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Final Actuarial Tables
T.D. 9540
Use of Actuarial Tables in Valuing Annuities, Interests for Life or Terms of Years, and Remainder or Reversionary Interests
[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, and 25
Treasury Decision 9540
RIN 1545-BH67
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
SUMMARY: This document contains final regulations relating to the use of actuarial tables in valuing annuities, interests for life or terms 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 section 7520(c)(3) directs the Secretary to update the actuarial tables to reflect the most recent mortality experience available.
DATES: Effective Date: These regulations are effective on August 10, 2011.
Applicability Date: These regulations apply on August 10, 2011.
FOR FURTHER INFORMATION CONTACT: Mayer R. Samuels, (202) 622-3090 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
On May 7, 2009, the IRS published in the Federal Register (74 FR 21438 and 74 FR 21519) final and temporary regulations (TD 9448) and a notice of proposed rulemaking by cross reference to temporary regulations (REG-107845-08) under sections 642, 664, 2031, 2512, and 7520 relating to the use of actuarial tables in valuing annuities, interests for life or terms of years, and remainder or reversionary interests. No written comments responding to the notice of proposed rulemaking by cross reference to temporary regulations were received and, thus, no hearing was held. An example was deleted under section 2032 and it is anticipated that it instead will be included in a different regulation project under that section. The proposed regulations by cross reference to the temporary regulations, without any other substantive change, are adopted as final regulations.
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:
Effective Dates
These regulations are applicable in the case of annuities, interests for life or terms of years, and remainder or reversionary interests valued as of a date on or after May 1, 2009.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information requirement on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
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 the 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.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 20, and 25 are amended as follows:
PART 1 -- INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by removing the entries for 1.170A-12T, 1.642(c)-6T, 1.664-4T and 1.7520-1T to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.170A-12 is amended by revising paragraphs (b)(2), (b)(3), and (f) to 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 contingencies prescribed in § 20.2031-7 of this chapter (or for periods before May 1, 2009, § 20.2031-7A) 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 May 1, 2009, special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov. For transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in Internal Revenue Service Publication 1459, "Actuarial Values, Book Gimel," (7-99). For transfers for which the valuation date is after April 30, 1989, and before May 1, 1999, special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in Internal Revenue Service Publication 1459, "Actuarial Values, Gamma Volume," (8-89). These publications are no longer available for purchase from the Superintendent of Documents, United States Government Printing Office. However, they may be obtained by requesting a copy from: CC:PA:LPD:PR (IRS Publication 1459), room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. 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 following formula:
Where:
n = the estimated number of years of useful life,
i = the applicable interest rate under section 7520 of the Internal Revenue Code,
v = 1 divided by the sum of 1 plus the applicable interest rate under section 7520 of the Internal Revenue Code,
x = the age of the life tenant, and
lx = number of persons living at age x as set forth in Table 2000CM of 20.2031-7 of this chapter (or, for periods before May 1, 2009, the tables set forth under 20.2031-7A).
(3) The following example illustrates the provisions of this paragraph (b):
Example. 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 gift, the interest rate prescribed under section 7520 is 8.4 percent. Based on an interest 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 45 years, at the end of which period the value of the house is expected to be $20,000. The portion of the property considered to be depreciable is $80,000 (the value of the house ($100,000) less its expected value at the end of 45 years ($20,000)). The portion of the property considered to be nondepreciable is $50,000 (the value of the land at the time of the gift ($30,000) plus the expected value of the house at the end of 45 years ($20,000)). At the time of the rate of 8.4 percent, the remainder factor for $1.00 prescribed in § 20.2031-7(d) for a person age 62 is 0.26534. The value of the nondepreciable remainder interest is $13,267.00 (0.26534 times $50,000). The value of the depreciable remainder interest is $15,053.60 (0.18817, computed under the formula described in paragraph (b)(2) of this section, times $80,000). Therefore, the value of the remainder interest is $28,320.60.
* * * * *
(f) Effective/applicability date. This section applies to contributions made after July 31, 1969, except that paragraphs (b)(2) and (b)(3) apply to all contributions made on or after May 1, 2009.
§ 1.170A-12T [Removed]
Par. 3. Section 1.170A-12T is removed.
Par. 4. Section 1.642(c)-6 is amended by revising paragraphs (d), (e), and (f) to 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 May 1, 2009, 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 May 1, 2009, is determined under the following sections:
(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 May 1, 2009 -- (1) In general. In the case of transfers to pooled income funds for which the valuation date is on or after May 1, 2009, 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 (e)(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 sections 2055, 2106, or 2624, if on May 1, 2009, the decedent was mentally incompetent so that the disposition of the property could not be changed, and the decedent died on or after May 1, 2009, without having regained competency to dispose of the decedent's property, or the decedent died within 90 days of the date that the decedent first regained competency on or after May 1, 2009, 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 or after May 1, 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 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 use of the appropriate yearly rate of return 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 (e)(6) of this section or § 1.642(c)6A(f)(6), at the option of the donor or the decedent's executor, as the case may be.
(iii) For purposes of paragraphs (e)(2)(i) and (e)(2)(ii) of this section, where the donor or decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (e)(6) of this section or § 1.642(c)-6A(f)(6), the donor or decedent's executor must use the same actuarial table with respect to each individual transaction 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 the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).
(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 § 20.2031-7(d)(7) of this chapter (see § 20.2031-7A 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 3 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 3 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 would otherwise 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 3 preceding taxable years.
(4) Pooled income funds in existence less than 3 taxable years. If a pooled income fund has been in existence less than 3 taxable years immediately preceding the taxable year in which the transfer is made to the fund and the transfer to the fund is made after April 30, 1989, the highest rate of return is deemed to be the interest rate (rounded to the nearest two-tenths of one percent) that is 1 percent less than the highest annual average of the monthly section 7520 rates for the 3 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 3-year period immediately preceding the calendar year in which each transfer to the fund is made until the fund has been in existence for 3 taxable years and can compute its highest rate of return for the 3 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) 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 (e)(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 (See § 1.642(c)-6A for certain prior periods). The tables in paragraph (e)(6) of this section include factors for yearly rates of return from 0.2 to 14 percent. Many actuarial factors not contained in the tables in paragraph (e)(6) of this section are contained in Table S in Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov. 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, a linear interpolation must be made. 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) This paragraph (e)(5) may be illustrated by the following example:
Example. A, who 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 9.47 percent. In Table S, the remainder factor opposite 55 years under 9.4 percent is .16192 and under 9.6 percent is .15755. The present value of the remainder interest is $16,039.00, computed as follows:
(6) Actuarial tables. In the case of transfers for which the valuation date is on or after May 1, 2009, 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 use of the following Table S:
(Editor: IRS Tables are available in (i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives; (ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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; (iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.)
(f) Effective/applicability date. This section applies on and after May 1, 2009.
§ 1.642(c)-6T [Removed]
Par. 5. Section 1.642(c)-6T is removed.
Par. 6. 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, 1989, if an election is made under section 7520 and § 1.7520-2(b) to compute the present value of the charitable interest by use of 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 under that section, 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 May 1, 2009, or under § 20.2031-7A(a) through (f), whichever is applicable, for transfers for which the valuation date is before May 1, 2009. See, however, § 1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances).
* * * * *
(e) Effective/applicability date. Paragraph (c) applies after April 30, 1989.
Par. 7. Section 1.664-4 is amended by:
1. Revising paragraphs (a)(1) and (d).
2. Revising the heading for paragraph (e) and revising paragraphs (e)(1), (e)(2), (e)(5), (e)(7) and (f).
The 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 2000CM contained in § 20.2031-7(d)(7) of this chapter in the case of transfers for which the valuation date is on or after May 1, 2009; or from Table 90CM contained in § 20.2031-7A(f)(4) in the case of transfers for which the valuation date is after April 30, 1999, and before May 1, 2009. See § 20.2031-7A(a) through (e), whichever is applicable, for transfers for which the valuation date is before May 1, 1999;
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(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 May 1, 2009, 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 May 1, 2009, is its present value determined under the following sections:
(e) Valuation of charitable remainder unitrusts having certain payout sequences for transfers for which the valuation date is on or after May 1, 2009 -- (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 May 1, 2009, the present value of a remainder interest is determined under paragraphs (e)(3) through (e)(7) 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 mentally incompetent so that the disposition of the property could not be changed, and the decedent died on or after May 1, 2009, without having regained competency to dispose of the decedent's property, or the decedent died within 90 days of the date that the decedent first regained competency on or after May 1, 2009, 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 or after May 1, 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 use of 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 (e)(7) of this section or § 1.664-4A(f)(6), at the option of the donor or the decedent's executor, as the case may be.
(iii) For purposes of paragraphs (e)(2)(i) and (e)(2)(ii) of this section, where the donor or decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (e)(7) of this section or § 1.664-4A(f)(6), the donor or decedent's executor must use the same actuarial table with respect to each individual transaction 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 the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).
