[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 993 Introduced in Senate (IS)]







109th CONGRESS
  1st Session
                                 S. 993

 To amend the Internal Revenue Code of 1986 to impose an excise tax on 
  amounts received under certain insurance policies in which certain 
                 exempt organizations hold an interest.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 10, 2005

  Mr. Grassley (for himself and Mr. Baucus) introduced the following 
  bill; which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to impose an excise tax on 
  amounts received under certain insurance policies in which certain 
                 exempt organizations hold an interest.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. EXCISE TAX ON CERTAIN ACQUISITIONS OF INTERESTS IN INSURANCE 
              CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS HOLD AN 
              INTEREST.

    (a) Imposition of Tax.--
            (1) In general.--Chapter 42 of the Internal Revenue Code of 
        1986 (relating to excise taxes involving private foundations 
        and certain other tax-exempt organizations) is amended by 
        adding at the end the following new subchapter:

      ``Subchapter F--Insurance Contracts in Which Certain Exempt 
                      Organizations Hold Interests

        ``Sec. 4965. Excise tax on acquisition of interests in 
                            insurance contracts in which certain exempt 
                            organizations hold an interest.

``SEC. 4965. EXCISE TAX ON ACQUISITION OF INTERESTS IN INSURANCE 
              CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS HOLD AN 
              INTEREST.

    ``(a) Imposition of Tax.--If there is a taxable acquisition of any 
interest in an applicable insurance contract, there is hereby imposed 
on the person acquiring the interest a tax equal to 100 percent of the 
acquisition costs of the interest.
    ``(b) Taxable Acquisition.--For purposes of this section--
            ``(1) In general.--The term `taxable acquisition' means the 
        acquisition of any direct or indirect interest in an applicable 
        insurance contract by--
                    ``(A) an applicable exempt organization, or
                    ``(B) a person other than an applicable exempt 
                organization if such interest in the hands of such 
                person is not an interest described in clause (i), 
                (ii), or (iii) of paragraph (2)(B).
            ``(2) Applicable insurance contract.--
                    ``(A) In general.--The term `applicable insurance 
                contract' means any life insurance, annuity, or 
                endowment contract with respect to which both an 
                applicable exempt organization and a person other than 
                an applicable exempt organization have directly or 
                indirectly held an interest in the contract (whether or 
                not at the same time).
                    ``(B) Exceptions.--Such term shall not include a 
                life insurance, annuity, or endowment contract if--
                            ``(i) all persons directly or indirectly 
                        holding any interest in the contract (other 
                        than applicable exempt organizations) have an 
                        insurable interest in the insured under the 
                        contract independent of any interest of an 
                        applicable exempt organization in the contract,
                            ``(ii) the sole interest in the contract of 
                        each person other than an applicable exempt 
                        organization is as a named beneficiary, or
                            ``(iii) the sole interest in the contract 
                        of each person other than an applicable exempt 
                        organization is--
                                    ``(I) as a beneficiary of a trust 
                                holding an interest in the contract, 
                                but only if the person's designation as 
                                such beneficiary was made without 
                                consideration and solely on a purely 
                                gratuitous basis, or
                                    ``(II) as a trustee who holds an 
                                interest in the contract in a fiduciary 
