Rev. Rul. 68-89

Advice has been requested whether the value of an employer's contributions to a profit-sharing and savings plan, which is a qualified plan under section 401(a) of the Internal Revenue Code of 1954, otherwise excludable from the decedent's gross estate under section 2039(c) of the 1954 Code, is attributable to any extent to payments or contributions made by the decedent, where an annual election must be made to have such contributions paid into the plan.

The decedent was an employee of a bank and was a participant in its trusteed qualified profit-sharing and savings plan at the time of his death. The overall plan provided for the annual contribution of a percentage of the net operating earnings of the company to or for the benefit of all eligible employees in an amount not to exceed 10 percent of their aggregate salaries. The eligible employee, however, was required to make an annual election to participate in the plan under which all or one-half of his share of the earnings was transferred to the trust fund and credited to his account. The employee did not have a right to withdraw amounts transferred to the trust fund. If the employee failed to elect to have his share paid to the trust, then a direct cash distribution, equivalent to the amount which would have been made to the plan, was made to the employee. Upon the employee's separation from service, by retirement or otherwise, the total amount credited to his account is to be paid to him, or in the event of his death, to his designated beneficiary.

Section 2039(c) of the Code provides, in substance, that the value of an annuity or other payment receivable by any beneficiary of a decedent (other than his executor) under an employee's trust forming part of a pension, stock bonus, or profit-sharing plan which, at the time of decedent's separation from employment (whether by death or otherwise), or at the time of the termination of the plan if earlier, met the requirements of section 401(a), shall be excluded from the gross estate. It further provides that, if the amounts payable after the death of the decedent are attributable to any extent to payments or contributions made by the decedent, no exclusion is to be allowed for the proportionate value of such payments.

In the M Company case described in Revenue Ruling 56-497, C.B. 1956-2, 284, each eligible employee, prior to the close of the calendar year, was required to make a prior irrevocable election whether to (1) take his distributive share of the current year's profits in cash, (2) defer distribution to a future date, or (3) take one-half in cash and have one-half deferred. Revenue Ruling 63-180, C.B. 1963-2, 189, deals with the taxability of participants in plans of this kind and holds that amounts paid into the trust under such an arrangement are employer contributions where such amounts are distributable only after a period of deferment of the type described in the second sentence of section 1.401-1(b)(1)(ii) of the Income Tax Regulations.

Accordingly, for Federal estate tax purpose, following the rationale of Revenue Ruling 63-180, the contribution to the plan is considered to be a payment made by the employer and not by the employee for the purpose of the exclusion provided under section 2039(c) of the Code.