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Page:United States Statutes at Large Volume 100 Part 3.djvu/1034

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PUBLIC LAW 99-514—OCT. 22, 1986 "(B) fund managers (or affiliated companies) in connection with the creation or management of the regulated investment company or trust, the diversification requirements of paragraph (1) shall be applied by taking into account the assets held by such regulated investment company or trust. "(5) INDEPENDENT INVESTMENT ADVISORS PERMITTED.—Nothing

in this subsection shall be construed as prohibiting the use of independent investment advisors." (2) Paragraph (1) of section 817(h) is amended by striking out the last sentence. (n) TREATMENT OF CERTAIN DEFERRED COMPENSATION PLANS.—

Subparagraph (A) of section 818(a)(6) (defining pension plan contract) is amended to read as follows: "(A) a governmental plan (within the meaning of section 414(d)) or an eligible State deferred compensation plan (within the meaning of section 457(b)), or". (o) DIVIDENDS WITHIN AFFILIATED GROUP.—Subsection (e) of section 818 (relating to special rule for consolidated returns) is amended to read as follows: "(e) SPECIAL RULES FOR CONSOLIDATED RETURNS.— "(1) ITEMS OF COMPANIES OTHER THAN LIFE INSURANCE COMPA-

NIES.—If an election under section 1504(c)(2) is in effect with respect to an affiliated group for the taxable year, all items of the members of such group which are not life insurance companies shall not be taken into account in determining the amount of the tentative LICTI of members of such group which are life insurance companies. "(2) DIVIDENDS WITHIN GROUP.—In the case of a life insurance company filing or required to file a consolidated return under section 1501 with respect to any affiliated group for any taxable year, any determination under this part with respect to any dividend paid by one member of such group to another member of such group shall be made as if such group was not filing a consolidated return." (p) TREATMENT OF DIVIDENDS FROM SUBSIDIARIES, ETC.—Paragraph

(4) of section 805(a) (relating to dividends received by company) is amended by redesignating subparagraph (D) as subparagraph (E) and by striking out subparagraph (C) and inserting in lieu thereof the following new subparagraphs: "(C) 100 PERCENT DIVIDEND.—For purposes of subparagraph (A)— "(i) IN GENERAL.—Except as provided in clause (ii), the term '100 percent dividend' means any dividend if the percentage used for purposes of determining the deduction allowable under section 243, 244, or 245(b) is 100 percent. "(ii) TREATMENT OF DIVIDENDS FROM NONINSURANCE

COMPANIES.—The term '100 percent dividend' does not include any distribution by a corporation which is not an insurance company to the extent such distribution is out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this clause as if it applies to distributions by all corporations including insurance companies). "(D) SPECIAL RULES FOR CERTAIN DIVIDENDS FROM INSURANCE COMPANIES.—

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100 STAT. 2843

"(i) IN GENERAL.—In the case of any 100 percent dividend paid to any life insurance company out of the earnings and profits for any taxable year beginning after December 31, 1983, of another life insurance company if— "(I) the paying company's share determined under section 812 for such taxable year, exceeds "(II) the receiving company's share determined under section 812 for its taxable year in which the dividend is received or accrued, the deduction allowed under section 243, 244, or 2450t)) (as the case may be) shall be reduced as provided in clause (ii). "(ii) AMOUNT OF REDUCTION.—The reduction under this clause for a dividend is an amount equal to— "(I) the portion of such dividend attributable to prorated amounts, multiplied by "(II) the percentage obtained by subtracting the share described in subclause (II) of clause (i) from the share described in subclause (I) of such clause, "(iii) PRORATED AMOUNTS.—For purposes of this subparagraph, the term 'prorated amounts' means taxexempt interest and dividends other than 100 percent dividends. "(iv) PORTION OF DIVIDEND ATTRIBUTABLE TO PRORATED

AMOUNTS.—For purposes of this subparagraph, in determining the portion of any dividend attributable to prorated amounts— "(I) any dividend by the paying corporation shall be treated as paid first out of earnings and profits for taxable years beginning after December 31, 1983, attributable to prorated amounts (to the extent thereof), and "(II) by determining the portion of earnings and profits so attributable without any reduction for the tax imposed by this chapter. "(v)

SUBPARAGRAPH TO APPLY TO DIVIDENDS FROM INSURANCE COMPANIES.—Rules similar to the

OTHER rules of this subsection shall apply in the case of 100 percent dividends paid by an insurance company which is not a life insurance company." (q) SPECIAL RULE FOR APPLICATION OF HIGH SURPLUS MUTUAL

RULES.—In the case of any mutual life insurance company— (1) which was incorporated on February 23, 1888, and (2) which acquired a stock subsidiary during 1982, the amount of such company's excess equity base for purposes of section 809(i) of such Code shall, notwithstanding the last sentence of section 809(i)(2)(D), equal $175,000,000. (r) CLERICAL AMENDMENT.—Paragraph (3) of section 809(f) is amended by striking out "subsection (c)(2)" and inserting in lieu thereof "subsection (c)(1)(B)". (s) AMENDMENTS RELATED TO SECTION 807.—Subparagraph (C) of section 807(d)(5) is amended by adding at the end thereof the following: "When the Secretary by regulation changes the table applicable to a type of contract, the new table shall be treated (for purposes of subparagraph (B) and for purposes of determining the issue dates of contracts for which it shall be used) as if it were a new prevailing

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1036

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PUBLIC LAW 99-514—OCT. 22, 1986

commissioner's standard table adopted by the twenty-sixth State as of a date (no earlier than the date the regulation is issued) specified by the Secretary." (t) AMENDMENT RELATED TO SECTION 817.—

(1) Subsection (d) of section 817 is amended by adding at the end thereof the following new sentence: "Paragraph (3) shall be applied without regard to whether there is a guarantee, and obligations under such guarantee which exceed obligations under the contract without regard to such guarantee shall be accounted for as part of the company's general account." (2) The amendment made by paragraph (1) shall apply— (A) to contracts issued after December 31, 1986, and (B) to contracts issued before January 1, 1987, if such contract was treated as a variable contract on the taxpayer's return. SEC. 1822. AMENDMENTS RELATED TO SECTION 216 OF THE ACT. (a) CLARIFICATION OF APPLICATION OF 10-YEAR SPREAD.—Subpara-

graph (C) of section 216(b)(3) of the Tax Reform Act of 1984 (relating to 10-year spread inapplicable where no 10-year spread under prior law) is amended by striking out "was required to have been taken into account" and inserting in lieu thereof "would have been required to be taken into account". (b) TREATMENT OF CERTAIN ELECTIONS UNDER SECTION 818(C).—

Subparagraph (B) of section 216(b)(4) of the Tax Reform Act of 1984 (relating to the elections under section 818(c) after September 27, 1983, not taken into account) is amended by striking out "Subparagraph (A)" and inserting in lieu thereof "Paragraph (3) and subparagraph (A) of this paragraph". (c) ELECTION NOT TO HAVE RESERVES RECOMPUTED.—

(1) Clause (ii) of section 216(c)(2)(A) of the Tax Reform Act of 1984 (relating to election with respect to contracts issued after 1983 and before 1989) is amended by striking out "$3,000,000" and inserting in lieu thereof "$3,000,000 (determined with regard to this paragraph)". (2) Subparagraph (A) of section 216(c)(2) of the Tax Reform Act of 1984 is amended by striking out "be equal to" and all that follows down through the period at the end thereof and inserting in lieu thereof the following: "be equal to the greater of the statutory reserve for such contract (adjusted as provided in subparagraph (B)) or the net surrender value of such contract (as deHned in section 807(e)(1) of the Internal Revenue Code of 1954)." (3) Subparagraph (B) of section 216(c)(2) of the Tax Reform Act of 1984 is amended— (A) by striking out "statutory reserves" and inserting in lieu thereof "opening and closing statutory reserves", and (B) by striking out "under section 805(c)(1) of such Code" and inserting in lieu thereof "under the principles of section 805(c)(1) of such Code". (d) SPECIAL RULE WHERE REINSURER NOT USING CALENDAR YEAR

AS TAXABLE YEAR.—Subparagraph (A) of section 216(b)(3) of the Tax Reform Act of 1984 is amended by adding at the end thereof the following: "For purposes of this subparagraph, if the reinsurer's taxable year is not a calendar year, the first day of the reinsurer's first taxable year beginning after December 31, 1983, shall be substituted for 'January 1, 1984' each place it appears."

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100 STAT. 2845

(e) CLARIFICATION OF EFFECT OF FRESH START ON EARNINGS AND

PROFITS.—Paragraph (1) of section 21603) of the Tax Reform Act of 1984 is amended by adding at the end thereof the following new sentences: "The preceding sentence shall apply for purposes of computing the earnings and profits of any insurance company for its 1st taxable year beginning in 1984. The preceding sentence shall be applied by substituting '1985' for '1984' in the case of an insurance company which is a member of a controlled group (as defined in section 806(d)(3)), the common parent of which is "(A) a company having its principal place of business in Alabama and incorporated in Delaware on November 29, 1979, or "(B) a company having its principal place of business in Houston, Texas, and incorporated in Delaware on June 9, 1947." (f) TREATMENT OF SECTION 818(C) ELECTIONS MADE BY CERTAIN ACQUIRED COMPANIES.—Parcigraph (4) of section 2160t>) of the Tax

Reform Act of 1984 is amended by adding at the end thereof the following new subparagraph: "(C) SECTION 818(C) ELECTIONS MADE BY CERTAIN ACQUIRED COMPANIES.—

"(i) IN GENERAL.—If the case of any corporation— "(I) which made an election under such section 818(c) before September 28, 1983, and "(II) which was acquired in a qualified stock purchase (as defined in section 338(c) of the Internal Revenue Code of 1954) before December 31, 1983, the fact that such corporation is treated as a new corporation under section 338 of such Code shall not result in the election described in clause (i) not applying to such new corporation. "(ii) TIME FOR MAKING SECTION 818(C) OR 338 ELEC-

TION.—In the case of any corporation described in clause (i), the time for making an election under section 818(c) of such Code (with respect to the first taxable year of the corporation beginning in 1983 and ending after September 28, 1983), or making an election under section 338 of such Code with respect to the qualified stock purchase described in clause (i)(ID, shall not expire before the close of the 60th day after the date of the enactment of the Tax Reform Act of 1986. "(iii) STATUTE OF LIMITATIONS.—In the case of any such election under section 818(c) or 338 of such Code which would not have been timely made but for clause (ii), the period for assessing any deficiency attributable to such election (or for filing claim for credit or refund of any overpayment attributable to such election) shall not expire before the date 2 years after the date of the enactment of this Act. SEC. 1823. AMENDMENT RELATED TO SECTION 217 OF THE ACT.