* * * * *
(5) Period is the life of one individual. (i) 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, is the factor in Table U(1) in paragraph (e)(7) of this section under the appropriate adjusted payout. 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, a linear interpolation must be made. The present value of the remainder interest is determined by multiplying the net fair market value (as of the valuation date as determined in paragraph (e)(4) of this section) of the property placed in trust by the factor determined under this paragraph (e)(5). If the adjusted payout rate is between 4.2 and 14 percent, see paragraph (e)(7) of this section. If the adjusted payout rate is below 4.2 percent or greater than 14 percent, see paragraph (b) of this section.
(ii) The application of paragraph (e)(5)(i) of this section may be illustrated by the following example:
Example. A, who is 44 years and 11 months old, 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) 8 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 6.6 percent. Under Table F(6.6) in paragraph (e)(6) of this section, the appropriate adjustment factor is .953317 for semiannual payments payable at the end of the semiannual period. The adjusted payout rate is 7.627% (8% X .953317). Based on the remainder factors in Table U(1) in this section, the present value of the remainder interest is $11,075.00, computed as follows:
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(7) Actuarial Table U(1) for transfers for which the valuation date is on or after May 1, 2009. For transfers for which the valuation date is on or after May 1, 2009, 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 (e)(7) and Table F(4.2) through (14.0) in paragraph (e)(6) of this section. See, however, § 1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). Many actuarial factors not contained in the following tables are contained in Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov.
(Editor: IRS Tables are available in (i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives; (ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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; (iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.)
Par. 8. Section 1.664-4T is removed.
Par. 9. Section 1.7520-1 is amended by revising the section heading and revising paragraphs (a)(1), (a)(2), (b)(2), (c)(1), (c)(2) and (d) to read as follows:
§ 1.7520-1 Valuation of annuities, unitrust interests, interests for life or terms 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 for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. See § 20.2031-7(d) of this chapter (and, for periods prior to May 1, 2009, § 20.2031-7A) for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.
(2) For a transfer to a pooled income fund, see § 1.642(c)-6(e) (or, for periods prior to May 1, 2009, § 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 regulations at that time. For transactions with valuation dates on or after May 1, 2009, the mortality component table (Table 2000CM) is contained in § 20.2031-7(d)(7) of this chapter. See § 20.2031-7A for mortality component tables applicable to transactions for which the valuation date falls before May 1, 2009.
(c) * * *
(1) Regulation sections containing tables with interest rates between 0.2 and 14 percent for valuation dates on or after May 1, 2009. Section 1.642(c)-6(e)(6) contains Table S used for determining the present value of a single life remainder interest in a pooled income fund as defined in § 1.642(c)-5. See § 1.642(c)-6A for actuarial factors for one life applicable to valuation dates before May 1, 2009. Section 1.664-4(e)(6) contains Table F (payout factors) and Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years). Section 1.664-4(e)(7) contains Table U(1) (unitrust single life remainder factors). These tables are used in determining the present value of a remainder interest in a charitable remainder unitrust as defined in § 1.664-3. See § 1.664-4A for unitrust single life remainder factors applicable to valuation dates before May 1, 2009. Section 20.2031-7(d)(6) of this chapter contains Table B (actuarial factors used in determining the present value of an interest for a term of years), Table J (term certain annuity beginning-of-interval adjustment factors), and Table K (annuity end-of-interval adjustment factors). Section 20.2031-7(d)(7) contains Table S (single life remainder factors), and Table 2000CM (mortality components). These tables are used in determining the present value of annuities, life estates, remainders, and reversions. See § 20.2031-7A for single life remainder factors for one life and mortality components applicable to valuation dates before May 1, 2009.
(2) Internal Revenue Service publications containing tables with interest rates between 0.2 and 22 percent for valuation dates on or after May 1, 2009. The following documents are available, at no charge, electronically via the IRS Internet site at www.irs.gov:
(i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives. These factors must 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.
(ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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.
(iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12.
(d) Effective/applicability date. This section applies on and after May 1, 2009.
§ 1.7520-1T [Removed]
Par. 10. Section 1.7520-1T is removed.
Par. 10A. For each section listed in the table below, remove the language in the "Remove" column and add in its place the language in the "Add" column as set forth below:
PART 20 -- ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954
Par. 11. The authority citation for part 20 is amended by removing entries for 20.2031-7T and 20.7520-1T to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 12. Section 20.2031-0 is amended by removing the entry for § 20.2031-7T from the table.
Par. 13. Section 20.2031-7 is amended by revising paragraphs (c), (d)(1), (d)(2), (d)(3), (d)(4), (d)(5), (d)(7), and (e) to read as follows:
§ 20.2031-7 Valuation of annuities, interests for life or term of years, and remainder or reversionary interests.
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(c) Actuarial valuations. The present value of annuities, life estates, terms of years, remainders, and reversions for estates of decedents for which the valuation date of the gross estate is on or after May 1, 2009, is determined under paragraph (d) of this section. The present value of annuities, life estates, terms of years, remainders, and reversions for estates of decedents for which the valuation date of the gross estate is before May 1, 2009, is determined under the following sections:
(d) Actuarial valuations on or after May 1, 2009 -- (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 May 1, 2009, the fair market value of annuities, life estates, terms of years, remainders, and reversionary interests is the present value determined by use of standard or special section 7520 actuarial factors. 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. 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. See §§ 20.7520-1 through 20.7520-4.
(2) Specific interests -- (i) 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 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. If the interest to be valued is to take effect after a definite number of years or 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 interest actuarial factor (that corresponds to the applicable section 7520 interest rate and remainder interest period) in Table B (for a term certain) or in Table S (for one measuring life), as the case may be. Table B is contained in paragraph (d)(6) of this section and Table S (for one measuring life when the valuation date is on or after May 1, 2009) is contained in paragraph (d)(7) of this section and in Internal Revenue Service Publication 1457. See § 20.2031-7A containing Table S for valuation of interests before May 1, 2009. For information about obtaining actuarial factors for other types of remainder interests, see paragraph (d)(4) of this section.
(iii) Ordinary 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 use certain nonincome-producing 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 term-of-years or life interest actuarial factor (that corresponds to the applicable section 7520 interest rate and term-of-years or life interest period). Internal Revenue Service Publication 1457 includes actuarial factors for a remainder interest after a term of years in Table B and after the life of one individual in Table S (for one measuring life when the valuation date is on or after May 1, 2009). However, term-of-years and life interest actuarial factors are not included in Table B in paragraph (d)(6) of this section or Table S in paragraph (d)(7) of this section (or in § 20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of term-of-years and life interest actuarial factors) is not conveniently available, an actuarial factor for the interest may be derived mathematically. This actuarial factor may be derived by subtracting the correlative remainder factor (that corresponds to the applicable section 7520 interest rate and the term of years or the life) in Table B (for a term of years) in paragraph (d)(6) of this section or in Table S (for the life of one individual) in paragraph (d)(7) of this section, as the case may be, from 1.000000. For information about obtaining actuarial factors for other types of term-of-years and life interests, 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 actuarial factor (that corresponds to the applicable section 7520 interest rate and annuity period). Internal Revenue Publication 1457 includes actuarial factors for a remainder interest in Table B (after an annuity payable for a term of years) and in Table S (after an annuity payable for the life of one individual when the valuation date is on or after May 1, 2009). However, annuity actuarial factors are not included in Table B in paragraph (d)(6) of this section or Table S in paragraph (d)(7) of this section (or in § 20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of annuity actuarial factors) is not conveniently available, a required annuity factor for a term of years or for one life may be mathematically derived. This annuity factor may be derived by subtracting the applicable remainder factor (that corresponds to the applicable section 7520 interest rate and annuity period) in Table B (in the case of a term-of-years annuity) in paragraph (d)(6) of this section or in Table S (in the case of a one-life annuity when the valuation date is on or after May 1, 2009) in paragraph (d)(7) of this section, as the case may be, from 1.000000 and then dividing the result by the applicable section 7520 interest rate expressed as a decimal number.
(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 as contained in Table K in paragraph (d)(6) of this section for payments made at the end of the specified periods. The provisions of this paragraph (d)(2)(iv)(B) are illustrated by the following example:
Example. At the time of the decedent's death, the survivor/annuitant, age 72, is entitled to receive an annuity of $15,000 a year for life payable in equal monthly installments at the end of each period. The section 7520 rate for the month in which the decedent died is 5.6 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 5.6 percent for an individual aged 72 is .53243. By converting the remainder factor to an annuity factor, as described above, the annuity factor at 5.6 percent for an individual aged 72 is 8.3495 (1.000000 minus .53243, divided by .056). Under Table K in paragraph (d)(6) of this section, the adjustment factor under the column for payments made at the end of each monthly period at the rate of 5.6 percent is 1.0254. The aggregate annual amount, $15,000, is multiplied by the factor 8.3495 and the product is multiplied by 1.0254. The present value of the annuity at the date of the decedent's death is, therefore, $128,423.66 ($15,000 x 8.3495 x 1.0254).
(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 is then multiplied by the adjustment factor in Table J in paragraph (d)(6) of this section at the appropriate interest rate component for payments made at the beginning of specified periods. 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 this paragraph (d)(2)(iv).
(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. (i) If a decedent dies on or after May 1, 2009, and if on May 1, 2009, the decedent was mentally incompetent so that the disposition of the decedent's property could not be changed, and the decedent dies without having regained competency to dispose of the decedent's property or dies within 90 days of the date on which the decedent first regains competency, the fair market value of annuities, life estates, terms for years, remainders, and reversions 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 became mentally incompetent, at the option of the decedent's executor. For examples, see § 20.2031-7A(d).
