[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 4279 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
2d Session
S. 4279
To amend the Internal Revenue Code of 1986 to prevent the abuse of life
insurance tax rules, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
April 13, 2026
Mr. Wyden 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 prevent the abuse of life
insurance tax rules, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Protecting Proper Life Insurance
from Abuse Act'' or the ``PPLI Abuse Act''.
SEC. 2. TAX TREATMENT OF PRIVATE PLACEMENT CONTRACTS.
(a) In General.--Chapter 79 of the Internal Revenue Code of 1986 is
amended by inserting after section 7702B the following new section:
``SEC. 7702C. TREATMENT OF APPLICABLE PRIVATE PLACEMENT CONTRACTS.
``(a) General Rule.--Notwithstanding any other provision of this
title, an applicable private placement contract shall not be treated as
an insurance or annuity contract for purposes of this title.
``(b) Applicable Private Placement Contract.--For purposes of this
section--
``(1) In general.--The term `applicable private placement
contract' means any private placement contract if the
requirements of subsection (c) are not met with respect to any
segregated asset account described in section 817(d) to which
amounts received under such contract are allocated.
``(2) Private placement contract.--The term `private
placement contract' means any contract--
``(A) which, without regard to this section, would
be treated for purposes of this title as--
``(i) a life insurance contract under
section 7702 or an annuity contract under
section 72, and
``(ii) a variable contract (within the
meaning of section 817(d)), and
``(B) with respect to which the holder of the
contract is required, for purposes of obtaining a
registration exemption under securities laws as in
effect on the date of enactment of this section
(including the Securities Exchange Act of 1934 and the
Investment Advisors Act of 1940), to make a
representation that such holder--
``(i) has a specified minimum amount of
income or assets,
``(ii) has completed a specified minimum
level of education, or
``(iii) holds a specific license or
credential.
``(3) Special rules for foreign issued contracts.--In the
case of a contract issued outside of the United States which is
directly or indirectly held by a United States person, if,
without regard to this section--
``(A) such contract is a life insurance or annuity
contract under the laws under which it is issued (or,
unless otherwise provided under regulations, would be
such a contract if issued in the United States), and
``(B)(i) in the case of an annuity contract, or a
contract providing insurance on retired lives (as
described in section 807(c)(6)), the amounts paid into
or out of such contract reflect the investment return
and the market value of 1 or more assets (other than
assets in the general accounts of the issuer or
reinsurer), or
``(ii) in the case of a life insurance contract,
the amount of the death benefit (or the period of
coverage) is adjusted on the basis of the investment
return and the market value of 1 or more assets
described in clause (i),
such contract shall (without regard to whether or not the
requirements of subsection (c) are met with respect to such
contract) be treated as an applicable private placement
contract for purposes of this section (and, for such purposes,
the assets described in subparagraph (B) with respect to such
contract shall be treated as a segregated asset account with
respect to such contract).
``(4) Permanent treatment.--A contract, once treated as an
applicable private placement contract under this section, shall
be so treated for all subsequent periods without regard to
whether it continues to meet the requirements to be so treated.
``(c) Limitations for Assets in Segregated Asset Account.--
``(1) In general.--The requirements of this subsection are
met with respect to a segregated asset account only if--
``(A) the assets in such account support at least
25 private placement contracts, and
``(B) in the case of each of the contracts
supported by such account--
``(i) the value of such contract is
supported by each of the assets in such account
(and not by any asset not in such account), and
``(ii) the proportion of each such asset
supporting such contract is the same as the
proportion of each other such asset supporting
such contract.
``(2) Aggregation of contracts held by persons.--For
purposes of paragraph (1)--
``(A) In general.--All private placement contracts
held directly or indirectly by the same person, or a
related person to such person, shall be treated as 1
private placement contract.
``(B) Related person.--
``(i) In general.--A person shall be
treated as related to another person if they
bear a relationship to such other person
described in section 267(b) or 707(b)(1).
