635
2791(d)(3) of the Public Health Service Act 
(42 U.S.C. 300gg–91(d)(3))’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 844. TREATMENT OF ANNUITY AND LIFE INSURANCE 
CONTRACTS WITH A LONG-TERM CARE IN-
SURANCE 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 para-
graph: 
‘‘(11) SPECIAL RULES FOR CERTAIN COMBINA-
TION CONTRACTS PROVIDING LONG-TERM CARE IN-
SURANCE.—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 insur-
ance contract which is part of or a rider on such an-
nuity or life insurance contract—
636
‘‘(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 INSUR-
ANCE POLICIES.—
(1) ANNUITY CONTRACTS CAN INCLUDE QUALI-
FIED LONG-TERM CARE INSURANCE RIDERS.—Para-
graph (2) of section 1035(b) of such Code is amend-
ed 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 insur-
ance contract solely because a qualified long-term 
care insurance contract is a part of or a rider on 
such contract.’’.
637
(3) EXPANSION OF TAX-FREE EXCHANGES OF 
LIFE INSURANCE, ENDOWMENT, AND ANNUITY CON-
TRACTS FOR LONG-TERM CARE CONTRACTS.—Sub-
section (a) of section 1035 of such Code (relating to 
certain exchanges of insurance policies) is amend-
ed—
(A) in paragraph (1) by inserting ‘‘or for 
a qualified long-term care insurance contract’’ 
before the semicolon at the end, 
(B) in paragraph (2) by inserting ‘‘, or (C) 
for a qualified long-term care insurance con-
tract’’ before the semicolon at the end, and 
(C) in paragraph (3) by inserting ‘‘or for 
a qualified long-term care insurance contract’’ 
before the period at the end. 
(4) TAX-FREE
EXCHANGES
OF
QUALIFIED 
LONG-TERM
CARE
INSURANCE
CONTRACT.—Sub-
section (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:
638
‘‘(4) a qualified long-term care insurance con-
tract for a qualified long-term care insurance con-
tract.’’. 
(c) TREATMENT OF COVERAGE PROVIDED AS PART 
OF A LIFE INSURANCE OR ANNUITY CONTRACT.—Sub-
section (e) of section 7702B of such Code (relating to 
treatment of qualified long-term care insurance) is amend-
ed to read as follows: 
‘‘(e) TREATMENT OF COVERAGE PROVIDED AS PART 
OF A LIFE INSURANCE OR ANNUITY CONTRACT.—Except 
as otherwise provided in regulations prescribed by the Sec-
retary, in the case of any long-term care insurance cov-
erage (whether or not qualified) provided by a rider on 
or as part of a life insurance contract or an annuity con-
tract—
‘‘(1) IN GENERAL.—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 sur-
render value of a life insurance contract or the cash 
value of an annuity contract.
639
‘‘(3) PORTION DEFINED.—For purposes of this 
subsection, the term ‘portion’ means only the terms 
and benefits under a life insurance contract or annu-
ity contract that are in addition to the terms and 
benefits under the contract without regard to long-
term care insurance coverage. 
‘‘(4) ANNUITY
CONTRACTS
TO
WHICH
PARA-
GRAPH (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 de-
scribed 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 ac-
count or an individual retirement annuity.
640
‘‘(C) A contract purchased by an employer 
for the benefit of the employee (or the employ-
ee’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 sec-
tion: 
‘‘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 excludible from gross income under sec-
tion 72(e)(11) shall make a return, according to the forms 
or regulations prescribed by the Secretary, setting forth—
641
‘‘(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 invest-
ment in each such contract by reason of such 
charges, and 
‘‘(3) the name, address, and TIN of the indi-
vidual 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 show-
ing—
‘‘(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 sen-
tence shall be furnished to the individual on or before Jan-
uary 31 of the year following the calendar year for which 
the return under subsection (a) was required to be made.’’. 
