
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
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[Document affected by Public Law 107-16 Section 402(a)(4)(B)]
[Document affected by Public Law 107-16 Section 632(a)(3)(A)]
[Document affected by Public Law 107-16 Section 641(a)(2)(C)]
[Document affected by Public Law 107-16 Section 641(e)(1)]
[Document affected by Public Law 107-22 Section 1(b)(1)(A)]
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[CITE: 26USC72]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
          PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
 
Sec. 72. Annuities; certain proceeds of endowment and life 
        insurance contracts
        

(a) General rule for annuities

    Except as otherwise provided in this chapter, gross income includes 
any amount received as an annuity (whether for a period certain or 
during one or more lives) under an annuity, endowment, or life insurance 
contract.

(b) Exclusion ratio

                           (1) In general

        Gross income does not include that part of any amount received 
    as an annuity under an annuity, endowment, or life insurance 
    contract which bears the same ratio to such amount as the investment 
    in the contract (as of the annuity starting date) bears to the 
    expected return under the contract (as of such date).

                 (2) Exclusion limited to investment

        The portion of any amount received as an annuity which is 
    excluded from gross income under paragraph (1) shall not exceed the 
    unrecovered investment in the contract immediately before the 
    receipt of such amount.

      (3) Deduction where annuity payments cease before entire 
                            investment recovered

        (A) In general

            If--
                (i) after the annuity starting date, payments as an 
            annuity under the contract cease by reason of the death of 
            an annuitant, and
                (ii) as of the date of such cessation, there is 
            unrecovered investment in the contract,

        the amount of such unrecovered investment (in excess of any 
        amount specified in subsection (e)(5) which was not included in 
        gross income) shall be allowed as a deduction to the annuitant 
        for his last taxable year.

        (B) Payments to other persons

            In the case of any contract which provides for payments 
        meeting the requirements of subparagraphs (B) and (C) of 
        subsection (c)(2), the deduction under subparagraph (A) shall be 
        allowed to the person entitled to such payments for the taxable 
        year in which such payments are received.

        (C) Net operating loss deductions provided

            For purposes of section 172, a deduction allowed under this 
        paragraph shall be treated as if it were attributable to a trade 
        or business of the taxpayer.

                     (4) Unrecovered investment

        For purposes of this subsection, the unrecovered investment in 
    the contract as of any date is--
            (A) the investment in the contract (determined without 
        regard to subsection (c)(2)) as of the annuity starting date, 
        reduced by
            (B) the aggregate amount received under the contract on or 
        after such annuity starting date and before the date as of which 
        the determination is being made, to the extent such amount was 
        excludable from gross income under this subtitle.

(c) Definitions

                   (1) Investment in the contract

        For purposes of subsection (b), the investment in the contract 
    as of the annuity starting date is--
            (A) the aggregate amount of premiums or other consideration 
        paid for the contract, minus
            (B) the aggregate amount received under the contract before 
        such date, to the extent that such amount was excludable from 
        gross income under this subtitle or prior income tax laws.

     (2) Adjustment in investment where there is refund feature

        If--
            (A) the expected return under the contract depends in whole 
        or in part on the life expectancy of one or more individuals;
            (B) the contract provides for payments to be made to a 
        beneficiary (or to the estate of an annuitant) on or after the 
        death of the annuitant or annuitants; and
            (C) such payments are in the nature of a refund of the 
        consideration paid,

    then the value (computed without discount for interest) of such 
    payments on the annuity starting date shall be subtracted from the 
    amount determined under paragraph (1). Such value shall be computed 
    in accordance with actuarial tables prescribed by the Secretary. For 
    purposes of this paragraph and of subsection (e)(2)(A), the term 
    ``refund of the consideration paid'' includes amounts payable after 
    the death of an annuitant by reason of a provision in the contract 
    for a life annuity with minimum period of payments certain, but (if 
    part of the consideration was contributed by an employer) does not 
    include that part of any payment to a beneficiary (or to the estate 
    of the annuitant) which is not attributable to the consideration 
    paid by the employee for the contract as determined under paragraph 
    (1)(A).

                         (3) Expected return

        For purposes of subsection (b), the expected return under the 
    contract shall be determined as follows:

        (A) Life expectancy

            If the expected return under the contract, for the period on 
        and after the annuity starting date, depends in whole or in part 
        on the life expectancy of one or more individuals, the expected 
        return shall be computed with reference to actuarial tables 
        prescribed by the Secretary.

        (B) Installment payments

            If subparagraph (A) does not apply, the expected return is 
        the aggregate of the amounts receivable under the contract as an 
        annuity.

                      (4) Annuity starting date

        For purposes of this section, the annuity starting date in the 
    case of any contract is the first day of the first period for which 
    an amount is received as an annuity under the contract; except that 
    if such date was before January 1, 1954, then the annuity starting 
    date is January 1, 1954.

(d) Special rules for qualified employer retirement plans

          (1) Simplified method of taxing annuity payments

        (A) In general

            In the case of any amount received as an annuity under a 
        qualified employer retirement plan--
                (i) subsection (b) shall not apply, and
                (ii) the investment in the contract shall be recovered 
            as provided in this paragraph.

        (B) Method of recovering investment in contract

            (i) In general

                Gross income shall not include so much of any monthly 
            annuity payment under a qualified employer retirement plan 
            as does not exceed the amount obtained by dividing--
                    (I) the investment in the contract (as of the 
                annuity starting date), by
                    (II) the number of anticipated payments determined 
                under the table contained in clause (iii) (or, in the 
                case of a contract to which subsection (c)(3)(B) 
                applies, the number of monthly annuity payments under 
                such contract).
            (ii) Certain rules made applicable

                Rules similar to the rules of paragraphs (2) and (3) of 
            subsection (b) shall apply for purposes of this paragraph.
            (iii) Number of anticipated payments

                If the annuity is payable over the life of a single 
            individual, the number of anticipated payments shall be 
            determined as follows:
    If the age of the
      annuitant on                                            The number
      the annuity starting                                of anticipated
      date is:                                              payments is:
            Not more than 55....................                    360 
            More than 55 but not more than 60...                    310 
            More than 60 but not more than 65...                    260 
            More than 65 but not more than 70...                    210 
            More than 70........................                    160.
            (iv) Number of anticipated payments where more than 
                    one life

                If the annuity is payable over the lives of more than 1 
            individual, the number of anticipated payments shall be 
            determined as follows:

    If the combined ages of
      annuitants are:                                     The number is:
      Not more than 110.................                            410 
      More than 110 but not more than 
    120.................................                            360 
      More than 120 but not more than 
    130.................................                            310 
      More than 130 but not more than 
    140.................................                            260 
      More than 140.....................                            210.

        (C) Adjustment for refund feature not applicable

            For purposes of this paragraph, investment in the contract 
        shall be determined under subsection (c)(1) without regard to 
        subsection (c)(2).

        (D) Special rule where lump sum paid in connection with 
                commencement of annuity payments

            If, in connection with the commencement of annuity payments 
        under any qualified employer retirement plan, the taxpayer 
        receives a lump-sum payment--
                (i) such payment shall be taxable under subsection (e) 
            as if received before the annuity starting date, and
                (ii) the investment in the contract for purposes of this 
            paragraph shall be determined as if such payment had been so 
            received.

        (E) Exception

            This paragraph shall not apply in any case where the primary 
        annuitant has attained age 75 on the annuity starting date 
        unless there are fewer than 5 years of guaranteed payments under 
        the annuity.

        (F) Adjustment where annuity payments not on monthly basis

            In any case where the annuity payments are not made on a 
        monthly basis, appropriate adjustments in the application of 
        this paragraph shall be made to take into account the period on 
        the basis of which such payments are made.

        (G) Qualified employer retirement plan

            For purposes of this paragraph, the term ``qualified 
        employer retirement plan'' means any plan or contract described 
        in paragraph (1), (2), or (3) of section 4974(c).

       (2) Treatment of employee contributions under defined 
                             contribution plans

        For purposes of this section, employee contributions (and any 
    income allocable thereto) under a defined contribution plan may be 
    treated as a separate contract.

(e) Amounts not received as annuities

                    (1) Application of subsection

        (A) In general

            This subsection shall apply to any amount which--
                (i) is received under an annuity, endowment, or life 
            insurance contract, and
                (ii) is not received as an annuity,

        if no provision of this subtitle (other than this subsection) 
        applies with respect to such amount.

        (B) Dividends

            For purposes of this section, any amount received which is 
        in the nature of a dividend or similar distribution shall be 
        treated as an amount not received as an annuity.

                          (2) General rule

        Any amount to which this subsection applies--
            (A) if received on or after the annuity starting date, shall 
        be included in gross income, or
            (B) if received before the annuity starting date--
                (i) shall be included in gross income to the extent 
            allocable to income on the contract, and
                (ii) shall not be included in gross income to the extent 
            allocable to the investment in the contract.

         (3) Allocation of amounts to income and investment

        For purposes of paragraph (2)(B)--

        (A) Allocation to income

            Any amount to which this subsection applies shall be treated 
        as allocable to income on the contract to the extent that such 
        amount does not exceed the excess (if any) of--
                (i) the cash value of the contract (determined without 
            regard to any surrender charge) immediately before the 
            amount is received, over
                (ii) the investment in the contract at such time.

        (B) Allocation to investment

            Any amount to which this subsection applies shall be treated 
        as allocable to investment in the contract to the extent that 
        such amount is not allocated to income under subparagraph (A).

        (4) Special rules for application of paragraph (2)(B)

        For purposes of paragraph (2)(B)--

        (A) Loans treated as distributions

            If, during any taxable year, an individual--
                (i) receives (directly or indirectly) any amount as a 
            loan under any contract to which this subsection applies, or
                (ii) assigns or pledges (or agrees to assign or pledge) 
            any portion of the value of any such contract,

        such amount or portion shall be treated as received under the 
        contract as an amount not received as an annuity. The preceding 
        sentence shall not apply for purposes of determining investment 
        in the contract, except that the investment in the contract 
        shall be increased by any amount included in gross income by 
        reason of the amount treated as received under the preceding 
        sentence.

        (B) Treatment of policyholder dividends

            Any amount described in paragraph (1)(B) shall not be 
        included in gross income under paragraph (2)(B)(i) to the extent 
        such amount is retained by the insurer as a premium or other 
        consideration paid for the contract.

        (C) Treatment of transfers without adequate consideration

            (i) In general

                If an individual who holds an annuity contract transfers 
            it without full and adequate consideration, such individual 
            shall be treated as receiving an amount equal to the excess 
            of--
                    (I) the cash surrender value of such contract at the 
                time of transfer, over
                    (II) the investment in such contract at such time,

          under the contract as an amount not received as an annuity.
            (ii) Exception for certain transfers between spouses 
                    or former spouses

                Clause (i) shall not apply to any transfer to which 
            section 1041(a) (relating to transfers of property between 
            spouses or incident to divorce) applies.
            (iii) Adjustment to investment in contract of 
                    transferee

                If under clause (i) an amount is included in the gross 
            income of the transferor of an annuity contract, the 
            investment in the contract of the transferee in such 
            contract shall be increased by the amount so included.

          (5) Retention of existing rules in certain cases

        (A) In general

            In any case to which this paragraph applies--
                (i) paragraphs (2)(B) and (4)(A) shall not apply, and
                (ii) if paragraph (2)(A) does not apply,

        the amount shall be included in gross income, but only to the 
        extent it exceeds the investment in the contract.

        (B) Existing contracts

            This paragraph shall apply to contracts entered into before 
        August 14, 1982. Any amount allocable to investment in the 
        contract after August 13, 1982, shall be treated as from a 
        contract entered into after such date.

        (C) Certain life insurance and endowment contracts

            Except as provided in paragraph (10) and except to the 
        extent prescribed by the Secretary by regulations, this 
        paragraph shall apply to any amount not received as an annuity 
        which is received under a life insurance or endowment contract.

        (D) Contracts under qualified plans

            Except as provided in paragraph (8), this paragraph shall 
        apply to any amount received--
                (i) from a trust described in section 401(a) which is 
            exempt from tax under section 501(a),
                (ii) from a contract--
                    (I) purchased by a trust described in clause (i),
                    (II) purchased as part of a plan described in 
                section 403(a),
                    (III) described in section 403(b), or
                    (IV) provided for employees of a life insurance 
                company under a plan described in section 818(a)(3), or

                (iii) from an individual retirement account or an 
            individual retirement annuity.

        Any dividend described in section 404(k) which is received by a 
        participant or beneficiary shall, for purposes of this 
        subparagraph, be treated as paid under a separate contract to 
        which clause (ii)(I) applies.

        (E) Full refunds, surrenders, redemptions, and maturities

            This paragraph shall apply to--
                (i) any amount received, whether in a single sum or 
            otherwise, under a contract in full discharge of the 
            obligation under the contract which is in the nature of a 
            refund of the consideration paid for the contract, and
                (ii) any amount received under a contract on its 
            complete surrender, redemption, or maturity.

        In the case of any amount to which the preceding sentence 
        applies, the rule of paragraph (2)(A) shall not apply.

                   (6) Investment in the contract

        For purposes of this subsection, the investment in the contract 
    as of any date is--
            (A) the aggregate amount of premiums or other consideration 
        paid for the contract before such date, minus
            (B) the aggregate amount received under the contract before 
        such date, to the extent that such amount was excludable from 
        gross income under this subtitle or prior income tax laws.

              [(7) Repealed. Pub. L. 100-647, title I, 
             Sec. 1011A(b)(9)(A), Nov. 10, 1988, 102 Stat. 3474]

      (8) Extension of paragraph (2)(b) \1\ to qualified plans
---------------------------------------------------------------------------

    \1\ So in original. Probably should be paragraph ``(2)(B)''.
---------------------------------------------------------------------------

        (A) In general

            Notwithstanding any other provision of this subsection, in 
        the case of any amount received before the annuity starting date 
        from a trust or contract described in paragraph (5)(D), 
        paragraph (2)(B) shall apply to such amounts.

        (B) Allocation of amount received

            For purposes of paragraph (2)(B), the amount allocated to 
        the investment in the contract shall be the portion of the 
        amount described in subparagraph (A) which bears the same ratio 
        to such amount as the investment in the contract bears to the 
        account balance. The determination under the preceding sentence 
        shall be made as of the time of the distribution or at such 
        other time as the Secretary may prescribe.

        (C) Treatment of forfeitable rights

            If an employee does not have a nonforfeitable right to any 
        amount under any trust or contract to which subparagraph (A) 
        applies, such amount shall not be treated as part of the account 
        balance.

