endar quarter beginning July 1, 2005, and 
any increase under this clause which is not 
a multiple of $5,000 shall be rounded to 
the next lowest multiple of $5,000.’’. 
(B) DEFINITIONS.—Section 72(c) of such 
Code is amended by adding at the end the fol-
lowing new paragraphs: 
‘‘(5) LIFETIME ANNUITY PAYMENT.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (b)(5), the term ‘lifetime annuity pay-
ment’ means a distribution from an annuity 
contract (as defined in paragraph (7)) that is a 
part of a series of substantially equal periodic 
payments—
‘‘(i) made not less frequently than an-
nually over the life of the qualified dis-
tributee or the joint lives of the qualified 
distributee and the qualified distributee’s 
designated beneficiary, and 
‘‘(ii) that would satisfy the require-
ments of section 408(b)(3) if the annuity 
contract were treated as an individual re-
tirement annuity. 
‘‘(B) EXCEPTIONS.—
‘‘(i) CERTAIN
FLUCTUATING
PAY-
MENTS.—Annuity payments shall not fail 
to be treated as part of a series of substan-
tially equal periodic payments merely be-
cause the amount of the periodic payments 
may vary in accordance with investment 
experience, reallocations among investment 
options, actuarial gains or losses, cost of 
living indices, a constant percentage (not 
less than zero) applied not less frequently 
than annually, or similar fluctuating cri-
teria. 
‘‘(ii) CERTAIN CHANGES IN THE MODE 
OF
PAYMENTS.—Annuity payments shall 
not fail to be treated as part of a series of 
substantially 
equal 
periodic 
payments 
merely because the period between each 
such payment is lengthened or shortened, 
but only if at all times such period is no 
longer than one year. 
‘‘(iii) PERMITTED REDUCTIONS.—An-
nuity payments shall not fail to be treated 
as part of a series of substantially equal 
periodic payments merely because, in the 
case of an annuity payable over the lives of
the qualified distributee and the qualified 
distributee’s designated beneficiary, the 
amounts paid after the death of the quali-
fied 
distributee 
or 
the 
qualified 
distributee’s designated beneficiary are less 
than the amounts payable during their 
joint lives. 
‘‘(iv) 
CERTAIN
CONTRACT
BENE-
FITS.—The availability of a commutation 
benefit or other feature permitting accel-
eration of annuity payments (or modifica-
tion of the period during which such a ben-
efit is available), a minimum period of pay-
ments certain, or a minimum amount to be 
paid in any event shall not affect the treat-
ment of a distribution as a lifetime annuity 
payment. 
‘‘(v) ELIGIBLE RETIREMENT PLANS.—
Payments from an eligible retirement plan 
(within the meaning of section 402(c)(8)) 
shall not be treated as lifetime annuity 
payments. 
‘‘(6) QUALIFIED DISTRIBUTEE.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (b)(5), the term ‘qualified distributee’
means an annuitant, the surviving spouse of an 
annuitant, or an alternate payee of an annu-
itant under the contract. 
‘‘(B) ALTERNATE PAYEE DEFINED.—For 
purposes of this paragraph, the term ‘alternate 
payee’ means any spouse or former spouse of 
an annuitant under the contract who is recog-
nized by a domestic relations order as having a 
right to receive all, or a portion of, the benefits 
payable under the contract with respect to such 
annuitant. For purposes of the preceding sen-
tence, the term ‘domestic relations order’ means 
any judgment, decree, or order (including ap-
proval of a property settlement agreement) that 
relates to the provision of child support, ali-
mony payments, or marital property rights to a 
spouse or former spouse of an annuitant under 
the contract and is made pursuant to a State 
domestic relations law (including community 
property law). 
‘‘(7) ANNUITY
CONTRACT.—For purposes of 
subsections (b)(5), (c)(5), and (x), the term ‘annuity 
contract’—
‘‘(A) means a commercial annuity within 
the meaning of section 3405(e)(6), other than 
an endowment or life insurance contract, and 
‘‘(B) does not include any annuity contract 
that is a qualified funding asset (as defined in 
section 130(d)), but without regard to whether 
there is a qualified assignment.’’. 
(C) RECAPTURE TAX.—Section 72 of such 
Code is amended by redesignating subsection 
(x) as subsection (y) and inserting after sub-
section (w) the following new subsection: 
‘‘(x) RECAPTURE TAX.—
‘‘(1) IN GENERAL.—If—
‘‘(A) an amount is not includible in gross 
income by reason of subsection (b)(5) (relating 
to lifetime annuity payments), and 
‘‘(B) the series of payments of which such 
payment is a part is subsequently modified 
(other than by reason of death or disability) so 
that some or all future payments are not life-
time annuity payments, 
the qualified distributee’s gross income for the first 
taxable year in which such modification occurs shall 
be increased by an amount, determined under rules 
prescribed by the Secretary, equal to the amount