                                capacity solely for the benefit of 
                                applicable exempt organizations or 
                                persons otherwise described in clauses 
                                (i) and (ii) or subclause (I) of this 
                                clause.
            ``(3) Definition and rule relating to acquisition costs.--
                    ``(A) Acquisition costs defined.--The term 
                `acquisition costs' means the direct or indirect costs 
                of acquiring an interest in an applicable insurance 
                contract. Such term shall include any fees, 
                commissions, charges, or other amounts paid in 
                connection with the acquisition, whether or not paid to 
                the issuer of the contract.
                    ``(B) Timing of payments.--Except as provided in 
                regulations, if acquisition costs of any acquisition 
                are paid or incurred in more than 1 calendar year, the 
                tax imposed by subsection (a) with respect to the 
                acquisition shall be imposed each time the costs are so 
                paid or incurred.
            ``(4) Rules relating to interests.--
                    ``(A) In general.--An interest in the contract 
                includes any right with respect to the contract, 
                whether as an owner, beneficiary, or otherwise.
                    ``(B) Indirect interest.--An indirect interest in a 
                contract includes an interest in an entity which 
                directly or indirectly holds an interest in the 
                contract.
                    ``(C) Exchanged contracts.--In the case of an 
                exchange of an applicable insurance contract on which 
                no gain or loss is recognized under section 1035, any 
                interest in any of the contracts involved in the 
                exchange shall be treated as an interest in all such 
                contracts.
            ``(5) Increase in interest.--If a person increases an 
        interest in an applicable insurance contract, the increase 
        shall be treated as a separate acquisition for purposes of this 
        section.
            ``(6) Prior acquisitions.--Except as provided in 
        regulations, if a person acquires an interest in a contract 
        before the contract is treated as an applicable insurance 
        contract, the acquisition shall be treated as a taxable 
        acquisition of an interest in an applicable insurance contract 
        as of the date the contract becomes an applicable insurance 
        contract.
    ``(c) Applicable Exempt Organization.--For purposes of this 
section, the term `applicable exempt organization' means--
            ``(1) an organization described in section 170(c),
            ``(2) an organization described in section 
        168(h)(2)(A)(iv), or
            ``(3) an organization not described in paragraph (1) or (2) 
        which is described in section 2055(a) or section 2522(a).
    ``(d) Tax Not Treated as Investment in the Contract.--For purposes 
of section 72, the tax imposed by this section shall not be included in 
investment in the contract.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this section. Such 
regulations may include regulations which--
            ``(1) exempt certain contracts from treatment as applicable 
        insurance contracts based on specific factors, including 
        whether the transaction is at arms length, the relative 
        economic benefits to applicable exempt organizations as 
        compared to other persons, and the likelihood of abuse,
            ``(2) provide, for purposes of subsection (b)(6), 
        appropriate rules for the application of this section in any 
        case where an interest is acquired before a contract becomes an 
        applicable insurance contract,
            ``(3) prevent, in cases the Secretary determines 
        appropriate, the imposition of more than one tax under this 
        section if the same interest is acquired more than once, and
            ``(4) are designed to prevent avoidance of the purposes of 
        this section, including through the use of intermediaries.''.
            (2) Conforming amendment.--The table of subchapters for 
        chapter 42 of such Code is amended by adding at the end the 
        following new item:

