Proposed Regs Address Use of Actuarial Tables for Valuation Purposes
REG-122770-18; 87 F.R. 26806-26848; 2022-21 IRB 1104
- Institutional AuthorsInternal Revenue Service
- Code Sections
- Subject Areas/Tax Topics
- Jurisdictions
- Tax Analysts Document Number2022-14643
- Tax Analysts Electronic Citation2022 TNTF 87-272022 TPR 19-9
At 87 FR 34223-34224, June 6, 2022, the IRS made corrections to the following proposed regulation which have been incorporated below.
]Use of Actuarial Tables in Valuing Annuities, Interests for Life or a Term of Years, and Remainder or Reversionary Interests
[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, and 25
[REG-122770-18]
RIN 1545-BP00
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains proposed regulations relating to the use of actuarial tables in valuing annuities, interests for life or a term of years, and remainder or reversionary interests. These regulations will affect the valuation of inter vivos and testamentary transfers of interests dependent on one or more measuring lives. These regulations are necessary because applicable law requires the actuarial tables to be updated to reflect the most recent mortality experience available.
DATES: Written or electronic comments and requests for a public hearing must be received by July 5, 2022. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section.
ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG-122770-18) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The IRS expects to have limited personnel available to process public comments that are submitted on paper through mail. Until further notice, any comments submitted on paper will be considered to the extent practicable. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment submitted electronically, and to the extent practicable on paper, to its public docket. Send paper submissions to: CC:PA:LPD:PR (REG-122770-18), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Mayer R. Samuels of the Office of Associate Chief Counsel (Passthroughs and Special Industries), (202) 317-6859; concerning the submission of comments or requests for a public hearing, Regina L. Johnson, (202) 317-5177 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Income Tax Regulations (26 CFR part 1), the Estate Tax Regulations (26 CFR part 20), and the Gift Tax Regulations (26 CFR part 25) to reflect revisions to certain tables used for the valuation of interests in property under section 7520 of the Internal Revenue Code of 1986 (Code) to reflect the most recent mortality experience available.
In General
Section 7520, effective for transfers for which the valuation date is on or after May 1, 1989, generally provides that the value of an annuity, an interest for life or a term of years, and a remainder or reversionary interest is to be determined under tables published by the Secretary of the Treasury or her delegate (Secretary) by using an interest rate (rounded to the nearest two-tenths of one percent) equal to 120 percent of the Federal midterm rate in effect under section 1274(d)(1) for the month in which the valuation date falls. If a charitable contribution is allowable for any part of the property transferred, the taxpayer may elect under section 7520(a) to use such Federal midterm rate for either of the two months preceding the month in which the valuation date falls. Section 7520(c)(2), as it existed on May 1, 1989, directed the Secretary to issue tables not later than December 31, 1989, utilizing the then most recent mortality experience. Thereafter, the Secretary is directed to revise these tables not less frequently than once each 10 years to take into account the most recent mortality experience available as of the time of the revision.
These proposed regulations contain Table 2010CM that is based on data compiled from the 2010 census. For transfers for which the valuation date is on or after the applicability date of the Treasury decision adopting these regulations as final regulations (published as the final rule in the Federal Register), the appropriate actuarial factors based on Table 2010CM may be computed by taxpayers. However, for the convenience of taxpayers, actuarial factors may be found on IRS websites and publications referenced in these proposed regulations. These proposed regulations also make conforming amendments to various sections of the existing regulations to provide the references to these revised actuarial factors. The updated actuarial tables will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. IRS Publications 1457 "Actuarial Valuations Version 4A" (forthcoming 2022), 1458 "Actuarial Valuations Version 4B" (forthcoming 2022), and 1459 “Actuarial Valuations Version 4C” (forthcoming 2022) will provide additional references and explanations to the actuarial tables that are published on the IRS website. These publications will be available after the applicability date of the Treasury decision adopting these regulations as final regulations. Table S (Single Life Remainder Factors) and Table U(1) (Unitrust Single Life Remainder Factors), which are referenced and explained in Publications 1457 and 1458, respectively, will no longer be published in these regulations. Furthermore, the current Table S and Table U(1), effective for transfers for which the valuation date is after April 30, 2009, and before the applicability date of the Treasury decision adopting these regulations as final regulations is published in the Federal Register, will be moved to sections containing actuarial material for historical reference. Table B, Table D, Tables F(0.2) through F(20.0), Table J, and Table K, which are not based on mortality experience, are not changed.
The following chart summarizes the applicable interest rates and the citations to textual materials and tables for the various periods covered under the current regulations. For purposes of this chart, “DPAD” is the day prior to the applicability date of the Treasury decision adopting these regulations as final regulations and “AD” is the applicability date of the Treasury decision adopting these regulations as final regulations.
Valuation Period | Interest Rate | Regulation Section | Table |
|---|---|---|---|
|
|
| |
Valuation, in general | — |
| |
before 01/01/52 | 4% |
| |
01/01/52 - 12/31/70 | 3.5% |
| |
01/01/71 - 11/30/83 | 6% |
| |
12/01/83 - 04/30/89 | 10% | Table G | |
05/01/89 - 04/30/99 | 7520 | Table S (5/1/89 - 4/30/99) | |
05/01/99 - 04/30/09 | 7520 | Table S (5/1/99 - 4/30/09) | |
05/01/09 - DPAD | 7520 | 1.642(c)-6A(g) | Table S (5/1/09 - DPAD) |
on or after AD | 7520 | Table S (on or after AD) | |
|
|
| |
Valuation, in general | — |
| |
before 01/01/52 | 4% |
| |
01/01/52 - 12/31/70 | 3.5% |
| |
01/01/71 - 11/30/83 | 6% |
| |
12/01/83 - 04/30/89 | 10% | Table E, Table F(1) | |
05/01/89 - 04/30/99 | 7520 | Table U(1) (5/1/89 - 4/30/99) | |
05/01/99 - 04/30/09 | 7520 | Table U(1) (5/1/99 - 4/30/09) | |
05/01/09 - DPAD | 7520 | 1.664-4A(g) | Table U(1) (5/1/09 - DPAD) |
on or after AD | 7520 | Table U(1) (on or after AD), Table D, and Table F | |
|
|
| See Pub. 1458, ver. 4A |
|
|
| |
Valuation, in general | — |
| |
before 01/01/52 | 4% |
| |
01/01/52 - 12/31/70 | 3.5% |
| |
01/01/71 - 11/30/83 | 6% |
| |
12/01/83 - 04/30/89 | 10% | Table A, Table B, Table LN | |
05/01/89 - 04/30/99 | 7520 | Table S (5/1/89 - 4/30/99) Table 80CNSMT | |
05/01/99 - 04/30/09 | 7520 | Table S (5/1/99 - 4/30/09) Table 90CM | |
05/01/09 - DPAD | 7520 | 20.2031-7A(g) | Table S (5/1/09 - DPAD) Table 2000CM |
on or after AD | 7520 | Table S (on or after AD) Table 2010CM | |
|
|
| see Pub. 1457, ver. 4A |
|
|
| |
Valuation, in general | — |
| |
before 01/01/52 | 4% |
| |
01/01/52 - 12/31/70 | 3.5% |
| |
01/01/71 - 11/30/83 | 6% |
| |
12/01/83 - 04/30/89 | 10% |
| |
05/01/89 - 04/30/99 | 7520 |
| |
05/01/99 - 04/30/09 | 7520 |
| |
05/01/09 - DPAD | 7520 | 25.2512-5A(g) |
|
on or after AD | 7520 |
|
Applicability Dates
These regulations are proposed to be applicable in the case of annuities, interests for life or a term of years, and remainder or reversionary interests that are valued as of a date on or after the first day of the month following the date on which the Treasury decision adopting these regulations as final regulations is published in the Federal Register.
Transitional Rules
The regulations provide certain rules to facilitate the transition to the new actuarial tables. For gift tax purposes, if the date of a transfer is on or after January 1, 2021, and before the applicability date of the Treasury decision adopting these regulations as final regulations, the donor may choose to determine the value of the gift (and/or any applicable charitable deduction) under tables based on either Table 2000CM or Table 2010CM. Similarly, for estate tax purposes, if the decedent dies on or after January 1, 2021, and before the applicability date of the Treasury decision adopting these regulations as final regulations, the value of any interest (and/or any applicable charitable deduction) may be determined in the discretion of the decedent's executor under tables based on either Table 2000CM or Table 2010CM, provided that the decedent's executor must use the same mortality table to value all interests in the same property. However, the section 7520 interest rate to be utilized is the appropriate rate for the month in which the valuation date occurs, subject to the following special rule for certain charitable transfers. Specifically, in accordance with this transitional rule and the rules contained in §§1.7520-2(a)(2), 20.7520-2(a)(2), and 25.7520-2(a)(2), in cases involving a charitable deduction, if the valuation date occurs on or after January 1, 2021, but before the applicability date of the Treasury decision adopting these regulations as final regulations, and the executor or donor elects under section 7520(a) to use the section 7520 interest rate for a month that is prior to January 1, 2021, then the mortality experience contained in Table 2000CM must be used. If the executor or donor uses the section 7520 interest rate for a month that is on or after January 1, 2021, but before the applicability date of the Treasury decision adopting these regulations as final regulations, then the tables based on either Table 2000CM or Table 2010CM may be used. However, if the valuation date occurs on or after the applicability date of the Treasury decision adopting these regulations as final regulations, the executor or donor must use the new mortality experience contained in Table 2010CM even if the use of a prior month's interest rate is elected under section 7520(a).
In addition, the regulations no longer will provide that the estate of a decedent who was under a mental disability that prevented a change in the disposition of the decedent's property may elect to value the property interest included in the gross estate either under the mortality table and interest rate in effect at the time the decedent first became subject to the mental disability or under the mortality table and interest rate in effect on the decedent's date of death. The taxpayer decedent, during life and before the advent of the mental disability, would not know, beforehand, what the market interest rate would be at his or her future date of death, but can reasonably be expected to have understood that the property interest would be valued at the then-applicable market rate, whatever it might be. Becoming incapacitated should not alter the effect of that understanding. Therefore, a special rule permitting an election to use the interest rate in effect at the time the decedent first became subject to the mental disability is not necessary. The same is true with respect to mortality rates. Accordingly, estates of decedents with a mental disability who die after the applicability date of the Treasury decision adopting these regulations as final regulations will be required to use the mortality table and interest rate in effect on the decedent's date of death or the alternate valuation date under section 2032, if elected.
Special Analyses
These proposed regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget (OMB) regarding review of tax regulations. Therefore, a regulatory impact assessment is not required.
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that this proposed rule will not have a significant economic impact on a substantial number of small entities. This document proposes to implement statutorily required periodic updates to actuarial tables used in valuing various interests in property that are affected by a person's life expectancy. The updates would not impose any direct compliance requirements on any entities other than the time to read and understand the proposed updates. Notwithstanding this certification, the Treasury Department and the IRS invite comment on the impact this proposed rule would have on small entities.
The Treasury Department and the IRS have assessed that the proposed regulations do not establish a new collection of information nor modify an existing collection that requires the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35). The Treasury Department and the IRS seek comments on this assessment.
Pursuant to section 7805(f), this notice of proposed rulemaking has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business.
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings, Notices, and other guidance cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.
Comments and Requests for Public Hearing
The Treasury Department and the IRS request comments on all aspects of the proposed rules.
Before these proposed amendments to the regulations are adopted as final regulations, consideration will be given to comments that are submitted timely to the IRS as prescribed in the preamble under the ADDRESSES section. Any electronic comments submitted, and to the extent practicable any paper comments submitted, will be made available at www.regulations.gov or upon request.
A public hearing will be scheduled if requested in writing by any person who timely submits electronic or written comments. Requests for a public hearing also are encouraged to be made electronically. If a public hearing is scheduled, notice of the date and time for the public hearing will be published in the Federal Register. Announcement 2020-4, 2020-17 I.R.B 1, provides that, until further notice, public hearings conducted by the IRS will be held telephonically. Any telephonic hearing will be made accessible to people with disabilities.
Drafting Information
The principal author of these regulations is Mayer R. Samuels, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the IRS and Treasury Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 20
Estate taxes, Reporting and recordkeeping requirements.
26 CFR Part 25
Gift taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1, 20, and 25 are proposed to be amended as follows:
PART 1 — INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in part as follows:
Authority:26 U.S.C. 7805 * * *
Par. 2. Section 1.170A-12 is amended by:
1. Revising paragraphs (b)(2) and (3).
2. Adding paragraph (b)(4).
3. Revising paragraphs (e)(2) and (f)
The revisions and addition read as follows:
§1.170A-12 Valuation of a remainder interest in real property for contributions made after July 31, 1969.
* * * * *
(b) * * *
(2) Computation of depreciation factor. If the valuation of the remainder interest in depreciable property is dependent upon the continuation of one life, a special factor must be used. The factor determined under this paragraph (b)(2) is carried to the fifth decimal place. The special factor is to be computed on the basis of the interest rate and life contingency rates from the mortality table prescribed in §20.2031-7 of this chapter (or for periods before [applicability date of the Treasury decision adopting these regulations as final regulations], §20.2031-7A of this chapter) and on the assumption that the property depreciates on a straight-line basis over its estimated useful life. For transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], special factors for determining the present value of a remainder interest following one life may be computed by taxpayers based on Table 2010CM, found in §20.2031-7(d)(7)(ii) of this chapter, and using the formula provided in this paragraph (b)(2). Alternatively, taxpayers may use the actuarial factors provided in Table C to determine the special factor for the remainder interest following one life. Table C will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/ actuarial-tables (or a corresponding URL as may be updated from time to time). IRS Publication 1459,
“Actuarial Valuations Version 4C” (2022), references and explains Table C and provides examples describing the computation. This publication will be available after [date of publication of the final rule in the Federal Register]. For transfers for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations], special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in the previous version of Table C, which is currently available, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. IRS Publication 1459, “Actuarial Valuations Version 3C” (2009), references and explains this version of Table C and provides examples describing the computation. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). Otherwise, in the case of the valuation of a remainder interest following one life, the special factor may be obtained through use of the formula in Figure 1 to this paragraph (b)(2). The prescribed mortality table is Table 2010CM as set forth in §20.2031-7(d)(7)(ii) of this chapter, or for periods before [applicability date of the Treasury decision adopting these regulations as final regulations], the appropriate table found in §20.2031-7A of this chapter. Table 2010CM is referenced by IRS Publication 1459, “Actuarial Values Version 4C.” The mortality tables prescribed for periods before [applicability date of the Treasury decision adopting these regulations as final regulations] are referenced by prior versions of IRS Publication 1459.
Figure 1 to paragraph (b)(2) — Formula for determining single life remainder interest in depreciable property
(3) Sample factors from actuarial Table S. The present value of a remainder interest dependent on the termination of one life is determined by using the formula in §20.2031-7(d)(2)(ii)(B) of this chapter to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. The complete Table S can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. For purposes of the example in paragraph (b)(4) of this section, the following factors from Table S will be used:
Table 1 to paragraph (b)(3)
Age | Annuity | Life Estate | Remainder |
|---|---|---|---|
62 | 14.6131 | 0.46762 | 0.53238 |
(4) Example. After [applicability date of the Treasury decision adopting these regulations as final regulations], A, who is 62, donates to Y University a remainder interest in a personal residence, consisting of a house and land, subject to a reserved life estate in A. At the time of the gift, the land has a value of $30,000 and the house has a value of $100,000 with an estimated useful life of 28 years, at the end of which period the value of the house is expected to be $10,000. The portion of the property considered to be depreciable is $90,000 (the value of the house ($100,000) less its expected value at the end of 28 years ($10,000)). The portion of the property considered to be nondepreciable is $40,000 (the value of the land at the time of the gift ($30,000) plus the expected value of the house at the end of 28 years ($10,000)). At the time of the gift, the interest rate prescribed under section 7520 is 3.2 percent. Based on an interest rate of 3.2 percent, the remainder factor for $1.00 prescribed in §20.2031-7(d) and found in Table S for a person age 62 is 0.53238. The value of the nondepreciable remainder interest is $21,295.20 (0.53238 times $40,000). The factor for the remainder interest in depreciable property is computed under the formula described in paragraph (b)(2) of this section and is 0.19392. (This factor, 0.19392, may instead be determined by using Table C, which can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables, and following the method provided in IRS Publication 1459, “Actuarial Values Version 4C”.) The value of the depreciable remainder interest is $17,452.80 (0.19392 times $90,000). Therefore, the value of the remainder interest is $38,748.00 ($21,295.20 plus $17,452.80).
* * * * *
(e) * * *
(2) In the case of the valuation of a remainder interest following two lives, the special factor may be obtained through use of the formula in Figure 2 to this paragraph (e)(2). The prescribed mortality table is Table 2010CM as set forth in §20.2031-7(d)(7)(ii) of this chapter, or for periods before [applicability date of the Treasury decision adopting these regulations as final regulations], the appropriate table found in §20.2031-7A of this chapter. Table 2010CM is referenced by IRS Publication 1459, “Actuarial Values Version 4C.” The mortality tables prescribed for periods before [applicability date of the Treasury decision adopting these regulations as final regulations] are referenced by prior versions of IRS Publication 1459.
Figure 2 to paragraph (e)(2)(i) — Formula for determining two-life remainder interest in depreciable property
* * * * *
(f) Applicability date. This section applies to contributions made after July 31, 1969, except that paragraphs (b)(2), (3), and (4) and (e)(2) of this section apply to all contributions made on or after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 3. Section 1.170A-14 is amended:
1. In paragraph (h)(4) by designating Example 1 through 12 as paragraphs (h)(4)(i) through (xii), respectively.
2. By revising newly designated paragraph (h)(4)(ii).
3. In newly designated paragraphs (h)(4)(iii) and (iv) by removing “Example 2” and adding “paragraph (h)(4)(ii) of this section (Example 2)” in its place.
4. In newly designated paragraph (h)(4)(v) by removing “Example 4” and adding “paragraph (h)(4)(iv) of this section (Example 4)” in its place.
5. In newly designated paragraph (h)(4)(vi) by removing “Example 2” and adding “paragraph (h)(2)(ii) of this section (Example 2)” in its place.
6. In newly designated paragraph (h)(4)(viii) by removing “Example 7” and adding “paragraph (h)(4)(vii) of this section (Example 7)” in its place.
7. In newly designated paragraph (h)(4)(xi) by removing “example (10)” and adding “paragraph (h)(4)(x) of this section (Example 10)” in its place.
8. By revising paragraph (j).
The revisions read as follows:
§1.170A-14 Qualified conservation contributions.
