II 

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.

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

3 SECTION 1. EXCISE TAX ON CERTAIN ACQUISITIONS OF IN4 TERESTS IN INSURANCE CONTRACTS IN 

5 WHICH CERTAIN EXEMPT ORGANIZATIONS 

6 HOLD AN INTEREST. 

7 (a) IMPOSITION OF TAX.— 
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1 (1) IN GENERAL.—Chapter 42 of the Internal 

2 Revenue Code of 1986 (relating to excise taxes in3 volving private foundations and certain other tax-ex4 empt organizations) is amended by adding at the 

5 end the following new subchapter: 

6 ‘‘Subchapter F—Insurance Contracts in 

7 Which Certain Exempt Organizations 

8 Hold Interests

‘‘Sec. 4965. Excise tax on acquisition of interests in insurance contracts 

in which certain exempt organizations hold an interest.

9 ‘‘SEC. 4965. EXCISE TAX ON ACQUISITION OF INTERESTS IN 

10 INSURANCE CONTRACTS IN WHICH CERTAIN 

11 EXEMPT ORGANIZATIONS HOLD AN INTER12 EST. 

13 ‘‘(a) IMPOSITION OF TAX.—If there is a taxable ac14 quisition of any interest in an applicable insurance con15 tract, there is hereby imposed on the person acquiring the 

16 interest a tax equal to 100 percent of the acquisition costs 

17 of the interest. 

18 ‘‘(b) TAXABLE ACQUISITION.—For purposes of this 

19 section— 

20 ‘‘(1) IN GENERAL.—The term ‘taxable acquisi21 tion’ means the acquisition of any direct or indirect 

22 interest in an applicable insurance contract by— 

23 ‘‘(A) an applicable exempt organization, or 
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1 ‘‘(B) a person other than an applicable ex2 empt organization if such interest in the hands 

3 of such person is not an interest described in 

4 clause (i), (ii), or (iii) of paragraph (2)(B). 

5 ‘‘(2) APPLICABLE INSURANCE CONTRACT.— 

6 ‘‘(A) IN GENERAL.—The term ‘applicable 

7 insurance contract’ means any life insurance, 

8 annuity, or endowment contract with respect to 

9 which both an applicable exempt organization 

10 and a person other than an applicable exempt 

11 organization have directly or indirectly held an 

12 interest in the contract (whether or not at the 

13 same time). 

14 ‘‘(B) EXCEPTIONS.—Such term shall not 

15 include a life insurance, annuity, or endowment 

16 contract if— 

17 ‘‘(i) all persons directly or indirectly 

18 holding any interest in the contract (other 

19 than applicable exempt organizations) have 

20 an insurable interest in the insured under 

21 the contract independent of any interest of 

22 an applicable exempt organization in the 

23 contract, 

24 ‘‘(ii) the sole interest in the contract 

25 of each person other than an applicable ex-
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1 empt organization is as a named bene2 ficiary, or 

3 ‘‘(iii) the sole interest in the contract 

4 of each person other than an applicable ex5 empt organization is— 

6 ‘‘(I) as a beneficiary of a trust 

7 holding an interest in the contract, 

8 but only if the person’s designation as 

9 such beneficiary was made without 

10 consideration and solely on a purely 

11 gratuitous basis, or 

12 ‘‘(II) as a trustee who holds an 

13 interest in the contract in a fiduciary 

14 capacity solely for the benefit of appli15 cable exempt organizations or persons 

16 otherwise described in clauses (i) and 

17 (ii) or subclause (I) of this clause. 

18 ‘‘(3) DEFINITION AND RULE RELATING TO AC19 QUISITION COSTS.— 

20 ‘‘(A) ACQUISITION COSTS DEFINED.—The 

21 term ‘acquisition costs’ means the direct or in22 direct costs of acquiring an interest in an appli23 cable insurance contract. Such term shall in24 clude any fees, commissions, charges, or other 

25 amounts paid in connection with the acquisi-
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1 tion, whether or not paid to the issuer of the 

2 contract. 

3 ‘‘(B) TIMING OF PAYMENTS.—Except as 

4 provided in regulations, if acquisition costs of 

5 any acquisition are paid or incurred in more 

6 than 1 calendar year, the tax imposed by sub7 section (a) with respect to the acquisition shall 

8 be imposed each time the costs are so paid or 

9 incurred. 

10 ‘‘(4) RULES RELATING TO INTERESTS.— 

11 ‘‘(A) IN GENERAL.—An interest in the 

12 contract includes any right with respect to the 

13 contract, whether as an owner, beneficiary, or 

14 otherwise. 

15 ‘‘(B) INDIRECT INTEREST.—An indirect 

16 interest in a contract includes an interest in an 

17 entity which directly or indirectly holds an in18 terest in the contract. 