(ii) If a decedent dies on or after May 1, 2009, and before July 1, 2009, the fair market value of annuities, life estates, remainders, and reversions based on one or more measuring lives included in the gross estate of the decedent is their present value determined under this section by use of 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 (d)(7) of this section or § 20.2031-7A(f)(4), at the option of the decedent's executor.
(iii) For purposes of paragraphs (d)(3)(i) and (d)(3)(ii) of this section, where the decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (d)(7) of this section or § 20.2031-7A(f)(4), the decedent's executor must use the same actuarial table with respect to each individual transaction 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 the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables.
(4) Publications and actuarial computations by the Internal Revenue Service. Many standard actuarial factors not included in paragraph (d)(6) or (d)(7) of this section are included in Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. This publication is available, at no charge, electronically via the Internal Revenue Service Internet site at www.irs.gov. If a special factor is required in the case of an actual decedent, the Internal Revenue Service may furnish the factor to the executor upon a request for a ruling. 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 following examples:
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 47 years and 5 months old. In the month in which the decedent died, the section 7520 rate was 6.2 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 6.2 percent for determining the present value of the remainder interest due at the death of a person aged 47, the number of years nearest A's actual age at the decedent's death, is .18672. The present value of the remainder interest at the date of the decedent's death is, therefore, $9,336.00 ($50,000 X .18672).
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 6.2 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 6.2 percent for determining the present value of the remainder interest due at the death of a person aged 31, the number of years closest to A's age at the decedent's death, is .08697. Converting this remainder factor to an income factor, as described in paragraph (d)(2)(iii) of this section, the factor for determining the present value of an income interest for the life of a person aged 31 is .91303. The present value of A's interest at the time of the parent's death is, therefore, $45,651.50 ($50,000 X .91303).
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 4.8 percent. Under Table S in paragraph (d)(7) of this section, the factor at 4.8 percent for determining the present value of the remainder interest at the death of a person age 46 (the number of years nearest B's actual age) is .24774. By converting the factor to an annuity factor, as described in paragraph (d)(2)(iv)(A) of this section, the factor for the present value of an annuity payable until the death of a person age 46 is 15.6721 (1.000000 minus .24774, divided by .048). The adjustment factor from Table K in paragraph (d)(6) of this section at an interest rate of 4.8 percent for semiannual annuity payments made at the end of the period is 1.0119. The present value of the annuity at the date of A's death is, therefore, $158,585.98 ($10,000 X 15.6721 X 1.0119).
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 9.8 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 in paragraph (d)(6) of this section for the interest rate of 9.8 percent, the factor for the present value of a remainder interest due after a term of 5 years is .626597. Converting the factor to an annuity factor, as described in paragraph (d)(2)(iv)(A) of this section, the factor for the present value of an annuity for a term of 5 years is 3.8102 (1.000000 minus .626597, divided by .098). The adjustment factor from Table K in paragraph (d)(6) of this section at an interest rate of 9.8 percent for quarterly annuity payments made at the end of the period is 1.0360. The present value of the annuity is, therefore, $39,473.67 ($10,000 X 3.8102 X 1.0360).
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(7) Actuarial Table S and Table 2000CM where the valuation date is on or after May 1, 2009. Except as provided in § 20.7520-2(b) (pertaining to certain limitations on the use of prescribed tables), for determination of the present value of an interest that is dependent on the termination of a life interest, Table 2000CM and Table S (single life remainder factors applicable where the valuation date is on or after May 1, 2009) contained in this paragraph (d)(7) and Table J and Table K contained in paragraph (d)(6) of this section, must be used in the application of the provisions of this section when the section 7520 interest rate component is between 0.2 and 14 percent.
(Editor: IRS Tables are available in (i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives; (ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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; (iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.)
(e) Effective/applicability date. This section applies on and after May 1, 2009.
§ 20.2031-7T [Removed]
Par. 14. Section 20.2031-7T is removed.
§ 20.2031-7A [Amended]
Par. 14A. Section 20.2031-7A(f)(1) is amended by removing "§ 20.2031-7T(d)" from the first sentence and adding "§ 20.2031-7(d)" in its place.
Par. 15. Section 20.2055-2 is amended by:
1. Revising the heading in paragraph (e)(3) and revising paragraphs (e)(3)(iii) and (f)(4).
2. Adding paragraph (f)(6).
The revisions and addition read as follows:
§ 20.2055-2 Transfers not exclusively for charitable purposes.
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(e) * * *
(3) Effective/applicability date. * * *
(iii) 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 is generally 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 this rule in paragraphs (e)(2)(vi)(a) and(e)(2)(vii)(a) of this section are provided in the case of transfers pursuant to a will or revocable trust executed 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 of a decedent dying 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. For example, in the case of an annuity interest payable for the life of an individual age 40 at the time of the transfer on or after May 1, 2009, assuming an interest rate of 7.4 percent under section 7520, the annuity factor from column 1 of Table S(7.4), contained in IRS Publication 1457, "Actuarial Valuations Version 3A", for the life of an individual age 40 is 12.1519 (1.000000 minus .10076, divided by .074). Based on Table B(7.4), contained in Publication 1457, "Actuarial Valuations Version 3A", the factor 12.1519 corresponds to a term of years between 32 and 33 years. Accordingly, the annuity interest must be reformed into an interest payable for a term of 33 years. 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).
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(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 May 1, 2009, or under § 20.2031-7A in the case of decedents where the valuation date of the gross estate is before May 1, 2009.
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(6) Effective/applicability date. Paragraphs (e)(3)(iii) and (f)(4) of this section apply on and after May 1, 2009.
§ 20.2055-2T [Removed]
Par. 16. Section 20.2055-2T is removed.
Par. 17. Section 20.2056A-4 is amended by:
1. Revising paragraph (c)(4)(ii)(B) and Example 4 of paragraph (d).
2. Adding paragraph (e).
The revisions and addition read as follows:
§ 20.2056A-4 Procedures for conforming marital trusts and nontrust marital transfers to the requirements of a qualified domestic trust.
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(c) * * *
(4) * * *
(ii) * * *
(B) The total present value of the annuity or other payment is the present value of the nonassignable annuity or other payment as of the date of the decedent's death, determined in accordance with the interest rates and mortality data 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 annuity factor equal to the quotient. This is determined by using column 1 of Table B, for the applicable interest rate, contained in Publication 1457, "Actuarial Valuations Version 3A". A copy of this publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov. If the quotient obtained falls between two terms, the longer term is used.
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(d) * * *
Example 4. Computation of corpus portion of annuity payment. (i) At the time of D's death on or after May 1, 2009, 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 6.0 percent. The annuity factor at 6.0 percent for a person age 60 is 11.0625 (1.000000 minus .33625, divided by .06). The adjustment factor at 6.0 percent in Table K for monthly payments is 1.0272. Accordingly, the right to receive $72,000 per year on a monthly basis is equal to the right to receive $73,958.40 ($72,000 x 1.0272) on an annual basis.
(ii) The corpus portion of each annuity payment received by S is determined as follows. The first step is to determine the annuity factor for the number of years that would be required to exhaust a hypothetical fund that has a present value and a payout corresponding to S 's interest in the payments under the plan, determined as follows:
(A) Present value of S 's annuity: $73,958.40 x 11.0625 = $818,164.80.
(B) Annuity Factor for Expected Annuity Term: $818,164.80 / $73,958.40 = 11.0625.
(iii) The second step is to determine the number of years that would be required for S 's annuity to exhaust a hypothetical fund of $818,164.80. The term certain annuity factor of 11.0625 falls between the annuity factors for 18 and 19 years in a 6.0 percent term certain annuity table (Column 1 of Table B, Publication 1457 Actuarial Valuations Version 3A, which may be obtained on the IRS Internet site). Accordingly, the expected annuity term is 19 years.
(iv) The third step is to determine the corpus amount by dividing the expected term of 19 years into the present value of the hypothetical fund as follows:
(A) Corpus amount of annual payment: $818,164.80/19 = $43,061.31.
(B) [Reserved].
(v) 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 (i) of this Example 4) as follows:
(A) Corpus portion of each annuity payment: $43,061.31/$73,958.40 = .58.
(B) [Reserved].
(vi) Accordingly, 58 percent of each payment to S is deemed to be a distribution of corpus. A marital deduction is allowed for $818,164.80, 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.
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(e) Effective/applicability date. Paragraph (c)(4)(ii)(B) and Example 4 in paragraph (d) of this section are applicable with respect to decedents dying on or after May 1, 2009.
§ 20.2056A-4T [Removed]
Par. 18. Section 20.2056A-4T is removed.
Par. 19. Section 20.7520-1 is amended by revising the section heading and by revising paragraphs (a)(1), (a)(2), (b)(2), (c)(1), (c)(2), and (d) to read as follows:
§ 20.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests.
(a) General actuarial valuations. (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 for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. See § 20.2031-7(d) (and, for periods prior to May 1, 2009, § 20.2031-7A) for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.