Subsection (n) of section 217 of the Tajf Reform Act of 1984 (relating to special rule for companies using net level reserve method for noncancellable accident and health insurance contracts) is amended to read as follows: "(n) SPECIAL RULE FOR COMPANIES USING NET LEVEL RESERVE METHOD FOR NONCANCELLABLE ACCIDENT AND HEALTH INSURANCE

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1038

 100 STAT. 2846

PUBLIC LAW 99-514—OCT. 22, 1986

CONTRACTS.—A company shall be treated as meeting the requirements of section 807(d)(3)(A)(iii) of the Internal Revenue Code of 1954, as amended by this Act, with respect to any directly-written noncancellable accident and health insurance contract (whether under existing or new plans of insurance) for any taxable year if— "(1) such company— "(A) was using the net level reserve method to compute at least 99 percent of its statutory reserves on such contracts as of December 31, 1982, and "(B) received more than half its total direct premiums in 1982 from directly-written noncancellable accident and health insurance, "(2) after December 31, 1983, and through such taxable year, such company has continuously used the net level reserve method for computing at least 99 percent of its tax and statutory reserves on such contracts, and "(3) for any such contract for which the company does not use the net level reserve method, such company uses the same ^^ method for computing tax reserves as such company uses for computing its statutory reserves." SEC. 1824. AMENDMENT RELATED TO SECTION 218 OF THE ACT.

Section 218 of the Tax Reform Act of 1984 is hereby repealed. SEC. 1825. AMENDMENTS RELATED TO SECTION 221 OF THE ACT. (a) COMPUTATIONAL RULES.—

(1) Paragraph (1) of section 7702(e) (relating to computational rules) is amended— (A) by striking out "shall be no earlier than" in subparagraph (B) and inserting in lieu thereof "shall be deemed to be no earlier than", (B) by striking out "and" at the end of subparagraph (B), (C) by redesignating subparagraph (C) as subparagraph (D) and inserting after subparagraph (B) the following new subparagraph: "(C) the death benefits shall be deemed to be provided until the maturity date determined by taking into account subparagraph (B), and", and (D) by striking out "the maturity date described in subparagraph (B)" in subparagraph (D) (as so redesignated) and inserting in lieu thereof "the maturity date determined by taking into account subparagraph (B)". (2) Subparagraph (C) of section 7702(b)(2) is amended by striking out "subparagraphs (A) and (C)" and inserting in lieu thereof "subparagraphs (A) and (D)". (3) Section 7702(e)(l) is amended by inserting "(other than subsection (d))" after "section". (4) Section 7702(e)(2) is amended— (A) by striking out "and" at the end of subparagraph (A), (B) by striking out the period at the end of subparagraph (B), and inserting in lieu thereof a comma and "and', and (C) by adding at the end thereof the following new subparagraph: "(C) for purposes of the cash value accumulation test, the death benefit increases may be taken into account if the contract—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1039

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100 STAT. 2847

"(i) has an initial death benefit of $5,000 or less and a maximum death benefit of $25,000 or less, "(ii) provides for a fixed predetermined annual increase not to exceed 10 percent of the initial death benefit or 8 percent of the death benefit at the end of the preceding year, and "(iii) was purchased to cover payment of burial expenses or in connection with prearranged funeral expenses. For purposes of subparagraph (C), the initial death benefit of a contract shall be determined by treating all contracts issued to the same contract owner as 1 contract." (b) CLARIFICATION OF SECTION 7702(f)(7).— (1) Paragraph (7) of section 7702(f) (relating to adjustments) is amended to read as follows: "(7) ADJUSTMENTS.—

"(A) IN GENERAL.—If there is a change in the benefits under (or in other terms of) the contract which was not reflected in any previous determination or adjustment made under this section, there shall be proper adjustments in future determinations made under this section. "(B) RULE FOR CERTAIN CHANGES DURING FIRST 15 YEARS.—

If— "(i) a change described in subparagraph (A) reduces benefits under the contract, "(ii) the change occurs during the 15-year period beginning on the issue date of the contract, and "(iii) a cash distribution is made to the policyholder as a result of such change, section 72 (other than subsection (e)(5) thereof) shall apply to such cash distribution to the extent it does not exceed the recapture ceiling determined under subparagraph (C) or (D) (whichever applies). "(C) RECAPTURE CEILING WHERE CHANGE OCCURS DURING

 * . i

FIRST 5 YEARS.—If the change referred to in subparagraph (B)(ii) occurs during the 5-year period beginning on the issue date of the contract, the recapture ceiling is— "(i) in the case of a contract to which subsection (a)(1) applies, the excess of— "(I) the cash surrender value of the contract, immediately before the reduction, over "(II) the net single premium (determined under subsection (b)), immediately after the reduction, or "(ii) in the case of a contract to which subsection (a)(2) applies, the greater of— '(I) the excess of the aggregate premiums paid under the contract, immediately before the reduction, over the guideline premium limitation for the contract (determined under subsection (c)(2), taking into account the adjustment described in subparagraph (A)), or "(II) the excess of the cash surrender value of the contract, immediately before the reduction, over the cash value corridor of subsection (d) (determined immediately after the reduction). "(D)

RECAPTURE CEIUNG WHERE CHANGE OCCURS AFTER

5TH YEAR AND BEFORE 16TH YEAR.—If the change referred to

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PUBLIC LAW 99-514—OCT. 22, 1986

i i;.

in subparagraph (B) occurs after the 5-year period referred to under subparagraph (C), the recapture ceiling is the excess of the cash surrender value of the contract, immediately before the reduction, over the cash value corridor of subsection (d) (determined immediately after the reduction and whether or not subsection (d) applies to the contract). "(E)

TREATMENT OF CERTAIN DISTRIBUTIONS MADE IN

ANTICIPATION OF BENEFIT REDUCTIONS.—Under regulations prescribed by the Secretary, subparagraph (B) shall apply also to any distribution made in anticipation of a reduction in benefits under the contract. For purposes of the preceding sentence, appropriate adjustments shall be made in the provisions of subparagraphs (C) and (D); and any distribution which reduces the cash surrender value of a contract and which is made within 2 years before a reduction in benefits under the contract shall be treated as made in anticipation of such reduction." (2) Subparagraph (A) of section 7702(0(1) (defining premiums paid) is amended by striking out "less any other amounts received" and inserting in lieu thereof "less any excess premiums with respect to which there is a distribution described in subparagraph (B) or (E) of paragraph (7) and any other amounts received'. (c) CLARIFICATION OF TREATMENT OF CONTRACTS WHICH DO NOT

MEET TEST.—Clause (ii) of section 7702(g)(l)(B) (defining income on the contract) is amended to read as follows: "(ii) the premiums paid (as defined in subsection (f)(D) under the contract during the taxable year." (d) TREATMENT OF FLEXIBLE PREMIUM CONTRACTS ISSUED DURING 1984 WHICH MEET N E W REQUIREMENTS.—Subsection (b) of section

221 of the Tax Reform Act of 1984 (relating to 1-year extension of flexible premium contract provisions) is amended by adding at the end thereof the following new paragraph: "(3) TRANSITIONAL RULE.—Any flexible premium contract issued during 1984 which meets the requirements of section 7702 of the Internal Revenue Code of 1954 (as added by this section) shall be treated as meeting the requirements of section 101(f) of such Code." (e) TREATMENT OF CERTAIN CONTRACTS ISSUED BEFORE OCTOBER 1,

1984.—Clause (i) of section 221(d)(2)(C) of the Tax Reform Act of 1984 (relating to certain contracts issued before October 1, 1984) is amended— (1) by striking out "in clause (i) thereof in the material preceding subclause (I), and (2) by striking out "any mortality charges" in subclause (I) and inserting in lieu thereof "any mortality charges and any initial excess interest guarantees". SEC. 1826. AMENDMENTS RELATED TO SECTION 222 OF THE ACT. (a) EXCEPTION FOR ANNUITY CONTRACTS WHICH ARE PART OF QUALIFIED PLANS.—Subsection (s) of section 72 (relating to required

distributions where holder dies before entire interest is distributed) is amended by adding at the end thereof the following new paragraph: "(5) EXCEPTION FOR ANNUITY CONTRACTS WHICH ARE PART OF

QUALIFiED PLANS.—This subsection shall not apply to any annuity contract—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1041

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100 STAT. 2849

"(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), or "(C) which is an individual retirement annuity or provided under an individual retirement account or annuity." (b) SPECIAL RULES WHERE HOLDER IS NOT INDIVIDUAL, ETC.—

(1) Subsection (s) of section 72 (relating to required distributions where holder dies before entire interest is distributed) is amended by adding at the end thereof the following new paragraphs: "(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 subpara-

graph (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 plirpOSCS 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 annuity (as defined in paragraph (6)(B)), such change shall be treated as the death of the holder." (2) Paragraph (1) of section 72(s) is amended by striking out "the holder of such contract" each place it appears and inserting in lieu thereof "any holder of such contract'. (3) Paragraph (4) of section 72(e) (relating to amounts not received as annuities) is amended by adding at the end thereof the following new subparagraph: "(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."

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1042

 100 STAT. 2850

PUBLIC LAW 99-514—OCT. 22, 1986 (4) The amendments made by this subsection shall apply to contracts issued after the date which is 6 months after the date of the enactment of this Act in taxable years ending after such date. (c) CLARIFICATION OF EXCEPTION FOR DISTRIBUTION AFTER DEATH.—

Effective with respect to distributions made after the date 6 months after the date of the enactment of this Act, subparagraph (B) of section 72(q)(2) (relating to 5-percent penalty for premature distributions from annuity contracts) is amended to read as follows: "(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))),". (d) EXCEPTION FOR ANNUITIES WHICH ARE QUALIFIED FUNDING

ASSETS.—Paragraph (2) of section 72(q) (relating to 5-percent penalty for premature distributions from annuity contracts) is amended by striking out "or" at the end of subparagraph (E), by striking out the period at the end of subparagraph (F) and inserting in lieu thereof ", or", and by adding at the end thereof the following new subparagraph: "(G) under a qualified funding asset (within the meaning " of section 130(d), but without regard to whether there is a qualified assignment)." SEC. 1827. AMENDMENTS RELATED TO SECTION 223 OF THE ACT. (a) DETERMINATION OF COSTS IN THE CASE OF DISCRIMINATORY PLANS.—

(1) IN GENERAL.—Subparagraph (B) of section 79(d)(1) (relating to nondiscrimination requirements) is amended to read as follows: "(B) the cost of group-term life insurance on the life of any key employee shall be the greater of— "(i) such cost determined without regard to subsection (c), or "(ii) such cost determined with regard to subsection (0." (2) EFFECTIVE DATE.—The amendment made by paragraph (1) shall apply to taxable years ending after the date of the enactment of this Act. (b) CLARIFICATION OF EFFECTIVE DATE.—

(1) Subparagraph (A) of section 223(d)(2) of the Tax Reform Act of 1984 (relating to treatment of former employees in case of existing group-term insurance plans) is amended by striking out the material following clause (ii) and inserting in lieu thereof the following: "but only with respect to an individual who attained age 55 on or before January 1, 1984, and was employed by such employer (or a predecessor employer) at any time during 1983. Such amendments also shall not apply to any employee who retired from employment on or before January 1, 1984, and who, when he retired, was covered by the plan (or a predecessor plan)." (2) Subparagraph (C) of section 223(d)(2) of the Tax Reform Act of 1984 is amended by striking out "after December 31, 1986," and by striking out shall not be taken into account" and inserting in lieu thereof "may, at the employer's election, be disregarded".