19 ‘‘(C) EXCHANGED CONTRACTS.—In the 

20 case of an exchange of an applicable insurance 

21 contract on which no gain or loss is recognized 

22 under section 1035, any interest in any of the 

23 contracts involved in the exchange shall be 

24 treated as an interest in all such contracts. 
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1 ‘‘(5) INCREASE IN INTEREST.—If a person in2 creases an interest in an applicable insurance con3 tract, the increase shall be treated as a separate ac4 quisition for purposes of this section. 

5 ‘‘(6) PRIOR ACQUISITIONS.—Except as provided 

6 in regulations, if a person acquires an interest in a 

7 contract before the contract is treated as an applica8 ble insurance contract, the acquisition shall be treat9 ed as a taxable acquisition of an interest in an appli10 cable insurance contract as of the date the contract 

11 becomes an applicable insurance contract. 

12 ‘‘(c) APPLICABLE EXEMPT ORGANIZATION.—For 

13 purposes of this section, the term ‘applicable exempt orga14 nization’ means— 

15 ‘‘(1) an organization described in section 

16 170(c), 

17 ‘‘(2) an organization described in section 

18 168(h)(2)(A)(iv), or 

19 ‘‘(3) an organization not described in paragraph 

20 (1) or (2) which is described in section 2055(a) or 

21 section 2522(a). 

22 ‘‘(d) TAX NOT TREATED AS INVESTMENT IN THE

23 CONTRACT.—For purposes of section 72, the tax imposed 

24 by this section shall not be included in investment in the 

25 contract. 
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1 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

2 such regulations as may be necessary to carry out the pro3 visions of this section. Such regulations may include regu4 lations which— 

5 ‘‘(1) exempt certain contracts from treatment 

6 as applicable insurance contracts based on specific 

7 factors, including whether the transaction is at arms 

8 length, the relative economic benefits to applicable 

9 exempt organizations as compared to other persons, 

10 and the likelihood of abuse, 

11 ‘‘(2) provide, for purposes of subsection (b)(6), 

12 appropriate rules for the application of this section 

13 in any case where an interest is acquired before a 

14 contract becomes an applicable insurance contract, 

15 ‘‘(3) prevent, in cases the Secretary determines 

16 appropriate, the imposition of more than one tax 

17 under this section if the same interest is acquired 

18 more than once, and 

19 ‘‘(4) are designed to prevent avoidance of the 

20 purposes of this section, including through the use 

21 of intermediaries.’’. 

22 (2) CONFORMING AMENDMENT.—The table of 

23 subchapters for chapter 42 of such Code is amended 

24 by adding at the end the following new item:

‘‘Subchapter F. Insurance contracts in which certain exempt organizations 

hold interests.’’.
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1 (b) REPORTING REQUIREMENTS.— 

2 (1) IN GENERAL.—Subpart B of part III of 

3 subchapter A of chapter 61 of the Internal Revenue 

4 Code of 1986 (relating to information concerning 

5 transactions with other persons) is amended by add6 ing at the end the following new section: 

7 ‘‘SEC. 6050U. RETURNS RELATING TO APPLICABLE INSUR8 ANCE CONTRACTS IN WHICH CERTAIN EX9 EMPT ORGANIZATIONS HOLD INTERESTS. 

10 ‘‘(a) REQUIREMENTS OF REPORTING.— 

11 ‘‘(1) EXEMPT ORGANIZATIONS.—Each— 

12 ‘‘(A) applicable exempt organization which 

13 acquires (within the meaning of section 4965) 

14 an interest in any applicable insurance contract, 

15 and 

16 ‘‘(B) other person which so acquires such 

17 an interest which, in the hands of such person, 

18 is taxable under section 4965, 

19 shall make the return described in subsection (c). 

20 ‘‘(2) TRANSFERS.—If a person (including an 

21 applicable exempt organization) acquires an interest 

22 in an applicable insurance contract in an acquisition 

23 which is taxable under section 4965 and then trans24 fers such interest to 1 or more other persons, each 
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1 person acquiring all or a portion of such interest 

2 shall make the return described in subsection (c). 

3 ‘‘(b) TIME FOR MAKING RETURN.—Any organization 

4 or person required to make a return under subsection (a) 

5 shall file such return at such time as may be established 

6 by the Secretary with respect to— 

7 ‘‘(1) in the case of an organization described in 

8 subsection (a)(1), the calendar year in which the ac9 quisition occurs, any calendar year in which acquisi10 tion costs are paid or incurred, and any other cal11 endar years specified by the Secretary, and 

12 ‘‘(2) in the case of a person described in sub13 section (a)(2), the calendar year in which the trans14 fer occurs. 