(2) In the case of a transfer to a pooled income fund, see § 1.642(c)-6(e) of this chapter (or, for periods prior to May 1, 2009, § 1.642(c)-6A) with respect to the valuation of the remainder interest.
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(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 regulations at that time. For decedent's estates with valuation dates on or after May 1, 2009, the mortality component table (Table 2000CM) is contained in § 20.2031-7(d)(7). See § 20.2031-7A for mortality component tables applicable to decedent's estates with valuation dates before May 1, 2009.
(c) * * *
(1) Regulation sections containing tables with interest rates between 0.2 and 14 percent for valuation dates on or after May 1, 2009. Section 1.642(c)-6(e)(6) of this chapter contains Table S used for determining the present value of a single life remainder interest in a pooled income fund as defined in § 1.642(c)-5. See § 1.642(c)-6A for single life remainder factors applicable to valuation dates before May 1, 2009. Section 1.664-4(e)(6) contains Table F (payout factors) and Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years). Section 1.664-4(e)(7) contains Table U(1) (unitrust single life remainder factors). These tables are used in determining the present value of a remainder interest in a charitable remainder unitrust as defined in § 1.664-3. See § 1.664-4A for unitrust single life remainder factors applicable to valuation dates before May 1, 2009. Section 20.2031-7(d)(6) contains Table B (actuarial factors used in determining the present value of an interest for a term of years), Table K (annuity end-of-interval adjustment factors), and Table J (term certain annuity beginning-of-interval adjustment factors). Section 20.2031-7(d)(7) contains Table S (single life remainder factors), and Table 2000CM (mortality components). These tables are used in determining the present value of annuities, life estates, remainders, and reversions. See § 20.2031-7A for single life remainder factors applicable to valuation dates before May 1, 2009.
(2) Internal Revenue Service publications containing tables with interest rates between 0.2 and 22 percent for valuation dates on or after May 1, 2009. The following documents are available, at no charge, electronically via the IRS Internet site at www.irs.gov:
(i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, 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.
(ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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.
(iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.
(d) Effective/applicability date. This section applies on and after May 1, 2009.
§ 20.7520-1T [Removed]
Par. 20. Section 20.7520-1T is removed.
PART 25 -- GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
Par. 21. The authority citation for part 25 is amended by removing entries for §§ 25.2512-5T and 25.7520-1T to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 22. Section 25.2512-0 is amended by removing the entry for § 25.2512-5T from the table.
Par. 23. Section 25.2512-5 is amended by revising paragraphs (c), (d), and (e) to read as follows:
§ 25.2512-5 Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests.
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(c) Actuarial valuations. The present value of annuities, unitrust interests, life estates, terms of years, remainders, and reversions transferred by gift on or after May 1, 2009, is determined under paragraph (d) of this section. The present value of annuities, unitrust interests, life estates, terms of years, remainders, and reversions transferred by gift before May 1, 2009, is determined under the following sections:
(d) Actuarial valuations on or after May 1, 2009 -- (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), if the valuation date for the gift is on or after May 1, 2009, the fair market value of annuities, life estates, terms of years, remainders, and reversions transferred on or after May 1, 2009, is the present value of such interests determined under paragraph (d)(2) of this section and by use of standard or special section 7520 actuarial factors. 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 §§ 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, life estate, remainder, or reversion 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) 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) (see § 1.642(c)-6A for certain prior periods). The fair market value of a remainder interest in a charitable remainder annuity trust, as described in § 1.6642(a), is its 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 term for years 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 (e)(5).
(ii) Ordinary remainder and reversionary interests. If the interest to be valued is to take effect after a definite number of years or 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 interest actuarial factor (that corresponds to the applicable section 7520 interest rate and remainder interest period) in Table B (for a term certain) or in Table S (for one measuring life), as the case may be. Table B is contained in § 20.2031-7(d)(6) of this chapter and Table S (for one measuring life when the valuation date is on or after May 1, 2009) is included in § 20.2031-7(d)(7) and Internal Revenue Service Publication 1457. See § 20.2031-7A containing Table S for valuation of interests before May 1, 2009. For information about obtaining actuarial factors for other types of remainder interests, see paragraph (d)(4) of this section.
(iii) Ordinary 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 use certain nonincome-producing 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 term-of-years or life interest actuarial factor (that corresponds to the applicable section 7520 interest rate and term-of-years or life interest period). Internal Revenue Service Publication 1457 includes actuarial factors for a remainder interest after a term of years in Table B and after the life of one individual in Table S (for one measuring life when the valuation date is on or after May 1, 2009). However, term-of-years and life interest actuarial factors are not included in Table B in § 20.2031-7(d)(6) of this chapter or Table S in § 20.2031-7(d)(7) (or in § 20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of term-of-years and life interest actuarial factors) is not conveniently available, an actuarial factor for the interest may be derived mathematically. This actuarial factor may be derived by subtracting the correlative remainder factor (that corresponds to the applicable section 7520 interest rate) in Table B (for a term of years) in § 20.2031-7(d)(6) or in Table S (for the life of one individual) in § 20.2031-7(d)(7), as the case may be, from 1.000000. For information about obtaining actuarial factors for other types of term-of-years and life interests, 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 actuarial factor (that corresponds to the applicable section 7520 interest rate and annuity period). Internal Revenue Service Publication 1457 includes actuarial factors in Table B (for a remainder interest after an annuity payable for a term of years) and in Table S (for a remainder interest after an annuity payable for the life of one individual when the valuation date is on or after May 1, 2009). However, annuity actuarial factors are not included in Table B in § 20.20317(d)(6) of this chapter or Table S in § 20.2031-7(d)(7) (or in § 20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of annuity actuarial factors) is not conveniently available, an annuity factor for a term of years or for one life may be derived mathematically. This annuity factor may be derived by subtracting the applicable remainder factor (that corresponds to the applicable section 7520 interest rate and annuity period) in Table B (in the case of a term-of-years annuity) in § 20.2031-7(d)(6) or in Table S (in the case of a one-life annuity) in § 20.2031-7(d)(7), as the case may be, from 1.000000 and then dividing the result by the applicable section 7520 interest rate expressed as a decimal number. See § 20.2031-7(d)(2)(iv) for an example that illustrates the computation of the present value of an annuity.
(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 set forth in Table K in § 20.2031-7(d)(6) at the appropriate interest rate component for payments made at the end of the specified periods. The provisions of this paragraph (d)(2)(iv)(B) are illustrated by the following example:
Example. In July of a year after 2009 but before 2019, the donor agreed 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 6.6 percent. Under Table S in § 20.2031-7(d)(7), the factor at 6.6 percent for determining the present value of a remainder interest payable at the death of an individual aged 68 is .42001. Converting the remainder factor to an annuity factor, as described above, the annuity factor for determining the present value of an annuity transferred to an individual age 68 is 8.7877 (1.000000 minus .42001 divided by .066). The adjustment factor from Table K in § 20.2031-7(d)(6) in the column for payments made at the end of each semiannual period at the rate of 6.6 percent is 1.0162. The aggregate annual amount of the annuity, $10,000, is multiplied by the factor 8.7877 and the product is multiplied by 1.0162. The present value of the donee's annuity is, therefore, $89,300.61 ($10,000 X 8.7877 X 1.0162).
(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 is then multiplied by the adjustment factor in Table J in § 20.2031-7(d)(6) of this chapter at the appropriate interest rate component for payments made at the beginning of specified periods. 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. 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 values from the tables in §§ 20.2031-7(d)(6) and 20.2031-7(d)(7) of this chapter as described in the following example:
Example. The donor transfers $100,000 into a trust early in 2010, and retains the right to receive an annuity from the trust in the amount of $6,000 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 occurs is 5.8 percent, the present value of the donor's retained interest would be $42,575.65, determined as follows:
(B) Unitrust interests. The present value of a unitrust 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 values from the tables in §§ 1.664-4(e)(6) and 1.664-4(e)(7) of this chapter as described in the following example:
Example. 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 2009 but before 2019. The trust instrument requires that each year the trust pay to the donor, in equal semiannual installments on June 30th and December 31st, 6 percent of the fair market value of the trust assets, valued as of January 1st each year, for 10 years or until the prior death of the donor. The section 7520 rate for the January in which the transfer occurs is 6.6 percent. Under Table F(6.6) in § 1.664-4(e)(6), the appropriate adjustment factor is .953317 for semiannual payments payable at the end of the semiannual period. The adjusted payout rate is 5.720 percent (6% X .953317). The present value of the donor's retained interest is $41,920.00 determined as follows:
(3) 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 use of 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 § 20.2031-7(d)(7) or § 20.2031-7A(f)(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 use the same actuarial tables (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all transfers made on the same date must be valued based on the same tables).
(4) Publications and actuarial computations by the Internal Revenue Service. Many standard actuarial factors not included in § 20.2031-7(d)(6) or § 20.2031-7(d)(7) of this chapter are included in Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). Internal Revenue Service Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. A copy of this publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov. If a special factor is required in the case of a completed gift, the Internal Revenue Service may furnish the factor to the donor upon a request for a ruling. 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 include payment of the required user fee.
(e) Effective/applicability date. This section applies on and after May 1, 2009.
§ 25.2512-5T [Removed]
Par. 24. Section 25.2512-5T is removed.
