An Act relating to the tax treatment of certain amounts paid to servicemen and survivors
PL 89-365 (H.R.10625), enacted 03/08/1966

32 
PUBLIC LAW 89-365-MAR. 8, 1966 
[80 STAT. 
March 8, 1966 
[H. R. 10625] 
Public Law 89-365 
AN ACT 
Relating to the tax treatment of certain amounts paid to certain members and 
former members of the uniformed services and to their survivors. 
Uniformed serv-
ices. 
Family protec-
tion plan, tax 
treatment. 
78 Stat. 38. 
26USC 101-122. 
70A Stat. 109. 
10 u s e 1431-
1446. 
68A Stat. 20; 
76 Stat. 821. 
70A Stat. 110. 
Supra-
68A Stat. 27. 
Be it enucted hy the Senate and House of Representatives 
of the 
United States of America in Congress assembled, That (a) (1) part 
I I I of subchapter B of chaj)ter 1 of the Internal Revenue Code of 
1954 (relating to items specifically excluded from gross income) is 
amended by redesignating section 122 as section 123, and by inserting 
after section 121 the following new section: 
"SEC. 122. CERTAIN REDUCED UNIFORMED SERVICES RETIREMENT 
PAY. 
"(a) GENERAL RULE.—In the case of a member or former member 
of the uniformed services of the United States who has made an 
election under chapter 73 of title 10 of the United States Code to 
receive a reduced amount of retired or retainer pay, gross income does 
not include the amount of any reduction after December 31, 1965, in 
his retired or retainer pay by reason of such election. 
"(b) 
SPECIAL RULE.— 
"(1) AMOUNT EXCLUDED FROM GROSS INCOME.—In the case of 
any individual referred to in subsection (a), all amounts received 
after December 31, 1965, as retired or retainer pay shall be 
excluded from gross income until there has been so excluded an 
amount equal to the consideration for the contract. The preceding 
sentence snail apply only to the extent that the amounts received 
would, but for such sentence, be includible in gross income. 
" (2) CONSIDERATION FOR THE CONTRACT.—For purposes of para-
graph (1) and section 72 (o), the term 'consideration for the con-
tract' means, in respect of, any individual, the sum of— 
" (A) the total amount of the reductions before January 1, 
1966, in his retired or retainer pay by reason of an election 
under chapter 73 of title 10 of the United States Code,-and 
"(B) any amounts deposited at any time by him pursuant 
to section 1438 of such title 10." 
,(2) The table of sections for such part I I I is amended by striking 
out the item relating to section 122 and inserting in lieu thereof the 
following: 
"Sec. 122. Certain reduced uniformed services retirement pay. 
"Sec. 123. Cross references to other Acts." 
(b) Section 72 of such Code (relating to tax treatment of annuities) 
is amended by redesigiiating subsection (o) as subsection (p), and by 
inserting after subsection (n) the following new subsection: 
"(o) ANNUITIES UNDER RETIRED SERVICEMAN'S FAMILY PROTECTION 
PLAN.—Subsections (b) and (d) shall not apply in the case of amounts 
received after December 31, 1965, as an annuity under chapter 73 of 
title 10 of the United States Code, but all such amounts shall be 
excluded from gross income until there has been so excluded (under 
section 122(b) (1) or this section, including amounts excluded before 
January 1,1966) an amount equal to the consideration for the contract 
(as defined by section 122(b) (2)), i)lus any amount treated pursuant 
to section 101(b)(2)(D) as additional consideration paid by the 
employee. Thereafter all amounts so received shall be included in 
gross income." 
(c) Section 101(b) (2) (D) of such Code (relating to special rules 
for employees' death benefits) is amended bv adding at the end thereof 
the following new sentence: "Paragraph (1) shall not apply in, the case 
of an annuity under chapter 73 of title 10 of the United States Code if 
10 u s e 1431-
1446. 
70A Stat. 110. 
80 STAT.] 
PUBLIC LAW 89-366-MAR. 10, 1966 
33 
the individual who made the election under such chapter died after 
attaining retirement age." 
(d) The amendments made by subsections (a) and (b) shall apply 
with respect to taxable years ending after December 31, 1965. The 
amendment made by subsection (c) shall apply with respect to indi-
viduals making an election under chapter 73 of title 10 of the United 
States Code who die after December 31, 1965. 
SEC. 2. (a) Section 2039(c) of the Internal Revenue Code of 1954 
(relating to exclusion from gross estate of annuities under certain 
trusts and plans) is amended— 
(1) Dy striking out "or" at the end of paragraph (2), by strik-
ing out the period at the end of paragraph (3) and inserting in 
lieu thereof "; or", and by adding at the end thereof the follow-
ing new paragraph: 
"(4) chapter 73 of title 10 of the United State Code."; 
(2) by striking out "or under a contract described in paragraph 
(3)" in the second sentence and inserting in lieu thereof ", under 
a contract described in paragraph (3), or under chapter 73 of 
title 10 of the United States Code"; and 
(3) by inserting at the end thereof the following new sen-
tence: "For purposes of this subsection, amounts payable under 
chapter 73 of title 10 of the United States Code are attributable 
to payments or contributions made by the decedent only to the 
extent of amounts deposited by him pursuant to section 1438 of 
such title 10." 
(b) (1) Section 2517(a) of such Code (relating to gift tax treatment 
of cei'tain annuities under qualified plans) is amended by striking out 
"or" at the end of paragraph (2), oy striking out the period at the 
end of paragraph (3) and inserting in lieu thereof "; or", and by 
adding at the end thereof the following new paragraph: 
" (4) chapter 73 of title 10 of the United States Code." 
(2) The first sentence of section 2517(b) of such Code (relating to 
transfers attributable to employee contributions) is amended by insert-
ing "(other than paragraph (4))" after "referred to in subsection 
(a)". 
(c) The amendments made by subsection (a) shall apply with 
respect to decedents dying after December 31,1965. The amendments 
made by subsection (b) shall apply with respect to calendar years 
after 1965. 
Approved March 8, 1966. 
Public Law 89-366 
A N A C T 
March 10, 196(5 
To provide for the establishment of the Cape Lookout National Seashore in the 
^^- ^^^^ 
State of North Carolina, and for other purposes. 
Be it enacted hy the Senate and House of Representatives 
of the 
United States of America in Congress assembled. That in order to 
^^P^ Lookout 
preserve for public use and enjoyment an area in the State of North NX'.°"^ ^^^ °'^' 
Carolina possessing outstanding natural and recreational values, Establishment. 
there is hereby authorized to be established the Cape Lookout National 
Seashore (hereinafter referred to as "seashore"), which shall com-
prise the lands and adjoining marshlands and waters on the outer 
banks of Carteret County, North Carolina, between Ocracoke Inlet 
and Beaufort Inlet, as generally depicted on the map entitled "Pro-
posed Boundaries—Proposed Cape Lookout National Seashore", dated