“A bill to amend the Internal Revenue Code of 1986 to prevent the abuse of life insurance tax rules, and for other purposes.”
No CRS summary available for this bill.
This section establishes a new IRC §7702C denying insurance or annuity contract status—and thus associated tax deferral—for applicable private placement contracts (i.e., variable life insurance or annuity contracts sold to investors qualifying for securities registration exemptions based on minimum income/assets, education, or credentials). An applicable private placement contract is any such private placement contract whose segregated asset account fails diversification requirements (i.e., supports fewer than 25 contracts after aggregating related-party holdings, or lacks identical pro-rata support across assets for each contract); this denial applies permanently once triggered and extends to certain foreign contracts held by U.S. persons with variable investment features. Holders of applicable contracts are treated as directly owning their pro-rata share of account assets and currently taxable on net income (i.e., gross income less directly connected deductions, excluding reserves, fees, or mortality charges) or eligible for net losses and credits therefrom.
This section requires every reporting issuer (i.e., any person issuing or reinsuring an applicable private placement contract) to file an initial IRS return within 30 days after the later of 180 days after enactment or the date the contract first becomes applicable, setting forth holder information, applicable adjusted basis, related contracts and holders, and other required details. It further requires annual returns reporting income, loss, deduction, credit, distributions (including excess distributions), adjusted basis, and reinsurance amounts; statements to holders and distributees by January 31 of the following year; and imposes a penalty of $1,000,000 plus an additional $1,000,000 for each 30-day penalty period for failure to file the initial return. (As background, applicable private placement contracts are defined in new IRC §7702C and generally are investor-controlled life insurance or annuity contracts where the holder is treated as owner of supporting assets for tax purposes.)