* * * * *
(h) * * *
(4) * * *
(ii) Example 2. In 1984 B, who is 62, donates a remainder interest in Greenacre to a qualifying organization for conservation purposes. Greenacre is a tract of 200 acres of undeveloped woodland that is valued at $200,000 at its highest and best use. Under §1.170A-12(b), the value of a remainder interest in real property following one life is determined under §25.2512-5 of this chapter (Gift Tax Regulations). (See §25.2512-5A of this chapter with respect to the valuation of annuities, interests for life or a term of years, and remainder or reversionary interests transferred before [applicability date of the Treasury decision adopting these regulations as final regulations].) For transfers occurring after November 30, 1983, and before May 1, 1989, the single life remainder factors, valued at 10 percent, can be found in Table A of §20.2031-7A(d)(6) of this chapter. Accordingly, the value of the remainder interest, and thus the amount eligible for an income tax deduction under section 170(f), is $55,996 ($200,000 × 0.27998).
* * * * *
(j) Applicability dates. Except as otherwise provided in paragraph (g)(4)(ii) and paragraph (i) of this section, this section applies only to contributions made on or after December 18, 1980. Paragraph (h)(4)(ii) of this section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 4. Section 1.642(c)-6 is amended by:
1. Revising paragraph (d).
2. Redesignating paragraph (e) as paragraph (g) of §1.642(c)-6A.
3. Adding new paragraph (e) and revising paragraph (f).
The revisions and addition read as follows:
§1.642(c)-6 Valuation of a remainder interest in property transferred to a pooled income fund.
* * * * *
(d) Valuation. The present value of the remainder interest in property transferred to a pooled income fund on or after [applicability date of the Treasury decision adopting these regulations as final regulations], is determined under paragraph (e) of this section. The present value of the remainder interest in property transferred to a pooled income fund for which the valuation date is before [applicability date of the Treasury decision adopting these regulations as final regulations] is determined under the following sections:
Table 6 to paragraph (d)
Valuation Dates | Applicable Regulations | ||
|---|---|---|---|
After | Before |
| |
— | 01-01-52 | ||
12-31-51 | 01-01-71 | ||
12-31-70 | 12-01-83 | ||
11-30-83 | 05-01-89 | ||
04-30-89 | 05-01-99 | ||
04-30-99 | 05-01-09 | ||
04-30-09 | AD | 1.642(c)-6A(g) | |
AD = [applicability date of the Treasury decision adopting these regulations as final regulations]. | |||
(e) Present value of the remainder interest in the case of transfers to pooled income funds for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations] — (1) In general. In the case of transfers to pooled income funds for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], the present value of a remainder interest is determined under this section. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). The present value of a remainder interest that is dependent on the termination of the life of one individual is computed by using the formula in §20.2031-7(d)(2)(ii)(B) of this chapter to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. Table S will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table S is referenced and explained by IRS Publication 1457 "Actuarial Valuations Version 4A,” which will be available after [date of publication of the final rule in the Federal Register]. For purposes of the computations under this section, the age of an individual is the age at the individual's nearest birthday.
(2) Transitional rule for valuation of transfers to pooled income funds. For purposes of section 170, 2055, 2106, 2522, or 2624, in the case of transfers to a pooled income fund for which the valuation date is on or after January 1, 2021, and before [applicability date of the Treasury decision adopting these regulations as final regulations], the present value of the remainder interest under this section is determined by using the section 7520 interest rate for the month in which the valuation date occurs (see §§1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial factors derived from the selected mortality table, either Table 2010CM in § 20.2031-7(d)(7)(ii) of this chapter or Table 2000CM in §20.2031-7A(g)(4) of this chapter, at the option of the donor or the decedent's executor, as the case may be. For the convenience of taxpayers, actuarial factors based on Table 2010CM appear in the proposed version of Table S, and actuarial factors based on Table 2000CM appear in the current version of Table S, which will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). The donor or decedent's executor must consistently use the same mortality basis with respect to each interest (income, remainder, partial, etc.) in the same property, and with respect to all transfers occurring on the valuation date. For example, gift and income tax charitable deductions with respect to the same transfer must be determined based on factors with the same mortality basis, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on factors with the same mortality basis.
(3) Present value of a remainder interest. The present value of a remainder interest in property transferred to a pooled income fund is computed on the basis of —
(i) Life contingencies determined from the values of lx that are set forth in Table 2010CM in §20.2031-7(d)(7)(ii) of this chapter (see §20.2031-7A of this chapter for certain prior periods); and
(ii) Discount at a rate of interest, compounded annually, equal to the highest yearly rate of return of the pooled income fund for the three taxable years immediately preceding its taxable year in which the transfer of property to the fund is made. For purposes of this paragraph (e), the yearly rate of return of a pooled income fund is determined as provided in paragraph (c) of this section unless the highest rate of return is deemed to be the rate described in paragraph (e)(4) of this section for funds in existence less than 3 taxable years. For purposes of this paragraph (e)(3)(ii), the first taxable year of a pooled income fund is considered a taxable year even though the taxable year consists of less than 12 months. However, appropriate adjustments must be made to annualize the rate of return earned by the fund for that period. Where it appears from the facts and circumstances that the highest yearly rate of return of the fund for the three taxable years immediately preceding the taxable year in which the transfer of property is made has been purposely manipulated to be substantially less than the rate of return that otherwise would be reasonably anticipated with the purpose of obtaining an excessive charitable deduction, that rate of return may not be used. In that case, the highest yearly rate of return of the fund is determined by treating the fund as a pooled income fund that has been in existence for less than three preceding taxable years.
(4) Pooled income funds in existence less than three taxable years. If a pooled income fund has been in existence less than three taxable years immediately preceding the taxable year in which the transfer is made to the fund and the transfer to the fund is made on or after May 1, 1989, the highest rate of return is deemed to be the interest rate (rounded to the nearest two-tenths of one percent) that is one percent less than the highest annual average of the monthly section 7520 rates for the three calendar years immediately preceding the calendar year in which the transfer to the pooled income fund is made. The deemed rate of return for transfers to new pooled income funds is recomputed each calendar year using the monthly section 7520 rates for the three year period immediately preceding the calendar year in which each transfer to the fund is made until the fund has been in existence for three taxable years and can compute its highest rate of return for the three taxable years immediately preceding the taxable year in which the transfer of property to the fund is made in accordance with the rules set forth in the first sentence of paragraph (e)(3)(ii) of this section.
(5) Computation of value of remainder interest — (i) Factor. The factor that is used in determining the present value of a remainder interest that is dependent on the termination of the life of one individual is the factor obtained through use of the formula in §20.2031-7(d)(2)(ii)(B) of this chapter to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. Table S will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. Table S is referenced and explained in IRS Publication 1457 "Actuarial Valuations Version 4A,” which will be available after [date of publication of the final rule in the Federal Register]. In using the section of Table S for the interest rate equal to the appropriate yearly rate of return, the appropriate remainder factor is opposite the number that corresponds to the age of the individual upon whose life the value of the remainder interest is based (See §1.642(c)-6A for certain prior periods). The tables referenced by IRS Publication 1457 "Actuarial Valuations Version 4A" include factors for yearly rates of return from 0.2 to 20 percent, inclusive, in increments of two-tenths of one percent. For other situations, see paragraph (b) of this section. If the yearly rate of return is a percentage that is between the yearly rates of return for which factors are provided by Table S, an exact method of obtaining the applicable factors (such as through software using the actual rate of return and the actuarial formulas provided in §20.2031-7(d)(2)(ii)(B) of this chapter) or a linear interpolation must be used, provided whichever method used is applied consistently. The present value of the remainder interest is determined by multiplying the fair market value of the property on the valuation date by the appropriate remainder factor.
(ii) Sample factors from actuarial Table S. For purposes of the example in paragraph (e)(5)(iii) of this section, the following factors from Table S will be used:
Table 7 to paragraph (e)(5)(ii)
Age | Annuity | Life Estate | Remainder |
|---|---|---|---|
55 | 13.2515 | 0.71558 | 0.28442 |
Interest at 5.6 Percent | |||
Age | Annuity | Life Estate | Remainder |
55 | 12.9710 | 0.72637 | 0.27363 |
(iii) Example of interpolation. After [applicability date of the Treasury decision adopting these regulations as final regulations], A, whose age is 54 years and 8 months, transfers $100,000 to a pooled income fund, and retains a life income interest in the property. The highest yearly rate of return earned by the fund for its 3 preceding taxable years is 5.43 percent. In Table S, the remainder factor opposite 55 years under 5.4 percent is 0.28442 and under 5.6 percent is 0.27363. The present value of the remainder interest is $28,280, computed as illustrated in Figure 1 to this paragraph (e)(5)(iii).
Figure 1 to paragraph (e)(5)(iii) — Illustration of interpolation method
(6) Actuarial tables. In the case of transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], the present value of a remainder interest dependent on the termination of one life in the case of a transfer to a pooled income fund is determined by using the formula in §20.2031-7(d)(2)(ii)(B) of this chapter to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. Table S will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. Table S is referenced and explained in IRS Publication 1457 "Actuarial Valuations Version 4A,” which will be available after [date of publication of the final rule in the Federal Register].
(f) Applicability date. This section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 5. The undesignated center heading immediately preceding §1.642(c)-6A is revised to read as follows:
Pooled Income Fund Actuarial Tables Applicable Before [Applicability Date of the Treasury Decision Adopting These Regulations as Final Regulations]
Par. 6. Section 1.642(c)-6A is amended by:
1. Revising the section heading.
2. In newly redesignated paragraph (g):
i. The heading and paragraphs (g)(1) through (5) and (g)(6) introductory text are revised.
ii. Paragraph (g)(7) is added.
The revisions and addition read as follows:
§1.642(c)-6A Valuation of charitable remainder interests for which the valuation date is before [applicability date of the Treasury decision adopting these regulations as final regulations].
* * * * *
(g) Present value of the remainder interest in the case of transfers to pooled income funds for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations] — (1) In general. In the case of transfers to pooled income funds for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations], the present value of a remainder interest is determined under this section. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). The present value of a remainder interest that is dependent on the termination of the life of one individual is computed by the use of Table S in paragraph (g)(6) of this section. For purposes of the computations under this section, the age of an individual is the age at the individual's nearest birthday.
(2) Transitional rules for valuation of transfers to pooled income funds. (i) For purposes of section 2055, 2106, or 2624, if on May 1, 2009, the decedent was under a mental disability so that the disposition of the property could not be changed, and the decedent died on or after May 1, 2009, but before [applicability date of the Treasury decision adopting these regulations as final regulations] without having regained the ability to dispose of the decedent's property, or if the decedent died within 90 days of the date that the decedent first regained that ability on or after May 1, 2009, but before [applicability date of the Treasury decision adopting these regulations as final regulations], the present value of a remainder interest is determined as if the valuation date with respect to the decedent's gross estate is either before May 1, 2009, or after April 30, 2009, at the option of the decedent's executor.
(ii) For purposes of section 170, 2055, 2106, 2522, or 2624, in the case of transfers to a pooled income fund for which the valuation date is on or after May 1, 2009, and before July 1, 2009, the present value of the remainder interest under this section is determined by using the section 7520 interest rate for the month in which the valuation date occurs (see §§1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (f)(6) or (g)(6) of this section, at the option of the donor or the decedent's executor, as the case may be.
(iii) For purposes of paragraphs (g)(2)(i) and (ii) of this section, where the donor or decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (f)(6) or (g)(6) of this section, the donor or decedent's executor must consistently use the same mortality basis with respect to each interest (income, remainder, partial, etc.) in the same property, and with respect to all transfers occurring on the valuation date. For example, gift and income tax charitable deductions with respect to the same transfer must be determined based on factors with the same mortality basis, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on factors with the same mortality basis.
(3) Present value of a remainder interest. The present value of a remainder interest in property transferred to a pooled income fund is computed on the basis of —
(i) Life contingencies determined from the values of lx that are set forth in Table 2000CM in §20.2031-7A(g)(4) of this chapter; and
(ii) Discount at a rate of interest, compounded annually, equal to the highest yearly rate of return of the pooled income fund for the three taxable years immediately preceding its taxable year in which the transfer of property to the fund is made. The provisions of §1.642(c)-6(c) apply for determining the yearly rate of return. However, where the taxable year is less than 12 months, the provisions of §1.642(c)-6(e)(3)(ii) apply for the determining the yearly rate of return.
(4) Pooled income funds in existence less than three taxable years. The provisions of §1.642(c)-6(e)(4) apply for determining the highest yearly rate of return when the pooled income fund has been in existence less than three taxable years.
(5) Computation of value of remainder interest. The factor that is used in determining the present value of a remainder interest that is dependent on the termination of the life of one individual is the factor from Table S in paragraph (g)(6) of this section under the appropriate yearly rate of return opposite the number that corresponds to the age of the individual upon whose life the value of the remainder interest is based. Table S in paragraph (g)(6) of this section includes factors for yearly rates of return from 0.2 to 14 percent, inclusive, in increments of two-tenths of one percent. Actuarial factors that do not appear in paragraph (g)(6) of this section may be computed directly by using the formula in §20.2031-7(d)(2)(ii)(B) of this chapter to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S that is referenced and explained by IRS Publication 1457, "Actuarial Valuations Version 3A" (2009). The table is available at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). For other situations, see §1.642(c)-6(b). If the yearly rate of return is a percentage that is between the yearly rates of return for which factors are provided by Table S, an exact method of obtaining the applicable factors (such as through software using the actual rate of return and actuarial formulas provided in §20.2031-7(d)(2)(ii)(B) of this chapter) or a linear interpolation must be used, provided whichever method used is applied consistently. The present value of the remainder interest is determined by multiplying the fair market value of the property on the valuation date by the appropriate remainder factor. For an example of a computation of the present value of a remainder interest requiring a linear interpolation adjustment, see §1.642(c)-6(e)(5).
(6) Actuarial tables. In the case of transfers for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations], and without regard to the headings in the tables in this paragraph (g)(6) that do not contain this termination date for the applicability of the tables, the present value of a remainder interest dependent on the termination of one life in the case of a transfer to a pooled income fund is determined by using the following tables:
* * * * *
(7) Applicability dates. Paragraphs (g)(1) through (6) of this section apply on and after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 7. Section 1.664-2 is amended by revising paragraphs (c) and (e) as follows:
§1.664-2 Charitable remainder annuity trust.
* * * * *
(c) Calculation of the fair market value of the remainder interest of a charitable remainder annuity trust. For purposes of sections 170, 2055, 2106, and 2522, the fair market value of the remainder interest of a charitable remainder annuity trust (as described in this section) is the net fair market value (as of the appropriate valuation date) of the property placed in trust less the present value of the annuity. For purposes of this section, valuation date means, in general, the date on which the property is transferred to the trust by the donor regardless of when the trust is created. In the case of transfers to a charitable remainder annuity trust for which the valuation date is after April 30, 1999, if an election is made under section 7520 and §1.7520-2(b) to compute the present value of the charitable interest by using the interest rate component for either of the 2 months preceding the month in which the transfer is made, the month so elected is the valuation date for purposes of determining the interest rate and mortality tables. For purposes of section 2055 or 2106, the valuation date is the date of death unless the alternate valuation date is elected in accordance with section 2032 in which event, and within the limitations set forth in section 2032 and the regulations in this part under section 2032, the valuation date is the alternate valuation date. If the decedent's estate elects the alternate valuation date under section 2032 and also elects, under section 7520 and §1.7520-2(b), to use the interest rate component for one of the 2 months preceding the alternate valuation date, the month so elected is the valuation date for purposes of determining the interest rate and mortality tables. The present value of an annuity is computed under §20.2031-7(d) of this chapter for transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], or under §20.2031-7A(a) through (g) of this chapter, whichever is applicable, for transfers for which the valuation date is before [applicability date of the Treasury decision adopting these regulations as final regulations]. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances).
* * * * *
(e) Applicability date. Paragraph (c) of this section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 8. Section 1.664-4 is amended by:
1. Revising paragraphs (a)(1) and (d).
2. In paragraph (e):
i. Redesignating the paragraph heading as the heading for §1.664-4A(g) and paragraphs (e)(1), (2), (5), and (7) as §1.664-4A(g)(1), (2), (5), and (6), respectively.
ii. Adding a new paragraph heading and new paragraphs (e)(1), (2), and (5).
iii. Revising the heading for paragraph (e)(6).
iv. Redesignating the text of paragraph (e)(6) as paragraph (e)(6)(iii).
v. Adding paragraphs (e)(6)(i) and (ii).
vi. Revising the introductory text of newly redesignated paragraph (e)(6)(iii), preceding Table D.
vii. Adding a new paragraph (e)(7).
3. Revising paragraph (f).
The additions and revisions read as follows:
§1.664-4 Calculation of the fair market value of the remainder interest in a charitable remainder unitrust.
(a) * * *
(1) Life contingencies determined as to each life involved, from the values of lx set forth in Table 2010CM in §20.2031-7(d)(7)(ii) of this chapter in the case of transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations]; or from Table 2000CM contained in §20.2031-7A(g)(4) of this chapter in the case of transfers for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations]. See §20.2031-7A(a) through (f) of this chapter, whichever is applicable, for transfers for which the valuation date is before May 1, 2009;
* * * * *
(d) Valuation. The fair market value of a remainder interest in a charitable remainder unitrust (as described in §1.664-3) for transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], is its present value determined under paragraph (e) of this section. The fair market value of a remainder interest in a charitable remainder unitrust (as described in §1.664-3) for transfers for which the valuation date is before [applicability date of the Treasury decision adopting these regulations as final regulations], is its present value determined under the following sections:
Table 1 to paragraph (d)
Valuation Dates | Applicable Regulations | ||
|---|---|---|---|
After | Before |
| |
— | 01-01-52 | ||
12-31-51 | 01-01-71 | ||
12-31-70 | 12-01-83 | ||
11-30-83 | 05-01-89 | ||
04-30-89 | 05-01-99 | ||
04-30-99 | 05-01-09 | ||
04-30-09 | AD | 1.664-4A(g) | |
AD = [applicability date of the Treasury decision adopting these regulations as final regulations]. | |||
(e) Valuation of charitable remainder unitrusts having certain payout sequences for transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations] — (1) In general. Except as otherwise provided in paragraph (e)(2) of this section, in the case of transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], the present value of a remainder interest is determined under paragraphs (e)(3) through (7) of this section, provided that, in a short taxable year, the trustee shall prorate the unitrust amount as provided in §1.664-3(a)(1)(v). See, however, §1.7520-3(b) (relating to exceptions to the use of the prescribed tables under certain circumstances).
(2) Transitional rule for valuation of charitable remainder unitrusts. For purposes of section 170, 2055, 2106, 2522, or 2624, in the case of transfers to a charitable remainder unitrust for which the valuation date is on or after January 1, 2021, and before [applicability date of the Treasury decision adopting these regulations as final regulations], the present value of a remainder interest based on one or more measuring lives is determined under this section by using the section 7520 interest rate for the month in which the valuation date occurs (see §§1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial factors derived from the selected mortality table, either Table 2010CM in §20.2031-7(d)(7)(ii) of this chapter or Table 2000CM in §20.2031-7A(g)(4) of this chapter, at the option of the donor or the decedent's executor, as the case may be. For the convenience of taxpayers, actuarial factors based on Table 2010CM appear in the proposed version of Table U(1), and actuarial factors based on Table 2000CM appear in the current version of Table U(1), which will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). The donor or decedent's executor must consistently use the same mortality basis with respect to each interest (income, remainder, partial, etc.) in the same property, and with respect to all transfers occurring on the valuation date. For example, gift and income tax charitable deductions with respect to the same transfer must be determined based on factors with the same mortality basis, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on factors with the same mortality basis.
