I 

109TH CONGRESS 

1ST SESSION H. R. 2251 

To amend the Internal Revenue Code of 1986 to exclude from gross income 

the proceeds from certain company-owned life insurance. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 11, 2005 

Mr. REYNOLDS (for himself, Mr. POMEROY, Mr. SHAW, Mrs. JOHNSON of 

Connecticut, Mr. HERGER, Mr. MCCRERY, Mr. CAMP, Mr. RAMSTAD, Mr. 

NUSSLE, Mr. SAM JOHNSON of Texas, Mr. ENGLISH of Pennsylvania, 

Mr. HAYWORTH, Mr. WELLER, Mr. HULSHOF, Mr. LEWIS of Kentucky, 

Mr. FOLEY, Mr. BRADY of Texas, Mr. RYAN of Wisconsin, Mr. LINDER, 

Mr. BEAUPREZ, Ms. HART, Mr. CHOCOLA, Mr. CARDIN, Mr. NEAL of 

Massachusetts, Mr. MCNULTY, Mr. JEFFERSON, Mr. TANNER, Mr. 

THOMPSON of California, Mr. LARSON of Connecticut, Mr. TERRY, Mr. 

CULBERSON, Mr. GALLEGLY, Mr. DENT, and Mr. PUTNAM) introduced 

the following bill; which was referred to the Committee on Ways and 

Means 

A BILL 

To amend the Internal Revenue Code of 1986 to exclude 

from gross income the proceeds from certain companyowned life insurance. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘COLI Best Practices 

5 Act of 2005’’. 
2 

•HR 2251 IH 

1 SEC. 2. TREATMENT OF DEATH BENEFITS FROM COR2 PORATE-OWNED LIFE INSURANCE. 

3 (a) IN GENERAL.—Section 101 of the Internal Rev4 enue Code of 1986 (relating to certain death benefits) is 

5 amended by adding at the end the following new sub6 section: 

7 ‘‘(j) TREATMENT OF CERTAIN EMPLOYER-OWNED

8 LIFE INSURANCE CONTRACTS.— 

9 ‘‘(1) GENERAL RULE.—In the case of an em10 ployer-owned life insurance contract, the amount ex11 cluded from gross income of an applicable policy12 holder by reason of paragraph (1) of subsection (a) 

13 shall not exceed an amount equal to the sum of the 

14 premiums and other amounts paid by the policy15 holder for the contract. 

16 ‘‘(2) EXCEPTIONS.—In the case of an employer17 owned life insurance contract with respect to which 

18 the notice and consent requirements of paragraph 

19 (4) are met, paragraph (1) shall not apply to any of 

20 the following: 

21 ‘‘(A) EXCEPTIONS BASED ON INSURED’S

22 STATUS.—Any amount received by reason of 

23 the death of an insured who, with respect to an 

24 applicable policyholder— 
3 

•HR 2251 IH 

1 ‘‘(i) was an employee at any time dur2 ing the 12-month period before the in3 sured’s death, or 

4 ‘‘(ii) is, at the time the contract is 

5 issued— 

6 ‘‘(I) a director, 

7 ‘‘(II) a highly compensated em8 ployee within the meaning of section 

9 414(q) (without regard to paragraph 

10 (1)(B)(ii) thereof), or 

11 ‘‘(III) a highly compensated indi12 vidual within the meaning of section 

13 105(h)(5), except that ‘35 percent’ 

14 shall be substituted for ‘25 percent’ in 

15 subparagraph (C) thereof. 

16 ‘‘(B) EXCEPTION FOR AMOUNTS PAID TO

17 INSURED’S HEIRS.—Any amount received by 

18 reason of the death of an insured to the ex19 tent— 

20 ‘‘(i) the amount is paid to a member 

21 of the family (within the meaning of sec22 tion 267(c)(4)) of the insured, any indi23 vidual who is the designated beneficiary of 

24 the insured under the contract (other than 

25 the applicable policyholder), a trust estab-
4 

•HR 2251 IH 

1 lished for the benefit of any such member 

2 of the family or designated beneficiary, or 

3 the estate of the insured, or 

4 ‘‘(ii) the amount is used to purchase 

5 an equity (or capital or profits) interest in 

6 the applicable policyholder from any person 

7 described in clause (i). 

8 ‘‘(3) EMPLOYER-OWNED LIFE INSURANCE CON9 TRACT.— 

10 ‘‘(A) IN GENERAL.—For purposes of this 

11 subsection, the term ‘employer-owned life insur12 ance contract’ means a life insurance contract 

13 which— 

14 ‘‘(i) is owned by a person engaged in 

15 a trade or business and under which such 

16 person (or a related person described in 

17 subparagraph (B)(ii)) is directly or indi18 rectly a beneficiary under the contract, and 

19 ‘‘(ii) covers the life of an insured who 

20 is an employee with respect to the trade or 

21 business of the applicable policyholder on 

22 the date the contract is issued. 

23 For purposes of the preceding sentence, if cov24 erage for each insured under a master contract 

25 is treated as a separate contract for purposes of 
5 

•HR 2251 IH 

1 sections 817(h), 7702, and 7702A, coverage for 

2 each such insured shall be treated as a separate 

3 contract. 

