Page:United States Statutes at Large Volume 100 Part 3.djvu/677

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2485

For purposes of this paragraph, holding by a trust or other entity as an agent for a natural person shall not be taken into account. "(2) INCOME ON THE CONTRACT.—

"(A) IN GENERAL.—For purposes of paragraph (1), the term 'income on the contract' means, with respect to any taxable year of the policyholder, the excess of— "(i) the sum of the net surrender value of the contract as of the close of the taxable year plus all distributions under the contract received during the taxable year or any prior taxable year, reduced by ., "(ii) the sum of the amount of net premiums under the contract for the taxable year and prior taxable years and amounts includible in gross income for prior ., taxable years with respect to such contract under this subsection. Where necessary to prevent the avoidance of this subsec* tion, the Secretary may substitute 'fair market value of the contract' for 'net surrender value of the contract' each '-." place it appears in the preceding sentence. "(B) NET PREMIUMS.—For purposes of this paragraph, the term 'net premiums' means the amount of premiums paid under the contract reduced by any policyholder dividends. "(3) EXCEPTIONS.—This subsection shall not apply to any annuity contract which— "(A) is acquired by the estate of a decedent by reason of the death of the decedent, "(B) is held under a plan described in section 401(a) or 403(a), under a program described in section 403(b), or under an individual retirement plan, '••' "(C) is a qualified funding asset (as defined in section 130(d), but without regard to whether there is a qualified assignment), "(D) which is purchased by an employer upon the termi{.;,• nation of a plan described in section 401(a) or 403(a) and "' which is held by the employer until such time as the employee separates from service, or "(E) which is an immediate annuity. "(4) IMMEDIATE ANNUITY.—For purposes of this subsection, the term 'immediate annuity' means an annuity— "(A) which is purchased with a single premium or annuity consideration, and ., "(B) the annuity starting date (as defined in subsection (c)(4)) of which commences no later than 1 year from the date of the purchase of the annuity." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to contributions to annuity contracts after February 28, 1986. SEC. 1136. PROFITS NOT REQUIRED FOR PROFIT-SHARING PLANS.

(a) IN GENERAL.—Subsection (a) of section 401, as amended by section 1112(b), is amended by inserting after paragraph (26) the following new paragraph: "(27) The determination of whether the plan under which any contributions are made is a profit-sharing plan shall be made without regard to current or accumulated profits of the

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