SEC. 401-Continued ANCILLARY PROVISIONS (P.L. 88–272, § 220 (c)(3))—Continued 165 (a) (3), (4), (5), and (6) of the Internal Revenue Code of 1939 or, in the case of a payment after 1954 and prior to 1963, the requirements of section 401(a) (3), (4), (5), and (6) of the Internal Revenue Code of 1954, or (3) under or to an annuity plan which, at the time of any such payment after 1962, is a plan described in section 403 (a) of the Internal Revenue Code of 1954, or (4) under or to a bond purchase plan which, at the time of any such payment after 1962, is a qualified bond purchase plan described in section 405(a) of the Internal Revenue Code of 1954;". SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST (68A Stat. 135–137): (a)(1)__. (in part) Do... Apr. 22, 1960, H.R. 135, P.L. 86–437, § 2(a), 74 Stat. 79: Amended the first sentence of Sec. 402(a) (1) 112 by striking out Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 232(e) (1), 78 Stat. 111: Amended the first sentence of Sec. 402(a)(1) (as amended by P.L. 86-437, § 2(a)) by striking out "except that section 72(e) (3) shall not apply". 112 Subsection (a) of section 402 originally read as follows (68A Stat. 135-136): "(a) TAXABILITY OF BENEFICIARY OF EXEMPT Trust.— "(1) GENERAL RULE.-Except as provided in paragraph (2), the amount actually distributed or made available to any distributee by any employees' trust described in section 401 (a) which is exempt from tax under section 501 (a) shall be taxable to him, in the year in which so distributed or made available, under section 72 (relating to annuities) except that section 72 (e) (3) shall not apply. The amount actually distributed or made available to any distributee shall not include net unrealized appreciation in securities of the employer corporation attributable to the amount contributed by the employee. Such net unrealized appreciation and the resulting adjustments to basis of such securities shall be determined in accordance with regulations prescribed by the Secretary or his delegate. "(2) CAPITAL GAINS TREATMENT FOR CERTAIN DISTRIBUTIONS.-In the case of an employees' trust described in section 401 (a), which is exempt from tax under section 501 (a), if the total distributions payable with respect to any employee are paid to the distributee within 1 taxable year of the distributee on account of the employee's death or other separation from the service, or on account of the death of the employee after his separation from the service, the amount of such distribution, to the extent exceeding the amounts contributed by the employee (determined by applying section 72 (f)), which employee contributions shall be reduced by any amounts theretofore distributed to him which were not includible in gross income, shall be considered a gain from the sale or exchange of a capital asset held for more than 6 months. Where such total distributions include securities of the employer corporation, there shall be excluded from such excess the net unrealized appreciation attributable to that part of the total distributions which consists of the securities of the employer corporation so distributed. The amount of such net unrealized appreciation and the resulting adjustments to basis of the securities of the employer corporation so distributed shall be determined in accordance with regulations prescribed by the Secretary or his delegate. "(3) DEFINITIONS. For purposes of this subsection "(A) The term 'securities' means only shares of stock and bonds or debentures issued by a corporation with interest coupons or in registered form. "(B) The term 'securities of the employer corporation' includes securities of a parent or subsidiary corporation (as defined in section 421 (d) (2) and (3)) of the employer corporation. "(C) The term 'total distributions payable' means the balance to the credit of an employee which becomes payable to a distributee on account of the employee's death or other separation from the service, or on account of his death after separation from the service." (a) (2)_. (sen'ce added) Applicability: Taxable years beginning after December 31, 1963. Oct. 10, 1962, H.R. 10, P.L. 87-792, § 4(c), 76 Stat. 825: Amended Sec. 402 (a) (2) (relating to capital gains treatment for centain distributions) by adding at the end thereof the following new sentence: "This paragraph shall not apply to distributions paid to any distributee to the extent such distributions are attributable to contributions made on behalf of the employee while he was an employee within the meaning of section 401(c)(1).” Applicability: Taxable years beginning after December 31, 1962. (a)(3)(B).......... Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 221(c)(1), 78 Stat. 75: (a)(4)__ (added) (b).. (in part) "section 421 (d) (2) and (3)” and inserting in lieu thereof "subsections (e) and (f) of section 425". Applicability: Taxable years ending after December 31, 1963. (Id., § 221(e)(1), 78 Stat. 75. See n. 117, p. 226 below.) -- Apr. 22, 1960, H.R. 135, P.L. 86-437, § 1, 74 Stat. 79: Amended Sec. 402(a) (see n. 112 above) by adding at the end thereof the following new paragraph (4): "(4) DISTRIBUTIONS BY UNITED STATES TO NONRESIDENT ALIENS.The amount includible under paragraph (1) or (2) of this subsection in the gross income of a nonresident alien individual with respect to a distribution made by the United States in respect of services performed by an employee of the United States shall not exceed an amount which bears the same ratio to the amount includible in gross income without regard to this paragraph as "(A) the aggregate basic salary paid by the United States to such employee for such services, reduced by the amount of such basic salary which was not includible in gross income by reason of being from sources without the United States, bears to "(B) the aggregate basic salary paid by the United States to such employee for such services. In the case of distributions under the Civil Service Retirement Act (5 U.S.C. 2251), the term 'basic salary' shall have the meaning provided in section 1(d) of such Act." Applicability: Only taxable years beginning after December 31, 1959. (Id., § 3, 74 Stat. 79.) Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 232(e) (2), 78 Stat. 111: Amended the second sentence of Sec. 402(b) (relating to taxability of beneficiary of non-exempt trust) by striking out "except that section 72(e) (3) shall not apply". SEC. 402-Continued (d)... (in part) Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 232(e) (3), 78 Stat. 111: Amended the second sentence of Sec. 402 (d) (relating to certain employees' annuities) by striking out— "except that section 72(e)(3) shall not apply". Applicability: Taxable years beginning after December 31, 1963. SEC. 403. TAXATION OF EMPLOYEE ANNUITIES (68A Stat. 137138): (a)(1).. (in full) Sept. 2, 1958, H.R. 8381, P.L. 85–866, § 23(b), 72 Stat. 1622: Amended Sec. 403 (a) (1) 13 (relating to taxability of beneficiary under a qualified annuity plan) to read as follows: “(1) GENERAL RULE.-Except as provided in paragraph (2), Taxable years beginning after December 31, 1957. 113 Section 403 originally read as follows (68A Stat. 137-138): "SEC. 403. TAXATION OF EMPLOYEE ANNUITIES. "(a) TAXABILITY OF BENEFICIARY UNDER A QUALIFIED ANNUITY PLAN. "(1) GENERAL RULE.-Except as provided in paragraph (2), if an annuity contract is purchased by an employer for an employee under a plan with respect to which the employer's contribution is deductible under section 404 (a) (2), or if an annuity contract is purchased for an employee by an employer described in section 501 (c) (3) which is exempt from tax under section 501 (a), the employee shall include in his gross income the amounts received under such contract for the year received as provided in section 72 (relating to annuities) except that section 72(e) (3) shall not apply. "(2) CAPITAL GAINS TREATMENT FOR CERTAIN DISTRIBUTIONS.— "(A) GENERAL RULE.-If— (i) an annuity contract is purchased by an employer for an employee under a plan which meets the requirements of section 401(a) (3), (4), (5), and (6); "(ii) such plan requires that refunds of contributions with respect to annuity contracts purchased under such plan be used to reduce subsequent premiums on the contracts uuder the plan; and "(iii) the total amounts payable by reason of an employee's death or other separation from the service, or by reason of the death of an employee after the employee's separation from the service, are paid to the payee within one taxable year of the payee, then the amount of such payments, to the extent exceeding the amount contributed by the employee (determined by applying section 72(f)), which employee contributions shall be reduced by any amounts theretofore paid to him which were not includible in gross income, shall be considered a gain from the sale or exchange of a capital asset held for more than 6 months. "(B) DEFINITION. For purposes of subparagraph (A), the term 'total amounts' means the balance to the credit of an employee which becomes payable to the payee by reason of the employee's death or other separation from the service, or by reason of his death after separation from the service. "(b) TAXABILITY OF BENEFICIARY UNDER A NONQUALIFIED ANNUITY.-If an annuity contract purchased by an employer for an employee is not subject to subsection (a) and the employee's rights under the contract are nonforfeitable, except for failure to pay future premiums, the amount contributed by the employer for such annuity contract on or after such rights become nonforfeitable shall be included in the gross income of the employee in the year in which the amount is contributed. The employee shall include in his gross income the amounts received under such contract for the year received as provided in section 72 (relating to annuities) except that section 72(e) (3) shall not apply." SEC. 403-Continued (a)(1)-Continued Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 232(e)(4), 78 Stat. 111: Amended Sec. 403 (a) (1) (as amended by P.L. 85-866, § 