120 STAT. 1022
PUBLIC LAW 109–280—AUG. 17, 2006 ‘‘(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 12month 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
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