* * * * *
(5) Period is the life of one individual — (i) Factor. If the period described in §1.664-3(a)(5) is the life of one individual, the factor that is used in determining the present value of the remainder interest for transfers for which the valuation date is on or after [insert the applicability date of the Treasury decision adopting these regulations as final regulations] is the factor obtained through the use of the formula in Figure 1 to this paragraph (e)(5)(i). The prescribed mortality table is Table 2010CM as set forth in §20.2031-7(d)(7)(ii) of this chapter, or for periods before [applicability date of the Treasury decision adopting these regulations as final regulations], the appropriate table found in §20.2031-7A of this chapter. Table 2010CM is referenced by IRS Publication 1458, “Actuarial Values Version 4B.” The mortality tables prescribed for periods before [applicability date of the Treasury decision adopting these regulations as final regulations] are referenced by prior versions of IRS Publication 1458. Alternatively, the remainder factors have been determined for the convenience of taxpayers and appear in Table U(1) under the appropriate adjusted payout rate. Table U(1) will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https:// www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table U(1) is referenced and explained by IRS Publication 1458 "Actuarial Valuations Version 4B,” which will be available after [date of publication of the final rule in the Federal Register]. For purposes of the computations described in this paragraph (e)(5), the age of an individual is the age of that individual at the individual's nearest birthday. If the adjusted payout rate is an amount that is between adjusted payout rates for which factors are provided in the appropriate table, an exact method of obtaining the applicable factors (such as through software using the actual adjusted payout rate and the actuarial formula in this paragraph (e)(5)) or a linear interpolation must be used, provided whichever method used is applied consistently. The present value of the remainder interest is determined by multiplying the net fair market value (as of the valuation date as determined in §1.664-4(e)(4)) of the property placed in trust by the factor determined under this paragraph (e)(5). If the adjusted payout rate is from 0.2 to 20.0 percent, inclusive, taxpayers may see the actuarial tables referenced and explained by IRS Publication 1458 "Actuarial Valuations Version 4B". Alternatively, the Commissioner may supply a factor upon a request for a ruling. See paragraph (b) of this section.
Figure 1 to paragraph (e)(5)(i) — Formula for determining unitrust remainder factors
(ii) Sample factors from actuarial Table U(1). For purposes of the example in paragraph (e)(5)(iii) of this section, the following factors from Table U(1) and Table F(3.2) (see paragraph (e)(6)(ii) of this section) will be used:
Table 2 to paragraph (e)(5)(ii)
Age | 4.8% | 5.0% | 5.2% |
|---|---|---|---|
77 | 0.61491 | 0.60343 | 0.59223 |
# of Months from Annual Valuation to First Payout | Adjustment Factors for Payments at End of Period | ||
|---|---|---|---|
At Least | But Less Than | Annual | Semiannual |
6 | 7 | 0.984374 | 0.976683 |
(iii) Example of interpolation. After [applicability date of the Treasury decision adopting these regulations as final regulations], A, whose age is 76 years and 11 months, transfers $100,000 to a charitable remainder unitrust on January 1st. The trust instrument requires that the trust pay to A semiannually (on June 30 and December 31) 5 percent of the fair market value of the trust assets as of January 1st during A's life. The section 7520 rate for January is 3.2 percent. Under Table F(3.2), the appropriate adjustment factor is 0.976683 for semiannual payments payable at the end of the semiannual period. The adjusted payout rate is 4.8834% (5% × 0.976683). Based on interpolating between the remainder factors in Table U(1), the present value of the remainder interest is $61,012, computed as illustrated in Figure 2 to this paragraph (e)(5)(iii).
Figure 2 to paragraph (e)(5)(iii) — Illustration of unitrust interpolation method
(6) Actuarial Table D and Tables F (0.2) through F(20.0) for transfers for which the valuation date is on or after May 1, 1989 — (i) Remainder factors for charitable remainder unitrusts. For transfers for which the valuation date is on or after May 1, 1989, the present value of a charitable remainder unitrust interest that is dependent upon a term of years is determined by using the formula in Figure 3 to this paragraph (e)(6)(i). For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table D. Table D can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table D is referenced and explained in IRS Publication 1458 “Actuarial Valuations Version 4B,” which will be available after [date of publication of the final rule in the Federal Register]. The remainder factors from Table D also can be found in paragraph (e)(6)(iii) of this section, but only for adjusted payout rates from 4.2 to 14 percent, inclusive. For transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], where the present value of a charitable remainder unitrust interest is dependent on the termination of a life interest, see paragraph (e)(5) of this section. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances).
Figure 3 to paragraph (e)(6)(i) — Formula for determining term certain unitrust remainder factors
(ii) Unitrust payout rate adjustment factors. For transfers for which the valuation date is on or after May 1, 1989, the unitrust payout rate adjustment factors are determined by using the formula in Figure 4 to this paragraph (e)(6)(ii). For the convenience of taxpayers, actuarial factors have been computed by IRS, for interest rates from 0.2 to 20 percent, inclusive, and appear in Tables F(0.2) through F(20.0). Tables F(0.2) through F(20.0) can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Tables F(0.2) through F(20.0) are referenced and explained in IRS Publication 1458 “Actuarial Valuations Version 4B,” which will be available after [date of publication of the final rule in the Federal Register]. The factors from Table F also can be found in paragraph (e)(6)(iii) of this section, but only for interest rates from 4.2 to 14 percent, inclusive.
Figure 4 to paragraph (e)(6)(ii) — Formula for determining unitrust payout rate adjustment factors
(iii) Table D and Tables F(4.2) through F(14.0). The unitrust remainder factors from Table D, for interest rates from 4.2 to 14 percent, inclusive, and the unitrust payout factors from Tables F(4.2) through F(14.0) are as follows:
* * * * *
(7) Actuarial Table U(1) for transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations]. The present value of a remainder interest in a charitable remainder unitrust that is dependent on the termination of a life interest is determined by using the section 7520 rate, Tables F(0.2) through (20.0) (see paragraph (e)(6)(ii) of this section), and the formula in paragraph (e)(5)(i) of this section to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table U(1). For transfers for which the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], the actuarial tables will be available beginning May 5, 2022,
at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/ actuarial-tables. These actuarial tables are referenced and explained by IRS Publication 1458, "Actuarial Valuations Version 4B" (2022). This publication will be available after [date of publication of the final rule in the Federal Register]. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances).
(f) Applicability date. This section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 9. The undesignated center heading immediately preceding §1.664-4A is revised to read as follows:
Unitrust Actuarial Tables Applicable Before [Applicability Date of the Treasury Decision Adopting These Regulations as Final Regulations]
Par. 10. Section 1.664-4A is amended by:
1. Revising the section heading.
2. In newly redesignated paragraph (g):
i. Revising the heading and paragraphs (g)(1) and (2).
ii. Adding paragraphs (g)(3) and (4).
iii. Revising paragraph (g)(5).
iv. In paragraph (g)(6), revising the introductory text.
v. Adding paragraph (g)(7).
The additions and revisions read as follows:
§1.664-4A Valuation of charitable remainder interests for which the valuation date is before [applicability date of the Treasury decision adopting these regulations as final regulations].
* * * * *
(g) Valuation of charitable remainder unitrusts having certain payout sequences for transfers for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations] — (1) In general. Except as otherwise provided in paragraph (g)(2) of this section, in the case of transfers for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations], the present value of a remainder interest is determined under paragraphs (g)(3) through (6) of this section, provided that the amount of the payout as of any payout date during any taxable year of the trust is not larger than the amount that the trust could distribute on such date under §1.664-3(a)(1)(v) if the taxable year of the trust were to end on such date. See, however, §1.7520-3(b) (relating to exceptions to the use of the prescribed tables under certain circumstances).
(2) Transitional rules for valuation of charitable remainder unitrusts. (i) For purposes of sections 2055, 2106, or 2624, if on May 1, 2009, the decedent was under a mental disability so that the disposition of the property could not be changed, and the decedent died on or after May 1, 2009, but before [applicability date of the Treasury decision adopting these regulations as final regulations], without having regained the ability to dispose of the decedent's property, or if the decedent died within 90 days of the date that the decedent first regained that ability on or after May 1, 2009, but before [applicability date of the Treasury decision adopting these regulations as final regulations], the present value of a remainder interest under this section is determined as if the valuation date with respect to the decedent's gross estate is either before May 1, 2009, or after April 30, 2009, at the option of the decedent's executor.
(ii) For purposes of sections 170, 2055, 2106, 2522, or 2624, in the case of transfers to a charitable remainder unitrust for which the valuation date is on or after May 1, 2009, and before July 1, 2009, the present value of a remainder interest based on one or more measuring lives is determined under this section by using the section 7520 interest rate for the month in which the valuation date occurs (see §§1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (f)(6) or (g)(6) of this section, at the option of the donor or the decedent's executor, as the case may be.
(iii) For purposes of paragraphs (g)(2)(i) and (ii) of this section, where the donor or decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (f)(6) or (g)(6) of this section, the donor or decedent's executor must consistently use the same mortality basis with respect to each interest (income, remainder, partial, etc.) in the same property, and with respect to all transfers occurring on the valuation date. For example, gift and income tax charitable deductions with respect to the same transfer must be determined based on factors with the same mortality basis, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on factors with the same mortality basis.
(3) Adjusted payout rate. The adjusted payout rate is determined by applying the formula in §1.664-4(e)(6)(ii) for the section 7520 interest rate applicable to the transfer to derive a factor. For the convenience of taxpayers, actuarial factors have been computed by IRS, for interest rates from 0.2 to 20 percent, inclusive, and appear in Tables F(0.2) through F(20.0). Tables F(0.2) through F(20.0) can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Tables F(0.2) through F(20.0) are referenced and explained in IRS Publication 1458 “Actuarial Valuations Version 3B.” The payout adjustment factors from Table F can also be found in §1.664-4(e)(6)(iii), but only for interest rates from 4.2 to 14 percent, inclusive. Alternatively, the Commissioner may supply a factor upon a request for a ruling. See §1.664-4(b). See §1.664-4(e) for rules applicable in determining the adjusted payout rate.
(4) Period is a term of years. If the period described in §1.664-3(a)(5) is a term of years, the factor that is used in determining the present value of the remainder interest is determined by applying the formula in §1.664-4(e)(6)(i) under the appropriate adjusted payout rate corresponding to the number of years in the term. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table D. Table D can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table D is referenced and explained in IRS Publication 1458 “Actuarial Valuations Version 3B.” The remainder factors from Table D also can be found in §1.664-4(e)(6)(iii), but only for adjusted payout rates from 4.2 to 14 percent, inclusive. If the adjusted payout rate is a percentage that is between the adjusted payout rate for which factors are provided by Table D, an exact method of obtaining the applicable factors (such as through software using the actual rate of return and the actuarial formula provided in §1.664-4(e)(6)(i)) or a linear interpolation must be used, provided whichever method used is applied consistently. The present value of the remainder interest is determined by multiplying the net fair market value (as of the appropriate valuation date) of the property placed in trust by the factor determined under this paragraph (g)(4). Generally, for purposes of this section, the valuation date is, in the case of an inter vivos transfer, the date on which the property is transferred to the trust by the donor, and, in the case of a testamentary transfer under sections 2055, 2106, or 2624, the valuation date is the date of death. See §1.664-4(e)(4) for additional rules regarding the valuation date, and for an example that illustrates the application of this paragraph (g)(4).
(5) Period is the life of one individual. If the period described in §1.664-3(a)(5) is the life of one individual, the factor that is used in determining the present value of the remainder interest for transfers for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations], may be computed directly by using the formula in §1.664-4(e)(5)(i) to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table U(1). Table U(1) can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table U(1) is referenced and explained in IRS Publication 1458 “Actuarial Valuations Version 3B.” The remainder factors from Table U(1) also can be found in paragraph (g)(6) of this section, but only for adjusted payout rates from 4.2 to 14 percent, inclusive. For purposes of the computations described in this paragraph (g)(5), the age of an individual is the age of that individual at the individual's nearest birthday. If the adjusted payout rate is a percentage that is between the adjusted payout rate for which factors are provided by Table U(1), an exact method of obtaining the applicable factors (such as through software using the actual rate of return and the actuarial formula provided in §1.664-4(e)(5)(i)) or a linear interpolation must be used, provided whichever method used is applied consistently. The rules provided in §1.664-4(e)(5) apply for determining the present value of the remainder interest. See §1.664-4(e)(5) for an example illustrating the application of this paragraph (g)(5) (using current actuarial tables).
(6) Actuarial Table U(1) for transfers for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations]. For transfers for which the valuation date is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations], and without regard to the headings in the tables in this paragraph (g)(6) that do not contain this termination date for the applicability of the tables, the present value of a charitable remainder unitrust interest that is dependent on the termination of a life interest is determined by using the section 7520 rate, Table U(1) in this paragraph (g)(6), and Tables F(4.2) through F(14.0) in §1.664-4(e)(6)(iii). See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). Actuarial factors that do not appear in the following tables may be computed directly by using the formula in §1.664-4(e)(5)(i) to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table U(1) that is referenced and explained by IRS Publication 1458, "Actuarial Valuations Version 3B" (2009). The table is available at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time).
* * * * *
(7) Applicability dates. Paragraphs (g)(1) through (6) of this section apply on and after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 11. Section 1.7520-1 is amended by revising paragraphs (a)(1) and (2), (b)(2), (c), and (d) and adding paragraphs (e) and (f) to read as follows:
§1.7520-1 Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests.
(a) * * * (1) Except as otherwise provided in this section and in §1.7520-3 (relating to exceptions to the use of prescribed tables under certain circumstances), in the case of certain transactions after April 30, 1989, subject to income tax, the fair market value of annuities, interests for life or a term of years (including unitrust interests), and remainder or reversionary interests is their present value determined under this section. See §20.2031-7(d) of this chapter (and, for periods prior to [applicability date of the Treasury decision adopting these regulations as final regulations], §20.2031-7A of this chapter) for the computation of the value of annuities, interests for life or a term of years, and remainder or reversionary interests other than interests described in paragraphs (a)(2) and (3) of this section.
(2) For a transfer to a pooled income fund, see §1.642(c)-6(e) (or, for periods prior to [applicability date of the Treasury decision adopting these regulations as final regulations], §1.642(c)-6A) with respect to the valuation of the remainder interest.
* * * * *
(b) * * *
(2) Mortality component. The mortality component reflects the mortality data most recently available from the United States census. As new mortality data becomes available after each decennial census, the mortality component described in this section will be revised and the revised mortality component tables will be published in the IRS publications at that time. For transactions with valuation dates on or after [applicability date of the Treasury decision adopting these regulations as final regulations], the mortality component table (Table 2010CM) is in §20.2031-7(d)(7)(ii) of this chapter, is referenced by IRS Publication 1457, “Actuarial Valuations Version 4A,” and can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). See §20.2031-7A of this chapter for mortality component tables applicable to transactions for which the valuation date falls before [applicability date of the Treasury decision adopting these regulations as final regulations].
(c) Actuarial factors. The present value on the valuation date of an annuity, an interest for life or a term of years, and a remainder or reversionary interest is computed by using the section 7520 interest rate component that is described in paragraph (b)(1) of this section and the mortality component that is described in paragraph (b)(2) of this section. Actuarial factors for determining these present values may be calculated by taxpayers using the actuarial formulas in §20.2031-7(d)(2) of this chapter but, for the convenience of taxpayers, are included in tables that are referenced and explained by publications of the Internal Revenue Service. If a special factor is required in order to value an interest, the special factor may be calculated by taxpayers using the actuarial formulas in §20.2031-7(d)(2) of this chapter or the taxpayer may request a ruling to obtain the factor from the Internal Revenue Service. The request for a ruling must be accompanied by a recitation of the facts, including the date of birth for each measuring life and copies of relevant instruments. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see Rev. Proc. 2021-1, 2021-1 I.R.B. 1, and subsequent updates, and §§ 601.201 and 601.601(d)(2)(ii)(b) of this chapter) and must include payment of the required user fee.
(d) IRS publications referencing and explaining actuarial tables with rates from 0.2 to 20 percent, inclusive, at intervals of two-tenths of one percent, for valuation dates on or after [applicability date of the Treasury decision adopting these regulations as final regulations]. The publications listed in paragraphs (d)(1) through (3) of this section will be available after [date of publication of the final rule in the Federal Register]. The underlying actuarial tables referenced and explained by these publications will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables:
(1) IRS Publication 1457, “Actuarial Valuations Version 4A” (2022). This publication references tables of valuation factors and provides examples that show how to compute other valuation factors, for determining the present value of annuities, interests for life or a term of years, and remainder or reversionary interests, measured by one or two lives. These factors may also be used in the valuation of interests in a charitable remainder annuity trust as defined in §1.664-2 and a pooled income fund as defined in §1.642(c)-5. This publication references and explains Table S (single life remainder factors), Table R(2) (two-life last-to-die remainder factors), Table B (actuarial factors used in determining the present value of an interest for a term of years), Table H (commutation factors), Table J (term certain annuity beginning-of-interval adjustment factors), and Table K (annuity end-of-interval adjustment factors). See earlier versions of the publication, §1.642(c)-6A, or §20.2031-7A of this chapter for Table S applicable to valuation dates before [applicability date of the Treasury decision adopting these regulations as final regulations]. Earlier versions of the publication also contain earlier versions of Table R(2). Table B, Table J, and Table K also can be found in §20.2031-7(d)(6) of this chapter, but only for interest rates from 4.2 to 14 percent, inclusive.
(2) IRS Publication 1458, “Actuarial Valuations Version 4B” (2022). This publication references and explains term certain tables and tables of one and two life valuation factors for determining the present value of remainder interests in a charitable remainder unitrust as defined in §1.664-3. This publication references Table U(1) (unitrust single life remainder factors), Table U(2) (unitrust two-life last-to-die remainder factors), Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years), Table F (adjustment payout rate factors), and Table Z (unitrust commutation factors). See earlier versions of the publication or §1.664-4A for Table U(1) applicable to valuation dates before [applicability date of the Treasury decision adopting these regulations as final regulations]. Earlier versions of the publication also contain earlier versions of Table U(2). Table D also can be found in §1.664-4(e)(6)(iii), but only for adjusted payout rates from 4.2 to 14 percent, inclusive. Table F also can be found in §1.664-4(e)(6)(iii), but only for interest rates from 4.2 to 14 percent, inclusive.
