a decree of absolute divorce.”
1984
Subsec. (b)(3)(B). Pub. L. 98–369, § 713(e), amended subpar. (B) generally, substituting “certain distributions” for “certain lump sum distributions” in heading, substituting “amount paid or distributed” for “lump sum distribution described in the second sentence of paragraph (2)(B)” in introductory text and adding cls. (i) and (ii).
Subsec. (e). Pub. L. 98–369, § 421(b)(2), repealed subsec. (e) relating to payments of alimony or of income of an estate or trust in case of divorce, etc.
Subsec. (f). Pub. L. 98–369, § 221(b)(2)(B), inserted “issued before ” in heading.
Subsec. (f)(1). Pub. L. 98–369, § 221(b)(2)(A), inserted “issued before ” in introductory text.
1982
Subsec. (a)(1). Pub. L. 97–248, § 266(b), substituted “, subsection (d), and subsection (f)” for “and in subsection (d)”.
Subsec. (b)(3). Pub. L. 97–248, § 239, amended par. (3) generally, substituting “Treatment of self-employed individuals” for “Self-employed individual not considered an employee” in heading, designating existing provisions as subparagraph (A) and, as so designated, adding heading and exception for subpar. (B), and adding subparagraph (B).
Subsec. (f). Pub. L. 97–248, § 266(a), added subsec. (f).
1976
Subsec. (d)(1). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Subsec. (f). Pub. L. 94–455, § 1901(a)(16), struck out subsec. (f) relating to effective date of section.
1974
Subsec. (b)(2)(B). Pub. L. 93–406, § 2005(c)(15), substituted “a lump sum distribution (as defined in section 402(e)(4)” for “total distributions payable (as defined in section 402(a)(3)) which are paid to a distributee within one taxable year of the distributee by reason of the employee’s death”.
Subsec. (b)(2)(D). Pub. L. 93–406, § 2007(b)(3), substituted “if the member or former member of the uniformed services by reason of whose death such annuity is payable” for “if the individual who made the election under such chapter”.
1969
Subsec. (b)(2)(B)(iii). Pub. L. 91–172 substituted references to section 170(b)(1)(A) (ii) and (vi), and to religious organizations, for references to section 503(b)(1), (2), or (3).
1966
Subsec. (b)(2)(D). Pub. L. 89–365 provided that par. (1) shall not apply in the case of an annuity under chapter 73 of title 10 if the individual who made the election under that chapter died after attaining retirement age.
1962
Subsec. (b)(2)(B)(ii). Pub. L. 87–792, § 7(c)(1), substituted “described in section 403(a)” for “which meets the requirements of paragraphs (3), (4), (5), and (6) of section 401(a)”.
Subsec. (b)(3). Pub. L. 87–792, § 7(c)(2), added par. (3).
1958
Subsec. (b)(2)(B). Pub. L. 85–866 substituted “This subparagraph shall not apply to total distributions payable (as defined in section 402(a)(3) which are paid to a distributee within one taxable year of the distributee by reason of the employee’s death—” for “(other than total distributions payable, as defined in section 402(a)(3), which are paid to distributee, by a stock bonus, pension, or profit-sharing trust described in section 401(a) which is exempt from tax under section 501(a), or under an annuity contract under a plan which meets the requirements of paragraphs (3), (4), (5), and (6) of section 401(a), within one taxable year of the distributee by reason of the employee’s death)”, and added cls. (i), (ii), and (iii).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Pub. L. 115–97, title I, § 13522(c), , 131 Stat. 2152, provided that: “The amendments made by this section [amending this section] shall apply to transfers after .”
Effective Date of 2013 Amendment
Amendment by Pub. L. 112–239 effective , and applicable to matters pending on , or filed or accruing after that date, with certain exceptions, see section 1086(d) of Pub. L. 112–239, set out as a note under section 10251 of Title 34, Crime Control and Law Enforcement.