§ 25.2512-5A [Amended]
Par. 24A. Section 25.2512-5A(f)(1) is amended by removing "§ 25.2512-5T(d)" from the first sentence and adding "§ 25.2512-5(d)" in its place.
Par. 25. Section 25.2522(c)-3 is amended by revising paragraph (e) to read as follows:
§ 25.2522(c)-3 Transfers not exclusively for charitable, etc., purposes in the case of gifts made after July 31, 1969.
* * * * *
(e) Effective/applicability date. This section applies only to gifts made after July 31, 1969. In addition, 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. For example, in the case of an annuity interest payable for the life of an individual age 40 at the time of the transfer on or after May 1, 2009 (the effective date of Table S), assuming an interest rate of 7.4 percent under section 7520, the annuity factor from column 1 of Table S(7.4), contained in IRS Publication 1457, Actuarial Valuations Version 3A, for the life of an individual age 40 is 12.1519 (1 - .10076 / .074). Based on Table B(7.4), contained in Publication 1457, "Actuarial Valuations Version 3A", the factor 12.1519 corresponds to a term of years between 32 and 33 years. Accordingly, the annuity interest must be reformed into an interest payable for a term of 33 years. 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).
§ 25.2522(c)-3T [Removed]
Par. 26. Section 25.2522(c)-3T is removed.
Par. 27. Section 25.7520-1 is amended by revising the section heading and by revising paragraphs (a)(1), (a)(2), (b)(2), (c)(1), (c)(2), and (d) to read as follows:
§ 25.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests.
(a) General actuarial valuations. (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 for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. See § 20.2031-7(d) of this chapter (and, for periods prior to May 1, 2009, § 20.2031-7A) for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.
(2) In the case of a gift to a beneficiary of a pooled income fund, see § 1.642(c)-6(e) of this chapter (or, for periods prior to May 1, 2009, § 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 regulations at that time. For gifts with valuation dates on or after May 1, 2009, the mortality component table (Table 2000CM) is contained in § 20.2031-7(d)(7). See § 20.2031-7A of this chapter for mortality component tables applicable to gifts for which the valuation date falls before May 1, 2009.
(c) * * *
(1) Regulation sections containing tables with interest rates between 0.2 and 14 percent for valuation dates on or after May 1, 2009. Section 1.642(c)-6(e)(6) of this chapter contains Table S used for determining the present value of a single life remainder interest in a pooled income fund as defined in § 1.642(c)-5. See § 1.642(c)-6A for single life remainder factors applicable to valuation dates before May 1, 2009. Section 1.664-4(e)(6) contains Table F (payout factors) and Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years). Section 1.664-4(e)(7) contains Table U(1) (unitrust single life remainder factors). These tables are used in determining the present value of a remainder interest in a charitable remainder unitrust as defined in § 1.664-3. See § 1.664-4A for unitrust single life remainder factors applicable to valuation dates before May 1, 2009. Section 20.2031-7(d)(6) of this chapter contains Table B (actuarial factors used in determining the present value of an interest for a term of years), Table K (annuity end-of-interval adjustment factors), and Table J (term certain annuity beginning-of-interval adjustment factors). Section 20.2031-7(d)(7) contains Table S (single life remainder factors), and Table 2000CM (mortality components). These tables are used in determining the present value of annuities, life estates, remainders, and reversions. See § 20.2031-7A for single life remainder factors and mortality components applicable to valuation dates before May 1, 2009.
(2) Internal Revenue Service publications containing tables with interest rates between 0.2 and 22 percent for valuation dates on or after May 1, 2009. The following documents are available, at no charge, electronically via the IRS Internet site at www.irs.gov:
(i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, 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 of this chapter.
(ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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.
(iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.
(d) Effective/applicability date. This section applies on and after May 1, 2009.
§ 25.7520-1T [Removed]
Par. 28. Section 25.7520-1T is removed.
Par. 29. Section 25.7520-3 is amended by revising paragraph (b)(2)(v), Example 5, paragraph (b)(4), and paragraph (c) to read as follows:
§ 25.7520-3 Limitation on the application of section 7520.
* * * * *
(b) * * *
(2) * * *
(v) * * *
Example 5. Eroding corpus in an annuity trust. (i) The donor, who is age 60 and in normal health, transfers property worth $1,000,000 to a trust on or after May 1, 2009, but before 2019. 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 6.8 percent. First, it is necessary to determine whether the annuity may exhaust the corpus before all annuity payments are made. Because it is assumed that any measuring life may survive until age 110, any life annuity could require payments until the measuring life reaches age 110. Based on a section 7520 interest rate of 6.8 percent, the determination of whether the annuity may exhaust the corpus before the termination of the annuity interest is made as follows:
(ii) 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.
(iii) The annuity factor for a term of years at 6.8 percent is derived by subtracting the applicable remainder factor in Table B (see § 20.2031-7(d)(6)) from 1.000000 and then dividing the result by .068. An annuity of $100,000 payable at the end of each year for a period that has an annuity factor of 10.0 would have a present value exactly equal to the principal available to pay the annuity over the term. The annuity factor for 17 years is 9.8999 and the annuity factor for 18 years is 10.2059. Thus, it is determined that the $1,000,000 initial transfer will be sufficient to make 17 annual payments of $100,000, but not to make the entire 18th payment. The present value of an annuity of $100,000 payable at the end of each year for 17 years is $100,000 times 9.8999 or $989,990. The remaining amount is $10,010.00. Of the initial corpus amount, $10,010.00 is not needed to make payments for 17 years, so this amount, as accumulated for 18 years, will be available for the final payment. The 18-year accumulation factor is (1 + 0.068)18 or 3.268004, so the amount available in 18 years is $10,010.00 times 3.268004 or $32,712.72. Therefore, for purposes of analysis, the annuity payments are considered to be 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, $32,712.72. The second annuity component then must be $100,000 minus $32,712.72, or $67,287.28. Specifically, the initial corpus will be able to make payments of $67,287.28 per year for 17 years plus payments of $32,712.72 per year for 18 years. The total annuity is valued by adding the value of the two separate annuity components.
(iv) Based on Table H of Publication 1457, Actuarial Valuations Version 3A, which may be obtained from the IRS Internet site, the present value of an annuity of $67,287.28 per year payable for 17 years or until the prior death of a person aged 60 is $597,013.12 ($67,287.28 X 8.8726). The present value of an annuity of $32,712.72 per year payable for 18 years or until the prior death of a person aged 60 is $296,887.56 ($32,712.72 X 9.0756). Thus, the present value of the charitable annuity interest is $893,900.68 ($597,013.12 + $296,887.56).
* * * * *
(4) Example. The provisions of paragraph (b)(3) of this section are illustrated by the following example:
Example. Terminal illness. The donor transfers property worth $1,000,000 to a child on or after May 1, 2009 but before 2019, 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 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. The section 7520 interest rate for the month of the transfer is 7.6 percent, and the standard annuity factor at that interest rate for a person age 75 in normal health is 6.6493 (1 - .49465 / .076). Thus, if the donor were not terminally ill, the present value of the annuity would be $531,944.00 ($80,000 X 6.6493). 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) Effective/applicability dates. Section 25.7520-3(a) is effective as of May 1, 1989. The provisions of paragraph (b) of this section, except Example 5 in paragraph (b)(2)(v) and paragraph (b)(4), are effective with respect to gifts made after December 117 13, 1995. Example 5 in paragraph (b)(2)(v) and paragraph (b)(4) are effective with respect to gifts made on or after May 1, 2009.
§ 25.7520-3T [Removed]
Par. 30. Section 25.7520-3T is removed.
Steven T. Miller, Deputy Commissioner for Services and Enforcement.
Approved: July 22, 2011
Emily S. McMahon, Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-19675 Filed 08/09/2011 at 8:45 am; Publication Date: 08/10/2011]
Use of Actuarial Tables in Valuing Annuities, Interests for Life or Terms of Years, and Remainder or Reversionary Interests
[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, and 25
Treasury Decision 9540
RIN 1545-BH67
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
SUMMARY: This document contains final regulations relating to the use of actuarial tables in valuing annuities, interests for life or terms 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 section 7520(c)(3) directs the Secretary to update the actuarial tables to reflect the most recent mortality experience available.
DATES: Effective Date: These regulations are effective on August 10, 2011.
Applicability Date: These regulations apply on August 10, 2011.
FOR FURTHER INFORMATION CONTACT: Mayer R. Samuels, (202) 622-3090 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On May 7, 2009, the IRS published in the Federal Register (74 FR 21438 and 74 FR 21519) final and temporary regulations (TD 9448) and a notice of proposed rulemaking by cross reference to temporary regulations (REG-107845-08) under sections 642, 664, 2031, 2512, and 7520 relating to the use of actuarial tables in valuing annuities, interests for life or terms of years, and remainder or reversionary interests. No written comments responding to the notice of proposed rulemaking by cross reference to temporary regulations were received and, thus, no hearing was held. An example was deleted under section 2032 and it is anticipated that it instead will be included in a different regulation project under that section. The proposed regulations by cross reference to the temporary regulations, without any other substantive change, are adopted as final regulations.