(3) IRS Publication 1459, “Actuarial Valuations Version 4C” (2022). This publication references and explains Table C, which provides factors for making adjustments to the standard remainder factor for valuing gifts of depreciable property. See §1.170A-12.
(4) The publications identified in paragraphs (d)(1) through (3) of this section also reference Table 2010CM, the mortality component table.
(e) Use of approximation methods for obtaining factors when the required valuation rate falls between two listed rates. For certain cases, this part and IRS publications provide approximation methods (for example, interpolation) for obtaining factors when the required valuation rate falls between two listed rates (such as in the case of a pooled income fund's rate of return or a unitrust's adjusted payout rate). In general, exact methods of obtaining the applicable factors are allowed, such as through software using the applicable interest rate and the proper actuarial formula, provided such direct methods are applied consistently. The actuarial formula in §20.2031-7(d)(2)(ii)(B) of this chapter is used to determine the remainder factor for pooled income funds and the actuarial formula in §1.664-4(e)(5)(i) is used to determine the remainder factor for unitrusts. The approximation method provided in this part must be used if more exact methods are not available.
(f) Applicability date. This section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
PART 20 — ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954
Par. 12. The authority citation for part 20 continues to read in part as follows:
Authority:26 U.S.C. 7805.
* * * * *
Par. 13. Section 20.2031-0 is revised to read as follows:
§20.2031-0 Table of contents.
This section lists the section headings and undesignated center headings that appear in the regulations under section 2031. §20.2031-1 Definition of gross estate; valuation of property.
§20.2031-2 Valuation of stocks and bonds.
§20.2031-3 Valuation of interests in businesses.
§20.2031-4 Valuation of notes.
§20.2031-5 Valuation of cash on hand or on deposit.
§20.2031-6 Valuation of household and personal effects. §20.2031-7 Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests.
§20.2031-8 Valuation of certain life insurance and annuity contracts; valuation of shares
in an open-end investment company.
§20.2031-9 Valuation of other property.
Actuarial Tables Applicable Before [Applicability Date of the Treasury Decision Adopting These Regulations as Final Regulations]
§20.2031-7A Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is before [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 14. Section 20.2031-7 is amended by:
1. Revising paragraph (c), the heading of paragraph (d), and paragraphs (d)(1) through (5).
2. Redesignating paragraph (d)(7) as paragraph (g)(4) of §20.2031-7A.
3. Adding new paragraph (d)(7).
4. Revising paragraph (e).
The revisions and addition read as follows:
§20.2031-7 Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests.
* * * * *
(c) Actuarial valuations. The present value of annuities, interests for life or a term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], is determined under paragraph (d) of this section. The present value of annuities, interests for life or a term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is before [applicability date of the Treasury decision adopting these regulations as final regulations], is determined under the following sections:
Table 1 to paragraph (c)
Valuation Dates | Applicable Regulations | ||
|---|---|---|---|
After | Before |
| |
— | 01-01-52 | ||
12-31-51 | 01-01-71 | ||
12-31-70 | 12-01-83 | ||
11-30-83 | 05-01-89 | ||
04-30-89 | 05-01-99 | ||
04-30-99 | 05-01-09 | ||
04-30-09 | AD | 20.2031-7A(g) | |
AD = [applicability date of the Treasury decision adopting these regulations as final regulations]. | |||
(d) Actuarial valuations on or after [applicability date of the Treasury decision adopting these regulations as final regulations] — (1) In general. Except as otherwise provided in paragraph (b) of this section and §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), if the valuation date for the gross estate of the decedent is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], the fair market value of annuities, interests for life or a term of years, and remainder or reversionary interests is the present value determined by using standard or special section 7520 actuarial factors. These factors are derived by using the actuarial formulas provided in paragraph (d)(2) of this section, the appropriate section 7520 interest rate, and, if applicable, the mortality component for the valuation date of the interest that is being valued. For purposes of the computations described in this section, the age of an individual is the age of that individual at the individual's nearest birthday. For the convenience of taxpayers, paragraph (d)(2) of this section provides for published tables of factors for specific types of interests. These published tables provide factors for rates from 0.2 to 20 percent, inclusive, at intervals of two-tenths of one percent. In general, appropriate factors instead may be computed directly from the actuarial formulas provided in paragraph (d)(2) of this section. In some cases, specific examples in this part and IRS publications illustrate approximation methods (for example, interpolation) for obtaining factors when the required valuation rate falls between two listed rates (such as in the case of a pooled income fund's rate of return or a unitrust's adjusted payout rate). Exact methods of obtaining the applicable actuarial factors are allowed, such as through software using the actual rate of return and the actuarial formulas provided in paragraph (d)(2) of this section; the approximation method provided in this part must be used if more exact methods are not available. See §§20.7520-1 through 20.7520-4.
(2) Specific interests — (i) Pooled income funds and charitable remainder trusts. The fair market value of a remainder interest in a pooled income fund, as defined in §1.642(c)-5 of this chapter, is its value determined under §1.642(c)-6(e). The fair market value of a remainder interest in a charitable remainder annuity trust, as defined in §1.664-2(a), is the present value determined under §1.664-2(c). The fair market value of a remainder interest in a charitable remainder unitrust, as defined in §1.664-3, is its present value determined under §1.664-4(e). The fair market value of a life interest or an interest for a term of years in a charitable remainder unitrust is the fair market value of the property as of the date of valuation less the fair market value of the remainder interest on that date determined under §1.664-4(e)(4) and (5).
(ii) Ordinary remainder and reversionary interests — (A) Remainder and reversionary interests for a term of years. If the interest to be valued is a remainder or reversionary interest to take effect after a definite number of years, the present value of the interest is computed by multiplying the value of the property by the appropriate remainder factor (that corresponds to the applicable section 7520 interest rate and the stated term). The factor for an ordinary remainder interest following a term certain may be found using the formula in Figure 1 to this paragraph (d)(2)(ii)(A). For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table B. Table B can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table B is referenced and explained in IRS Publication 1457 “Actuarial Valuations Version 4A,” which will be available after [date of publication of the final rule in the Federal Register]. The remainder factors from Table B also can be found in paragraph (d)(6) of this section, but only for interest rates from 4.2 to 14 percent, inclusive. For information about obtaining special factors for other situations, see paragraph (d)(4) of this section.
Figure 1 to paragraph (d)(2)(ii)(A) — Formula for determining term certain remainder factors
(B) Remainder and . If the interest to be valued is a remainder or reversionary interest to take effect after the death of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate remainder factor (that corresponds to the applicable section 7520 interest rate and the age of the measuring life of the life interest that precedes the remainder interest). The factor for an ordinary remainder interest following the death of one individual may be found using the formula in Figure 2 to this paragraph (d)(2)(ii)(B). The prescribed mortality table is Table 2010CM as set forth in paragraph (d)(7)(ii) of this section, or for periods before [applicability date of the Treasury decision adopting these regulations as final regulations], the appropriate table found in §20.2031-7A. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. Table S will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table S is referenced and explained by IRS Publication 1457 "Actuarial Valuations Version 4A,” which will be available after [date of publication of the final rule in the Federal Register]. For information about obtaining special factors for other situations, see paragraph (d)(4) of this section.
Figure 2 to paragraph (d)(2)(ii)(B) — Formula for determining single life remainder factors
(iii) Ordinary interests for a term of years and life interests. If the interest to be valued is the right of a person to receive the income of certain property, or to the use of certain property, for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate actuarial factor for an interest for a term of years or for a life interest (that corresponds to the applicable section 7520 interest rate and the durational period). The actuarial factor for an ordinary income interest for a term certain may be found by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in paragraph (d)(2)(ii)(A) of this section. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Income Interest” column of Table B which can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). The actuarial factor for an ordinary income interest for the life of one individual may be found by subtracting from 1.00000 the factor for an ordinary remainder interest following the life of the same individual that is determined in paragraph (d)(2)(ii)(B) of this section. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Life Estate” column of Table S. Table S (applicable when the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations]) can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. Table B and Table S are referenced and explained by IRS Publication 1457 “Actuarial Valuations Version 4A”. See §20.2031-7A or earlier versions of Publication 1457 for valuation of interests before [applicability date of the Treasury decision adopting these regulations as final regulations]. For information about obtaining special factors for other situations, see paragraph (d)(4) of this section.
(iv) Annuities. (A) If the interest to be valued is the right of a person to receive an annuity that is payable at the end of each year for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the aggregate amount payable annually by the appropriate annuity factor (that corresponds to the applicable section 7520 interest rate and annuity period). The appropriate annuity factor for an annuity payable for a term of years is computed by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in paragraph (d)(2)(ii)(A) of this section and then dividing the result by the applicable section 7520 interest rate expressed as a number with at least four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table B which can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). The appropriate annuity factor for an annuity payable for the life of one individual is computed by subtracting from 1.00000 the factor for an ordinary remainder interest following the life of the same individual that is determined under the formula in paragraph (d)(2)(ii)(B) of this section and then dividing the result by the applicable section 7520 interest rate expressed as a number with four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table S. Table S (applicable when the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations]) can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. Table B and Table S are referenced and explained in IRS Publication 1457 “Actuarial Valuations Version 4A”. See §20.2031-7A or earlier versions of Publication 1457 for valuation of interests before [applicability date of the Treasury decision adopting these regulations as final regulations]. For information about obtaining special factors for other situations, see paragraph (d)(4) of this section.
(B) If the annuity is payable at the end of semiannual, quarterly, monthly, or weekly periods, the product obtained by multiplying the annuity factor by the aggregate amount payable annually is then multiplied by the applicable adjustment factor at the appropriate interest rate component for payments made at the end of the specified periods. The applicable adjustment factor may be found using the formula in Figure 3 to this paragraph (d)(2)(iv)(B). For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table K. Table K, which is referenced and explained by Publication 1457, can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. The provisions of this paragraph
(d)(2)(iv)(B) are illustrated by the example in paragraph (d)(2)(iv)(B)(2) of this section.
Figure 3 to paragraph (d)(2)(iv)(B) — Formula for determining annuity adjustment factor at the end of the specified period
(1) Sample factors from actuarial Table S and Table K. For purposes of the example in paragraph (d)(2)(iv)(B)(2) of this section, the following factors from Table S and Table K will be used:
Table 2 to paragraph (d)(2)(iv)(B)(1)
Age | Annuity | Life Estate | Remainder |
|---|---|---|---|
75 | 9.4053 | 0.30097 | 0.69903 |
Factors from Table K | |||
Interest Rate | Semi-Annually | Quarterly | Monthly |
3.2% | 1.0079 | 1.0119 | 1.0146 |
(2) Example. At the time of the decedent's death, the survivor/annuitant, age 75, is entitled to receive an annuity of $15,000 per year for life payable in equal monthly installments at the end of each month. The section 7520 rate for the month in which the decedent died is 3.2 percent. Under Table S, the annuity factor at 3.2 percent for an individual aged 75 is 9.4053. Under Table K, the adjustment factor under the column for payments made at the end of each monthly period at the rate of 3.2 percent is 1.0146. The aggregate annual amount, $15,000, is multiplied by the factor 9.4053 and the product then is multiplied by 1.0146. The present value of the annuity at the date of the decedent's death is, therefore, $143,139.26 ($15,000 × 9.4053 × 1.0146).
(C) If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for a term of years, the value of the annuity is computed by multiplying the aggregate amount payable annually by the annuity factor described in paragraph (d)(2)(iv)(A) of this section; and the product so obtained then is multiplied by the applicable adjustment factor at the appropriate interest rate component for payments made at the beginning of specified periods. The applicable adjustment factor may be found using the formula in Figure 4 to this paragraph (d)(2)(iv)(C). For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table J. Table J, which is referenced and explained by Publication 1457, can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for one or more lives, the value of the annuity is the sum of the first payment plus the present value of a similar annuity, the first payment of which is not to be made until the end of the payment period, determined as provided in paragraph (d)(2)(iv)(B) of this section.
Figure 4 to paragraph (d)(2)(iv)(C) — Formula for determining annuity adjustment factor at the beginning of the specified period
(v) Annuity and unitrust interests for a term of years or until the prior death of an individual. See §25.2512-5(d)(2)(v) of this chapter for examples explaining how to compute the present value of an annuity or unitrust interest that is payable until the earlier of the lapse of a specific number of years or the death of an individual.
(3) Transitional rule. If a decedent dies on or after January 1, 2021, and before [applicability date of the Treasury decision adopting these regulations as final regulations], the fair market value of annuities, interests for life or a term of years, and remainder or reversionary interests based on one or more measuring lives included in the gross estate of the decedent is their present value determined under this section by using the section 7520 interest rate for the month in which the valuation date occurs (see §§20.7520-1(b) and 20.7520-2(a)(2)) and factors derived from the selected mortality table, either Table 2010CM in paragraph (d)(7)(ii) of this section or Table 2000CM in §20.2031-7A(g)(4), at the option of the donor or the decedent's executor, as the case may be. For the convenience of taxpayers, actuarial factors based on Table 2010CM appear in the proposed version of Table S, and actuarial factors based on Table 2000CM appear in the current version of Table S, which will be available as provided in paragraph (d)(4) of this section. The decedent's executor must consistently use the same mortality basis with respect to each interest (income, remainder, partial, etc.) in the same property, and with respect to all transfers occurring on the valuation date. For example, gift and income tax charitable deductions with respect to the same transfer must be determined based on factors with the same mortality basis, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on factors with the same mortality basis.
(4) Publications and actuarial computations by the Internal Revenue Service. The factor for determining the present value of a remainder interest that is dependent on the termination of the life of one individual may be computed by using the formula in paragraph (d)(2)(ii)(B) of this section to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. The factor for determining the present value of a remainder interest following a term certain may be computed by using the formula in paragraph (d)(2)(ii)(A) of this section. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table B. Adjustment factors for term certain annuities payable at the beginning of each interval may be computed by using the formula in paragraph (d)(2)(iv)(C) of this section. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table J. Adjustment factors for annuities payable at the end of each interval may be computed by using the formula in paragraph (d)(2)(iv)(B) of this section. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table K. These tables will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). IRS Publication 1457, "Actuarial Valuations Version 4A" (2022), references and explains the factors contained in the actuarial tables and also includes examples that illustrate how to compute many special factors for more unusual situations. This publication will be available after [date the Treasury decision adopting these regulations as final regulations is published in the Federal Register]. Table B, Table J, and Table K also can be found in paragraph (d)(6) of this section, but only for interest rates from 4.2 to 14 percent, inclusive. If a special factor is required in the case of an actual decedent, the special factor may be calculated by the executor using the actuarial formulas in paragraph (d)(2) of this section or the executor may request a ruling to obtain the factor from the Internal Revenue Service. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the decedent's death, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b) of this chapter) and must include payment of the required user fee.
(5) Examples. The provisions of this section are illustrated by the examples in this paragraph (d)(5). For purposes of these examples, the following factors from Table S, Table B, and Table K will be used:
Table 3 to paragraph (d)(5)
Age | Annuity | Life Estate | Remainder |
|---|---|---|---|
31 | 23.8334 | 0.76267 | 0.23733 |
46 | 20.0146 | 0.64047 | 0.35953 |
Interest at 4.6 Percent | |||
Age | Annuity | Life Estate | Remainder |
65 | 11.7691 | 0.54138 | 0.45862 |
Factors from Table B | |||
Year | Annuity | Income Interest | Remainder |
5 | 4.6325 | 0.120445 | 0.879555 |
Factors from Table K | |||
Interest Rate | Semi-Annually | Quarterly | Monthly |
2.6% | 1.0065 | 1.0097 | 1.0119 |
3.2% | 1.0079 | 1.0119 | 1.0146 |
(i) Example 1: Remainder payable at an individual's death. The decedent, or the decedent's estate, was entitled to receive certain property worth $50,000 upon the death of A, to whom the income was bequeathed for life. At the time of the decedent's death, A was 65 years and 5 months old. In the month in which the decedent died, the section 7520 rate was 4.6 percent. Under Table S, the remainder factor at 4.6 percent for determining the present value of the remainder interest due at the death of a person aged 65, A's age at A's nearest birthday to the date of the decedent's death, is 0.45862. The present value of the remainder interest at the date of the decedent's death is, therefore, $22,931 ($50,000 times 0.45862).
(ii) Example 2: Income payable for an individual's life. A's parent bequeathed an income interest in property to A for life, with the remainder interest passing to B at A's death. At the time of the parent's death, the value of the property was $50,000 and A was 30 years and 10 months old. The section 7520 rate at the time of the parent's death was 3.2 percent. Under Table S, the factor at 3.2 percent for determining the present value of the life estate given to a person aged 31, A's age at A's nearest birthday to the date of the decedent's death, is 0.76267. The present value of A's income interest at the time of the parent's death is, therefore, $38,133.50 ($50,000.00 × 0.76267).
(iii) Example 3: Annuity payable for an individual's life. A purchased an annuity for the benefit of both A and B. Under the terms of the annuity contract, at A's death, a survivor annuity of $10,000 per year, payable in equal semiannual installments made at the end of each interval is payable to B for life. At A's death, B was 45 years and 7 months old. Also, at A's death, the section 7520 rate was 3.2 percent. Under Table S, the factor at 3.2 percent for determining the present value of an annuity interest payable until the death of a person age 46 (B's age at B's nearest birthday to the date of A's death) is 20.0146. The adjustment factor from Table K at an interest rate of 3.2 percent for semiannual annuity payments made at the end of the period is 1.0079. The present value of the annuity at the date of A's death is, therefore, $201,727.15 ($10,000 × 20.0146 × 1.0079).
(iv) Example 4: Annuity payable for a term of years. The decedent, or the decedent's estate, was entitled to receive an annuity of $10,000 per year payable in equal quarterly installments at the end of each quarter throughout a term certain. At the time of the decedent's death, the section 7520 rate was 2.6 percent. A quarterly payment had been made immediately prior to the decedent's death and payments were to continue for 5 more years. Under Table B for the interest rate of 2.6 percent, the factor for the present value of an annuity with a term of 5 years is 4.6325. The adjustment factor from Table K at an interest rate of 2.6 percent for quarterly annuity payments made at the end of the quarter is 1.0097. The present value of the annuity is, therefore, $46,774.35 ($10,000 × 4.6325 × 1.0097).
* * * * *
(7) Actuarial Table S and Table 2010CM where the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations] — (i) Determination of required factors. Except as provided in §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), for determination of the present value of a remainder interest that is dependent on the termination of a life interest, where the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], actuarial factors computed directly by using the formula in paragraph (d)(2)(ii)(B) of this section, Table 2010CM, and the section 7520 rate are used in the application of the provisions of this section. For the convenience of taxpayers, the actuarial factors, when the section 7520 interest rate component is from 0.2 to 20 percent, inclusive, have been computed by IRS and can be found in Table S. Table S will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. Table S is also referenced and explained by IRS Publication 1457 "Actuarial Valuations Version 4A,” which will be available after [date the Treasury decision adopting these regulations as final regulations is published in the Federal Register].
