110 STAT. 1846 PUBLIC LAW 104-188—AUG. 20, 1996 inserting "or", and by inserting after subparagraph (B) the following new subparagraph: "(C) provides for funding of insurance on retired lives as described in section 807(c)(6), and". (2) Paragraph (3) of section 817(d) is amended by striking "or" at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ", or", and by inserting after subparagraph (B) the following new subparagraph: "(C) in the case of funds held under a contract described in paragraph (2)(C), the amounts paid in, or the amounts paid out, reflect the investment return and the market value of the segregated asset account.". 26 USC 817 note. (b) EFFECTIVE DATE. —The amendments made by this section shall apply to taxable years beginning after December 31, 1995. SEC. 1612. TREATMENT OF MODIFIED GUARANTEED CONTRACTS. (a) GENERAL RULE. —Subpart E of part I of subchapter L of chapter 1 (relating to definitions and special rules) is amended by inserting after section 817 the following new section: "SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED CONTRACTS, "(a) COMPUTATION OF RESERVES.— In the case of a modified guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not apply. " (b) SEGREGATED ASSETS UNDER MODIFIED GUARANTEED CON- TRACTS MARKED TO MARKET.— "(1) IN GENERAL.—In the case of any life insurance company, for purposes of this subtitle— "(A) Any gain or loss with respect to a segregated asset shall be treated as ordinary income or loss, as the case may be. "(B) If any segregated asset is held by such company as of the close of any taxable year— "(i) such company shall recognize gain or loss as if such asset were sold for its fair market value on the last business day of such taixable year, and "(ii) any such gain or loss shall be taken into account for such taxable year. Proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under the preceding sentence. The Secretary may provide by regulations for the application of this subparagraph at times other than the times provided in this subparagraph. "(2) SEGREGATED ASSET.— For purposes of paragraph (1), the term 'segregated asset' means any asset held as part of a segregated account referred to in subsection (d)(1) under a modified guaranteed contract. "(c) SPECIAL RULE IN COMPUTING LIFE INSURANCE RESERVES.— For purposes of applying section 816(b)(1)(A) to any modified guaranteed contract, an assumed rate of interest shall include a rate of interest determined, from time to time, with reference to a market rate of interest. "(d) MODIFIED GUARANTEED CONTRACT DEFINED. — For purposes of this section, the term 'modified guaranteed contract' means a contract not described in section 817—
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