        (D) Investment in the contract before 1987

            In the case of a plan which on May 5, 1986, permitted 
        withdrawal of any employee contributions before separation from 
        service, subparagraph (A) shall apply only to the extent that 
        amounts received before the annuity starting date (when 
        increased by amounts previously received under the contract 
        after December 31, 1986) exceed the investment in the contract 
        as of December 31, 1986.

    (9) Extension of paragraph (2)(B) to qualified State tuition 
               programs and educational individual retirement 
                                  accounts

        Notwithstanding any other provision of this subsection, 
    paragraph (2)(B) shall apply to amounts received under a qualified 
    State tuition program (as defined in section 529(b)) or under an 
    education individual retirement account (as defined in section 
    530(b)). The rule of paragraph (8)(B) shall apply for purposes of 
    this paragraph.

           (10) Treatment of modified endowment contracts

        (A) In general

            Notwithstanding paragraph (5)(C), in the case of any 
        modified endowment contract (as defined in section 7702A)--
                (i) paragraphs (2)(B) and (4)(A) shall apply, and
                (ii) in applying paragraph (4)(A), ``any person'' shall 
            be substituted for ``an individual''.

        (B) Treatment of certain burial contracts

            Notwithstanding subparagraph (A), paragraph (4)(A) shall not 
        apply to any assignment (or pledge) of a modified endowment 
        contract if such assignment (or pledge) is solely to cover the 
        payment of expenses referred to in section 7702(e)(2)(C)(iii) 
        and if the maximum death benefit under such contract does not 
        exceed $25,000.

                        (11) Anti-abuse rules

        (A) In general

            For purposes of determining the amount includible in gross 
        income under this subsection--
                (i) all modified endowment contracts issued by the same 
            company to the same policyholder during any calendar year 
            shall be treated as 1 modified endowment contract, and
                (ii) all annuity contracts issued by the same company to 
            the same policyholder during any calendar year shall be 
            treated as 1 annuity contract.

        The preceding sentence shall not apply to any contract described 
        in paragraph (5)(D).

        (B) Regulatory authority

            The Secretary may by regulations prescribe such additional 
        rules as may be necessary or appropriate to prevent avoidance of 
        the purposes of this subsection through serial purchases of 
        contracts or otherwise.

(f) Special rules for computing employees' contributions

    In computing, for purposes of subsection (c)(1)(A), the aggregate 
amount of premiums or other consideration paid for the contract, and for 
purposes of subsection (e)(6), the aggregate premiums or other 
consideration paid, amounts contributed by the employer shall be 
included, but only to the extent that--
        (1) such amounts were includible in the gross income of the 
    employee under this subtitle or prior income tax laws; or
        (2) if such amounts had been paid directly to the employee at 
    the time they were contributed, they would not have been includible 
    in the gross income of the employee under the law applicable at the 
    time of such contribution.

Paragraph (2) shall not apply to amounts which were contributed by the 
employer after December 31, 1962, and which would not have been 
includible in the gross income of the employee by reason of the 
application of section 911 if such amounts had been paid directly to the 
employee at the time of contribution. The preceding sentence shall not 
apply to amounts which were contributed by the employer, as determined 
under regulations prescribed by the Secretary, to provide pension or 
annuity credits, to the extent such credits are attributable to services 
performed before January 1, 1963, and are provided pursuant to pension 
or annuity plan provisions in existence on March 12, 1962, and on that 
date applicable to such services, or to the extent such credits are 
attributable to services performed as a foreign missionary (within the 
meaning of section 403(b)(2)(D)(iii)).

(g) Rules for transferee where transfer was for value

    Where any contract (or any interest therein) is transferred (by 
assignment or otherwise) for a valuable consideration, to the extent 
that the contract (or interest therein) does not, in the hands of the 
transferee, have a basis which is determined by reference to the basis 
in the hands of the transferor, then--
        (1) for purposes of this section, only the actual value of such 
    consideration, plus the amount of the premiums and other 
    consideration paid by the transferee after the transfer, shall be 
    taken into account in computing the aggregate amount of the premiums 
    or other consideration paid for the contract;
        (2) for purposes of subsection (c)(1)(B), there shall be taken 
    into account only the aggregate amount received under the contract 
    by the transferee before the annuity starting date, to the extent 
    that such amount was excludable from gross income under this 
    subtitle or prior income tax laws; and
        (3) the annuity starting date is January 1, 1954, or the first 
    day of the first period for which the transferee received an amount 
    under the contract as an annuity, whichever is the later.

For purposes of this subsection, the term ``transferee'' includes a 
beneficiary of, or the estate of, the transferee.

(h) Option to receive annuity in lieu of lump sum

    If--
        (1) a contract provides for payment of a lump sum in full 
    discharge of an obligation under the contract, subject to an option 
    to receive an annuity in lieu of such lump sum;
        (2) the option is exercised within 60 days after the day on 
    which such lump sum first became payable; and
        (3) part or all of such lump sum would (but for this subsection) 
    be includible in gross income by reason of subsection (e)(1),

then, for purposes of this subtitle, no part of such lump sum shall be 
considered as includible in gross income at the time such lump sum first 
became payable.

[(i) Repealed. Pub. L. 94-455, title XIX, Sec. 1951(b)(1)(A), Oct. 4, 
        1976, 90 Stat. 1836]

(j) Interest

    Notwithstanding any other provision of this section, if any amount 
is held under an agreement to pay interest thereon, the interest 
payments shall be included in gross income.

[(k) Repealed. Pub. L. 98-369, div. A, title IV, Sec. 421(b)(1), July 
        18, 1984, 98 Stat. 794]

(l) Face-amount certificates

    For purposes of this section, the term ``endowment contract'' 
includes a face-amount certificate, as defined in section 2(a)(15) of 
the Investment Company Act of 1940 (15 U.S.C., sec. 80a-2), issued after 
December 31, 1954.

(m) Special rules applicable to employee annuities and distributions 
        under employee plans

     [(1) Repealed. Pub. L. 93-406, title II, Sec. 2001(h)(2), 
                        Sept. 2, 1974, 88 Stat. 957]

        (2) Computation of consideration paid by the employee

        In computing--
            (A) the aggregate amount of premiums or other consideration 
        paid for the contract for purposes of subsection (c)(1)(A) 
        (relating to the investment in the contract), and
            (B) the aggregate premiums or other consideration paid for 
        purposes of subsection (e)(6) (relating to certain amounts not 
        received as an annuity),

    any amount allowed as a deduction with respect to the contract under 
    section 404 which was paid while the employee was an employee within 
    the meaning of section 401(c)(1) shall be treated as consideration 
    contributed by the employer, and there shall not be taken into 
    account any portion of the premiums or other consideration for the 
    contract paid while the employee was an owner-employee which is 
    properly allocable (as determined under regulations prescribed by 
    the Secretary) to the cost of life, accident, health, or other 
    insurance.

                    (3) Life insurance contracts

            (A) This paragraph shall apply to any life insurance 
        contract--
                (i) purchased as a part of a plan described in section 
            403(a), or
                (ii) purchased by a trust described in section 401(a) 
            which is exempt from tax under section 501(a) if the 
            proceeds of such contract are payable directly or indirectly 
            to a participant in such trust or to a beneficiary of such 
            participant.

            (B) Any contribution to a plan described in subparagraph 
        (A)(i) or a trust described in subparagraph (A)(ii) which is 
        allowed as a deduction under section 404, and any income of a 
        trust described in subparagraph (A)(ii), which is determined in 
        accordance with regulations prescribed by the Secretary to have 
        been applied to purchase the life insurance protection under a 
        contract described in subparagraph (A), is includible in the 
        gross income of the participant for the taxable year when so 
        applied.
            (C) In the case of the death of an individual insured under 
        a contract described in subparagraph (A), an amount equal to the 
        cash surrender value of the contract immediately before the 
        death of the insured shall be treated as a payment under such 
        plan or a distribution by such trust, and the excess of the 
        amount payable by reason of the death of the insured over such 
        cash surrender value shall not be includible in gross income 
        under this section and shall be treated as provided in section 
        101.

      [(4) Repealed. Pub. L. 97-248, title II, Sec. 236(b)(1), 
                        Sept. 3, 1982, 96 Stat. 510]

     (5) Penalties applicable to certain amounts received by 5-
                               percent owners

            (A) This paragraph applies to amounts which are received 
        from a qualified trust described in section 401(a) or under a 
        plan described in section 403(a) at any time by an individual 
        who is, or has been, a 5-percent owner, or by a successor of 
        such an individual, but only to the extent such amounts are 
        determined, under regulations prescribed by the Secretary, to 
        exceed the benefits provided for such individual under the plan 
        formula.
            (B) If a person receives an amount to which this paragraph 
        applies, his tax under this chapter for the taxable year in 
        which such amount is received shall be increased by an amount 
        equal to 10 percent of the portion of the amount so received 
        which is includible in his gross income for such taxable year.
            (C) For purposes of this paragraph, the term ``5-percent 
        owner'' means any individual who, at any time during the 5 plan 
        years preceding the plan year ending in the taxable year in 
        which the amount is received, is a 5-percent owner (as defined 
        in section 416(i)(1)(B)).

                     (6) Owner-employee defined

        For purposes of this subsection, the term ``owner-employee'' has 
    the meaning assigned to it by section 401(c)(3) and includes an 
    individual for whose benefit an individual retirement account or 
    annuity described in section 408(a) or (b) is maintained. For 
    purposes of the preceding sentence, the term ``owner-employee'' 
    shall include an employee within the meaning of section 401(c)(1).

                       (7) Meaning of disabled

        For purposes of this section, an individual shall be considered 
    to be disabled if he is unable to engage in any substantial gainful 
    activity by reason of any medically determinable physical or mental 
    impairment which can be expected to result in death or to be of 
    long-continued and indefinite duration. An individual shall not be 
    considered to be disabled unless he furnishes proof of the existence 
    thereof in such form and manner as the Secretary may require.

      [(8) Repealed. Pub. L. 97-248, title II, Sec. 236(b)(1), 
                        Sept. 3, 1982, 96 Stat. 510]

         [(9) Repealed. Pub. L. 98-369, div. A, title VII, 
                Sec. 713(d)(1), July 18, 1984, 98 Stat. 957]

    (10) Determination of investment in the contract in the case 
                   of qualified domestic relations orders

        Under regulations prescribed by the Secretary, in the case of a 
    distribution or payment made to an alternate payee who is the spouse 
    or former spouse of the participant pursuant to a qualified domestic 
    relations order (as defined in section 414(p)), the investment in 
    the contract as of the date prescribed in such regulations shall be 
    allocated on a pro rata basis between the present value of such 
    distribution or payment and the present value of all other benefits 
    payable with respect to the participant to which such order relates.

(n) Annuities under retired serviceman's family protection plan or 
        survivor benefit plan

    Subsection (b) shall not apply in the case of amounts received after 
December 31, 1965, as an annuity under chapter 73 of title 10 of the 
United States Code, but all such amounts shall be excluded from gross 
income until there has been so excluded (under section 122(b)(1) or this 
section, including amounts excluded before January 1, 1966) an amount 
equal to the consideration for the contract (as defined by section 
122(b)(2)), plus any amount treated pursuant to section 101(b)(2)(D) (as 
in effect on the day before the date of the enactment of the Small 
Business Job Protection Act of 1996) as additional consideration paid by 
the employee. Thereafter all amounts so received shall be included in 
gross income.

(o) Special rules for distributions from qualified plans to which 
        employee made deductible contributions

                   (1) Treatment of contributions

        For purposes of this section and sections 402 and 403, 
    notwithstanding section 414(h), any deductible employee contribution 
    made to a qualified employer plan or government plan shall be 
    treated as an amount contributed by the employer which is not 
    includible in the gross income of the employee.

     [(2) Repealed. Pub. L. 100-647, title I, Sec. 1011A(c)(8), 
                       Nov. 10, 1988, 102 Stat. 3476]

                 (3) Amounts constructively received

        (A) In general

            For purposes of this subsection, rules similar to the rules 
        provided by subsection (p) (other than the exception contained 
        in paragraph (2) thereof) shall apply.

        (B) Purchase of life insurance

            To the extent any amount of accumulated deductible employee 
        contributions of an employee are applied to the purchase of life 
        insurance contracts, such amount shall be treated as distributed 
        to the employee in the year so applied.

         (4) Special rule for treatment of rollover amounts

        For purposes of sections 402(c), 403(a)(4), and 408(d)(3), the 
    Secretary shall prescribe regulations providing for such allocations 
    of amounts attributable to accumulated deductible employee 
    contributions, and for such other rules, as may be necessary to 
    insure that such accumulated deductible employee contributions do 
    not become eligible for additional tax benefits (or freed from 
    limitations) through the use of rollovers.

                  (5) Definitions and special rules

        For purposes of this subsection--

        (A) Deductible employee contributions

            The term ``deductible employee contributions'' means any 
        qualified voluntary employee contribution (as defined in section 
        219(e)(2)) made after December 31, 1981, in a taxable year 
        beginning after such date and made for a taxable year beginning 
        before January 1, 1987, and allowable as a deduction under 
        section 219(a) for such taxable year.

        (B) Accumulated deductible employee contributions

            The term ``accumulated deductible employee contributions'' 
        means the deductible employee contributions--
                (i) increased by the amount of income and gain allocable 
            to such contributions, and
                (ii) reduced by the sum of the amount of loss and 
            expense allocable to such contributions and the amounts 
            distributed with respect to the employee which are 
            attributable to such contributions (or income or gain 
            allocable to such contributions).

        (C) Qualified employer plan

            The term ``qualified employer plan'' has the meaning given 
        to such term by subsection (p)(3)(A)(i).

        (D) Government plan

            The term ``government plan'' has the meaning given such term 
        by subsection (p)(3)(B).

                         (6) Ordering rules

        Unless the plan specifies otherwise, any distribution from such 
    plan shall not be treated as being made from the accumulated 
    deductible employee contributions, until all other amounts to the 
    credit of the employee have been distributed.

(p) Loans treated as distributions

    For purposes of this section--

                   (1) Treatment as distributions

        (A) Loans

            If during any taxable year a participant or beneficiary 
        receives (directly or indirectly) any amount as a loan from a 
        qualified employer plan, such amount shall be treated as having 
        been received by such individual as a distribution under such 
        plan.

        (B) Assignments or pledges

            If during any taxable year a participant or beneficiary 
        assigns (or agrees to assign) or pledges (or agrees to pledge) 
        any portion of his interest in a qualified employer plan, such 
        portion shall be treated as having been received by such 
        individual as a loan from such plan.