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100 STAT. 2851

(3) COMPARABLE SUCCESSOR PLANS.—Paragraph (2) of section 223(d) of the Tax Reform Act of 1984 is amended by adding at the end thereof the following new subparagraph: "(D) COMPARABLE SUCCESSOR PLANS.—For purposes of subparagraph (A), a plan shall not fail to be treated as a comparable successor to a plan described in subparagraph (A)(i) with respect to any employee whose benefits do not increase under the successor plan." (c) DEFINITION OF KEY EMPLOYEE.—Paragraph (6) of section 79(d)

(defining key employee) is amended— (1) by striking out all that follows "section 416(i)" and inserting in lieu thereof a period, and (2) by adding at the end thereof the following new sentence: "Such term also includes any retired employee if such employee when he retired or separated from service was a key employee." (d) SEPARATE TREATMENT OF FORMER EMPLOYEES.—Subsection (d)

of section 79 (relating to nondiscrimination requirements) is amended by adding at the end thereof the following new paragraph: "(8) TREATMENT OF FORMER EMPLOYEES.—To the extent provided in regulations, this subsection shall be applied separately with respect to former employees." (e) COORDINATION WITH SECTION 83.—Paragraph (5) of section 83(e) is amended by striking out "the cost o f. SEC. 1828. AMENDMENT RELATED TO SECTION 224 OF THE ACT.

Paragraph (1) of section 1035(b) (defining endowment contract) is amended by striking out "subject to tax under subchapter L". SEC. 1829. WAIVER OF INTEREST ON CERTAIN UNDERPAYMENTS OF TAX.

No interest shall be payable for any period before July 19, 1984, on any underpayment of a tax imposed by the Internal Revenue Code of 1954, to the extent such underpayment was created or increased by any provision of subtitle A of title II of the Tax Reform Act of 1984 (relating to taxation of life insurance companies). SEC. 1830. SCOPE OF SECTION 255 OF THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982.

In the case of any taxable year beginning before January 1, 1982, in applying the provisions of section 255(c)(2) of the Tax Equity and Fiscal Responsibility Act of 1982, the Internal Revenue Service shall give full and complete effect to the terms of any modified coinsurance contract. The terms to be given effect within the meaning of this provision shall include, but are not limited to, the effective date and investment income rate as stated in such contract. CHAPTER 3—AMENDMENTS RELATED TO TITLE III OF THE ACT SEC. 1831. AMENDMENT RELATED TO SECTION 301 OF THE ACT.

Clause (iv) of section 170(b)(1)(C) (defining capital gain property) is amended by striking out "this subparagraph" and inserting in lieu thereof "this paragraph". SEC. 1832. AMENDMENT RELATED TO SECTION 303 OF THE ACT.

Paragraph (2) of section 4940(e) (relating to requirements) is amended by striking out subparagraph (B) and the material following such subparagraph and inserting in lieu thereof the following:

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PUBLIC LAW 99-514—OCT. 22, 1986 .«<..

"(B) such private foundation was not liable for tax under section 4942 with respect to any year in the base period."

SEC. 1833. AMENDMENT RELATED TO SECTION 305 OF THE ACT.

Section 6214(c) is amended by striking out "section 4962(b)" and inserting in lieu thereof "section 4963(b)". SEC. 1834. AMENDMENT RELATED TO SECTION 311 OF THE ACT.

Subparagraph (A) of section 311(a)(3) of the Tax Reform Act of 1984 is amended by striking out "a State law" and inserting in lieu thereof "a State law (originally enacted on April 22, 1977)". CHAPTER 4—AMENDMENTS RELATED TO TITLE IV OF THE ACT SEC. 1841. AMENDMENT RELATED TO SECTION 411 OF THE ACT.

Section 6654 (relating to failure by individual to pay estimated income tax) is amended by redesignating subsections (j)> (k), and (1) as subsections (k), (1), and (m), respectively, and by inserting after subsection (i) the following new subsection: "(j) SPECIAL RULES FOR NONRESIDENT ALIENS.—In the case of a nonresident alien described in section 6072(c): "(1) PAYABLE IN 3 INSTALLMENTS.—There shall be 3 required installments for the taxable year. "(2) TIME FOR PAYMENT OF INSTALLMENTS.—The due dates for required installments under this subsection shall be determined under the following table: "In the case of the following required installments: 1st 2nd 3rd '

The due date is: June 15 September 15 January 15 of the following taxable year.

"(3) AMOUNT OF REQUIRED INSTALLMENTS.— "(A) FIRST REQUIRED INSTALLMENT.—In

the case of the first required installment, subsection (d) shall be applied by substituting '50 percent' for '25 percent' in subsection (d)(1)(A). "(B) DETERMINATION OF APPLICABLE PERCENTAGE.—The

applicable percentage for purposes of subsection (d)(2) shall be determined under the following table: "In the case of the following required installments: 1st »5.t.' 2nd 3rd

The applicable percentage is: 45 67.5 90."

SEC. 1842. AMENDMENTS RELATED TO SECTION 421 OF THE ACT.

(a) COORDINATION WiTH SECTION 1041.—Section 267 (relating to losses, expenses, and interest with respect to transactions between related taxpayers) is amended by adding at the end thereof the following new subsection: "(g) COORDINATION WITH SECTION 1041.—Subsection (a)(1) shall not apply to any transfer described in section 1041(a) (relating to transfers of property between spouses or incident to divorce)."

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 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2853

(b) TREATMENT OF TRANSFERS IN TRUST WHERE LIABILITY EXCEEDS

BASIS.—Section 1041 (relating to transfers of property between spouses or incident to divorce) is amended by adding at the end thereof the following new subsection: "(e) TRANSFERS IN TRUST WHERE LIABILITY EXCEEDS BASIS.—

Subsection (a) shall not apply to the transfer of property in trust to the extent that— "(1) the sum of the amount of the liabilities assumed, plus the amount of the liabilities to which the property is subject, exceeds "(2) the total of the adjusted basis of the property transferred. Proper adjustment shall be made under subsection (b) in the basis of the transferee in such property to take into account gain recognized by reason of the preceding sentence." (c) TREATMENT OF CERTAIN TRANSFERS IN TRUST.—Subsection (g) of

section 453B (relating to transfers between spouses, or incident to divorce) is amended by striking out "section 1041" and inserting in lieu thereof "section 1041 (other than a transfer in trust)". (d) CLERICAL AMENDMENT.—Paragraph (17) of section 7701(a) (defining husband and wife as including former husband and wife) is amended by striking out "and 682" and inserting in lieu thereof ", 682, and 2516". SEC. 1843. AMENDMENTS RELATED TO SECTION 422 OF THE ACT.

(a) CROSS REFERENCE.—Section 71 (relating to alimony and separate maintenance payments) is amended by adding at the end thereof the following new subsection: "(g) CROSS REFERENCES.— "(1) For deduction of alimony or separate maintenance payments, see section 215. "(2) For taxable status of income of an estate or trust in the case of divorce, etc., see section 682." (b) INSTRUMENT NOT REQUIRED TO SPECIFY ABSENCE OF LIABILITY To MAKE PAYMENTS AFTER DEATH.—Subparagraph (D) of section

710t))(l) (defining alimony or separate maintenance payments) is amended by striking out (and the divorce or separation instrument states that there is no such liability)". (c) RECOMPUTATION WHERE EXCESS FRONT-LOADING OF ALIMONY PAYMENTS.—

(1) IN GENERAL.—Subsection (f) of section 71 is amended to read as follows: "(f) RECOMPUTATION WHERE EXCESS FRONT-LOADING OF AUMONY PAYMENTS—

"(1) IN GENERAL.—If there are excess alimony payments— "(A) the payor spouse shall include the amount of such excess payments in gross income for the payor spouse's taxable year beginning in the 3rd post-separation year, and "(B) the payee spouse shall be allowed a deduction in computing adjusted gross income for the amount of such excess payments for the payee's taxable year beginning in the 3rd post-separation year. "(2) EXCESS AUMONY PAYMENTS.—For purposes of this subsection, the term 'excess alimony payments' mean the sum of— "(A) the excess payments for the 1st post-separation year, and "(B) the excess payments for the 2nd post-separation year.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1046

 100 STAT. 2854

PUBLIC LAW 99-514—OCT. 22, 1986 "(3) EXCESS PAYMENTS FOR IST POST-SEPARATION YEAR.—For

purposes of this subsection, the amount of the excess payments for the 1st post-separation year is the excess (if any) of— "(A) the amount of the alimony or separate maintenance payments paid by the payor spouse during the 1st postseparation year, over . o' "(B) the sum of— "(i) the average of— "(I) the alimony or separate maintenance payments paid by the payor spouse during the 2nd post-separation year, reduced by the excess payments for the 2nd post-separation year, and "(II) the alimony or separate maintenance payments paid by the payor spouse during the 3rd post-separation year, plus "(ii) $15,000. "(4) EXCESS PAYMENTS FOR 2ND POST-SEPARATION YEAR.—For

purposes of this subsection, the amount of the excess payments for the 2nd post-separation year is the excess (if any) of^ "(A) the amount of the alimony or separate maintenance payments paid by the payor spouse during the 2nd postseparation year, over "(B) the sum of— "(i) the amount of the alimony or separate maintenance payments paid by the payor spouse during the 3rd post-separation year, plus "(ii) $15,000. '

"(5) EXCEPTIONS.— "(A) WHERE PAYMENT CEASES BY REASON OF DEATH OR

REMARRIAGE.—Paragraph (1) shall not apply if— "(i) either spouse dies before the close of the 3rd postseparation year, or the payee spouse remarries before the close of the 3rd post-separation year, and "(ii) the alimony or separate maintenance payments cease by reason of such death or remarriage. "(B) SUPPORT PAYMENTS.—For purposes of this subsection, the term 'alimony or separate maintenance payment' shall not include any payment received under a decree described in subsection (b)(2)(C). "(C)

FLUCTUATING PAYMENTS NOT WITHIN CONTROL OF

PAYOR SPOUSE.—For purposes of this subsection, the term 'alimony or separate maintenance payment' shall not include any payment to the extent it is made pursuant to a continuing liability (over a period of not less than 3 years) to pay a fixed portion or portions of the income from a business or property or from compensation for employment or self-employment. "(6) POST-SEPARATION YEARS.—For purposes of this subsection, the term '1st post-separation years' means the 1st calendar year in which the payor spouse paid to the payee spouse alimony or separate maintenance payments to which this section applies. The 2nd and 3rd post-separation years shall be the 1st and 2nd succeeding calendar years, respectively." (2) EFFECTIVE DATES.—

"(A) IN GENERAL.—The amendment made by paragraph (1) shall apply with respect to divorce or separation in-

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1047

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2855

struments (as defined in section 71(b)(2)) of the Internal Revenue Code of 1986 executed after December 31, 1986. "(B)

MODIFICATIONS OF INSTRUMENTS EXECUTED BEFORE

JANUARY 1, 1987.—The amendments made by paragraph (1) shall also apply to any divorce or separation instrument (as so defined) executed before January 1, 1987, but modified on or after such date if the modification expressly provides that the amendments made by paragraph (1) shall apply to such modification. (3) TRANSITIONAL RULE.—In the case of any instrument to which the amendment made by paragraph (1) does not apply, paragraph (2) of section 71(f) of the Internal Revenue C!ode of 1954 (as in effect on the day before the date of the enactment of this Act) shall apply only with respect to the first 3 postseparation years, (d) CLERICAL AMENDMENT.—Subparagraph (B) of section 71(c)(2) (relating to treatment of certain reductions related to contingency involving child) is amended by striking out "specified in paragraph (1)" and inserting in lieu thereof "specified in subparagraph (A)". SEC. 1844. AMENDMENTS RELATED TO SECTION 431 OF THE ACT.