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:
Cross Reference to Regulation Sections
| Valuation Period | Interest Rate | Regulation Section | Table |
| Section 642: | |||
| Valuation, in general | -- | 1.642(c)-6 | |
| before 01/01/52 | 4% | 1.642(c)-6A(a) | |
| 01/01/52 - 12/31/70 | 3.5% | 1.642(c)-6A(b) | |
| 01/01/71 - 11/30/83 | 6% | 1.642(c)-6A(c) | |
| 12/01/83 - 04/30/89 | 10% | 1.642(c)-6A(d) | Table G |
| 05/01/89 - 04/30/99 | § 7520 | 1.642(c)-6A(e) | Table S (05/01/89 - 04/30/99) |
| 05/01/99 - 04/30/09 | § 7520 | 1.642(c)-6A(f) | Table S (05/01/99 - 04/30/09) |
| on or after 05/01/09 | § 7520 | 1.642(c)-6(e) | Table S (on or after 05/01/09) |
| Section 664: | |||
| Valuation, in general | -- | 1.664-4 | |
| before 01/01/52 | 4% | 1.664-4A(a) | |
| 01/01/52 - 12/31/70 | 3.5% | 1.664-4A(b) | |
| 01/01/71 - 11/30/83 | 6% | 1.664-4A(c) | |
| 12/01/83 - 04/30/89 | 10% | 1.664-4A(d) | Table E, Table F(1) |
| 05/01/89 - 04/30/99 | § 7520 | 1.664-4A(e) | Table U(1) (05/01/89 - 04/30/99) |
| 05/01/99 - 04/30/09 | § 7520 | 1.664-4A(f) | Table U(1) (05/01/99 - 04/30/09) |
| on or after 05/01/09 | § 7520 | 1.664-4(e) | Table D, Tables F(4.2) - F(14.0), and Table U(1) (on or after 05/01/09) |
| Section 2031: | |||
| Valuation, in general | -- | 20.2031-7 | |
| before 01/01/52 | 4% | 20.2031-7A(a) | |
| 01/01/52 - 12/31/70 | 3.5% | 20.2031-7A(b) | |
| 01/01/71 - 11/30/83 | 6% | 20.2031-7A(c) | |
| 12/01/83 - 04/30/89 | 10% | 20.2031-7A(d) | Table A, Table B, Table LN |
| 05/01/89 - 04/30/99 | § 7520 | 20.2031-7A(e) | Table S (05/01/89 - 04/30/99) and Life Table 80CNSMT |
| 05/01/99 - 04/30/09 | § 7520 | 20.2031-7A(f) | Table S (05/01/99 - 04/30/09) and Life Table 90CM |
| on or after 05/01/09 | § 7520 | 20.2031-7(d) | Table B, Table J, Table K, and Table S (on or after 05/01/09) and Life Table 2000CM |
| Section 2512: | |||
| Valuation, in general | -- | 25.2512-5 | |
| before 01/01/52 | 4% | 25.2512-5A(a) | |
| 01/01/52 - 12/31/70 | 3.5% | 25.2512-5A(b) | |
| 01/01/71 - 11/30/83 | 6% | 25.2512-5A(c) | |
| 12/01/83 - 04/30/89 | 10% | 25.2512-5A(d) | |
| 05/01/89 - 04/30/99 | § 7520 | 25.2512-5A(e) | |
| 05/01/99 - 04/30/09 | § 7520 | 25.2512-5A(f) | |
| on or after 05/01/09 | § 7520 | 25.2512-5(d) | |
Effective Dates
These regulations are applicable in the case of annuities, interests for life or terms of years, and remainder or reversionary interests valued as of a date on or after May 1, 2009.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information requirement on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
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 the 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.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 20, and 25 are amended as follows:
PART 1 -- INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by removing the entries for 1.170A-12T, 1.642(c)-6T, 1.664-4T and 1.7520-1T to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.170A-12 is amended by revising paragraphs (b)(2), (b)(3), and (f) to 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 contingencies prescribed in § 20.2031-7 of this chapter (or for periods before May 1, 2009, § 20.2031-7A) 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 May 1, 2009, special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov. For transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in Internal Revenue Service Publication 1459, "Actuarial Values, Book Gimel," (7-99). For transfers for which the valuation date is after April 30, 1989, and before May 1, 1999, special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in Internal Revenue Service Publication 1459, "Actuarial Values, Gamma Volume," (8-89). These publications are no longer available for purchase from the Superintendent of Documents, United States Government Printing Office. However, they may be obtained by requesting a copy from: CC:PA:LPD:PR (IRS Publication 1459), room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. 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 following formula:
Where:
n = the estimated number of years of useful life,
i = the applicable interest rate under section 7520 of the Internal Revenue Code,
v = 1 divided by the sum of 1 plus the applicable interest rate under section 7520 of the Internal Revenue Code,
x = the age of the life tenant, and
lx = number of persons living at age x as set forth in Table 2000CM of 20.2031-7 of this chapter (or, for periods before May 1, 2009, the tables set forth under 20.2031-7A).
(3) The following example illustrates the provisions of this paragraph (b):
Example. 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 gift, the interest rate prescribed under section 7520 is 8.4 percent. Based on an interest 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 45 years, at the end of which period the value of the house is expected to be $20,000. The portion of the property considered to be depreciable is $80,000 (the value of the house ($100,000) less its expected value at the end of 45 years ($20,000)). The portion of the property considered to be nondepreciable is $50,000 (the value of the land at the time of the gift ($30,000) plus the expected value of the house at the end of 45 years ($20,000)). At the time of the rate of 8.4 percent, the remainder factor for $1.00 prescribed in § 20.2031-7(d) for a person age 62 is 0.26534. The value of the nondepreciable remainder interest is $13,267.00 (0.26534 times $50,000). The value of the depreciable remainder interest is $15,053.60 (0.18817, computed under the formula described in paragraph (b)(2) of this section, times $80,000). Therefore, the value of the remainder interest is $28,320.60.
* * * * *
(f) Effective/applicability date. This section applies to contributions made after July 31, 1969, except that paragraphs (b)(2) and (b)(3) apply to all contributions made on or after May 1, 2009.
§ 1.170A-12T [Removed]
Par. 3. Section 1.170A-12T is removed.
Par. 4. Section 1.642(c)-6 is amended by revising paragraphs (d), (e), and (f) to 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 May 1, 2009, 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 May 1, 2009, is determined under the following sections:
| Valuation Dates | ||
| After | Before | Applicable Regulations |
| -- | 01-01-52 | 1.642(c)-6A(a) |
| 12-31-51 | 01-01-71 | 1.642(c)-6A(b) |
| 12-31-70 | 12-01-83 | 1.642(c)-6A(c) |
| 11-30-83 | 05-01-89 | 1.642(c)-6A(d) |
| 04-30-89 | 05-01-99 | 1.642(c)-6A(e) |
| 04-30-99 | 05-01-09 | 1.642(c)-6A(f) |
(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 May 1, 2009 -- (1) In general. In the case of transfers to pooled income funds for which the valuation date is on or after May 1, 2009, 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 (e)(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 sections 2055, 2106, or 2624, if on May 1, 2009, the decedent was mentally incompetent so that the disposition of the property could not be changed, and the decedent died on or after May 1, 2009, without having regained competency to dispose of the decedent's property, or the decedent died within 90 days of the date that the decedent first regained competency on or after May 1, 2009, 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 or after May 1, 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 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 use of the appropriate yearly rate of return 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 (e)(6) of this section or § 1.642(c)6A(f)(6), at the option of the donor or the decedent's executor, as the case may be.
(iii) For purposes of paragraphs (e)(2)(i) and (e)(2)(ii) of this section, where the donor or decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (e)(6) of this section or § 1.642(c)-6A(f)(6), the donor or decedent's executor must use the same actuarial table with respect to each individual transaction 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 the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).
(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 § 20.2031-7(d)(7) of this chapter (see § 20.2031-7A 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 3 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 3 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 would otherwise 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 3 preceding taxable years.
(4) Pooled income funds in existence less than 3 taxable years. If a pooled income fund has been in existence less than 3 taxable years immediately preceding the taxable year in which the transfer is made to the fund and the transfer to the fund is made after April 30, 1989, the highest rate of return is deemed to be the interest rate (rounded to the nearest two-tenths of one percent) that is 1 percent less than the highest annual average of the monthly section 7520 rates for the 3 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 3-year period immediately preceding the calendar year in which each transfer to the fund is made until the fund has been in existence for 3 taxable years and can compute its highest rate of return for the 3 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) 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 (e)(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 (See § 1.642(c)-6A for certain prior periods). The tables in paragraph (e)(6) of this section include factors for yearly rates of return from 0.2 to 14 percent. Many actuarial factors not contained in the tables in paragraph (e)(6) of this section are contained in Table S in Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov. 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, a linear interpolation must be made. 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) This paragraph (e)(5) may be illustrated by the following example:
Example. A, who 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 9.47 percent. In Table S, the remainder factor opposite 55 years under 9.4 percent is .16192 and under 9.6 percent is .15755. The present value of the remainder interest is $16,039.00, computed as follows:
| Factor at 9.4 percent for age 55 | .16192 |
| Factor at 9.6 percent for age 55 | .15755 |
| ______ | |
| Difference | .00437 |
| Interpolation adjustment: | |
| 9.47% - 9.4% x ____________ = _______ 0.2% .00437 x = .00153 | |
| Factor at 9.4 percent for age 55 | .16192 |
| Less: Interpolation adjustment | .00153 |
| ______ | |
| Interpolated factor | .16039 |
| Present value of remainder interest: | |
| ($100,000 X .16039) | $16,039.00 |
(6) Actuarial tables. In the case of transfers for which the valuation date is on or after May 1, 2009, 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 use of the following Table S:
Table S
Based on Life Table 2000CM
Single Life Remainder Factors
Applicable On or After May 1, 2009
Based on Life Table 2000CM
Single Life Remainder Factors
Applicable On or After May 1, 2009
(Editor: IRS Tables are available in (i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives; (ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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; (iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.)