                   (2) Exception for certain loans

        (A) General rule

            Paragraph (1) shall not apply to any loan to the extent that 
        such loan (when added to the outstanding balance of all other 
        loans from such plan whether made on, before, or after August 
        13, 1982), does not exceed the lesser of--
                (i) $50,000, reduced by the excess (if any) of--
                    (I) the highest outstanding balance of loans from 
                the plan during the 1-year period ending on the day 
                before the date on which such loan was made, over
                    (II) the outstanding balance of loans from the plan 
                on the date on which such loan was made, or

                (ii) the greater of (I) one-half of the present value of 
            the nonforfeitable accrued benefit of the employee under the 
            plan, or (II) $10,000.

        For purposes of clause (ii), the present value of the 
        nonforfeitable accrued benefit shall be determined without 
        regard to any accumulated deductible employee contributions (as 
        defined in subsection (o)(5)(B)).

        (B) Requirement that loan be repayable within 5 years

            (i) In general

                Subparagraph (A) shall not apply to any loan unless such 
            loan, by its terms, is required to be repaid within 5 years.
            (ii) Exception for home loans

                Clause (i) shall not apply to any loan used to acquire 
            any dwelling unit which within a reasonable time is to be 
            used (determined at the time the loan is made) as the 
            principal residence of the participant.

        (C) Requirement of level amortization

            Except as provided in regulations, this paragraph shall not 
        apply to any loan unless substantially level amortization of 
        such loan (with payments not less frequently than quarterly) is 
        required over the term of the loan.

        (D) Related employers and related plans

            For purposes of this paragraph--
                (i) the rules of subsections (b), (c), and (m) of 
            section 414 shall apply, and
                (ii) all plans of an employer (determined after the 
            application of such subsections) shall be treated as 1 plan.

         (3) Denial of interest deductions in certain cases

        (A) In general

            No deduction otherwise allowable under this chapter shall be 
        allowed under this chapter for any interest paid or accrued on 
        any loan to which paragraph (1) does not apply by reason of 
        paragraph (2) during the period described in subparagraph (B).

        (B) Period to which subparagraph (A) applies

            For purposes of subparagraph (A), the period described in 
        this subparagraph is the period--
                (i) on or after the 1st day on which the individual to 
            whom the loan is made is a key employee (as defined in 
            section 416(i)), or
                (ii) such loan is secured by amounts attributable to 
            elective deferrals described in subparagraph (A) or (C) of 
            section 402(g)(3).

                  (4) Qualified employer plan, etc.

        For purposes of this subsection--

        (A) Qualified employer plan

            (i) In general

                The term ``qualified employer plan'' means--
                    (I) a plan described in section 401(a) which 
                includes a trust exempt from tax under section 501(a),
                    (II) an annuity plan described in section 403(a), 
                and
                    (III) a plan under which amounts are contributed by 
                an individual's employer for an annuity contract 
                described in section 403(b).
            (ii) Special rule

                The term ``qualified employer plan'' shall include any 
            plan which was (or was determined to be) a qualified 
            employer plan or a government plan.

        (B) Government plan

            The term ``government plan'' means any plan, whether or not 
        qualified, established and maintained for its employees by the 
        United States, by a State or political subdivision thereof, or 
        by an agency or instrumentality of any of the foregoing.

      (5) Special rules for loans, etc., from certain contracts

        For purposes of this subsection, any amount received as a loan 
    under a contract purchased under a qualified employer plan (and any 
    assignment or pledge with respect to such a contract) shall be 
    treated as a loan under such employer plan.

(q) 10-percent penalty for premature distributions from annuity 
        contracts

                      (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 10 
    percent of the portion of such amount which is includible in gross 
    income.

        (2) Subsection not to apply to certain distributions

        Paragraph 1 shall not apply to any distribution--
            (A) made on or after the date on which the taxpayer attains 
        age 59\1/2\,
            (B) made on or after the death of the holder (or, where the 
        holder is not an individual, the death of the primary annuitant 
        (as defined in subsection (s)(6)(B))),
            (C) attributable to the taxpayer's becoming disabled within 
        the meaning of subsection (m)(7),
            (D) which is a part of a series of substantially equal 
        periodic payments (not less frequently than annually) made for 
        the life (or life expectancy) of the taxpayer or the joint lives 
        (or joint life expectancies) of such taxpayer and his designated 
        beneficiary,
            (E) from a plan, contract, account, trust, or annuity 
        described in subsection (e)(5)(D),
            (F) allocable to investment in the contract before August 
        14, 1982, or \2\
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    \2\ So in original. The word ``or'' probably should not appear.
---------------------------------------------------------------------------
            (G) under a qualified funding asset (within the meaning of 
        section 130(d), but without regard to whether there is a 
        qualified assignment),
            (H) to which subsection (t) applies (without regard to 
        paragraph (2) thereof),
            (I) under an immediate annuity contract (within the meaning 
        of section 72(u)(4)), or
            (J) which is purchased by an employer upon the termination 
        of a plan described in section 401(a) or 403(a) and which is 
        held by the employer until such time as the employee separates 
        from service.

             (3) Change in substantially equal payments

        If--
            (A) paragraph (1) does not apply to a distribution by reason 
        of paragraph (2)(D), and
            (B) the series of payments under such paragraph are 
        subsequently modified (other than by reason of death or 
        disability)--
                (i) before the close of the 5-year period beginning on 
            the date of the first payment and after the taxpayer attains 
            age 59\1/2\, or
                (ii) before the taxpayer attains age 59\1/2\,

    the taxpayer's tax for the 1st taxable year in which such 
    modification occurs shall be increased by an amount, determined 
    under regulations, equal to the tax which (but for paragraph (2)(D)) 
    would have been imposed, plus interest for the deferral period 
    (within the meaning of subsection (t)(4)(B)).

(r) Certain railroad retirement benefits treated as received under 
        employer plans

                           (1) In general

        Notwithstanding any other provision of law, any benefit provided 
    under the Railroad Retirement Act of 1974 (other than a tier 1 
    railroad retirement benefit) shall be treated for purposes of this 
    title as a benefit provided under an employer plan which meets the 
    requirements of section 401(a).

              (2) Tier 2 taxes treated as contributions

        (A) In general

            For purposes of paragraph (1)--
                (i) the tier 2 portion of the tax imposed by section 
            3201 (relating to tax on employees) shall be treated as an 
            employee contribution,
                (ii) the tier 2 portion of the tax imposed by section 
            3211 (relating to tax on employee representatives) shall be 
            treated as an employee contribution, and
                (iii) the tier 2 portion of the tax imposed by section 
            3221 (relating to tax on employers) shall be treated as an 
            employer contribution.

        (B) Tier 2 portion

            For purposes of subparagraph (A)--
            (i) After 1984

                With respect to compensation paid after 1984, the tier 2 
            portion shall be the taxes imposed by sections 3201(b), 
            3211(a)(2), and 3221(b).
            (ii) After September 30, 1981, and before 1985

                With respect to compensation paid before 1985 for 
            services rendered after September 30, 1981, the tier 2 
            portion shall be--
                    (I) so much of the tax imposed by section 3201 as is 
                determined at the 2 percent rate, and
                    (II) so much of the taxes imposed by sections 3211 
                and 3221 as is determined at the 11.75 percent rate.

          With respect to compensation paid for services rendered after 
            December 31, 1983, and before 1985, subclause (I) shall be 
            applied by substituting ``2.75 percent'' for ``2 percent'', 
            and subclause (II) shall be applied by substituting ``12.75 
            percent'' for ``11.75 percent''.
            (iii) Before October 1, 1981

                With respect to compensation paid for services rendered 
            during any period before October 1, 1981, the tier 2 portion 
            shall be the excess (if any) of--
                    (I) the tax imposed for such period by section 3201, 
                3211, or 3221, as the case may be (other than any tax 
                imposed with respect to man-hours), over
                    (II) the tax which would have been imposed by such 
                section for such period had the rates of the comparable 
                taxes imposed by chapter 21 for such period applied 
                under such section.

        (C) Contributions not allocable to supplemental annuity or 
                windfall benefits

            For purposes of paragraph (1), no amount treated as an 
        employee contribution under this paragraph shall be allocated 
        to--
                (i) any supplemental annuity paid under section 2(b) of 
            the Railroad Retirement Act of 1974, or
                (ii) any benefit paid under section 3(h), 4(e), or 4(h) 
            of such Act.

               (3) Tier 1 railroad retirement benefit

        For purposes of paragraph (1), the term ``tier 1 railroad 
    retirement benefit'' has the meaning given such term by section 
    86(d)(4).

(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 any 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 any 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.

             (5) Exception for certain annuity contracts

        This subsection shall not apply to any annuity contract--
            (A) which is provided--
                (i) under a plan described in section 401(a) which 
            includes a trust exempt from tax under section 501, or
                (ii) under a plan described in section 403(a),

            (B) which is described in section 403(b),
            (C) which is an individual retirement annuity or provided 
        under an individual retirement account or annuity, or
            (D) which is a qualified funding asset (as defined in 
        section 130(d), but without regard to whether there is a 
        qualified assignment).

     (6) Special rule where holder is corporation or other non-
                                 individual

        (A) In general

            For purposes of this subsection, if the holder of the 
        contract is not an individual, the primary annuitant shall be 
        treated as the holder of the contract.

        (B) Primary annuitant

            For purposes of subparagraph (A), the term ``primary 
        annuitant'' means the individual, the events in the life of whom 
        are of primary importance in affecting the timing or amount of 
        the payout under the contract.

     (7) Treatment of changes in primary annuitant where holder 
                      of contract is not an individual

        For purposes of this subsection, in the case of a holder of an 
    annuity contract which is not an individual, if there is a change in 
    a primary annuitant (as defined in paragraph (6)(B)), such change 
    shall be treated as the death of the holder.

(t) 10-percent additional tax on early distributions from qualified 
        retirement plans

                  (1) Imposition of additional tax

        If any taxpayer receives any amount from a qualified retirement 
    plan (as defined in section 4974(c)), 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 10 percent of the portion of such 
    amount which is includible in gross income.

        (2) Subsection not to apply to certain distributions

        Except as provided in paragraphs (3) and (4), paragraph (1) 
    shall not apply to any of the following distributions:

        (A) In general

            Distributions which are--
                (i) made on or after the date on which the employee 
            attains age 59\1/2\,
                (ii) made to a beneficiary (or to the estate of the 
            employee) on or after the death of the employee,
                (iii) attributable to the employee's being disabled 
            within the meaning of subsection (m)(7),
                (iv) part of a series of substantially equal periodic 
            payments (not less frequently than annually) made for the 
            life (or life expectancy) of the employee or the joint lives 
            (or joint life expectancies) of such employee and his 
            designated beneficiary,
                (v) made to an employee after separation from service 
            after attainment of age 55,
                (vi) dividends paid with respect to stock of a 
            corporation which are described in section 404(k), or
                (vii) made on account of a levy under section 6331 on 
            the qualified retirement plan.

        (B) Medical expenses

            Distributions made to the employee (other than distributions 
        described in subparagraph (A), (C), or (D)) to the extent such 
        distributions do not exceed the amount allowable as a deduction 
        under section 213 to the employee for amounts paid during the 
        taxable year for medical care (determined without regard to 
        whether the employee itemizes deductions for such taxable year).

        (C) Payments to alternate payees pursuant to qualified domestic 
                relations orders

            Any distribution to an alternate payee pursuant to a 
        qualified domestic relations order (within the meaning of 
        section 414(p)(1)).

        (D) Distributions to unemployed individuals for health insurance 
                premiums

            (i) In general

                Distributions from an individual retirement plan to an 
            individual after separation from employment--
                    (I) if such individual has received unemployment 
                compensation for 12 consecutive weeks under any Federal 
                or State unemployment compensation law by reason of such 
                separation,
                    (II) if such distributions are made during any 
                taxable year during which such unemployment compensation 
                is paid or the succeeding taxable year, and
                    (III) to the extent such distributions do not exceed 
                the amount paid during the taxable year for insurance 
                described in section 213(d)(1)(D) with respect to the 
                individual and the individual's spouse and dependents 
                (as defined in section 152).
            (ii) Distributions after reemployment

                Clause (i) shall not apply to any distribution made 
            after the individual has been employed for at least 60 days 
            after the separation from employment to which clause (i) 
            applies.
            (iii) Self-employed individuals

                To the extent provided in regulations, a self-employed 
            individual shall be treated as meeting the requirements of 
            clause (i)(I) if, under Federal or State law, the individual 
            would have received unemployment compensation but for the 
            fact the individual was self-employed.

        (E) Distributions from individual retirement plans for higher 
                education expenses

            Distributions to an individual from an individual retirement 
        plan to the extent such distributions do not exceed the 
        qualified higher education expenses (as defined in paragraph 
        (7)) of the taxpayer for the taxable year. Distributions shall 
        not be taken into account under the preceding sentence if such 
        distributions are described in subparagraph (A), (C), or (D) or 
        to the extent paragraph (1) does not apply to such distributions 
        by reason of subparagraph (B).

        (F) Distributions from certain plans for first home purchases

            Distributions to an individual from an individual retirement 
        plan which are qualified first-time homebuyer distributions (as 
        defined in paragraph (8)). Distributions shall not be taken into 
        account under the preceding sentence if such distributions are 
        described in subparagraph (A), (C), (D), or (E) or to the extent 
        paragraph (1) does not apply to such distributions by reason of 
        subparagraph (B).

                           (3) Limitations

        (A) Certain exceptions not to apply to individual retirement 
                plans

            Subparagraphs (A)(v) and (C) of paragraph (2) shall not 
        apply to distributions from an individual retirement plan.

        (B) Periodic payments under qualified plans must begin after 
                separation

            Paragraph (2)(A)(iv) shall not apply to any amount paid from 
        a trust described in section 401(a) which is exempt from tax 
        under section 501(a) or from a contract described in section 
        72(e)(5)(D)(ii) unless the series of payments begins after the 
        employee separates from service.

             (4) Change in substantially equal payments

        (A) In general

            If--
                (i) paragraph (1) does not apply to a distribution by 
            reason of paragraph (2)(A)(iv), and
                (ii) the series of payments under such paragraph are 
            subsequently modified (other than by reason of death or 
            disability)--
                    (I) before the close of the 5-year period beginning 
                with the date of the first payment and after the 
                employee attains age 59\1/2\, or
                    (II) before the employee attains age 59\1/2\,

        the taxpayer's tax for the 1st taxable year in which such 
        modification occurs shall be increased by an amount, determined 
        under regulations, equal to the tax which (but for paragraph 
        (2)(A)(iv)) would have been imposed, plus interest for the 
        deferral period.

