454 
tion for purposes of this sub-
section, 
‘‘(ii) the individual retirement 
plan shall be treated as an inher-
ited 
individual 
retirement 
ac-
count or individual retirement 
annuity (within the meaning of 
section 408(d)(3)(C)) for purposes 
of this title, and 
‘‘(iii) 
section 
401(a)(9)(B) 
(other than clause (iv) thereof) 
shall apply to such plan. 
‘‘(B) CERTAIN
TRUSTS
TREATED
AS 
BENEFICIARIES.—For purposes of this 
paragraph, to the extent provided in 
rules prescribed by the Secretary, a 
trust maintained for the benefit of 
one or more designated beneficiaries 
shall be treated in the same manner 
as a trust designated beneficiary.’’. 
(2) SECTION 403(a) PLANS.—Subpara-
graph (B) of section 403(a)(4) of such 
Code (relating to rollover amounts) is 
amended by inserting ‘‘and (11)’’ after 
‘‘(7)’’.
455 
(3) SECTION 403(b) PLANS.—Subpara-
graph (B) of section 403(b)(8) of such 
Code (relating to rollover amounts) is 
amended by striking ‘‘and (9)’’ and insert-
ing ‘‘, (9), and (11)’’. 
(4) SECTION 457 PLANS.—Subparagraph 
(B) of section 457(e)(16) of such Code (re-
lating to rollover amounts) is amended by 
striking ‘‘and (9)’’ and inserting ‘‘, (9), and 
(11)’’. 
(b) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to distribu-
tions after December 31, 2005. 
TITLE X—PROVISIONS TO EN-
HANCE 
HEALTH 
CARE 
AF-
FORDABILITY 
SEC. 1001. TREATMENT OF ANNUITY AND LIFE INSURANCE 
CONTRACTS WITH A LONG-TERM CARE IN-
SURANCE FEATURE. 
(a) EXCLUSION FROM GROSS INCOME.—Sub-
section (e) of section 72 of the Internal Rev-
enue Code of 1986 (relating to amounts not re-
ceived as annuities) is amended by redesig-
nating paragraph (11) as paragraph (12) and
456 
by inserting after paragraph (10) the fol-
lowing new paragraph: 
‘‘(11) SPECIAL RULES FOR CERTAIN COM-
BINATION CONTRACTS PROVIDING LONG-TERM 
CARE
INSURANCE.—Notwithstanding para-
graphs (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 insurance contract which 
is part of or a rider on such annuity or 
life insurance contract— 
‘‘(A) the investment in the con-
tract shall be reduced (but not below 
zero) by such charge, and 
‘‘(B) such charge shall not be in-
cludible in gross income.’’. 
(b) TAX-FREE EXCHANGES AMONG CERTAIN 
INSURANCE POLICIES.— 
(1) ANNUITY
CONTRACTS
CAN
INCLUDE 
QUALIFIED LONG-TERM CARE INSURANCE RID-
ERS.—Paragraph (2) of section 1035(b) of 
such Code is amended by adding at the 
end the following new sentence: ‘‘For pur-
457 
poses of the preceding sentence, a con-
tract shall not fail to be treated as an an-
nuity 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 IN-
CLUDE
QUALIFIED
LONG-TERM
CARE
INSUR-
ANCE
RIDERS.—Paragraph (3) of section 
1035(b) of such Code is amended by add-
ing at the end the following new sen-
tence: ‘‘For purposes of the preceding 
sentence, a contract shall not fail to be 
treated as a life insurance contract solely 
because a qualified long-term care insur-
ance contract is a part of or a rider on 
such contract.’’. 
(3) EXPANSION OF TAX-FREE EXCHANGES 
OF LIFE INSURANCE, ENDOWMENT, AND ANNU-
ITY CONTRACTS FOR LONG-TERM CARE CON-
TRACTS.—Subsection (a) of section 1035 of 
such Code (relating to certain exchanges 
of insurance policies) is amended— 
(A) in paragraph (1) by striking 
‘‘contract;’’ and inserting ‘‘contract or
458 
for a qualified long-term care insur-
ance contract;’’, 
(B) in paragraph (2) by striking 
‘‘contract;’’ and inserting ‘‘contract, or 
(C) for a qualified long-term care in-
surance contract;’’, and 
(C) in paragraph (3) by striking 
‘‘contract.’’ and inserting ‘‘contract or 
for a qualified long-term care insur-
ance contract.’’. 
