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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2281 Introduced in Senate (IS)]

109th CONGRESS
  2d Session
                                S. 2281

 To amend the Internal Revenue Code of 1986 to allow Americans to age 
with respect and dignity by providing tax incentives to assist them in 
   preparing for the financial impact of their long-term care needs.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                           February 14, 2006

 Mr. Santorum 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 allow Americans to age 
with respect and dignity by providing tax incentives to assist them in 
   preparing for the financial impact of their long-term care needs.

    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 ``Aging with Respect and Dignity Act 
of 2005''.

SEC. 2. LONG-TERM CARE INSURANCE OR SERVICES PERMITTED TO BE OFFERED 
              UNDER CAFETERIA PLANS AND FLEXIBLE SPENDING ARRANGEMENTS.

    (a) Cafeteria Plans.--The last sentence of section 125(f) of the 
Internal Revenue Code of 1986 (defining qualified benefits) is amended 
by inserting before the period at the end ``; except that such term 
shall include the payment of premiums for any qualified long-term care 
insurance contract (as defined in section 7702B) to the extent the 
amount of such payment does not exceed the eligible long-term care 
premiums (as defined in section 213(d)(10)) for such contract''.
    (b) Flexible Spending Arrangements.--So much of section 106(c) of 
such Code as precedes paragraph (2) thereof is amended to read as 
follows:
    ``(c) Rules Relating to Long-Term Care Benefits Provided Through 
Flexible Spending Arrangements.--
            ``(1) In general.--For purposes of subsection (a), in the 
        case of employer-provided coverage for qualified long-term care 
        services provided through a flexible spending or similar 
        arrangement--
                    ``(A) such coverage shall be treated as provided 
                under an accident or health plan, and
                    ``(B) if such services are provided to an 
                individual who bears a relationship described in 
                section 152(d)(2) (other than subparagraph (H) thereof) 
                to the employee, such services shall be treated as 
                provided to a dependent of the employee without regard 
                to whether the individual is treated as a dependent of 
                the employee under section 152(a).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 3. DEDUCTION FOR CONTRIBUTIONS TO LONG-TERM CARE ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 224 as 
section 225 and by adding at the end the following new section:

``SEC. 224. LONG-TERM CARE ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual, there shall 
be allowed as a deduction for the taxable year an amount equal to the 
aggregate amount paid in cash during such taxable year by or on behalf 
of such individual to a long-term care account with respect to which 
the individual is the account beneficiary.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--
                    ``(A) In general.--The aggregate amount allowable 
                as a deduction under subsection (a) for any taxable 
                year with respect to any individual shall not exceed 
                $5,000.
                    ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 2007, 
                the $5,000 amount under subparagraph (A) shall be 
                increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the medical care cost adjustment 
                        under section 213(d)(10)(B)(ii) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `2006' for `1996' in 
                        subclause (II) thereof.
                If any amount as adjusted under the preceding sentence 
                is not a multiple of $10, such amount shall be rounded 
                to the next lowest multiple of $10.
            ``(2) Denial of deduction to dependents.--No deduction 
        shall be allowed under this section with respect to any 
        individual with respect to whom a deduction under section 151 
        is allowable to another taxpayer for a taxable year beginning 
        in the calendar year in which the individual's taxable year 
        begins.
    ``(c) Long-Term Care Account.--For purposes of this section, the 
term `long-term care account' means a trust which is created or 
organized in the United States for the exclusive benefit of the 
individual who is the account beneficiary of the trust and members of 
the individual's family and which is designated (in such manner as the 
Secretary shall prescribe) at the time of the establishment of the 
trust as a long-term care account, but only if the written governing 
instrument creating the trust meets the following requirements:
            ``(1) Except in the case of a qualified rollover 
        contribution described in subsection (e)(5)--
                    ``(A) no contribution will be accepted unless it is 
                in cash, and
                    ``(B) contributions will not be accepted for the 
                calendar year in excess of the limit specified in 
                subsection (b)(1).
            ``(2) The trustee is a bank (as defined in section 408(n)), 
        an insurance company (as defined in section 816), or another 
        person who demonstrates to the satisfaction of the Secretary 
        that the manner in which that person will administer the trust 
        will be consistent with the requirements of this section or who 
        has so demonstrated with respect to any individual retirement 
        plan.
            ``(3) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of his 
        account is nonforfeitable.
            ``(5) The assets of the trust shall not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(d) Tax Treatment of Accounts.--
            ``(1) In general.--A long-term care account shall be exempt 
        from taxation under this subtitle. Notwithstanding the 
        preceding sentence, such account shall be subject to the taxes 
        imposed by section 511 (relating to imposition of tax on 
        unrelated business income of charitable organizations).
            ``(2) Account terminations.--Rules similar to the rules 
        under paragraphs (2) and (4) of section 408(e) shall apply to 
        long-term care accounts, and any amount treated as distributed 
        under such rules shall be treated as not used to pay for 
        qualified long-term care expenses.
    ``(e) Tax Treatment of Distributions.--
            ``(1) Amounts used for qualified long-term care expenses.--
        Any amount paid or distributed out of a long-term care account 
        which is used exclusively to pay qualified long-term care 
        expenses of the account beneficiary or any member of the 
        beneficiary's family shall not be includible in gross income.
            ``(2) Inclusion of amounts not used for qualified long-term 
        care expenses.--Any amount paid or distributed out of a long-
        term care account which is not used exclusively to pay the 
        qualified long-term care expenses of the account beneficiary or 
        any member of the beneficiary's family shall be included in the 
        gross income of such beneficiary.
            ``(3) Excess contributions returned before due date of 
        return.--
                    ``(A) In general.--If any excess contribution is 
                contributed for a taxable year to any long-term care 
                account of an individual, paragraph (2) shall not apply 
                to distributions from the long-term care accounts of 
                such individual (to the extent such distributions do 
                not exceed the aggregate excess contributions to all 
                such accounts of such individual for such year) if--
                            ``(i) such distribution is received by the 
                        individual on or before the last day prescribed 
                        by law (including extensions of time) for 
                        filing such individual's return for such 
                        taxable year, and
                            ``(ii) such distribution is accompanied by 
                        the amount of net income attributable to such 
                        excess contribution.
                Any net income described in clause (ii) shall be 
                included in the gross income of the individual for the 
                taxable year in which it is received.
                    ``(B) Excess contribution.--For purposes of 
                subparagraph (A), the term `excess contribution' means 
                any contribution (other than a rollover contribution 
                described in paragraph (5)) which is not deductible 
                under this section.
            ``(4) Additional tax on distributions not used for 
        qualified long-term expenses.--
                    ``(A) In general.--The tax imposed by this chapter 
                on the account beneficiary for any taxable year in 
                which there is a payment or distribution from a long-
                term care account of such beneficiary which is 
                includible in gross income under paragraph (2) shall be 
                increased by 10 percent of the amount which is so 
                includible.
                    ``(B) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment or 
                distribution is made after the account beneficiary 
                becomes disabled within the meaning of section 72(m)(7) 
                or dies.
            ``(5)  Rollover contribution.--
                    ``(A) In general.--An amount is a rollover 
                contribution described in this paragraph if it meets 
                the requirements of subparagraphs (B) and (C).
                    ``(B) Payment to other account.--Paragraph (2) 
                shall not apply to any amount paid or distributed from 
                a long-term care account to the account beneficiary to 
                the extent the amount received is paid into a long-term 
                care account for the benefit of such beneficiary not 
                later than the 60th day after the day on which the 
                beneficiary receives the payment or distribution.
                    ``(C) Limitation.--This paragraph shall not apply 
                to any amount described in subparagraph (B) received by 
                an individual from a long-term care account if, at any 
                time during the 1-year period ending on the day of such 
                receipt, such individual received any other amount 
                described in subparagraph (B) from a long-term care 
                account which was not includible in the individual's 
                gross income because of the application of this 
                paragraph.
            ``(6) Coordination with medical expense deduction.--For 
        purposes of determining the amount of the deduction under 
        section 213, any payment or distribution out of a long-term 
        care account for qualified long-term care expenses shall not be 
        treated as an expense paid for medical care.
            ``(7) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a long-term care 
        account to an individual's spouse or former spouse under a 
        divorce or separation instrument described in subparagraph (A) 
        of section 71(b)(2) shall not be considered a taxable transfer 
        made by such individual notwithstanding any other provision of 
        this subtitle, and such interest shall, after such transfer, be 
        treated as a long-term care account with respect to which such 
        spouse is the account beneficiary.
            ``(8) Treatment after death of account beneficiary.--
                    ``(A) Treatment if designated beneficiary is 
                spouse.--If the account beneficiary`s surviving spouse 
                acquires such beneficiary's interest in a long-term 