(ii) Table 2010CM.
Table 4 to paragraph (d)(7)(ii)
(e) Applicability date. This section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 15. The undesignated center heading immediately preceding §20.2031-7A is revised to read as follows:
Actuarial Tables Applicable Before [Applicability Date of the Treasury Decision Adopting These Regulations as Final Regulations]
Par. 16. Section 20.2031-7A is amended by:
1. Revising the section heading.
2. Adding paragraphs (g) heading and (g)(1) through (3).
3. In newly redesignated paragraph (g)(4), the heading and introductory text are revised.
4. Adding paragraph (g)(5).
The revisions and additions read as follows:
§20.2031-7A Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is before [applicability date of the Treasury decision adopting these regulations as final regulations].
* * * * *
(g) Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations] — (1) In general. Except as otherwise provided in §§20.2031-7(b) and 20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), if the valuation date for the gross estate of the decedent is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations], the fair market value of annuities, interests for life or a term of years, and remainder or reversionary interests is the present value of the interests determined by using standard or special section 7520 actuarial factors and the valuation methodology described in §20.2031-7(d). These factors are derived by using the appropriate section 7520 interest rate and, if applicable, the mortality component for the valuation date of the interest that is being valued. See §§20.7520-1 through 20.7520-4. See paragraph (g)(4) of this section for determination of the appropriate table for use in valuing these interests.
(2) Transitional rules. (i) If a decedent dies on or after May 1, 2009, and if, on May 1, 2009, the decedent was under a mental disability so that the disposition of the decedent's property could not be changed, and the decedent dies before [applicability date of the Treasury decision adopting these regulations as final regulations] either without having regained the ability to dispose of the decedent's property or within 90 days of the date on which the decedent first regains that ability, the fair market value of annuities, interests for life or a term of years, and remainder or reversionary interests included in the gross estate of the decedent is their present value determined either under this section or under the corresponding section applicable at the time the decedent first became subject to the mental disability, at the option of the decedent's executor. For example, see paragraph (d) of this section.
(ii) If a decedent dies on or after May 1, 2009, and before July 1, 2009, the fair market value of annuities, interests for life or a term of years, and remainder or reversionary interests based on one or more measuring lives included in the gross estate of the decedent is their present value determined under this section by using the section 7520 interest rate for the month in which the valuation date occurs (see §§20.7520-1(b) and 20.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (f)(4) or (g)(4) of this section, at the option of the decedent's executor.
(iii) For purposes of paragraphs (g)(2)(i) and (ii) of this section, where the decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (f)(4) or (g)(4) of this section, the decedent's executor must consistently use the same mortality basis with respect to each interest (income, remainder, partial, etc.) in the same property, and with respect to all transfers occurring on the valuation date. For example, gift and income tax charitable deductions with respect to the same transfer must be determined based on factors with the same mortality basis, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on factors with the same mortality basis.
(3) Publications and actuarial computations by the Internal Revenue Service. The factor for determining the present value of a remainder interest that is dependent on the termination of the life of one individual may be computed by using the formula in §20.2031-7(d)(2)(ii)(B) to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. The factor for determining the present value of a remainder interest following a term certain may be computed by using the formula in §20.2031-7(d)(2)(ii)(A). For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table B. Adjustment factors for term certain annuities payable at the beginning of each interval may be computed by using the formula in §20.2031-7(d)(2)(iv)(C). For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table J. Adjustment factors for annuities payable at the end of each interval may be computed by using the formula in §20.2031-7(d)(2)(iv)(B). For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table K. These tables are referenced and explained by IRS Publication 1457, "Actuarial Values Version 3A," (2009). Publication 1457 includes examples that illustrate how to compute many special factors for more unusual situations. The actuarial tables are available, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table S also can be found in paragraph (g)(4) of this section, but only for interest rates from 0.2 to 14 percent, inclusive. Table B, Table J, and Table K also can be found in §20.2031-7(d)(6), but only for interest rates from 4.2 to 14 percent, inclusive. If a special factor is required in the case of an actual decedent, the special factor may be calculated by the executor using the actuarial formulas in §20.2031-7(d)(2) or the executor may request a ruling to obtain the factor from the Internal Revenue Service. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the decedent's death, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b) of this chapter) and must include payment of the required user fee.
(4) Actuarial tables. Except as provided in §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), actuarial factors based on Table 2000CM must be used in the application of the provisions of this section. The factor for determining the present value of a remainder interest that is dependent on the termination of the life of one individual may be computed by using the formula in §20.2031-7(d)(2)(ii)(B) to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors, when the section 7520 interest rate component is from 0.2 to 20 percent, inclusive, have been computed by IRS and appear in Table S (applicable on and after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations]). These actuarial tables, as referenced and explained by IRS Publication 1457 "Actuarial Valuations Version 3A,” are available, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. Table S (notwithstanding the lack of the applicable termination date in its heading), where the section 7520 interest rate component is from 0.2 to 14 percent, inclusive, and Table 2000CM are as follows:
* * * * *
(5) Applicability dates. Paragraphs (g)(1) through (4) of this section apply on and after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 17. Section 20.2032-1 is amended by revising paragraphs (f)(1) and (h) to read as follows:
§20.2032-1 Alternate valuation.
* * * * *
(f) * * *
(1) Life estates, remainders, and similar interests — (i) In general. The values of
life estates, remainders, and similar interests are to be obtained by applying the methods prescribed in §20.2031-7, using the age of each person, the duration of whose life may affect the value of the interest, as of the date of the decedent's death, and the value of the property as of the alternate valuation date.
(ii) Sample factors from actuarial Table S. The present value of a remainder interest dependent on the termination of one life is determined by using the formula in §20.2031-7(d)(2)(ii)(B) to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. Table S can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). For purposes of the example in paragraph (e)(5)(iii) of this section, the following relevant factors from Table S is used:
Table 2 to paragraph (f)(1)(ii)
Age | Annuity | Life Estate | Remainder |
|---|---|---|---|
65 | 12.2128 | 0.51294 | 0.48706 |
Interest at 4.6 Percent | |||
Age | Annuity | Life Estate | Remainder |
65 | 11.7691 | 0.54138 | 0.45862 |
(iii) Example. Assume that the decedent, or the decedent's estate, was entitled to receive certain property worth $50,000 upon the death of A, who was entitled to the income for life. At the time of the decedent's death, A was 65 years and 5 months old, and the section 7520 rate was 4.6 percent. The value of the decedent's remainder interest at the date of the decedent's death would, as illustrated in Example 1 of §20.2031-7(d)(5)(i), be $22,931.00 ($50,000 x 0.45862). On the date that is 6 months after the decedent's death, A was 65 years and 11 months old, and the section 7520 rate was 4.2 percent. If, because of economic conditions, the property declined in value and was worth only $40,000 on the date that was 6 months after the date of the decedent's death, and the decedent's executor elected to use the alternate valuation date, the value of the remainder interest would be $19,482.40 ($40,000 X 0.48706). When the alternate valuation date is elected, the age of A, and other aspects of valuation which change by reason of the mere passage of time, is determined as of the date of the decedent's death, while the value of the property and the relevant section 7520 interest rate is determined as of the alternate valuation date. Thus, the computation uses A's age of 65 years old at the date of the decedent's death, even though A would be closest to 66 years old on the alternate valuation date.
* * * * *
(h) Applicability date. Paragraph (b) of this section is applicable to decedents dying on or after January 4, 2005. However, pursuant to section 7805(b)(7), taxpayers may elect to apply paragraph (b) of this section retroactively if the period of limitations for filing a claim for a credit or refund of Federal estate or generation-skipping transfer tax under section 6511 has not expired. Paragraph (f)(1) of this section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
Section 20.2032-1T [Removed]
Par. 18. Section 20.2032-1T is removed.
Par. 19. Section 20.2036-1 is amended:
1. In paragraph (c)(2)(iv) by designating Examples 1 through 8 as paragraphs (c)(2)(iv)(A) through (H), respectively.
2. In newly designated paragraphs (c)(2)(iv)(A), (B), (C), (G), and (H) by further redesignating the paragraphs in the first column as paragraphs in the second column:
Old paragraphs | New paragraphs |
|---|---|
(c)(2)(iv)(A)(i) and (ii) | (c)(2)(iv)(A)(1) and (2) |
(c)(2)(iv)(B)(i) and (ii) | (c)(2)(iv)(B)(1) and (2) |
(c)(2)(iv)(C)(i), (ii), and (iii) | (c)(2)(iv)(C)(1), (2), and (3) |
(c)(2)(iv)(G)(i), (ii), and (iii) | (c)(2)(iv)(G)(1), (2), and (3) |
(c)(2)(iv)(G)(3)(A), (B), (C), (D), (E), and (F) | (c)(2)(iv)(G)(3)(i), (ii), (iii), (iv), (v), and (vi) |
(c)(2)(iv)(G)(iv), (v), and (vi) | (c)(2)(iv)(G)(4), (5), and (6) |
(c)(2)(iv)(H)(i), (ii), (iii), (iv), (v), (vi), and (vii) | (c)(2)(iv)(H)(1), (2), (3), (4), (5), (6), and (7) |
3. By revising newly designated paragraph (c)(2)(iv)(C). The revision reads as follows:
§20.2036-1 Transfers with retained life estate.
* * * * *
(c) * * *
(2) * * *
(iv) * * *
(C) Example 3. (1) D created a CRUT within the meaning of section 664(d)(2). The trust instrument directs the trustee to hold, invest, and reinvest the corpus of the trust and to pay to D for D's life, and then to D's child (C) for C's life, in equal quarterly installments payable at the end of each calendar quarter, an amount equal to 6 percent of the fair market value of the trust as valued on December 15 of the prior taxable year of the trust. At the termination of the trust, the then-remaining corpus, together with any and all accrued income, is to be distributed to N, a charitable organization described in sections 170(c), 2055(a), and 2522(a). D dies six years later, survived by C, who was then age 55. The value of the trust assets on D's death was $300,000. D's executor does not elect to use the alternate valuation date and D's executor does not choose to use the section 7520 interest rate for either of the two months prior to D's death.
(2) The amount of the corpus with respect to which D retained the right to the income, and thus the amount includible in D's gross estate under section 2036(a)(1), is that amount of corpus necessary to yield the unitrust payments as interest on the corpus. In this case, such amount of corpus is determined by dividing the trust's equivalent income interest rate by the section 7520 rate (which was 5.4 percent at the time of D's death). The equivalent income interest rate is determined by dividing the trust's adjusted payout rate by the excess of 1 over the adjusted payout rate. Based on Table F(5.4) in §1.664-4(e)(6)(iii) of this chapter, the appropriate adjusted payout rate for the trust at D's death is 5.807 percent (6 percent × 0.967769). Thus, the equivalent income interest rate is 6.165 percent (5.807 percent / (1 – 5.807 percent)). The ratio of the equivalent interest rate to the assumed interest rate under section 7520 is 114.17 percent (6.165 percent / 5.4 percent). Because this exceeds 100 percent, D's retained payout interest exceeds a full income interest in the trust, and D effectively retained the income from all the assets transferred to the trust. Accordingly, because D retained for life an interest at least equal to the right to all income from all the property transferred by D to the CRUT, the entire value of the corpus of the CRUT is includible in D's gross estate under section 2036(a)(1). (The result would be the same if D had retained, instead, an interest in the CRUT for a term of years and had died during the term.) Under the facts presented, section 2039 does not apply to include any amount in D's gross estate by reason of D's retained unitrust interest. See §20.2039-1(e).
(3) If, instead, D had retained the right to a unitrust amount having an adjusted payout for which the corresponding equivalent interest rate would have been less than the 5.4 percent assumed interest rate of section 7520, then a correspondingly reduced proportion of the trust corpus would be includible in D's gross estate under section 2036(a)(1). Alternatively, if the interest retained by D was instead only one-half of the 6 percent unitrust interest, then the amount included in D's estate would be the amount needed to produce a 3 percent unitrust interest. All of the results in this paragraph (c)(2)(iv)(C)(3) (Example 3) would be the same if the trust had been a grantor retained unitrust instead of a CRUT.
* * * * *
Par. 20. Section 20.2055-2 is amended by revising paragraphs (e)(3)(iii) and (f)(4) and (6) to read as follows:
§20.2055-2 Transfers not exclusively for charitable purposes.
* * * * *
(e) * * *
(3) * * *
(iii)(A) The rule in paragraphs (e)(2)(vi)(a) and (e)(2)(vii)(a) of this section that guaranteed annuity interests or unitrust interests, respectively, may be payable for a specified term of years or for the life or lives of only certain individuals generally is effective in the case of transfers pursuant to wills and revocable trusts when the decedent dies on or after April 4, 2000. Two exceptions from the application of the rule in paragraphs (e)(2)(vi)(a) and (e)(2)(vii)(a) of this section are provided for transfers pursuant to a will or revocable trust executed on or before April 4, 2000. One exception is for a decedent who dies on or before July 5, 2001, without having republished the will (or amended the trust) by codicil or otherwise. The other exception is for a decedent who was, on April 4, 2000, under a mental disability that prevented a change in the disposition of the decedent's property, and who either does not regain competence to dispose of such property before the date of death, or dies prior to the later of 90 days after the date on which the decedent first regains competence, or July 5, 2001, without having republished the will (or amended the trust) by codicil or otherwise. If a guaranteed annuity interest or unitrust interest created pursuant to a will or revocable trust when the decedent dies on or after April 4, 2000, uses an individual other than one permitted in paragraphs (e)(2)(vi)(a) and (e)(2)(vii)(a) of this section, and the interest does not qualify for this transitional relief, the interest may be reformed into a lead interest payable for a specified term of years. The term of years is determined by taking the factor for valuing the annuity or unitrust interest for the named individual measuring life and identifying the term of years (rounded up to the next whole year) that corresponds to the equivalent term of years factor for an annuity or unitrust interest. A judicial reformation must be commenced prior to the later of July 5, 2001, or the date prescribed by section 2055(e)(3)(C)(iii). Any judicial reformation must be completed within a reasonable time after it is commenced. A non-judicial reformation is permitted if effective under state law, provided it is completed by the date on which a judicial reformation must be commenced. In the alternative, if a court, in a proceeding that is commenced on or before July 5, 2001, declares any transfer made pursuant to a will or revocable trust where the decedent dies on or after April 4, 2000, and on or before March 6, 2001, null and void ab initio, the Internal Revenue Service will treat such transfers in a manner similar to that described in section 2055(e)(3)(J).
(B) The appropriate annuity factor for an annuity payable for a term of years is computed by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in §20.2031-7(d)(2)(ii)(A) and then dividing the result by the applicable section 7520 interest rate expressed as a number with at least four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table B. The appropriate annuity factor for an annuity payable for the life of one individual is computed by subtracting from 1.00000 the factor for an ordinary remainder interest following the life of the same individual that is determined under the formula in §20.2031-7(d)(2)(ii)(B) and then dividing the result by the applicable section 7520 interest rate expressed as a number with four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table S. Table B and Table S can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). For purposes of the example in paragraph (e)(3)(iii)(C) of this section, the following relevant factors from Table B and Table S are used:
Table 1 to paragraph (e)(3)(iii)(B)
Years | Annuity | Income Interest | Remainder |
|---|---|---|---|
37 | 21.5068 | 0.688218 | 0.311782 |
38 | 21.8089 | 0.697886 | 0.302114 |
Factors from Table S — Based on Table 2010CM | |||
Age | Annuity | Life Estate | Remainder |
40 | 21.7045 | 0.69454 | 0.30546 |
(C) The following example illustrates how to determine the term of years for a reformed interest as discussed in paragraph (e)(3)(iii)(A) of this section. Assume an annuity interest payable for the life of an individual age 40 at the time of the transfer on or after [applicability date of the Treasury decision adopting these regulations as final regulations], with an interest rate of 3.2 percent under section 7520. Under Table S, the annuity factor at 3.2 percent for the life of an individual age 40 is 21.7045. Based on Table B at 3.2 percent, the factor 21.7045 corresponds to a term of years between 37 and 38 years. Accordingly, the annuity interest must be reformed into an interest payable for a term of 38 years.
* * * * *
(f) * * *
(4) Other decedents. The present value of an interest not described in paragraph (f)(2) of this section is to be determined under §20.2031-7(d) in the case of decedents where the valuation date of the gross estate is on or after [applicability date of the Treasury decision adopting these regulations as final regulations], or under §20.2031-7A in the case of decedents where the valuation date of the gross estate is before [applicability date of the Treasury decision adopting these regulations as final regulations].
* * * * *
(6) Applicability date. Paragraphs (e)(3)(iii) and (f)(4) of this section apply on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 21. Section 20.2056A-4 is amended by:
1. Revising paragraph (c)(4)(ii)(B).
2. In paragraph (d), designating Examples 1 through 5 as paragraphs (d)(1) through (5), respectively.
3. Revising the headings in newly designated paragraphs (d)(1) through (3).
4. Revising newly designated paragraph (d)(4), newly designated paragraph
(d)(5) heading, and paragraph (e).
The revisions read as follows:
§20.2056A-4 Procedures for conforming marital trusts and nontrust marital transfers to the requirements of a qualified domestic trust.
* * * * *
(c) * * *
(4) * * *
(ii) * * *
(B) The total present value of the nonassignable annuity or other payment is the present value of the annuity or other payment as of the date of the decedent's death, determined in accordance with the interest rates and mortality table prescribed by section 7520. The expected annuity term is the number of years that would be required for the scheduled payments to exhaust a hypothetical fund equal to the present value of the scheduled payments. This is determined by first dividing the total present value of the payments by the annual payment. From the quotient so obtained, the expected annuity term is derived by identifying the term of years that corresponds to the lowest annuity factor that is equal to or greater than the quotient. The annuity factor is computed by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in §20.2031-7(d)(2)(ii)(A) and then dividing the result by the applicable section 7520 interest rate expressed as a number with at least four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table B which can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). If the quotient obtained falls between two terms, the longer term is used.
