COLI Best Practices Act of 2005 - Amends the Internal Revenue Code to limit the tax exclusion for benefits paid by employer-owned life insurance contracts upon the death of an insured employee, with certain exceptions for directors and highly compensated employees and for proceeds paid to the heirs of an insured employee. Requires employers to provide written notice to employees of intent to insure their lives and obtain written consent from such employees to being insured under a company-owned life insurance contract.
Imposes certain reporting and recordkeeping requirements for employer-owned life insurance contracts.
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2251 Introduced in House (IH)]
109th CONGRESS
1st Session
H. R. 2251
To amend the Internal Revenue Code of 1986 to exclude from gross income
the proceeds from certain company-owned life insurance.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 11, 2005
Mr. Reynolds (for himself, Mr. Pomeroy, Mr. Shaw, Mrs. Johnson of
Connecticut, Mr. Herger, Mr. McCrery, Mr. Camp, Mr. Ramstad, Mr.
Nussle, Mr. Sam Johnson of Texas, Mr. English of Pennsylvania, Mr.
Hayworth, Mr. Weller, Mr. Hulshof, Mr. Lewis of Kentucky, Mr. Foley,
Mr. Brady of Texas, Mr. Ryan of Wisconsin, Mr. Linder, Mr. Beauprez,
Ms. Hart, Mr. Chocola, Mr. Cardin, Mr. Neal of Massachusetts, Mr.
McNulty, Mr. Jefferson, Mr. Tanner, Mr. Thompson of California, Mr.
Larson of Connecticut, Mr. Terry, Mr. Culberson, Mr. Gallegly, Mr.
Dent, and Mr. Putnam) introduced the following bill; which was referred
to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to exclude from gross income
the proceeds from certain company-owned life insurance.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``COLI Best Practices Act of 2005''.
SEC. 2. TREATMENT OF DEATH BENEFITS FROM CORPORATE-OWNED LIFE
INSURANCE.
(a) In General.--Section 101 of the Internal Revenue Code of 1986
(relating to certain death benefits) is amended by adding at the end
the following new subsection:
``(j) Treatment of Certain Employer-Owned Life Insurance
Contracts.--
``(1) General rule.--In the case of an employer-owned life
insurance contract, the amount excluded from gross income of an
applicable policyholder by reason of paragraph (1) of
subsection (a) shall not exceed an amount equal to the sum of
the premiums and other amounts paid by the policyholder for the
contract.
``(2) Exceptions.--In the case of an employer-owned life
insurance contract with respect to which the notice and consent
requirements of paragraph (4) are met, paragraph (1) shall not
apply to any of the following:
``(A) Exceptions based on insured's status.--Any
amount received by reason of the death of an insured
who, with respect to an applicable policyholder--
``(i) was an employee at any time during
the 12-month period before the insured's death,
or
``(ii) is, at the time the contract is
issued--
``(I) a director,
``(II) a highly compensated
employee within the meaning of section
414(q) (without regard to paragraph
(1)(B)(ii) thereof), or
``(III) a highly compensated
individual within the meaning of
section 105(h)(5), except that `35
percent' shall be substituted for `25
percent' in subparagraph (C) thereof.
``(B) Exception for amounts paid to insured's
heirs.--Any amount received by reason of the death of
an insured to the extent--
``(i) the amount is paid to a member of the
family (within the meaning of section
267(c)(4)) of the insured, any individual who
is the designated beneficiary of the insured
under the contract (other than the applicable
policyholder), a trust established for the
benefit of any such member of the family or
designated beneficiary, or the estate of the
insured, or
``(ii) the amount is used to purchase an
equity (or capital or profits) interest in the
applicable policyholder from any person
described in clause (i).
``(3) Employer-owned life insurance contract.--
``(A) In general.--For purposes of this subsection,
the term `employer-owned life insurance contract' means
a life insurance contract which--
``(i) is owned by a person engaged in a
trade or business and under which such person
(or a related person described in subparagraph
(B)(ii)) is directly or indirectly a
beneficiary under the contract, and
``(ii) covers the life of an insured who is
an employee with respect to the trade or
business of the applicable policyholder on the
date the contract is issued.
