Source: http://topics.law.cornell.edu/uscode/text/26/7702A
Timestamp: 2013-12-11 09:57:44
Document Index: 80080742

Matched Legal Cases: ['§ 7702', '§ 7702', '§ 7702', '§ 5012', '§ 7647', '§ 1', '§ 318', '§ 416', '§ 1', '§ 318', '§ 1', '§ 318', '§ 1', '§ 318', '§ 7815', '§ 7815', '§ 7647', '§ 1', '§ 318', '§ 7815', '§ 416']

26 USC § 7702A - Modified endowment contract defined | Title 26 - Internal Revenue Code | U.S. Code | LII / Legal Information Institute
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26 USC § 7702A - Modified endowment contract defined
General rule For purposes of section 72, the term “modified endowment contract” means any contract meeting the requirements of section 7702—
7-pay test For purposes of subsection (a), a contract fails to meet the 7-pay test of this subsection if the accumulated amount paid under the contract at any time during the 1st 7 contract years exceeds the sum of the net level premiums which would have been paid on or before such time if the contract provided for paid-up future benefits after the payment of 7 level annual premiums.
Computational rules (1)
In general Except as provided in this subsection, the determination under subsection (b) of the 7 level annual premiums shall be made—
Reduction in benefits during 1st 7 years (A)
In general If there is a reduction in benefits under the contract within the 1st 7 contract years, this section shall be applied as if the contract had originally been issued at the reduced benefit level.
Reductions attributable to nonpayment of premiums Any reduction in benefits attributable to the nonpayment of premiums due under the contract shall not be taken into account under subparagraph (A) if the benefits are reinstated within 90 days after the reduction in such benefits.
Treatment of material changes (A)
In general If there is a material change in the benefits under (or in other terms of) the contract which was not reflected in any previous determination under this section, for purposes of this section—
Treatment of certain benefit increases For purposes of subparagraph (A), the term “material change” includes any increase in the death benefit under the contract or any increase in, or addition of, a qualified additional benefit under the contract. Such term shall not include—
any increase which is attributable to the payment of premiums necessary to fund the lowest level of the death benefit and qualified additional benefits payable in the 1st 7 contract years (determined after taking into account death benefit increases described in subparagraph (A) or (B) of section 7702
(e)(2)) or to crediting of interest or other earnings (including policyholder dividends) in respect of such premiums, and
to the extent provided in regulations, any cost-of-living increase based on an established broad-based index if such increase is funded ratably over the remaining period during which premiums are required to be paid under the contract.
Special rule for contracts with death benefits of $10,000 or less In the case of a contract—
which requires at least 7 nondecreasing annual premium payments,
Regulatory authority for certain collection expenses The Secretary may by regulations prescribe rules for taking into account expenses solely attributable to the collection of premiums paid more frequently than annually.
Treatment of certain contracts with more than one insured If—
there is a reduction in such death benefit below the lowest level of such death benefit provided under the contract during the 1st 7 contract years,
Distributions affected If a contract fails to meet the 7-pay test of subsection (b), such contract shall be treated as failing to meet such requirements only in the case of—
Amount paid (A)
In general The term “amount paid” means—
amounts to which section 72
(e) applies (determined without regard to paragraph (4)(A) thereof) but not including amounts includible in gross income.
Treatment of certain premiums returned If, in order to comply with the requirements of subsection (b), any portion of any premium paid during any contract year is returned by the insurance company (with interest) within 60 days after the end of such contract year, the amount so returned (excluding interest) shall be deemed to reduce the sum of the premiums paid under the contract during such contract year.
Interest returned includible in gross income Notwithstanding the provisions of section 72
(e), the amount of any interest returned as provided in subparagraph (B) shall be includible in the gross income of the recipient.
Contract year The term “contract year” means the 12-month period beginning with the 1st month for which the contract is in effect, and each 12-month period beginning with the corresponding month in subsequent calendar years.
Other terms Except as otherwise provided in this section, terms used in this section shall have the same meaning as when used in section 7702.
(Added Pub. L. 100–647, title V, § 5012(c)(1),Nov. 10, 1988, 102 Stat. 3662; amended Pub. L. 101–239, title VII, §§ 7647(a), 7815(a)(1), (4),Dec. 19, 1989, 103 Stat. 2382, 2414; Pub. L. 106–554, § 1(a)(7) [title III, § 318(a)(1), (2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–645; Pub. L. 107–147, title IV, § 416(f),Mar. 9, 2002, 116 Stat. 55.)