(a)

DEFINITION

OF RELATED

PERSON.—Clause (v)

of

section

46(c)(8)(D) is amended by striking out "clause (i)" and inserting in lieu thereof "this subparagraph". (b) CLARIFICATION OF RECAPTURE.—

(1) Paragraph (1) of section 47(d) (relating to increases in nonqualified nonrecourse financing) is amended— (A) by striking out "reducing the qualified investment" and inserting in lieu thereof "reducing the credit base (as defined in section 48(c)(8)(C))", and (B) by adding at the end thereof the following new sentence: 'For purposes of determining the amount of credit subject to the early disposition or cessation rules of subsection (a), the net increase in the amount of the nonqualified nonrecourse financing with respect to the property shall be treated as reducing the property's credit base (and correspondingly reducing the qualified investment in the property) in the year in which the property was first placed in service." (2) Subparagraph (F) of section 47(d)(3) is hereby repealed. (3) Subparagraph (A) of section 46(c)(9) (relating to subsequent decreases in nonqualified nonrecourse financing with respect to property) is amended by striking out "additional qualified investment in" and inserting in lieu thereof "an increase in the credit base for". (4) Clause (i) of section 47(d)(3)(E) is amended by inserting before the semicolon at the end thereof the following: "reduced by the sum of the credit recapture amounts with respect to such property for all preceding taxable years". (5) Clause (i) of section 46(c)(9)(C) is amended by striking out "any increase in a taxpayer's qualified investment" and all that follows down through the period at the end thereof and inserting in lieu thereof the following: "any increase in a taxpayer's credit base for any property by reason of this paragraph shall be taken into account as if it were property placed in service by the taxpayer in the taxable year in which the property referred to in subparagraph (A) was first placed in service.'

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1048

 100 STAT. 2856

PUBLIC LAW 99-514—OCT. 22, 1986

SEC. 1845. AMENDMENT RELATED TO SECTION 452 OF THE ACT.

Section 456 of the Tax Reform Act of 1984 is amended by adding at the end thereof the following new subsection: "(d) SECTION 452.—The amendment made by section 452 shall apply to products manufactured or produced after October 31, 1984." SEC. 1846. AMENDMENTS RELATED TO SECTION 473 OF THE ACT.

Subsection (d) of section 39 (relating to transitional rules) is amended— (1) by striking out "or 44G" in paragraph (1)(A) and inserting in lieu thereof "or 44G (as in effect before the enactment of the Tax Reform Act of 1984)", and (2) by striking out "as so defined in section 25(b)" in paragraph (2)(B) and inserting in lieu thereof "as defined in section 26(b)". SEC. 1847. AMENDMENTS RELATED TO SECTION 474 OF THE ACT. (a) MINIMUM TAX AMENDMENTS.—

(1) Subparagraph (A) of section 55(c)(3) (relating to carryover and carryback of certain credits) is amended by striking out "of such limitation" and inserting in lieu thereof "of such credit allowable". (2) Effective with respect to taxable years beginning after December 31, 1982, clause (i) of section 55(c)(2)(E) (relating to special rule for applying section 904(c)) is amended to read as follows: "(i) the limitation of section 904(a) shall be deemed to be the amount of foreign tax credit allowable under section 27(a) in computing the regular tax for the taxable year increased by the amount of the limitation determined under subparagraph (C), and". (b) CLERICAL AMENDMENTS.—

(1) The clause heading for clause (iii) of section 3O0b)(2)(D) is amended by striking out "NEW JOBS OR WIN CREDIT" and insert-

ing in lieu thereof "TARGETED JOBS CREDIT". (2) Paragraph (1) of section 86(f) is amended by striking out "section 37(c)(3)(A)" and inserting in lieu thereof "section 22(c)(3)(A)". (3) Subparagraph (C) of section 151(e)(5) is amended by striking out section 37(e)" and inserting in lieu thereof section 22(e)". (4) Clause (i) of section 415(c)(3)(C) is amended by striking out "section 37(e)(3)" and inserting in lieu thereof "section 22(e)(3)". (5) Paragraph (9) of section 422A(c) is amended by striking out "section 37(e)(3)" and inserting in lieu thereof "section 22(e)(3)". (6) Paragraph (5) of section 48(1) is amended— (A) by striking out "section 44C(c)" and inserting in lieu thereof "section 23(c)", and (B) by striking out "section 44C(c)(4)(A)(viii)" and inserting in lieu thereof "section 23(c)(4)(A)(viii)". (7) Subparagraph (E) of section 108(b)(2) is amended by striking out "section 33" and inserting in lieu thereof "section 27". (8) Subsection (b) of section 280C is amended— (A) by striking out "section 29" each place it appears and inserting in lieu thereof "section 28", and (B) by striking out "section 29(b)" and inserting in lieu thereof "section 280i))".

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1049

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2857

(9) Section 6699 is amended— (A) by striking out "section 44G" each place it appears in subsections (a) and (c)(2)(B) and inserting in lieu thereof "section 41", and (B) by striking out "section 44Gr(c)(l)(B)" in subsection (a)(4) and inserting in lieu thereof "section 41(c)(l)(B)". (10) Subsection (a) of section 6411 is amended by striking out "or unused business credit" in the second sentence thereof and inserting in lieu thereof "unused research credit, or unused business credit", (11) Subparagraph (A) of section 460t)X2) is amended by striking out "48(l)(3)(A)(vii)" in the table contained in such subparagraph and inserting in lieu thereof "48(l)(3)(A)(viii)". (12) Paragraph (1) of section 1630)) of the Tax Reform Act of 1984 is amended by inserting "(as amended by sections 211, 314, and 474 of this Act)" after "Section 6501". (13) Section 6501 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection: "(n) DEFICIENCIES ATTRIBUTABLE TO ELECTION OF CERTAIN CRED-

ITS.—The period for assessing a deficiency attributable to any election under section 40(f) or 510') (or any revocation thereof) shall not expire before the date 1 year after the date on which the Secretary is notified of such election (or revocation)." (14) Subsection (k) of section 6501 is amended by striking out "an investment credit carryback, or a work incentive program carryback, or a new employee credit carryback" and inserting in lieu thereof "or a credit carryback (as defined in section 6511(d)(4)(C))". (15) Subsection (h) of section 6511 (relating to limitations on credit or refund) is amended— (A) by striking out "section 6501(q)(l)(B)" in paragraph (1) and inserting in lieu thereof "section 6501(m)(l)(B)", and (B) by striking out "section 6501(q)(2)(B)" in paragraph (2) and inserting in lieu thereof "section 6501(m)(2)(B)". (16) Paragraph (1) of section 665(d) is amended by striking out "subpart A of part IV" and inserting in lieu thereof "part IV" SEC. 1848. AMENDMENTS RELATED TO SECTION 491 OF THE ACT.

(a) Paragraph (9) of section 46(f) (relating to special rule for additional credit) is hereby repealed. (b) Subparagraph (A) of section 401(c)(2) (defining earned income) is amended by striking out "sections 404 and 405(c)' and inserting in lieu thereof "section 404". (c) Subparagraph (D) of section 404(a)(8) is amended by striking out "the deductions allowed by this section and section 405(c)" and inserting in lieu thereof "the deduction allowed by this section". (d) The second sentence of section 2039(e) is amended by striking out "or a bond described in paragraph (3)". (e)(1) Section 6704 is amended— (A) by striking out "section 6047(e)" each place it appears in subsection (a) and inserting in lieu thereof "section 6047(d)", and (B) by striking out "section 6047(e)" in the section heading and inserting in lieu thereof "section 6047(d)". (2) Subsection (e) of section 6047 is amended by adding at the end thereof the following new paragraph:

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1050

 100 STAT. 2858

PUBLIC LAW 99-514—OCT. 22, 1986 "(3) For provisions relating to penalty for failure to comply with the provisions of subsection (d), see section 6704."