``(ii) Members of family.--For purposes of
clause (i), sections 267(b) and 707(b)(1) shall
be applied as if section 267(c)(4) provided
that the family of an individual consists of a
husband and wife and members of a family
described in section 1361(c)(1)(B), except that
the applicable date for purposes of clause (ii)
thereof shall be the date the segregated asset
account is established.
``(iii) Members under common control.--For
purposes of clause (i), a rule similar to
section 108(e)(4)(C) shall apply.
``(d) Tax Treatment of Holders of Contracts.--
``(1) Ownership of assets and income.--
``(A) In general.--In the case of an applicable
private placement contract, the holder of such contract
shall be treated as if the holder--
``(i) held its share of the assets in the
segregated asset account supporting such
contract, and
``(ii) received or accrued directly its
share of any amount of net income, net loss, or
credit earned or accrued with respect to such
assets (without regard to whether any amount is
actually distributed).
``(B) Net income or loss.--For purposes of
subparagraph (A)(ii)--
``(i) Net income.--The term `net income'
means, with respect to any assets supporting a
contract--
``(I) the amount (if any) by which
the aggregate amount of income
(including interest, dividends, or
gains) with respect to such assets is
greater than
``(II) the deductions allowed under
this title which are directly connected
with the production of such income.
``(ii) Net loss.--The term `net loss'
means, with respect to any assets supporting a
contract, the amount (if any) by which the
amount under clause (i)(II) exceeds the amount
under clause(i)(I).
``(iii) Amounts not taken into account.--No
deduction shall be taken into account under
clause (i)(II) (including for reserves, fees,
or mortality charges) which--
``(I) is taken into account by the
insurer or reinsurer of the applicable
private placement contract, or
``(II) would be so taken into
account if such contract were treated
as a life insurance or annuity
contract.
``(C) Taxable year of cessation.--If a life
insurance contract or annuity contract ceases to be
such a contract by reason of this section in a taxable
year after the taxable year in which issued, amounts
described in subparagraph (A)(ii) for all preceding
taxable years shall be treated as received or accrued
during the taxable year in which such cessation occurs.
``(2) Distributions.--
``(A) In general.--Any excess distribution received
by a taxpayer from an applicable private placement
contract shall be included by the taxpayer in gross
income as ordinary income.
``(B) Excess distribution.--For purposes of this
paragraph, the term `excess distribution' means, with
respect to any applicable private placement contract,
any applicable distribution to a taxpayer to the extent
that--
``(i) the amount of such applicable
distribution, when added to the aggregate
amount of applicable distributions made with
respect to such contract (whether or not made
to such taxpayer) for all periods preceding
such applicable distribution, exceeds
``(ii) the applicable adjusted basis in
such contract immediately before such
applicable distribution.
``(C) Applicable adjusted basis.--For purposes of
this paragraph, the term `applicable adjusted basis'
means, with respect to any applicable private placement
contract as of the date of any applicable distribution,
the sum of the premiums and other amounts paid by any
person with respect to such contract as of such date--
``(i) increased by the aggregate amount of
net income includible in gross income under
paragraph (1) with respect to such contract
(whether or not includible by the taxpayer) for
all periods preceding such date, and
``(ii) decreased by the aggregate amount of
deductions for net losses allowable to any
person under paragraph (1) with respect to such
contract for all periods preceding such date.
``(D) Applicable distribution.--For purposes of
this paragraph, the term `applicable distribution'
means, with respect to any applicable private placement
contract, any payment by reason of the death of the
insured, any payment in the nature of an annuity
payment, any withdrawal, the distribution of any loan
proceeds, and any other similar distribution or
payment.
``(E) Assignments, etc.--In the case of the
transferee of a transfer for valuable consideration by
assignment or otherwise of an applicable private
placement contract (or an interest therein)--
``(i) the premiums and other amounts paid
by the transferee with respect to such contract
shall be the sum of the actual value of such
consideration plus any premiums and other
amounts subsequently paid by the transferee,
and
``(ii) the amounts determined under
subparagraph (C) with respect to such contract
shall only include amounts included in gross
income, and deductions of, the transferee.
