INTEREST ON LOANS INCURRED TO PURCHASE CERTAIN INSURANCE AND ANNUITY CONTRACTS.

SEC. 215. INTEREST ON LOANS INCURRED TO PURCHASE CERTAIN INSURANCE AND ANNUITY CONTRACTS. (a) Disallowance of Interest Deduction.—Section 264(a) (relating to certain amounts paid in connection with insurance contracts) is amended— (1) by inserting after paragraph (2) the following new paragraph: “(3) Except as provided in subsection (c), any amount paid or accrued on indebtedness incurred or continued to purchase or carry a life insurance, endowment, or annuity contract (other than a single premium contract or a contract treated as a single premium contract) pursuant to a plan of purchase which contemplates the systematic direct or indirect borrowing of part or all of the increases in the cash value of such contract (either from the insurer or otherwise).” (2) by adding at the end thereof the following new sentence: “Paragraph (3) shall apply only in respect of contracts purchased after August 6, 1963.” (b) Exceptions.—Section 264 is amended by adding at the end thereof the following new subsection: “(c) Exceptions.—Subsection (a)(3) shall not apply to any amount paid or accrued by a person during a taxable year on indebtedness incurred or continued as part of a plan referred to in subsection (a)(3)— “(1) if no part of 4 of the annual premiums due during the 7-year period (beginning with the date the first premium on the 78 Stat. 56contract to which such plan relates was paid) is paid under such plan by means of indebtedness, “(2) if the total of the amounts paid or accrued by such person during such taxable year for which (without regard to this paragraph) no deduction would be allowable by reason of subsection (a)(3) does not exceed $100, “(3) if such amount was paid or accrued on indebtedness incurred because of an unforeseen substantial loss of income or unforeseen substantial increase in his financial obligations, or “(4) if such indebtedness was incurred in connection with his trade or business. For purposes of applying paragraph (1), if there is a substantial increase in the premiums on a contract, a new 7-year period described in such paragraph with respect to such contract shall commence on the date the first such increased premium is paid.” (c) Effective Date.—The amendments made by this section shall apply with respect to amounts paid or accrued in taxable yearn beginning after December 31, 1963.