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TITLE 26-INTERNAL REVENUE CODE 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 pre- ceding sentence applies, the rule of paragraph (1)(B) shall apply (and the rule of paragraph (1)(A) shall not apply). (f) Special rules for computing employees' contribu- tions In computing, for purposes of subsection (c)(1)(A), the aggregate amount of premiums or other consideration paid for the contract, for purposes of subsection (d)(1), the consideration for the contract contributed by the employee, and for purposes of subsection (e)(1)(B), the ag- gregate 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 sub- title or prior income tax laws; or (2) if such amounts had been paid directly to the employee at the time they were con- tributed, they would not have been includible in the gross income of the employee under the law applicable at the time of such contri- bution. Paragraph (2) shall not apply to amounts which were contributed by the employer after December 31, 1962, and which would not have been includible in the gross income of the em- ployee by reason of the application of section 911 if such amounts had been paid directly to the employee at the time of contribution. The preceding sentence shall not apply to amounts which were contributed by the employer, as de- termined under regulations prescribed by the Secretary, to provide pension or annuity cred- its, to the extent such credits are attributable to services performed before January 1, 1963, and are provided pursuant to pension or annu- ity plan provisions in existence on March 12, 1962, and on that date applicable to such ser- vices. (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, then- (1) for purposes of this section, only the actual value of such consideration, plus the amount of the premiums and other consider- ation paid by the transferee after the trans- fer, shall be taken into account in computing the aggregate amount of the premiums or other consideration paid for the contract; (2) for purposes of subsection (c)(1)(B), there shall be taken into account only the ag- gregate amount received under the contract by the transferee before the annuity starting date, to the extent that such amount was ex- cludable from gross income under this subti- tle or prior income tax laws; and (3) the annuity starting date is January 1, 1954, 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 re- ceive 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 subsection (e)(1), then, for purposes of this subtitle, no part of such lump sum shall be considered as includible in gross income at the time such lump sum first became payable. [(I) Repealed. Pub. L. 94-455, title XIX, § 1951(b)(1)(A), Oct. 4, 1976, 90 Stat. 1836] ) Interest Notwithstanding any other provision of this section, if any amount is held under an agree- ment to pay interest thereon, the interest pay- ments shall be included in gross income. (k) Payments in discharge of alimony (1) In general This section shall not apply to so much of any payment under an annuity, endowment, or life insurance contract (or any interest therein) as is includible in the gross income of the wife under section 71 or section 682 (re- lating to income of an estate or trust in case of divorce, etc.). (2) Cross reference For definition of "wife", see section 7701(a)(17). (1) Face-amount certificates For purposes of this section, the term "en- dowment contract" includes a face-amount cer- tificate, as defined in section 2(a)(15) of the In- vestment Company Act of 1940 (15 U.S.C., sec. 80a-2), issued after December 31, 1954. (in) Special rules applicable to employee annuities and distributions under employee plans [(1) Repealed. Pub. L. 93-406, title 11, § 2001(h)(2), Sept. 2, 1974, 88 Stat. 957] (2) Computation of consideration paid by the em- ployee In computing- (A) the aggregate amount of premiums or other consideration paid for the contract for purposes of subsection (c)(1)(A) (relat- ing to the investment in the contract), (B) the consideration for the contract contributed by the employee for purposes of subsection (d)(1) (relating to employee's contributions recoverable in 3 years), and (C) the aggregate premiums or other con- sideration paid for purposes of subsection (e)(1)(B) (relating to certain amounts not received as an annuity), any amount allowed as a deduction with re- spect to the contract under section 404 which was paid while the employee was an employee Page 100