Title: To direct the Secretary of the Treasury to modify certain regulations relating to insurance-dedicated exchange-traded funds.
Policy area: Taxation

Summary:
This bill directs the Department of the Treasury to modify certain regulations relating to insurance-dedicated exchange-traded funds. An exchange-traded fund is a regulated investment company, partnership, or trust (1) that is registered with the Securities and Exchange Commission as an open-end investment company or a unit investment trust, (2) the shares of which can be purchased or redeemed directly from the fund only by an authorized participant (i.e., a financial institution that is a member or participant of a registered clearing agency), and (3) the shares of which are traded throughout the day on a national stock exchange at market prices that may or may not be the same as the net asset value of the shares.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6732 Introduced in House (IH)]

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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 Representatives 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 
Requirements for Variable Annuity, Endowment, and Life Insurance 
Contracts'', 54 Fed. Reg. 8728 (March 2, 1989), and make any necessary 
corresponding amendments 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 Participants and Market Makers as 
Eligible Investors.--The Secretary of the Treasury (or the Secretary's 
delegate) 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 authorized 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 
purposes, 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. 81-225, 1981-2 C.B. 12, merely because another regulated 
investment company, partnership, trust, or similar investment vehicle 
follows the same investment strategy, has the same investment manager, 
or holds the same investments.
    (d) Define Relevant Terms.--In amending Treas. Reg. section 1.817-
5(f)(3) in accordance with subsections (b) and (c) of this section, the 
Secretary of the Treasury (or the Secretary's delegate) shall provide 
definitions consistent with the following:
            (1) Exchange-traded fund.--The term ``exchange-traded 
        fund'' means a regulated investment company, partnership, or 
        trust--
                    (A) that is registered with the Securities and 
                Exchange Commission as an open-end investment 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 exchange at market prices that 
                may or may not be the same as the net asset value of 
                the shares.
            (2) Authorized participant.--The term ``authorized 
        participant'' means a financial institution that is a member or 
        participant of a clearing agency registered under section 
        17A(b) of the Securities Exchange Act of 1934 that enters into 
        a contractual relationship with an exchange-traded fund 
        pursuant to which the financial institution is permitted 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 investment 
                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 registered broker or dealer 
        under section 15(b) of the Securities Exchange Act of 1934 that 
        maintains liquidity 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 financial institution 
        is contractually or legally precluded from selling or buying 
        such shares to or from persons who are not authorized 
        participants or otherwise described in Treas. Reg. section 
        1.817-5(f) (2) and (3).
    (e) Effective Dates, Enforcement, and Interpretations.--
            (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 administer 
                and enforce the law in accordance with this section and 
                the effective dates in paragraph (1) of this 
                subsection; and
                    (B) taxpayers may rely upon their reasonable good 
                faith interpretations of the preceding subsections of 
                this section.
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