* * * * *
(d) * * *
(1) Example 1. Transfer and assignment of probate and nonprobate property to QDOT. * * *
(2) Example 2. Formula assignment. * * *
(3) Example 3. Jointly owned property. * * *
(4) Example 4. Computation of corpus portion of annuity payment. (i) The appropriate annuity factor for an annuity payable for the life of one individual is computed by subtracting from 1.00000 the factor for an ordinary remainder interest following the life of the same individual that is determined under the formula in §20.2031-7(d)(2)(ii)(B) and then dividing the result by the applicable section 7520 interest rate expressed as a number with four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table S. The appropriate annuity factor for an annuity payable for a term of years is computed by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in §20.2031-7(d)(2)(ii)(A) and then dividing the result by the applicable section 7520 interest rate expressed as a number with at least four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table B. The applicable adjustment factor for annuities that are payable at the end of semiannual, quarterly, monthly, or weekly periods is computed by use of the formula in §20.2031-7(d)(2)(iv)(B). For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table K. These actuarial tables can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. For purposes of the example in this paragraph (d)(4), the relevant factors from Table S, Table B, and Table K are:
Table 2 to paragraph (d)(4)
Age | Annuity | Life Estate | Remainder |
|---|---|---|---|
60 | 14.6908 | 0.52887 | 0.47113 |
Factors from Table B | |||
|
|
|
|
Years | Annuity | Income Interest | Remainder |
21 | 14.5605 | 0.524177 | 0.475823 |
22 | 15.0198 | 0.540712 | 0.459288 |
Factors from Table K | |||
Interest Rate | Semi-Annually | Quarterly | Monthly |
3.6% | 1.0089 | 1.0134 | 1.0164 |
(ii) At the time of D's death, on or after [applicability date of the Treasury decision adopting these regulations as final regulations], D is a participant in an employees' pension plan described in section 401(a). On D's death, D's spouse S, a resident of the United States, becomes entitled to receive a survivor's annuity of $72,000 per year, payable monthly, for life. At the time of D's death, S is age 60. Assume that under section 7520, the appropriate discount rate to be used for valuing annuities in the case of this decedent is 3.6 percent. Under Table S, the annuity factor at 3.6 percent for a person age 60 is 14.6908. The adjustment factor at 3.6 percent in Table K for monthly payments is 1.0164. Accordingly, the right to receive $72,000 per year on a monthly basis is equal to the right to receive $73,180.80 ($72,000 x 1.0164) on an annual basis.
(iii) The corpus portion of each annuity payment received by S is determined as follows:
(A) The first step is to determine the present value of S's annuity payments under the plan ($73,180.80 × 14.6908 = $1,075,084.50).
(B) The second step is to determine the number of years that would be required for S's annuity to exhaust a hypothetical fund of $1,075,084.50. The annuity factor of 14.6908 falls between the Table B term certain annuity factors for 21 and 22 years at an interest rate of 3.6 percent. Accordingly, the expected annuity term is 22 years.
(C) The third step is to determine the corpus amount of the annual payment by dividing the expected term of 22 years into the present value of the hypothetical fund ($1,075,084.50 / 22 = $48,867.48).
(D) In the fourth step, the corpus portion of each annuity payment is determined by dividing the corpus amount of each annual payment by the annual annuity payment (adjusted for payments more frequently than annually as in paragraph (d)(4)(i) of this section) ($48,867.48 / 73,180.80 = 0.67).
(iv) Accordingly, 67 percent of each payment to S is deemed to be a distribution of corpus. A marital deduction is allowed for $1,075,084.50, the present value of the annuity as of D's date of death, if either: S agrees to roll over the corpus portion of each payment to a QDOT and the executor files the Information Statement described in paragraph (c)(5) of this section and the Roll Over Agreement described in paragraph (c)(7) of this section; or S agrees to pay the tax due on the corpus portion of each payment and the executor files the Information Statement described in paragraph (c)(5) of this section and the Payment Agreement described in paragraph (c)(6) of this section.
(5) Example 5. Transfer to QDOT subject to gift tax. * * *
* * * * *
(e) Applicability date. Paragraphs (c)(4)(ii)(B) and (d)(4) of this section are applicable with respect to decedents dying on or after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 22. Section 20.7520-1 is amended by revising paragraphs (a)(1) and (2), (b)(2), (c), and (d) and adding paragraphs (e) and (f) to read as follows:
§20.7520-1 Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests.
(a) * * *(1) Except as otherwise provided in this section and in §20.7520-3 (relating to exceptions to the use of prescribed tables under certain circumstances), in the case of estates of decedents with valuation dates after April 30, 1989, the fair market value of annuities, interests for life or a term of years (including unitrust interests), and remainder or reversionary interests is their present value determined under this section. See §20.2031-7(d) (and, for periods prior to [applicability date of the Treasury decision adopting these regulations as final regulations], §20.2031-7A) for the computation of the value of annuities, interests for life or a term of years, and remainder or reversionary interests, other than interests described in paragraphs (a)(2) and (3) of this section.
(2) For a transfer to a pooled income fund, see §1.642(c)-6(e) of this chapter (or, for periods prior to [applicability date of the Treasury decision adopting these regulations as final regulations], §1.642(c)-6A) with respect to the valuation of the remainder interest.
* * * * *
(b) * * *
(2) Mortality component. The mortality component reflects the mortality data most recently available from the United States census. As new mortality data becomes available after each decennial census, the mortality component described in this section will be revised and the revised mortality component tables will be published in IRS publications at that time. For decedents' estates with valuation dates on or after [applicability date of the Treasury decision adopting these regulations as final regulations], the mortality component table (Table 2010CM) is in §20.2031-7(d)(7)(ii) and is referenced by IRS Publication 1457, “Actuarial Valuations Version 4A,” and can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). See §20.2031-7A for mortality component tables applicable to decedents' estates with valuation dates before [applicability date of the Treasury decision adopting these regulations as final regulations].
(c) Actuarial factors. The present value on the valuation date of an annuity, an interest for life or a term of years, and a remainder or reversionary interest is computed by using the section 7520 interest rate component that is described in paragraph (b)(1) of this section and the mortality component that is described in paragraph (b)(2) of this section. Actuarial factors for determining these present values may be calculated by using the formulas in §20.2031-7(d)(2). For the convenience of taxpayers, the IRS has computed actuarial factors and displayed them on tables that are referenced and explained by publications of the Internal Revenue Service. If a special factor is required in order to value an interest, the special factor may be calculated by the taxpayer using the actuarial formulas in §20.2031-7(d)(2) or the taxpayer may request a ruling to obtain the factor from the Internal Revenue Service. The request for a ruling must be accompanied by a recitation of the facts, including the date of birth for each measuring life and copies of relevant instruments. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see Rev. Proc. 2021-1, 2021-1 I.R.B. 1, and subsequent updates, and §§ 601.201 and 601.601(d)(2)(ii)(b) of this chapter) and must include payment of the required user fee.
(d) IRS publications referencing and explaining actuarial tables with rates from 0.2 to 20 percent, inclusive, at intervals of two-tenths of one percent, for valuation dates on and after [applicability date of the Treasury decision adopting these regulations as final regulations]. The publications listed in paragraphs (d)(1) through (3) of this section will be available after [date the Treasury decision adopting these regulations as final regulations is published in the Federal Register]. The underlying actuarial tables reference and explained by these publications will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/ actuarial-tables:
(1) IRS Publication 1457, “Actuarial Valuations Version 4A” (2022). This publication references tables of valuation factors and provides examples that show how to compute other valuation factors, for determining the present value of annuities, interests for life or a term of years, and remainder or reversionary interests, measured by one or two lives. These factors also may be used in the valuation of interests in a charitable remainder annuity trust as defined in §1.664-2 of this chapter and a pooled income fund as defined in §1.642(c)-5 of this chapter. This publication references and explains Table S (single life remainder factors), Table R(2) (two-life last-to-die remainder factors), Table B (actuarial factors used in determining the present value of an interest for a term of years), Table H (commutation factors), Table J (term certain annuity beginning-of-interval adjustment factors), and Table K (annuity end-of-interval adjustment factors). See earlier versions of the publication, §1.642(c)-6A of this chapter, or §20.2031-7A for Table S applicable to valuation dates before [applicability date of the Treasury decision adopting these regulations as final regulations]. See earlier versions of the publication for Table R(2) applicable to valuation dates before [applicability date of the Treasury decision adopting these regulations as final regulations]. Earlier versions of the publication also contain earlier versions of Table R(2). Table B, Table J, and Table K also can be found in §20.2031-7(d)(6), but only for interest rates from 4.2 to 14 percent, inclusive.
(2) IRS Publication 1458, “Actuarial Valuations Version 4B” (2022). This publication references and explains term certain tables and tables of one and two life valuation factors for determining the present value of remainder interests in a charitable remainder unitrust as defined in §1.664-3 of this chapter. This publication references Table U(1) (unitrust single life remainder factors), Table U(2) (unitrust two-life last-to-die remainder factors), Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years), Table F (adjustment payout rate factors), and Table Z (unitrust commutation factors). See earlier versions of the publication or §1.664-4A of this chapter for Table U(1) applicable to valuation dates before [applicability date of the Treasury decision adopting these regulations as final regulations]. Earlier versions of the publication also contain earlier versions of Table U(2). Table D also can be found in §1.664-4(e)(6)(iii) of this chapter, but only for adjusted payout rates from 4.2 to 14 percent, inclusive. Table F also can be found in §1.664-4(e)(6)(iii) of this chapter, but only for interest rates from 4.2 to 14 percent, inclusive.
(3) IRS Publication 1459, “Actuarial Valuations Version 4C” (2022). This publication references and explains Table C, which provides factors for making adjustments to the standard remainder factor for valuing gifts of depreciable property. See §1.170A-12 of this chapter.
(4) The publications identified in paragraphs (d)(1) through (3) of this section also reference Table 2010CM, the mortality component table.
(e) Use of approximation methods for obtaining factors when the required valuation rate falls between two listed rates. For certain cases, this part and IRS publications provide approximation methods (for example, interpolation) for obtaining factors when the required valuation rate falls between two listed rates (such as in the case of a pooled income fund's rate of return or a unitrust's adjusted payout rate). In general, exact methods of obtaining the applicable factors are allowed, such as through software using the actual rate of return and the proper actuarial formulas used for the published factors at the listed rates, provided such direct methods are applied consistently. The actuarial formula in §20.2031-7(d)(2)(ii)(B) is used to determine the remainder factor for pooled income funds and the actuarial formula in §1.664-4(e)(5)(i) of this chapter is used to determine the remainder factor for unitrusts. The approximation method provided in this part must be used if more exact methods are not available.
(f) Applicability date. This section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
PART 25 — GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
Par. 23. The authority citation for part 25 continues to read in part as follows:
Authority:26 U.S.C. 7805.
* * * * *
Par. 24. Section 25.2512-0 is revised to read as follows:
§25.2512-0 Table of contents.
This section lists the section headings that appear in the regulations under section 2512.
§25.2512-1 Valuation of property; in general.
§25.2512-2 Stocks and bonds.
§25.2512-3 Valuation of interests in businesses.
§25.2512-4 Valuation of notes.
§25.2512-5 Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests.
§25.2512-6 Valuation of certain life insurance and annuity contracts; valuation of shares in an open-end investment company.
§25.2512-7 Effect of excise tax.
§25.2512-8 Transfers for insufficient consideration.
Actuarial Tables Applicable Before [Applicability Date of the Treasury Decision Adopting These Regulations as Final Regulations]
§25.2512-5A Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests transferred before [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 25. Section 25.2512-5 is amended by revising paragraphs (c), (d), and (e)
to read as follows:
§25.2512-5 Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests.
* * * * *
(c) Actuarial valuations. The present value of annuities, interests for life or a term of years, and remainder or reversionary interests transferred by gift on or after [applicability date of the Treasury decision adopting these regulations as final regulations], is determined under paragraph (d) of this section. The present value of annuities, interests for life or a term of years, and remainder or reversionary interests transferred by gift before [applicability date of the Treasury decision adopting these regulations as final regulations], is determined under the following sections:
Table 1 to paragraph (c)
Transfers | Applicable Regulations | |
|---|---|---|
After | Before |
|
— | 01-01-52 | |
12-31-51 | 01-01-71 | |
12-31-70 | 12-01-83 | |
11-30-83 | 05-01-89 | |
04-30-89 | 05-01-99 | |
04-30-99 | 05-01-09 | |
04-30-09 | AD | 25.2512-5A(g) |
AD = [applicability date of the Treasury decision adopting these regulations as final regulations]. | ||
(d) Actuarial valuations on or after [applicability date of the Treasury decision adopting these regulations as final regulations] — (1) In general. Except as otherwise provided in paragraph (b) of this section and §25.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances), the fair market value of annuities, interests for life or a term of years, and remainder or reversionary interests transferred on or after [applicability date of the Treasury decision adopting these regulations as final regulations], is the present value of such interests determined under paragraph (d)(2) of this section and by using standard or special section 7520 actuarial factors. These factors are derived by using the actuarial formulas provided in §20.2031-7(d)(2) of this chapter, appropriate section 7520 interest rate, and, if applicable, the mortality component for the valuation date of the interest that is being valued. For purposes of the computations described in this section, the age of an individual is the age of that individual at the individual's nearest birthday. For the convenience of taxpayers, paragraph (d)(2) of this section provides for published tables of factors for specific types of interests. These published tables provide factors for rates from 0.2 to 20 percent, inclusive, at intervals of two-tenths of one percent. In general, appropriate factors instead may be computed directly from the actuarial formulas provided in §20.2031-7(d)(2) of this chapter. In some cases, specific examples in this part and IRS publications illustrate approximation methods (for example, interpolation) for obtaining factors when the required valuation rate falls between two listed rates (such as in the case of a pooled income fund's rate of return or a unitrust's adjusted payout rate). Exact methods of obtaining the applicable actuarial factors are allowed, such as through software using the actual rate of return and the actuarial formulas provided in §20.2031-7(d)(2) of this chapter; the approximation method provided in this part must be used if more exact methods are not available. See §§25.7520-1 through 25.7520-4. The fair market value of a qualified annuity interest described in section 2702(b)(1) and a qualified unitrust interest described in section 2702(b)(2) is the present value of such interests determined under §25.7520-1(c).
(2) Specific interests. When the donor transfers property in trust or otherwise and retains an interest therein, generally, the value of the gift is the value of the property transferred less the value of the donor's retained interest. However, if the donor transfers property after October 8, 1990, to or for the benefit of a member of the donor's family, the value of the gift is the value of the property transferred less the value of the donor's retained interest as determined under section 2702. If the donor assigns or relinquishes an annuity, an interest for life or a term of years, a remainder or reversionary interest that the donor holds by virtue of a transfer previously made by the donor or another, the value of the gift is the value of the interest transferred. However, see section 2519 for a special rule in the case of the assignment of an income interest by a person who received the interest from a spouse.
(i) Pooled income funds and charitable remainder trusts. The fair market value of a remainder interest in a pooled income fund, as defined in §1.642(c)-5 of this chapter, is its value determined under §1.642(c)-6(e) of this chapter (see §1.642(c)-6A of this chapter for certain prior periods). The fair market value of a remainder interest in a charitable remainder annuity trust, as described in §1.664-2(a) of this chapter, is its present value determined under §1.664-2(c) of this chapter. The fair market value of a remainder interest in a charitable remainder unitrust, as defined in §1.664-3 of this chapter, is its present value determined under §1.664-4(e) of this chapter. The fair market value of a life interest or term for years interest in a charitable remainder unitrust is the fair market value of the property as of the date of transfer less the fair market value of the remainder interest, determined under §1.664-4(e)(4) and (5) of this chapter.
(ii) Ordinary remainder and reversionary interests — (A) Remainder and reversionary interests for a term of years. If the interest to be valued is a remainder or reversionary interest to take effect after a definite number of years, the present value of the interest is computed by multiplying the value of the property by the appropriate remainder factor (that corresponds to the applicable section 7520 interest rate and the stated term). The factor for an ordinary remainder interest following a term certain may be found using the formula in §20.2031-7(d)(2)(ii)(A) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table B. Table B can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table B is referenced and explained in IRS Publication 1457 “Actuarial Valuations Version 4A,” which will be available after [date the Treasury decision adopting these regulations as final regulations is published in the Federal Register]. The remainder factors from Table B also can be found in paragraph (d)(6) of this section, but only for interest rates from 4.2 to 14 percent, inclusive. For information about obtaining special factors for other situations, see paragraph (d)(4) of this section.
(B) Remainder and reversionary interests dependent on the life of one individual. If the interest to be valued is a remainder or reversionary interest to take effect after the death of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate remainder factor (that corresponds to the applicable section 7520 interest rate and the age of the measuring life of the life interest that precedes the remainder interest). The factor for an ordinary remainder interest following the death of one individual may be found by using the formula in §20.2031-7(d)(2)(ii)(B) of this chapter to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. Table S will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table S is referenced and explained by IRS Publication 1457 "Actuarial Valuations Version 4A,” which will be available after [date of publication of the final rule in the Federal Register]. For information about obtaining special factors for other situations, see paragraph (d)(4) of this section.
(iii) Ordinary interests for a term of years and life interests. If the interest to be valued is the right of a person to receive the income of certain property, or to the use of certain property, for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate actuarial factor for an interest for a term of years or for a life interest (that corresponds to the applicable section 7520 interest rate and the durational period). The actuarial factor for an ordinary income interest for a term certain may be found by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in §20.2031-7(d)(2)(ii)(A) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Income Interest” column of Table B which can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). The actuarial factor for an ordinary income interest for the life of one individual may be found by subtracting from 1.00000 the factor for an ordinary remainder interest following the life of the same individual that is determined in §20.2031-7(d)(2)(ii)(B) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Life Estate” column of Table S. Table S (applicable when the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations]) can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. Table B and Table S are referenced and explained by IRS Publication 1457 “Actuarial Valuations Version 4A”. See §20.2031-7A of this chapter or earlier versions of Publication 1457 for valuation of interests before [applicability date of the Treasury decision adopting these regulations as final regulations]. For information about obtaining special factors for other situations, see paragraph (d)(4) of this section.
(iv) Annuities. (A) If the interest to be valued is the right of a person to receive an annuity that is payable at the end of each year for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the aggregate amount payable annually by the appropriate annuity factor (that corresponds to the applicable section 7520 interest rate and annuity period). The appropriate annuity factor for an annuity payable for a term of years is computed by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in §20.2031-7(d)(2)(ii)(A) of this chapter and then dividing the result by the applicable section 7520 interest rate expressed as a number with at least four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table B which can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). The appropriate annuity factor for an annuity payable for the life of one individual is computed by subtracting from 1.00000 the factor for an ordinary remainder interest following the life of the same individual that is determined in §20.2031-7(d)(2)(ii)(B) of this chapter and then dividing the result by the applicable section 7520 interest rate expressed as a number with four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table S. Table S (applicable when the valuation date is on or after [applicability date of the Treasury decision adopting these regulations as final regulations]) can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. Table B and Table S are referenced and explained in IRS Publication 1457 “Actuarial Valuations Version 4A”. See §20.2031-7A of this chapter or earlier versions of Publication 1457 for valuation of interests before [applicability date of the Treasury decision adopting these regulations as final regulations]. For information about obtaining special factors for other situations, see paragraph (d)(4) of this section.
(B) If the annuity is payable at the end of semiannual, quarterly, monthly, or weekly periods, the product obtained by multiplying the annuity factor by the aggregate amount payable annually then is multiplied by the applicable adjustment factor at the appropriate interest rate component for payments made at the end of the specified period. The applicable adjustment factor may be found using the formula in §20.2031-7(d)(2)(iv)(B) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table K. Table K, which is referenced and explained by Publication 1457, can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. The provisions of this paragraph (d)(2)(iv)(B) are illustrated by the example in paragraph (d)(2)(iv)(B)(2) of this section.
