Amends the Internal Revenue Code to disallow a deduction for excess interest paid in connection with certain life insurance contracts. Modifies provisions with respect to indebtedness under such contracts. Requires the filing of information returns relating to changes in the insured under such contracts.
HR 4389 IH 101st CONGRESS 2d Session H. R. 4389 To amend the Internal Revenue Code of 1986 with respect to the treatment of interest paid in connection with certain life insurance contracts. IN THE HOUSE OF REPRESENTATIVES March 27, 1990 Mrs. KENNELLY introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 with respect to the treatment of interest paid in connection with certain life insurance contracts. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. TREATMENT OF INTEREST PAID IN CONNECTION WITH CERTAIN INSURANCE CONTRACTS. (a) EXCESS INTEREST- Subsection (a) of section 264 of the Internal Revenue Code of 1986 (relating to certain amounts paid in connection with insurance contracts) is amended by inserting after paragraph (4) the following: `(5) Any amount of interest paid or accrued on any indebtedness with respect to a life insurance policy, to the extent that the amount of such interest is in excess of the amount computed by use of the highest of the following rates: `(A) A rate determined in accordance with section 3(a)(i) (or its successor provision) of the Model Policy Loan Interest Rate Bill of the National Association of Insurance Commissioners. `(B) A rate determined in accordance with sections 3(b)(i) and 3(d) (or their successor provisions) of the Model Policy Loan Interest Rate Bill of the National Association of Insurance Commissioners. `(C) A rate 1 percent above the lowest rate that is guaranteed to be credited over the life of the policy by the insurer. For purposes of applying subparagraphs (A) and (B) of paragraph (5), if at any time there is no Model Policy Loan Interest Rate Bill of the National Association of Insurance Commissioners or if a rate cannot be established under section 3(a)(i) or sections 3(b)(i) and (d) (or their successor provisions) of such Bill, then the rate to be used shall be a substantially similar rate determined under regulations prescribed by the Secretary.' (b) MODIFICATION TO SECTION 264(c)(1)- Subsection (c) of section 264 of such Code is amended by adding at the end the following new sentence: `For purposes of applying paragraph (1), the payment of more than 25 percent of any annual premium by the direct or indirect application of any policy dividend, distribution, or surrender proceeds shall be deemed a payment under a plan referred to in subsection (a)(3) by means of indebtedness.' (c) CONSENT OR ELIGIBILITY TEST- Section 264 of such Code is amended by adding at the end thereof the following new subsection: `(d) $50,000 EXEMPTION OF SUBSECTION (a)(4) NOT TO APPLY TO CERTAIN POLICIES- `(1) IN GENERAL- In the case of a life insurance policy described in paragraph (2), subsection (a)(4) shall be applied without regard to the provision limiting its application to indebtedness in excess of $50,000. `(2) POLICIES TO WHICH PARAGRAPH (1) APPLIES- A life insurance policy is described in this paragraph if such policy covers the life of any individual-- `(A) who was not afforded the opportunity to decline to be insured under such policy, or `(B) to the extent that the insurance is purchased or continued pursuant to a funded or unfunded plan of employee compensation or benefits (whether or not the insurance is an asset of the plan), if, at the later of the inception of the policy or the inception of the plan, such individual is, with respect to such plan, neither-- `(i) a current participant, nor `(ii) a future participant under circumstances in which the employee's future participation is dependent solely upon any one or more of the following: `(I) the attainment of plan specified service or age, `(II) the continuation of full-time employment, or `(III) the attainment of retirement status.' (d) REPORTING REQUIREMENTS- (1) IN GENERAL- Subpart B of part III of subchapter A of chapter 61 of such Code (relating to information concerning transactions with other persons) is amended by adding at the end thereof the following new section: `SEC. 6050O. RETURNS RELATING TO CHANGES IN INSURED UNDER CERTAIN POLICIES. `(a) IN GENERAL- If there is a change in the individual whose life is covered under any life insurance policy described in section 264(a)(4), the insurer under such policy shall make a return stating-- `(1) the name and address of the taxpayer owning such policy, `(2) that there was such a change under such policy, and `(3) such other information as the Secretary may by regulations prescribe. Such return shall be made at such time and in such manner as the Secretary may require by regulations. `(b) STATEMENT TO BE FURNISHED TO PERSON OWNING POLICY- Every insurer required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return under subsection (a)(1) a written statement showing-- `(1) the name of the insurer required to make such return, and `(2) the information required to be shown on the return with respect to such person. The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.' (2) PENALTIES- (A) Subparagraph (B) of section 6724(d)(1) of such Code (defining information return) is amended by redesignating clauses (viii), (ix), (x), and (xi) as clauses (ix), (x), (xi), and (xii), respectively, and by inserting after clause (vii) the following new clause: `(viii) section 6050O (relating to changes in insured under certain policies),'. (B) Paragraph (2) of section 6724(d) of such Code is amended by redesignating subparagraphs (P), (Q), (R), and (S) as subparagraphs (Q), (R), (S), and (T), respectively, and by inserting after subparagraph (O) the following new subparagraph: `(P) section 6050O(b) (relating to changes in insured under certain policies),'. (3) CLERICAL 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. 6050O. Returns relating to changes in insured under certain policies. (e) EFFECTIVE DATE- The amendments made by this section shall apply to contracts purchased on or after March 27, 1990.
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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