23(b)) by striking out "except that section 72(e) (3) shall not apply". Applicability: Taxable years beginning after December 31, 1963. Oct. 10, 1962, H.R. 10, P.L. 87–792, § 4(d) (1), (2), 76 Stat. 825–826: (1) by striking out in subparagraph (A)(i)— "which meets the requirements of section 401(a)(3), (4), (5), and (6)" and inserting in lieu thereof— "described in paragraph (1)"; and (2) by adding at the end of subparagraph (A) the following new sentence: "This subparagraph shall not apply to amounts paid to any payee to the extent such amounts are attributable to contributions made on behalf of the employee while he was an employee within the meaning of section 401 (c) (1)." Oct. 10, 1962, H.R. 10, P.L. 87-792, § 4(d) (3), 76 Stat. 826: Amended Sec. 403(a) (taxability of beneficiary under a qualified annuity plan) by adding after paragraph (2) the following new paragraph (3): "(3) SELF-EMPLOYED INDIVIDUALS. For purposes of this subsection, the term 'employee' includes an individual who is an employee within the meaning of section 401(c)(1), and the employer of such individual is the person treated as his employer under section 401 (c) (4)." Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 23(a), 72 Stat. 1620-1621: Amended Sec. 403 (taxation of employee annuities) by redesignating subsection (b) (taxability of beneficiary under a nonqualified annuity) as subsection (c), and by inserting after subsection (a) the following new subsection (b): "(b) TAXABILITY OF BENEFICIARY UNDER ANNUITY PURCHASED BY SECTION 501(c)(3) ORGANIZATION. "(1) GENERAL RULE.-If "(A) an annuity contract is purchased for an employee by an employer described in section 501(c)(3) which is exempt from tax under section 501 (a), "(B) such annuity contract is not subject to subsection (a), and "(C) the employee's rights under the contract are nonforfeitable, except for failure to pay future premiums, then amounts contributed by such employer for such annuity contract on or after such rights become nonforfeitable shall be excluded from the gross income of the employee for the taxable SEC. 403-Continued (b) (added 1958)-Continued year to the extent that the aggregate of such amounts does not exceed the exclusion allowance for such taxable year. The employee shall include in his gross income the amounts received under such contract for the year received as provided in section 72 (relating to annuities) except that section 72(e) (3) shall not apply. "(2) EXCLUSION ALLOWANCE. For purposes of this subsection, the exclusion allowance for any employee for the taxable year is an amount equal to the excess, if any, of— "(A) the amount determined by multiplying (i) 20 percent of his includible compensation, by (ii) the number of years of service, over "(B) the aggregate of the amounts contributed by the employer for annuity contracts and excludable from the gross income of the employee for any prior taxable year. "(3) INCLUDIBLE COMPENSATION. For purposes of this subsection, the term 'includible compensation' means, in the case of any employee, the amount of compensation which is received from the employer described in section 501(c)(3) and exempt from tax under section 501(a), and which is includible in gross income (computed without regard to sections 105(d) and 911) for the most recent period (ending not later than the close of the taxable year) which under paragraph (4) may be counted as one year of service. Such term does not include any amount contributed by the employer for any annuity contract to which this subsection applies. "(4) YEARS OF SERVICE.-In determining the number of years of service for purposes of this subsection, there shall be included"(A) one year for each full year during which the individual was a full-time employee of the organization purchasing the annuity for him, and "(B) a fraction of a year (determined in accordance with regulations prescribed by the Secretary or his delegate) for each full year during which such individual was a part-time employee of such organization and for each part of a year during which such individual was a full-time or part-time employee of such organization. In no case shall the number of years of service be less than one. "(5) APPLICATION TO MORE THAN ONE ANNUITY CONTRACT.—If for any taxable year of the employee this subsection applies to 2 or more annuity contracts purchased by the employer, such contracts shall be treated as one contract. "(6) FORFEITABLE RIGHTS WHICH BECOME NONFORFEITABLE.For purposes of this subsection and section 72 (f) (relating to special rules for computing employees' contributions to annuity contracts), if rights of the employee under an annuity contract described in subparagraphs (A) and (B) of paragraph (1) change from forfeitable to nonforfeitable rights, then the amount (determined without regard to this subsection) includible in gross income by reason of such change shall be treated as an amount contributed by the employer for such annuity contract as of the time such rights become nonforfeitable." |