(1) Sample factors from actuarial Table S and Table K. For purposes of the example in paragraph (d)(2)(iv)(B)(2) of this section, the relevant factors from Table S and Table K are:
Table 2 to paragraph (d)(2)(iv)(B)(1)
Age | Annuity | Life Estate | Remainder |
|---|---|---|---|
68 | 12.2552 | 0.39217 | 0.60783 |
Factors from Table K | |||
Interest Rate | Semi-Annually | Quarterly | Monthly |
3.2% | 1.0079 | 1.0119 | 1.0146 |
(2) Example. On July 1 of a year after 2021, the donor agrees to pay the annuitant the sum of $10,000 per year, payable in equal semiannual installments at the end of each period. The semiannual installments are to be made on each December 31st and June 30th. The annuity is payable until the annuitant's death. On the date of the agreement, the annuitant is 68 years and 5 months old. The donee annuitant's age is treated as 68 for purposes of computing the present value of the annuity. The section 7520 rate on the date of the agreement is 3.2 percent. Under Table S, the factor at 3.2 percent for determining the present value of an annuity payable until the death of a person aged 68 is 12.2552. The adjustment factor from Table K in the column for payments made at the end of each semiannual period at the rate of 3.2 percent is 1.0079. The aggregate annual amount of the annuity, $10,000, is multiplied by the factor 12.2552 and the product is multiplied by 1.0079. The present value of the donee's annuity is, therefore, $123,520.16 ($10,000 × 12.2552 × 1.0079).
(C) If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for a term of years, the value of the annuity is computed by multiplying the aggregate amount payable annually by the annuity factor described in paragraph (d)(2)(iv)(A) of this section; and the product so obtained then is multiplied by the applicable adjustment factor at the appropriate interest rate component for payments made at the beginning of specified periods. The applicable adjustment factor may be found using the formula in §20.2031-7(d)(2)(iv)(C) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table J. Table J, which is referenced and explained by Publication 1457, can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for one or more lives, the value of the annuity is the sum of the first payment and the present value of a similar annuity, the first payment of which is not to be made until the end of the payment period, determined as provided in paragraph (d)(2)(iv)(B) of this section.
(v) Annuity and unitrust interests for a term of years or until the prior death of an individual — (A) Annuity interests — (1) In general. (i) The present value of an annuity interest that is payable until the earlier to occur of the lapse of a specific number of years or the death of an individual may be computed with the use of commutation factors and an applicable adjustment factor. The commutation factors are computed directly with the set of formulas in Figure 1 to this paragraph (d)(2)(v)(A)(1)(i). The prescribed mortality table is Table 2010CM as set forth in §20.2031-7(d)(7)(ii) of this chapter, or for periods before [applicability date of the Treasury decision adopting these regulations as final regulations], the appropriate table found in §20.2031-7A of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table H. Table H will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/ actuarial-tables (or a corresponding URL as may be updated from time to time). Table H is referenced and explained by IRS Publication 1457 "Actuarial Valuations Version 4A,” which will be available after [date of publication of the final rule in the Federal Register].
Figure 1 to paragraph (d)(2)(v)(A)(1)(i) — Formulas for determining commutation factors
(ii) The applicable adjustment factor for annuities that are payable at the end of semiannual, quarterly, monthly, or weekly periods is computed by use of the formula in §20.2031-7(d)(2)(iv)(B) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table K. Table K can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. For purposes of the example in paragraph (d)(2)(v)(A)(2) of this section, the relevant factors from Table H(2.8) and Table K are:
Table 3 to paragraph (d)(2)(v)(A)(1)(ii)
Age (x) | Dx | Nx-factor | Mx-factor |
|---|---|---|---|
60 | 16,911.03 | 271,994.3 | 9,295.187 |
70 | 11,280.80 | 133,677.8 | 7,537.826 |
Factors from Table K | |||
Interest Rate | Semi-Annually | Quarterly | Monthly |
2.8% | 1.0070 | 1.0104 | 1.0128 |
(2) Example. The donor transfers $100,000 into a trust on January 1, 2022 and retains the right to receive an annuity from the trust in the amount of $10,000 per year, payable in equal semiannual installments at the end of each period. The semiannual installments are to be made on each June 30th and December 31st. The annuity is payable for 10 years or until the donor's prior death. At the time of the transfer, the donor is 59 years and 6 months old. The donor's age is deemed to be 60 for purposes of computing the present value of the retained annuity. If the section 7520 rate for the month in which the transfer occurred is 2.8 percent, the present value of the donor's retained annuity interest for the shorter of life or term would be is $82,363.54, determined in Figure 2 to this paragraph (d)(2)(v)(A)(2).
Figure 2 to paragraph (d)(2)(v)(A)(2) – Illustration of calculation of present value of the donor's retained annuity interest for the shorter of life or term
that is payable until the earlier to occur of the lapse of a specific number of years or the death of an individual may be computed with the use of an adjusted payout rate factor and a unitrust commutation factor. The adjusted payout rate factor is determined by applying the formula in §1.664-4(e)(6)(ii) of this chapter for the section 7520 interest rate applicable to the transfer. For the convenience of taxpayers, actuarial factors have been computed by IRS, for interest rates from 0.2 to 20 percent, inclusive, and appear in Tables F(0.2) through F(20.0). The unitrust commutation factors are computed directly with the set of formulas in Figure 3 to this paragraph (d)(2)(v)(B)(1)(i). For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table Z. Table F and Table Z can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables.
Figure 3 to paragraph (d)(2)(v)(B)(1)(i) – Formulas for determining unitrust commutation factors
(ii) For purposes of the example in paragraph (d)(2)(v)(B)(2) of this section, the relevant factors from Table F(3.4), Table Z(4.8), and Table Z(5.0) are:
Table 4 to paragraph (d)(2)(v)(B)(1)(ii)
# of Months from Annual Valuation to First Payout | Adjustment Factors for Payments at End of Period | ||
|---|---|---|---|
At Least | But Less Than | Annual | Semiannual |
6 | 7 | 0.983422 | 0.975270 |
Factors from Table Z(4.8) | |||
Age (x) | UDx | UNx-factor | UMx-factor |
60 | 4,634.189 | 58,509.09 | 1,684.151 |
70 | 2,491.406 | 24,541.74 | 1,254.007 |
Factors from Table Z(5.0) | |||
Age (x) | UDx | UNx-factor | UMx-factor |
60 | 4,084.822 | 50,451.77 | 1,429.466 |
70 | 2,150.356 | 20,823.44 | 1,054.386 |
(2) Example of interpolation. The donor who, as of the nearest birthday, is 60 years old, transfers $100,000 to a unitrust on January 1st of a year after 2021. The trust instrument requires that each year the trust pay to the donor, in equal semiannual installments on June 30th and December 31st, 5 percent of the fair market value of the trust assets, valued as of January 1st of that year, for 10 years or until the prior death of the donor. The section 7520 rate for the January in which the transfer occurred is 3.4 percent. Under Table F(3.4), the appropriate adjustment factor is 0.975270 for semiannual payments payable at the end of the semiannual period. The adjusted payout rate is 4.876 percent (5% x 0.975270). The present value of the donor's retained interest is $37,419.00 determined in paragraphs (d)(2)(v)(B)(2)(i) through (iii) of this section. Using Table Z, the method required is to prepare two computations, one at a payout rate of 4.8 percent, and one at 5.0 percent, and interpolate between these two in order to get the result at the adjusted payout rate of 4.876 percent. As an alternative to using an interpolation method, it also is acceptable to compute the remainder factor directly from the root actuarial formulas using the actual adjusted payout rate of 4.876%. (i) Determine the terminal age, as illustrated in Figure 4 to this paragraph (d)(2)(v)(B)(2)(i).
Figure 4 to paragraph (d)(2)(v)(B)(2)(i)–Illustration of determination of terminal age
(ii) Determine the Payout Interest Factor at the Table Z payout rates immediately below and above the adjusted payout rate, as illustrated in Figure 5 to this paragraph (d)(2)(v)(B)(2)(ii).
Figure 5 to paragraph (d)(2)(v)(B)(2)(ii) — Illustration of determination of payout interest factors
(iii) Interpolate between the Payout Interest Factors at 4.8% and 5.0% to determine the Payout Interest Factor at the adjusted rate of 4.876%, as illustrated in Figure 6 to this paragraph (d)(2)(v)(B)(2)(iii).
Figure 6 to paragraph (d)(2)(v)(B)(2)(iii) — Illustration of interpolation
(3) Transitional rule. If the valuation date of a transfer of property by gift is on or after January 1, 2021, and before [applicability date of the Treasury decision adopting these regulations as final regulations], the fair market value of the interest transferred is determined by using the section 7520 interest rate for the month in which the valuation date occurs (see §§25.7520-1(b) and 25.7520-2(a)(2)) and the appropriate actuarial factors derived from the selected mortality table, either Table 2010CM in §20.2031-7(d)(7)(ii) of this chapter or Table 2000CM in §20.2031-7A(g)(4) of this chapter, at the option of the donor or the decedent's executor, as the case may be. For the convenience of taxpayers, actuarial factors based on Table 2010CM appear in the proposed version of Table S, and actuarial factors based on Table 2000CM appear in the current version of Table S, which will be available as provided in paragraph (d)(4) of this section. With respect to each individual transaction, the donor must consistently use the same mortality basis with respect to each interest (income, remainder, partial, etc.) in the same property, and with respect to all transfers occurring on the valuation date. For example, gift and income tax charitable deductions with respect to the same transfer must be determined based on factors with the same mortality basis, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on factors with the same mortality basis.
(4) Publications and actuarial computations by the Internal Revenue Service. The factor for determining the present value of a remainder interest that is dependent on the termination of the life of one individual may be computed by using the formula in §20.2031-7(d)(2)(ii)(B) of this chapter to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. The factor for determining the present value of a remainder interest following a term certain may be computed by using the formula in §20.2031-7(d)(2)(ii)(A) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table B. Adjustment factors for term certain annuities payable at the beginning of each interval may be computed by using the formula in §20.2031-7(d)(2)(iv)(C) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table J. Adjustment factors for annuities payable at the end of each interval may be computed by using the formula in §20.2031-7(d)(2)(iv)(B) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table K. These tables will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). IRS Publication 1457, "Actuarial Valuations Version 4A" (2022), references and explains the factors contained in the actuarial tables and also includes examples that illustrate how to compute many special factors for more unusual situations. This publication will be available after [date of publication of the final rule in the Federal Register]. Table B, Table J, and Table K also can be found in §20.2031-7(d)(6) of this chapter, but only for interest rates from 4.2 to 14 percent, inclusive. If a special factor is required, the special factor may be calculated by the taxpayer using the actuarial formula in §20.2031-7(d)(2) of this chapter or the taxpayer may request a ruling to obtain the factor from the Internal Revenue Service. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the gift, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b) of this chapter and Rev. Proc. 2021-1, 2021-1 I.R.B. 1, and subsequent updates) and must include payment of the required user fee.
(e) Applicability date. This section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 26. The undesignated center heading immediately preceding §25.2512-5A is revised to read as follows:
Actuarial Tables Applicable Before [Applicability Date of the Treasury Decision Adopting These Regulations]
Par. 27. Section 25.2512-5A is amended by revising the section heading and adding paragraph (g) to read as follows:
§25.2512-5A Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests transferred before [applicability date of the Treasury decision adopting these regulations as final regulations].
* * * * *
(g) Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests transferred on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations] — (1) In general. Except as otherwise provided in §§25.2512-5(b) and 25.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), if the valuation date of the transferred interest is on or after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations], the fair market value of annuities, interests for life or a term of years, and remainder or reversionary interests transferred by gift is the present value of the interests determined by using standard or special section 7520 actuarial factors and the valuation methodology described in §25.2512-5(d). Sections 20.2031-7(d)(6) and 20.2031-7A(g)(4) of this chapter and related sections provide tables with standard actuarial factors and examples that illustrate how to use the tables to compute the present value of ordinary annuity, life, term, and remainder interests in property. Sections 20.2031-7(d)(6) and 20.2031-7A(g)(4) also refer to standard and special actuarial factors that may be necessary to compute the present value of similar interests in more unusual fact situations. These factors and examples also generally are applicable for gift tax purposes in computing the values of taxable gifts.
(2) Transitional rule. If the valuation date of a transfer of property by gift is on or after May 1, 2009, and before July 1, 2009, the fair market value of the interest transferred is determined by using the section 7520 interest rate for the month in which the valuation date occurs (see §§25.7520-1(b) and 25.7520-2(a)(2)) and the appropriate actuarial tables under either §20.2031-7A(f)(4) or (g)(4) of this chapter, at the option of the donor. However, with respect to each individual transaction and with respect to all transfers occurring on the valuation date, the donor must consistently use the same mortality basis with respect to each interest (income, remainder, partial, etc.) in the same property, and with respect to all transfers occurring on the valuation date. For example, gift and income tax charitable deductions with respect to the same transfer must be determined based on factors with the same mortality basis, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on factors with the same mortality basis.
(3) Publications and actuarial computations by the Internal Revenue Service. The factor for determining the present value of a remainder interest that is dependent on the termination of the life of one individual may be computed by using the formula in §20.2031-7(d)(2)(ii)(B) of this chapter to derive factors from the appropriate mortality table. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table S. The factor for determining the present value of a remainder interest following a term certain may be computed by using the formula in §20.2031-7(d)(2)(ii)(A) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table B. Adjustment factors for term certain annuities payable at the beginning of each interval may be computed by using the formula in §20.2031-7(d)(2)(iv)(C) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table J. Adjustment factors for annuities payable at the end of each interval may be computed by using the formula in §20.2031-7(d)(2)(iv)(B) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table K. These tables are referenced and explained by IRS Publication 1457, "Actuarial Values Version 3A," (2009). Publication 1457 includes examples that illustrate how to compute many special factors for more unusual situations. The actuarial tables are available, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). Table S also can be found in §20.2031-7A(g)(4) of this chapter, but only for interest rates from 0.2 to 14 percent, inclusive. Table B, Table J, and Table K also can be found in §20.2031-7(d)(6) of this chapter, but only for interest rates from 4.2 to 14 percent, inclusive. If a special factor is required in the case of a completed gift, the special factor may be calculated by the donor using the actuarial formulas in §20.2031-7(d)(2) of this chapter or the donor may request a ruling to obtain the factor from the Internal Revenue Service. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the gift, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b) of this chapter) and must include payment of the required user fee.
(4) Applicability dates. Paragraphs (g)(1) through (3) of this section apply on and after May 1, 2009, and before [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 28. Section 25.2522(c)-3 is amended by:
1. Designating Examples 1 through 3 of paragraph (d)(2)(iv) as paragraphs (d)(2)(iv)(A) through (C), respectively.
2. Revising the headings for newly designated paragraphs (d)(2)(iv)(A) and (B), newly designated paragraph (d)(2)(iv)(C), and paragraph (e).
3. Adding paragraph (f).
§25.2522(c)-3 Transfers not exclusively for charitable, etc., purposes in the case of gifts made after July 31, 1969.
* * * * *
(d) * * *
(2) * * *
(iv) * * *
(A) Example 1. * * *
(B) Example 2. * * *
(C) Example 3 — (1) Factors. The appropriate annuity factor for an annuity payable for a term of years is computed by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in §20.2031-7(d)(2)(ii)(A) of this chapter and then dividing the result by the applicable section 7520 interest rate expressed as a number with at least four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table B. The actuarial commutation factors can be computed directly by using the formulas in §25.2512-5(d)(2)(v)(A)(1), the section 7520 rate, and Table 2010CM as set forth in §20.2031-7(d)(7)(ii) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table H. Table B and Table H can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). For purposes of the example in paragraph (d)(2)(iv)(C)(2) of this section, the relevant factors from Table B and Table H are:
Table 1 to paragraph (d)(2)(iv)(C)(1)
Years | Annuity | Income Interest | Remainder |
|---|---|---|---|
10 | 8.6179 | 0.241302 | 0.758698 |
Factors from Table H(2.8) | |||
Age (x) | Dx | Nx-factor | Mx-factor |
60 | 16,911.03 | 271,994.3 | 9,295.187 |
70 | 11,280.80 | 133,677.8 | 7,537.826 |
(2) Application. In a year after 2021, D transfers $65,000 in trust with the requirement that a guaranteed annuity interest (as defined in paragraph (c)(2)(vi) of this section) of $5,000 a year, payable annually at the end of each year, be paid to Y Charity for a period of 10 years and that a guaranteed annuity interest (as defined in paragraph (c)(2)(vi) of this section) of $5,000 a year, payable annually at the end of each year, be paid to W, D's wife, aged 60, for 10 years or until her prior death. The annuities are to be paid simultaneously, and the remainder is to be paid to D's children. The section 7520 interest rate for the date of transfer is 2.8 percent, and the taxpayer elects not to use the interest rate from either of the two preceding months. The fair market value of the private annuity is $40,895.50 ($5,000 × 8.1791), as determined pursuant to §25.2512-5(d)(2)(v)(A) and by the use of factors derived from Table H and illustrated in paragraph (d)(2)(iv)(C)(3) of this section. The fair market value of the charitable annuity is $43,089.50 ($5,000 × 8.6179), determined using the annuity factor from Table B. It is not evident from the governing instrument of the trust or from local law that the trustee would be required to apportion the trust fund between the wife and charity in the event the fund were insufficient to pay both annuities in a given year. Accordingly, the deduction with respect to the charitable annuity will be limited to $24,104.50 ($65,000 less $40,895.50 [the value of the private annuity]), which is the minimum amount it is evident the charity will receive.
(3) In paragraph (d)(2)(iv)(C)(2) of this section, the actuarial factor for determining the value of the private annuity is derived by the use of factors involving one life and a term of years. The factor is determined as illustrated in Figure 1 to this paragraph (d)(2)(iv)(C)(3).
Figure 1 to paragraph (d)(2)(iv)(C)(3) — Illustration of calculation of annuity factor for shorter of term or life
* * * * *
(e) Guaranteed annuity and unitrust interests reformed as an interest for a term of years — (1) In general. The rule in paragraphs (c)(2)(vi)(a) and (c)(2)(vii)(a) of this section that guaranteed annuity interests or unitrust interests, respectively, may be payable for a specified term of years or for the life or lives of only certain individuals applies to transfers made on or after April 4, 2000. If a transfer is made on or after April 4, 2000, that uses an individual other than one permitted in paragraphs (c)(2)(vi)(a) and (c)(2)(vii)(a) of this section, the interest may be reformed into a lead interest payable for a specified term of years. The term of years is determined by taking the factor for valuing the annuity or unitrust interest for the named individual measuring life and identifying the term of years (rounded up to the next whole year) that corresponds to the equivalent term of years factor for an annuity or unitrust interest. See paragraph (e)(4) of this section for an example.
