SEC. 62. (8) ADJUSTED GROSS INCOME DEFINED (68A Stat. 17): Amended Sec. 62 (relating to the definition of adjusted gross income) by inserting after paragraph (6) (certain deductions of life tenants and income beneficiaries of property) the following new paragraph (7): "(7) PENSION, PROFIT-SHARING, ANNUITY, AND BOND PURCHASE PLANS OF SELF-EMPLOYED INDIVIDUALS.-In the case of an individual who is an employee within the meaning of section 401 (c) (1), the deductions allowed by section 404 and section 405 (c) to the extent attributable to contributions made on behalf of such individual." Applicability: Taxable years beginning after December 31, 1962. (Id., § 8, 76 Stat. 831.) Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 213(b), 78 Stat. 52: Amended Sec. 62 (defining adjusted gross income) by inserting after paragraph (7) (as added by P.L. 87-792, § 7(b)) the following new paragraph (8): "(8) MOVING EXPENSE DEDUCTION.-The deduction allowed by section 217." Applicability: Expenses incurred after December 31, 1963, in taxable years ending after such date. (Id., § 213(d), 78 Stat. 52.) CH. 1, SUBCH. B, PART II-ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME (68A Stat. 19, ff.): Table... (Sec. 78 added) Do.... (Sec. 79 added) Oct. 16, 1962, H.R. 10650, P.L. 87-834, § 9(d) (1), 76 Stat. 1001: "Sec. 78. Dividends received from certain foreign corporations by Applicability: Same as for the addition of the new section 78, p. 64 below. Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 204(a) (2), 78 Stat. 36: "Sec. 79. Group-term life insurance purchased for employees." Effective Date: See "Applicability" under the amendment adding the new section 79, p. 65 below. 21 The table of sections for Part II of Subchapter B of Chapter 1 originally read as follows (68A Stat. 19): "Sec. 71. Alimony and separate maintenance payments. "Sec. 72. Annuities; certain proceeds of endowment and life insurance contracts. "Sec. 74. Prizes and awards. "Sec. 75. Dealers in tax-exempt securities. "Sec. 76. Mortgages made or obligations issued by joint-stock land banks. "Sec. 77. Commodity credit loans." SEC. 72. ANNUITIES: CERTAIN PROCEEDS OF ENDOWMENT (d) (2) (in full) (e) (3). (f). "(2) SPECIAL RULES FOR APPLICATION OF PARAGRAPH (1).-For purposes of paragraph (1), if the employee died before any amount was received as an annuity under the contract, the words 'receivable by the employee' shall be read as 'receivable by a beneficiary of the employee'.", so as to read as follows: "(2) SPECIAL RULES FOR APPLICATION OF PARAGRAPH (1).—For purposes of paragraph (1)— "(A) if the employee died before any amount was received as an annuity under the contract, the words 'receivable by the employee' shall be read as 'receivable by a beneficiary of the employee'; and "(B) any contribution made with respect to the contract while the employee is an employee within the meaning of section 401(c) (1) which is not allowed as a deduction under section 404 shall be treated as consideration for the contract contributed by the employee." -- Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 232(b), 78 Stat. 110: (sen'ces added) Oct. 16, 1962, H.R. 10650, P.L. 87-834, § 11(b), 76 Stat. 1005: sentences: "Paragraph (2) shall not apply to amounts which were contributed by the employer after December 31, 1962, and which would not have been includible in the gross income of the employee by reason of the application of section 911 if such amounts had been paid directly to the employee at the time of contribution. The preceding sentence shall not apply to amounts which were contributed by the employer, as determined under regulations prescribed by the Secretary or his delegate, to provide pension or annuity credits, to the extent such credits are attributable to services performed before January 1, 1963, and are provided pursuant to pension or annuity plan provisions in existence on March 12, 1962, and on that date applicable to such services." Applicability: Taxable years ending after December 31, 1962. (Id., § 11(c)(2), 76 Stat. 1006.) See also "Applicability" under revision of Sec. 911, p. 415 below. 22 Paragraph (3) of section 72(e) read as follows (68A Stat. 22): (3) LIMIT ON TAX ATTRIBUTABLE TO RECEIPT OF LUMP SUM.-If a lump sum is received under an annuity, endowment, or life insurance contract, and the part which is includible in gross income is determined under paragraph (1), then the tax attributable to the inclusion of such part in gross income for the taxable year shall not be greater than the aggregate of the taxes attributable to such part had it been included in the gross income of the taxpayer ratably over the taxable year in which received and the preceding 2 taxable years." 