2002—Subsec. (c)(3)(A)(ii). Pub. L. 107–147repealed Pub. L. 106–554, § 1(a)(7) [title III, § 318(a)(2)]. See 2000 Amendment note below.
2000—Subsec. (a)(2). Pub. L. 106–554, § 1(a)(7) [title III, § 318(a)(1)], inserted “or this paragraph” before period at end.
Subsec. (c)(3)(A)(ii). Pub. L. 106–554, § 1(a)(7) [title III, § 318(a)(2)], which substituted “under the old contract” for “under the contract”, was repealed by Pub. L. 107–147. See Construction of 2002 Amendment note below.
1989—Subsec. (c)(3)(B). Pub. L. 101–239, § 7815(a)(1), substituted “benefit increases” for “increases in future benefits” in heading and amended text generally. Prior to amendment, text read as follows: “For purposes of subparagraph (A), the term ‘material change’ includes any increase in future benefits under the contract. Such term shall not include—
“(i) any increase which is attributable to the payment of premiums necessary to fund the lowest level of future benefits payable in the 1st 7 contract years (determined after taking into account death benefit increases described in subparagraph (A) or (B) of section 7702
Subsec. (c)(4). Pub. L. 101–239, § 7815(a)(4), substituted “of $10,000 or less” for “under $10,000” in heading and “the same policyholder” for “the same insurer” in concluding provisions.
Subsec. (c)(6). Pub. L. 101–239, § 7647(a), added par. (6).
Pub. L. 106–554, § 1(a)(7) [title III, § 318(a)(3)], Dec. 21, 2000, 114 Stat. 2763, 2763A–645, provided that: “The amendments made by this subsection [amending this section] shall take effect as if included in the amendments made by section 5012 of the Technical and Miscellaneous Revenue Act of 1988 [Pub. L. 100–647].”
Section 7647(b) ofPub. L. 101–239provided that: “The amendment made by subsection (a) [amending this section] shall apply to contracts entered into on or after September 14, 1989.”
Amendment by section 7815(a)(1), (4) ofPub. L. 101–239effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 ofPub. L. 101–239, set out as a note under section 1 of this title.
Section 5012(e) ofPub. L. 100–647, as amended by Pub. L. 101–239, title VII, § 7815(a)(2),Dec. 19, 1989, 103 Stat. 2414, provided that:
“(1) In general.—Except as otherwise provided in this subsection, the amendments made by this section [enacting this section and amending sections 26 and 72 of this title] shall apply to contracts entered into on or after June 21, 1988.
“(2) Special rule where death benefit increases by more than $150,000.—If the death benefit under the contract increases by more than $150,000 over the death benefit under the contract in effect on October 20, 1988, the rules of section 7702A(c)(3) of the 1986 Code (as added by this section) shall apply in determining whether such contract is issued on or after June 21, 1988. The preceding sentence shall not apply in the case of a contract which, as of June 21, 1988, required at least 7 level annual premium payments and under which the policyholder makes at least 7 level annual premium payments.
“(3) Certain other material changes taken into account.—A contract entered into before June 21, 1988, shall be treated as entered into after such date if—
“(4) Certain exchanges permitted.—In the case of a modified endowment contract which—
“(B) is entered into after June 20, 1988, and before the date of the enactment of this Act [Nov. 10, 1988], and
“(C) is exchanged within 3 months after such date of enactment for a life insurance contract which meets the requirements of section 7702A
“(5) Special rule for annuity contracts.—In the case of annuity contracts, the amendments made by subsection (d) [amending section 72 of this title] shall apply to contracts entered into after October 21, 1988.”
Pub. L. 107–147, title IV, § 416(f),Mar. 9, 2002, 116 Stat. 55, provided that: “Paragraph (2) of section 318(a) of the Community Renewal Tax Relief Act of 2000 [H.R. 5662, as enacted by section 1(a)(7) ofPub. L. 106–554](114 Stat. 2763A–645) [amending this section] is repealed, and clause (ii) of section 7702A
(c)(3)(A) shall read and be applied as if the amendment made by such paragraph had not been enacted.”