---
kind: "section"
citation: "26 U.S.C. § 264"
title: "26"
title_heading: "Internal Revenue Code"
number: "264"
heading: "Certain amounts paid in connection with insurance contracts"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/264"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter B — Computation of Taxable Income"
  - "Part IX — Items Not Deductible"
---

# §264. Certain amounts paid in connection with insurance contracts

- (a) **General rule—** No deduction shall be allowed for—
  - (1) Premiums on any life insurance policy, or endowment or [annuity contract](/usc/26/414.md?p=z-4-B), if the [taxpayer](/usc/26/1313.md?p=b) is directly or [indirectly](/usc/26/101.md?p=a-3-B) a beneficiary under the policy or [contract](/usc/26/101.md?p=f-3-A).
  - (2) Any amount paid or accrued on indebtedness incurred or continued to [purchase](/usc/26/1361.md?p=e-1-C) or carry a single premium life insurance, endowment, or [annuity contract](/usc/26/414.md?p=z-4-B).
  - (3) Except as provided in [subsection (d)](#d), any amount paid or accrued on indebtedness incurred or continued to [purchase](/usc/26/1361.md?p=e-1-C) or carry a life insurance, endowment, or [annuity contract](/usc/26/414.md?p=z-4-B) (other than a single premium [contract](/usc/26/101.md?p=f-3-A) or a [contract](/usc/26/101.md?p=f-3-A) treated as a single premium [contract](/usc/26/101.md?p=f-3-A)) pursuant to a plan of [purchase](/usc/26/1361.md?p=e-1-C) which contemplates the systematic direct or indirect borrowing of part or all of the increases in the [cash](/usc/26/856.md?p=c-5-K) [value](/usc/26/851.md?p=c-4) of such [contract](/usc/26/101.md?p=f-3-A) (either from the insurer or otherwise).
  - (4) Except as provided in [subsection (e)](#e), any [interest](/usc/26/856.md?p=f-1) paid or accrued on any indebtedness with respect to 1 or more life insurance policies owned by the [taxpayer](/usc/26/1313.md?p=b) covering the life of any individual, or any endowment or [annuity contracts](/usc/26/414.md?p=z-4-B) owned by the [taxpayer](/usc/26/1313.md?p=b) covering any individual.

  [Paragraph (2)](#a-2) shall apply in respect of [annuity contracts](/usc/26/414.md?p=z-4-B) only as to [contracts](/usc/26/101.md?p=f-3-A) purchased after March 1, 1954. [Paragraph (3)](#a-3) shall apply only in respect of [contracts](/usc/26/101.md?p=f-3-A) purchased after August 6, 1963. [Paragraph (4)](#a-4) shall apply with respect to [contracts](/usc/26/101.md?p=f-3-A) purchased after June 20, 1986.

- (b) **Exceptions to subsection (a)(1)—** [Subsection (a)(1)](#a-1) shall not apply to—
  - (1) any [annuity contract](/usc/26/414.md?p=z-4-B) described in [section 72(s)(5)](/usc/26/72.md?p=s-5), and
  - (2) any [annuity contract](/usc/26/414.md?p=z-4-B) to which [section 72(u)](/usc/26/72.md?p=u) applies.
- (c) **Contracts treated as single premium contracts—** For purposes of [subsection (a)(2)](#a-2), a [contract](/usc/26/101.md?p=f-3-A) shall be treated as a single premium [contract](/usc/26/101.md?p=f-3-A)—
  - (1) if substantially all the premiums on the [contract](/usc/26/101.md?p=f-3-A) are paid within a period of 4 years from the date on which the [contract](/usc/26/101.md?p=f-3-A) is purchased, or
  - (2) if an amount is deposited after March 1, 1954, with the insurer for payment of a substantial number of future premiums on the [contract](/usc/26/101.md?p=f-3-A).
- (d) **Exceptions—** [Subsection (a)(3)](#a-3) shall not apply to any amount paid or accrued by a person during a taxable year on indebtedness incurred or continued as part of a plan referred to in [subsection (a)(3)](#a-3)—
  - (1) if no part of 4 of the annual premiums due during the 7-year period (beginning with the date the first premium on the [contract](/usc/26/101.md?p=f-3-A) to which such plan relates was paid) is paid under such plan by means of indebtedness,
  - (2) if the total of the amounts paid or accrued by such person during such taxable year for which (without regard to this paragraph) no deduction would be allowable by reason of [subsection (a)(3)](#a-3) does not exceed $100,
  - (3) if such amount was paid or accrued on indebtedness incurred because of an unforeseen substantial loss of income or unforeseen substantial increase in his financial obligations, or
  - (4) if such indebtedness was incurred in connection with his [trade or business](/usc/26/1402.md?p=c).