        (B) Deferral period

            For purposes of this paragraph, the term ``deferral period'' 
        means the period beginning with the taxable year in which 
        (without regard to paragraph (2)(A)(iv)) the distribution would 
        have been includible in gross income and ending with the taxable 
        year in which the modification described in subparagraph (A) 
        occurs.

                            (5) Employee

        For purposes of this subsection, the term ``employee'' includes 
    any participant, and in the case of an individual retirement plan, 
    the individual for whose benefit such plan was established.

          (6) Special rules for simple retirement accounts

        In the case of any amount received from a simple retirement 
    account (within the meaning of section 408(p)) during the 2-year 
    period beginning on the date such individual first participated in 
    any qualified salary reduction arrangement maintained by the 
    individual's employer under section 408(p)(2), paragraph (1) shall 
    be applied by substituting ``25 percent'' for ``10 percent''.

               (7) Qualified higher education expenses

        For purposes of paragraph (2)(E)--

        (A) In general

            The term ``qualified higher education expenses'' means 
        qualified higher education expenses (as defined in section 
        529(e)(3)) for education furnished to--
                (i) the taxpayer,
                (ii) the taxpayer's spouse, or
                (iii) any child (as defined in section 151(c)(3)) or 
            grandchild of the taxpayer or the taxpayer's spouse,

        at an eligible educational institution (as defined in section 
        529(e)(5)).

        (B) Coordination with other benefits

            The amount of qualified higher education expenses for any 
        taxable year shall be reduced as provided in section 25A(g)(2).

          (8) Qualified first-time homebuyer distributions

        For purposes of paragraph (2)(F)--

        (A) In general

            The term ``qualified first-time homebuyer distribution'' 
        means any payment or distribution received by an individual to 
        the extent such payment or distribution is used by the 
        individual before the close of the 120th day after the day on 
        which such payment or distribution is received to pay qualified 
        acquisition costs with respect to a principal residence of a 
        first-time homebuyer who is such individual, the spouse of such 
        individual, or any child, grandchild, or ancestor of such 
        individual or the individual's spouse.

        (B) Lifetime dollar limitation

            The aggregate amount of payments or distributions received 
        by an individual which may be treated as qualified first-time 
        homebuyer distributions for any taxable year shall not exceed 
        the excess (if any) of--
                (i) $10,000, over
                (ii) the aggregate amounts treated as qualified first-
            time homebuyer distributions with respect to such individual 
            for all prior taxable years.

        (C) Qualified acquisition costs

            For purposes of this paragraph, the term ``qualified 
        acquisition costs'' means the costs of acquiring, constructing, 
        or reconstructing a residence. Such term includes any usual or 
        reasonable settlement, financing, or other closing costs.

        (D) First-time homebuyer; other definitions

            For purposes of this paragraph--
            (i) First-time homebuyer

                The term ``first-time homebuyer'' means any individual 
            if--
                    (I) such individual (and if married, such 
                individual's spouse) had no present ownership interest 
                in a principal residence during the 2-year period ending 
                on the date of acquisition of the principal residence to 
                which this paragraph applies, and
                    (II) subsection (h) or (k) of section 1034 \3\ (as 
                in effect on the day before the date of the enactment of 
                this paragraph) did not suspend the running of any 
                period of time specified in section 1034 \3\ (as so in 
                effect) with respect to such individual on the day 
                before the date the distribution is applied pursuant to 
                subparagraph (A).
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    \3\ See References in Text note below.
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            (ii) Principal residence

                The term ``principal residence'' has the same meaning as 
            when used in section 121.
            (iii) Date of acquisition

                The term ``date of acquisition'' means the date--
                    (I) on which a binding contract to acquire the 
                principal residence to which subparagraph (A) applies is 
                entered into, or
                    (II) on which construction or reconstruction of such 
                a principal residence is commenced.

        (E) Special rule where delay in acquisition

            If any distribution from any individual retirement plan 
        fails to meet the requirements of subparagraph (A) solely by 
        reason of a delay or cancellation of the purchase or 
        construction of the residence, the amount of the distribution 
        may be contributed to an individual retirement plan as provided 
        in section 408(d)(3)(A)(i) (determined by substituting ``120th 
        day'' for ``60th day'' in such section), except that--
                (i) section 408(d)(3)(B) shall not be applied to such 
            contribution, and
                (ii) such amount shall not be taken into account in 
            determining whether section 408(d)(3)(B) applies to any 
            other amount.

(u) Treatment of annuity contracts not held by natural persons

                           (1) In general

        If any annuity contract is held by a person who is not a natural 
    person--
            (A) such contract shall not be treated as an annuity 
        contract for purposes of this subtitle (other than subchapter 
        L), and
            (B) the income on the contract for any taxable year of the 
        policyholder shall be treated as ordinary income received or 
        accrued by the owner during such taxable year.

    For purposes of this paragraph, holding by a trust or other entity 
    as an agent for a natural person shall not be taken into account.

                     (2) Income on the contract

        (A) In general

            For purposes of paragraph (1), the term ``income on the 
        contract'' means, with respect to any taxable year of the 
        policyholder, the excess of--
                (i) the sum of the net surrender value of the contract 
            as of the close of the taxable year plus all distributions 
            under the contract received during the taxable year or any 
            prior taxable year, reduced by
                (ii) the sum of the amount of net premiums under the 
            contract for the taxable year and prior taxable years and 
            amounts includible in gross income for prior taxable years 
            with respect to such contract under this subsection.

        Where necessary to prevent the avoidance of this subsection, the 
        Secretary may substitute ``fair market value of the contract'' 
        for ``net surrender value of the contract'' each place it 
        appears in the preceding sentence.

        (B) Net premiums

            For purposes of this paragraph, the term ``net premiums'' 
        means the amount of premiums paid under the contract reduced by 
        any policyholder dividends.

                           (3) Exceptions

        This subsection shall not apply to any annuity contract which--
            (A) is acquired by the estate of a decedent by reason of the 
        death of the decedent,
            (B) is held under a plan described in section 401(a) or 
        403(a), under a program described in section 403(b), or under an 
        individual retirement plan,
            (C) is a qualified funding asset (as defined in section 
        130(d), but without regard to whether there is a qualified 
        assignment),
            (D) is purchased by an employer upon the termination of a 
        plan described in section 401(a) or 403(a) and is held by the 
        employer until all amounts under such contract are distributed 
        to the employee for whom such contract was purchased or the 
        employee's beneficiary, or
            (E) is an immediate annuity.

                        (4) Immediate annuity

        For purposes of this subsection, the term ``immediate annuity'' 
    means an annuity--
            (A) which is purchased with a single premium or annuity 
        consideration,
            (B) the annuity starting date (as defined in subsection 
        (c)(4)) of which commences no later than 1 year from the date of 
        the purchase of the annuity, and
            (C) which provides for a series of substantially equal 
        periodic payments (to be made not less frequently than annually) 
        during the annuity period.

(v) 10-percent additional tax for taxable distributions from modified 
        endowment contracts

                  (1) Imposition of additional tax

        If any taxpayer receives any amount under a modified endowment 
    contract (as defined in section 7702A), 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 10 percent of the portion 
    of such amount which is includible in gross income.

        (2) Subsection not to apply to certain distributions

        Paragraph (1) shall not apply to any distribution--
            (A) made on or after the date on which the taxpayer attains 
        age 59\1/2\,
            (B) which is attributable to the taxpayer's becoming 
        disabled (within the meaning of subsection (m)(7)), or
            (C) which is part of a series of substantially equal 
        periodic payments (not less frequently than annually) made for 
        the life (or life expectancy) of the taxpayer or the joint lives 
        (or joint life expectancies) of such taxpayer and his 
        beneficiary.

(w) Cross reference

            For limitation on adjustments to basis of annuity contracts 
        sold, see section 1021.

(Aug. 16, 1954, ch. 736, 68A Stat. 20; Pub. L. 87-792, Sec. 4(a), (b), 
Oct. 10, 1962, 76 Stat. 821; Pub. L. 87-834, Sec. 11(b), Oct. 16, 1962, 
76 Stat. 1005; Pub. L. 88-272, title II, Sec. 232(b), Feb. 26, 1964, 78 
Stat. 110; Pub. L. 89-44, title VIII, Sec. 809(d)(2), June 21, 1965, 79 
Stat. 167; Pub. L. 89-97, title I, Sec. 106(d)(2), July 30, 1965, 79 
Stat. 337; Pub. L. 89-365, Sec. 1(b), Mar. 8, 1966, 80 Stat. 32; Pub. L. 
91-172, title V, Sec. 515(b), Dec. 30, 1969, 83 Stat. 644; Pub. L. 93-
406, title II, Secs. 2001(e)(5), (g)(1), (2)(A), (h)(2), (3), 
2002(g)(10), 2005(c)(3), 2007(b)(2), Sept. 2, 1974, 88 Stat. 955, 957, 
970, 991, 994; Pub. L. 94-455, title XIX, Secs. 1901(a)(12), (13), 
1906(b)(13)(A), 1951(b)(1)(A), Oct. 4, 1976, 90 Stat. 1765, 1834, 1836; 
Pub. L. 97-34, title III, Secs. 311(b)(1), 312(d), (e)(1), Aug. 13, 
1981, 95 Stat. 278, 284; Pub. L. 97-248, title II, Secs. 236(a), (b), 
237(d), 265(a), (b)(1), Sept. 3, 1982, 96 Stat. 509-511, 544-546; Pub. 
L. 97-448, title I, Sec. 103(c)(3)(B)(i), (6), Jan. 12, 1983, 96 Stat. 
2376; Pub. L. 98-76, title II, Sec. 224(a), Aug. 12, 1983, 97 Stat. 421; 
Pub. L. 98-369, div. A, title II, Secs. 211(b)(1), 222(a), (b), title 
IV, Secs. 421(b)(1), 491(d)(3), (4), title V, Secs. 521(d), 523(a), (b), 
title VII, Sec. 713(b)(1)-(c)(1)(B), (d)(1), July 18, 1984, 98 Stat. 
754, 774, 794, 849, 868, 871, 872, 956, 957; Pub. L. 98-397, title II, 
Sec. 204(c)(2), Aug. 23, 1984, 98 Stat. 1448; Pub. L. 99-514, title XI, 
Secs. 1101(b)(2)(B), (C), 1122(c), 1123(a), (b), (d)(1), 1134(a)-(d), 
1135(a), title XVIII, Secs. 1826(a), (b)(1)-(3), (c), (d), 1852(a)(2), 
(c)(1)-(4), 1854(b)(1), 1898(c)(1)(B), Oct. 22, 1986, 100 Stat. 2413, 
2414, 2467, 2472, 2474, 2475, 2483, 2484, 2848-2850, 2864, 2867, 2878, 
2951; Pub. L. 100-647, title I, Secs. 1011A(b)(1)(A), (B), (2), (9), 
(c)(1)-(8), (h), (i), 1018(k), (t)(1)(A), (B), (u)(8), title V, 
Sec. 5012(a), (b)(1), (d), Nov. 10, 1988, 102 Stat. 3472, 3474-3476, 
3482, 3583, 3587, 3590, 3661, 3662, 3664; Pub. L. 101-239, title VII, 
Secs. 7811(m)(4), 7815(a)(3), (5), Dec. 19, 1989, 103 Stat. 2412, 2414; 
Pub. L. 101-508, title XI, Sec. 11802(a), Nov. 5, 1990, 104 Stat. 1388-
529; Pub. L. 102-318, title V, Sec. 521(b)(3), July 3, 1992, 106 Stat. 
310; Pub. L. 104-188, title I, Secs. 1403(a), 1421(b)(4)(A), 1463(a), 
1704(l)(1), (t)(2), (77), Aug. 20, 1996, 110 Stat. 1790, 1796, 1824, 
1882, 1887, 1891; Pub. L. 104-191, title III, Sec. 361(a)-(c), Aug. 21, 
1996, 110 Stat. 2071, 2072; Pub. L. 105-34, title II, Sec. 203(a), (b), 
title III, Sec. 303(a), (b), title X, Sec. 1075(a), (b), Aug. 5, 1997, 
111 Stat. 809, 829, 949; Pub. L. 105-206, title III, Sec. 3436(a), title 
VI, Secs. 6004(d)(3)(B), 6005(c)(1), 6023(3), (4), July 22, 1998, 112 
Stat. 761, 794, 800, 824.)

                       References in Text

    The date of the enactment of the Small Business Job Protection Act 
of 1996, referred to in subsec. (n), is the date of enactment of Pub. L. 
104-188, which was approved Aug. 20, 1996.
    The Railroad Retirement Act of 1974, referred to in subsec. (r)(1), 
(2)(C)(i), (ii), is act Aug. 29, 1935, ch. 812, as amended generally by 
Pub. L. 93-445, title I, Sec. 101, Oct. 16, 1974, 88 Stat. 1305, which 
is classified generally to subchapter IV (Sec. 231 et seq.) of chapter 9 
of Title 45, Railroads. Sections 2(b), 3(h), and 4(e) and (h) of the Act 
are classified to sections 231a(b), 231b(h), and 231c(e) and (h), 
respectively, of Title 45. For further details and complete 
classification of this Act to the Code, see Codification note set out 
preceding section 231 of Title 45, section 231t of Title 45, and Tables.
    Section 1034 (as in effect on the day before the date of the 
enactment of this paragraph), referred to in subsec. (t)(8)(D)(i)(II), 
means section 1034 of this title as in effect on the day before Aug. 5, 
1997. Section 1034 was repealed by Pub. L. 105-34, title III, 
Sec. 312(b), Aug. 5, 1997, 111 Stat. 839.


