§844. Treatment of annuity and life insurance contracts with a long-term care insurance feature

Pension Protection Act of 2006

Title VIII Pension Related Revenue Provisions

Subtitle D Health and Medical Benefits

(a) EXCLUSION FROM GROSS INCOME.-Subsection (e) of section 72 of the Internal Revenue Code of 1986 (relating to amounts not received as annuities) is amended by redesignating paragraph (11) as paragraph (12) and by inserting after paragraph (10) the following new paragraph:

"(11) SPECIAL RULES FOR CERTAIN COMBINATION CONTRACTS PROVIDING LONG-TERM CARE INSURANCE.-Notwithstanding paragraphs (2), (5)(C), and (10), in the case of any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract-

"(A) the investment in the contract shall be reduced (but not below zero) by such charge, and

"(B) such charge shall not be includible in gross income.".

(b) TAX-FREE EXCHANGES AMONG CERTAIN INSURANCE POLICIES.-

(b)(1) ANNUITY CONTRACTS CAN INCLUDE QUALIFIED LONGTERM CARE INSURANCE RIDERS.-Paragraph (2) of section 1035(b) of such Code is amended by adding at the end the following new sentence: "For purposes of the preceding sentence, a contract shall not fail to be treated as an annuity contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract.".

(b)(2) LIFE INSURANCE CONTRACTS CAN INCLUDE QUALIFIED LONG-TERM CARE INSURANCE RIDERS.-Paragraph (3) of section 1035(b) of such Code is amended by adding at the end the following new sentence: "For purposes of the preceding sentence, a contract shall not fail to be treated as a life insurance contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract.".

(b)(3) EXPANSION OF TAX-FREE EXCHANGES OF LIFE INSURANCE, ENDOWMENT, AND ANNUITY CONTRACTS FOR LONG-TERM CARE CONTRACTS.-Subsection (a) of section 1035 of such Code (relating to certain exchanges of insurance policies) is amended-

(b)(3)(A) in paragraph (1) by inserting "or for a qualified long-term care insurance contract" before the semicolon at the end,

(b)(3)(B) in paragraph (2) by inserting ", or

(b)(3)(C) for a qualified long-term care insurance contract" before the semicolon at the end, and (C) in paragraph (3) by inserting "or for a qualified long-term care insurance contract" before the period at the end.

(b)(4) TAX-FREE EXCHANGES OF QUALIFIED LONG-TERM CARE INSURANCE CONTRACT.-Subsection (a) of section 1035 of such Code (relating to certain exchanges of insurance policies) is amended by striking "or" at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting "; or", and by inserting after paragraph (3) the following new paragraph:

"(4) a qualified long-term care insurance contract for a qualified long-term care insurance contract.".

(c) TREATMENT OF COVERAGE PROVIDED AS PART OF A LIFE INSURANCE OR ANNUITY CONTRACT.-Subsection (e) of section 7702B of such Code (relating to treatment of qualified long-term care insurance) is amended to read as follows:

"(e) TREATMENT OF COVERAGE PROVIDED AS PART OF A LIFE INSURANCE OR ANNUITY CONTRACT.-Except as otherwise provided in regulations prescribed by the Secretary, in the case of any long-term care insurance coverage (whether or not qualified) provided by a rider on or as part of a life insurance contract or an annuity contract-

"(1) IN GENERAL.-This title shall apply as if the portion of the contract providing such coverage is a separate contract.

"(2) DENIAL OF DEDUCTION UNDER SECTION 213.-No deduction shall be allowed under section 213(a) for any payment made for coverage under a qualified long-term care insurance contract if such payment is made as a charge against the cash surrender value of a life insurance contract or the cash value of an annuity contract.

"(3) PORTION DEFINED.-For purposes of this subsection, the term 'portion' means only the terms and benefits under a life insurance contract or annuity contract that are in addition to the terms and benefits under the contract without regard to long-term care insurance coverage.

"(4) ANNUITY CONTRACTS TO WHICH PARAGRAPH (1) DOES NOT APPLY.-For purposes of this subsection, none of the following shall be treated as an annuity contract:

"(A) A trust described in section 401(a) which is exempt from tax under section 501(a).

