PUBLIC LAW 100-647—NOV. 10, 1988 102 STAT. 3661

ence, if any, with respect to similar contracts) are
reasonably expected to be actually paid, and".

(b) SPECIAL RULES.—Paragraph (3) of section 7702(c) of the 1986
Code is amended by adding at the end thereof the following new
subparagraph:

"(D) SPECIAL RULES FOR SUBPARAGRAPH (B)(ii).—

"(i) CHARGES NOT SPECIFIED IN THE CONTRACT.—If any
charge is not specified in the contract, the amount
taken into account under subparagraph (B)(ii) for such
charge shall be zero.

"(ii) NEW COMPANIES, ETC.—If any company does not
have adequate experience for purposes of the deter-
mination under subparagraph (B)(ii), to the extent pro-
vided in regulations, such determination shall be made
on the basis of the industry-wide experience."

(c) INTERIM RULES.— 26 use 7702

(1) REGULATIONS.—Not later than January 1, 1990, the Sec- note.
retary of the Treasury (or his delegate) shall issue regulations
under section 7702(c)(3)(B)(i) of the 1986 Code (as amended by
subsection (a)).

(2) STANDARDS BEFORE REGULATIONS TAKE EFFECT.—In the case
of any contract to which the amendments made by this section
apply and which is issued before the effective date of the
regulations required under paragraph (1), mortality charges
which do not differ materially from the charges actually ex-
pected to be imposed by the company (taking into account any
relevant characteristic of the insured of which the company is
aware) shall be treated as meeting the requirements of clause (i)
of section 7702(c)(3)(B) of the 1986 Code (as amended by subsec-
tion (a)).

(d) EFFECTIVE DATE.—The amendments made by this section shall 26 use 7702
apply to contracts entered into on or after October 21,1988. note

SEC. 5012. TREATMENT OF MODIFIED ENDOWMENT CONTRACTS.

(a) DISTRIBUTION RULES.—

(1) IN GENERAL.—Subsection (e) of section 72 of the 1986 Code
(relating to amounts not received as annuities) is amended by
adding at the end thereof the following new paragraph:

"(10) TREATMENT OF MODIFIED ENDOWMENT CONTRACTS.—

"(A) IN GENERAL.—Notwithstanding paragraph (5XC), in
the case of any modified endowment contract (as defined in
section 7702A)—

"(i) paragraphs (2)(B) and (4)(A) shall apply, and
"(ii) in applying paragraph (4XA), 'any person' shall
be substituted for 'an individual'.

"(B) TREATMENT OF CERTAIN BURIAL CONTRACTS.—Not-
withstanding subparagraph (A), paragraph (4XA) shall not
apply to any assignment (or pledge) of a modified endow-
ment contract if such assignment (or pledge) is solely to
cover the payment of expenses referred to in section
7702(e)(2)(CXiii) and if the maximum death benefit under
such contract does not exceed $25,000."

(2) TECHNICAL AMENDMENT.—Subparagraph (C) of section
72(eX5) of the 1986 Code is amended by striking out "Except to
the extent" and inserting in lieu thereof "Except as provided in
paragraph (10) and except to the extent".

(b) ADDITIONAL TAX.—