  For purposes of applying [paragraph (1)](#d-1), if there is a substantial increase in the premiums on a [contract](/usc/26/101.md?p=f-3-A), a new 7-year period described in such paragraph with respect to such [contract](/usc/26/101.md?p=f-3-A) shall commence on the date the first such increased premium is paid.

- (e) **Special rules for application of subsection (a)(4)—**
  - (1) **Exception for key persons—** [Subsection (a)(4)](#a-4) shall not apply to any [interest](/usc/26/856.md?p=f-1) paid or accrued on any indebtedness with respect to policies or [contracts](/usc/26/101.md?p=f-3-A) covering an individual who is a key person to the extent that the aggregate amount of such indebtedness with respect to policies and [contracts](/usc/26/101.md?p=f-3-A) covering such individual does not exceed $50,000.
  - (2) **Interest rate cap on key persons and pre-1986 contracts—**
    - (A) **In general—** No deduction shall be allowed by reason of [paragraph (1)](#e-1) or the last sentence of [subsection (a)](#a) with respect to [interest](/usc/26/856.md?p=f-1) paid or accrued for any month beginning after December 31, 1995, to the extent the amount of such [interest](/usc/26/856.md?p=f-1) exceeds the amount which would have been determined if the applicable rate of [interest](/usc/26/856.md?p=f-1) were used for such month.
    - (B) **Applicable rate of interest—** For purposes of [subparagraph (A)](#e-2-A)—
      - (i) **In general—** The applicable rate of [interest](/usc/26/856.md?p=f-1) for any month is the rate of [interest](/usc/26/856.md?p=f-1) described as Moody’s Corporate [Bond](/usc/26/150.md?p=a-1) Yield Average-Monthly Average Corporates as published by Moody’s Investors Service, Inc., or any successor thereto, for such month.
      - (ii) **Pre-1986 contracts—** In the case of indebtedness on a [contract](/usc/26/101.md?p=f-3-A) purchased on or before June 20, 1986—
        - (I) which is a [contract](/usc/26/101.md?p=f-3-A) providing a fixed rate of [interest](/usc/26/856.md?p=f-1), the applicable rate of [interest](/usc/26/856.md?p=f-1) for any month shall be the Moody’s rate described in [clause (i)](#e-2-B-i) for the month in which the [contract](/usc/26/101.md?p=f-3-A) was purchased, or
        - (II) which is a [contract](/usc/26/101.md?p=f-3-A) providing a variable rate of [interest](/usc/26/856.md?p=f-1), the applicable rate of [interest](/usc/26/856.md?p=f-1) for any month in an [applicable period](/usc/26/417.md?p=a-3-B-ii) shall be such Moody’s rate for the third month preceding the first month in such period.

      For purposes of subclause (II), the term “[applicable period](/usc/26/417.md?p=a-3-B-ii)” means the 12-month period beginning on the date the policy is issued (and each successive 12-month period thereafter) unless the [taxpayer](/usc/26/1313.md?p=b) elects a number of months (not greater than 12) other than such 12-month period to be its [applicable period](/usc/26/417.md?p=a-3-B-ii). Such an election shall be made not later than the 90th day after the date of the enactment of this sentence and, if made, shall apply to the [taxpayer](/usc/26/1313.md?p=b)’s first taxable year ending on or after October 13, 1995, and all subsequent taxable years unless revoked with the consent of the Secretary.

