Page:United States Statutes at Large Volume 98 Part 1.djvu/822

 98 STAT. 774

PUBLIC LAW 98-369—JULY 18, 1984 account with respect to any insured shall be the first date on which such insured is covered under such contract. SEC. 222. TREATMENT OF CERTAIN ANNUITY CONTRACTS. (a) PENALTY ON PREMATURE DISTRIBUTIONS.—Paragraph (1) of sec-

26 USC 72.

tion 72(q) (relating to 5-percent penalty for premature distributions from annuity contracts) is amended to read as follows: "(1) IMPOSITION OF PENALTY.—If any taxpayer receives any

amount under an annuity contract, the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 5 percent of the portion of such amount which is includible in gross income." (b) REQUIRED DISTRIBUTIONS WHERE HOLDER DIES BEFORE ENTIRE INTEREST IS DISTRIBUTED.—Section 72 (relating to annuities; certain

proceeds of endowment and life insurance contracts) is amended by redesignating subsection (s) and subsection (t) and by inserting after subsection (r) the following new subsection: "(s) REQUIRED DISTRIBUTIONS WHERE HOLDER DIES BEFORE ENTIRE INTEREST IS DISTRIBUTED.—

"(1) IN GENERAL.—A contract shall not be treated as an annuity contract for purposes of this title unless it provides that— "(A) if the holder of such contract dies on or after the annuity starting date and before the entire interest in such contract has been distributed, the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used as of the date of his death, and "(B) if the holder of such contract dies before the annuity starting date, the entire interest in such contract will be distributed within 5 years after the death of such holder. "(2) EXCEPTION FOR CERTAIN AMOUNTS PAYABLE OVER LIFE OF BENEFICIARY.—If—

"(A) any portion of the holder's interest is payable to (or for the benefit of) a designated beneficiary, "(B) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and "(C) such distributions begin not later than 1 year after the date of the holder's death or such later date as the Secretary may by regulations prescribe, then for purposes of paragraph (1), the portion referred to in subparagraph (A) shall be treated as distributed on the day on which such distributions begin. "(3) SPECIAL RULE WHERE SURVIVING SPOUSE BENEFICIARY.—If

the designated beneficiary referred to in paragraph (2)(A) is the surviving spouse of the holder of the contract, paragraphs (1) and (2) shall be applied by treating such spouse as the holder of such contract. "(4) DESIGNATED BENEFICIARY.—For purposes of this subsection, the term 'designated beneficiary' means any individual designated a beneficiary by the holder of the contract." 26 USC 72 note.

(c) EFFECTIVE D A T E S. —

(1) IN GENERAL.—The amendments made by this section shall apply to contracts issued after the day which is 6 months after

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