SEC. 403-Continued (b)-Continued Do____ (in part) (b)(1) _ _. (in part) (c)__ Do.... (in part) (d) (added) Oct. 4, 1961, H.R. 4317, P.L. 87-370, § 3(a) (1)–(3), 75 Stat. 801: (1) by inserting before the period in the heading- (2) by striking out subparagraph (A) of paragraph (1) and inserting in lieu thereof the following: "(A) an annuity contract is purchased "(i) for an employee by an employer described in section 501(c)(3) which is exempt from tax under section 501 (a), or "(ii) for an employee (other than an employee described in clause (i)), who performs services for an educational institution (as defined in section 151 (e) (4)), by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing,"; and (3) by striking out in paragraph (3)— "the employer described in section 501(c)(3) and exempt from tax under section 501 (a)," and inserting in lieu thereof "the employer described in paragraph (1)(A),". Taxable years beginning after December 31, 1957. Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 232(e) (5), 78 Stat. 111: "except that section 72 (e) (3) shall not apply". Applicability: Taxable years beginning after December 31, 1963. Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 23(a), 72 Stat. 1620: Effective Date: Sept. 2, 1958-the date of enactment. Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 232(e) (6), 78 Stat. 111: Amended the second sentence of Sec. 403 (c) (original subsection (b) redesignated by P.L. 85-866, § 23(a)) by striking out "except that section 72(e) (3) shall not apply". Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 23(c), 72 Stat. 1622: Amended Sec. 403 by inserting after subsection (c) (former subsection (b) redesignated by P.L. 85-866, § 23(a)) the following new subsection (d): "(d) TAXABILITY OF BENEFICIARY UNDER CERTAIN FORFEITABLE CONTRACTS PURCHASED BY EXEMPT ORGANIZATIONS.-Notwithstanding the first sentence of subsection (c), if rights of an employee under an annuity contract purchased by an employer which is exempt from tax under section 501 (a) or 521(a) change from forfeitable to nonforfeitable rights, the value of such contract on the date of such change (to the extent attributable to amounts contributed by the employer after December 31, 1957) shall, SEC. 403-Continued (d) (added 1958)-Continued except as provided in subsection (b), be included in the gross income of the employee in the year of such change". Applicability: Taxable years beginning after December 31, 1957. SEC. 404. DEDUCTION FOR CONTRIBUTIONS (a) OF PLOYER TO AN EMPLOYEES' TRUST OR ANNUITY Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 24, 72 Stat. 1623: Amended the portion of Sec. 404 (a) 114 which preceded paragraph (1) by striking out "income) but if" and inserting in lieu thereof "income); but, if". 114 Section 404(a) (1) and (2) originally read as follows (68A Stat. 138-139): "(a) GENERAL RULE.-If contributions are paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan, or if compensation is paid or accrued on account of any employee under a plan deferring the receipt of such compensation, such contributions or compensation shall not be deductible under section 162 (relating to trade or business expenses) or section 212 (relating to expenses for the production of income) but if they satisfy the conditions of either of such sections, they shall be deductible under this section, subject, however, to the following limitations as to the amounts deductible in any year: "(1) PENSION TRUSTS.-In the taxable year when paid, if the contributions are paid into a pension trust, and if such taxable year ends within or with a taxable year of the trust for which the trust is exempt under section 501 (a), in an amount determined as follows: "(A) an amount not in excess of 5 percent of the compensation otherwise paid or accrued during the taxable year to all the employees under the trust, but such amount may be reduced for future years if found by the Secretary or his delegate upon periodical examinations at not less than 5-year intervals to be more than the amount reasonably necessary to provide the remaining unfunded cost of past and current service credits of all employees under the plan, plus (B) any excess over the amount allowable under subparagraph (A) necessary to provide with respect to all of the employees under the trust the remaining unfunded cost of their past and current service credits distributed as a level amount, or a level percentage of compensation, over the remaining future service of each such employee, as determined under regulations prescribed by the Secretary or his delegate, but if such remaining unfunded cost with respect to any 3 individuals is more than 50 percent of such remaining unfunded cost, the amount of such unfunded cost attributable to such individuals shall be distributed over a period of at least 5 taxable years, or "(C) in lieu of the amounts allowable under subparagraphs (A) and (B) above, an amount equal to the normal cost of the plan, as determined under regulations prescribed by the Secretary or his delegate, plus, if