                               Amendments

    1998--Subsec. (e)(9). Pub. L. 105-206, Sec. 6004(d)(3)(B), added 
par. (9).
    Subsec. (n). Pub. L. 105-206, Sec. 6023(3), inserted ``(as in effect 
on the day before the date of the enactment of the Small Business Job 
Protection Act of 1996)'' after ``section 101(b)(2)(D)''.
    Subsec. (t)(2)(A)(iv). Pub. L. 105-206, Sec. 3436(a), which directed 
amendment of cl. (iv) by striking out ``or'' at end, could not be 
executed because the word ``or'' did not appear at end.
    Subsec. (t)(2)(A)(vii). Pub. L. 105-206, Sec. 3436(a), added cl. 
(vii).
    Subsec. (t)(3)(A). Pub. L. 105-206, Sec. 6023(4), substituted 
``(A)(v)'' for ``(A)(v),''.
    Subsec. (t)(8)(E). Pub. L. 105-206, Sec. 6005(c)(1), in introductory 
provisions, substituted ``120th day'' for ``120 days'' and ``60th day'' 
for ``60 days''.
    1997--Subsec. (d)(1)(B)(iii). Pub. L. 105-34, Sec. 1075(b), inserted 
``If the annuity is payable over the life of a single individual, the 
number of anticipated payments shall be determined as follows:'' before 
table and struck out ``primary'' after ``If the age of the'' in table.
    Subsec. (d)(1)(B)(iv). Pub. L. 105-34, Sec. 1075(a), added cl. (iv).
    Subsec. (t)(2)(E). Pub. L. 105-34, Sec. 203(a), added subpar. (E).
    Subsec. (t)(2)(F). Pub. L. 105-34, Sec. 303(a), added subpar. (F).
    Subsec. (t)(7). Pub. L. 105-34, Sec. 203(b), added par. (7).
    Subsec. (t)(8). Pub. L. 105-34, Sec. 303(b), added par. (8).
    1996--Subsec. (b)(4)(A). Pub. L. 104-188, Sec. 1704(l)(1), inserted 
``(determined without regard to subsection (c)(2))'' after ``contract''.
    Subsec. (d). Pub. L. 104-188, Sec. 1403(a), amended subsec. (d) 
generally. Prior to amendment, subsec. (d) read as follows: ``Treatment 
of Employee Contributions Under Defined Contribution Plans as Separate 
Contracts.--For purposes of this section, employee contributions (and 
any income allocable thereto) under a defined contribution plan may be 
treated as a separate contract.''
    Subsec. (f). Pub. L. 104-188, Sec. 1463(a), in closing provisions, 
inserted before period at end ``, or to the extent such credits are 
attributable to services performed as a foreign missionary (within the 
meaning of section 403(b)(2)(D)(iii))''.
    Subsec. (m)(2)(A) to (C). Pub. L. 104-188, Sec. 1704(t)(2), inserted 
``and'' at end of subpar. (A), redesignated subpar. (C) as (B), and 
struck out former subpar. (B) which read as follows: ``the consideration 
for the contract contributed by the employee for purposes of subsection 
(d)(1) (relating to employee's contributions recoverable in 3 years) and 
subsection (e)(7) (relating to plans where substantially all 
contributions are employee contributions), and''.
    Subsec. (p)(4)(A)(ii). Pub. L. 104-188, Sec. 1704(t)(77), amended 
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: 
``Special rules.--The term `qualified employer plan'--
        ``(I) shall include any plan which was (or was determined to be) 
    a qualified employer plan or a government plan, but
        ``(II) shall not include a plan described in subsection 
    (e)(7).''
    Subsec. (t)(2)(B). Pub. L. 104-191, Sec. 361(c), substituted ``, 
(C), or (D)'' for ``or (C)''.
    Subsec. (t)(2)(D). Pub. L. 104-191, Sec. 361(b), added subpar. (D).
    Subsec. (t)(3)(A). Pub. L. 104-191, Sec. 361(a), struck out ``(B),'' 
after ``Subparagraphs (A)(v),''.
    Subsec. (t)(6). Pub. L. 104-188, Sec. 1421(b)(4)(A), added par. (6).
    1992--Subsec. (o)(4). Pub. L. 102-318 substituted ``402(c)'' for 
``402(a)(5), 402(a)(7)''.
    1990--Subsec. (t)(2)(C), (D). Pub. L. 101-508, Sec. 11802(a)(1), 
(2), redesignated subpar. (D) as (C) and struck out former subpar. (C) 
``Exceptions for distributions from employee stock ownership plans'' 
which read as follows: ``Any distribution made before January 1, 1990, 
to an employee from an employee stock ownership plan (as defined in 
section 4975(e)(7)) or a tax credit employee stock ownership plan (as 
defined in section 409) if--
        ``(i) such distribution is attributable to assets which have 
    been invested in employer securities (within the meaning of section 
    409(l)) at all times during the 5-plan-year period preceding the 
    plan year in which the distribution is made, and
        ``(ii) at all times during such period the requirements of 
    sections 401(a)(28) and 409 (as in effect at such times) are met 
    with respect to such employer securities.''
    Subsec. (t)(3)(A). Pub. L. 101-508, Sec. 11802(a)(3), substituted 
``and (C)'' for ``(C), and (D)''.
    1989--Subsec. (e)(11)(A). Pub. L. 101-239, Sec. 7815(a)(3), (5), 
substituted ``calendar year'' for ``12-month period'' in cls. (i) and 
(ii), and inserted at end ``The preceding sentence shall not apply to 
any contract described in paragraph (5)(D).''
    Subsec. (q)(2)(B). Pub. L. 101-239, Sec. 7811(m)(4), inserted an 
additional closing parenthesis after ``subsection (s)(6)(B))''.
    1988--Subsec. (d). Pub. L. 100-647, Sec. 1011A(b)(2)(A), added 
subsec. (d).
    Subsec. (e)(4)(A). Pub. L. 100-647, Sec. 5012(d)(1), inserted at end 
``The preceding sentence shall not apply for purposes of determining 
investment in the contract, except that the investment in the contract 
shall be increased by any amount included in gross income by reason of 
the amount treated as received under the preceding sentence.''
    Subsec. (e)(5)(C). Pub. L. 100-647, Sec. 5012(a)(2), substituted 
``Except as provided in paragraph (10) and except to the extent'' for 
``Except to the extent''.
    Subsec. (e)(5)(D). Pub. L. 100-647, Sec. 1011A(b)(9)(B), substituted 
``paragraph (8)'' for ``paragraphs (7) and (8)''.
    Subsec. (e)(7). Pub. L. 100-647, Sec. 1011A(b)(9)(A), struck out 
par. (7) which related to special rules for plans where substantially 
all contributions are employee contributions.
    Subsec. (e)(8)(A). Pub. L. 100-647, Sec. 1011A(b)(9)(C), struck out 
``(other than paragraph (7))'' after ``this subsection''.
    Subsec. (e)(9). Pub. L. 100-647, Sec. 1011A(b)(2)(B), struck out 
par. (9) which related to treatment of employee contributions as 
separate contract.
    Subsec. (e)(10). Pub. L. 100-647, Sec. 5012(a)(1), added par. (10).
    Subsec. (e)(11). Pub. L. 100-647, Sec. 5012(d)(2), added par. (11).
    Subsec. (f). Pub. L. 100-647, Sec. 1011A(b)(1)(A), struck out ``for 
purposes of subsections (d)(1) and (e)(7), the consideration for the 
contract contributed by the employee,'' after ``contract,'' in 
introductory provisions.
    Subsec. (n). Pub. L. 100-647, Sec. 1011A(b)(1)(B), substituted 
``Subsection (b)'' for ``Subsections (b) and (d)''.
    Subsec. (o)(2). Pub. L. 100-647, Sec. 1011A(c)(8), struck out par. 
(2) which related to additional tax if amount received before age 59\1/
2\.
    Subsec. (p)(3)(A). Pub. L. 100-647, Sec. 1011A(h)(1), inserted ``to 
which paragraph (1) does not apply by reason of paragraph (2) during the 
period'' after ``loan''.
    Subsec. (p)(3)(B). Pub. L. 100-647, Sec. 1011A(h)(2), substituted 
``Period'' for ``Loans'' in heading and amended text generally. Prior to 
amendment, text read as follows: ``For purposes of subparagraph (A), a 
loan is described in this subparagraph--
        ``(i) if paragraph (1) does not apply to such loan by reason of 
    paragraph (2), and
        ``(ii) if--
            ``(I) such loan is made to a key employee (as defined in 
        section 416(i)), or
            ``(II) such loan is secured by amounts attributable to 
        elective 401(k) or 403(b) deferrals (as defined in section 
        402(g)(3)).''
    Subsec. (q)(2)(B). Pub. L. 100-647, Sec. 1018(t)(1)(B), substituted 
``subsection (s)(6)(B))'' for ``subsection (s)(6)(B)))''.
    Subsec. (q)(2)(D). Pub. L. 100-647, Sec. 1011A(c)(7), inserted 
``designated'' before ``beneficiary''.
    Pub. L. 100-647, Secs. 1011A(c)(4), 1018(u)(8), amended subpar. (D) 
identically, substituting a comma for period at end.
    Subsec. (q)(2)(E). Pub. L. 100-647, Sec. 1011A(b)(9)(D), struck out 
``(determined without regard to subsection (e)(7))'' after ``subsection 
(e)(5)(D)''.
    Subsec. (q)(2)(G). Pub. L. 100-647, Sec. 1011A(c)(4), substituted a 
comma for period at end.
    Subsec. (q)(2)(H). Pub. L. 100-647, Sec. 1011A(c)(6), added subpar. 
(H).
    Subsec. (q)(3)(B). Pub. L. 100-647, Sec. 1011A(c)(5), substituted 
``taxpayer'' for ``employee'' in cls. (i) and (ii).
    Subsec. (s)(5). Pub. L. 100-647, Sec. 1018(k)(2), substituted 
``certain annuity contracts'' for ``annuity contracts which are part of 
qualified plans'' in heading.
    Subsec. (s)(5)(D). Pub. L. 100-647, Sec. 1018(k)(1), added subpar. 
(D).
    Subsec. (s)(7). Pub. L. 100-647, Sec. 1018(t)(1)(A), substituted 
``primary annuitant'' for ``primary annuity''.
    Subsec. (t)(2)(A)(iv). Pub. L. 100-647, Sec. 1011A(c)(7), inserted 
``designated'' before ``beneficiary''.
    Subsec. (t)(2)(A)(v). Pub. L. 100-647, Sec. 1011A(c)(1), struck out 
``on account of early retirement under the plan'' after ``separation 
from service''.
    Subsec. (t)(2)(C). Pub. L. 100-647, Sec. 1011A(c)(2), substituted 
``Exceptions for distributions from employee stock ownership plans'' for 
``Certain plans'' in heading and amended text generally. Prior to 
amendment, text read as follows:
    ``(i) In general.--Except as provided in clause (ii), any 
distribution made before January 1, 1990, to an employee from an 
employee stock ownership plan defined in section 4975(e)(7) to the 
extent that, on average, a majority of assets in the plan have been 
invested in employer securities (as defined in section 409(l)) for the 
5-plan-year period preceding the plan year in which the distribution is 
made.
    ``(ii) Benefits distributed must be invested in employer securities 
for 5 years.--Clause (i) shall not apply to any distribution which is 
attributable to assets which have not been invested in employer 
securities at all times during the period referred to in clause (i).''
    Subsec. (t)(3)(A). Pub. L. 100-647, Sec. 1011A(c)(3), substituted 
``(C), and (D)'' for ``and (C)''.
    Subsec. (u)(1)(A). Pub. L. 100-647, Sec. 1011A(i)(1), inserted 
``(other than subchapter L)'' after ``subtitle''.
    Subsec. (u)(3)(D). Pub. L. 100-647, Sec. 1011A(i)(3), substituted 
``is purchased'' for ``which is purchased'' and ``is held'' for ``which 
is held''.
    Pub. L. 100-647, Sec. 1011A(i)(2), substituted ``until all amounts 
under such contract are distributed to the employee for whom such 
contract was purchased or the employee's beneficiary'' for ``until such 
time as the employee separates from service''.
    Subsec. (u)(3)(E). Pub. L. 100-647, Sec. 1011A(i)(3), substituted 
``is'' for ``which is''.
    Subsec. (u)(4)(C). Pub. L. 100-647, Sec. 1011A(i)(4), added subpar. 
(C).
    Subsecs. (v), (w). Pub. L. 100-647, Sec. 5012(b)(1), added subsec. 
(v) and redesignated former subsec. (v) as (w).
    1986--Subsec. (b). Pub. L. 99-514, Sec. 1122(c)(2), amended subsec. 
(b) generally. Prior to amendment, subsec. (b) read as follows: ``Gross 
income does not include that part of any amount received as an annuity 
under an annuity, endowment, or life insurance contract which bears the 
same ratio to such amount as the investment in the contract (as of the 
annuity starting date) bears to the expected return under the contract 
(as of such date). This subsection shall not apply to any amount to 
which subsection (d)(1) (relating to certain employee annuities) 
applies.''
    Subsec. (d). Pub. L. 99-514, Sec. 1122(c)(1), struck out subsec. (d) 
which related to employee's annuities where the employee's contributions 
were recoverable in 3 years.
    Subsec. (e)(4)(C). Pub. L. 99-514, Sec. 1826(b)(3), added subpar. 
(C).
    Subsec. (e)(5)(D). Pub. L. 99-514, Sec. 1122(c)(3)(B), substituted 
``paragraphs (7) and (8)'' for ``paragraph (7)'' in introductory 
provisions.
    Pub. L. 99-514, Sec. 1854(b)(1), inserted closing provisions which 
read as follows: ``Any dividend described in section 404(k) which is 
received by a participant or beneficiary shall, for purposes of this 
subparagraph, be treated as paid under a separate contract to which 
clause (ii)(I) applies.''
    Subsec. (e)(7)(B). Pub. L. 99-514, Sec. 1852(c)(1), in introductory 
provisions substituted ``any plan or contract'' for ``any trust or 
contract'', in cl. (ii) substituted ``85 percent or more of'' for ``85 
percent of'', and inserted closing provision: ``For purposes of clause 
(ii), deductible employee contributions (as defined in subsection 
(o)(5)(A)) shall not be taken into account.''
    Subsec. (e)(8), (9). Pub. L. 99-514, Sec. 1122(c)(3)(A), added pars. 
(8) and (9).
    Subsec. (f). Pub. L. 99-514, Sec. 1852(c)(3), in introductory 
provisions, substituted ``subsections (d)(1) and (e)(7)'' for 
``subsection (d)(1)'' and ``subsection (e)(6)'' for ``subsection 
(e)(1)(B)''.
    Subsec. (m)(2)(B). Pub. L. 99-514, Sec. 1852(c)(4)(A), inserted 
``and subsection (e)(7) (relating to plans where substantially all 
contributions are employee contributions)''.
    Subsec. (m)(2)(C). Pub. L. 99-514, Sec. 1852(c)(4)(B), substituted 
``subsection (e)(6)'' for ``subsection (e)(1)(B)''.
    Subsec. (m)(5). Pub. L. 99-514, Sec. 1852(a)(2)(C), which directed 
that par. (5) be amended by substituting ``5-percent owners'' for 
``owner-employees'' in heading, was executed by substituting ``5-percent 
owners'' for ``key employees'', to reflect the probable intent of 
Congress and intervening amendment by section 713(c)(1)(B) of Pub. L. 
98-369.
    Subsec. (m)(5)(A). Pub. L. 99-514, Sec. 1123(d)(1), amended subpar. 
(A) generally. Prior to amendment, subpar. (A) read as follows: ``This 
subparagraph shall apply--
        ``(i) to amounts which--
            ``(I) are received from a qualified trust described in 
        section 401(a) or under a plan described in section 403(a), and
            ``(II) are received by a 5-percent owner before such owner 
        attains the age of 59\1/2\ years, for any reason other than such 
        owner becoming disabled (within the meaning of paragraph (7) of 
        this section), and
        ``(ii) to amounts which are received from a qualified trust 
    described in section 401(a) or under a plan described in section 
    403(a) at any time by a 5-percent owner, or by the successor of such 
    owner, but only to the extent that such amounts are determined 
    (under regulations prescribed by the Secretary) to exceed the 
    benefits provided for such individual under the plan formula.
Clause (i) shall not apply to any amount received by an individual in 
his capacity as a policyholder of an annuity, endowment, or life 
insurance contract which is in the nature of a dividend or similar 
distribution and clause (i) shall not apply to amounts attributable to 
benefits accrued before January 1, 1985.''
    Pub. L. 99-514, Sec. 1852(a)(2)(A), amended subpar. (A) generally. 
Prior to amendment, subpar. (A) read as follows: ``This paragraph shall 
apply--
        ``(i) to amounts (other than any amount received by an 
    individual in his capacity as a policyholder of an annuity, 
    endowment, or life insurance contract which is in the nature of a 
    dividend or similar distribution) which are received from a 
    qualified trust described in section 401(a) or under a plan 
    described in section 403(a) and which are received by an individual, 
    who is, or has been, a 5-percent owner, before such individual 
    attains the age of 59\1/2\ years, for any reason other than the 
    individual's becoming disabled (within the meaning of paragraph (7) 
    of this subsection), but only to the extent that such amounts are 
    attributable to contributions paid on behalf of such individual 
    (other than contributions made by him as a 5-percent owner) while he 
    was a 5-percent owner, and
        ``(ii) to amounts which are received from a qualified trust 
    described in section 401(a) or under a plan described in section 
    403(a) at any time by an individual who is, or has been, a 5-percent 
    owner or by the successor of such individual, but only to the extent 
    that such amounts are determined, under regulations prescribed by 
    the Secretary, to exceed the benefits provided for such individual 
    under the plan formula.''
    Subsec. (m)(5)(C). Pub. L. 99-514, Sec. 1852(a)(2)(B), amended 
subpar. (C) generally. Prior to amendment, subpar. (C) read as follows: 
