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TITLE 26-INTERNAL REVENUE CODE (c) Deduction for contributions to bond purchase plans Contributions paid by an employer to or under a qualified bond purchase plan shall be allowed as a deduction in an amount deter- mined under section 404 in the same manner and to the same extent as if such contributions were made to a trust described in section 401(a) which is exempt from tax under section 501(a). (d) Taxability of beneficiary of qualified bond pur- chase plan (1) Gross income not to include bonds at time of distribution For purposes of this chapter, in the case of a distributee of a bond described in subsection (b) under a qualified bond purchase plan, or from a trust described in section 401(a) which is exempt from tax under section 501(a), gross income does not include any amount attribut- able to the receipt of such bond. Upon re- dtr.ption of such bond, the proceeds shall be subject to taxation under this chapter, but the provisions of section 72 (relating to annu- ities, etc.) and section 1232 (relating to bonds and other evidences of indebtedness) shall not apply. (2) Basis The basis of any bond received by a distri- butee under a qualified bond purchase plan- (A) if such bond is distributed to an em- ployee, or with respect to an employee, who at the time of purchase of the bond, was an employee other than an employee within the meaning of section 401(c)(1), shall be the amount of the contributions by the em- ployee which were used to purchase the bond, and (B) if such bond is distributed to an em- ployee, or with respect to an employee, who, at the time of purchase of the bond, was an employee within the meaning of sec- tion 401(c)(1), shall be the amount of the contributions used to purchase the bond which were made on behalf of such employ- ee and were not allowed as a deduction under subsection (c). The basis of any bond described in subsection (b) received by a distributee from a trust de- scribed in section 401(a) which is exempt from tax under section 501(a) shall be deter- mined under regulations prescribed by the Secretary. (e) Capital gains treatment and limitation of tax not to apply to bonds distributed by trusts Subsections (a)(2) and (e) of section 402 shall not apply to any bond described in subsection (b) distributed to any distributee and, for pur- poses of applying such sections, any such bond distributed to any distributee and any such bond to the credit of any employee shall not be taken into account. (f) Employee defined For purposes of this section, the term "em- ployee" includes an individual who is an em- ployee within the meaning of section 401(c)(1), and the employer of such individual shall be the person treated as his employer under sec- tion 401(c)(4). (g) Proof of purchase At the time of purchase of any bond to which this section applies, proof of such purchase shall be furnished in such form as will enable the purchaser, and the employee in whose name such bond is purchased, to comply with the provisions of this section. (h) Regulations The Secretary shall prescribe such regula- tions as may be necessary to carry out the pro- visions of this section. (Added Pub. L. 87-792, § 5(a), Oct. 10, 1962, 76 Stat. 826, and amended Pub. L. 89-97, title I, § 106(d)(5), July 30, 1965, 79 Stat. 337; Pub. L. 91-172, title V, §515(c)(1), Dec. 30, 1969, 83 Stat. 645; Pub. L. 93-406, title II, §§ 2004(c)(2), 2005(c)(11), Sept. 2, 1974, 88 Stat. 986, 992; Pub. L. 94-455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.) REFERENCES IN TEXT The Second Liberty Bond Act, as amended, referred to in subsec. (c), is act Sept. 24, 1917, ch. 56, 40 Stat. 288, as amended. For classification of this Act to the Code, see References in Text note set out under sec- tion 774 of Title 31, Money and Finance, and Tables volume. AMENDMENTS 1976-Subsecs (d), (h). Pub. L. 94-455 struck out "or his delegate" following "Secretary". 1974-Subsec. (a)(1). Pub. L. 93-406, § 2004(I), (2), In- serted references to section 401(a)(16) and (19). Subsec. (e). Pub. L. 93-406, § 2005(c)(11), substituted "Subsections (a)(2) and (e) of section 402" for "Section 72(n) and section 402(a)(2)". 1969-Subsec. (e). Pub. L. 91-172 substituted "Cap- ital gains treatment and limitation of tax" for "Cap- ital gains treatment" in subsec. catchline, substituted "Section 72(n) and section 402(a)(2)" for "Section 402(a)(2)" and "sections" for "section". 1965-Subsec. (b)(1)(D)(ii). Pub. L. 89-97 substituted "section 72(m)(7)" for "section 213(g)(3)". EFFECTIVE DATE OF 1974 AMENDMENT Amendment by section 2004(c)(2) of Pub. L. 93-406 applicable to years beginning after Dec. 31, 1975, see section 2004(d) of Pub. L. 93-406, set out as an Effec- tive Date; Transition Provisions note under section 415 of this title. Amendment of subsec. (e) of this section by section 2005(c)(11) of Pub. L. 93-406 applicable only with re- spect to distributions or payments made after Dec, 31, 1973, in taxable years beginning after Dec. 31, 1973 see section 2005(d) of Pub. L. 93-406, set out as an Effec- tive Date of 1974 Amendment note under section 402 of this title. EFFECTIVE DATE OF 1969 AMENDMENT Amendment by Pub. L. 91-172 applicable to taxable years ending after Dec. 31, 1969, see section 515(d) of Pub. L. 91-172, set out as an Effective Date of 1969 Amendment note under section 402 of this title. EFFECTIVE DATE OF 1965 AMENDMENT Amendment by Pub. L. 89-97 applicable to taxable years beginning after Dec. 31, 1966, see section 106(e) of Pub. L. 89-97, set out as an Effective Date of 1965 Amendment note under section 213 of this title. EFFECTIVE DATE Section applicable to taxable years beginning after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as an Effective Date of 1962 Amendment note under sec- tion 37 of this title. Page 313 § 405