past service or other supplementary pension or annuity credits are provided by the plan, an amount not in excess of 10 percent of the cost which would be required to completely fund or purchase such pension or annuity credits as of the date when they are included in the plan, as determined under regulations prescribed by the Secretary or his delegate, except that in no case shall a deduction be allowed for any amount (other than the normal cost) paid in after such pension or annuity credits are completely funded or purchased. "(D) Any amount paid in a taxable year in excess of the amount deductible in such year under the foregoing limitations shall be deductible in the succeeding taxable years in order of time to the extent of the difference between the amount paid and deductible in each such succeeding year and the maximum amount deductible for such year in accordance with the foregoing limitations. "(2) EMPLOYEES' ANNUITIES.-In the taxable year when paid, in an amount determined in accordance with paragraph (1), if the contributions are paid toward the purchase of retirement annuities and such purchase is a part of a plan which meets the requirements of section 401 (a) (3), (4), (5), and (6), and if refunds of premiums, if any, are applied within the current taxable year or next succeeding taxable year towards the purchase of such retirement annuities." SEC. 404-Continued (a) (amended 1958)—Continued (a) (2) Do... (in part) (a) (8)-(10) (added) Applicability: Taxable years beginning after December 31, 1953, and ending after August 16, 1954. (Id., § 1 (c)(1), 72 Stat. 1606. See n. 36, p. 79 above.) Oct. 10, 1962, H.R. 10, P.L. 87-792, § 3(a) (1), 76 Stat. 819: Amended Sec. 404 (a) (2) 114 by striking out "and 6," and inserting in lieu thereof "(6), (7), and (8), and, if applicable, the requirements of section 401(a)(9) and (10) and of section 401 (d) (other than paragraph (1)),". Oct. 23, 1962, H.R. 10620, P.L. 87-863, § 2(b), 76 Stat. 1141: (1) by inserting after "purchase of retirement annuities" the following: ", or retirement annuities and medical benefits as described in section 401 (h),"; and (2) by inserting after "such retirement annuities" the following: "" or such retirement annuities and medical benefits". Applicability: Taxable years beginning after the date of enactment (October 23, 1962). (Id., § 2(c), 76 Stat. 1142.) Oct. 10, 1962, H.R. 10, P.L. 87-792, § 3(a) (2), 76 Stat. 819: Amended Sec. 404 (a) (deductibility of contributions to pension, annuity, profit-sharing, or stock bonus plans or plans of deferred compensation-general rule) by adding after paragraph (7) (limit of deduction) the following new paragraphs (8) to (10), inclusive: "(8) SELF-EMPLOYED INDIVIDUALS.-In the case of a plan included in paragraph (1), (2), or (3) which provides contributions or benefits for employees some or all of whom are employees within the meaning of section 401 (c) (1), for purposes of this section "(A) 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); "(B) the term 'earned income' has the meaning assigned to it by section 401 (c) (2); "(C) the contributions to such plan on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall be considered to satisfy the conditions of section 162 or 212 to the extent that such contributions do not exceed the earned income of such individual derived from the trade or business with respect to which such plan is established, and to the extent that such contributions are not allocable (determined in accordance with regulations prescribed by the Secretary or his delegate) to the purchase of life, accident, health, or other insurance; and "(D) any reference to compensation shall, in the case of an individual who is an employee within the meaning of section 401(c)(1), be considered to be a reference to the earned in SEC. 404-Continued (a) (8)-(10) (added 1962)-Continued (e), (f) (added) come of such individual derived from the trade or business with respect to which the plan is established. "(9) PLANS BENEFITING SELF-EMPLOYED INDIVIDUALS.-In the case of a plan included in paragraph (1), (2), or (3) which provides contributions or benefits for employees some or all of whom are employees within the meaning of section 401 (c) (1)— "(A) the limitations provided by paragraphs (1), (2), (3), and (7) on the amounts deductible for any taxable year shall be computed, with respect to contributions on behalf of employees (other than employees within the meaning of section 401(c)(1)), as if such employees were the only employees for whom contributions and benefits are provided under the plan; "(B) the limitations provided by paragraphs (1), (2), (3), and (7) on the amounts deductible for any taxable year shall be computed, with respect to contributions on behalf of employees within the meaning of section 401 (c) (1)— "(i) as if such employees were the only employees for whom contributions and benefits are provided under the plan, and "(ii) without regard to paragraph (1)(D), the second and third sentences of paragraph (3), and the second sentence of paragraph (7); and (C) the amounts deductible under paragraphs (1), (2), (3), and (7), with respect to contributions on behalf of any employee within the meaning of section 401(c)(1), shall not exceed the applicable limitation provided in subsection (e). "(10) SPECIAL LIMITATION ON AMOUNT ALLOWED AS DEDUCTION FOR SELF-EMPLOYED INDIVIDUALS.