(2) PENALTY FOR FAILURE TO FILE.—
642
(A) RETURN.—Subparagraph (B) of sec-
tion 6724(d)(1) of such Code is amended by 
striking ‘‘or’’ at the end of clause (xvii), by 
striking ‘‘and’’ at the end of clause (xviii) and 
inserting ‘‘or’’, and by adding at the end the 
following new clause: 
‘‘(xix) section 6050U (relating to 
charges or payments for qualified long-
term care insurance contracts under com-
bined arrangements), and’’. 
(B) STATEMENT.—Paragraph (2) of sec-
tion 6724(d) of such Code is amended by strik-
ing ‘‘or’’ at the end of subparagraph (AA), by 
striking the period at the end of subparagraph 
(BB), and by inserting after subparagraph 
(BB) the following new subparagraph: 
‘‘(CC) section 6050U (relating to charges 
or payments for qualified long-term care insur-
ance 
contracts 
under 
combined 
arrange-
ments).’’. 
(3) CLERICAL AMENDMENT.—The table of sec-
tions 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 con-
tracts under combined arrangements.’’.
643
(e) TREATMENT
OF
POLICY
ACQUISITION
EX-
PENSES.—Subsection (e) of section 848 of such Code (re-
lating 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 ARRANGE-
MENTS.—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) TECHNICAL AMENDMENT.—Paragraph (1) of sec-
tion 7702B(e) of such Code (as in effect before amend-
ment by subsection (c)) is amended by striking ‘‘section’’ 
and inserting ‘‘title’’. 
(g) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to contracts issued after De-
cember 31, 1996, but only with respect to taxable 
years beginning after December 31, 2009. 
(2) TAX-FREE EXCHANGES.—The amendments 
made by subsection (b) shall apply with respect to 
exchanges occurring after December 31, 2009.
644
(3) INFORMATION
REPORTING.—The amend-
ments made by subsection (d) shall apply to charges 
made after December 31, 2009. 
(4) 
POLICY
ACQUISITION
EXPENSES.—The 
amendment made by subsection (e) shall apply to 
specified policy acquisition expenses determined for 
taxable years beginning after December 31, 2009. 
(5) TECHNICAL AMENDMENT.—The amendment 
made by subsection (f) shall take effect as if in-
cluded in section 321(a) of the Health Insurance 
Portability and Accountability Act of 1996. 
SEC. 845. DISTRIBUTIONS FROM GOVERNMENTAL RETIRE-
MENT PLANS FOR HEALTH AND LONG-TERM 
CARE INSURANCE FOR PUBLIC SAFETY OFFI-
CERS. 
(a) IN GENERAL.—Section 402 of the Internal Rev-
enue Code of 1986 (relating to taxability of beneficiary 
of employees’ trust) is amended by adding at the end the 
following new subsection: 
‘‘(l) DISTRIBUTIONS FROM GOVERNMENTAL PLANS 
FOR HEALTH AND LONG-TERM CARE INSURANCE.—
‘‘(1) IN GENERAL.—In the case of an employee 
who is an eligible retired public safety officer who 
makes the election described in paragraph (6) with 
respect to any taxable year of such employee, gross
645
income of such employee for such taxable year does 
not include any distribution from an eligible retire-
ment plan to the extent that the aggregate amount 
of such distributions does not exceed the amount 
paid by such employee for qualified health insurance 
premiums of the employee, his spouse, or dependents 
(as defined in section 152) for such taxable year. 
‘‘(2) LIMITATION.—The amount which may be 
excluded from gross income for the taxable year by 
reason of paragraph (1) shall not exceed $3,000. 
‘‘(3) DISTRIBUTIONS MUST OTHERWISE BE IN-
CLUDIBLE.—
‘‘(A) IN GENERAL.—An amount shall be 
treated as a distribution for purposes of para-
graph (1) only to the extent that such amount 
would be includible in gross income without re-
gard to paragraph (1). 
‘‘(B) APPLICATION OF SECTION 72.—Not-
withstanding section 72, in determining the ex-
tent to which an amount is treated as a dis-
tribution for purposes of subparagraph (A), the 
aggregate amounts distributed from an eligible 
retirement plan in a taxable year (up to the 
amount excluded under paragraph (1)) shall be 
treated as includible in gross income (without
646
regard to subparagraph (A)) to the extent that 
such amount does not exceed the aggregate 
amount which would have been so includible if 
all amounts distributed from all eligible retire-
ment plans were treated as 1 contract for pur-
poses of determining the inclusion of such dis-
tribution under section 72. Proper adjustments 
shall be made in applying section 72 to other 
distributions in such taxable year and subse-
quent taxable years. 
