Rev. Rul. 67-37

Advice has been requested wehther any portion of the amount credited to the account of the decedent under an employees' profitsharing plan and trust agreement is includible in his gross estate for Federal estate tax purposes under the circumstances described below.

The decedent was, at the time of his death, an employee of the R Company and a participant of its profit-sharing plan which met the requirements of section 401(a) of the Internal Revenue Code of 1954. All contributions under the plan were made by the employer.

Under the terms of the plan, after an employee's 10th year of participation, he must withdraw annually a percentage of the balance in his account as of the end of the preceding year. The decedent was in his 18th year, and, with regard to such employees, the plan provides:

During the eighteenth year of each Employee-Party's participation herein, he shall withdraw, and the trustee shall, upon his demand, pay to him one-third ( 1/3 ) of the amount credited to his account as of the last preceding December 31.

The amount credited to the decedent's account as of December 31 was not subject to immediate payment. The trustees of the plan had to await the employer's income computations, not due before the following March 1, and, in turn, for the employer's contribution to be made to the plan in order to ascertain the exact amount of the employee entitlements and make distribution.

The decedent died on February 25 before withdrawing any amount from the plan, and the entire amount credited to his account was distributed to his designated beneficiary.

Section 2039(a) of the Code and the regulations thereunder provide that a decedent's gross estate includes the value of an annuity or other payment receivable by any beneficiary by reason of surviving the decedent where the decedent had certain lifetime rights under the contract or agreement, to the extent that the value of the annuity or other payment is attributable to contributions made by the decedent or his employer.

However, section 2039(c) of the Code and the regulations thereunder provide that, notwithstanding any provision of law, there shall be excluded from the decedent's gross estate the value of any annuity or other payment receivable by any beneficiary under an employees' trust forming part of a profit-sharing plan which, at the time of decedent's death, met the requirements of section 401(a) of the Code.

This exclusion does not apply to the extent that the annuity or other payment is attributable to contributions made by the decedent-employee. The exclusion is fully applicable, however, in the case of a plan which is noncontributory as far as the employee is concerned.

Two-thirds of the amount credited to the decedent's account was receivable after his death by his designated beneficiary under the qualified profit-sharing plan. That amount is held to be excludable from decedent's gross estate by reason of the provisions of section 2039(c) of the Code.

As to the remaining one-third of the amount credited to the decedent's account which he could have withdrawn during his 18th year of participation, the question to be resolved is whether the trustee was holding that amount for the decedent or as part of the plan.

Under the express terms of the plan, decedent's right to one-third of the amount credited to his account as of the preceding December 31, was completely matured when he began his 18th year of participation in the plan. The fact that certain administrative computations had to be made to determine the exact amount to which he was entitled was not a substantial restriction upon his right.

Accordingly, it is held that one-third of the amount credited to the decedent's account as of the preceding December 31 was the property of the decedent as of January 1, of the 18th year. Such property is considered as property in which the decedent had an interest to that extent so as to be includible in his gross estate under section 2033 of the Code, and not as receivable by the designated beneficiary under the profit-sharing plan. Consequently, the exclusion provided by section 2039(c) of the Code is inapplicable to such property.