``For purposes of this paragraph, the term `5 percent owner' have the 
same meanings as when used in section 416.''
    Subsec. (m)(10). Pub. L. 99-514, Sec. 1898(c)(1)(B), inserted ``who 
is the spouse or former spouse of the participant''.
    Subsec. (o)(5). Pub. L. 99-514, Sec. 1101(b)(2)(C), inserted ``and 
made for a taxable year beginning before January 1, 1987,'' in subpar. 
(A), substituted ``subsection (p)(3)(A)(i)'' for ``section 219(e)(3)'' 
in subpar. (C), and substituted ``subsection (p)(3)(B)'' for ``section 
219(e)(4)'' in subpar. (D).
    Subsec. (p)(2)(A)(i). Pub. L. 99-514, Sec. 1134(a), amended cl. (i) 
generally. Prior to amendment, cl. (i) read as follows: ``$50,000, or''.
    Subsec. (p)(2)(B)(ii). Pub. L. 99-514, Sec. 1134(d), amended cl. 
(ii) generally. Prior to amendment, cl. (ii) read as follows: ``Clause 
(i) shall not apply to any loan used to acquire, construct, reconstruct, 
or substantially rehabilitate any dwelling unit which within a 
reasonable time is to be used (determined at the time the loan is made) 
as a principal residence of the participant or a member of the family 
(within the meaning of section 267(c)(4)) of the participant.''
    Subsec. (p)(2)(C), (D). Pub. L. 99-514, Sec. 1134(b), added subpar. 
(C) and redesignated former subpar. (C) as (D).
    Subsec. (p)(3). Pub. L. 99-514, Sec. 1134(c), added par. (3) and 
redesignated former par. (3) as (4).
    Pub. L. 99-514, Sec. 1101(b)(2)(B), amended par. (3) generally. 
Prior to amendment, par. (3) read as follows: ``For purposes of this 
subsection, the term `qualified employer plan' means any plan which was 
(or was determined to be) a qualified employer plan (as defined in 
section 219(e)(3) other than a plan described in subsection (e)(7)). For 
purposes of this subsection, such term includes any government plan (as 
defined in section 219(e)(4)).''
    Subsec. (p)(4), (5). Pub. L. 99-514, Sec. 1134(c), redesignated 
former pars. (3) and (4) as (4) and 5, respectively.
    Subsec. (q). Pub. L. 99-514, Sec. 1123(b)(1)(B), substituted ``10-
percent'' for ``5-percent'' in heading.
    Subsec. (q)(1). Pub. L. 99-514, Sec. 1123(b)(1)(A), substituted ``10 
percent'' for ``5 percent''.
    Subsec. (q)(2). Pub. L. 99-514, Sec. 1123(b)(3), substituted 
``Paragraph (1)'' for ``This subsection'' in introductory provisions.
    Subsec. (q)(2)(B). Pub. L. 99-514, Sec. 1826(c), amended subpar. (B) 
generally. Prior to amendment, subpar. (B) read as follows: ``made to a 
beneficiary (or to the estate of an annuitant) on or after the death of 
an annuitant,''.
    Subsec. (q)(2)(D). Pub. L. 99-514, Sec. 1123(b)(2), amended subpar. 
(D) generally. Prior to amendment, subpar. (D) read as follows: ``which 
is one of a series of substantially equal periodic payments made for the 
life of a taxpayer or over a period extending for at least 60 months 
after the annuity starting date,''.
    Subsec. (q)(2)(E). Pub. L. 99-514, Sec. 1852(c)(2), inserted 
``(determined without regard to subsection (e)(7))''.
    Subsec. (q)(2)(G). Pub. L. 99-514, Sec. 1826(d), added subpar. (G).
    Subsec. (q)(2)(I), (J). Pub. L. 99-514, Sec. 1123(b)(4), which added 
subpars. (I) and (J) directed the amendment of subpar. (G) by striking 
out ``or'' at the end thereof, and of subpar. (H) by striking out the 
period at the end thereof, could not be executed to subpars. (G) and (H) 
because subpar. (G) does not contain ``or'', and no subpar. (H) was 
enacted.
    Subsec. (q)(3). Pub. L. 99-514, Sec. 1123(b)(3), added par. (3).
    Subsec. (s)(1). Pub. L. 99-514, Sec. 1826(b)(2), substituted ``any 
holder of such contract'' for ``the holder of such contract'' in 
subpars. (A) and (B).
    Subsec. (s)(5). Pub. L. 99-514, Sec. 1826(a), added par. (5).
    Subsec. (s)(6), (7). Pub. L. 99-514, Sec. 1826(b)(1), added pars. 
(6) and (7).
    Subsec. (t). Pub. L. 99-514, Sec. 1123(a), added subsec. (t) and 
redesignated former subsec. (t) as (u).
    Subsecs. (u), (v). Pub. L. 99-514, Sec. 1135(a), added subsec. (u) 
and redesignated former subsec. (u) as (v).
    1984--Subsec. (e)(5)(D). Pub. L. 98-369, Sec. 523(b)(1), substituted 
``Except as provided in paragraph (7), this'' for ``This''.
    Subsec. (e)(5)(D)(ii)(IV). Pub. L. 98-369, Sec. 211(b)(1), which 
directed substitution of ``section 818(a)(3)'' for ``805(d)(3)'' in 
subpar. (D)(i)(IV), was executed to subpar. (D)(ii)(IV) to reflect the 
probable intent of Congress.
    Subsec. (e)(7). Pub. L. 98-369, Sec. 523(a), added par. (7).
    Subsec. (k). Pub. L. 98-369, Sec. 421(b)(1), repealed subsec. (k) 
relating to payments in discharge of alimony.
    Subsec. (m)(5). Pub. L. 98-369, Sec. 713(c)(1)(B), substituted ``key 
employees'' for ``owner-employees'' in heading.
    Subsec. (m)(5)(A). Pub. L. 98-369, Sec. 521(d)(1), (2), substituted 
``5-percent owner'' for ``key employee'' wherever appearing and struck 
out ``in a top-heavy plan'' at end of cl. (i).
    Pub. L. 98-369, Sec. 713(c)(1)(A), substituted ``as a key employee'' 
for ``as an owner-employee'' in cl. (i).
    Subsec. (m)(5)(C). Pub. L. 98-369, Sec. 521(d)(3), substituted ``the 
term `5 percent owner' '' for ``the terms `key employee' and `top-heavy 
plan' ''.
    Subsec. (m)(9). Pub. L. 98-369, Sec. 713(d)(1), repealed par. (9) 
relating to return of excess contributions before due date of return.
    Subsec. (m)(10). Pub. L. 98-397 added par. (10).
    Subsec. (o)(1). Pub. L. 98-369, Sec. 491(d)(3), substituted ``402 
and 403'' for ``402, 403, and 405''.
    Subsec. (o)(3)(A). Pub. L. 98-369, Sec. 713(b)(1)(A), inserted 
``(other than the exception contained in paragraph (2) thereof)''.
    Subsec. (o)(4). Pub. L. 98-369, Sec. 491(d)(4), substituted ``and 
408(d)(3)'' for ``408(d)(3), and 409(b)(3)(C)''.
    Subsec. (p)(2)(A). Pub. L. 98-369, Sec. 713(b)(1)(B), inserted at 
end ``For purposes of clause (ii), the present value of the 
nonforfeitable accrued benefit shall be determined without regard to any 
accumulated deductible employee contributions (as defined in subsection 
(o)(5)(B)).''
    Subsec. (p)(2)(A)(ii). Pub. L. 98-369, Sec. 713(b)(4), substituted 
as cl. (ii) ``the greater of (I) one-half of the present value of the 
nonforfeitable accrued benefit of the employee under the plan, or (II) 
$10,000'' for ``\1/2\ of the present value of the nonforfeitable accrued 
benefit of the employee under the plan (but not less than $10,000)''.
    Subsec. (p)(3). Pub. L. 98-369, Sec. 523(b)(2), inserted ``other 
than a plan described in subsection (e)(7)''.
    Subsec. (q)(1). Pub. L. 98-369, Sec. 222(a), amended par. (1) 
generally, striking out designation ``(A) In general.--'' preceding 
text, substituting ``which is includible in gross income'' for 
``includible in gross income which is properly allocable to any 
investment in the annuity contract made during the 10-year period ending 
on the date such amount was received by the taxpayer'', and striking out 
former subpar. (B), which had provided that for purposes of subpar. (A), 
the amount includible in gross income would be allocated to the earliest 
investment in the contract with respect to which amounts had not been 
previously fully allocated under this par.
    Subsecs. (s), (t). Pub. L. 98-369, Sec. 222(b), added subsec. (s) 
and redesignated former subsec. (s) as (t).
    1983--Subsec. (o)(2)(A). Pub. L. 97-448, Sec. 103(c)(6), struck out 
``to which the employee made one or more deductible employee 
contributions'' after ``from a qualified employer plan or government 
plan''.
    Subsec. (p)(3). Pub. L. 97-448, Sec. 103(c)(3)(B)(i), struck out 
``without regard to subparagraph (D) thereof'' after ``as defined in 
section 219(e)(3)''.
    Subsecs. (r), (s). Pub. L. 98-76 added subsec. (r) and redesignated 
former subsec. (r) as (s).
    1982--Subsec. (e). Pub. L. 97-248, Sec. 265(a), in par. (1) 
substituted provisions relating to the application of this subsection to 
amounts received under annuity, endowment, or life insurance contracts 
which are not received as annuities and to amounts received as dividends 
for provisions which stated a general rule relating to the includability 
as gross income of amounts that were received under annuity, endowment, 
or life insurance contracts which were not received as annuities and 
also stated that for the purposes of this section amounts which were 
received as dividends would be treated as amounts not received as an 
annuity, in par. (2) substituted provisions stating a general rule as to 
the includability as gross income of amounts received before or after 
the annuity starting date for provisions which set out those amounts 
which would be treated as amounts not received as an annuity, and added 
pars. (3) to (6).
    Subsec. (m)(4). Pub. L. 97-248, Sec. 236(b)(1), struck out par. (4) 
which related to amounts constructively received with respect to 
assignments or pledges, and loans on contracts.
    Subsec. (m)(5). Pub. L. 97-248, Sec. 237(d)(1), (2), in subpar. (A) 
substituted applicability to key employees for applicability to owner-
employees and added subpar. (C).
    Subsec. (m)(6). Pub. L. 97-248, Sec. 237(d)(3), struck out ``except 
in applying paragraph (5),'' after ``shall''.
    Subsec. (m)(8). Pub. L. 97-248, Sec. 236(b)(1), struck out par. (8) 
which related to loans to owner-employees.
    Subsec. (o)(3)(A). Pub. L. 97-248, Sec. 236(b)(2), substituted 
reference to subsec. (p) of this section for references to subsec. 
(m)(4) and (8) of this section.
    Subsec. (p). Pub. L. 97-248, Sec. 236(a), added subsec. (p). Former 
subsec. (p) redesignated (q).
    Subsec. (q). Pub. L. 97-248, Sec. 265(b)(1), added subsec. (q). 
Former subsec. (q) redesignated (r).
    Pub. L. 97-248, Sec. 236(a), redesignated former subsec. (p) as (q).
    Subsec. (r). Pub. L. 97-248, Secs. 236(a), 265(b)(1), redesignated 
former subsec. (p) as (r).
    1981--Subsec. (m)(6). Pub. L. 97-34, Sec. 312(d)(1), expanded 
definition of ``owner-employee'' to include an employee within the 
meaning of section 401(c)(1) except in applying paragraph (5).
    Subsec. (m)(8). Pub. L. 97-34, Sec. 312(d)(2), added par. (8).
    Subsec. (m)(9). Pub. L. 97-34, Sec. 312(e)(1), added par. (9).
    Subsecs. (o), (p). Pub. L. 97-34, Sec. 311(b)(1), added subsec. (o) 
and redesignated former subsec. (o) as (p).
    1976--Subsec. (c)(2), (3)(A). Pub. L. 94-455, Sec. 1906(b)(13)(A), 
struck out ``or his delegate'' after ``Secretary''.
    Subsec. (d)(1). Pub. L. 94-455, Sec. 1901(a)(12), struck out in 
subpar. (B) ``(whether or not before January 1, 1954)'' after 
``beginning on the date'', and in provisions following subpar. (B) 
struck out ``(under this paragraph and prior income tax laws)'' after 
``until there has been so excluded''.
    Subsec. (f). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out ``or 
his delegate'' after ``Secretary''.
    Subsec. (i). Pub. L. 94-455, Sec. 1951(b)(1)(A), struck out subsec. 
(i) which related to joint annuities where first annuitant died in 1951, 
1952, or 1953.
    Subsec. (m)(2), (3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out 
``or his delegate'' after ``Secretary''.
    Subsec. (m)(4)(A). Pub. L. 94-455, Sec. 1901(a)(13), substituted 
``an individual retirement account'' for ``an individual retirement 
amount''.
    Subsec. (m)(5)(A)(ii), (7). Pub. L. 94-455, Sec. 1906(b)(13)(A), 
struck out ``or his delegate'' after ``Secretary''.
    1974--Subsec. (m)(1). Pub. L. 93-406, Sec. 2001(h)(2), struck out 
par. (1) which related to certain amounts received before annuity 
starting date.
    Subsec. (m)(4)(A). Pub. L. 93-406, Sec. 2002(g)(10)(A), inserted 
references to an individual retirement amount described in section 
408(a) and an individual retirement annuity described in section 408(b).
    Subsec. (m)(5)(A). Pub. L. 93-406, Sec. 2001(e)(5), (h)(3), 
substituted ``(other than contributions made by him as an owner-
employee)'' for ``(whether or not paid by him)'' in cl. (i), and struck 
out cl. (iii) which had made reference to amounts which were received, 
by an individual who was or had been, an owner-employee, by reason of 
the distribution under the provisions of section 401(e)(2)(E) of his 
entire interest in all qualified trusts described in section 401(a) and 
in all plans described in section 403(a).
    Subsec. (m)(5)(B). Pub. L. 93-406, Sec. 2001(g)(1), substituted 
provisions that if a person receives an amount to which subsec. (m)(5) 
applies, his tax under this chapter for the taxable year in which such 
amount is received shall be increased by an amount equal to 10 percent 
of the portion of the amount so received which is includible in his 
gross income for such taxable year for provisions that if the aggregate 
amounts to which subsec. (m)(5) applied received by any person in his 
taxable year equalled or exceeded $2,500, the increase in his tax for 
the taxable year in which such amounts were received and attributable to 
such amounts could not be less than 110 percent of the aggregate 
increase in taxes, for the taxable year and the 4 immediately preceding 
taxable years, which would have resulted if such amounts had been 
included in such person's gross income ratably over such taxable years, 
with provision for alternate computation if deductions had been allowed 
under section 404 for contributions paid for a number of prior taxable 
years less than 4.
    Subsec. (m)(5)(C) to (E). Pub. L. 93-406, Sec. 2001(g)(2)(A), struck 
out subpars. (C) to (E) which contained special rules for the 
application of subsec. (m)(5).
    Subsec. (m)(6). Pub. L. 93-406, Sec. 2002(g)(10)(B), inserted 
reference to an individual for whose benefit an individual retirement 
account or annuity described in section 408(a) or (b) is maintained.
    Subsec. (n). Pub. L. 93-406, Secs. 2005(c)(3), 2007(b)(2), 
redesignated former subsec. (o) as (n) and in heading of subsec. (n) as 
so redesignated inserted reference to survivor benefit plan. Former 
subsec. (n), which set out provisions covering the treatment to be 
accorded total distributions, was struck out.
    Subsec. (o). Pub. L. 93-406, Sec. 2005(c)(3), redesignated former 
subsec. (p) as (o). Former subsec. (o) redesignated (n) and amended.
    Subsec. (p). Pub. L. 93-406, Sec. 2005(c)(3), redesignated subsec. 
(p) as (o).
    1969--Subsec. (n)(1). Pub. L. 91-172, Sec. 515(b)(1), altered 
section to accommodate the insertion into sections 402 and 403 of 
provisions under which employer contributions to qualified pension, 
profit sharing, stock bonus, and annuity plans for plan years beginning 
after 1969 are to be treated as ordinary income when received in a lump 
sum distribution, but with such amounts to be eligible for a special 
averaging procedure.
    Subsec. (n)(4). Pub. L. 91-172, Sec. 515(b)(2), added par. (4).
    1966--Subsecs. (o), (p). Pub. L. 89-365 added subsec. (o) and 
redesignated former subsec. (o) as (p).
    1965--Subsec. (m)(5)(A)(i). Pub. L. 89-97, Sec. 106(d)(2)(A), 
substituted ``paragraph (7) of this subsection'' for ``section 
213(g)(3)''.
    Subsec. (m)(7). Pub. L. 89-97, Sec. 106(d)(2)(B), added par. (7).
    Subsec. (n)(1). Pub. L. 89-97, Sec. 106(d)(2)(C), substituted in 
subpars. (A)(iii) and (B)(iii) ``subsection (m)(7)'' for ``section 
213(g)(3)''.
    Subsec. (n)(3). Pub. L. 89-44 substituted ``sections 31 and 39'' for 
``section 31'' in sentence following subpar. (B).
    1964--Subsec. (e)(3). Pub. L. 88-272 struck out par. (3) which 
provided for a limit on the tax attributable to the receipt of a lump 
sum.
    1962--Subsec. (d)(2). Pub. L. 87-792, Sec. 4(a), designated existing 
provisions as cl. (A) and added cl. (B).
    Subsec. (f). Pub. L. 87-834 inserted sentence providing that par. 
(2) shall not apply to amounts which were contributed by the employer 
after Dec. 31, 1962, and which would not have been includible in the 
gross income of the employee by reason of the application of Section 911 
if such amounts had been paid directly to the employee at the time of 
contribution, and making such sentence inapplicable to amounts which 
were contributed by the employer, as determined under regulations, to 
provide pension or annuity credits, to the extent such credits are 
attributable to services performed before Jan. 1, 1963, and are provided 
pursuant to pension or annuity plan provisions in existence on Mar. 12, 
1962, and on that date applicable to such services.
    Subsecs. (m) to (o). Pub. L. 87-792, Sec. 4(b), added subsecs. (m) 
and (n) and redesignated former subsec. (m) as (o).