For purposes of the preceding sentence, if coverage for
each insured under a master contract is treated as a
separate contract for purposes of sections 817(h),
7702, and 7702A, coverage for each such insured shall
be treated as a separate contract.
``(B) Applicable policyholder.--For purposes of
this subsection--
``(i) In general.--The term `applicable
policyholder' means, with respect to any
employer-owned life insurance contract, the
person described in subparagraph (A)(i) which
owns the contract.
``(ii) Related persons.--The term
`applicable policyholder' includes any person
which--
``(I) bears a relationship to the
person described in clause (i) which is
specified in section 267(b) or
707(b)(1), or
``(II) is engaged in trades or
businesses with such person which are
under common control (within the
meaning of subsection (a) or (b) of
section 52).
``(4) Notice and consent requirements.--The notice and
consent requirements of this paragraph are met if, before the
issuance of the contract, the employee--
``(A) is notified in writing that the applicable
policyholder intends to insure the employee's life and
the maximum face amount for which the employee could be
insured at the time the contract was issued,
``(B) provides written consent to being insured
under the contract and that such coverage may continue
after the insured terminates employment, and
``(C) is informed in writing that an applicable
policyholder will be a beneficiary of any proceeds
payable upon the death of the employee.
``(5) Definitions.--For purposes of this subsection--
``(A) Employee.--The term `employee' includes an
officer, director, and highly compensated employee
(within the meaning of section 414(q)).
``(B) Insured.--The term `insured' means, with
respect to an employer-owned life insurance contract,
an individual covered by the contract who is a United
States citizen or resident. In the case of a contract
covering the joint lives of 2 individuals, references
to an insured include both of the individuals.''.
(b) Reporting Requirements.--Subpart A of part III of subchapter A
of chapter 61 of such Code (relating to information concerning persons
subject to special provisions) is amended by inserting after section
6039H the following new section:
``SEC. 6039I. RETURNS AND RECORDS WITH RESPECT TO EMPLOYER-OWNED LIFE
INSURANCE CONTRACTS.
``(a) In General.--Every applicable policyholder owning 1 or more
employer-owned life insurance contracts issued after the date of the
enactment of this section shall file a return (at such time and in such
manner as the Secretary shall by regulations prescribe) showing for
each year such contracts are owned--
``(1) the number of employees of the applicable
policyholder at the end of the year,
``(2) the number of such employees insured under such
contracts at the end of the year,
``(3) the total amount of insurance in force at the end of
the year under such contracts,
``(4) the name, address, and taxpayer identification number
of the applicable policyholder and the type of business in
which the policyholder is engaged, and
``(5) that the applicable policyholder has a valid consent
for each insured employee (or, if all such consents are not
obtained, the number of insured employees for whom such consent
was not obtained).
``(b) Recordkeeping Requirement.--Each applicable policyholder
owning 1 or more employer-owned life insurance contracts during any
year shall keep such records as may be necessary for purposes of
determining whether the requirements of this section and section 101(j)
are met.
``(c) Definitions.--Any term used in this section which is used in
section 101(j) shall have the same meaning given such term by section
101(j).''.
(c) Conforming Amendments.--
(1) Paragraph (1) of section 101(a) of such Code is amended
by striking ``and subsection (f)'' and inserting ``subsection
(f), and subsection (j)''.
(2) The table of sections for subpart A of part III of
subchapter A of chapter 61 of such Code is amended by inserting
after the item relating to section 6039H the following new
item:
``Sec. 6039I. Returns and records with respect to employer-owned life
insurance contracts.''.
(d) Effective Date.--The amendments made by this section shall
apply to life insurance contracts issued after the date of the
enactment of this Act, except for a contract issued after such date
pursuant to an exchange described in section 1035 of the Internal
Revenue Code of 1986 for a contract issued on or prior to that date.
For purposes of the preceding sentence, any material increase in the
death benefit or other material change shall cause the contract to be
treated as a new contract except that, in the case of a master contract
(within the meaning of section 264(f)(4)(E) of such Code), the addition
of covered lives shall be treated as a new contract only with respect
to such additional covered lives.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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