4 ‘‘(B) APPLICABLE POLICYHOLDER.—For 

5 purposes of this subsection— 

6 ‘‘(i) IN GENERAL.—The term ‘applica7 ble policyholder’ means, with respect to 

8 any employer-owned life insurance con9 tract, the person described in subpara10 graph (A)(i) which owns the contract. 

11 ‘‘(ii) RELATED PERSONS.—The term 

12 ‘applicable policyholder’ includes any per13 son which— 

14 ‘‘(I) bears a relationship to the 

15 person described in clause (i) which is 

16 specified in section 267(b) or 

17 707(b)(1), or 

18 ‘‘(II) is engaged in trades or 

19 businesses with such person which are 

20 under common control (within the 

21 meaning of subsection (a) or (b) of 

22 section 52). 

23 ‘‘(4) NOTICE AND CONSENT REQUIREMENTS.— 

24 The notice and consent requirements of this para-
6 

•HR 2251 IH 

1 graph are met if, before the issuance of the contract, 

2 the employee— 

3 ‘‘(A) is notified in writing that the applica4 ble policyholder intends to insure the employee’s 

5 life and the maximum face amount for which 

6 the employee could be insured at the time the 

7 contract was issued, 

8 ‘‘(B) provides written consent to being in9 sured under the contract and that such cov10 erage may continue after the insured terminates 

11 employment, and 

12 ‘‘(C) is informed in writing that an appli13 cable policyholder will be a beneficiary of any 

14 proceeds payable upon the death of the em15 ployee. 

16 ‘‘(5) DEFINITIONS.—For purposes of this sub17 section— 

18 ‘‘(A) EMPLOYEE.—The term ‘employee’ in19 cludes an officer, director, and highly com20 pensated employee (within the meaning of sec21 tion 414(q)). 

22 ‘‘(B) INSURED.—The term ‘insured’ 

23 means, with respect to an employer-owned life 

24 insurance contract, an individual covered by the 

25 contract who is a United States citizen or resi-
7 

•HR 2251 IH 

1 dent. In the case of a contract covering the 

2 joint lives of 2 individuals, references to an in3 sured include both of the individuals.’’. 

4 (b) REPORTING REQUIREMENTS.—Subpart A of part 

5 III of subchapter A of chapter 61 of such Code (relating 

6 to information concerning persons subject to special provi7 sions) is amended by inserting after section 6039H the 

8 following new section: 

9 ‘‘SEC. 6039I. RETURNS AND RECORDS WITH RESPECT TO 

10 EMPLOYER-OWNED LIFE INSURANCE CON11 TRACTS. 

12 ‘‘(a) IN GENERAL.—Every applicable policyholder 

13 owning 1 or more employer-owned life insurance contracts 

14 issued after the date of the enactment of this section shall 

15 file a return (at such time and in such manner as the 

16 Secretary shall by regulations prescribe) showing for each 

17 year such contracts are owned— 

18 ‘‘(1) the number of employees of the applicable 

19 policyholder at the end of the year, 

20 ‘‘(2) the number of such employees insured 

21 under such contracts at the end of the year, 

22 ‘‘(3) the total amount of insurance in force at 

23 the end of the year under such contracts, 

24 ‘‘(4) the name, address, and taxpayer identifica25 tion number of the applicable policyholder and the 
8 

•HR 2251 IH 

1 type of business in which the policyholder is en2 gaged, and 

3 ‘‘(5) that the applicable policyholder has a valid 

4 consent for each insured employee (or, if all such 

5 consents are not obtained, the number of insured 

6 employees for whom such consent was not obtained). 

7 ‘‘(b) RECORDKEEPING REQUIREMENT.—Each appli8 cable policyholder owning 1 or more employer-owned life 

9 insurance contracts during any year shall keep such 

10 records as may be necessary for purposes of determining 

11 whether the requirements of this section and section 

12 101(j) are met. 

13 ‘‘(c) DEFINITIONS.—Any term used in this section 

14 which is used in section 101(j) shall have the same mean15 ing given such term by section 101(j).’’. 

16 (c) CONFORMING AMENDMENTS.— 

17 (1) Paragraph (1) of section 101(a) of such 

18 Code is amended by striking ‘‘and subsection (f)’’ 

19 and inserting ‘‘subsection (f), and subsection (j)’’. 

20 (2) The table of sections for subpart A of part 

21 III of subchapter A of chapter 61 of such Code is 

22 amended by inserting after the item relating to sec23 tion 6039H the following new item: 

‘‘Sec. 6039I. Returns and records with respect to employer-owned life insurance 

contracts.’’. 
9 

•HR 2251 IH 

1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to life insurance contracts issued 

3 after the date of the enactment of this Act, except for a 

4 contract issued after such date pursuant to an exchange 

5 described in section 1035 of the Internal Revenue Code 

6 of 1986 for a contract issued on or prior to that date. 

7 For purposes of the preceding sentence, any material in8 crease in the death benefit or other material change shall 

9 cause the contract to be treated as a new contract except 

10 that, in the case of a master contract (within the meaning 

11 of section 264(f)(4)(E) of such Code), the addition of cov12 ered lives shall be treated as a new contract only with re13 spect to such additional covered lives. 

Æ