                    Effective Date of 1998 Amendment

    Pub. L. 105-206, title III, Sec. 3436(b), July 22, 1998, 112 Stat. 
761, provided that: ``The amendments made by this section [amending this 
section] shall apply to distributions after December 31, 1999.''
    Amendment by section 6023(3), (4) of Pub. L. 105-206 effective July 
22, 1998, see section 6023(32) of Pub. L. 105-206, set out as a note 
under section 34 of this title.
    Amendment by sections 6004(d)(3)(B) and 6005(c)(1) of Pub. L. 105-
206 effective, except as otherwise provided, as if included in the 
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to which 
such amendment relates, see section 6024 of Pub. L. 105-206, set out as 
a note under section 1 of this title.


                    Effective Date of 1997 Amendment

    Section 203(c) of Pub. L. 105-34 provided that: ``The amendments 
made by this section [amending this section] shall apply to 
distributions after December 31, 1997, with respect to expenses paid 
after such date (in taxable years ending after such date), for education 
furnished in academic periods beginning after such date.''
    Section 303(c) of Pub. L. 105-34 provided that: ``The amendments 
made by this section [amending this section] shall apply to payments and 
distributions in taxable years beginning after December 31, 1997.''
    Section 1075(c) of Pub. L. 105-34 provided that: ``The amendments 
made by this section [amending this section] shall apply with respect to 
annuity starting dates beginning after December 31, 1997.''


                    Effective Date of 1996 Amendments

    Section 361(d) of Pub. L. 104-191 provided that: ``The amendments 
made by this section [amending this section] shall apply to 
distributions after December 31, 1996.''
    Section 1403(b) of Pub. L. 104-188 provided that: ``The amendment 
made by this section [amending this section] shall apply in cases where 
the annuity starting date is after the 90th day after the date of the 
enactment of this Act [Aug. 20, 1996].''
    Section 1421(e) of Pub. L. 104-188 provided that: ``The amendments 
made by this section [amending this section, sections 219, 280G, 402, 
404, 408, 414, 416, 457, 3121, 3306, 3401, 4972, and 6693 of this title, 
sections 1021 and 1104 of Title 29, Labor, and section 409 of Title 42, 
The Public Health and Welfare] shall apply to taxable years beginning 
after December 31, 1996.''
    Section 1463(b) of Pub. L. 104-188 provided that: ``The amendment 
made by this section [amending this section] shall apply to taxable 
years beginning after December 31, 1996.''
    Section 1704(l)(2) of Pub. L. 104-188 provided that: ``The amendment 
made by paragraph (1) [amending this section] shall take effect as if 
included in the amendments made by section 1122(c) of the Tax Reform Act 
of 1986 [Pub. L. 99-514].''


                    Effective Date of 1992 Amendment

    Amendment by Pub. L. 102-318 applicable to distributions after Dec. 
31, 1992, see section 521(e) of Pub. L. 102-318, set out as a note under 
section 402 of this title.


                    Effective Date of 1989 Amendment

    Amendment by Pub. L. 101-239 effective, except as otherwise 
provided, as if included in the provision of the Technical and 
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such 
amendment relates, see section 7817 of Pub. L. 101-239, set out as a 
note under section 1 of this title.


                    Effective Date of 1988 Amendment

    Amendment by sections 1011A(b)(1)(A), (B), (2), (9), (c)(1)-(8), 
(h), (i), and 1018(k), (t)(1)(A), (B), and (u)(8) of Pub. L. 100-647 
effective, except as otherwise provided, as if included in the provision 
of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment 
relates, see section 1019(a) of Pub. L. 100-647, set out as a note under 
section 1 of this title.
    Amendment by section 5012(a), (b)(1), (d) of Pub. L. 100-647 
applicable to contracts entered into on or after June 21, 1988, with 
special rule where death benefit increases by more than $150,000, 
certain other material changes taken into account, certain exchanges 
permitted, and special rule in the case of annuity contracts, see 
section 5012(e) of Pub. L. 100-647, set out as an Effective Date note 
under section 7702A of this title.


                    Effective Date of 1986 Amendment

    Section 1101(c) of Pub. L. 99-514 provided that: ``The amendments 
made by this section [amending this section and section 219 of this 
title] shall apply to contributions for taxable years beginning after 
December 31, 1986.''
    Amendment by section 1122(c)(1) of Pub. L. 99-514 applicable to 
individuals whose annuity starting date is after July 1, 1986, amendment 
by section 1122(c)(2) of Pub. L. 99-514 applicable to individuals whose 
annuity starting date is after Dec. 31, 1986, and amendment by section 
1122(c)(3) of Pub. L. 99-514 applicable to amounts received after July 
1, 1986, in the case of any plan not described in section 72(e)(8)(D) of 
this title, see section 1122(h)(2) of Pub. L. 99-514, set out as a note 
under section 402 of this title.
    Section 1123(e) of Pub. L. 99-514, as amended by Pub. L. 100-647, 
title I, Sec. 1011A(c)(11), (12), Nov. 10, 1988, 102 Stat. 3476, 
provided that:
    ``(1) In general.--Except as otherwise provided in this subsection, 
the amendments made by this section [amending this section and sections 
403 and 408 of this title] shall apply to taxable years beginning after 
December 31, 1986.
    ``(2) Subsection (c).--The amendments made by subsection (c) 
[amending section 403 of this title] shall apply to years beginning 
after December 31, 1988, but only with respect to distributions from 
contracts described in section 403(b) of the Internal Revenue Code of 
1986 which are attributable to assets other than assets held as of the 
close of the last year beginning before January 1, 1989.
    ``(3) Exception where distribution commences.--The amendments made 
by this section shall not apply to distributions to any employee from a 
plan maintained by any employer if--
        ``(A) as of March 1, 1986, the employee separated from service 
    with the employer,
        ``(B) as of March 1, 1986, the accrued benefit of the employee 
    was in pay status pursuant to a written election providing a 
    specific schedule for the distribution of the entire accrued benefit 
    of the employee, and
        ``(C) such distribution is made pursuant to such written 
    election.
    ``(4) Transition rule.--The amendments made by this section shall 
not apply with respect to any benefits with respect to which a 
designation is in effect under section 242(b)(2) of the Tax Equity and 
Fiscal Responsibility Act of 1982 [section 242(b)(2) of Pub. L. 97-248, 
formerly set out as an Effective Date of 1982 Amendment note under 
section 401 of this title].
    ``(5) Special rule for distributions under an annuity contract.--The 
amendments made by paragraphs (1), (2), and (3) of subsection (b) 
[amending this section] shall not apply to any distribution under an 
annuity contract if--
        ``(A) as of March 1, 1986, payments were being made under such 
    contract pursuant to a written election providing a specific 
    schedule for the distribution of the taxpayer's interest in such 
    contract, and
        ``(B) such distribution is made pursuant to such written 
    election.''
    Section 1134(e) of Pub. L. 99-514 provided that: ``The amendments 
made by this section [amending this section] shall apply to loans made, 
renewed, renegotiated, modified, or extended after December 31, 1986.''
    Section 1135(b) of Pub. L. 99-514 provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply to 
contributions to annuity contracts after February 28, 1986.''
    Amendment by sections 1826(a), (d), 1852(a)(2), (c)(1)-(4), and 
1854(b)(1) of Pub. L. 99-514 effective, except as otherwise provided, as 
if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98-
369, div. A, to which such amendment relates, see section 1881 of Pub. 
L. 99-514, set out as a note under section 48 of this title.
    Section 1826(b)(4) of Pub. L. 99-514 provided that: ``The amendments 
made by this subsection [amending this section] shall apply to contracts 
issued after the date which is 6 months after the date of the enactment 
of this Act [Oct. 22, 1986] in taxable years ending after such date.''
    Section 1826(c) of Pub. L. 99-514, as amended by Pub. L. 100-647, 
title I, Sec. 1018(t)(1)(D), Nov. 10, 1988, 102 Stat. 3587, provided 
that the amendment made by section 1826(c) of Pub. L. 99-514 is 
effective with respect to distributions commencing after the date 6 
months after Oct. 22, 1986.
    Section 1854(b)(6) of Pub. L. 99-514 provided that: ``The amendments 
made by paragraphs (1) and (2) [amending this section and section 404 of 
this title] shall not apply to dividends paid before January 1, 1986, if 
the taxpayer treated such dividends in a manner inconsistent with such 
amendments on a return filed with the Secretary before the date of the 
enactment of this Act [Oct. 22, 1986].''
    Section 1898(c)(1)(C) of Pub. L. 99-514 provided that: ``The 
amendments made by this paragraph [amending this section and section 402 
of this title] shall apply to payments made after the date of the 
enactment of this Act [Oct. 22, 1986].''