                care account by reason of being the beneficiary of such 
                account at the death of the account beneficiary, such 
                account shall be treated as if the spouse were the 
                account beneficiary.
                    ``(B) Other cases.--
                            ``(i) In general.--If, by reason of the 
                        death of the account beneficiary, any person 
                        acquires the account beneficiary's interest in 
                        a long-term care account in a case to which 
                        subparagraph (A) does not apply--
                                    ``(I) such account shall cease to 
                                be a long-term care account as of the 
                                date of death, and
                                    ``(II) an amount equal to the fair 
                                market value of the assets in such 
                                account on such date shall be 
                                includible in such person's gross 
                                income for the taxable year which 
                                includes such date if such person is 
                                not the estate of such beneficiary, or 
                                shall be includible in such 
                                beneficiary's gross income for the last 
                                taxable year of such beneficiary if 
                                such person is the estate of such 
                                beneficiary.
                            ``(ii) Special rules.--
                                    ``(I) Reduction of inclusion for 
                                predeath expenses.--The amount 
                                includible in gross income under clause 
                                (i) by any person (other than the 
                                estate) shall be reduced by the amount 
                                of qualified long-term care expenses 
                                which were incurred by the decedent 
                                before the date of the decedent's death 
                                and paid by such person within 1 year 
                                after such date.
                                    ``(II) Deduction for estate 
                                taxes.--An appropriate deduction shall 
                                be allowed under section 691(c) to any 
                                person (other than the decedent or the 
                                decedent's spouse) with respect to 
                                amounts included in gross income under 
                                clause (i) by such person.
            ``(9) Gift tax exception.--A distribution to a member of 
        the account beneficiary's family which is not includible in 
        gross income under paragraph (1) shall in no event be treated 
        as a taxable gift for purposes of chapters 12 and 13.
            ``(10) Operating rules.--For purposes of applying section 
        72--
                    ``(A) to the extent provided by the Secretary, all 
                long-term care accounts of which an individual is an 
                account beneficiary shall be treated as one account,
                    ``(B) except to the extent provided by the 
                Secretary, all distributions during a taxable year 
                shall be treated as one distribution, and
                    ``(C) except to the extent provided by the 
                Secretary, the value of the contract, income on the 
                contract, and investment in the contract shall be 
                computed as of the close of the calendar year in which 
                the taxable year begins.
    ``(f) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Account beneficiary.--The term `account beneficiary' 
        means the individual on whose behalf the long-term care account 
        was established.
            ``(2) Qualified long-term care expenses.--The term 
        `qualified long-term care expenses' means any amount paid or 
        incurred--
                    ``(A) for premiums for any qualified long-term care 
                insurance contract (as defined in section 7702B) to the 
                extent the amount of such payment does not exceed the 
                eligible long-term care premiums (as defined in section 
                213(d)(10)) for such contract, or
                    ``(B) for qualified long-term care services (as 
                defined in section 7702B(c)) unless such payment is not 
                treated as paid for medical care under section 
                213(d)(11).
            ``(3) Member of the family.--The term `member of the 
        family' means, with respect to any account beneficiary, an 
        individual who bears a relationship described in section 
        152(d)(2) (other than subparagraph (H) thereof) to the 
        beneficiary.
            ``(4) Other rules.--Rules similar to the rules described in 
        section 223(d)(4) shall apply.
    ``(g) Custodial Accounts.--For purposes of this section, a 
custodial account or an annuity contract issued by an insurance company 
qualified to do business in a State shall be treated as a trust under 
this section if--
            ``(1) the custodial account or annuity contract would, 
        except for the fact that it is not a trust, constitute a trust 
        which meets the requirements of subsection (b), and
            ``(2) in the case of a custodial account, the assets of 
        such account are held by a bank (as defined in section 408(n)) 
        or another person who demonstrates, to the satisfaction of the 
        Secretary, that the manner in which the person will administer 
        the account will be consistent with the requirements of this 
        section.
For purposes of this title, in the case of a custodial account or 
annuity contract treated as a trust by reason of the preceding 
sentence, the person holding the assets of such account or holding such 
annuity contract shall be treated as the trustee thereof.
    ``(h) Reports.--The trustee of a long-term care account shall make 
such reports regarding such account to the Secretary and to the 
beneficiary of the account with respect to contributions, 
distributions, and such other matters as the Secretary may require. The 
reports required by this subsection shall be filed at such time and in 
such manner and furnished to such individuals at such time and in such 
manner as may be required.''.
    (b) Deduction Allowed in Determining Adjusted Gross Income.--
Section 62(a) of the Internal Revenue Code of 1986 (defining adjusted 
gross income) is amended by adding at the end the following:
            ``(21) Long-term care accounts.--The deduction allowed by 
        section 224.''
    (c) Tax on Excess Contributions.--
            (1) In general.--Subsection (a) of section 4973 of the 
        Internal Revenue Code of 1986 (relating to tax on excess 
        contributions to certain tax-favored accounts and annuities) is 
        amended by striking ``or'' at the end of paragraph (4), by 
        inserting ``or'' at the end of paragraph (5), and by inserting 
        after paragraph (5) the following new paragraph:
            ``(6) a long-term care account (as defined in section 
        224(c)),''.
            (2) Excess contribution.--Section 4973 of such Code is 
        amended by adding at the end the following new subsection:
    ``(h) Excess Contributions to Long-Term Care Accounts.--For 
purposes of this section--
            ``(1) In general.--In the case of long-term care accounts 
        (within the meaning of section 224(c)), the term `excess 
        contributions' means the sum of--
                    ``(A) the amount by which the amount contributed 
                for the calendar year to such accounts (other than 
                qualified rollover contributions (as defined in section 
                224(e)(5)) exceeds the contribution limit under section 
                224(b)(1), and
                    ``(B) the amount determined under this subsection 
                for the preceding calendar year, reduced by the excess 
                (if any) of the maximum amount allowable as a 
                contribution under section 224(b)(1) for the calendar 
                year over the amount contributed to the accounts for 
                the calendar year.
            ``(2) Special rule.--A contribution which is distributed 
        out of a long-term care account in a distribution to which 
        section 224(e)(3) applies shall not be taken into account under 
        paragraph (1).''.
    (d) Failure to Provide Reports on Long-Term Care Accounts.--
Paragraph (2) of section 6693(a) of the Internal Revenue Code of 1986 
(relating to failure to provide reports on individual retirement 
accounts or annuities) is amended by redesignating subparagraphs (D) 
and (E) as subparagraphs (E) and (F), respectively, and by inserting 
after subparagraph (C) the following new subparagraph:
                    ``(D) section 224(h) (relating to long-term care 
                accounts),''.
    (e) Conforming Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by striking the item relating to section 224 and inserting the 
following new items:

