Page:United States Statutes at Large Volume 100 Part 3.djvu/660

 100 STAT. 2468

PUBLIC LAW 99-514—OCT. 22, 1986

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"(ii) as of the date of such cessation, there is unrecovered investment in the contract, the amount of such unrecovered investment (in excess of any amount specified in subsection (e)(5) which was not included in gross income) shall be allowed as a deduction to the annuitant for his last taxable year. "(B) PAYMENTS TO OTHER PERSONS.—In the case of any contract which provides for payments meeting the requirements of subparagraphs (B) and (C) of subsection (c)(2), the deduction under subparagraph (A) shall be allowed to the person entitled to such payments for the taxable year in which such payments are received.

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"(C) N E T OPERATING LOSS DEDUCTIONS PROVIDED.—For pur-

poses of section 172, a deduction allowed under this para^j graph shall be treated as if it were attributable to a trade or business of the taxpayer. ,j,,, "(4) UNRECOVERED INVESTMENT.—For purposes of this subsection, the unrecovered investment in the contract as of any date ^,.t.. i s —

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title." (3) AMOUNTS NOT RECEIVED AS ANNUITIES ALLOCATED ON A PRO RATA BASIS.—

(A) IN GENERAL.—Subsection (e) of section 72 is amended by adding at the end thereof the following new paragraphs: "(8) EXTENSION OF PARAGRAPH (2)(b) TO QUALIFIED PLANS.— "(A) IN GENERAL.—Notwithstanding any other provision of this subsection (other than paragraph (7)), in the case of any amount received before the annuity starting date from a trust or contract described in paragraph (5)(D), paragraph (2)(B) shall apply to such amounts.

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"(B) ALLOCATION OF AMOUNT RECEIVED.—For purposes of

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"(A) the investment in the contract as of the annuity starting date, reduced by "(B) the aggregate amount received under the contract on or after such annuity starting date and before the date as of which the determination is being made, to the extent such amount was excludable from gross income under this sub-

paragraph (2)(B), the amount allocated to the investment in the contract shall be the portion of the amount described in subparagraph (A) which bears the same ratio to such amount as the investment in the contract bears to the account balance. The determination under the preceding sentence shall be made as of the time of the distribution or at such other time as the Secretary may prescribe. "(C) TREATMENT OF FORFEITABLE RIGHTS.—If an employee does not have a nonforfeitable right to any amount under any trust or contract to which subparagraph (A) applies, such amount shall not be treated as part of the account balance. "(D) INVESTMENT IN THE CONTRACT BEFORE 1987.—In the

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case of a plan which on May 5, 1986, permitted withdrawal of any employee contributions before separation from service, subparagraph (A) shall apply only to the extent that amounts received before the annuity starting date (when increased by amounts previously received under the contract after December 31, 1986) exceed the investment in the contract as of December 31, 1986.

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