``(e) Tax Treatment of Issuers and Reinsurers.--
``(1) In general.--In the case of an issuer or reinsurer of
an applicable private placement contract (including a reinsurer
with respect to mortality risk for such contract)--
``(A) premiums and reserves with respect to such
contract shall not be treated as life insurance
premiums or reserves, and
``(B) notwithstanding section 446(a) or part I of
subchapter L of chapter 1--
``(i) premiums, expenses, and fees with
respect to such contract which, without regard
to this section, would be taken into account in
determining life insurance taxable income shall
be so taken into account, but
``(ii) the amounts so taken into account
shall be determined under the accrual method of
accounting described in section 446(c)(2).
``(2) Contracts issued by foreign issuers.--Notwithstanding
subsection (a), an applicable private placement contract issued
by a foreign insurer or reinsurer and to which section 4371
applies (without regard to this section) shall continue to be
treated as a contract to which such section applies.
``(f) Regulations.--The Secretary shall issue such regulations and
other guidance as are necessary to carry out this section and section
6050AA, including regulations or other guidance--
``(1) preventing the avoidance of the application of this
section through related parties, accommodation parties,
passthrough entities, trusts, or the allocation of assets other
than through segregated asset accounts,
``(2) providing that an asset account or set of assets not
meeting the requirements of section 817(d) shall be treated as
a segregated asset account meeting such requirements if such
account or set of assets achieves substantially the same
results as such a segregated asset account or if such treatment
is otherwise necessary to prevent the avoidance of the purposes
of this section,
``(3) preventing the taking into account of items more than
once,
``(4) providing rules for determining whether 1 or more
persons are indirect holders of applicable private placement
contracts, and
``(5) providing rules for the application of this section
in cases where there is more than 1 holder of an applicable
private placement contract or where applicable distributions
are made at the same time to 2 or more persons with respect to
such a contract.''.
(b) Conforming Amendment.--The table of sections for chapter 79 of
the Internal Revenue Code of 1986 is amended by inserting after the
item relating to section 7702B the following new item:
``Section 7702C. Treatment of applicable private placement
contracts.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
take effect on the date of the enactment of this Act and shall
apply to contracts whether issued before, on, or after such
date.
(2) Transition rule.--The amendments made by this section
shall not apply to a contract issued on or before the date of
the enactment of this Act which (without regard to this
paragraph) is an applicable private placement contract under
section 7702C of the Internal Revenue Code of 1986 (as added by
this section) if, before the end of the 180-day period
beginning on such date of enactment, such contract--
(A) is exchanged for, or converted to, a life
insurance or annuity contract that is not such an
applicable private placement contract, or
(B) is cancelled or otherwise liquidated.
SEC. 3. REPORTING REQUIREMENTS.
(a) In General.--
(1) Return requirement.--
(A) In general.--Subpart B of part III of
subchapter A of chapter 61 of the Internal Revenue Code
of 1986 is amended by adding at the end the following
new section:
``SEC. 6050BB. RETURNS RELATING TO APPLICABLE PRIVATE PLACEMENT
CONTRACTS.
``(a) Initial Report.--
``(1) In general.--Every reporting issuer, shall, not later
than the applicable date, make a return (in such form as the
Secretary may prescribe) with respect to each applicable
private placement contract issued or reinsured by the issuer.
``(2) Information included.--Such return shall set forth--
``(A) the name, address, and TIN of the reporting
issuer,
``(B) the name, address, and TIN of the holder of
the contract,
``(C) the applicable adjusted basis (as defined in
section 7702C(d)(2)) in the contract of such holder
(determined as if an applicable distribution were to be
made as of the applicable date),
``(D) any other contracts which are supported by
the segregated asset account supporting such contract,
``(E) the name, address, and TIN of the holder of
any contract described in subparagraph (D) who is
related (within the meaning of section 7702C(c)(2)(B))
to the holder of such contract, and
``(F) such other information as the Secretary may
require.
