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TITLE 26-INTERNAL REVENUE CODE (c) Definitions (1) Investment in the contract For purposes of subsection (b), the invest- ment in the contract as of the annuity start- ing date is- (A) the aggregate amount of premiums or other consideration paid for the contract, 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 subtitle or prior income tax laws. (2) Adjustment in Investment where there is refund feature If- (A) the expected return under the con- tract depends in whole or in part on the life expectancy of one or more individuals; (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). Such value shall be computed in accordance with actuarial tables prescribed by the Secre- tary. For purposes of this paragraph and of subsection (e)(2)(A), 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 contrib- uted by an employer) does not include that part of any payment to a beneficiary (or to the estate of the annuitant) which is not at- tributable to the consideration paid by the employee for the contract as determined under paragraph (1)(A). (3) Expected return For purposes of subsection (b), the expected return under the contract shall be deter- mined as follows: (A) Life expectancy If the expected return under the contract, for the period on and after the annuity starting date, depends in whole or in part on the life expectancy of one or more indi- viduals, the expected return shall be com- puted with reference to actuarial tables pre- scribed by the Secretary. (B) Installment payments If subparagraph (A) does not apply, the expected return is the aggregate of the amounts receivable under the contract as an annuity. (4) Annuity starting date For 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, 1954, then the annuity starting date is January 1, 1954. (d) Employees' annuities (1) Employee's contributions recoverable in 3 years Where- (A) part of the consideration for an annu- ity, endowment, or life insurance contract is contributed by the employer, and (B) during the 3-year period beginning on the date on which an amount is first re- ceived under the contract as an annuity, the aggregate amount receivable by the employ- ee 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 an amount equal to the consideration for the contract contributed by the employee. There- after all amounts so received under the con- tract shall be included in gross income. (2) Special rules for application of paragraph (1) For purposes of paragraph (1)- (A) if the employee died before any amount was received as an annuity under the contract, the words "receivable by the employee" shall be read as "receivable by a beneficiary of the employee"; and (B) any contribution made with respect to the contract while the employee is an em- ployee within the meaning of section 401(c)(1) which is not allowed as a deduc- tion under section 404 shall be treated as consideration for the contract contributed by the employee. (3) Cross reference For certain rules for determining whether amounts contributed by employer are includible in the gross income of the employee, see part I of subchapter D (sec. 401 and following, relating to pension, profit-sharing, and stock bonus plans, etc.). (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 subtitle applies, then such amount- (A) if received on or after the annuity starting date, shall be included in gross income; or (B) if subparagraph (A) does not apply, shall be included in gross income, but only to the extent that it (when added to amounts previously received under the con- tract which were excludable from gross income under this subtitle or prior income tax laws) exceeds the aggregate premiums or other consideration paid. For purposes of this section, any amount re- ceived 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) For purposes of paragraph (1), the follow- ing 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 Page 99