(2) Judicial and non-judicial reformations. A judicial reformation must be commenced prior to October 15th of the year following the year in which the transfer is made and must be completed within a reasonable time after it is commenced. A non-judicial reformation is permitted if effective under state law, provided it is completed by the date on which a judicial reformation must be commenced. In the alternative, if a court, in a proceeding that is commenced on or before July 5, 2001, declares any transfer, made on or after April 4, 2000, and on or before March 6, 2001, null and void ab initio, the Internal Revenue Service will treat such transfers in a manner similar to that described in section 2055(e)(3)(J).
(3) Sample factors from actuarial Table B and Table S. The appropriate annuity factor for an annuity payable for a term of years is computed by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in §20.2031-7(d)(2)(ii)(A) of this chapter and then dividing the result by the applicable section 7520 interest rate expressed as a number with at least four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table B. The appropriate annuity factor for an annuity payable for the life of one individual is computed by subtracting from 1.00000 the factor for an ordinary remainder interest following the life of the same individual that is determined under the formula in §20.2031-7(d)(2)(ii)(B) of this chapter and then dividing the result by the applicable section 7520 interest rate expressed as a number with four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table S. Table B and Table S can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. For purposes of the example in paragraph (e)(4) of this section, the relevant factors from Table B and Table S are:
Table 2 to paragraph (e)(3)
Years | Annuity | Income Interest | Remainder |
|---|---|---|---|
38 | 24.7471 | 0.593929 | 0.406071 |
39 | 25.1436 | 0.603447 | 0.396553 |
Factors from Table S — Based on Table 2010CM | |||
Age | Annuity | Life Estate | Remainder |
40 | 24.9063 | 0.59775 | 0.40225 |
(4) Example. An annuity interest payable for the life of an individual age 40 at the time of the transfer that occurs on or after [applicability date of the Treasury decision adopting these regulations as final regulations] assuming an interest rate of 2.4 percent under section 7520, has an annuity factor reported in Table S of 24.9063. Based on Table B at 2.4 percent, the factor 24.9063 corresponds to a term of years between 38 and 39 years. Accordingly, the annuity interest must be reformed into an interest payable for a term of 39 years. (To determine the value of a charitable remainder interest payable after this annuity interest, the taxpayer then must satisfy the test illustrated in §25.7520-3(b)(2)(v)(E).)
(f) Applicability date. This section applies only to gifts made after July 31, 1969. Par. 29. Section 25.7520-1 is amended by revising paragraphs (a)(1) and (2), (b)(2), (c), and (d) and adding paragraphs (e) and (f) to read as follows:
§25.7520-1 Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests.
(a) * * *(1) Except as otherwise provided in this section and in §25.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances), in the case of certain gifts after April 30, 1989, the fair market value of annuities, interests for life or a term of years (including unitrust interests), and remainder or reversionary interests is their present value determined under this section. See §20.2031-7(d) of this chapter (and, for periods prior to [applicability date of the Treasury decision adopting these regulations as final regulations], §20.2031-7A of this chapter) for the computation of the value of annuities, interests for life or a term of years, and remainder or reversionary interests, other than interests described in paragraphs (a)(2) and (3) of this section.
(2) In the case of a gift to a pooled income fund on or after [applicability date of the Treasury decision adopting these regulations as final regulations], see §1.642(c)-6(e) of this chapter (or, for periods prior to [applicability date of the Treasury decision adopting these regulations as final regulations], §1.642(c)-6A of this chapter) with respect to the valuation of the remainder interest.
* * * * *
(b) * * *
(2) Mortality component. The mortality component reflects the mortality data most recently available from the United States census. As new mortality data becomes available after each decennial census, the mortality component described in this section will be revised and the revised mortality component tables will be published in the IRS publications at that time. For gifts with valuation dates on or after [applicability date of the Treasury decision adopting these regulations as final regulations], the mortality component table (Table 2010CM) is in §20.2031-7(d)(7)(ii) of this chapter, and is referenced by IRS Publication 1457, “Actuarial Valuations Version 4A,” and can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). See §20.2031-7A of this chapter for mortality component tables applicable to gifts for which the valuation date falls before [applicability date of the Treasury decision adopting these regulations as final regulations].
(c) Actuarial factors. The present value on the valuation date of an annuity, an interest for life or a term of years, and a remainder or reversionary interest is computed by using the section 7520 interest rate component that is described in paragraph (b)(1) of this section and the mortality component that is described in paragraph (b)(2) of this section. Actuarial factors for determining these present values may be calculated using the formulas in §20.2031-7(d)(2) of this chapter. For the convenience of taxpayers, the IRS has computed actuarial factors and displayed them on tables that are referenced and explained by publications of the Internal Revenue Service. If a special factor is required in order to value an interest, the special factor may be calculated by the taxpayer using the actuarial formulas in §20.2031-7(d)(2) of this chapter or the taxpayer may request a ruling to obtain the factor from the Internal Revenue Service. The request for a ruling must be accompanied by a recitation of the facts, including the date of birth for each measuring life and copies of relevant instruments. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see Rev. Proc. 2021-1, 2021-1 I.R.B. 1, and subsequent updates, and §§ 601.201 and 601.601(d)(2)(ii)(b) of this chapter) and must include payment of the required user fee.
(d) IRS publications referencing and explaining actuarial tables with rates from 0.2 to 20 percent, inclusive, at intervals of two-tenths of one percent, for valuation dates on or after [applicability date of the Treasury decision adopting these regulations as final regulations]. The publications listed in paragraphs (d)(1) through (3) of this section will be available after [date of publication of the final rule in the Federal Register]. The underlying actuarial tables referenced and explained by these publications will be available beginning May 5, 2022, at no charge, electronically via the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables:
(1) IRS Publication 1457, “Actuarial Valuations Version 4A” (2022). This publication references tables of valuation factors and provides examples that show how to compute other valuation factors, for determining the present value of annuities, interests for life or a term of years, and remainder or reversionary interests, measured by one or two lives. These factors may also be used in the valuation of interests in a charitable remainder annuity trust as defined in §1.664-2 of this chapter and a pooled income fund as defined in §1.642(c)-5 of this chapter. This publication references and explains Table S (single life remainder factors), Table R(2) (two-life last-to-die remainder factors), Table B (actuarial factors used in determining the present value of an interest for a term of years), Table H (commutation factors), Table J (term certain annuity beginning-of-interval adjustment factors), and Table K (annuity end-of-interval adjustment factors). See earlier versions of the publication, §1.642(c)-6A of this chapter, or §20.2031-7A of this chapter for Table S applicable to valuation dates before [applicability date of the Treasury decision adopting these regulations as final regulations]. Earlier versions of the publication also contain earlier versions of Table R(2). Table B, Table J, and Table K also can be found in §20.2031-7(d)(6) of this chapter, but only for interest rates from 4.2 to 14 percent, inclusive.
(2) IRS Publication 1458, “Actuarial Valuations Version 4B” (2022). This publication references and explains term certain tables and tables of one and two life valuation factors for determining the present value of remainder interests in a charitable remainder unitrust as defined in §1.664-3 of this chapter. This publication references Table U(1) (unitrust single life remainder factors), Table U(2) (unitrust two-life last-to-die remainder factors), Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years), Table F (adjustment payout rate factors), and Table Z (unitrust commutation factors). See earlier versions of the publication or §1.664-4A of this chapter for Table U(1) applicable to valuation dates before [applicability date of the Treasury decision adopting these regulations as final regulations]. Earlier versions of the publication also contain earlier versions of Table U(2). Table D also can be found in §1.664-4(e)(6)(iii) of this chapter, but only for adjusted payout rates from 4.2 to 14 percent, inclusive. Table F also can be found in §1.664-4(e)(6)(iii) of this chapter, but only for interest rates from 4.2 to 14 percent, inclusive.
(3) IRS Publication 1459, “Actuarial Valuations Version 4C” (2022). This publication references and explains Table C, which provides factors for making adjustments to the standard remainder factor for valuing gifts of depreciable property. See §1.170A-12 of this chapter.
(4) The publications identified in paragraphs (d)(1) through (3) of this section also reference Table 2010CM, the mortality component table.
(e) Use of approximation methods for obtaining factors when the required valuation rate falls between two listed rates. For certain cases, this part and IRS publications provide approximation methods (for example, interpolation) for obtaining factors when the required valuation rate falls between two listed rates (such as in the case of a pooled income fund's rate of return or a unitrust's adjusted payout rate). In general, exact methods of obtaining the applicable factors are allowed, such as through software using the actual rate of return and the proper actuarial formula, provided such direct methods are applied consistently. The actuarial formula in §20.2031-7(d)(2)(ii)(B) of this chapter is used to determine the remainder factor for pooled income funds and the actuarial formula in §1.664-4(e)(5)(i) of this chapter is used to determine the remainder factor for unitrusts. The approximation method provided in this part must be used if more exact methods are not available.
(f) Applicability date. This section applies on and after [applicability date of the Treasury decision adopting these regulations as final regulations].
Par. 30. Section 25.7520-3 is amended by:
1. Designating Examples 1 through 5 of paragraph (b)(2)(v) as paragraphs (b)(2)(v)(A) through (E), respectively.
2. Revising the heading of newly designated paragraphs (b)(2)(v)(A).
3. In newly designated paragraph (b)(2)(v)(B):
i. Revising the heading.
ii. Removing “Example 1” and “this paragraph” and adding in their places “paragraph (b)(2)(v)(A) of this section (Example 1)” and “this paragraph (b)(2)(v)(B)”, respectively.
4. Revising the heading for newly designated paragraph (b)(2)(v)(C).
5. In newly designated paragraph (b)(2)(v)(D):
i. Revising the heading.
ii. Removing “Example 3” and adding “paragraph (b)(2)(v)(C) of this section (Example 3)” in its place.
6. Revising newly designated paragraph (b)(2)(v)(E) and paragraphs (b)(4) and (c).
The revisions read as follows:
§25.7520-3 Limitation on the application of section 7520.
* * * * *
(b) * * *
(2) * * *
(v) * * *
(A) Example 1. Unproductive property. * * *
(B) Example 2. Beneficiary's right to make trust productive. * * *
(C) Example 3. Annuity trust funded with unproductive property. * * *
(D) Example 4. Unitrust funded with unproductive property. * * *
(E) Example 5: Eroding corpus in an annuity payable from a trust or other limited fund. (1) The present value of an annuity interest (and any other interest dependent on the present value of an annuity), when the annuity is paid from an eroding and limited fund, is determined by actuarial factors reflecting the term certain period to the exhaustion of the fund, as shown in Table 1 to this paragraph (b)(2)(v)(E)(1). The period to exhaustion is determined using annuity factors. The appropriate annuity factors for an annuity payable for a term of years is computed by subtracting from 1.000000 the factor for an ordinary remainder interest following the same term certain that is determined under the formula in §20.2031-7(d)(2)(ii)(A) of this chapter and then dividing the result by the applicable section 7520 interest rate expressed as a number with at least four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table B. If the annuity is for life (or for a period depending in part on life) and the period to exhaustion is shorter than the possible life period, actuarial commutation factors may be used in determining the present value. The actuarial commutation factors can be computed directly by using the formulas in §25.2512-5(d)(2)(v)(A)(1), the section 7520 rate, and Table 2010CM as set forth in §20.2031-7(d)(7)(ii) of this chapter. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in Table H. Table B and Table H can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). After determining the point of exhaustion of funds, the approximation method for determining the present value of annuity payments so limited by exhaustion in the example in Table 1 to this paragraph (b)(2)(v)(E)(1) is to be used if a more exact method (for example, computing the year-by-year present value of each payment until the fund is exhausted) is not used. For purposes of this example, the relevant factors from Table B and Table H(4.4) are:
Table 1 to paragraph (b)(2)(v)(E)(1)
Years | Annuity | Income Interest | Remainder |
|---|---|---|---|
13 | 9.7423 | 0.428661 | 0.571339 |
14 | 10.2896 | 0.452741 | 0.547259 |
50 | 20.0878 | 0.883862 | 0.116138 |
Factors from Table H(4.4) | |||
Age (x) | Dx | Nx-factor | Mx-factor |
60 | 6,694.636 | 90,259.34 | 2,723.225 |
73 | 3,151.228 | 29,432.25 | 1,856.209 |
74 | 2,941.075 | 26,452.50 | 1,777.165 |
(2) The donor, who is age 60 and in normal health, transfers property worth $1,000,000 to a trust on or after [applicability date of the Treasury decision adopting these regulations as final regulations]. The trust will pay a 10 percent ($100,000 per year) annuity to a charitable organization for the life of the donor, payable annually at the end of each period, and the remainder then will be distributed to the donor's child. The section 7520 rate for the month of the transfer is 4.4 percent. First, it is necessary to determine whether the annuity may exhaust the corpus before all annuity payments are made. Because it is assumed under the prescribed mortality component, Table 2010CM, that any measuring life may survive until age 110, any life annuity could require payments until the measuring life reaches age 110. The determination of whether the annuity may exhaust the corpus before the annuity payments terminate is computed with values from Table B as illustrated in Figure 1 to this paragraph (b)(2)(v)(E)(2).
Figure 1 to paragraph (b)(2)(v)(E)(2) — Illustration of determining present value of term certain annuity
(3) Because the present value of an annuity for a term of 50 years exceeds the corpus, the annuity may exhaust the trust before all payments are made. Consequently, the annuity must be valued as an annuity payable for a term of years or until the prior death of the annuitant, with the term of years determined by when the fund will be exhausted by the annuity payments, assuming earnings at the section 7520 rate of 4.4 percent.
(4) If an annuity of $100,000 payable at the end of each year for a period had an annuity factor of 10.0, it would have a present value exactly equal to the principal available to pay the annuity over the term. The annuity factor for 13 years at 4.4 percent in Table B is 9.7423 and the annuity factor for 14 years at 4.4 percent is 10.2896. Thus, it is determined that the $1,000,000 initial transfer will be sufficient to make 13 annual payments of $100,000, but not to make the entire 14th payment. The present value of an annuity of $100,000 payable at the end of each year for 13 years certain is $100,000 times 9.7423 or $974,230. The remaining amount is $25,770. Of the initial transfer amount, $25,770 is not needed to make payments for 13 years, so this amount, as accumulated for 14 years, will be available for the final payment. The 14-year accumulation factor is 1.8273 ((1 + 0.044)14 = 1.8273), so the amount available in 14 years is $25,770 times 1.8273 or $47,089.52. Therefore, for purposes of this present value determination, the annuity obligation is treated as being composed of two distinct annuity components. The two annuity components taken together must equal the total annual amount of $100,000. The first annuity component is the exact amount that the trust will have available for the final payment, $47,089.52. The second annuity component then must be $100,000 minus $47,089.52, or $52,910.48. Specifically, the initial corpus will be able to make payments of $52,910.48 per year for 13 years plus payments of $47,089.52 per year for 14 years. The total annuity is valued by adding the present value of the two separate temporary component annuities.
(5) The actuarial factor for determining the value of the annuity of $52,910.48 per year payable for 13 years or until the prior death of a person aged 60 is derived by the use of factors involving one life and a term of years, derived from Table H. The factor is determined as illustrated in Figure 2 to this paragraph (b)(2)(v)(E)(5).
Figure 2 to paragraph (b)(2)(v)(E)(5) — Illustration of determining annuity factor for shorter of life or 13 years
(6) The actuarial factor for determining the value of the annuity $47,089.52 per year payable for 14 years or until the prior death of a person aged 60 is derived by the use of factors involving one life and a term of years, derived from Table H. The factor is determined as illustrated in Figure 3 to this paragraph (b)(2)(v)(E)(6).
Figure 3 to paragraph (b)(2)(v)(E)(6) — Illustration of determining annuity factor for shorter of life or 14 years
(7) Based on the calculations of paragraph (b)(2)(v)(E)(5) of this section, the present value of an annuity of $52,910.48 per year payable for 13 years or until the prior death of a person aged 60 is $480,739.33 ($52,910.48 × 9.0859). Based on the calculations of paragraph (b)(2)(v)(E)(6) of this section, the present value of an annuity of $47,089.52 per year payable for 14 years or until the prior death of a person aged 60 is $448,810.22 ($47,089.52 × 9.5310). Thus, the present value of the charitable annuity interest is the sum of the two component annuities, $929,549.55 ($480,739.33 + $448,810.22).
* * * * *
(4) Example — terminal illness — (i) Sample factors from actuarial Table S. The provisions of paragraph (b)(3) of this section are illustrated by the example in paragraph (b)(4)(ii) of this section. The appropriate annuity factor for an annuity payable for the life of one individual is computed by subtracting from 1.00000 the factor for an ordinary remainder interest following the life of the same individual that is determined under the formula in §20.2031-7(d)(2)(ii)(B) of this chapter and then dividing the result by the applicable section 7520 interest rate expressed as a number with four decimal places. For the convenience of taxpayers, actuarial factors have been computed by IRS and appear in the “Annuity” column of Table S. Table S can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables. For purposes of the example in paragraph (b)(4)(ii) of this section, the relevant factor from Table S is:
Table 2 to paragraph (b)(4)(i)
Age | Annuity | Life Estate | Remainder |
|---|---|---|---|
75 | 8.6473 | 0.38048 | 0.61952 |
(ii) Example of donor with terminal illness. The donor transfers property worth $1,000,000 to a child on or after [applicability date of the Treasury decision adopting these regulations as final regulations], in exchange for the child's promise to pay the donor $80,000 per year for the donor's life, payable annually at the end of each period. The section 7520 interest rate for the month of the transfer is 4.4 percent. The donor is age 75 but has been diagnosed with an incurable illness and has at least a 50 percent probability of dying within 1 year. Under Table S, the annuity factor at 4.4 percent for a person age 75 in normal health is 8.6473. Thus, if the donor were not terminally ill, the present value of the annuity would be $691,784 ($80,000 × 8.6473). Assuming the presumption provided in paragraph (b)(3) of this section does not apply, because there is at least a 50 percent probability that the donor will die within 1 year, the standard section 7520 annuity factor may not be used to determine the present value of the donor's annuity interest. Instead, a special section 7520 annuity factor must be computed that takes into account the projection of the donor's actual life expectancy.
* * * * *
(c) Applicability dates. Section 25.7520-3(a) is applicable as of May 1, 1989. The provisions of paragraph (b) of this section, except paragraphs (b)(2)(v)(E) and (b)(4) of this section, are applicable to gifts made after December 13, 1995. Paragraphs (b)(2)(v)(E) and (b)(4) of this section are applicable to gifts made on or after [applicability date of the Treasury decision adopting these regulations as final regulations].
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2022-02303 Filed: 5/4/2022 8:45 am; Publication Date: 5/5/2022]
- Institutional AuthorsInternal Revenue Service
- Code Sections
- Subject Areas/Tax Topics
- Jurisdictions
- Tax Analysts Document Number2022-14643
- Tax Analysts Electronic Citation2022 TNTF 87-272022 TPR 19-9