  - (3) **Key person—** For purposes of [paragraph (1)](#e-1), the term “key person” means an officer or 20-percent owner, except that the number of individuals who may be treated as key persons with respect to any [taxpayer](/usc/26/1313.md?p=b) shall not exceed the greater of—
    - (A) 5 individuals, or
    - (B) the lesser of 5 percent of the total officers and [employees](/usc/26/430.md?p=c-7-D-vi) of the [taxpayer](/usc/26/1313.md?p=b) or 20 individuals.
  - (4) **20-percent owner—** For purposes of this subsection, the term “20-percent owner” means—
    - (A) if the [taxpayer](/usc/26/1313.md?p=b) is a corporation, any person who owns directly 20 percent or more of the outstanding [stock](/usc/26/1504.md?p=a-4) of the corporation or [stock](/usc/26/1504.md?p=a-4) possessing 20 percent or more of the total combined voting power of all [stock](/usc/26/1504.md?p=a-4) of the corporation, or
    - (B) if the [taxpayer](/usc/26/1313.md?p=b) is not a corporation, any person who owns 20 percent or more of the capital or profits [interest](/usc/26/856.md?p=f-1) in the [taxpayer](/usc/26/1313.md?p=b).
  - (5) **Aggregation rules—**
    - (A) **In general—** For purposes of [paragraph (4)(A)](#e-4-A) and applying the $50,000 limitation in [paragraph (1)](#e-1)—
      - (i) all members of a [controlled group](/usc/26/414.md?p=l-2-D-v) shall be treated as one [taxpayer](/usc/26/1313.md?p=b), and
      - (ii) such limitation shall be allocated among the members of such group in such manner as the Secretary may prescribe.
    - (B) **Controlled group—** For purposes of this paragraph, all persons treated as a single employer under subsection [(a)](/usc/26/52.md?p=a) or [(b)](/usc/26/52.md?p=b) of section 52 or subsection [(m)](/usc/26/414.md?p=m) or [(o)](/usc/26/414.md?p=o) of section 414 shall be treated as members of a [controlled group](/usc/26/414.md?p=l-2-D-v).
- (f) **Pro rata allocation of interest expense to policy cash values—**
  - (1) **In general—** No deduction shall be allowed for that portion of the [taxpayer](/usc/26/1313.md?p=b)’s [interest](/usc/26/856.md?p=f-1) expense which is allocable to unborrowed policy [cash](/usc/26/856.md?p=c-5-K) [values](/usc/26/851.md?p=c-4).
  - (2) **Allocation—** For purposes of [paragraph (1)](#f-1), the portion of the [taxpayer](/usc/26/1313.md?p=b)’s [interest](/usc/26/856.md?p=f-1) expense which is allocable to unborrowed policy [cash](/usc/26/856.md?p=c-5-K) [values](/usc/26/851.md?p=c-4) is an amount which bears the same ratio to such [interest](/usc/26/856.md?p=f-1) expense as—
    - (A) the [taxpayer](/usc/26/1313.md?p=b)’s average unborrowed policy [cash](/usc/26/856.md?p=c-5-K) [values](/usc/26/851.md?p=c-4) of life insurance policies, and annuity and endowment [contracts](/usc/26/101.md?p=f-3-A), issued after June 8, 1997, bears to
    - (B) the sum of—
      - (i) in the case of assets of the [taxpayer](/usc/26/1313.md?p=b) which are life insurance policies or annuity or endowment [contracts](/usc/26/101.md?p=f-3-A), the average unborrowed policy [cash](/usc/26/856.md?p=c-5-K) [values](/usc/26/851.md?p=c-4) of such policies and [contracts](/usc/26/101.md?p=f-3-A), and
      - (ii) in the case of assets of the [taxpayer](/usc/26/1313.md?p=b) not described in [clause (i)](#f-2-B-i), the average adjusted bases (within the meaning of [section 1016](/usc/26/1016.md)) of such assets.
  - (3) **Unborrowed policy cash value—** For purposes of this subsection, the term “unborrowed policy [cash](/usc/26/856.md?p=c-5-K) [value](/usc/26/851.md?p=c-4)” means, with respect to any life insurance policy or annuity or endowment [contract](/usc/26/101.md?p=f-3-A), the excess of—
    - (A) the [cash](/usc/26/856.md?p=c-5-K) surrender [value](/usc/26/851.md?p=c-4) of such policy or [contract](/usc/26/101.md?p=f-3-A) determined without regard to any surrender charge, over
    - (B) the amount of any loan with respect to such policy or [contract](/usc/26/101.md?p=f-3-A).

