Rev. Rul. 56-1

Advice has been requested as to the amount includible in the decedent's gross estate under section 2039 of the Internal Revenue Code of 1954 on account of an annuity payable to his surviving spouse under the United States Civil Service Retirement System.

At the time of his death the decedent was employed by the United States Government. He was survivied by his wife who became entitled to an immediate annuity of $200.00 a month, the present value of which was $36,000.

Section 2039(a) of the Internal Revenue Code of 1954 provides for the inclusion in the decedent's gross estate of the value of an annuity or other payment receivable by any beneficiary by reason of surviving the decedent under any form of contract or agreement (other than insurance on the decedent's life) if, under such contract or agreement, an annuity or other payment was payable to the decedent, or the decedent possessed the right to receive such annuity or other payment for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death.

Section 2039(b) provides that subsection (a) shall apply to only such part of the value of the annuity or other payment receivable under such contract or agreement as is proportionate to that part of the purchase price therefor contributed by the decedent and, for the purposes of this section, any contribution by the decedent's employer shall be considered to be contributed by the decedent if made by reason of his employment.

Section 2039(c) provides, however, that there shall be excluded from the gross estate the value of an annuity or other payment receivable by any beneficiary (other than the executor) under `an employees' trust * * * forming part of a pension * * * plan which, at the time of the decedent's separation from employment (whether by death or otherwise), * * * met the requirements of section 401(a)' except that `if such amounts * * * are attributable to any extent to payments or contributions made by the decedent, no exclusion shall be allowed for that part of the value of such amounts in the proportion that the total payments or contributions made by the decedent bears to the total payments or contributions made.' For the purposes of subsection (c), contributions made by the decedent's employer shall not be considered to be contributed by the decedent.

The United States Civil Service Retirement System is treated as an employees' trust which has been held to meet the requirements of section 165(a) of the Internal Revenue Code of 1939 (section 401(a) of the Internal Revenue Code of 1954).

The decedent contributed $5,000 to the United States Civil Service Retirement System and the interest accrued thereon to the date of his death amounts to $3,000. The accrued interest is considered as attributable to payments or contributions made by the decedent.

The report of the Senate Finance Committee on section 2039 of the 1954 Code states that where the annuity is payable out of a fund or under a plan where the employer's contribution to a particular employee's account cannot be readily ascertained, the total contributions may, in the absence of a more precise method of determination, be considered to be the value of the annuity payable to the decedent and the survivor as of the time such annuity becomes fixed. The amount contributed by the Government to the purchase of the employee's or the survivor's retirement annuity is not readily ascertainable.

As the decedent in the instant case died before retirement, the value of the annuity payable to his wife which became fixed as of the date of his death is considered to be the value of the total contributions. Accordingly, the amount includible in decedent's gross estate on account of the annuity payable to his wife is computed as follows:

Decedent's contribution $8,000/Total contributions 36,000 x $36,000 (Value of annuity) = $8,000

It is thus apparent that where an individual who is covered by the United States Civil Service Retirement System dies before retirement, the amount includible in his gross estate under section 2039 of the Internal Revenue Code of 1954 on account of an annuity payable to his surviving spouse, or other beneficiary, is the amount of the decedent's contribution to the system plus the interest accrued thereon.