Sec. 1.7520-1 Valuation of annuities, interests for life or a term of years, and remainder or reversionary interests.
(a) General actuarial valuations.
(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 June 1, 2023, §§20.2031-7(d)(3) and 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 June 1, 2023, §1.642(c)-6A) with respect to the valuation of the remainder interest.
(3) For a transfer to a charitable remainder annuity trust after April 30, 1989, see section 1.664-2 with respect to the valuation of the remainder interest. See section 1.664-4 with respect to the valuation of the remainder interest in property transferred to a charitable remainder unitrust.
(b) Components of valuation.
(1) Interest rate component.
(i) Section 7520 interest rate. The section 7520 interest rate is the rate of return, rounded to the nearest two-tenths of one percent, that is equal to 120 percent of the applicable Federal mid-term rate, compounded annually, for purposes of section 1274(d)(1), for the month in which the valuation date falls. In rounding the rate to the nearest two-tenths of a percent, any rate that is midway between one two-tenths of a percent and another is rounded up to the higher of those two rates. For example, if 120 percent of the applicable Federal mid-term rate is 10.30, the section 7520 interest rate component is 10.4. The section 7520 interest rate is published monthly by the Internal Revenue Service in the Internal Revenue Bulletin (see section 601.601(d)(2)(ii)(b) of this chapter).
(ii) Valuation date. Except as provided in section 1.7520-2, the valuation date is the date on which the transaction takes place.
(2) Mortality component. The mortality component reflects the mortality data in the most recently available decennial mortality report based on the United States census. As the appropriate new decennial mortality report becomes available after each decennial census, the Treasury Department and the IRS will revise the mortality component described in this section and will update the appropriate regulations to adopt the revised mortality component tables. For transactions with valuation dates on or after June 1, 2023, 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 June 1, 2023.
(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 factor for a particular situation is required in order to value an interest, that 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. 2023-1, 2023-1 I.R.B. 1, or successor revenue procedure(s), 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 June 1, 2023. The publications listed in paragraphs (d)(1) through (3) of this section will be available within a reasonable time after June 1, 2023. The underlying actuarial tables referenced and explained by these publications currently are available, 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 (2023). 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 June 1, 2023. Earlier versions of the publication also contain earlier versions of Tables H and R(2). Tables B, J, and 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 (2023). 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 June 1, 2023. Earlier versions of the publication also contain earlier versions of Tables U(2) and Z. 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 (2023). 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 in valuing all interests in the same property. 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, computed to at minimum the same number of decimal places as provided in this part, must be used if more exact methods are not available.
(f) Applicability date. This section applies on and after June 1, 2023.
[T.D. 8540, 59 FR 30100-30179, June 10, 1994, as amended by T.D. 8819, 64 FR 23187-23229, Apr. 30, 1999; T.D. 8886, 64 FR 36907-36944, June 12, 2000; T.D. 9448, 74 FR 21438-21518, May 7, 2009; T.D. 9540, 76 FR 49570-49643, Aug. 10, 2011; T.D. 9974, 88 FR 37424-37466, June 7, 2023.]