Effective Date of 2006 Amendment
Pub. L. 109–280, title VIII, § 863(d), , 120 Stat. 1024, provided that: “The amendments made by this section [enacting section 6039I of this title and amending this section] shall apply to life insurance contracts issued after the date of the enactment of this Act [], except for a contract issued after such date pursuant to an exchange described in section 1035 of the Internal Revenue Code of 1986 for a contract issued on or prior to that date. For purposes of the preceding sentence, any material increase in the death benefit or other material change shall cause the contract to be treated as a new contract except that, in the case of a master contract (within the meaning of section 264(f)(4)(E) of such Code), the addition of covered lives shall be treated as a new contract only with respect to such additional covered lives.”
Effective Date of 2003 Amendment
Pub. L. 108–121, title I, § 110(b)(3), , 117 Stat. 1342, provided that: “The amendments made by this subsection [amending this section] shall apply to amounts paid after , with respect to deaths occurring after such date.”
Effective Date of 2002 Amendment
Pub. L. 107–134, title I, § 102(b), , 115 Stat. 2429, provided that:
“(1) Effective date.—
The amendment made by this section [amending this section] shall apply to taxable years ending before, on, or after .
“(2) Waiver of limitations.—
If refund or credit of any overpayment of tax resulting from the amendments made by this section is prevented at any time before the close of the 1-year period beginning on the date of the enactment of this Act [] by the operation of any law or rule of law (including res judicata), such refund or credit may nevertheless be made or allowed if claim therefor is filed before the close of such period.”
Effective Date of 1997 Amendment
Pub. L. 105–34, title X, § 1084(d), , 111 Stat. 955, as amended by Pub. L. 105–206, title VI, § 6010(o)(3)(B), , 112 Stat. 816, provided that: “The amendments made by this section [amending this section and sections 264, 265, 805, 807, 812, and 832 of this title] shall apply to contracts issued after , in taxable years ending after such date. For purposes of the preceding sentence, any material increase in the death benefit or other material change in the contract shall be treated as a new contract except that, in the case of a master contract (within the meaning of section 264(f)(4)(E) of the Internal Revenue Code of 1986), the addition of covered lives shall be treated as a new contract only with respect to such additional covered lives. For purposes of this subsection, an increase in the death benefit under a policy or contract issued in connection with a lapse described in section 501(d)(2) of the Health Insurance Portability and Accountability Act of 1996 [Pub. L. 104–191, set out as a note under section 264 of this title] shall not be treated as a new contract.”
Pub. L. 105–34, title XV, § 1528(b), , 111 Stat. 1075, as amended by Pub. L. 107–15, § 2, , 115 Stat. 37, provided that: “The amendments made by this section [amending this section] shall apply to amounts received in taxable years beginning after , with respect to individuals dying after such date, and to amounts received in taxable years beginning after , with respect to individuals dying on or before .”
Effective Date of 1996 Amendment
Pub. L. 104–191, title III, § 331(b), , 110 Stat. 2069, provided that: “The amendment made by subsection (a) [amending this section] shall apply to amounts received after .”
Pub. L. 104–188, title I, § 1402(c), , 110 Stat. 1790, provided that: “The amendments made by this section [amending this section and sections 406, 407, and 7701 of this title] shall apply with respect to decedents dying after the date of the enactment of this Act [].”
Effective Date of 1986 Amendment
Pub. L. 99–514, title X, § 1001(d), , 100 Stat. 2387, provided that: “The amendments made by this section [amending this section] shall apply to amounts received with respect to deaths occurring after the date of the enactment of this section [] in taxable years ending after such date.”
Effective Date of 1984 Amendment
Amendment by section 221(b)(2) of Pub. L. 98–369 effective , see section 221(d)(4) of Pub. L. 98–369, set out as an Effective Date note under section 7702 of this title.
Amendment by section 421(b)(2) of Pub. L. 98–369 applicable to transfers after , in taxable years ending after such date, subject to election to have repeal apply to transfers after 1983 or to transfers pursuant to existing decrees, see section 421(d) of Pub. L. 98–369, set out as an Effective Date note under section 1041 of this title.
Amendment by section 713 of Pub. L. 98–369 effective as if included in the provision of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97–248, to which such amendment relates, see section 715 of Pub. L. 98–369, set out as a note under section 31 of this title.