(3) The table of sections for subchapter B of chapter 68 is amended by striking out "section 6047(e)" in the item relating to section 6704 and inserting in lieu thereof "section 6047(d)". (f) Subsection (b) of section 4973 (defining excess contributions) is amended— (1) by striking out ", individual retirement annuities, or bonds" in the material preceding paragraph (1) and inserting in lieu thereof "or individual retirement annuities", (2) by striking out subparagraph (A) of paragraph (1) and inserting in lieu thereof the following: "(A) the amount contributed for the taxable year to the accounts or for the annuities (other than a rollover contribution described in section 402(a)(5), 402(a)(7), 403(a)(4), 403(b)(8), or 408(d)(3)), over", and (3) by striking out "or bonds" in paragraph (2)(C) thereof. CHAPTER 5—AMENDMENTS RELATED TO TITLE V OF THE ACT SEC. 1851. AMENDMENTS RELATED TO WELFARE BENEFIT PLAN PROVISIONS. (a) AMENDMENTS RELATED TO SECTION 511 OF THE ACT.— (1) TREATMENT OF PLANS FOR INDEPENDENT CONTRACTORS.—

Paragraph (1) of section 419(g) (relating to extension to plans for independent contractors) is amended by striking out "such a plan" and inserting in lieu thereof "such a relationship". (2) AMENDMENTS TO SECTION 4i9A(d).— (A) COORDINATION WITH SECTION 415.—Paragraph (2) of

section 419A(d) (relating to coordination with section 415) is amended by adding at the end thereof the following new sentence: "Subparagraph (B) of section 415(c)(l) shall not apply to any amount treated as an annual addition under the preceding sentence." (B) SEPARATE ACCOUNT REQUIREMENTS APPLY ONLY WHERE

THERE IS PRE-FUNDING.—Paragraph (1) of section 419A(d) is

amended by adding at the end thereof the following new sentence: "The requirements of this paragraph shall apply to the first taxable year for which a reserve is taken into account under subsection (c)(2) and to all subsequent taxable years." (3) CLARIFICATION OF SECTION 4i9A(e).—

(A) Subsection (e) of section 419A is amended to read as follows: "(e) SPECIAL LIMITATIONS ON RESERVES FOR MEDICAL BENEFITS OR LIFE INSURANCE BENEFITS PROVIDED TO RETIRED EMPLOYEES.— "(1) RESERVE MUST BE NONDISCRIMINATORY.—No reserve may

be taken into account under subsection (c)(2) for post-retirement medical benefits or life insurance benefits to be provided to covered employees unless the plan meets the requirements of section 505(b) with respect to such benefits (whether or not such requirements apply to such plan). The preceding sentence shall not apply to any plan maintained pursuant to an agreement between employee representatives and 1 or more employers if the Secretary finds that such agreement is a collective bargain-

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1051

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2859

ing agreement and that post-retirement medical benefits or life insurance benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. "(2) LIMITATION ON AMOUNT OF LIFE INSURANCE BENEFITS.—

Life insurance benefits shall not be taken into account under subsection (c)(2) to the extent the aggregate amount of such benefits to be provided with respect to the employee exceeds $50,000." (B) Subsection (e) of section 419A of the Internal Revenue Code of 1954 (as amended by subparagraph (A)) shall not apply to any group-term life insurance to the extent that the amendments made by section 223(a) of the Tax Reform Act of 1984 do not apply to such insurance by reason of paragraph (2) of section 223(d) of such Act. (4) TREATMENT OF COLLECTIVELY BARGAINED PLANS.—Para-

graph (5) of section 419A(f) (relating to higher limit in case of collectively bargained plans) is amended by striking out "welfare benefit fund established under" and inserting in lieu thereof "welfare benefit fund maintained pursuant to". (5)

CLARIFICATION

OF ACTUARIAL

CERTIFICATION

REQUIRE-

MENT.—Subparagraph (A) of section 419A(c)(5) (relating to special limitation where no actuarial certification) is amended by striking out "under paragraph (1)" and inserting in lieu thereof "under this subsection". (6) AGGREGATION RULES.—

(A) Paragraph (1) of section 419A(h) (relating to aggregation rules) is amended to read as follows: "(1) AGGREGATION OF FUNDS.— "(A) MANDATORY AGGREGATION.—For purposes of subsec-

tions (c)(4), (d)(2), and (e)(2), all welfare benefit funds of an employer shall be treated as 1 fund. "(B) PERMISSIVE AGGREGATION FOR PURPOSES NOT SPECIFIED IN SUBPARAGRAPH (A).—For purposes of this section

(other than the provisions specified in subparagraph (A)), at the election of the employer, 2 or more welfare benefit funds of such employer may (to the extent not inconsistent with the purposes of this subpart and section 512) be treated as 1 fund." (B) Subsection (b) of section 419A is amended by striking out "this subpart" and inserting in lieu thereof "this subpart and section 512". (7) CLARIFICATION OF ADJUSTMENTS FOR EXISTING RESERVES.—

Paragraph (7) of section 419A(f) (relating to adjustments for existing excess reserves) is amended by striking out subparagraph (C) and inserting in lieu thereof the following new subparagraphs: "(C) EXISTING EXCESS RESERVE.—For purposes of computing the increase under subparagraph (A) for any taxable year, the term 'existing excess reserve' means the excess (if any) of^ "(i) the amount of assets set aside at the close of the first taxable year ending after July 18, 1984, for purposes described in subsection (a), over "(ii) the account limit determined under this section (without regard to this paragraph) for the taxable year for which such increase is being computed.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1052

 100 STAT. 2860

PUBLIC LAW 99-514—OCT. 22, 1986 "(D) FUNDS TO WHICH PARAGRAPH APPLIES.—This paragraph shall apply only to a welfare benefit fund which, as of July 18, 1984, had assets set aside for purposes described in subsection (a)." (8)(A) CLARIFICATION OF FUND.—Subsection (e) of section 419 (defining welfare benefit funds) is amended by adding at the end thereof the following new paragraph: "(4) TREATMENT OF AMOUNTS HELD PURSUANT TO CERTAIN INSURANCE CONTRACTS.—

"(A) IN GENERAL.—Notwithstanding paragraph (3)(C), the term 'fund' shall not include amounts held by an insurance company pursuant to an insurance contract if— "(i) such contract is a life insurance contract described in section 264(a)(1), or "(ii) such contract is a qualified nonguaranteed contract. "(B) QUALIFIED NONGUARANTEED CONTRACT.—

"(i) IN GENERAL.—For purposes of this paragraph, the term 'qualified nonguaranteed contract' means any insurance contract (including a reasonable premium stabilization reserve held thereunder) if— "(I) there is no guarantee of a renewal of such contract, and "(II) other than insurance protection, the only payments to which the employer or employees are entitled are experience rated refunds or policy divi^ S '"ScJ-^ dends which are not guaranteed and which are determined by factors other than the amount of welfare benefits paid to (or on behalf of) the employees of the employer or their beneficiaries. "(ii) LIMITATION.—In the case of any qualified nonguaranteed contract, subparagraph (A) shall not apply unless the amount of any experience rated refund or policy dividend payable to an employer with respect to a policy year is treated by the employer as received or accrued in the taxable year in which the policy year ends." (B) EFFECTIVE DATE OF REGULATIONS.—Except in the case of a reserve for post-retirement medical or life insurance benefits and any other arrangement between an insurance company and an employer under which the employer has a contractual right to a refund or dividend based solely on the experience of such employer, any account held for an employer by any person and defined as a fund in regulations issued pursuant to section 419(e)(3)(C) of the Internal Revenue Code of 1954 shall be considered a "fund" no earlier than 6 months following the date such regulations are published in final form. (9) CLARIFICATION OF TAXES PAID BY EMPLOYER ON INCOME OF CERTAIN WELFARE BENEFIT FUNDS.—Subsection (g) of section

419A (relating to employer taxed on income of welfare benefit funds in certain cases) is amended by adding at the end thereof the following new paragraph: "(3) COORDINATION WITH SECTION 419.—If any amount is included in the gross income of an employer for any taxable year under paragraph (1) with respect to any welfare benefit fund— (A) the amount of the tax imposed by this chapter which is attributable to the amount so included shall be treated as

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1053

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2861

a contribution paid to such welfare benefit fund on the last day of such taxable year, and (B) the tax so attributable shall be treated as imposed on the fund for purposes of section 419(c)(4)(A)." (10) AMENDMENTS TO TAX ON UNRELATED BUSINESS INCOME.—

(A) Clause (i) of section 512(a)(3)(E) is amended by striking out "determined under section 419A(c)" and inserting in lieu thereof "determined under section 419A (without regard to subsection (f)(6) thereof)". (B) Subparagraph (E) of section 512(a)(3) is amended by striking out clause (ii) and by redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively. (C) Clause (ii) of section 512(a)(3)(E) (as redesignated by subparagraph (B)) is amended— (i) by striking out "a existing reserve" in subclause (I) and inserting in lieu thereof "an existing reserve", and (ii) by striking out subclause (II) and inserting in lieu thereof the following: "(II) For purposes of subclause (II), the term 'reserve for post-retirement medical or life insurance benefits' means the greater of the amount of assets set aside for purposes of post-retirement medical or life insurance benefits to be provided to covered employees as of the close of the last plan year ending before the date of the enactment of the Tax Reform Act of 1984 or on July 18, 1984,". (D) Clause (iii) of section 512(a)(3)(E) (as redesignated by subparagraph (B)) is amended by striking out "paragraph shall not" and inserting in lieu thereof "subparagraph shall not". (11) AMENDMENTS RELATED TO TAX ON CERTAIN FUNDED WELFARE BENEFIT PLANS.—Subsection (b) of section 4976 (defining

disqualified benefit) is amended to read as follows: '(b) DISQUALIFIED BENEFIT.—For purposes of subsection (a)— "(1) IN GENERAL.—The term 'disqualified benefit' means— "(A) any post-retirement medical benefit or life insurance benefit provided with respect to a key employee if a separate account is required to be established for such employee under section 419A(d) and such payment is not from such account, "(B) any post-retirement medical benefit or life insurance benefit provided with respect to an individual in whose favor discrimination is prohibited unless the plan meets the requirements of section 505(b) with respect to such benefit (whether or not such requirements apply to such plan), and "(C) any portion of a welfare benefit fund reverting to the benefit of the employer. "(2)

EXCEPTION FOR COLLECTIVE BARGAININJG PLANS.—Para-

graph (1)(B) shall not apply to any plan maintained pursuant to an agreement between employee representatives and 1 or more employers if the Secretary finds that such agreement is a collective bargaining agreement and that the benefits referred to in paragraph (1)(B) were the subject of good faith bargaining between such employee representatives and such employer or employers. "(3)

EXCEPTION FOR NONDEDUCTIBLE CONTRIBUTIONS.—Para-

graph (1)(C) shall not apply to any amount attributable to a

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1054

 100 STAT. 2862

PUBLIC LAW 99-514—OCT. 22, 1986 contribution to the fund which is not allowable as a deduction under section 419 for the taxable year or any prior taxable year (and such contribution shall not be included in any carryover under section 419(d)). "(4) EXCEPTION FOR CERTAIN AMOUNTS CHARGED AGAINST EXIST-

ING RESERVE.—Subparagraphs (A) and (B) of paragraph (1) shall not apply to post-retirement benefits charged against an existing reserve for post-retirement medical or life insurance benefits (as defined in section 512(a)(3)(E)) or charged against the income on such reserve." (12) CLARIFICATION OF EFFECTIVE DATE.—Subsection (e) of section 511 of the Tax Reform Act of 1984 is amended by adding at the end thereof the following new paragraphs: "(6) AMENDMENTS RELATED TO TAX ON UNRELATED BUSINESS

INCOME.—The amendments made by subsection (b) shall apply with respect to taxable years ending after December 31, 1985. For purposes of section 15 of the Internal Revenue Code of 1954, such amendments shall be treated as a change in the rate of a tax imposed by chapter 1 of such Code. "(7) AMENDMENTS RELATED TO EXCISE TAXES ON CERTAIN WELFARE BENEFIT PLANS.—The amendments made by subsection (c)

shall apply to benefits provided after December 31, 1985." (13) Section 419A(f)(5) is amended to read as follows: "(5) SPECIAL RULE FOR COLLECTIVE BARGAINED AND EMPLOYEE