"(B) A contract-

"(i) purchased by a trust described in subparagraph (A),

"(ii) purchased as part of a plan described in section 403(a),

"(iii) described in section 403(b),

"(iv) provided for employees of a life insurance company under a plan described in section 818(a)(3), or

"(v) from an individual retirement account or an individual retirement annuity.

"(C) A contract purchased by an employer for the benefit of the employee (or the employee's spouse).

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

(d) INFORMATION REPORTING.-

(d)(1) Subpart B of part III of subchapter A of chapter 61 of such Code (relating to information concerning transactions with other persons) is amended by adding at the end the following new section:

"SEC. 6050U. CHARGES OR PAYMENTS FOR QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS UNDER COMBINED ARRANGEMENTS.

"(a) REQUIREMENT OF REPORTING.-Any person who makes a charge against the cash value of an annuity contract, or the cash surrender value of a life insurance contract, which is excludible from gross income under section 72(e)(11) shall make a return, according to the forms or regulations prescribed by the Secretary, setting forth-

"(1) the amount of the aggregate of such charges against each such contract for the calendar year,

"(2) the amount of the reduction in the investment in each such contract by reason of such charges, and

"(3) the name, address, and TIN of the individual who is the holder of each such contract.

"(b) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT TO WHOM INFORMATION IS REQUIRED.-Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing-

"(1) the name, address, and phone number of the information contact of the person making the payments, and

"(2) the information required to be shown on the return with respect to such individual.

The written statement required under the preceding sentence shall be furnished to the individual on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.".

(d)(2) PENALTY FOR FAILURE TO FILE.-

(d)(2)(A) RETURN.-Subparagraph (B) of section 6724(d)(1) of such Code is amended by striking "or" at the end of clause (xvii), by striking "and" at the end of clause (xviii) and inserting "or", and by adding at the end the following new clause:

"(xix) section 6050U (relating to charges or payments for qualified long-term care insurance contracts under combined arrangements), and".

(d)(2)(B) STATEMENT.-Paragraph (2) of section 6724(d) of such Code is amended by striking "or" at the end of subparagraph (AA), by striking the period at the end of subparagraph (BB), and by inserting after subparagraph (BB) the following new subparagraph:

"(CC) section 6050U (relating to charges or payments for qualified long-term care insurance contracts under combined arrangements).".

(d)(3) CLERICAL AMENDMENT.-The table of sections for subpart B of part III of subchapter A of such chapter 61 of such Code is amended by adding at the end the following new item: "Sec. 6050U. Charges or payments for qualified long-term care insurance contracts under combined arrangements.".

(e) TREATMENT OF POLICY ACQUISITION EXPENSES.-Subsection (e) of section 848 of such Code (relating to classification of contracts) is amended by adding at the end the following new paragraph:

"(6) TREATMENT OF CERTAIN QUALIFIED LONG-TERM CARE INSURANCE CONTRACT ARRANGEMENTS.-An annuity or life insurance contract which includes a qualified long-term care insurance contract as a part of or a rider on such annuity or life insurance contract shall be treated as a specified insurance contract not described in subparagraph (A) or (B) of subsection (c)(1).".

(f) TECHNICAL AMENDMENT.-Paragraph (1) of section 7702B(e) of such Code (as in effect before amendment by subsection (c)) is amended by striking "section" and inserting "title".

(g) EFFECTIVE DATES.-

(g)(1) IN GENERAL.-Except as otherwise provided in this subsection, the amendments made by this section shall apply to contracts issued after December 31, 1996, but only with respect to taxable years beginning after December 31, 2009.

(g)(2) TAX-FREE EXCHANGES.-The amendments made by subsection (b) shall apply with respect to exchanges occurring after December 31, 2009.

(g)(3) INFORMATION REPORTING.-The amendments made by subsection (d) shall apply to charges made after December 31, 2009.

(g)(4) POLICY ACQUISITION EXPENSES.-The amendment made by subsection (e) shall apply to specified policy acquisition expenses determined for taxable years beginning after December 31, 2009.

(g)(5) TECHNICAL AMENDMENT.-The amendment made by subsection (f) shall take effect as if included in section 321(a) of the Health Insurance Portability and Accountability Act of 1996.