    If the amount described in [subparagraph (A)](#f-3-A) with respect to any policy or [contract](/usc/26/101.md?p=f-3-A) does not reasonably approximate its actual [value](/usc/26/851.md?p=c-4), the amount taken into account under [subparagraph (A)](#f-3-A) shall be the greater of the amount of the insurance [company](/usc/26/812.md?p=a) liability or the insurance [company](/usc/26/812.md?p=a) reserve with respect to such policy or [contract](/usc/26/101.md?p=f-3-A) (as determined for purposes of the [annual statement](/usc/26/846.md?p=e-3) approved by the National Association of Insurance Commissioners) or shall be such other amount as is determined by the Secretary.

  - (4) **Exception for certain policies and contracts—**
    - (A) **Policies and contracts covering 20-percent owners, officers, directors, and employees—** [Paragraph (1)](#f-1) shall not apply to any policy or [contract](/usc/26/101.md?p=f-3-A) owned by an entity engaged in a [trade or business](/usc/26/1402.md?p=c) if such policy or [contract](/usc/26/101.md?p=f-3-A) covers only 1 individual and if such individual is (at the time first covered by the policy or [contract](/usc/26/101.md?p=f-3-A))—
      - (i) a 20-percent owner of such entity, or
      - (ii) an individual (not described in [clause (i)](#f-4-A-i)) who is an officer, director, or [employee](/usc/26/430.md?p=c-7-D-vi) of such [trade or business](/usc/26/1402.md?p=c).

      A policy or [contract](/usc/26/101.md?p=f-3-A) covering a 20-percent owner of such entity shall not be treated as failing to meet the requirements of the preceding sentence by reason of covering the joint lives of such owner and such owner’s spouse.

    - (B) **Contracts subject to current income inclusion—** [Paragraph (1)](#f-1) shall not apply to any [annuity contract](/usc/26/414.md?p=z-4-B) to which [section 72(u)](/usc/26/72.md?p=u) applies.
    - (C) **Coordination with paragraph (2)—** Any policy or [contract](/usc/26/101.md?p=f-3-A) to which [paragraph (1)](#f-1) does not apply by reason of this paragraph shall not be taken into account under [paragraph (2)](#f-2).
    - (D) **20-percent owner—** For purposes of [subparagraph (A)](#f-4-A), the term “20-percent owner” has the meaning given such term by [subsection (e)(4)](#e-4).
    - (E) **Master contracts—** If coverage for each [insured](/usc/26/101.md?p=j-5-B) under a master [contract](/usc/26/101.md?p=f-3-A) is treated as a separate [contract](/usc/26/101.md?p=f-3-A) for purposes of sections [817(h)](/usc/26/817.md?p=h), [7702](/usc/26/7702.md), and [7702A](/usc/26/7702A.md), coverage for each such [insured](/usc/26/101.md?p=j-5-B) shall be treated as a separate [contract](/usc/26/101.md?p=f-3-A) for purposes of [subparagraph (A)](#f-4-A). For purposes of the preceding sentence, the term “master [contract](/usc/26/101.md?p=f-3-A)” shall not include any group life insurance [contract](/usc/26/101.md?p=f-3-A) (as defined in [section 848(e)(2)](/usc/26/848.md?p=e-2)).
  - (5) **Exception for policies and contracts held by natural persons; treatment of partnerships and S corporations—**
    - (A) **Policies and contracts held by natural persons—**
      - (i) **In general—** This subsection shall not apply to any policy or [contract](/usc/26/101.md?p=f-3-A) held by a natural person.
      - (ii) **Exception where business is beneficiary—** If a [trade or business](/usc/26/1402.md?p=c) is directly or [indirectly](/usc/26/101.md?p=a-3-B) the beneficiary under any policy or [contract](/usc/26/101.md?p=f-3-A), such policy or [contract](/usc/26/101.md?p=f-3-A) shall be treated as held by such [trade or business](/usc/26/1402.md?p=c) and not by a natural person.
      - (iii) **Special rules—**
        - (I) **Certain trades or businesses not taken into account—** [Clause (ii)](#f-5-A-ii) shall not apply to any [trade or business](/usc/26/1402.md?p=c) carried on as a sole proprietorship and to any [trade or business](/usc/26/1402.md?p=c) performing services as an [employee](/usc/26/430.md?p=c-7-D-vi).
        - (II) **Limitation on unborrowed cash value—** The amount of the unborrowed [cash](/usc/26/856.md?p=c-5-K) [value](/usc/26/851.md?p=c-4) of any policy or [contract](/usc/26/101.md?p=f-3-A) which is taken into account by reason of [clause (ii)](#f-5-A-ii) shall not exceed the benefit to which the [trade or business](/usc/26/1402.md?p=c) is directly or [indirectly](/usc/26/101.md?p=a-3-B) entitled under the policy or [contract](/usc/26/101.md?p=f-3-A).
      - (iv) **Reporting—** The Secretary shall require such reporting from [policyholders](/usc/26/812.md?p=b) and issuers as is necessary to carry out [clause (ii)](#f-5-A-ii).
    - (B) **Treatment of partnerships and S corporations—** In the case of a [partnership](/usc/26/761.md?p=a) or [S corporation](/usc/26/1361.md?p=a-1), this subsection shall be applied at the [partnership](/usc/26/761.md?p=a) and corporate levels.
  - (6) **Special rules—**
    - (A) **Coordination with subsection (a) and section 265—** If [interest](/usc/26/856.md?p=f-1) on any indebtedness is disallowed under [subsection (a)](#a) or [section 265](/usc/26/265.md)—
      - (i) such disallowed [interest](/usc/26/856.md?p=f-1) shall not be taken into account for purposes of applying this subsection, and
      - (ii) the amount otherwise taken into account under [paragraph (2)(B)](#f-2-B) shall be reduced (but not below zero) by the amount of such indebtedness.
    - (B) **Coordination with section 263A—** This subsection shall be applied before the application of [section 263A](/usc/26/263A.md) (relating to capitalization of certain expenses where [taxpayer](/usc/26/1313.md?p=b) produces [property](/usc/26/317.md?p=a)).
  - (7) **Interest expense—** The term “[interest](/usc/26/856.md?p=f-1) expense” means the aggregate amount allowable to the [taxpayer](/usc/26/1313.md?p=b) as a deduction for [interest](/usc/26/856.md?p=f-1) (within the meaning of [section 265(b)(4)](/usc/26/265.md?p=b-4)) for the taxable year (determined without regard to this subsection, [section 265(b)](/usc/26/265.md?p=b), and [section 291](/usc/26/291.md)).
  - (8) **Aggregation rules—**
    - (A) **In general—** All members of a [controlled group](/usc/26/414.md?p=l-2-D-v) (within the meaning of [subsection (e)(5)(B)](#e-5-B)) shall be treated as 1 [taxpayer](/usc/26/1313.md?p=b) for purposes of this subsection.
    - (B) **Treatment of insurance companies—** This subsection shall not apply to an insurance [company](/usc/26/812.md?p=a) subject to tax under subchapter L, and [subparagraph (A)](#f-8-A) shall be applied without regard to any member of an [affiliated group](/usc/26/864.md?p=e-5-A) which is an insurance [company](/usc/26/812.md?p=a).

## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 77; Pub. L. 88–272, title II, § 215(a), (b), Feb. 26, 1964, 78 Stat. 55; Pub. L. 99–514, title X, § 1003(a), (b), Oct. 22, 1986, 100 Stat. 2388; Pub. L. 104–191, title V, § 501(a), (b), Aug. 21, 1996, 110 Stat. 2090; Pub. L. 105–34, title X, § 1084(a), (b)(1), (c), title XVI, § 1602(f)(1)–(3), Aug. 5, 1997, 111 Stat. 951, 952, 1094, 1095; Pub. L. 105–206, title VI, § 6010(o)(1)–(3)(A), (4)(A), (5), July 22, 1998, 112 Stat. 816; Pub. L. 105–277, div. J, title IV, § 4003(i), Oct. 21, 1998, 112 Stat. 2681–910.)

## Notes

### Editorial Notes

### References in Text

The date of the enactment of this sentence, referred to in subsec. (e)(2)(B)(ii), probably means the date of enactment of Pub. L. 105–34, which was approved Aug. 5, 1997.

### Codification

Another section 1084(b) of Pub. L. 105–34 amended sections 805, 807, 812, and 832 of this title. Another section 1084(c) of Pub. L. 105–34 amended section 265 of this title.

### Amendments

1998—Subsec. (a)(3). Pub. L. 105–206, § 6010(o)(1), substituted “subsection (d)” for “subsection (c)”.

Subsec. (a)(4). Pub. L. 105–206, § 6010(o)(2), substituted “subsection (e)” for “subsection (d)”.