PAY-ALL PLANS.—No accounts limits shall apply in the case of any qualified asset account under a separate welfare benefit fund— "(A) under a collective bargaining agreement, or "(B) an employee pay-all plan under section 501(c)(9) if— "(i) such plan has at least 50 employees (determined without regard to subsection (h)(D), and "(ii) no employee is entitled to a refund with respect to amounts in the fund, other than a refund based on the experience of the entire fund." (14) CLERICAL AMENDMENT.—Paragraph (2) of section 511(e) of the Tax Reform Act of 1984 is amended by striking out "and section 514". (b) AMENDMENTS RELATED TO SECTION 512 OF THE ACT.— (1) TRANSITIONAL RULE FOR CERTAIN TAXPAYERS WITH FULLY VESTED VACATION PAY PLANS.—

(A) IN GENERAL.—In the case of any taxpayer— (i) who maintained a fully vested vacation pay plan where payments are expected to be paid (or are in fact paid) within 1 year after the accrual of the vacation pay, and (ii) who makes an election under section 463 of the Internal Revenue Code of 1954 for such taxpayer's 1st taxable year ending after the date of the enactment of the Tax Reform Act of 1984, in lieu of establishing a suspense account under such section 463, such election shall be treated as a change in the taxpayer's method of accounting and the adjustments required as a result of such change shall be taken into account under section 481 of such Code. (B) EXTENSION OF TIME FOR MAKING ELECTION.—In

the

case of any taxpayer who meets the requirements of subparagraph (A)(i), the time for making an election under

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1055

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2863

section 463 of such Code for such taxpayer's 1st taxable year ending after the date of the enactment of the Tax Reform Act of 1984 shall not expire before the date 6 months after the date of the enactment of this Act. (2) CLERICAL AMENDMENTS.—

(A) Clause (ii) of section 40403)(2)(B) (relating to exceptions for certain benefits) is amended by striking out "to any benefit" and inserting in lieu thereof "any benefit". (B) Subsection (b) of section 404 is amended— (i) by striking out "UNFUNDED" in the subsection heading and inserting in lieu thereof "CERTAIN", and (ii) by striking out "UNFUNDED" in the heading of paragraph (2) and inserting in lieu thereof "CERTAIN". (C)(i) Section 404(a) is amended by striking out "section 162 (relating to trade or business expenses) or section 212 (relating to expenses for the production of income); but, if they satisfy the conditions of either of such sections," and inserting in lieu thereof "this chapter; but, if they would otherwise be deductible,". (ii) Subsection (d) of section 404 is amended by striking out "under section 162 or 212" each place it appears and inserting in lieu thereof "under this chapter", (iii) Subsection (a) of section 404A is amended— (I) by striking out "under section 162, 212, or 404" and inserting in lieu thereof "under this chapter", and (II) by striking out "they satisfy the conditions of section 162" and inserting in lieu thereof "they would otherwise be deductible". (iv) Subsection (a) of section 419 is amended— (I) by striking out "under section 162 or 212" and inserting in lieu thereof "under this subchapter", and (II) by striking out "they satisfy the requirements of either of such sections" and inserting in lieu thereof "they would otherwise be deductible". (c) AMENDMENTS RELATED TO SECTION 513 OF THE ACT.—

(1) Paragraph (1) of section 505(a) (relating to certain requirements must be met in case of organizations described in paragraph (9) or (20) of section 501(c)) is amended by striking out "of an employer". (2) Paragraph (1) of section 505(b) (relating to nondiscrimination requirements) is amended by striking out "as provided in paragraph (2)" and inserting in lieu thereof "as otherwise provided in this subsection". (3) Subparagraph (B) of section 5050t))(l) is amended by striking out "highly compensated employees" and inserting in lieu thereof "highly compensated individuals". (4) Paragraph (2) of section 505(a) (relating to exception for collective bargaining agreements) is amended to read as follows* "(2) EXCEPTION FOR COLLECTIVE BARGAINING AGREEMENTS.—

Paragraph (1) shall not apply to any organization which is part of a plan maintained pursuant to an agreement between employee representatives and 1 or more employers if the Secretary finds that such agreement is a collective bargaining agreement and that such plan was the subject of good faith bargaining between such employee representatives and such employer or employers."

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1056

 100 STAT. 2864

PUBLIC LAW 99-514—OCT. 22, 1986

SEC. 1852. AMENDMENTS RELATED TO PENSION PLAN PROVISIONS. (a) AMENDMENTS RELATED TO SECTION 521 OF THE ACT.— (1) CLARIFICATION THAT DISTRIBUTION FROM INDIVIDUAL RETIREMENT ACCOUNTS OR ANNUITIES MUST BEGIN AT 70 V2.—

(A) Paragraph (6) of section 408(a) (defining individual retirement account) is amended by striking out "(relating to required distributions)" and inserting in lieu thereof "(without regard to subparagraph (C)(ii) thereof) and the incidental death benefit j-equirements of section 401(a)". (B) Paragraph (3) of section 408(b) (defining individual retirement annuity) is amended by striking out "(relating to required distributions)" and inserting in lieu thereof "(without regard to subparagraph (C)(ii) thereof) and the incidental death benefit requirements of section 401(a)". (2) EXEMPTION OF PRE-1985 ACCUMULATIONS FROM PENALTY ON PREMATURE DISTRIBUTIONS.—

(A) Subparagraph (A) of section 72(m)(5) (relating to penalties applicable to certain amounts received by 5-percent owners) is amended to read as follows: "(A) 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 ¥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." (B) Subparagraph (C) of section 72(m)(5) is amended to read as follows: "(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)(l)(B))." (C) Paragraph (5) of section 72(m) is amended by striking out "owNER-EMPLOYEEs" in the paragraph heading and inserting in lieu thereof "5-PERCENT OWNERS". (3) EXTENSION OF DISTRIBUTION REQUIREMENTS TO SECTION

4030t)) ANNUITIES.—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1057

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2865

(A) Subsection (b) of section 403 (relating to taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school) is amended by adding at the end thereof the following new paragraph: "(10) DISTRIBUTION REQUIREMENTS.—Under regulations prescribed by the Secretary, this subsection shall not apply to any annuity contract (or to any custodial account described in paragraph (7) or retirement income account described in paragraph (9)) unless requirements similar to the requirements of section 401(a)(9) are met (and requirements similar to the incidental death benefit requirements of section 401(a) are met) with respect to such annuity contract (or custodial account or retirement income account)." (B) Paragraph (7) of section 4030?) is amended by striking out subparagraph (D). (C) The amendments made by this paragraph shall apply to benefits accruing after December 31, 1986, in taxable years ending after such date. (4) CLARIFICATION OF REQUIRED BEGINNING DATE.—

(A) Subparagraph (C) of section 401(a)(9) (defining required beginning date) is amended by striking out the last sentence and inserting in lieu thereof the following: "Clause (ii) shall not apply in the case of an employee who is a 5-percent owner (as defined in section 416(i)(l)(B)) ^t any time during the 5-plan-year period ending in the calendar year in which the employee attains age lOVz. If the employee becomes a 5-percent owner during any subsequent plan year, the required beginning date shall be April 1 of the calendar year following the calendar year in which such subsequent plan year ends." (B) Subsection (d) of section 409 (relating to employer securities must stay in the plan) is amended by adding at the end thereof the following new sentence: "This subsection shall not apply to any distribution required under section 401(a)(9)." (5) REQUIRED DISTRIBUTIONS NOT ELIGIBLE FOR ROLLOVER TREATMENT.—

(A) Paragraph (5) of section 402(a) (relating to rollover amounts) is amended by adding at the end thereof the following new subparagraph: "(G) REQUIRED DISTRIBUTIONS NOT ELIGIBLE FOR ROLLOVER

TREATMENT.—Subparagraph (A) shall not apply to any distribution to the extent such distribution is required under section 401(a)(9)." (B)(i) Subparagraph (B) of section 403(a)(4) is amended by striking out "through (F)" and inserting in lieu thereof "through (G)". (ii) Paragraph (8) of section 4030t>) is amended by adding at the end thereof the following new subparagraph: "(D) REQUIRED DISTRIBUTIONS NOT ELIGIBLE FOR ROLLOVER

TREATMENT.—Subparagraph (A) shall not apply to any distribution to the extent such distribution is required under paragraph (10)." (C) Paragraph (3) of section 408(d) (relating to rollover contributions) is amended by adding at the end thereof the following new subparagraph:

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1058

 100 STAT. 2866

PUBLIC LAW 99-514—OCT. 22, 1986 '

"(E) DENIAL OF ROLLOVER TREATMENT FOR REQUIRED DIS-

TRIBUTIONS.—This subparagraph shall not apply to any amount to the extent such amount is required to be distributed under subsection (a)(6) or (b)(3)." (6) TREATMENT OF DISTRIBUTIONS REQUIRED UNDER INCIDENTAL DEATH BENEFIT RULES.—Paragraph (9) of section 401(a) (relating

to required distributions) is amended by adding at the end thereof the following new subparagraph: "(G) TREATMENT OF INCIDENTAL DEATH BENEFIT DISTRIBU-

TIONS.—For purposes of this title, any distribution required under the incidental death benefit requirements of this subsection shall be treated as a distribution required under this paragraph." j (7) CLERICAL AMENDMENTS.—

(A) Paragraph (1) of section 408(c) is amended by striking out "paragraphs (1) through (7)" and inserting in lieu thereof "paragraphs (1) through (6)". (B) Subsection (a) of section 4974 (relating to excise tax on certain accumulations in individual retirement accounts or annuities) is amended by striking out "section 408(a)(6) or (7), or 408fl3)(3) or (4)" and inserting in lieu thereof "section 408(a)(6) or 408a)X3)". (C) Subsection (b) of section 4974 is amended by striking out "section 408(a)(6) or (7) or 408(b)(3) or (4)" and inserting in lieu thereof "section 408(a)(6) or 4080i)X3)". (b) AMENDMENTS RELATED TO SECTION 522 OF THE ACT.—

(1) Clause (v) of section 402(a)(5)(E) (defining partial distribution) is amended by striking out "of any portion of" and inserting in lieu thereof "of all or any portion of". (2) Clause (i) of section 402(a)(5)(D) (relating to special rules for partial distributions) is amended by adding at the end thereof the following new sentence: "For purposes of subclause (I), the balance to the credit of the employee shall not include any accumulated deductible employee contributions (within the meaning of section 72(o)(5))." (3)(A) Section 402 is amended by adding at the end thereof the following new subsection: "(g) TREATMENT OF SELF-EMPLOYED INDIVIDUALS.—For purposes of this section, except as otherwise provided in subparagraph (A) of subsection (e)(4), the term 'employee' includes a self-employed individual (as defined in section 401(c)(l)(B)) and the employer of such individual shall be the person treated as his employer under section 401(c)(4)." (B) Paragraph (4) of section 402(e) is amended by striking out subparagraph (F). (4) Paragraph (7) of section 402(a) (relating to rollover where spouse received distributions after death of employee) is amended by striking out "the spouse were the employee" and inserting in lieu thereof "the spouse were the employee; except that a trust or plan described in subclause (III) or (IV) of paragraph (5)(E)(iv) shall not be treated as an eligible retirement plan with respect to such distribution". (5) Clause (ii) of section 402(a)(5)(D) is amended by striking out "a plan described in subclause (IV) or (V)" and inserting in lieu thereof "a trust or plan described in subclause (III) or (IV)".