(f) Effective/applicability date. This section applies on and after May 1, 2009.
§ 1.642(c)-6T [Removed]
Par. 5. Section 1.642(c)-6T is removed.
Par. 6. 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, 1989, if an election is made under section 7520 and § 1.7520-2(b) to compute the present value of the charitable interest by use of 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 under that section, 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 May 1, 2009, or under § 20.2031-7A(a) through (f), whichever is applicable, for transfers for which the valuation date is before May 1, 2009. See, however, § 1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances).
* * * * *
(e) Effective/applicability date. Paragraph (c) applies after April 30, 1989.
Par. 7. Section 1.664-4 is amended by:
1. Revising paragraphs (a)(1) and (d).
2. Revising the heading for paragraph (e) and revising paragraphs (e)(1), (e)(2), (e)(5), (e)(7) and (f).
The 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 2000CM contained in § 20.2031-7(d)(7) of this chapter in the case of transfers for which the valuation date is on or after May 1, 2009; or from Table 90CM contained in § 20.2031-7A(f)(4) in the case of transfers for which the valuation date is after April 30, 1999, and before May 1, 2009. See § 20.2031-7A(a) through (e), whichever is applicable, for transfers for which the valuation date is before May 1, 1999;
* * * * *
(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 May 1, 2009, 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 May 1, 2009, is its present value determined under the following sections:
| Valuation Dates | ||
| After | Before | Applicable Regulations |
| -- | 01-01-52 | 1.662(c)-4A(a) |
| 12-31-51 | 01-01-71 | 1.662(c)-4A(b) |
| 12-31-70 | 12-01-83 | 1.662(c)-4A(c) |
| 11-30-83 | 05-01-89 | 1.662(c)-4A(d) |
| 04-30-89 | 05-01-99 | 1.662(c)-4A(e) |
| 04-30-99 | 05-01-09 | 1.662(c)-4A(f) |
(e) Valuation of charitable remainder unitrusts having certain payout sequences for transfers for which the valuation date is on or after May 1, 2009 -- (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 May 1, 2009, the present value of a remainder interest is determined under paragraphs (e)(3) through (e)(7) 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 mentally incompetent so that the disposition of the property could not be changed, and the decedent died on or after May 1, 2009, without having regained competency to dispose of the decedent's property, or the decedent died within 90 days of the date that the decedent first regained competency on or after May 1, 2009, 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 or after May 1, 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 use of 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 (e)(7) of this section or § 1.664-4A(f)(6), at the option of the donor or the decedent's executor, as the case may be.
(iii) For purposes of paragraphs (e)(2)(i) and (e)(2)(ii) of this section, where the donor or decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (e)(7) of this section or § 1.664-4A(f)(6), the donor or decedent's executor must use the same actuarial table with respect to each individual transaction 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 the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).
* * * * *
(5) Period is the life of one individual. (i) 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, is the factor in Table U(1) in paragraph (e)(7) of this section under the appropriate adjusted payout. 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, a linear interpolation must be made. The present value of the remainder interest is determined by multiplying the net fair market value (as of the valuation date as determined in paragraph (e)(4) of this section) of the property placed in trust by the factor determined under this paragraph (e)(5). If the adjusted payout rate is between 4.2 and 14 percent, see paragraph (e)(7) of this section. If the adjusted payout rate is below 4.2 percent or greater than 14 percent, see paragraph (b) of this section.
(ii) The application of paragraph (e)(5)(i) of this section may be illustrated by the following example:
Example. A, who is 44 years and 11 months old, 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) 8 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 6.6 percent. Under Table F(6.6) in paragraph (e)(6) of this section, the appropriate adjustment factor is .953317 for semiannual payments payable at the end of the semiannual period. The adjusted payout rate is 7.627% (8% X .953317). Based on the remainder factors in Table U(1) in this section, the present value of the remainder interest is $11,075.00, computed as follows:
| Factor at 7.6 percent at age 45 | .11141 |
| Factor at 7.8 percent at age 45 | .10653 |
| ______ | |
| Difference | .00488 |
| Interpolation adjustment: | |
| 7.627% - 7.6% x ____________ = _______ 0.2% .00488 x = .00066 | |
| Factor at 7.6 percent at age 45 | .11141 |
| Less: Interpolation adjustment | .00066 |
| ______ | |
| Interpolated factor | .11075 |
| Present value of remainder interest: | |
| ($100,000 X .11075) | $11,075.00 |
* * * * *
(7) Actuarial Table U(1) for transfers for which the valuation date is on or after May 1, 2009. For transfers for which the valuation date is on or after May 1, 2009, 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 (e)(7) and Table F(4.2) through (14.0) in paragraph (e)(6) of this section. See, however, § 1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). Many actuarial factors not contained in the following tables are contained in Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov.
Table U(1) -- Unitrust Single Life Remainder Factors
Based on Life Table 2000CM
Applicable On or After May 1, 2009
Based on Life Table 2000CM
Applicable On or After May 1, 2009
(Editor: IRS Tables are available in (i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives; (ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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; (iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.)
Par. 8. Section 1.664-4T is removed.
Par. 9. Section 1.7520-1 is amended by revising the section heading and revising paragraphs (a)(1), (a)(2), (b)(2), (c)(1), (c)(2) and (d) to read as follows:
§ 1.7520-1 Valuation of annuities, unitrust interests, interests for life or terms 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 for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. See § 20.2031-7(d) of this chapter (and, for periods prior to May 1, 2009, § 20.2031-7A) for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.
(2) For a transfer to a pooled income fund, see § 1.642(c)-6(e) (or, for periods prior to May 1, 2009, § 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 regulations at that time. For transactions with valuation dates on or after May 1, 2009, the mortality component table (Table 2000CM) is contained in § 20.2031-7(d)(7) of this chapter. See § 20.2031-7A for mortality component tables applicable to transactions for which the valuation date falls before May 1, 2009.
(c) * * *
(1) Regulation sections containing tables with interest rates between 0.2 and 14 percent for valuation dates on or after May 1, 2009. Section 1.642(c)-6(e)(6) contains Table S used for determining the present value of a single life remainder interest in a pooled income fund as defined in § 1.642(c)-5. See § 1.642(c)-6A for actuarial factors for one life applicable to valuation dates before May 1, 2009. Section 1.664-4(e)(6) contains Table F (payout factors) and Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years). Section 1.664-4(e)(7) contains Table U(1) (unitrust single life remainder factors). These tables are used in determining the present value of a remainder interest in a charitable remainder unitrust as defined in § 1.664-3. See § 1.664-4A for unitrust single life remainder factors applicable to valuation dates before May 1, 2009. Section 20.2031-7(d)(6) of this chapter contains Table B (actuarial factors used in determining the present value of an interest for a term of years), Table J (term certain annuity beginning-of-interval adjustment factors), and Table K (annuity end-of-interval adjustment factors). Section 20.2031-7(d)(7) contains Table S (single life remainder factors), and Table 2000CM (mortality components). These tables are used in determining the present value of annuities, life estates, remainders, and reversions. See § 20.2031-7A for single life remainder factors for one life and mortality components applicable to valuation dates before May 1, 2009.
(2) Internal Revenue Service publications containing tables with interest rates between 0.2 and 22 percent for valuation dates on or after May 1, 2009. The following documents are available, at no charge, electronically via the IRS Internet site at www.irs.gov:
(i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives. These factors must 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.
(ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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.
(iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12.
(d) Effective/applicability date. This section applies on and after May 1, 2009.
§ 1.7520-1T [Removed]
Par. 10. Section 1.7520-1T is removed.
Par. 10A. For each section listed in the table below, remove the language in the "Remove" column and add in its place the language in the "Add" column as set forth below:
| Section | Remove | Add |
| § 1.170A-12(e)(2), following the formula | § 20.2031-7T | § 20.2031-7 |
| § 1.642(c)-6A(f)(3)(ii), last sentence | § 1.642(c)-6T(e)(3)(ii) | § 1.642(c)-6(e)(3)(ii) |
| § 1.642(c)-6A(f)(4) | § 1.642(c)-6T(e)(4) | § 1.642(c)-6(e)(4) |
| § 1.642(c)-6A(f)(5), last sentence | § 1.642(c)-6T(e)(5) | § 1.642(c)-6(e)(5) |
| § 1.664-1(a)(6), introductory text | §§ 1.664-4T(e) | §§ 1.664-4(e) |
| § 1.664-4(e)(6), second sentence | § 1.664-4T(e)(5) | § paragraph (e)(5) of this |
| § 1.664-4A(f)(5), fourth sentence | § 1.664-4T(e)(5) | § 1.664-4(e)(5) |
| § 1.664-4A(f)(5), last sentence | § 1.664-4T(e)(5) | § 1.664-4(e)(5) |
PART 20 -- ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954
Par. 11. The authority citation for part 20 is amended by removing entries for 20.2031-7T and 20.7520-1T to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 12. Section 20.2031-0 is amended by removing the entry for § 20.2031-7T from the table.
