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TITLE 26-INTERNAL REVENUE CODE equal to the sum of the actual value of such consideration and the premiums and other amounts subsequently paid by the transferee. The preceding sentence shall not apply in the case of such a transfer- (A) if such contract or interest therein has a basis for determining gain or loss in the hands of a transferee determined in whole or in part by reference to such basis of such contract or interest therein in the hands of the transferor, or (B) if such transfer is to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a cor- poration in which the insured is a share- holder or officer. (b) Employees' death benefits (1) General rule Gross income does not include amounts re- ceived (whether in a single sum or otherwise) by the beneficiaries or the estate of an em- ployee, if such amounts are paid by or on behalf of an employer and are paid by reason of the death of the employee. (2) Special rules for paragraph (1) (A) $5,000 limitation The aggregate amounts excludable under paragraph (1) with respect to the death of any employee shall not exceed $5,000. (B) Nonforfeitable rights Paragraph (1) shall not apply to amounts with respect to which the employee pos- sessed, immediately before his death, a non- forfeitable right to receive the amounts while living. This subparagraph shall not apply to a lump sum distribution (as de- fined in section 402(e)(4))- (i) by a stock bonus, pension, or profit- sharing trust described in section 401(a) which is exempt from tax under section 501(a), (i) under an annuity contract under a plan described in section 403(a), or (iii) under an annuity contract pur- chased by an employer which is an organi- zation referred to in section 170(b)(1)(A) (ii) or (vi) or which is a religious organiza- tion (other than a trust) and which is exempt from tax under section 501(a), but only with respect to the portion of such total distributions payable which bears the same ratio to the amount of such total distributions payable which is (with- out regard to this subsection) includible in gross income, as the amounts contributed by the employer for such annuity con- tract which are excludable from gross income under section 403(b) bear the total amounts contributed by the employer for such annuity contract. (C) Joint and survivor annuities Paragraph (1) shall not apply to amounts received by a surviving annuitant under a Joint and survivor's annuity contract after the first day of the first period for which an amount was received as an annuity by the employee (or would have been received if the employee had lived). (D) Other annuities In the case of any amount to which sec- tion 72 (relating to annuities, etc.) applies, the amount which is excludable under para- graph (1) (as modified by the preceding sub- paragraphs of this paragraph) shall be de- termined by reference to the value of such amount as of the day on which the employ- ee died. Any amount so excludable under paragraph (1) shall, for purposes of section 72, be treated as additional consideration paid by the employee. Paragraph (1) shall not apply in the case of an annuity under chapter 73 of title 10 of the United States Code if the member or former member of the uniformed services by reason of whose death such annuity is payable died after at- taining retirement age. (3) Self-employed individual not considered an em- ployee For purposes of this subsection, the term "employee" does not include an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed in- dividuals). (c) Interest If any amount excluded from gross income by subsection (a) or (b) is held under an agreement to pay interest thereon, the interest payments shall be included in gross income. (d) Payment of life insurance proceeds at a date later than death (1) General rule The amounts held by an insurer with re- spect to any beneficiary shall be prorated (in accordance with such regulations as may be prescribed by the Secretary) over the period or periods with respect to which such pay- ments are to be made. There shall be ex- cluded from the gross income of such benefi- ciary in the taxable year received- (A) any amount determined by such pro- ration, and (B) in the case of the surviving spouse of the insured, that portion of the excess of the amounts received under one or more agreements specified in paragraph (2)(A) (whether or not payment of any part of such amounts is guaranteed by the insurer) over the amount determined in subpara- graph (A) of this paragraph which is not greater than $1,000 with respect to any in- sured. Gross income includes, to the extent not ex- cluded by the preceding sentence, amounts received under agreements to which this sub- section applies. (2) Amount held by an insurer An amount held by an insurer with respect to any beneficiary shall mean an amount to which subsection (a) applies which is- (A) held by any insurer under an agree- ment provided for in the life insurance con- tract, whether as an option or otherwise, to pay such amount on a date or dates later than the death of the insured, and (B) is equal to the value of such agree- ment to such beneficiary. (i) as of the date of death of the insured (as if any option exercised under the life § 101 Page 110