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1059

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2867

(6) Clause (i) of section 402(a)(5)(F) is amended by striking out "a transfer described in subparagraph (A)" and inserting in lieu thereof "a transfer resulting in any portion of a distribution being excluded from gross income under subparagraph (A)". (7) Clause (v) of section 402(a)(6)(D) is amended by striking out "(7)(B)" and inserting in lieu thereof "(7)". (8) Paragraph (20) of section 401(a) is amended by striking out "qualifying rollover distribution (determined as if section 402(a)(5)(D)(i) did not contain subclause (II) thereof) described in section 402(a)(5)(A)(i) or 403(a)(4)(A)(i)" and inserting in lieu thereof "qualified total distribution described in section 402(a)(5)(E)(i)(I)". (9) Subsection (e) of section 522 of the Tax Reform Act of 1984 is amended by striking out "the date of the amendment" and inserting in lieu thereof "the date of the enactment". (10) Subparagraph (C) of section 403(b)(8) is amended by striking out "(F)(i)" and inserting in lieu thereof "and (F)(i)". (c) AMENDMENTS RELATED TO SECTION 523 OF THE ACT.—

(1) Subparagraph (B) of section 72(e)(7) (relating to plans substantially all the contributions of which are employee contributions) is amended— (A) by striking out "any trust or contract" and inserting in lieu thereof "any plan or contract", (B) by striking out "85 percent of" and inserting in lieu thereof "85 percent or more of", and (C) by adding at the end thereof the following new sentence: "For purposes of clause (ii), deductible employee contributions (as defined in subsection (o)(5)(A)) shall not be taken into account." (2) Subparagraph (E) of section 72(q)(2) (relating to 5-percent penalty for premature distributions from annuity contracts) is amended by striking out "subsection (e)(5)(D)" and inserting in lieu thereof "subsection (e)(5)(D) (determined without regard to subsection (e)(7))". (3) Subsection (f) of section 72 is amended— (A) by striking out "subsection (d)(1)" and inserting in lieu thereof "subsections (d)(1) and (e)(7)", and (B) by striking out "subsection (e)(1)(B)" and inserting in lieu thereof "subsection (e)(6)". (4) Paragraph (2) of section 72(m) is amended— (A) by striking out "3 years)" in subparagraph (B) and inserting in lieu thereof "3 years) and subsection (e)(7) (relating to plans where substantially all contributions are employee contributions)", and (B) by striking out "subsection (e)(1)(B)" in subparagraph (C) and inserting in lieu thereof "subsection (e)(6)". (5) Subsection (b) of section 402 is amended by striking out "section 72(e)(1)" and inserting in lieu thereof "section 72(e)(5)". (d) AMENDMENTS RELATED TO SECTION 524 OF THE ACT.—

(1) Subparagraph (A) of section 416(i)(l) (defining key employee) is amended by adding at the end thereof the following new sentence: "Such term shall not include any officer or employee of an entity referred to in section 414(d) (relating to governmental plans)."

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1060

 100 STAT. 2868

PUBLIC LAW 99-514—OCT. 22, 1986 (2) Subparagraph (E) of section 416(g)(4) (relating to benefits not taken into account if employee not employed for last 5 years) is amended to read as follows: "(E) BENEFITS NOT TAKEN INTO ACCOUNT IF EMPLOYEE NOT

EMPLOYED FOR LAST 5 YEARS.—If any individual has not performed services for the employer maintaining the plan at any time during the 5-year period ending on the determination date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account." (e) AMENDMENTS RELATED TO SECTION 525 OF THE ACT.—

dXA) Subsection (c) of section 2039 (relating to exception of certain annuity interests created by community property laws) is hereby repealed. (B) The amendment made by subparagraph (A) shall apply to estates of decedents dying after the date of the enactment of this Act. (2)(A) Section 2517 (relating to certain annuities under qualified plans) is hereby repealed. (B) The table of sections for subchapter B of chapter 12 is amended by striking out the item relating to section 2517. (C) Subsection (e) of section 406 is amended by striking out paragraph (5). (D) Subsection (e) of section 407 is amended by striking out paragraph (5). (E) The amendments made by this paragraph shall apply to transfers after the date of the enactment of this Act. (3) Section 5250)) of the Tax Reform Act of 1984 is amended by adding at the end thereof the following new paragraph: "(4) IRREVOCABLE ELECTION.—For purposes of paragraph (2)

and section 245(c) of the Tax Equity and Fiscal Responsibility Act of 1982, an individual who— "(A) separated from service before January 1, 1985, with respject to paragraph (2), or January 1, 1983, with respect to section 245(c) of the Tax Equity and Fiscal Responsibility Act of 1982, and "(B) meets the requirements of such paragraph or such section other than the requirement that there be an irrevocable election, and that the individual be in pay status, shall be treated as having made an irrevocable election and as being in pay status within the time prescribed with respect to a form of benefit if such individual does not change such form of benefit before death." (f) AMENDMENT RELATED TO SECTION 526 OF THE ACT.—Paragraph

(2) of section 526(d) of the Tax Reform Act of 1984 is amended by striking out "paragraph (6)" and inserting in lieu thereof "paragraph (7)". (g) AMENDMENTS RELATED TO SECTION 527 OF THE ACT.—

(1) Paragraph (3) of section 401(k) (relating to application of participation and discrimination standards) is amended by adding at the end thereof the following new subparagraph: "(C) A cash or deferred arrsuigement shall be treated as meeting the requirements of subsection (a)(4) with respect to contributions if the requirements of subparagraph (A)(ii) are met." (2) Subparagraph (A) of section 401(k)(3) is amended by striking out the last sentence and inserting in lieu thereof the

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1061

 PUBLIC LAW 9 9 - 5 1 4 - O C T. 22, 1986

100 STAT. 2869

following: "If an employee is a participant under 2 or more cash or deferred arrangements of the employer, for purposes of determining the deferral percentage with respect to such employee, all such cash or deferred arrangements shall be treated as 1 cash or deferred arrangement." (3) Subparagraph (C) of section 401(k)(2) is amended by striking out "are nonforfeitable" and inserting in lieu thereof "is nonforfeitable", (h) AMENDMENTS RELATED TO SECTION 528 OF THE ACT.—

(1) Subsection (h) of section 401 (relating to medical, etc., benefits for retired employees and their spouses and dependents) is amended— (A) by striking out "5-percent owner" each place it appears in paragraph (6) and inserting in lieu thereof "key employee", and (B) by striking out the last sentence and inserting in lieu thereof the following: "For purposes of paragraph (6), the term 'key employee' means any employee, who at any time during the plan year or any preceding plan year during which contributions were made on behalf of such employee, is or was a key employee as defined in section 416(i)." (2) Paragraph (1) of section 416(1) (relating to treatment of certain medical benefits) is amended by adding at the end thereof the following new sentence: "Subparagraph (B) of subsection (c)(1) shall not apply to any amount treated as an annual addition under the preceding sentence." (3) Subsection (1) of section 415 is amended by striking out "a defined benefit plan" each place it appears and inserting in lieu thereof "a pension or annuity plan". (i) AMENDMENT RELATED TO SECTION 4402 OF ERISA.—Section 4402 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1461) is amended by adding at the end thereof the following new subsection: "(h)(1) In the case of an employer who entered into a collective bargaining agreement— "(A) which was effective on January 12, 1979, and which remained in effect through May 15, 1982, and "(B) under which contributions to a multiemployer plan were to cease on January 12, 1982, any withdrawal liability incurred by the employer pursuant to part 1 of subtitle E as a result of the complete or partial withdrawal of the employer from the multiemployer plan before January 12, 1982, shall be void. "(2) In any case in which— "(A) an employer engaged in the grocery wholesaling business— "(i) had ceased all covered operations under a multiemployer plan before June 30, 1981, and had relocated its operations to a new facility in another State, and "(ii) had notified a local union representative on May 14, 1980, that the employer had tentatively decided to discontinue operations and relocate to a new facility in another State, and "(B) all State and local approvals with respect to construction of and commencement of operations at the new facility had been obtained, a contract for construction had been entered

71-194 0 - 89 - 35: QL. 3 Part 3

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1062

 100 STAT. 2870

PUBLIC LAW 99-514—OCT. 22, 1986

fh into, and construction of the new facility had begun before " " September 26, 1980, any withdrawal liability incurred by the employer pursuant to part 1 of subtitle E as a result of the complete or partial withdrawal of the employer from the multiemployer plan before June 30, 1981, shall be void.". SEC. 1853. AMENDMENTS RELATED TO FRINGE BENEFIT PROVISIONS. (a) AMENDMENTS TO SECTION 132.—

(1) Clause (ii) of section 132(f)(2)(B) (defining dependent children) is amended by striking out "are deceased" and inserting in lieu thereof "are deceased and who has not attained age 25". (2) Subparagraph (A) of section 132(c)(3) (defining employee discount) is amended by striking out "are provided to the employee by the employer" and inserting in lieu thereof "are provided by the employer to an employee for use by such employee". (3) Subsection (i) of section 132 (relating to customers not to include employees) is amended by striking out "subsection (c)(2)(B)" and inserting in lieu thereof "subsection (c)(2)". O> AMENDMENTS TO SECTION 125.— t) (1) CLARIFICATION OF BENEFITS WHICH MAY BE PROVIDED UNDER CAFETERIA PLANS.—

(A) Subsections (c) and (d)(1)(B) of section 125 are each ^,^ amended by striking out "statutory nontaxable benefits" each place it appears and inserting in lieu thereof "qualijg fled benefits". (B) Subsection (f) of section 125 is amended to read as follows: "(f) QUALIFIED BENEFITS DEFINED.—For purposes of this section, the term 'qualified benefit' means any benefit which, with the application of subsection (a), is not includible in the gross income of the employee by reason of an express provision of this chapter (other than section 117, 124, 127, or 132). Such term includes any group term life insurance which is includible in gross income only because it exceeds the dollar limitation of section 79 and such term includes any other benefit permitted under regulations." (2) TRANSITIONAL RULE.—Paragraph (5) of section 5310t)) of the

