I 
116TH CONGRESS 
2D SESSION 
H. R. 6732 
To direct the Secretary of the Treasury to modify certain regulations relating 
to insurance-dedicated exchange-traded funds. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 5, 2020 
Mr. WENSTRUP introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To direct the Secretary of the Treasury to modify certain 
regulations relating to insurance-dedicated exchange- 
traded funds. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. INSURANCE-DEDICATED EXCHANGE-TRADED 
FUNDS. 
(a) IN GENERAL.—Not later than the date which is 
1 year after the date of the enactment of this Act, the 
Secretary of the Treasury (or the Secretary’s delegate) 
shall amend the regulation issued by the Department of 
the Treasury relating to ‘‘Income Tax; Diversification Re-
quirements for Variable Annuity, Endowment, and Life 
VerDate Sep 11 2014 
02:28 May 16, 2020
Jkt 099200
PO 00000
Frm 00001
Fmt 6652
Sfmt 6201
E:\BILLS\H6732.IH
H6732
kjohnson on DSK79L0C42PROD with BILLS
Insurance Contracts’’, 54 Fed. Reg. 8728 (March 2, 
1989), and make any necessary corresponding amend-
ments to other regulations, in order to facilitate the use 
of exchange-traded funds as investment options under 
variable contracts within the meaning of section 817(d) 
of the Internal Revenue Code of 1986, in accordance with 
subsections (b) and (c) of this section. 
(b) DESIGNATE CERTAIN AUTHORIZED PARTICI-
PANTS AND MARKET MAKERS AS ELIGIBLE INVESTORS.— 
The Secretary of the Treasury (or the Secretary’s dele-
gate) shall amend Treas. Reg. section 1.817–5(f)(3) to 
provide that satisfaction of the requirements in Treas. 
Reg. section 1.817–5(f)(2)(i) with respect to an exchange- 
traded fund shall not be prevented by reason of beneficial 
interests in such a fund being held by one or more author-
ized participants or market makers. 
(c) CONFIRM THAT SIMILARITIES TO OTHER FUNDS 
ARE IRRELEVANT.—The Secretary of the Treasury (or 
the Secretary’s delegate) shall amend Treas. Reg. section 
1.817–5(f) to confirm that, for Federal income tax pur-
poses, a regulated investment company, partnership, or 
trust (including an exchange-traded fund) that satisfies 
the requirements of Treas. Reg. section 1.817–5(f) (2) 
and (3) shall not be treated as owned by the holder of 
a variable contract pursuant to the principles of Rev. Rul. 
VerDate Sep 11 2014 
02:28 May 16, 2020
Jkt 099200
PO 00000
Frm 00002
Fmt 6652
Sfmt 6201
E:\BILLS\H6732.IH
H6732
kjohnson on DSK79L0C42PROD with BILLS
81–225, 1981–2 C.B. 12, merely because another regu-
lated investment company, partnership, trust, or similar 
investment vehicle follows the same investment strategy, 
has the same investment manager, or holds the same in-
vestments. 
(d) DEFINE
RELEVANT
TERMS.—In amending 
Treas. Reg. section 1.817–5(f)(3) in accordance with sub-
sections (b) and (c) of this section, the Secretary of the 
Treasury (or the Secretary’s delegate) shall provide defini-
tions consistent with the following: 
(1) EXCHANGE-TRADED FUND.—The term ‘‘ex-
change-traded fund’’ means a regulated investment 
company, partnership, or trust— 
(A) that is registered with the Securities 
and Exchange Commission as an open-end in-
vestment company or a unit investment trust; 
(B) the shares of which can be purchased 
or redeemed directly from the fund only by an 
authorized participant; and 
(C) the shares of which are traded 
throughout the day on a national stock ex-
change at market prices that may or may not 
be the same as the net asset value of the 
shares. 
VerDate Sep 11 2014 
02:28 May 16, 2020
Jkt 099200
PO 00000
Frm 00003
Fmt 6652
Sfmt 6201
E:\BILLS\H6732.IH
H6732
kjohnson on DSK79L0C42PROD with BILLS
(2) AUTHORIZED
PARTICIPANT.—The term 
‘‘authorized participant’’ means a financial institu-
tion that is a member or participant of a clearing 
agency registered under section 17A(b) of the Secu-
rities Exchange Act of 1934 that enters into a con-
tractual relationship with an exchange-traded fund 
pursuant to which the financial institution is per-
mitted to purchase and redeem shares directly from 
the fund and to sell such shares to third parties, but 
only if the contractual arrangement or applicable law 
precludes the financial institution from— 
(A) purchasing the shares for its own in-
vestment purposes rather than for the exclusive 
purpose of creating and redeeming such shares 
on behalf of third parties; and 
(B) selling the shares to third parties who 
are not market makers or otherwise described 
in Treas. Reg. section 1.817–5(f) (1) and (3). 
(3) MARKET
MAKER.—The term ‘‘market 
maker’’ means a financial institution that is a reg-
istered broker or dealer under section 15(b) of the 
Securities Exchange Act of 1934 that maintains li-
quidity for an exchange-traded fund on a national 
stock exchange by being always ready to buy and sell 
shares of such fund on the market, but only if the 
VerDate Sep 11 2014 
23:11 May 19, 2020
Jkt 099200
PO 00000
Frm 00004
Fmt 6652
Sfmt 6201
E:\BILLS\H6732.IH
H6732
kjohnson on DSK79L0C42PROD with BILLS
financial institution is contractually or legally pre-
cluded from selling or buying such shares to or from 
persons who are not authorized participants or oth-
erwise described in Treas. Reg. section 1.817–5(f) 
(2) and (3). 
(e) EFFECTIVE DATES, ENFORCEMENT, AND INTER-
PRETATIONS.— 
(1) EFFECTIVE DATES.— 
(A) Subsection (b), and the definitions 
under subsection (d), shall apply to segregated 
asset account investments made on or after the 
date of enactment of this Act. 
(B) Subsection (c) shall apply to taxable 
years beginning after December 31, 1983. 
(2) ENFORCEMENT AND INTERPRETATIONS.— 
Prior to the date that the Secretary of the Treasury 
(or the Secretary’s delegate) issues final regulations 
pursuant to this section— 
(A) the Secretary (or delegate) shall ad-
minister and enforce the law in accordance with 
this section and the effective dates in paragraph 
(1) of this subsection; and 
VerDate Sep 11 2014 
23:11 May 19, 2020
Jkt 099200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6201
E:\BILLS\H6732.IH
H6732
kjohnson on DSK79L0C42PROD with BILLS
(B) taxpayers may rely upon their reason-
able good faith interpretations of the preceding 
subsections of this section. 
Æ 
VerDate Sep 11 2014 
02:28 May 16, 2020
Jkt 099200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6301
E:\BILLS\H6732.IH
H6732
kjohnson on DSK79L0C42PROD with BILLS