60-448-67- -5 SEC. 72-Continued (m),(n),(o).... Oct. 10, 1962, H.R. 10, P.L. 87-792, § 4(b), 76 Stat. 821: (redesignated, Amended Sec. 72 (relating to annuities, etc.) by redesignating subadded) section (m) (cross reference) as subsection (o), and by inserting after subsection (1) (face-amount certificates) the following new subsections (m) and (n): "(m) SPECIAL RULES APPLICABLE TO EMPLOYEE ANNUITIES AND DISTRIBUTIONS UNDER EMPLOYEE PLANS. "(1) CERTAIN AMOUNTS RECEIVED BEFORE ANNUITY STARTING DATE. Any amounts received under an annuity, endowment, or life insurance contract before the annuity starting date which are not received as an annuity (within the meaning of subsection (e) (2)) shall be included in the recipient's gross income for the taxable year in which received to the extent that "(A) such amounts, plus all amounts theretofore received under the contract and includible in gross income under this paragraph, do not exceed "(B) the aggregate premiums or other consideration paid for the contract while the employee was an owner-employee which were allowed as deductions under section 404 for the taxable year and all prior taxable years. Any such amounts so received which are not includible in gross income under this paragraph shall be subject to the provisions of subsection (e). "(2) COMPUTATION OF CONSIDERATION PAID BY THE EMPLOYEE. In computing "(A) the aggregate amount of premiums or other consideration paid for the contract for purposes of subsection (c) (1) (A) (relating to the investment in the contract), "(B) the consideration for the contract contributed by the employee for purposes of subsection (d) (1) (relating to employee's contributions recoverable in 3 years), and "(C) the aggregate premiums or other consideration paid for purposes of subsection (e) (1) (B) (relating to certain amounts not received as an annuity), any amount allowed as a deduction with respect to the contract under section 404 which was paid while the employee was an employee within the meaning of section 401 (c) (1) shall be treated as consideration contributed by the employer, and there shall not be taken into account any portion of the premiums or other consideration for the contract paid while the employee was an owneremployee which is properly allocable (as determined under regulations prescribed by the Secretary or his delegate) to the cost of life, accident, health, or other insurance. "(3) LIFE INSURANCE CONTRACTS. "(A) This paragraph shall apply to any life insurance contract "(i) purchased as a part of a plan described in section 403 (a), or "(ii) purchased by a trust described in section 401(a) which is exempt from tax under section 501 (a) if the proceeds of such contract are payable directly or indirectly to a participant in such trust or to a beneficiary of such participant. (B) Any contribution to a plan described in subparagraph (A)(i) or a trust described in subparagraph (A) (ii) which is allowed as a deduction under section 404, and any income of a trust described in subparagraph (A) (ii), which is determined in accordance with regulations prescribed by the Secretary or his SEC. 72-Continued (m), (n), (o) (added 1962)-Continued delegate to have been applied to purchase the life insurance protection under a contract described in subparagraph (A), is includible in the gross income of the participant for the taxable year when so applied. "(C) In the case of the death of an individual insured under a contract described in subparagraph (A), an amount equal to the cash surrender value of the contract immediately before the death of the insured shall be treated as a payment under such plan or a distribution by such trust, and the excess of the amount payable by reason of the death of the insured over such cash surrender value shall not be includible in gross income under this section and shall be treated as provided in section 101. "(4) AMOUNTS CONSTRUCTIVELY RECEIVED. "(A) ASSIGNMENTS OR PLEDGES.-If during any taxable year an owner-employee assigns (or agrees to assign) or pledges (or agrees to pledge) any portion of his interest in a trust described in section 401(a) which is exempt from tax under section 501(a) or any portion of the value of a contract purchased as part of a plan described in section 403 (a), such portion shall be treated as having been received by such owner-employee as a distribution from such trust or as an amount received under the contract. "(B) LOANS ON CONTRACTS.