Tax Reform Act of 1984 (relating to exception for certain cafeteria plans and benefits) is amended by adding at the end thereof the following new subparagraph: "(D) COLLECTIVE BARGAINING AGREEMENTS.—In the case of any cafeteria plan in existence on February 10, 1984, and maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers, the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof agreed to after July 18, 1984) shall be substituted for 'January 1, 1985' in subpara*.r graph (A) and for 'July 1, 1985' in subparagraph (B). For purposes of the preceding sentence, any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to ,.• any requirement added by this section (or any requirement in the regulations under section 125 of the Internal Revenue Code of 1954 proposed on May 6, 1984) shall not be
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Page:United States Statutes at Large Volume 100 Part 3.djvu/1063

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2871

treated as a termination of such collective bargaining agreement," (3) SPECIAL RULE WHERE CONTRIBUTIONS OR REIMBURSEMENTS

SUSPENDED.—Paragraph (5) of section 531(b) of the Tax Reform Act of 1984 is amended by adding at the end thereof the following new subparagraph: "(E) SPECIAL RULE WHERE CONTRIBUTIONS OR REIMBURSE-

MENTS SUSPENDED.—For purposes of subparagraphs (A) and (B), a plan shall not be treated as not continuing to fail to gr;-ii satisfy the rules referred to in such subparagraphs with respect to any benefit provided in the form of a flexible u. spending arrangement merely because contributions or reimbursements (or both) with respect to such plan were suspended before January 1, 1985." (c) AMENDMENTS TO SECTION 4977.— (1) Paragraph (2) of section 4977(c) is amended to read as follows: "(2) at all times on or after January 1, 1984, and before the close of the calendar year involved, substantially all of the employees of the employer were entitled to employee discounts on goods or services provided by the employer in 1 line of business,". (2) Section 4977 (relating to tax on certain fringe benefits provided by an employer) is amended by adding at the end thereof the following new subsection: "(f) SECTION TO APPLY ONLY TO EMPLOYMENT WITHIN THE UNITED

STATES.—Except as otherwise provided in regulations, this section shall apply only with respect to employment within the United States." (3) For purposes of determining whether the requirements of section 4977(c) of the Internal Revenue Code of 1954 are met in the case of an agricultural cooperative incorporated in 1964, there shall not be taken into account employees of a member of the same controlled group as such cooperative which became a member during July 1980. (d) TREATMENT OF TELEPHONE CONCESSION SERVICE FOR CERTAIN

RETIREES.—Section 559 of the Tax Reform Act of 1984 is amended by adding at the end thereof the following subsection: "(e) TELEPHONE SERVICE FOR PRE-DIVESTITURE RETIREES.—In

the

case of an employee who, by reason of retirement or disability, separated before January 1, 1984, from the service of an entity subject to the modified final judgment— "(1) all entities subject to the modified final judgment shall be treated as a single employer in the same line of business for purposes of determining whether telephone service provided to the employee is a no-additional-cost service as defined in section 132 of the Internal Revenue Code of 1954; and "(2) payment by an entity subject to the modified final judgment of all or part of the cost of local telephone service provided to the employee by a person other than an entity subject to the modified final judgment (including rebate of the amount paid by the employee for the service and payment to the person providing the service) shall be treated as telephone service provided to the employee by such single employer for purposes of determining whether the telephone service is a no-additional-cost service as defined in section 132 of the Internal Revenue Code of 1954.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1064

 100 STAT. 2872

PUBLIC LAW 99-514—OCT. 22, 1986

For purposes of this subsection, the term 'employee' has the meaning given to such term by section 132(f) of the Internal Revenue Code of 1954." (e) TREATMENT OF CERTAIN LEASED OPERATIONS OF DEPARTMENT

STORES.—For purposes of section 132(h)(2)(B) of the Internal Revenue Code of 1954, a leased section of a department store which, in connection with the offering of beautician services, customarily makes sales of beauty aids in the ordinary course of business shall be treated as engaged in over-the-counter sales of property. (f) TRANSITIONAL RULES FOR TREATMENT OF CERTAIN REDUCTIONS IN TUITION.—

(1) A tuition reduction plan shall be treated as meeting the requirements of section 117(d)(3) of the Internal Revenue Code of 1954 if— (A) such plan would have met the requirements of such ac section (as amended by this section but without regard to the lack of evidence that benefits under such plan were the yi subject of good faith bargaining) on the day on which eligibility to participate in the plan was closed, (B) at all times thereafter, the tuition reductions availii' able under such plan are available on substantially the same terms to all employees eligible to participate in such plan, and

(C) the eligibility to participate in such plan closed on June 30, 1972, June 30, 1974, or December 31, 1975. (2) For purposes of applying section 117(d)(3) of the Internal Revenue Code of 1954 to all tuition reduction plans of an employer with at least 1 such plan described in paragraph (1) of this subsection, there shall be excluded from consideration employees not included in the plan who are included in a unit of employees covered by an agreement that the Secretary of the Treasury or his delegate finds to be a collective bargaining agreement between employee representatives and 1 or more employers, if, with respect to plans other than plans described in paragraph (1), there is evidence that such benefits were the subject of good faith bargaining. ' (3) Any reduction in tuition provided with respect to a fulltime course of education furnished at the graduate level before July 1, 1988, shall not be included in gross income if^ (A) such reduction would not be included in gross income under the Internal Revenue Service regulations in effect on the date of the enactment of the Tax Reform Act of 1984, and (B) such reduction is provided with respect to a student who was accepted for admission to such course of education '• before July 1, 1984, and began such course of education before June 30, 1985. SEC. 1854. AMENDMENTS RELATED TO EMPLOYEE STOCK OWNERSHIP PLANS. ' (a) AMENDMENTS RELATED TO SECTION 541.—

(1) Section 1042(a) (relating to nonrecognition of gai;i) is amended— (A) by striking out "gain (if any) on such sale" and inserting in lieu thereof "gain (if any) on such sale ^hich would be recognized as long-term capital gain", and

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Page:United States Statutes at Large Volume 100 Part 3.djvu/1065

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2873

(B) by striking out "the taxpayer elects" in paragraph (1) and inserting in lieu thereof "the taxpayer or executor elects in such form as the Secretary may prescribe". (2)(A) Section 1042G))(2) (relating to requirement that employees must own 30 percent of stock) is amended to read as follows: "(2) PLAN MUST HOLD 30 PERCENT OF STOCK AFTER SALE.—The

plan or cooperative referred to in paragraph (1) owns (after application of section 318(a)(4)), immediately after the sale, at least 30 percent of— "(A) each class of outstanding stock of the corporation (other than stock described in section 1504(a)(4)) which L^. issued the qualified securities, or • "(B) the total value of all outstanding stock of the corporation (other than stock described in section 1504(a)(4)). (B)(i) The requirement that section 1042(b) of the Internal Revenue Code of 1954 shall be applied with regard to section 318(a)(4) of such Code shall apply to sales after May 6, 1986. (ii) In the case of sales after July 18, 1984, and before the date of the enactment of this Act, paragraph (2) of section 1042(b) of such Code shall apply as if it read as follows: "(2) EMPLOYEES MUST OWN 30 PERCENT OF STOCK AFTER

SALE.—The plan or cooperative referred to in paragraph (1) owns, immediately after the sale, at least 30 percent of the employer securities or 30 percent of the value of employer securities (within the meaning of section 409(1)) outstanding at the time of sale." (3)(A) Section 409 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection: "(n) SECURITIES RECEIVED IN CERTAIN TRANSACTIONS.—

"(1) IN GENERAL.—A plan to which section 1042 applies and an eligible worker-owned cooperative (within the meaning of section 1042(c)) shall provide that no portion of the assets of the plan or cooperative attributable to (or allocable in lieu of) employer securities acquired by the plan or cooperative in a sale to which section 1042 applies may accrue (or be allocated directly or indirectly under any plan of the employer meeting the requirements of section 401(a))— "(A) during the nonallocation period, for the benefit of— "(i) any taxpayer who makes an election under section 1042(a) with respect to employer securities, "(ii) any individual who is related to the taxpayer (within the meaning of section 267(b)), or "(B) for the benefit of any other person who owns (after . r - application of section 318(a)) more than 25 percent of— "(i) any class of outstanding stock of the corporation which issued such employer securities or of any corporation which is a member of the same controlled ? group of corporations (within the meaning of subsection (1)(4)) as such corporation, or "(ii) the total value of any class of outstanding stock of any such corporation. For purposes of subparagraph (B), section 318(a) shall be applied without regard to the employee trust exception in paragraph (2)(B)(i). "(2) FAILURE TO MEET REQUIREMENTS.—If a plan fails to meet the requirements of paragraph (1)—

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text:
Page:United States Statutes at Large Volume 100 Part 3.djvu/1066

 100 STAT. 2874

PUBLIC LAW 99-514—OCT. 22, 1986

"(A) the plan shall be treated as having distributed to the person described in paragraph (1) the amount allocated to the account of such person in violation of paragraph (1) at 't»' the time of such allocation, "(B) the provisions of section 4979A shall apply, and "(C) the statutory period for the assessment of any tax imposed by section 4979A shall not expire before the date "•' -'-^ which is 3 years from the later of— "(i) the 1st allocation of employer securities in connection with a sale to the plan to which section 1042 applies, or "(ii) the date on which the Secretary is notified of '^' such failure. "(3) DEFINITIONS AND SPECIAL RULES.—For purposes of this subsection— "(A) LINEAL DESCENDANTS.—Paragraph (l)(A)(ii) shall not apply to any individual if— "(i) such individual is a lineal descendant of the taxpayer, and ,„...^ "(ii) the aggregate amount allocated to the benefit of "y ': all such lineal descendants during the nonallocation period does not exceed more than 5 percent of the ^, employer securities (or amounts allocated in lieu thereof) held by the plan which are attributable to a sale to the plan by any person related to such descend,,: ants (within the meaning of section 267(c)(4)) in a trans.*'. action to which section 1042 applied. "(B) 25-PERCENT SHAREHOLDERS.—A person shall be treated as failing to meet the stock ownership limitation under paragraph (1)(B) if such person fails such limitation— . "(i) at any time during the 1-year period ending on Hr, the date of sale of qualified securities to the plan or cooperative, or "(ii) on the date as of which qualified securities are sdi allocated to participants in the plan or cooperative. "(C) NONALLOCATION PERIOD.—The term 'nonallocation — period' means the 10-year period beginning on the later <.-. of"(i) the date of the sale of the qualified securities, or . ^^q„<. "(ii) the date of the plan allocation attributable to the final payment of acquisition indebtedness incurred in V., ' connection with such sale." (B) Section 1042(b)(3) is amended by striking out paragraph (3) and redesignating paragraph (4) as paragraph (3). (C) The amendments made by this paragraph apply to sales of securities after the date of the enactment of this Act. •m (4) Section 1042(c)(1) (defining qualified securities) is amended— s3. (A) by striking out "securities outstanding that are" in subparagraph (A) and inserting in lieu thereof "stock fe&iiv outstanding that is", flqBTgE (B) by inserting "and" at the end of subparagraph (A), and irmm c (C) by striking out subparagraph (B) and redesignating subparagraph (C) as subparagraph (B).

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