Rev. Rul. 75-508

Advice has been requested whether, under the circumstances described below, a gift for Federal gift tax purposes is made upon the retirement of a member of the uniformed services of the United States.

A, a married individual who was a member of a uniformed service of the United States, became entitled to retired pay on January 1, 1975, pursuant to the Survivor Benefit Plan, chapter 73 of title 10, United States Code, sections 1447-1455. Under sections 1448 and 1452, among others, survivor annuity benefits are automatically provided to A's spouse and A's retired pay is automatically reduced unless A elects not to participate in the plan before the first day for which A is eligible for retired pay. Upon retirement on January 1, 1975, A did not terminate participation in the plan.

A gift tax is imposed under section 2501 of the Internal Revenue Code of 1954 and applies, pursuant to section 2511 of the Code, to transfers in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Section 25.2511-1(h)(10) of the Gift Tax Regulations provides that a gift tax shall be imposed when, under a pension plan, an employee makes an irrevocable election to take a reduced annuity in order to provide a surviving spouse with a survivor annuity.

Section 2517 of the Code provides an exception to the general rule of section 2511 of the Code. Under section 2517(a), the exercise or non-exercise by an employee of an election or option whereby an annuity or other payment will become payable to any beneficiary at or after an employee's death shall not be considered a transfer for Federal gift tax purposes if the option or election and annuity or other payment is provided for under chapter 73 of title 10. The exemption from the Federal gift tax under section 2517(a) (other than for a payment under chapter 73 title 10) does not apply to that part of the value of the annuity or other payment attributable to payments or contributions made by an employee. See section 2517(b) of the Code.

Effective September 21, 1973, Public Law 92-425, amended chapter 73 of title 10, to establish the Survivor Benefit plan. Prior thereto, chapter 73 contained only the Retired Servicemen's Family Protection Plan. Congress intended to continue the same tax treatment for present and past members of the uniformed services of the United States under the Survivor Benefit Plan as formerly was available for them under the Retired Serviceman's Family Protection Plan. See H. R. Rep. No. 93-298, 93rd Cong., 1st Ses. 1(1973), 1974-3 C.B. 207.

Accordingly, under section 2517(a) of the Code no gift was made by A, for Federal gift tax purposes, by reason of A's continuing participation in the Survivor Benefit Plan after retirement.