§44. Exclusion from gross income; portion of amounts received as annuities

           A. General rule for annuities. Except as otherwise provided in this Chapter, gross income includes any amount received as an annuity (whether for a period certain or during one or more lives) under an annuity, endowment, or life insurance contract. For purposes of this Section, the term "endowment contract" includes a face amount certificate.

           B. Exclusion ratio. Gross income does not include that part of any amount received as an annuity under an annuity, endowment, or life insurance contract which bears the same ratio to such amount as the investment in the contract (as of the annuity starting date) bears to the expected return under the contract (as of such date). This Subsection shall not apply to any amount to which Paragraph (D)(1) of this Section (relating to certain employee annuities) applies.

           C. Definitions.

           (1) Investment in the contract. For the purposes of Subsection B of this Section the investment in the contract as of the annuity starting date is:

           (a) the aggregate amount of premiums or other consideration paid for the contract except amounts excluded from income under the provisions of R.S. 47:53.4, minus

           (b) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this Chapter or prior income tax laws.

           (2) Adjustment in investment where there is refund feature. If,

           (a) the expected return under the contract depends in whole or in part on the life expectancy of one or more individuals; and

           (b) the contract provides for payments to be made to a beneficiary or to the estate of an annuitant on or after the death of the annuitant or annuitants; and

           (c) such payments are in the nature of a refund of the consideration paid, then the value (computed without discount for interest) of such payments on the annuity starting date shall be subtracted from the amount determined under Paragraph (1) of this Subsection. Such value shall be computed in accordance with actuarial tables prescribed by the collector. For purposes of this Paragraph and of Subparagraph (E)(2)(a) of this Section, the term "refund of the consideration paid" includes amounts payable after the death of an annuitant by reason of a provision in the contract for a life annuity with minimum period of payments certain, but if part of the consideration was contributed by an employer, the term does not include that part of any payment to a beneficiary (or to the estate of the annuitant) which is not attributable to the consideration paid by the employee for the contract as determined under Subparagraph (1)(a) of this Subsection.

           (3) Expected return. For purposes of Subsection B of this Section, the expected return under the contract shall be determined as follows:

           (a) if the expected return under the contract, for a period on and after the annuity starting date, depends in whole or in part on the life expectancy of one or more individuals, the expected return shall be computed with reference to actuarial tables prescribed by the collector;

           (b) if the preceding subdivision does not apply, the expected return is the aggregate of the amounts receivable under the contract as an annuity.

           (4) Annuity starting date. For the purposes of this Section, the annuity starting date in the case of any contract is the first day of the first period for which an amount is received as an annuity under the contract; except that if such date was before January 1, 1958, then the annuity starting date is January 1, 1958.

           D. Employees' annuities.

           (1) Employee's contributions recoverable in 3 years. Where:

           (a) part of the consideration for an annuity, endowment, or life insurance contract is contributed by the employer, and

           (b) during the 3-year period beginning on the date (whether or not before January 1, 1958) on which an amount is first received under the contract as an annuity, the aggregate amount receivable by the employee under the terms of the contract is equal to or greater than the consideration for the contract contributed by the employee, then all amounts received as an annuity under the contract shall be excluded from gross income until there has been so excluded under this Paragraph and prior income tax laws an amount equal to the consideration for the contract contributed by the employee. Thereafter all amounts so received under the contract shall be included in gross income.

           (2) Special rules for application of Paragraph (1) of this Subsection. For purposes of Paragraph (1) of this Subsection, if the employee died before any amount was received as an annuity under the contract, the words "receivable by the employee" shall read as "receivable by a beneficiary of the employee".

           E. Amounts not received as annuities.

           (1) General rule. If any amount is received under an annuity, endowment, or life insurance contract, if such amount is not received as an annuity, and if no other provision of this Chapter applies, then such amount:

           (a) if received on or after the annuity starting date, shall be included in gross income; or

           (b) the preceding subdivision does not apply, shall be included in gross income, but only to the extent that it exceeds the aggregate premiums or other consideration paid when added to amounts previously received under the contract which were excludable from gross income under this Chapter or prior income tax laws.

           For purposes of this Section, any amount received which is in the nature of a dividend or similar distribution shall be treated as an amount not received as an annuity.

           (2) Special rules for application of Paragraph (1) of this Subsection. For purposes of Paragraph (1) of this Subsection, the following shall be treated as amounts not received as an annuity:

           (a) any amount received, whether in a single sum or otherwise, under a contract in full discharge of the obligation under the contract which is in the nature of a refund of the consideration paid for the contract; and

           (b) any amount received under a contract on its surrender, redemption, or maturity.

           In the case of any amount to which the preceding sentence applies, the rule of Subparagraph (1)(b) of this Subsection shall apply (and the rule of Subparagraph (1)(a) of this Subsection shall not apply).

           F. Special rules for computing employees' contributions. In computing, for purposes of Subparagraph (C)(1)(a) of this Section, the aggregate amount of premiums or other consideration paid for the contract, for purposes of Paragraph (D)(1) of this Section, the consideration for the contract contributed by the employee, and for purposes of Subparagraph (E)(1)(b) of this Section, the aggregate premiums or other consideration paid, amounts contributed by the employer shall be included, but only to the extent that:

           (1) such amounts were includible in the gross income of the employee under this chapter or prior income tax laws; or

           (2) if such amounts had been paid directly to the employee at the time they were contributed, they would not have been includible in the gross income of the employee under the law applicable at the time of such contribution.

           G. Rules for transferee where transfer was for value. Where any contract or any interest therein is transferred by assignment or otherwise for a valuable consideration, to the extent that the contract or interest therein does not, in the hands of the transferee, have a basis which is determined by reference to the basis in the hands of the transferor:

           (1) for purposes of this section, only the actual value of such consideration, plus the amount of the premiums and other consideration paid by the transferee after the transfer, shall be taken into account in computing the aggregate amount of the premiums or other consideration paid for the contract;

           (2) for purposes of Subparagraph (C)(1)(b) of this Section, there shall be taken into account only the aggregate amount received under the contract by the transferee before the annuity starting date, to the extent that such amount was excludable from gross income under this Chapter or prior income tax laws; and

           (3) the annuity starting date is January 1, 1958, or the first day of the first period for which the transferee received an amount under the contract as an annuity, whichever is the later. For purposes of this Subsection, the term "transferee" includes a beneficiary of, or the estate of, the transferee.

           H. Option to receive annuity in lieu of lump sum. If:

           (1) a contract provides for payment of a lump sum in full discharge of an obligation under the contract, subject to an option to receive an annuity in lieu of such lump sum;

           (2) the option is exercised within 60 days after the day on which such lump sum first became payable; and

           (3) part or all of such lump sum would (but for this Subsection) be includible in gross income by reason of Paragraph (E)(1) of this Section, then, for the purposes of this chapter, no part of such lump sum shall be considered as includible in gross income at the time such lump sum first became payable.

           I. Joint and survivor annuities. Where the first annuitant died before January 1, 1958, the basis of a surviving annuitant's interest in a joint and survivor annuity contract is determined under R.S. 47:145. Where the first annuitant died after December 31, 1957, the basis of the surviving annuitant's interest in the joint and survivor annuity contract is determined under Subsection C of this Section and R.S. 47:145 shall not apply in the determination of the basis of such annuity contract.

           J. Interest. Notwithstanding any other provision of this Section, if any amount is held under an agreement to pay interest thereon, the interest payments shall be included in gross income.

           Amended by Acts 1958, No. 242, §2; Acts 1970, No. 197, §1.