``(3) Applicable date.--For purposes of this section, the
applicable date means, with respect to any applicable private
placement contract, 30 days after the later of--
``(A) the date that is 180 days after the date of
the enactment of this section, or
``(B) the date the contract first became an
applicable private placement contract.
``(b) Annual Reports.--
``(1) In general.--Every reporting issuer shall file an
annual return with respect to each applicable private placement
contract issued or reinsured by the issuer.
``(2) Time for filing return.--The return under paragraph
(1) shall be filed at such time and in such manner as the
Secretary shall prescribe.
``(3) Information included.--A return filed under paragraph
(1) shall set forth--
``(A) the name, address, and TIN of the reporting
issuer,
``(B) the name address, and TIN of the holder of
the applicable private placement contract,
``(C) the name, address, and TIN of each person
receiving an applicable distribution (as defined in
section 7792C(d)(2)) under the contract if such person
is not the holder of the contract,
``(D) the amounts for the taxable year of--
``(i) items of income, loss, deduction, and
credit for the year with respect to the assets
of which the holder is treated as the owner by
reason of section 7702C(d)(1),
``(ii) the amount of any applicable
distribution (as so defined) under the
applicable private placement contract and the
portion of such distribution which is treated
as an excess distribution (as defined in
section 7702C(d)(2)),
``(iii) the holder's applicable adjusted
basis (as defined in section 7702C(d)(2)) in
the contract as of the date of each applicable
distribution made during the reporting period
and as of the last day of the reporting period
(determined as if an applicable distribution
were to be made on such day), and
``(iv) in the case of a reporting issuer
described in subsection (d)(1)(B), premiums or
other amounts paid or received by any person
pursuant to any reinsurance or risk-shifting
arrangement described in such subsection, and
``(E) such other information as the Secretary may
require.
``(c) Statement To Be Furnished to Taxpayers With Respect to Whom
Information Is Required.--
``(1) In general.--Every person that is required to make a
return under subsection (a) or (b) shall furnish to each person
whose identity is required to be set forth under subsection
(a)(2)(B) or subparagraph (B) or (C) of subsection (b)(3) a
written statement showing--
``(A) the name, address, and phone number of the
information contact of the person required to make such
return, and
``(B) the information required to be shown on such
return with respect to the person to whom such
statement is required to be furnished.
``(2) Furnishing of information.--The written statement
required under paragraph (1) with respect to any return shall
be furnished to the person on or before January 31 of the year
following the calendar year for which the return is required to
be made.
``(d) Definitions.--For purposes of this section--
``(1) Reporting issuer.--The term `reporting issuer' means
any person who--
``(A) issues a life insurance contract or annuity
contract which is treated as an applicable private
placement contract, or
``(B) reinsures, or shifts risks with respect to
any portion of, an applicable private placement
contract.
``(2) Applicable private placement contract.--The term
`applicable private placement contract' has the meaning given
such term under section 7702C.''.
(2) Penalties.--
(A) Failure to provide initial return.--Part I of
subchapter B of chapter 68 of the Internal Revenue Code
of 1986 is amended by adding at the end the following
new section:
``SEC. 6720D. PENALTY FOR FAILURE TO REPORT APPLICABLE PRIVATE
PLACEMENT CONTRACTS.
``(a) Imposition of Penalty.--
``(1) In general.--Any person required to make a return
under section 6050BB(a) who fails to file such return with the
Secretary before the applicable date shall pay a penalty equal
to the amount determined under paragraph (2).
``(2) Amount of penalty.--
``(A) In general.--The amount of the penalty
determined under this paragraph is the sum of--
``(i) $1,000,000, plus
``(ii) an additional $1,000,000 for each
penalty period ending before the date on which
the failure described in subsection (a) has
been corrected.