(4) TAX-FREE EXCHANGES OF QUALIFIED 
LONG-TERM
CARE
INSURANCE
CONTRACT.— 
Subsection (a) of section 1035 of such 
Code (relating to certain exchanges of in-
surance policies) is amended by striking 
‘‘or’’ at the end of paragraph (2), by strik-
ing the period at the end of paragraph (3) 
and inserting ‘‘; or’’, and by inserting 
after paragraph (3) the following new 
paragraph: 
‘‘(4) a qualified long-term care insur-
ance contract for a qualified long-term 
care insurance contract.’’. 
(c) TREATMENT OF COVERAGE PROVIDED AS 
PART OF A LIFE INSURANCE OR ANNUITY CON-
459 
TRACT.—Subsection (e) of section 7702B of 
such Code (relating to treatment of qualified 
long-term care insurance) is amended to read 
as follows: 
‘‘(e) TREATMENT OF COVERAGE PROVIDED AS 
PART OF A LIFE INSURANCE OR ANNUITY CON-
TRACT.— 
‘‘(1) 
COVERAGE
TREATED
AS
CON-
TRACT.—Except as otherwise provided in 
regulations prescribed by the Secretary, 
in the case of any long-term care insur-
ance coverage (whether or not qualified) 
provided by a rider on or as part of a life 
insurance contract or an annuity con-
tract, this title shall apply as if the por-
tion of the contract providing such cov-
erage is a separate contract. 
‘‘(2) DENIAL OF DEDUCTION UNDER SEC-
TION 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 pay-
ment is made as a charge against the 
cash value of an annuity contract or the
460 
cash surrender value of a life insurance 
contract. 
‘‘(3) APPLICATION
OF
SECTION 7702.— 
Section 7702(c)(2) (relating to the guide-
line premium limitation) shall be applied 
by increasing the guideline premium lim-
itation with respect to the life insurance 
contract, as of any date— 
‘‘(A) by the sum of any charges 
(but not premium payments) against 
the life insurance contract’s cash sur-
render value (within the meaning of 
section 
7702(f)(2)(A)) 
for 
coverage 
under the qualified long-term care in-
surance contract made to that date 
under the life insurance contract, less 
‘‘(B) any such charges the imposi-
tion of which reduces the premiums 
paid for the life insurance contract 
(within 
the 
meaning 
of 
section 
7702(f)(1)). 
‘‘(4) PORTION DEFINED.—For purposes 
of this subsection, the term ‘portion’ 
means only the terms and benefits under 
a life insurance contract or annuity con-
461 
tract that are in addition to the terms 
and benefits under the contract without 
regard to long-term care insurance cov-
erage. 
‘‘(5) ANNUITY
CONTRACTS
TO
WHICH 
PARAGRAPH (1) DOES NOT APPLY.—For pur-
poses of this subsection, none of the fol-
lowing 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 de-
scribed in subparagraph (A), 
‘‘(ii) purchased as part of a 
plan described 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
462 
‘‘(v) from an individual retire-
ment account or an individual re-
tirement annuity. 
‘‘(C) A contract purchased by an 
employer for the benefit of the em-
ployee (or the employee’s spouse). 
Any dividend described in section 404(k) 
which is received by a participant or ben-
eficiary shall, for purposes of this para-
graph, be treated as paid under a sepa-
rate contract to which subparagraph 
(B)(i) applies.’’. 
(d) INFORMATION REPORTING.— 
(1) Subpart B of part III of sub-
chapter A of chapter 61 of such Code (re-
lating to information concerning trans-
actions with other persons) is amended 
by adding at the end the following new 
section: 
‘‘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 sur-
463 
render value of a life insurance contract, 
which is excludible from gross income under 
section 72(e)(11) shall make a return, accord-
ing to the forms or regulations prescribed by 
the Secretary, setting forth— 
‘‘(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 investment in each such contract by 
reason of such charges, and 
‘‘(3) the name, address, and TIN of the 
individual who is the holder of each such 
contract. 
‘‘(b) STATEMENTS TO BE FURNISHED TO PER-
SONS 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 
showing— 
‘‘(1) the name, address, and phone 
number of the information contact of the 
person making the payments, and