Rev. Rul. 71-481

Advice has been requested regarding the amount includible in the gross estate of a decedent under section 2039 of the Internal Revenue Code of 1954 by reason of an annuity payable to his surviving spouse under the circumstances described below.

The decedent was a United States District Judge. As such, he was covered by Title 28, Chapter 17, of the United States Code, "Resignation and Retirement of Judges." In 1964 he elected the provisions of section 371 thereof and retired from active service at full salary. Pursuant to section 376 he continued to make contributions to the Judicial Survivors Annuity System. Upon his death in 1968, his surviving wife was entitled to an annuity payable for her life or until her remarriage.

Section 2039(a) of the Code 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. It further provides that for the purpose 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 payment for 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 Judicial Survivors Annuity System has been held to meet the requirements of section 401(a) of the Code. Rev. Rul. 61-218, C.B. 1961-2, 102.

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. S. Rept. 1622, 83rd Cong., 471 (1954). In the instant case, the amount contributed by the Government to the purchase of the employee's or the survivor's retirement annuity is not readily ascertainable.

Here, although the decedent had retired from active service he continued to receive his full salary and he continued to make contributions to the judicial survivors annuity fund until the time of his death. This being the case, he is treated as if he had died before retirement for the purpose of the computation of the value of the amount includible in his gross estate under section 2039 of the Code. 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 of both the employer and the employee. The amount includible in the decedent's gross estate on account of the annuity payable to his wife is computed as follows:

Decedent's contributions plus interest thereon / Value of the survivor's annuity on date of decedent's death X Value of the Survivor's annuity on date of decedent's death = Amount includible

Accordingly it is held that where an individual who is covered by Title 28, Chapter 17, of the United States Code dies before or after retiring from active service, 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 is the amount of the decedent's contribution to the Judicial Survivor's Annuity System plus the interest accrued thereon.