Rev. Rul. 67-388

Rev. Rul. 67-388

Advice has been requested whether a provision in an annuity purchase arrangement, described in section 403(b) of the Internal Revenue Code of 1954, which grants an employee the unrestricted right to withdraw the amounts standing to his credit, including the employer contribution for the taxable year, would render such amounts currently taxable to him under section 72 of the Code. Advice has also been requested whether the employee's applicable exclusion allowance for the taxable year, provided by section 403(b) of the Code, would be affected under these circumstances.

An employer, described in section 403(b)(1)(A)(ii) of the Code, initiated an annuity purchase arrangement for its employees through the purchase of annuity contracts issued by a State Teachers' Retirement Fund. This annuity purchase arrangement contains a provision that without termination of membership, penalty, or restriction, each employee has the right to withdraw all or a portion of the amount standing to his credit, including the employer contributions for the taxable year.

Section 403(b)(1) of the Code provides that if the conditions set forth therein are met amounts contributed by an employer for an annuity contract shall be excluded from the gross income of the employee for the taxable year to the extent that such amounts do not exceed the applicable exclusion allowance.

Section 1.403(b)-1(c)(1) of the Income Tax Regulations provides that the amounts received by or made available to any employee under an annuity contract, referred to in section 403(b) of the Code, shall be included in his gross income for the taxable year in which received or made available, as provided in section 72 of the Code (relating to annuities).

Since the annuity purchase arrangement grants the employee the unrestricted right to withdraw the amounts standing to his credit, including employer contributions for the taxable year, those amounts are `made available' to him within the meaning of section 1.403(b)-1(c)(1) of the regulations. Therefore, the exclusion allowance provided under section 403(b) of the Code for the taxable year is inapplicable, and such amounts are taxable to the extent provided by section 72 of the Code.