        ``Sec. 224. Long-term care accounts.
        ``Sec. 225. Cross reference.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 4. TREATMENT OF ANNUITY AND LIFE INSURANCE CONTRACTS WITH A LONG-
              TERM CARE INSURANCE FEATURE.

    (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.--
            (1) Annuity contracts can include qualified long-term 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.''.
            (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.''.
            (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--
                    (A) in paragraph (1) by striking ``contract;'' and 
                inserting ``contract or for a qualified long-term care 
                insurance contract;'',
                    (B) in paragraph (2) by striking ``contract;'' and 
                inserting ``contract, or (C) for a qualified long-term 
                care insurance contract;'', and
                    (C) in paragraph (3) by striking ``contract.'' and 
                inserting ``contract or for a qualified long-term care 
                insurance contract.''.
            (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.--
            ``(1) Coverage treated as 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, 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 value of an 
        annuity contract or the cash surrender value of a life 
        insurance contract.
            ``(3) Application of section 7702.--Section 7702(c)(2) 
        (relating to the guideline premium limitation) shall be applied 
        by increasing the guideline premium limitation with respect to 
        the life insurance contract, as of any date--
                    ``(A) by the sum of any charges (but not premium 
                payments) against the life insurance contract's cash 
                surrender value (within the meaning of section 
                7702(f)(2)(A)) for coverage under the qualified long-
                term care insurance contract made to that date under 
                the life insurance contract, less
                    ``(B) any such charges the imposition of which 
                reduces the premiums paid for the life insurance 
                contract (within the meaning of section 7702(f)(1)).
        This paragraph shall not apply to any charges described in 
        subparagraph (A) which are otherwise taken into account in 
        computing the guideline premium limitation by reason of section 
        7702(f)(5)(A)(v).
            ``(4) 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.
            ``(5) 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.--
            (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 excludable 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.''.
            (2) 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) Application to Other Definitions and Rules.--Section 7702(f) of 
such Code (relating to other definitions and special rules) is amended
            (1) in paragraph (1), by inserting ``(other than paragraph 
        (11) thereof)'' after ``section 72(e)'', and
            (2) in paragraph (5)(A), by striking ``or'' at the end of 
        clause (iv), by redesignating clause (v) as clause (vi), and by 
        inserting after clause (iv) the following new clause:
                            ``(v) qualified long-term care insurance 
                        contract which is a part of or a rider on the 
                        life insurance contract, or''.
    (g) Effective Dates.--
            (1) In general.--Except as provided by paragraph (2), the 
        amendments made by this section shall apply to contracts issued 
        before, on, or after December 31, 2005, but only with respect 
        to periods beginning after such date.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply with respect to exchanges occurring after December 
        31, 2005.
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