15 ‘‘(c) FORM AND MANNER OF RETURNS.—A return 

16 is described in this subsection if such return— 

17 ‘‘(1) is in such form as the Secretary pre18 scribes, 

19 ‘‘(2) in the case of— 

20 ‘‘(A) a return required under subsection 

21 (a)(1)(A), contains the name, address, and tax22 payer identification number of the applicable 

23 exempt organization, the issuer of the applica24 ble insurance contract, and any person acquir-
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1 ing an interest in the contract which may be 

2 taxable under section 4965, 

3 ‘‘(B) a return required under subsection 

4 (a)(1)(B), contains the name, address, and tax5 payer identification number of the person ac6 quiring an interest in the applicable insurance 

7 contract which is taxable under section 4965, 

8 any applicable exempt organization holding an 

9 interest in the contract, and the issuer of the 

10 contract, and 

11 ‘‘(C) a return required under subsection 

12 (a)(2), contains the name, address, and tax13 payer identification number of the transferor 

14 and transferee, and 

15 ‘‘(3) contains such other information as the 

16 Secretary may prescribe. 

17 ‘‘(d) STATEMENTS TO BE FURNISHED TO PERSONS

18 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—

19 Every person required to make a return under subsection 

20 (a) shall furnish to each person whose taxpayer identifica21 tion information is required to be included in such return 

22 under subsection (c) a written statement showing— 

23 ‘‘(1) the name and address of the person re24 quired to make such return and the telephone num25 ber of the information contact for such person, and 
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1 ‘‘(2) the taxpayer identity and other informa2 tion required to be shown on the return with respect 

3 to such person. 

4 The written statement required under the preceding sen5 tence shall be furnished on or before the date specified 

6 by the Secretary. 

7 ‘‘(e) DEFINITIONS.—For purposes of this section, 

8 any term used in this section which is also used in section 

9 4965 shall have the meaning given such term by section 

10 4965.’’. 

11 (2) PENALTIES.— 

12 (A) IN GENERAL.—Section 6724(d) of 

13 such Code is amended— 

14 (i) in paragraph (1)(B), by redesig15 nating clauses (xiii) through (xviii) as 

16 clauses (xiv) through (xix) and by inserting 

17 after clause (xii) the following new clause: 

18 ‘‘(xiii) section 6050U (relating to re19 turns relating to applicable insurance con20 tracts in which certain exempt organiza21 tions hold interests),’’, and 

22 (ii) in paragraph (3), by striking 

23 ‘‘and’’ at the end of subparagraph (C), by 

24 striking the period at the end of subpara25 graph (D) and inserting ‘‘, and’’, and by 
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1 adding at the end the following new sub2 paragraph: 

3 ‘‘(E) the statement required by subsection 

4 (d) of section 6050U (relating to returns relat5 ing to applicable insurance contracts in which 

6 certain exempt organizations hold interests).’’. 

7 (B) INTENTIONAL DISREGARD.—Section 

8 6721(e)(2) of such Code is amended by striking 

9 ‘‘or’’ at the end of subparagraph (B), by strik10 ing ‘‘and’’ at the end of subparagraph (C) and 

11 inserting ‘‘or’’, and by adding at the end the 

12 following new subparagraph: 

13 ‘‘(D) in the case of a return required to be 

14 filed under section 6050U, the amount of tax 

15 imposed under section 4965 which has not been 

16 paid with respect to items required to be in17 cluded on the return, and’’. 

18 (3) CONFORMING AMENDMENT.—The table of 

19 sections for subpart B of part III of subchapter A 

20 of chapter 61 of such Code is amended by adding at 

21 the end the following new item:

‘‘Sec. 6050U. Returns relating to applicable insurance contracts in which 

certain exempt organizations hold interests.’’.

22 (c) EFFECTIVE DATE.— 
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1 (1) IN GENERAL.—The amendments made by 

2 this section shall apply to contracts issued after May 

3 3, 2005. 

4 (2) REPORTING OF EXISTING CONTRACTS.—In 

5 the case of any life insurance, annuity, or endow6 ment contract— 

7 (A) which was issued on or before May 3, 

8 2005, 

9 (B) with respect to which an applicable ex10 empt organization (as defined in section 4965 

11 of the Internal Revenue Code of 1986, as added 

12 by this section) holds an interest on May 3, 

13 2005, and 

14 (C) which would be treated as an applica15 ble insurance contract (as so defined) if issued 

16 after May 3, 2005, 

17 such organization shall, not later than the date 

18 which is 1 year after the date of the enactment of 

19 this Act, report to the Secretary of the Treasury 

20 with respect to such contract. Such report shall be 

21 in such form and manner, and contain such informa22 tion, as the Secretary may prescribe. The Secretary 

23 shall submit such reports, along with any rec24 ommendations for legislation as the Secretary con25 siders appropriate, to the Committee on Ways and 
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1 Means of the House of Representatives and to the 

2 Committee on Finance of the Senate within 6 

3 months of the date such reports are required to be 

4 filed.

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