Effective Date of 1982 Amendment
Pub. L. 97–248, title II, § 266(c)(1), , 96 Stat. 550, as amended by Pub. L. 98–369, div. A, title II, § 221(b)(1), , 98 Stat. 772, provided that: “The amendments made by this section [amending this section] shall apply to contracts entered into before .”
Amendment by section 239 of Pub. L. 97–248 applicable to decedents dying after , see section 241(b) of Pub. L. 97–248, set out as an Effective Date note under section 416 of this title. Such amendment is applicable, in the case of amounts received under the plan of an S corporation, with respect to decedents dying after , notwithstanding section 241(b) of Pub. L. 97–248, see section 6(b)(2) of Pub. L. 97–354, , 96 Stat. 1697, set out as a note under section 1361 of this title.
Effective Date of 1976 Amendment
Amendment by section 1901(a)(16) of Pub. L. 94–455 applicable with respect to taxable years beginning after , see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.
Amendment by section 1906(b)(13)(A) of Pub. L. 94–455 effective , see section 1906(d)(1) of Pub. L. 94–455, set out as a note under section 6013 of this title.
Effective Date of 1974 Amendment
Amendment by section 2005(c)(15) of Pub. L. 93–406 applicable only with respect to distributions and payments made after , in taxable years beginning after , see section 2005(d) of Pub. L. 93–406, set out as a note under section 402 of this title.
Amendment by section 2007(b)(3) of Pub. L. 93–406 applicable to taxable years ending on or after , with respect to individuals dying on or after , see section 2007(c) of Pub. L. 93–406, set out as a note under section 122 of this title.
Effective Date of 1969 Amendment
Amendment by Pub. L. 91–172 effective , see section 101(k)(1) of Pub. L. 91–172, set out as an Effective Date note under section 4940 of this title.
Effective Date of 1966 Amendment
Amendment by Pub. L. 89–365 applicable with respect to individuals making an election under chapter 73 of Title 10 who died after , see section 1(d) of Pub. L. 89–365, set out as an Effective Date note under section 122 of this title.
Effective Date of 1962 Amendment
Amendment by Pub. L. 87–792 applicable to taxable years beginning after , see section 8 of Pub. L. 87–792, set out as a note under section 22 of this title.
Effective Date of 1958 Amendment
Amendment by Pub. L. 85–866 applicable to taxable years beginning after , see section 23(g) of Pub. L. 85–866, set out as a note under section 403 of this title.
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§ 1401–1465] of title I of Pub. L. 104–188 require an amendment to any plan or annuity contract, such amendment shall not be required to be made before the first day of the first plan year beginning on or after , see section 1465 of Pub. L. 104–188, set out as a note under section 401 of this title.
Flexible Premium Contracts Issued During 1984 Which Meet Requirements of Section 7702 Treated as Meeting Requirements of Section 101(f)
Flexible premium contracts issued during 1984 which meet requirements of section 7702 of this title treated as meeting requirements of subsec. (f) of this section, see section 221(b)(3) of Pub. L. 98–369, as added by Pub. L. 99–514, set out as a note under section 7702 of this title.
Special Rules for Contracts Entered Into Before January 1, 1983
Pub. L. 97–248, title II, § 266(c)(2), (3), , 96 Stat. 550, as amended by Pub. L. 97–448, title III, § 306(a)(13), , 96 Stat. 2405; Pub. L. 99–514, § 2, , 100 Stat. 2095, provided that:
“(2) Special rule for contracts entered into before .—
Any contract entered into before , which meets the requirements of section 101(f) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] on the date which is 1 year after the date of the enactment of this Act [] shall be treated as meeting the requirements of such section for any period before the date on which such contract meets such requirements. Any death benefits paid under a flexible premium life insurance contract (within the meaning of section 101(f)(3)(A) of such Code) before the date which is 1 year after such date of enactment [] shall be excluded from gross income.
