§43. Exclusion from gross income; certain death benefits
A. Proceeds of life insurance contracts payable by reason of death.
(1) General rule. Except as otherwise provided in Sub-section A(2) of this Section and in Sub-section D of this Section, gross income does not include amounts received under a life insurance contract whether in a single sum or otherwise, if such amounts are paid by reason of the death of the insured.
(2) Transfer for valuable consideration. In the case of a transfer for a valuable consideration, by assignment or otherwise, of a life insurance contract or any interest therein, the amount excluded from gross income by Sub-section A(1) of this Section shall not exceed an amount 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 corporation in which the insured is a shareholder or officer.
B. Employees' death benefits.
(1) General rule. Gross income does not include amounts received by the Beneficiaries or the estate of an employee, whether in a single sum or otherwise, 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. The following rules and limitations apply to Sub-section B(1) of this Section.
(a) $5,000 limitation. The aggregate amounts excludable with respect to the death of any employee shall not exceed $5,000.
(b) Nonforfeitable rights. Amounts with respect to which the employee possessed, immediately before his death, a nonforfeitable right to receive the amounts while living are not excludable, other than total distributions payable, as defined in R.S. 47:185, which are paid to a distributee, by a stock bonus, pension, or profit-sharing trust described in R.S. 47:185 which is exempt from tax under R.S. 47:121, or under an annuity contract under a plan which meets the requirements of R.S. 47:185 within one taxable year of the distributee by reason of the employee's death.
(c) Joint and survivor annuities. 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), are not excludable.
(d) Other annuities. In the case of any amount to which R.S. 47:44 (relating to annuities, etc.) applies, the amount which is excludable, determined in accordance with the preceding rules, shall be determined by reference to the value of such amounts as of the day on which the employee died. Any amounts so excludable shall, for purposes of R.S. 47:44, be treated as additional consideration paid by the employee.
C. Interest. If any amount excluded from gross income by Sub-section A or B of this Section 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 respect to any beneficiary shall be prorated, in accordance with such regulations as may be prescribed by the collector, over the period or periods with respect to which such payments are to be made. There shall be excluded from the gross income of such beneficiary in the taxable year received:
(a) any amount determined by such proration, 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 Sub-section D(2)(a) of this Section, (whether or not payment of any part of such amounts is guaranteed by the insurer) over the amount determined in Sub-section D(1)(a) of this Section which is not greater than $1,000 with respect to any insured.
Gross income includes, to the extent not excluded 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 Sub-section A of this Section applies which is:
(a) held by an insurer under an agreement provided for in the life insurance contract, 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 agreement to such beneficiary:
(i) as of the date of death of the insured (as if any option exercised under the life insurance contract were exercised at such time), and
(ii) as discounted on the basis of the interest rate and mortality tables used by the insurer in calculating payments under the agreement.
(3) Surviving spouse. For purposes of this Sub-section, the term "surviving spouse" means the spouse of the insured as of the date of death, including a spouse legally separated but not under a decree of absolute divorce.
(4) Application of Sub-section. This Sub-section shall not apply to any amount to which Sub-section C is applicable.
E. Alimony, and similar payments.
In general. This Section shall not apply to so much of any payment as is includible in the gross income of the wife under R.S. 47:42(C) (relating to alimony).
F. Effective date of Section. This Section shall apply only to amounts received by reason of the death of an insured or any employee occurring after the date of enactment of this Section. R.S. 47:43 as it existed prior to this amendment shall apply to amounts received by reason of the death of an insured or an employee occurring on or before such date.
Amended by Acts 1958, No. 242, §1.