The "Protecting Proper Life Insurance from Abuse Act" seeks to curb the use of private placement life insurance (PPLI) and annuity contracts by wealthy individuals for tax avoidance. It introduces a new tax classification for applicable private placement contracts (APPCs), which will no longer be treated as insurance or annuity contracts for federal tax purposes. This reclassification effectively eliminates the tax-preferred status, such as tax deferral on investment gains, typically associated with life insurance and annuities. A contract becomes an APPC if it is a variable life insurance or annuity contract requiring specific investor qualifications for a securities registration exemption, and it fails to meet certain requirements for its segregated asset account. Specifically, the segregated asset account must support at least 25 private placement contracts, and each contract's value must be proportionally supported by all assets within that account. Contracts held by related persons are aggregated to prevent circumvention of the 25-contract threshold. Furthermore, foreign-issued variable life insurance or annuity contracts held by U.S. persons are automatically deemed APPCs, regardless of whether they meet the segregated asset account requirements, to prevent offshore tax avoidance. Once a contract is designated an APPC, it retains that classification permanently. For holders of APPCs, the bill mandates that they be treated as if they directly own their share of the assets within the segregated account and directly receive any income or loss generated by those assets. This means investment income from these contracts will be taxed currently, rather than deferred. Any "excess distributions" from an APPC will also be included in gross income as ordinary income. The legislation also imposes new reporting obligations on reporting issuers , which include entities that issue or reinsure APPCs. These issuers must file initial and annual returns detailing contract holder information, adjusted basis, income, distributions, and related parties. Failure to file the initial return can result in severe penalties, starting at $1 million and increasing by $1 million for each subsequent 30-day period of non-compliance. Finally, the bill amends the Foreign Account Tax Compliance Act (FATCA) to treat life insurance companies as financial institutions and foreign-issued private placement contracts as "financial accounts." These FATCA changes aim to enhance transparency and information exchange regarding these products globally. The provisions of the act apply to contracts issued before, on, or after the enactment date, with a 180-day transition period for existing contracts to be modified or cancelled to avoid APPC treatment.