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UNITED STATES CODE — TITLE 26 (INTERNAL REVENUE CODE)
SUBTITLE A — INCOME TAXES | CHAPTER 1 — NORMAL TAXES AND SURTAXES
SUBCHAPTER L — INSURANCE COMPANY TAX | PART I — LIFE INSURANCE COMPANIES
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SECTION 7702: Life insurance contract defined.

(a) GENERAL RULE.—For purposes of this title, the term "life insurance contract" 
means any contract which is a life insurance contract under the applicable law, 
but only if such contract—
    (1) meets the cash value accumulation test of subsection (b), or
    (2)(A) meets the guideline premium requirements of subsection (c), and
       (B) falls within the cash value corridor of subsection (d).

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(b) CASH VALUE ACCUMULATION TEST (CVAT).—
    (1) IN GENERAL.—A contract meets the cash value accumulation test of this 
        subsection if, by the terms of the contract, the cash surrender value of 
        such contract may not at any time exceed the net single premium which 
        would have to be paid at such time to fund future benefits under the contract.
    (2) DETERMINATION OF NET SINGLE PREMIUM.—Net single premiums are calculated 
        using mandated interest rates under §7702(b)(2).

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(c) GUIDELINE PREMIUM REQUIREMENTS (GPT).—
    (1) IN GENERAL.—A contract meets the guideline premium requirements if the sum 
        of the premiums paid under such contract does not at any time exceed the 
        guideline premium limitation.
    (2) GUIDELINE PREMIUM LIMITATION.—The term "guideline premium limitation" means, 
        as of any time, the greater of—
            (A) the guideline single premium, or
            (B) the sum of the guideline level premiums to such date.

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(d) CASH VALUE CORRIDOR.—
    A contract falls within the cash value corridor of this subsection if the 
    death benefit under the contract at any time is not less than the applicable 
    percentage of the cash surrender value (ranging from 250% at age 40 or under, 
    scaling down to 100% at age 95).

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(g) TREATMENT OF CONTRACTS WHICH DO NOT MEET SUBSECTION (a) TEST.—
    (1) IN GENERAL.—If at any time any contract which is a life insurance 
        contract under the applicable law does not meet the definition of a life 
        insurance contract under subsection (a), the income on the contract for 
        any taxable year of the policyholder shall be treated as ordinary income 
        received or accrued by the policyholder during such year.

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APPLICATION TO PRIVATE PLACEMENT LIFE INSURANCE (PPLI):
PPLI contracts must continuously satisfy either CVAT or GPT/Corridor testing to 
maintain federal income tax deferral under IRC §7702. Failure results in immediate 
taxation of all inside buildup under §7702(g).
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