Page:United States Statutes at Large Volume 98 Part 1.djvu/819

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 771

the policyholder shall be treated as ordinary income received or accrued by the policyholder during such year. "(B) INCOME ON THE CONTRACT.—For purposes of this paragraph, the term 'income on the contract means, with respect to any taxable year of the policyholder, the excess of— "(i) the sum of— "(I) the increase in the net surrender value of the contract during the taxable year, and "(II) the cost of life insurance protection provided under the contract during the taxable year, over "(ii) the amount of premiums paid under the contract during the taxable year reduced by any policyholder dividends received during such taxable year. "(C) CONTRACTS WHICH CEASE TO MEET DEFINITION.—If,

during any taxable year of the policyholder, a contract which is a life insurance contract under the applicable law ceases to meet the definition of life insurance contract under subsection (a), the income on the contract for all prior taxable years shall be treated as received or accrued during the taxable year in which such cessation occurs. "(D) COST OF U F E INSURANCE PROTECTION.—For purposes of this paragraph, the cost of life insurance protection provided under the contract shall be the lesser of— "(i) the cost of individual insurance on the life of the insured as determined on the basis of uniform premiums (computed on the basis of 5-year age brackets) prescribed by the Secretary by regulations, or "(ii) the mortality charge (if any) stated in the contract.

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"(2) TREATMENT OF AMOUNT PAID ON DEATH OF INSURED.—If

any contract which is a life insurance contract under the applicable law does not meet the definition of life insurance contract under subsection (a), the excess of the amount paid by the reason of the death of the insured over the net surrender value of the contract shall be deemed to be paid under a life insurance contract for purposes of section 101 and subtitle B. "(3) CONTRACT CONTINUES TO BE TREATED AS INSURANCE CON-

TRACT.—If any contract which is a life insurance contract under the applicable law does not meet the definition of life insurance contract under subsection (a), such contract shall, notwithstanding such failure, be treated as an insurance contract for purposes of this title. "(h) ENDOWMENT CONTRACTS RECEIVE SAME TREATMENT.—

"(1) IN GENERAL.—References in subsections (a) and (g) to a life insurance contract shall be treated as including references to a contract which is an endowment contract under the applicable law. "(2) DEFINITION OF ENDOWMENT CONTRACT.—For purposes of this title (other than paragraph (1)), the term 'endowment contract' means a contract which is an endowment contract under the applicable law and which meets the requirements of subsection (a), "(i) TRANSITIONAL RULE FOR CERTAIN 20-PAY CONTRACTS.—

"(1) IN GENERAL.—In the case of a qualified 20-pay contract, this section shall be applied by substituting '3 percent' for '4 percent' in subsection (b)(2).

26 USC 2001.

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