-If during any taxable year, an owner-employee receives, directly or indirectly, any amount from any insurance company as a loan under a contract purchased by a trust described in section 401(a) which is exempt from tax under section 501 (a) or purchased as part of a plan described in section 403(a), and issued by such insurance company, such amount shall be treated as an amount received under the contract. "(5) PENALTIES APPLICABLE TO CERTAIN AMOUNTS RECEIVED BY OWNER-EMPLOYEES. "(A) This paragraph shall apply "(i) to amounts (other than any amount received by an individual in his capacity as a policyholder of an annuity, endowment, or life insurance contract which is in the nature of a dividend or similar distribution) which are received from a qualified trust described in section 401(a) or under a plan described in section 403 (a) and which are received by an individual, who is, or has been, an owner-employee, before such individual attains the age of 59%1⁄2 years, for any reason other than the individual's becoming disabled (within the meaning of section 213(g) (3)), but only to the extent that such amounts are attributable to contributions paid on behalf of such individual (whether or not paid by him) while he was an owneremployee, "(ii) to amounts which are received from a qualified trust described in section 401(a) or under a plan described in section 403(a) at any time by an individual who is, or has been, an owner-employee, or by the successor of such individual, but only to the extent that such amounts are determined, under regulations prescribed by the Secretary or his delegate, to exceed the benefits provided for such individual under the plan formula, and SEC. 72-Continued (m), (n), (o) (added 1962)-Continued "(iii) to amounts which are received, by an individual who is, or has been, an owner-employee, by reason of the distribution under the provisions of section 401 (e) (2) (E) of his entire interest in all qualified trusts described in section 401(a) and in all plans described in section 403(a). "(B) (i) If the aggregate of the amounts to which this paragraph applies received by any person in his taxable year equals or exceeds $2,500, the increase in his tax for the taxable year in which such amounts are received and attributable to such amounts shall not be less than 110 percent of the aggregate increase in taxes, for the taxable year and the 4 immediately preceding taxable years, which would have resulted if such amounts had been included in such person's gross income ratably over such taxable years. "(ii) If deductions have been allowed under section 404 for contributions paid on behalf of the individual while he is an owner-employee for a number of prior taxable years less than 4, clause (i) shall be applied by taking into account a number of taxable years immediately preceding the taxable year in which the amount was so received equal to such lesser number. "(C) If subparagraph (B) does not apply to a person for the taxable year, the increase in tax of such person for the taxable year attributable to the amounts to which this paragraph applies shall be 110 percent of such increase (computed without regard to this subparagraph). "(D) Subparagraph (A)(ii) of this paragraph shall not apply to any amount to which section 402 (a) (2) or 403 (a)(2) applies. "(E) For special rules for computation of taxable income for taxable years to which this paragraph applies, see subsection (n) (3). "(6) OWNER-EMPLOYEE DEFINED. For purposes of this subsection, the term 'owner-employee' has the meaning assigned to it by section 401 (c) (3). "(n) TREATMENT OF CERTAIN DISTRIBUTIONS WITH RESPECT TO CONTRIBUTIONS BY SELF-EMPLOYED INDIVIDUALS. "(1) APPLICATION OF SUBSECTION. "(A) DISTRIBUTION BY EMPLOYEES' TRUST.-Subject to the provisions of subparagraph (C), this subsection shall apply to amounts distributed to a distributee, 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 to the distributee with respect to an employee are paid to the distributee within one taxable year of the distributee or "(i) on account of the employee's death, "(ii) after the employee has attained the age of 59%1⁄2 years, "(iii) after the employee has become disabled (within the meaning of section 213(g) (3)). "(B) ANNUITY PLANS. Subject to the provisions of subparagraph (C), this subsection shall apply to amounts paid to a payee, in the case of an annuity plan described in section 403(a), if the total amounts payable to the payee with respect to an employee are paid to the payee within one taxable year of the payee or "(i) on account of the employee's death, "(ii) after the employee has attained the age of 59%1⁄2 years, |