Subsec. (f)(3). Pub. L. 105–277 inserted concluding provisions.

Subsec. (f)(4)(E). Pub. L. 105–206, § 6010(o)(3)(A), added subpar. (E).

Subsec. (f)(5)(A)(iv). Pub. L. 105–206, § 6010(o)(4)(A), struck out at end “Any report required under the preceding sentence shall be treated as a statement referred to in section 6724(d)(1).”

Subsec. (f)(8)(A). Pub. L. 105–206, § 6010(o)(5), substituted “subsection (e)(5)(B)” for “subsection (d)(5)(B)”.

1997—Subsec. (a)(1). Pub. L. 105–34, § 1084(a)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, when the taxpayer is directly or indirectly a beneficiary under such policy.”

Subsec. (a)(4). Pub. L. 105–34, § 1602(f)(1), added subpars. (A) and (B) and concluding provisions and struck out former subpars. (A) and (B) and concluding provisions which read as follows:

“(A) is an officer or employee of, or

“(B) is financially interested in,

any trade or business carried on by the taxpayer.”

Pub. L. 105–34, § 1084(b)(1), substituted “individual.” for “individual, who—

“(A) is or was an officer or employee, or

“(B) is or was financially interested in,

any trade or business carried on (currently or formerly) by the taxpayer.”

Subsecs. (b), (c). Pub. L. 105–34, § 1084(a)(2), added subsec. (b) and redesignated former subsec. (b) as (c). Former subsec. (c) redesignated (d).

Subsec. (d). Pub. L. 105–34, § 1084(a)(2), redesignated subsec. (c) as (d). Former subsec. (d) redesignated (e).

Subsec. (d)(2)(B)(ii). Pub. L. 105–34, § 1602(f)(2), amended concluding provisions generally. Prior to amendment, concluding provisions read as follows: “For purposes of subclause (II), the taxpayer shall elect an applicable period for such contract on its return of tax imposed by this chapter for its first taxable year ending on or after October 13, 1995. Such applicable period shall be for any number of months (not greater than 12) specified in the election and may not be changed by the taxpayer without the consent of the Secretary.”

Subsec. (d)(4)(B). Pub. L. 105–34, § 1602(f)(3), substituted “interest in the taxpayer” for “interest in the employer”.

Subsec. (e). Pub. L. 105–34, § 1084(a)(2), redesignated subsec. (d) as (e).

Subsec. (f). Pub. L. 105–34, § 1084(c), added subsec. (f).

1996—Subsec. (a)(4). Pub. L. 104–191, § 501(a)(1), (b)(1), in introductory provisions, substituted “Except as provided in subsection (d), any” for “Any” and inserted “, or any endowment or annuity contracts owned by the taxpayer covering any individual,” after “the life of any individual”.

Pub. L. 104–191, § 501(a)(2), struck out “to the extent that the aggregate amount of such indebtedness with respect to policies covering such individual exceeds $50,000” after “carried on by the taxpayer” in concluding provisions.

Subsec. (d). Pub. L. 104–191, § 501(b)(2), added subsec. (d).

1986—Subsec. (a). Pub. L. 99–514 added par. (4) and last sentence providing that par. (4) shall apply with respect to contracts purchased after June 20, 1986.

1964—Subsec. (a). Pub. L. 88–272 added par. (3) and sentence providing that par. (3) shall apply only to contracts purchased after August 6, 1963.

Subsec. (c). Pub. L. 88–272 added subsec. (c).

### Statutory Notes and Related Subsidiaries

### Effective Date of 1998 Amendments

Amendment by Pub. L. 105–277 effective as if included in the provision of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 4003(l) of Pub. L. 105–277, set out as a note under section 86 of this title.

Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.

### Effective Date of 1997 Amendment

Amendment by section 1084(a), (b)(1), (c) of Pub. L. 105–34 applicable to contracts issued after June 8, 1997, in taxable years ending after such date, with special provisions relating to changes in contracts to be treated as new contracts, see section 1084(d) of Pub. L. 105–34, set out as a note under section 101 of this title.

Amendment by section 1602(f)(1)–(3) of Pub. L. 105–34 effective as if included in the provisions of the Health Insurance Portability and Accountability Act of 1996, Pub. L. 104–191, to which such amendment relates, see section 1602(i) of Pub. L. 105–34, set out as a note under section 26 of this title.