‘‘(4) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) ELIGIBLE RETIREMENT PLAN.—For 
purposes of paragraph (1), the term ‘eligible re-
tirement plan’ means a governmental plan 
(within the meaning of section 414(d)) which is 
described in clause (iii), (iv), (v), or (vi) of sub-
section (c)(8)(B). 
‘‘(B) ELIGIBLE RETIRED PUBLIC SAFETY 
OFFICER.—The term ‘eligible retired public 
safety officer’ means an individual who, by rea-
son of disability or attainment of normal retire-
ment age, is separated from service as a public 
safety officer with the employer who maintains
647
the eligible retirement plan from which distribu-
tions subject to paragraph (1) are made. 
‘‘(C) PUBLIC SAFETY OFFICER.—The term 
‘public safety officer’ shall have the same mean-
ing given such term by section 1204(9)(A) of 
the Omnibus Crime Control and Safe Streets 
Act of 1968 (42 U.S.C. 3796b(9)(A)). 
‘‘(D) 
QUALIFIED
HEALTH
INSURANCE 
PREMIUMS.—The term ‘qualified health insur-
ance premiums’ means premiums for coverage 
for the eligible retired public safety officer, his 
spouse, and dependents, by an accident or 
health insurance plan or qualified long-term 
care insurance contract (as defined in section 
7702B(b)). 
‘‘(5) SPECIAL
RULES.—For purposes of this 
subsection—
‘‘(A) DIRECT PAYMENT TO INSURER RE-
QUIRED.—Paragraph (1) shall only apply to a 
distribution if payment of the premiums is 
made directly to the provider of the accident or 
health insurance plan or qualified long-term 
care insurance contract by deduction from a 
distribution from the eligible retirement plan.
648
‘‘(B) RELATED PLANS TREATED AS 1.—All 
eligible retirement plans of an employer shall be 
treated as a single plan. 
‘‘(6) ELECTION DESCRIBED.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), an election is described in this para-
graph if the election is made by an employee 
after separation from service with respect to 
amounts not distributed from an eligible retire-
ment plan to have amounts from such plan dis-
tributed in order to pay for qualified health in-
surance premiums. 
‘‘(B) SPECIAL RULE.—A plan shall not be 
treated as violating the requirements of section 
401, or as engaging in a prohibited transaction 
for purposes of section 503(b), merely because 
it provides for an election with respect to 
amounts that are otherwise distributable under 
the plan or merely because of a distribution 
made pursuant to an election described in sub-
paragraph (A). 
‘‘(7) COORDINATION WITH MEDICAL EXPENSE 
DEDUCTION.—The amounts excluded from gross in-
come under paragraph (1) shall not be taken into 
account under section 213.
649
‘‘(8) COORDINATION
WITH
DEDUCTION
FOR 
HEALTH INSURANCE COSTS OF SELF-EMPLOYED IN-
DIVIDUALS.—The amounts excluded from gross in-
come under paragraph (1) shall not be taken into 
account under section 162(l).’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 403(a) of such Code (relating to 
taxability of beneficiary under a qualified annuity 
plan) is amended by inserting after paragraph (1) 
the following new paragraph: 
‘‘(2) SPECIAL RULE FOR HEALTH AND LONG-
TERM CARE INSURANCE.—To the extent provided in 
section 402(l), paragraph (1) shall not apply to the 
amount distributed under the contract which is oth-
erwise includible in gross income under this sub-
section.’’. 
(2) Section 403(b) of such Code (relating to 
taxability of beneficiary under annuity purchased by 
section 501(c)(3) organization or public school) is 
amended by inserting after paragraph (1) the fol-
lowing new paragraph: 
‘‘(2) SPECIAL RULE FOR HEALTH AND LONG-
TERM CARE INSURANCE.—To the extent provided in 
section 402(l), paragraph (1) shall not apply to the 
amount distributed under the contract which is oth-
650
erwise includible in gross income under this sub-
section.’’. 
