Rev. Rul. 74-119

Advice has been requested regarding the application of sections 2039(c) and 2517 of the Internal Revenue Code of 1954 to self-employed individuals.

Where the payment of an annuity to a beneficiary by reason of surviving a deceased employee is provided by a plan described in sections 401(a) or 403(a) of the Code, section 2039 includes in the decedent's gross estate only the portion of the annuity attributable to his contributions to the plan. The portion attributable to the employer's contribution is excluded under section 2039(c). That subsection further provides that contributions on behalf of the decedent while he was a self-employed individual "shall be considered to be contributions or payments made by the decedent." However, the applicability of that provision is specifically limited to the purposes of section 2039(c). A similar provision and limitation appear in section 2517 with respect to the gift tax.

H.R. Rep. No. 378, 87th Cong., 1st Sess. 14 (1961), 1962-3 C.B. 261, 274, accompanying H.R. 10, which became Pub.L. 87-792 (Self-Employed Individuals Retirement Act of 1962), states:

With respect to the estate and gift tax exemption in the case of retirement plan benefits, your committee's bill does not change present law as it applies to ordinary employees, including owner-managers of corporations. However, the bill does not extend these exemptions to the self-employed (whether or not they are owner-employees) insofar as contributions were made to the plan by or for the individual while he was a self-employed person. The estate and gift tax exclusions will continue to apply with respect to any employer contributions made while the individual was not a self-employed person.

S. Rep. No. 992 at 24 (1961), 1962-3 C.B. 303, 326, contains identical language.

All the contributions are considered to have been made by the decedent in his capacity as employee for purposes of sections 2039(c) and 2517(c) of the Code. Accordingly, no portion of an annuity attributable to contributions on behalf of a self-employed individual may be excluded from his gross estate under section 2039(c) or from the total amount of gifts under section 2517.