``(B) Penalty period.--For purposes of this
subsection, the term `penalty period' means each period
of 30 days beginning after the first 30-day period
beginning with the applicable date.
``(3) Applicable date.--For purposes of this subsection,
the term `applicable date' has the meaning given such term
under section 6050BB(a)(3).
``(b) Special Rules.--
``(1) Persons subject to insurance regulation.--In the case
of a person--
``(A) which is regulated by an agency or entity
under foreign, State, or local law, and
``(B) which is required to pay a penalty under this
section,
the requirement to pay such penalty shall be disclosed
to such agency or entity. Failure to make a disclosure
in accordance with the preceding sentence shall be
treated as a failure to which this section applies.
``(2) Persons subject to securities exchange act of 1932.--
In the case of a person--
``(A) which is required to file periodic reports
under section 13 or 15(d) of the Securities Exchange
Act of 1934 or is required to be consolidated with
another person for purposes of such reports, and
``(B) which is required to pay a penalty under this
section,
the requirement to pay such penalty shall be disclosed
in such reports filed by such person for such periods
as the Secretary shall specify. Failure to make a
disclosure in accordance with the preceding sentence
shall be treated as a failure to which this section
applies.''.
(B) Failure to make annual returns or payee
statements.--
(i) Returns.--Section 6724(d)(1)(B) of the
Internal Revenue Code of 1986 is amended by
striking ``or'' at the end of clause (xxviii),
by inserting ``or'' at the end of clause
(xxix), and by inserting after clause (xxix)
the following new clause:
``(xxx) section 6050BB(b),''.
(ii) Statements.--Section 6724(d)(2) of
such Code is amended--
(I) by redesignating subparagraphs
(NN) and (OO) as subparagraphs (OO) and
(PP), respectively, and
(II) by inserting after
subparagraph (MM) the following new
subparagraph:
``(NN) section
6050BB(c).''.
(3) Clerical amendments.--
(A) The table of sections for subpart B of part III
of subchapter A of chapter 61 of the Internal Revenue
Code of 1986 is amended by inserting after the item
relating to section 6050AA the following new item:
``Sec. 6050BB. Returns relating to applicable private placement
contracts.''.
(B) The table of sections for part I of subchapter
B of chapter 68 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new item:
``Sec. 6720D. Penalty for failure to report applicable private
placement contracts.''.
(b) Rules Relating to Foreign Account Tax Compliance.--
(1) Insurance companies treated as financial
institutions.--
(A) In general.--Section 1471(d)(5) of the Internal
Revenue Code of 1986 is amended by striking ``or'' at
the end of subparagraph (B), by striking the period at
the end of subparagraph (C) and inserting ``, or'', and
by adding at the end the following new subparagraph:
``(D) except as otherwise provided by the
Secretary, holds itself out as a life insurance
company.''.
(B) Treatment of certain corporations as foreign
financial institutions.--Section 1471(d)(4) of such
Code is amended by inserting ``(determined without
regard to any election made under section 953(d))''
after ``foreign entity''.
(C) Limitation on authority to exclude.--Section
1471(f)(4) of such Code is amended by inserting
``(other than an entity described in subsection
(d)(5)(D))'' before the period at the end.
(2) Private placement contracts treated as financial
accounts.--Section 1471(d)(2) of the Internal Revenue Code of
1986 is amended by striking ``and'' at the end of subparagraph
(B), by striking the period at the end of subparagraph (C) and
inserting ``, and'', and by inserting after subparagraph (C)
the following new subparagraph:
``(D) any contract which is described in section
7702C(b)(3) and any separate segregated asset account
that holds assets supporting such a contract.''.
(3) Additional limitation on exceptions.--Section
1472(c)(2) of the of the Internal Revenue Code of 1986 is
amended by inserting ``(other than payments to an entity
described in section 1471(d)(5)(D))'' before the period at the
end.
(4) Effective date.--The amendments made by this subsection
shall apply to payments made after the date that is 1 year
after the date of the enactment of this Act.
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