(3) Section 457(a) of such Code (relating to 
year of inclusion in gross income) is amended by 
adding at the end the following new paragraph: 
‘‘(3) SPECIAL RULE FOR HEALTH AND LONG-
TERM CARE INSURANCE.—In the case of a plan of 
an 
eligible 
employer 
described 
in 
subsection 
(e)(1)(A), to the extent provided in section 402(l), 
paragraph (1) shall not apply to amounts otherwise 
includible in gross income under this subsection.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions in taxable years 
beginning after December 31, 2006. 
Subtitle E—United States Tax 
Court Modernization 
SEC. 851. COST-OF-LIVING ADJUSTMENTS FOR TAX COURT 
JUDICIAL SURVIVOR ANNUITIES. 
(a) IN GENERAL.—Subsection (s) of section 7448 of 
the Internal Revenue Code of 1986 (relating to annuities 
to surviving spouses and dependent children of judges) is 
amended to read as follows: 
‘‘(s) INCREASES
IN SURVIVOR ANNUITIES.—Each 
time that an increase is made under section 8340(b) of 
title 5, United States Code, in annuities payable under
651
subchapter III of chapter 83 of that title, each annuity 
payable from the survivors annuity fund under this section 
shall be increased at the same time by the same percent-
age by which annuities are increased under such section 
8340(b).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply with respect to increases made 
under section 8340(b) of title 5, United States Code, in 
annuities payable under subchapter III of chapter 83 of 
that title, taking effect after the date of the enactment 
of this Act. 
SEC. 852. COST OF LIFE INSURANCE COVERAGE FOR TAX 
COURT JUDGES AGE 65 OR OVER. 
Section 7472 of the Internal Revenue Code of 1986 
(relating to expenditures) is amended by inserting after 
the first sentence the following new sentence: ‘‘Notwith-
standing any other provision of law, the Tax Court is au-
thorized to pay on behalf of its judges, age 65 or over, 
any increase in the cost of Federal Employees’ Group Life 
Insurance imposed after the date of the enactment of the 
Pension Protection Act of 2006, including any expenses 
generated by such payments, as authorized by the chief 
judge in a manner consistent with such payments author-
ized by the Judicial Conference of the United States pur-
652
suant to section 604(a)(5) of title 28, United States 
Code.’’
SEC. 853. PARTICIPATION OF TAX COURT JUDGES IN THE 
THRIFT SAVINGS PLAN. 
(a) IN GENERAL.—Section 7447 of the Internal Rev-
enue Code of 1986 (relating to retirement of judges) is 
amended by adding at the end the following new sub-
section: 
‘‘(j) THRIFT SAVINGS PLAN.—
‘‘(1) ELECTION TO CONTRIBUTE.—
‘‘(A) IN GENERAL.—A judge of the Tax 
Court may elect to contribute to the Thrift Sav-
ings Fund established by section 8437 of title 
5, United States Code. 
‘‘(B) PERIOD OF ELECTION.—An election 
may be made under this paragraph only during 
a period provided under section 8432(b) of title 
5, United States Code, for individuals subject to 
chapter 84 of such title. 
‘‘(2) APPLICABILITY OF TITLE 5 PROVISIONS.—
Except as otherwise provided in this subsection, the 
provisions of subchapters III and VII of chapter 84 
of title 5, United States Code, shall apply with re-
spect to a judge who makes an election under para-
graph (1).
653
‘‘(3) SPECIAL RULES.—
‘‘(A) 
AMOUNT
CONTRIBUTED.—The 
amount contributed by a judge to the Thrift 
Savings Fund in any pay period shall not ex-
ceed the maximum percentage of such judge’s 
basic pay for such period as allowable under 
section 8440f of title 5, United States Code. 
Basic pay does not include any retired pay paid 
pursuant to this section. 
