II
109th CONGRESS
1st Session
S. 993
IN THE SENATE OF THE UNITED STATES
May 10, 2005
Mr. Grassley (for himself and Mr. Baucus) introduced the following bill; which was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to impose an excise tax on amounts received under certain insurance policies in which certain exempt organizations hold an interest.
Excise tax on certain acquisitions of interests in insurance contracts in which certain exempt organizations hold an interest
Imposition of tax
In general
Chapter 42 of the Internal Revenue Code of 1986 (relating to excise taxes involving private foundations and certain other tax-exempt organizations) is amended by adding at the end the following new subchapter:
Insurance contracts in which certain exempt organizations hold interests
Sec. 4965. Excise tax on acquisition of interests in insurance contracts in which certain exempt organizations hold an interest.
Excise tax on acquisition of interests in insurance contracts in which certain exempt organizations hold an interest
Imposition of tax
If there is a taxable acquisition of any interest in an applicable insurance contract, there is hereby imposed on the person acquiring the interest a tax equal to 100 percent of the acquisition costs of the interest.
Taxable acquisition
For purposes of this section—
In general
The term taxable acquisition means the acquisition of any direct or indirect interest in an applicable insurance contract by—
an applicable exempt organization, or
a person other than an applicable exempt organization if such interest in the hands of such person is not an interest described in clause (i), (ii), or (iii) of paragraph (2)(B).
Applicable insurance contract
In general
The term applicable insurance contract means any life insurance, annuity, or endowment contract with respect to which both an applicable exempt organization and a person other than an applicable exempt organization have directly or indirectly held an interest in the contract (whether or not at the same time).
Exceptions
Such term shall not include a life insurance, annuity, or endowment contract if—
all persons directly or indirectly holding any interest in the contract (other than applicable exempt organizations) have an insurable interest in the insured under the contract independent of any interest of an applicable exempt organization in the contract,
the sole interest in the contract of each person other than an applicable exempt organization is as a named beneficiary, or
the sole interest in the contract of each person other than an applicable exempt organization is—
as a beneficiary of a trust holding an interest in the contract, but only if the person's designation as such beneficiary was made without consideration and solely on a purely gratuitous basis, or
as a trustee who holds an interest in the contract in a fiduciary capacity solely for the benefit of applicable exempt organizations or persons otherwise described in clauses (i) and (ii) or subclause (I) of this clause.
Definition and rule relating to acquisition costs
Acquisition costs defined
The term acquisition costs means the direct or indirect costs of acquiring an interest in an applicable insurance contract. Such term shall include any fees, commissions, charges, or other amounts paid in connection with the acquisition, whether or not paid to the issuer of the contract.
Timing of payments
Except as provided in regulations, if acquisition costs of any acquisition are paid or incurred in more than 1 calendar year, the tax imposed by subsection (a) with respect to the acquisition shall be imposed each time the costs are so paid or incurred.
Rules relating to interests
In general
An interest in the contract includes any right with respect to the contract, whether as an owner, beneficiary, or otherwise.
Indirect interest
An indirect interest in a contract includes an interest in an entity which directly or indirectly holds an interest in the contract.
Exchanged contracts
In the case of an exchange of an applicable insurance contract on which no gain or loss is recognized under section 1035, any interest in any of the contracts involved in the exchange shall be treated as an interest in all such contracts.
Increase in interest
If a person increases an interest in an applicable insurance contract, the increase shall be treated as a separate acquisition for purposes of this section.
Prior acquisitions
Except as provided in regulations, if a person acquires an interest in a contract before the contract is treated as an applicable insurance contract, the acquisition shall be treated as a taxable acquisition of an interest in an applicable insurance contract as of the date the contract becomes an applicable insurance contract.
Applicable exempt organization
For purposes of this section, the term applicable exempt organization means—
an organization described in section 170(c),
an organization described in section 168(h)(2)(A)(iv), or
an organization not described in paragraph (1) or (2) which is described in section 2055(a) or section 2522(a).
Tax not treated as investment in the contract
For purposes of section 72, the tax imposed by this section shall not be included in investment in the contract.
Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section. Such regulations may include regulations which—
exempt certain contracts from treatment as applicable insurance contracts based on specific factors, including whether the transaction is at arms length, the relative economic benefits to applicable exempt organizations as compared to other persons, and the likelihood of abuse,
provide, for purposes of subsection (b)(6), appropriate rules for the application of this section in any case where an interest is acquired before a contract becomes an applicable insurance contract,
prevent, in cases the Secretary determines appropriate, the imposition of more than one tax under this section if the same interest is acquired more than once, and
are designed to prevent avoidance of the purposes of this section, including through the use of intermediaries.
.
Conforming amendment
The table of subchapters for chapter 42 of such Code is amended by adding at the end the following new item:
Subchapter F. Insurance contracts in which certain exempt organizations hold interests.
.
Reporting requirements
In general
Subpart B of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 (relating to information concerning transactions with other persons) is amended by adding at the end the following new section:
Returns relating to applicable insurance contracts in which certain exempt organizations hold interests
Requirements of reporting
Exempt organizations
Each—
applicable exempt organization which acquires (within the meaning of section 4965) an interest in any applicable insurance contract, and
other person which so acquires such an interest which, in the hands of such person, is taxable under section 4965,
Transfers
If a person (including an applicable exempt organization) acquires an interest in an applicable insurance contract in an acquisition which is taxable under section 4965 and then transfers such interest to 1 or more other persons, each person acquiring all or a portion of such interest shall make the return described in subsection (c).
Time for making return
Any organization or person required to make a return under subsection (a) shall file such return at such time as may be established by the Secretary with respect to—
in the case of an organization described in subsection (a)(1), the calendar year in which the acquisition occurs, any calendar year in which acquisition costs are paid or incurred, and any other calendar years specified by the Secretary, and
in the case of a person described in subsection (a)(2), the calendar year in which the transfer occurs.
Form and manner of returns
A return is described in this subsection if such return—
is in such form as the Secretary prescribes,
in the case of—
a return required under subsection (a)(1)(A), contains the name, address, and taxpayer identification number of the applicable exempt organization, the issuer of the applicable insurance contract, and any person acquiring an interest in the contract which may be taxable under section 4965,
a return required under subsection (a)(1)(B), contains the name, address, and taxpayer identification number of the person acquiring an interest in the applicable insurance contract which is taxable under section 4965, any applicable exempt organization holding an interest in the contract, and the issuer of the contract, and
a return required under subsection (a)(2), contains the name, address, and taxpayer identification number of the transferor and transferee, and
contains such other information as the Secretary may prescribe.
Statements To be furnished to persons with respect to whom information is required
Every person required to make a return under subsection (a) shall furnish to each person whose taxpayer identification information is required to be included in such return under subsection (c) a written statement showing—
the name and address of the person required to make such return and the telephone number of the information contact for such person, and
the taxpayer identity and other information required to be shown on the return with respect to such person.
Definitions
For purposes of this section, any term used in this section which is also used in section 4965 shall have the meaning given such term by section 4965.
.
Penalties
In general
Section 6724(d) of such Code is amended—
in paragraph (1)(B), by redesignating clauses (xiii) through (xviii) as clauses (xiv) through (xix) and by inserting after clause (xii) the following new clause:
section 6050U (relating to returns relating to applicable insurance contracts in which certain exempt organizations hold interests),
, and
in
paragraph (3), by striking and
at the end of subparagraph (C),
by striking the period at the end of subparagraph (D) and inserting ,
and
, and by adding at the end the following new subparagraph:
the statement required by subsection (d) of section 6050U (relating to returns relating to applicable insurance contracts in which certain exempt organizations hold interests).
.
Intentional disregard
Section 6721(e)(2) of such Code is amended by striking
or
at the end of subparagraph (B), by striking
and
at the end of subparagraph (C) and inserting
or
, and by adding at the end the following new
subparagraph:
in the case of a return required to be filed under section 6050U, the amount of tax imposed under section 4965 which has not been paid with respect to items required to be included on the return, and
.
Conforming amendment
The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by adding at the end the following new item:
Sec. 6050U. Returns relating to applicable insurance contracts in which certain exempt organizations hold interests.
.
Effective date
In general
The amendments made by this section shall apply to contracts issued after May 3, 2005.
Reporting of existing contracts
In the case of any life insurance, annuity, or endowment contract—
which was issued on or before May 3, 2005,
with respect to which an applicable exempt organization (as defined in section 4965 of the Internal Revenue Code of 1986, as added by this section) holds an interest on May 3, 2005, and
which would be treated as an applicable insurance contract (as so defined) if issued after May 3, 2005,