                    Effective Date of 1984 Amendments

    Amendment by Pub. L. 98-397 effective Jan. 1, 1985, except as 
otherwise provided, see section 303(d) of Pub. L. 98-397, set out as a 
note under section 1001 of Title 29, Labor.
    Amendment by section 211(b)(1) of Pub. L. 98-369 applicable to 
taxable years beginning after Dec. 31, 1983, see section 215 of Pub. L. 
98-369, set out as an Effective Date note under section 801 of this 
title.
    Section 222(c) of Pub. L. 98-369, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided:
    ``(1) In general.--The amendments made by this section [amending 
this section] shall apply to contracts issued after the day which is 6 
months after the date of the enactment of this Act [July 18, 1984] in 
taxable years ending after such date.
    ``(2) Transitional rules for contracts issued before effective 
date.--In the case of any contract (other than a single premium 
contract) which is issued on or before the day which is 6 months after 
the date of the enactment of this Act, for purposes of section 
72(q)(1)(A) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] 
(as in effect on the day before the date of the enactment of this Act), 
any investment in such contract which is made during any calendar year 
shall be treated as having been made on January 1 of such calendar 
year.''
    Amendment by section 421(b)(1) of Pub. L. 98-369 applicable to 
transfers after July 18, 1984, in taxable years ending after such date, 
subject to election to have repeal apply to transfers after 1983 or to 
transfers pursuant to existing decrees, see section 421(d) of Pub. L. 
98-369, set out as an Effective Date note under section 1041 of this 
title.
    Amendment by section 491(d)(3), (4) of Pub. L. 98-369 applicable to 
obligations issued after Dec. 31, 1983, see section 491(f)(1) of Pub. L. 
98-369, set out as a note under section 62 of this title.
    Amendment by section 521(d) of Pub. L. 98-369 applicable to years 
beginning after Dec. 31, 1984, see section 521(e) of Pub. L. 98-369, set 
out as a note under section 401 of this title.
    Section 523(c) of Pub. L. 98-369 provided that: ``The amendments 
made by this section [amending this section] shall apply to any amount 
received or loan made after the 90th day after the date of enactment of 
this Act [July 18, 1984].''
    Amendment by section 713(b)(1), (4), (c)(1)(A), (B) of Pub. L. 98-
369 effective as if included in the provision of the Tax Equity and 
Fiscal Responsibility Act of 1982, Pub. L. 97-248, to which such 
amendment relates, see section 715 of Pub. L. 98-369, set out as a note 
under section 31 of this title.
    Section 713(d)(1) of Pub. L. 98-369, as amended by Pub. L. 99-514, 
title XVIII, Sec. 1875(c)(5), Oct. 22, 1986, 100 Stat. 2895, provided 
that the amendment made by section 713(d)(1) of Pub. L. 98-369 is 
effective with respect to contributions made in taxable years beginning 
after Dec. 31, 1983.


                    Effective Date of 1983 Amendments

    Section 227(b) of Pub. L. 98-76, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) In general.--Except as provided in paragraph (2), the 
amendments made by section 224 [enacting section 6050G of this title, 
amending this section and section 86 of this title, and enacting 
provisions set out as a note under section 231n of Title 45, Railroads] 
shall apply to benefits received after December 31, 1983, in taxable 
years ending after such date.
    ``(2) Treatment of certain lump-sum payments received after december 
31, 1983.--The amendments made by section 224 shall not apply to any 
portion of a lump-sum payment received after December 31, 1983, if the 
generally applicable payment date for such portion was before January 1, 
1984.
    ``(3) No fresh start.--For purposes of determining whether any 
benefit received after December 31, 1983, is includible in gross income 
by reason of section 72(r) of the Internal Revenue Code of 1986 
[formerly I.R.C. 1954], as added by this Act, the amendments made by 
section 224 be treated as having been in effect during all periods 
before 1984.''
    Section 103(c)(3)(B)(ii) of Pub. L. 97-448 provided that: ``The 
amendment made by clause (i) [amending this section] shall take effect 
as if the matter struck out had never been included in such paragraph.''
    Amendment by title I of Pub. L. 97-448 effective, except as 
otherwise provided, as if it had been included in the provision of the 
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such 
amendment relates, see section 109 of Pub. L. 97-448, set out as a note 
under section 1 of this title.


                    Effective Date of 1982 Amendment

    Section 236(c) of Pub. L. 97-248, as amended by Pub. L. 97-448, 
title III, Sec. 306(a)(11), Jan. 12, 1983, 96 Stat. 2404; Pub. L. 98-
369, div. A, title V, Sec. 554, title VII, Sec. 713(b)(2), July 18, 
1984, 98 Stat. 897, 957; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 
Stat. 2095, provided that:
    ``(1) In general.--The amendments made by this section [amending 
this section] shall apply to loans, assignments, and pledges made after 
August 13, 1982. For purposes of the preceding sentence, the outstanding 
balance of any loan which is renegotiated, extended, renewed, or revised 
after such date shall be treated as an amount received as a loan on the 
date of such renegotiation, extension, renewal, or revision.
    ``(2) Exception for certain loans used to repay outstanding 
obligations.--
        ``(A) In general.--Any qualified refunding loan shall not be 
    treated as a distribution by reason of the amendments made by this 
    section to the extent such loan is repaid before August 14, 1983.
        ``(B) Qualified refunding loan.--For purposes of subparagraph 
    (A), the term `qualified refunding loan' means any loan made after 
    August 13, 1982, and before August 14, 1983, to the extent such loan 
    is used to make a required principal payment.
        ``(C) Required principal payment.--For purposes of subparagraph 
    (B), the term `required principal payment' means any principal 
    repayment on a loan made under the plan which was outstanding on 
    August 13, 1982, if such repayment is required to be made after 
    August 13, 1982, and before August 14, 1983 or if such loan was 
    payable on demand.
        ``(D) Special rule for non-key employees.--In the case of a non-
    key employee (within the meaning of section 416(i)(2) of the 
    Internal Revenue Code of 1986 [formerly I.R.C. 1954]), this 
    paragraph shall be applied by substituting `January 1, 1985' for 
    `August 14, 1983' each place it appears.
    ``(3) Treatment of certain renegotiations.--If--
        ``(A) the taxpayer after August 13, 1982, and before September 
    4, 1982, borrows money from a government plan (as defined in section 
    219(e)(4) of the Internal Revenue Code of 1986),
        ``(B) under the applicable State law, such loan requires the 
    renegotiation of all outstanding prior loans made to the taxpayer 
    under such plan, and
        ``(C) the renegotiation described in subparagraph (B) does not 
    change the interest rate on, or extend the duration of, any such 
    outstanding prior loan,
then the renegotiation described in subparagraph (B) shall not be 
treated as a renegotiation, extension, renewal, or revision for purposes 
of paragraph (1). If the renegotiation described in subparagraph (B) 
does not meet the requirements of subparagraph (C) solely because it 
extends the duration of any such outstanding prior loan, the 
requirements of subparagraph (C) shall be treated as met with respect to 
such renegotiation if, before April 1, 1983, such extension is 
eliminated.''
    Section 265(c) of Pub. L. 97-248 provided that:
    ``(1) Subsection (a).--The amendments made by subsection (a) 
[amending this section] shall take effect on August 13, 1982.
    ``(2) Subsection (b).--The amendments made by subsection (b) 
[amending this section and sections 46, 50A, 53, 901, 1302, and 1304 of 
this title] shall apply to distributions after December 31, 1982.''
    Amendment by section 237(d) of Pub. L. 97-248 applicable to years 
beginning after Dec. 31, 1983, see section 241 of Pub. L. 97-248, set 
out as an Effective Date note under section 416 of this title.


                    Effective Date of 1981 Amendment

    Section 312(f) of Pub. L. 97-34, as amended by Pub. L. 97-448, title 
I, Sec. 103(d)(3), 96 Stat. 2378, provided that:
    ``(1) In general.--Except as provided in paragraph (2), the 
amendments made by this section [amending this section and sections 219, 
401, 404, 408, 1379, and 4972 of this title] shall apply to taxable 
years beginning after December 31, 1981.
    ``(2) Transitional rule.--The amendments made by subsection (d) 
[amending this section] shall not apply to any loan from a plan to a 
self-employed individual who is an employee within the meaning of 
section 401(c)(1) which is outstanding on December 31, 1981. For 
purposes of the preceding sentence, any loan which is renegotiated, 
extended, renewed, or revised after such date shall be treated as a new 
loan.''


                    Effective Date of 1976 Amendment

    Amendment by section 1901(a)(12), (13) of Pub. L. 94-455 applicable 
with respect to taxable years beginning after Dec. 31, 1976, see section 
1901(d) of Pub. L. 94-455, set out as a note under section 2 of this 
title.
    Section 1951(d) of Pub. L. 94-455 provided that: ``Except as 
otherwise expressly provided, the amendments made by this section [see 
Tables for classification of section 1951 of Pub. L. 94-455] shall apply 
with respect to taxable years beginning after December 31, 1976.''


                    Effective Date of 1974 Amendment

    Amendment by section 2001(e)(5) of Pub. L. 93-406 applicable to 
contributions made in taxable years beginning after Dec. 31, 1975, see 
section 2001(i)(4) of Pub. L. 93-406, set out as a note under section 
401 of this title.
    Section 2001(i)(5), (6) of Pub. L. 93-406 provided that:
        ``(5) The amendments made by subsection (g) [amending this 
    section and sections 46, 50A, 56, 404, and 901 of this title] apply 
    to distributions made in taxable years beginning after December 31, 
    1975.
        ``(6) The amendments made by subsection (h) [amending this 
    section and section 401 of this title] apply to taxable years ending 
    after the date of enactment of this Act [Sept. 2, 1974].''
    Amendment by section 2002(g)(10) of Pub. L. 93-406 effective on Jan. 
1, 1975, see section 2002(i)(2) of Pub. L. 93-406, set out as an 
Effective Date note under section 4973 of this title.
    Amendment by section 2005(c)(3) of Pub. L. 93-406, applicable only 
with respect to distributions or payments made after Dec. 31, 1973, in 
taxable years beginning after Dec. 31, 1973, see section 2005(d) of Pub. 
L. 93-406, set out as a note under section 402 of this title.
    Amendment by section 2007(b)(2) of Pub. L. 93-406 applicable to 
taxable years ending on or after Sept. 21, 1972, see section 2007(c) of 
Pub. L. 93-406, set out as a note under section 122 of this title.


                    Effective Date of 1969 Amendment

    Amendment by Pub. L. 91-172 applicable to taxable years ending after 
Dec. 31, 1969, see section 515(d) of Pub. L. 91-172, set out as a note 
under section 402 of this title.


                    Effective Date of 1966 Amendment

    Amendment by Pub. L. 89-365 applicable with respect to taxable years 
ending after Dec. 31, 1965, see section 1(d) of Pub. L. 89-365, set out 
as an Effective Date note under section 122 of this title.


                    Effective Date of 1965 Amendments

    Amendment by Pub. L. 89-97 applicable to taxable years beginning 
after Dec. 31, 1966, see section 106(e) of Pub. L. 89-97, set out as a 
note under section 213 of this title.
    Amendment by Pub. L. 89-44 applicable to taxable years beginning on 
or after July 1, 1965, see section 809(f) of Pub. L. 89-44, set out as a 
note under section 6420 of this title.


                    Effective Date of 1964 Amendment

    Amendment by Pub. L. 88-272 applicable to taxable years beginning 
after Dec. 31, 1963, see section 232(g) of Pub. L. 88-272, set out as a 
note under section 5 of this title.


                    Effective Date of 1962 Amendments

    Section 11(c)(2) of Pub. L. 87-834 provided that: ``The amendment 
made by subsection (b) [amending this section] shall apply to taxable 
years ending after December 31, 1962.''
    Amendment by Pub. L. 87-792 applicable to taxable years beginning 
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a note 
under section 22 of this title.


                            Savings Provision

    For provisions that nothing in amendment by Pub. L. 101-508 be 
construed to affect treatment of certain transactions occurring, 
property acquired, or items of income, loss, deduction, or credit taken 
into account prior to Nov. 5, 1990, for purposes of determining 
liability for tax for periods ending after Nov. 5, 1990, see section 
11821(b) of Pub. L. 101-508, set out as a note under section 29 of this 
title.
    Section 1951(b)(1)(B) of Pub. L. 94-455 provided that: 
``Notwithstanding subparagraph (A) [repealing subsec. (i) of this 
section], if the provisions of section 72(i) applied to amounts received 
in taxable years beginning before January 1, 1977, under an annuity 
contract, then amounts received under such contract on or after such 
date shall be treated as if such provisions were not repealed.''


                     Applicability of Subsection (t)

    Section 1011A(c)(13) of Pub. L. 100-647 provided that: ``Section 
72(t) of the 1986 Code shall apply to any distribution without regard to 
whether such distribution is made without the consent of the participant 
pursuant to section 411(a)(11) or section 417(e) of the 1986 Code.''


           Plan Amendments Not Required Until January 1, 1998

    For provisions directing that if any amendments made by subtitle D 
[Secs. 1401-1465] of title I of Pub. L. 104-188 require an amendment to 
any plan or annuity contract, such amendment shall not be required to be 
made before the first day of the first plan year beginning on or after 
Jan. 1, 1998, see section 1465 of Pub. L. 104-188, set out as a note 
under section 401 of this title.


           Plan Amendments Not Required Until January 1, 1994

    For provisions directing that if any amendments made by subtitle B 
[Secs. 521-523] of title V of Pub. L. 102-318 require an amendment to 
any plan, such plan amendment shall not be required to be made before 
the first plan year beginning on or after Jan. 1, 1994, see section 523 
of Pub. L. 102-318, set out as a note under section 401 of this title.


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A 
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan, 
such plan amendment shall not be required to be made before the first 
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.

                  Section Referred to in Other Sections

    This section is referred to in sections 22, 26, 67, 79, 101, 122, 
135, 138, 220, 221, 264, 401, 402, 403, 406, 407, 408, 408A, 414, 457, 
529, 530, 691, 805, 817, 817A, 953, 1014, 1275, 4973, 4978, 6050G, 7702, 
7702A, 7702B of this title; title 5 section 8433; title 12 sections 24a, 
1813; title 15 section 6712; title 29 sections 1002, 1345; title 45 
section 726.