-Notwithstanding any other provision of this section, the amount allowable as a deduction under paragraphs (1), (2), (3), and (7) in any taxable year with respect to contributions made on behalf of an individual who is an employee within the meaning of section 401 (c) (1) shall be an amount equal to one-half of the contributions made on behalf of such individual in such taxable year which are deductible under such paragraphs (determined with the application of paragraph (9) and of subsection (e) but without regard to this paragraph). For purposes of section 401, the amount which may be deducted, or the amount deductible, under this section with respect to contributions made on behalf of such individual shall be determined without regard to the preceding sentence." Applicability: Taxable years beginning after December 31, 1962. Oct. 10, 1962, H.R. 10, P.L. 87-792, § 3(b), 76 Stat. 820: Amended Sec. 404 (deductibility of contributions to pension, annuity, profit-sharing, or stock bonus plans or plans of deferred compensation) by adding after subsection (d) (carryover of unused deductions) the following new subsections (e) and (f): "(e) SPECIAL LIMITATIONS FOR SELF-EMPLOYED INDIVIDUALS. — "(1) IN GENERAL.-In the case of a plan included in subsection (a) (1), (2), or (3), which provides contributions or benefits for employees some or all of whom are employees within the meaning of section 401 (c) (1), the amounts deductible under subsection (a) (determined without regard to paragraph (10) thereof) in any taxable year with respect to contributions on behalf of any employee within the meaning of section 401 (c) (1) shall, subject to the provisions of paragraph (2), not exceed $2,500, or 10 SEC. 404-Continued (e), (f) (added 1962)-Continued percent of the earned income derived by such employee from the trade or business with respect to which the plan is established, whichever is the lesser. "(2) CONTRIBUTIONS MADE UNDER MORE THAN ONE PLAN.— "(A) OVERALL LIMITATION.-In any taxable year in which amounts are deductible with respect to contributions under two or more plans on behalf of an individual who is an employee within the meaning of section 401 (c) (1) with respect to such plans, the aggregate amount deductible for such taxable year under all such plans with respect to contributions on behalf of such employee (determined without regard to subsection (a) (10)) shall not exceed $2,500, or 10 percent of the earned income derived by such employee from the trades or businesses with respect to which the plans are established, whichever is the lesser. "(B) ALLOCATION OF AMOUNTS DEDUCTIBLE.-In any case in which the amounts deductible under subsection (a) (with the application of the limitations of this subsection) with respect to contributions made on behalf of an employee within the meaning of section 401(c)(1) under two or more plans are, by reason of subparagraph (A), less than the amounts deductible under such subsection determined without regard to such subparagraph, the amount deductible under subsection (a) (determined without regard to paragraph (10) thereof) with respect to such contributions under each such plan shall be determined in accordance with regulations prescribed by the Secretary or his delegate. "(3) CONTRIBUTIONS ALLOCABLE TO INSURANCE PROTECTION.For purposes of this subsection, contributions which are allocable (determined under regulations prescribed by the Secretary or his delegate) to the purchase of life, accident, health, or other insurance shall not be taken into account. "(f) CERTAIN LOAN REPAYMENTS CONSIDERED AS CONTRIBUTIONS. For purposes of this section, any amount paid, directly or indirectly, by an owner-employee (within the meaning of section 401(c)(3)) in repayment of any loan which under section 72 (m) (4) (B) was treated as an amount received under a contract purchased by a trust described in section 401(a) which is exempt from tax under section 501 (a) or purchased as a part of a plan described in section 403 (a) shall be treated as a contribution to which this section applies on behalf of such owner-employee to such trust or to or under such plan." Applicability: Taxable years beginning after December 31, 1962. SEC. 405. QUALIFIED BOND PURCHASE PLANS (Added 1962-76 Added..... Oct. 10, 1962, H.R. 10, P.L. 87-792, § 5(a), 76 Stat. 826-827: Amended Part I of Subchapter D of Chapter 1 (relating to deferred compensation, etc.) by adding at the end thereof, after section 404 (deduction for contributions of an employer to an employees' trust, etc.), the following new section: "SEC. 405. QUALIFIED BOND PURCHASE PLANS. "(a) REQUIREMENTS FOR QUALIFICATION. A plan of an employer for the purchase for and distribution to his employees or their |