Rev. Rul. 67-278

Advice has been requested whether the value of a decedent's community property interest in a profit-sharing trust is includible in her gross estate under the provisions of section 2033 of the Internal Revenue Code of 1954, notwithstanding the provisions of section 2039(c) of the Code, under the circumstances described below.

The decedent's surviving husband is employed by a company which has established a profit-sharing trust which meets the requirements of section 401(a) of the Code. At the time of the decedent's death, the surviving spouse had a vested interest in the property in his name under the plan. The decedent was never employed by the spouse's employer, was not a participant in the plan and died during the employment of her surviving spouse.

However, under the community property laws of the state, the interest in the name of the husband was community property. Consequently, the decedent possessed at her death a vested interest in one-half of such property and, under the local law, possessed a power of testamentary disposition over her interest in the community property. The property interest of the wife is includible in her gross estate under section 2033 of the Code unless it is subject to the exclusion from the gross estate provided for by section 2039(c) of the Code.

Section 2039 of the Code provides, in part, as follows:

(c) EXEMPTION OF ANNUITIES UNDER CERTAIN TRUSTS AND PLANS.-Notwithstanding the provisions of this section or of any provision of law, 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-

(1) an employees' trust (or under a contract purchased by an employees' trust) forming part of a pension, stock bonus, or profit-sharing plan which, at the time of the decedent's separation from employment (whether by death or otherwise), or at the time of termination of the plan if earlier, met the requirements of section 401(a); * * *.

The exclusion provided under 2039(c) of the Code is applicable to situations in which the decedent was an employee-participant in one of the designated `qualified plans' or a party to an annuity contract purchased by his employer. Subsection (c)(1), for example, refers to `the decedent's separation from employment.' Subsection (c)(1) also requires as a condition for exclusion that the payment receivable by the beneficiary be receivable under an employee's trust forming part of a `qualified plan.'

Neither of these requirements is satisfied in the present case. The decedent was not an employee-participant in the profit-sharing plan. The decedent's community property interest is receivable by her executor and becomes part of her probate estate. It will be distributable thereafter under her will or by an intereste distribution.

Accordingly, it is held, under the above circumstances, that the value of the decedent's community property interest in the trust forming part of a `qualified plan' is includible in her gross estate under section 2033 of the Code and that section 2039(c) is inapplicable to exclude such interest.