        ``Subchapter F. Insurance contracts in which certain exempt 
                            organizations hold interests.''.
    (b) Reporting Requirements.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 of the Internal Revenue Code of 1986 (relating to 
        information concerning transactions with other persons) is 
        amended by adding at the end the following new section:

``SEC. 6050U. RETURNS RELATING TO APPLICABLE INSURANCE CONTRACTS IN 
              WHICH CERTAIN EXEMPT ORGANIZATIONS HOLD INTERESTS.

    ``(a) Requirements of Reporting.--
            ``(1) Exempt organizations.--Each--
                    ``(A) applicable exempt organization which acquires 
                (within the meaning of section 4965) an interest in any 
                applicable insurance contract, and
                    ``(B) other person which so acquires such an 
                interest which, in the hands of such person, is taxable 
                under section 4965,
        shall make the return described in subsection (c).
            ``(2) Transfers.--If a person (including an applicable 
        exempt organization) acquires an interest in an applicable 
        insurance contract in an acquisition which is taxable under 
        section 4965 and then transfers such interest to 1 or more 
        other persons, each person acquiring all or a portion of such 
        interest shall make the return described in subsection (c).
    ``(b) Time for Making Return.--Any organization or person required 
to make a return under subsection (a) shall file such return at such 
time as may be established by the Secretary with respect to--
            ``(1) in the case of an organization described in 
        subsection (a)(1), the calendar year in which the acquisition 
        occurs, any calendar year in which acquisition costs are paid 
        or incurred, and any other calendar years specified by the 
        Secretary, and
            ``(2) in the case of a person described in subsection 
        (a)(2), the calendar year in which the transfer occurs.
    ``(c) Form and Manner of Returns.--A return is described in this 
subsection if such return--
            ``(1) is in such form as the Secretary prescribes,
            ``(2) in the case of--
                    ``(A) a return required under subsection (a)(1)(A), 
                contains the name, address, and taxpayer identification 
                number of the applicable exempt organization, the 
                issuer of the applicable insurance contract, and any 
                person acquiring an interest in the contract which may 
                be taxable under section 4965,
                    ``(B) a return required under subsection (a)(1)(B), 
                contains the name, address, and taxpayer identification 
                number of the person acquiring an interest in the 
                applicable insurance contract which is taxable under 
                section 4965, any applicable exempt organization 
                holding an interest in the contract, and the issuer of 
                the contract, and
                    ``(C) a return required under subsection (a)(2), 
                contains the name, address, and taxpayer identification 
                number of the transferor and transferee, and
            ``(3) contains such other information as the Secretary may 
        prescribe.
    ``(d) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each person whose taxpayer 
identification information is required to be included in such return 
under subsection (c) a written statement showing--
            ``(1) the name and address of the person required to make 
        such return and the telephone number of the information contact 
        for such person, and
            ``(2) the taxpayer identity and other information required 
        to be shown on the return with respect to such person.
The written statement required under the preceding sentence shall be 
furnished on or before the date specified by the Secretary.
    ``(e) Definitions.--For purposes of this section, any term used in 
this section which is also used in section 4965 shall have the meaning 
given such term by section 4965.''.
            (2) Penalties.--
                    (A) In general.--Section 6724(d) of such Code is 
                amended--
                            (i) in paragraph (1)(B), by redesignating 
                        clauses (xiii) through (xviii) as clauses (xiv) 
                        through (xix) and by inserting after clause 
                        (xii) the following new clause:
                            ``(xiii) section 6050U (relating to returns 
                        relating to applicable insurance contracts in 
                        which certain exempt organizations hold 
                        interests),'', and
                            (ii) in paragraph (3), by striking ``and'' 
                        at the end of subparagraph (C), by striking the 
                        period at the end of subparagraph (D) and 
                        inserting ``, and'', and by adding at the end 
                        the following new subparagraph:
                    ``(E) the statement required by subsection (d) of 
                section 6050U (relating to returns relating to 
                applicable insurance contracts in which certain exempt 
                organizations hold interests).''.
                    (B) Intentional disregard.--Section 6721(e)(2) of 
                such Code is amended by striking ``or'' at the end of 
                subparagraph (B), by striking ``and'' at the end of 
                subparagraph (C) and inserting ``or'', and by adding at 
                the end the following new subparagraph:
                    ``(D) in the case of a return required to be filed 
                under section 6050U, the amount of tax imposed under 
                section 4965 which has not been paid with respect to 
                items required to be included on the return, and''.
            (3) Conforming amendment.--The table of sections for 
        subpart B of part III of subchapter A of chapter 61 of such 
        Code is amended by adding at the end the following new item:

        ``Sec. 6050U. Returns relating to applicable insurance 
                            contracts in which certain exempt 
                            organizations hold interests.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to contracts issued after May 3, 2005.
            (2) Reporting of existing contracts.--In the case of any 
        life insurance, annuity, or endowment contract--
                    (A) which was issued on or before May 3, 2005,
                    (B) with respect to which an applicable exempt 
                organization (as defined in section 4965 of the 
                Internal Revenue Code of 1986, as added by this 
                section) holds an interest on May 3, 2005, and
                    (C) which would be treated as an applicable 
                insurance contract (as so defined) if issued after May 
                3, 2005,
        such organization shall, not later than the date which is 1 
        year after the date of the enactment of this Act, report to the 
        Secretary of the Treasury with respect to such contract. Such 
        report shall be in such form and manner, and contain such 
        information, as the Secretary may prescribe. The Secretary 
        shall submit such reports, along with any recommendations for 
        legislation as the Secretary considers appropriate, to the 
        Committee on Ways and Means of the House of Representatives and 
        to the Committee on Finance of the Senate within 6 months of 
        the date such reports are required to be filed.
                                 <all>