“(3) Special rule for certain contracts.—
Any contract entered into before , shall be treated as meeting the requirements of subparagraph (A) of section 101(f)(1) of such Code if such contract would meet such requirements if section 101(f)(2)(C) of such Code were applied by substituting ‘3 percent’ for ‘4 percent’.”
Credits
1954–2017 · 18 acts
- 1954Aug. 16, 1954, ch. 736, 68A Stat. 26
- 1958Pub. L. 85–866, title I, § 23(d), , 72 Stat. 1622
- 1962Pub. L. 87–792, § 7(c), , 76 Stat. 829
- 1966Pub. L. 89–365, § 1(c), , 80 Stat. 32
- 1969Pub. L. 91–172, title I, § 101(j)(l), , 83 Stat. 526
- 1974Pub. L. 93–406, title II, §§ 2005(c)(15), 2007(b)(3), , 88 Stat. 992, 994
- 1976Pub. L. 94–455, title XIX, §§ 1901(a)(16), 1906(b)(13)(A), , 90 Stat. 1765, 1834
- 1982Pub. L. 97–248, title II, §§ 239, 266(a), (b), , 96 Stat. 514, 547, 550
- 1984Pub. L. 98–369, div. A, title II, § 221(b)(2), title IV, § 421(b)(2), title VII, § 713(e), , 98 Stat. 772, 794, 958
- 1986Pub. L. 99–514, title X, § 1001(a)–(c), , 100 Stat. 2387
- 1996Pub. L. 104–188, title I, § 1402(a), (b)(1), , 110 Stat. 1789
- 1996Pub. L. 104–191, title III, § 331(a), , 110 Stat. 2067
- 1997Pub. L. 105–34, title X, § 1084(b)(2), title XV, § 1528(a), , 111 Stat. 952, 1074
- 2002Pub. L. 107–134, title I, § 102(a), , 115 Stat. 2429
- 2003Pub. L. 108–121, title I, § 110(b)(1), (2), , 117 Stat. 1342
- 2006Pub. L. 109–280, title VIII, § 863(a), (c)(1), , 120 Stat. 1021, 1024
- 2013Pub. L. 112–239, div. A, title X, § 1086(b)(3)(B), , 126 Stat. 1968
- 2017Pub. L. 115–97, title I, § 13522(a), (b), , 131 Stat. 2151, 2152.
Show as published
(Aug. 16, 1954, ch. 736, 68A Stat. 26; Pub. L. 85–866, title I, § 23(d), , 72 Stat. 1622; Pub. L. 87–792, § 7(c), , 76 Stat. 829; Pub. L. 89–365, § 1(c), , 80 Stat. 32; Pub. L. 91–172, title I, § 101(j)(l), , 83 Stat. 526; Pub. L. 93–406, title II, §§ 2005(c)(15), 2007(b)(3), , 88 Stat. 992, 994; Pub. L. 94–455, title XIX, §§ 1901(a)(16), 1906(b)(13)(A), , 90 Stat. 1765, 1834; Pub. L. 97–248, title II, §§ 239, 266(a), (b), , 96 Stat. 514, 547, 550; Pub. L. 98–369, div. A, title II, § 221(b)(2), title IV, § 421(b)(2), title VII, § 713(e), , 98 Stat. 772, 794, 958; Pub. L. 99–514, title X, § 1001(a)–(c), , 100 Stat. 2387; Pub. L. 104–188, title I, § 1402(a), (b)(1), , 110 Stat. 1789; Pub. L. 104–191, title III, § 331(a), , 110 Stat. 2067; Pub. L. 105–34, title X, § 1084(b)(2), title XV, § 1528(a), , 111 Stat. 952, 1074; Pub. L. 107–134, title I, § 102(a), , 115 Stat. 2429; Pub. L. 108–121, title I, § 110(b)(1), (2), , 117 Stat. 1342; Pub. L. 109–280, title VIII, § 863(a), (c)(1), , 120 Stat. 1021, 1024; Pub. L. 112–239, div. A, title X, § 1086(b)(3)(B), , 126 Stat. 1968; Pub. L. 115–97, title I, § 13522(a), (b), , 131 Stat. 2151, 2152.)