‘‘(B) CONTRIBUTIONS
FOR
BENEFIT
OF 
JUDGE.—No contributions may be made for the 
benefit of a judge under section 8432(c) of title 
5, United States Code. 
‘‘(C) APPLICABILITY OF SECTION 8433(b) 
OF
TITLE 5 WHETHER
OR
NOT
JUDGE
RE-
TIRES.—Section 8433(b) of title 5, United 
States Code, applies with respect to a judge 
who makes an election under paragraph (1) and 
who either—
‘‘(i) retires under subsection (b), or 
‘‘(ii) ceases to serve as a judge of the 
Tax Court but does not retire under sub-
section (b).
654
Retirement under subsection (b) is a separation 
from service for purposes of subchapters III 
and VII of chapter 84 of that title. 
‘‘(D) 
APPLICABILITY
OF
SECTION 
8351(b)(5) OF TITLE 5.—The provisions of sec-
tion 8351(b)(5) of title 5, United States Code, 
shall apply with respect to a judge who makes 
an election under paragraph (1). 
‘‘(E) EXCEPTION.—Notwithstanding sub-
paragraph (C), if any judge retires under this 
section, or resigns without having met the age 
and service requirements set forth under sub-
section (b)(2), and such judge’s nonforfeitable 
account balance is less than an amount that the 
Executive Director of the Federal Retirement 
Thrift Investment Board prescribes by regula-
tion, the Executive Director shall pay the non-
forfeitable account balance to the participant in 
a single payment.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on the date of the enactment 
of this Act, except that United States Tax Court judges 
may only begin to participate in the Thrift Savings Plan 
at the next open season beginning after such date.
655
SEC. 854. ANNUITIES TO SURVIVING SPOUSES AND DE-
PENDENT 
CHILDREN 
OF 
SPECIAL 
TRIAL 
JUDGES OF THE TAX COURT. 
(a) DEFINITIONS.—Section 7448(a) of the Internal 
Revenue Code of 1986 (relating to definitions), as amend-
ed by this Act, is amended by redesignating paragraphs 
(5), (6), (7), and (8) as paragraphs (7), (8), (9), and (10), 
respectively, and by inserting after paragraph (4) the fol-
lowing new paragraphs: 
‘‘(5) The term ‘special trial judge’ means a ju-
dicial officer appointed pursuant to section 7443A, 
including any individual receiving an annuity under 
chapters 83 or 84 of title 5, United States Code, 
whether or not performing judicial duties under sec-
tion 7443B. 
‘‘(6) The term ‘special trial judge’s salary’ 
means the salary of a special trial judge received 
under section 7443A(d), any amount received as an 
annuity under chapters 83 or 84 of title 5, United 
States Code, and compensation received under sec-
tion 7443B.’’. 
(b) ELECTION.—Subsection (b) of section 7448 of 
such Code (relating to annuities to surviving spouses and 
dependent children of judges) is amended—
(1) by striking the subsection heading and in-
serting the following:
656
‘‘(b) ELECTION.—
‘‘(1) JUDGES.—’’, 
(2) by moving the text 2 ems to the right, and 
(3) by adding at the end the following new 
paragraph: 
‘‘(2) SPECIAL TRIAL JUDGES.—Any special trial 
judge may by written election filed with the chief 
judge bring himself or herself within the purview of 
this section. Such election shall be filed not later 
than the later of 6 months after—
‘‘(A) 6 months after the date of the enact-
ment of this paragraph, 
‘‘(B) the date the judge takes office, or 
‘‘(C) the date the judge marries.’’. 
(c) CONFORMING AMENDMENTS.—
(1) The heading of section 7448 of such Code 
is amended by inserting ‘‘AND
SPECIAL
TRIAL 
JUDGES’’ after ‘‘JUDGES’’. 
(2) The item relating to section 7448 in the 
table of sections for part I of subchapter C of chap-
ter 76 of such Code is amended by inserting ‘‘and 
special trial judges’’ after ‘‘judges’’. 
(3) Subsections (c)(1), (d), (f), (g), (h), (j), 
(m), (n), and (u) of section 7448 of such Code, as 
amended by this Act, are each amended—