### Effective Date of 1996 Amendment

Pub. L. 104–191, title V, § 501(c), Aug. 21, 1996, 110 Stat. 2091, as amended by Pub. L. 105–34, title XVI, § 1602(f)(4), Aug. 5, 1997, 111 Stat. 1095, provided that: In general.—The amendments made by this section [amending this section] shall apply to interest paid or accrued after October 13, 1995.Transition rule for existing indebtedness.— In general.—In the case of— indebtedness incurred before January 1, 1996, or indebtedness incurred before January 1, 1997 with respect to any contract or policy entered into in 1994 or 1995,the amendments made by this section shall not apply to qualified interest paid or accrued on such indebtedness after October 13, 1995, and before January 1, 1999. Qualified interest.—For purposes of subparagraph (A), the qualified interest with respect to any indebtedness for any month is the amount of interest (otherwise deductible) which would be paid or accrued for such month on such indebtedness if— in the case of any interest paid or accrued after December 31, 1995, indebtedness with respect to no more than 20,000 insured individuals were taken into account, and the lesser of the following rates of interest were used for such month: The rate of interest specified under the terms of the indebtedness as in effect on October 13, 1995 (and without regard to modification of such terms after such date). The applicable percentage of the rate of interest described as Moody’s Corporate Bond Yield Average-Monthly Average Corporates as published by Moody’s Investors Service, Inc., or any successor thereto, for such month.For purposes of clause (i), all persons treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986 or subsection (m) or (o) of section 414 of such Code shall be treated as 1 person. Subclause (II) of clause (ii) shall not apply to any month before January 1, 1996. Applicable percentage.—For purposes of subparagraph (B), the applicable percentage is as follows:


| For calendar year: | The percentage is: |
| --- | --- |
| 1996 | 100 percent |
| 1997 | 90 percent |
| 1998 | 80 percent.” |

### Effective Date of 1986 Amendment

Pub. L. 99–514, title X, § 1003(c), Oct. 22, 1986, 100 Stat. 2388, provided that: “The amendments made by this section [amending this section] shall apply to contracts purchased after June 20, 1986, in taxable years ending after such date.”

### Effective Date of 1964 Amendment

Pub. L. 88–272, title II, § 215(c), Feb. 26, 1964, 78 Stat. 56, provided that: “The amendments made by this section [amending this section] shall apply with respect to amounts paid or accrued in taxable years beginning after December 31, 1963.”

### Spread of Income Inclusion on Surrender, Etc. of Contracts

Pub. L. 104–191, title V, § 501(d), Aug. 21, 1996, 110 Stat. 2092, as amended by Pub. L. 105–34, title XVI, § 1602(f)(5), Aug. 5, 1997, 111 Stat. 1095, provided that: In general.—If any amount is received under any life insurance policy or endowment or annuity contract described in paragraph (4) of section 264(a) of the Internal Revenue Code of 1986— on the complete surrender, redemption, or maturity of such policy or contract during calendar year 1996, 1997, or 1998, or in full discharge during any such calendar year of the obligation under the policy or contract which is in the nature of a refund of the consideration paid for the policy or contract,then (in lieu of any other inclusion in gross income) such amount shall be includible in gross income ratably over the 4-taxable year period beginning with the taxable year such amount would (but for this paragraph) be includible. The preceding sentence shall only apply to the extent the amount is includible in gross income for the taxable year in which the event described in subparagraph (A) or (B) occurs. Special rules for applying section 264.—A contract shall not be treated as— failing to meet the requirement of section 264(c)(1) of the Internal Revenue Code of 1986, or a single premium contract under section 264(b)(1) of such Code,solely by reason of an occurrence described in subparagraph (A) or (B) of paragraph (1) of this subsection or solely by reason of a lapse occurring after October 13, 1995, by reason of no additional premiums being received under the contract. Special rule for deferred acquisition costs.—In the case of the occurrence of any event described in subparagraph (A) or (B) of paragraph (1) of this subsection with respect to any policy or contract— section 848 of the Internal Revenue Code of 1986 shall not apply to the unamortized balance (if any) of the specified policy acquisition expenses attributable to such policy or contract immediately before the insurance company’s taxable year in which such event occurs, and there shall be allowed as a deduction to such company for such taxable year under chapter 1 of such Code an amount equal to such unamortized balance.”