Par. 13. Section 20.2031-7 is amended by revising paragraphs (c), (d)(1), (d)(2), (d)(3), (d)(4), (d)(5), (d)(7), and (e) to read as follows:
§ 20.2031-7 Valuation of annuities, interests for life or term of years, and remainder or reversionary interests.
* * * * *
(c) Actuarial valuations. The present value of annuities, life estates, terms of years, remainders, and reversions for estates of decedents for which the valuation date of the gross estate is on or after May 1, 2009, is determined under paragraph (d) of this section. The present value of annuities, life estates, terms of years, remainders, and reversions for estates of decedents for which the valuation date of the gross estate is before May 1, 2009, is determined under the following sections:
| Valuation Dates | ||
| After | Before | Applicable Regulations |
| -- | 01-01-52 | 20.2031-7A(a) |
| 12-31-51 | 01-01-71 | 20.2031-7A(b) |
| 12-31-70 | 12-01-83 | 20.2031-7A(c) |
| 11-30-83 | 05-01-89 | 20.2031-7A(d) |
| 04-30-89 | 05-01-99 | 20.2031-7A(e) |
| 04-30-99 | 05-01-09 | 20.2031-7A(f) |
(d) Actuarial valuations on or after May 1, 2009 -- (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 May 1, 2009, the fair market value of annuities, life estates, terms of years, remainders, and reversionary interests is the present value determined by use of standard or special section 7520 actuarial factors. 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. 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. See §§ 20.7520-1 through 20.7520-4.
(2) Specific interests -- (i) 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 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. If the interest to be valued is to take effect after a definite number of years or 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 interest actuarial factor (that corresponds to the applicable section 7520 interest rate and remainder interest period) in Table B (for a term certain) or in Table S (for one measuring life), as the case may be. Table B is contained in paragraph (d)(6) of this section and Table S (for one measuring life when the valuation date is on or after May 1, 2009) is contained in paragraph (d)(7) of this section and in Internal Revenue Service Publication 1457. See § 20.2031-7A containing Table S for valuation of interests before May 1, 2009. For information about obtaining actuarial factors for other types of remainder interests, see paragraph (d)(4) of this section.
(iii) Ordinary 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 use certain nonincome-producing 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 term-of-years or life interest actuarial factor (that corresponds to the applicable section 7520 interest rate and term-of-years or life interest period). Internal Revenue Service Publication 1457 includes actuarial factors for a remainder interest after a term of years in Table B and after the life of one individual in Table S (for one measuring life when the valuation date is on or after May 1, 2009). However, term-of-years and life interest actuarial factors are not included in Table B in paragraph (d)(6) of this section or Table S in paragraph (d)(7) of this section (or in § 20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of term-of-years and life interest actuarial factors) is not conveniently available, an actuarial factor for the interest may be derived mathematically. This actuarial factor may be derived by subtracting the correlative remainder factor (that corresponds to the applicable section 7520 interest rate and the term of years or the life) in Table B (for a term of years) in paragraph (d)(6) of this section or in Table S (for the life of one individual) in paragraph (d)(7) of this section, as the case may be, from 1.000000. For information about obtaining actuarial factors for other types of term-of-years and life interests, 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 actuarial factor (that corresponds to the applicable section 7520 interest rate and annuity period). Internal Revenue Publication 1457 includes actuarial factors for a remainder interest in Table B (after an annuity payable for a term of years) and in Table S (after an annuity payable for the life of one individual when the valuation date is on or after May 1, 2009). However, annuity actuarial factors are not included in Table B in paragraph (d)(6) of this section or Table S in paragraph (d)(7) of this section (or in § 20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of annuity actuarial factors) is not conveniently available, a required annuity factor for a term of years or for one life may be mathematically derived. This annuity factor may be derived by subtracting the applicable remainder factor (that corresponds to the applicable section 7520 interest rate and annuity period) in Table B (in the case of a term-of-years annuity) in paragraph (d)(6) of this section or in Table S (in the case of a one-life annuity when the valuation date is on or after May 1, 2009) in paragraph (d)(7) of this section, as the case may be, from 1.000000 and then dividing the result by the applicable section 7520 interest rate expressed as a decimal number.
(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 as contained in Table K in paragraph (d)(6) of this section for payments made at the end of the specified periods. The provisions of this paragraph (d)(2)(iv)(B) are illustrated by the following example:
Example. At the time of the decedent's death, the survivor/annuitant, age 72, is entitled to receive an annuity of $15,000 a year for life payable in equal monthly installments at the end of each period. The section 7520 rate for the month in which the decedent died is 5.6 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 5.6 percent for an individual aged 72 is .53243. By converting the remainder factor to an annuity factor, as described above, the annuity factor at 5.6 percent for an individual aged 72 is 8.3495 (1.000000 minus .53243, divided by .056). Under Table K in paragraph (d)(6) of this section, the adjustment factor under the column for payments made at the end of each monthly period at the rate of 5.6 percent is 1.0254. The aggregate annual amount, $15,000, is multiplied by the factor 8.3495 and the product is multiplied by 1.0254. The present value of the annuity at the date of the decedent's death is, therefore, $128,423.66 ($15,000 x 8.3495 x 1.0254).
(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 is then multiplied by the adjustment factor in Table J in paragraph (d)(6) of this section at the appropriate interest rate component for payments made at the beginning of specified periods. 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 this paragraph (d)(2)(iv).
(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. (i) If a decedent dies on or after May 1, 2009, and if on May 1, 2009, the decedent was mentally incompetent so that the disposition of the decedent's property could not be changed, and the decedent dies without having regained competency to dispose of the decedent's property or dies within 90 days of the date on which the decedent first regains competency, the fair market value of annuities, life estates, terms for years, remainders, and reversions 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 became mentally incompetent, at the option of the decedent's executor. For examples, see § 20.2031-7A(d).
(ii) If a decedent dies on or after May 1, 2009, and before July 1, 2009, the fair market value of annuities, life estates, remainders, and reversions based on one or more measuring lives included in the gross estate of the decedent is their present value determined under this section by use of 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 (d)(7) of this section or § 20.2031-7A(f)(4), at the option of the decedent's executor.
(iii) For purposes of paragraphs (d)(3)(i) and (d)(3)(ii) of this section, where the decedent's executor is given the option to use the appropriate actuarial tables under either paragraph (d)(7) of this section or § 20.2031-7A(f)(4), the decedent's executor must use the same actuarial table with respect to each individual transaction 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 the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables.
(4) Publications and actuarial computations by the Internal Revenue Service. Many standard actuarial factors not included in paragraph (d)(6) or (d)(7) of this section are included in Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. This publication is available, at no charge, electronically via the Internal Revenue Service Internet site at www.irs.gov. If a special factor is required in the case of an actual decedent, the Internal Revenue Service may furnish the factor to the executor upon a request for a ruling. 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 following examples:
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 47 years and 5 months old. In the month in which the decedent died, the section 7520 rate was 6.2 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 6.2 percent for determining the present value of the remainder interest due at the death of a person aged 47, the number of years nearest A's actual age at the decedent's death, is .18672. The present value of the remainder interest at the date of the decedent's death is, therefore, $9,336.00 ($50,000 X .18672).
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 6.2 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 6.2 percent for determining the present value of the remainder interest due at the death of a person aged 31, the number of years closest to A's age at the decedent's death, is .08697. Converting this remainder factor to an income factor, as described in paragraph (d)(2)(iii) of this section, the factor for determining the present value of an income interest for the life of a person aged 31 is .91303. The present value of A's interest at the time of the parent's death is, therefore, $45,651.50 ($50,000 X .91303).
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 4.8 percent. Under Table S in paragraph (d)(7) of this section, the factor at 4.8 percent for determining the present value of the remainder interest at the death of a person age 46 (the number of years nearest B's actual age) is .24774. By converting the factor to an annuity factor, as described in paragraph (d)(2)(iv)(A) of this section, the factor for the present value of an annuity payable until the death of a person age 46 is 15.6721 (1.000000 minus .24774, divided by .048). The adjustment factor from Table K in paragraph (d)(6) of this section at an interest rate of 4.8 percent for semiannual annuity payments made at the end of the period is 1.0119. The present value of the annuity at the date of A's death is, therefore, $158,585.98 ($10,000 X 15.6721 X 1.0119).
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 9.8 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 in paragraph (d)(6) of this section for the interest rate of 9.8 percent, the factor for the present value of a remainder interest due after a term of 5 years is .626597. Converting the factor to an annuity factor, as described in paragraph (d)(2)(iv)(A) of this section, the factor for the present value of an annuity for a term of 5 years is 3.8102 (1.000000 minus .626597, divided by .098). The adjustment factor from Table K in paragraph (d)(6) of this section at an interest rate of 9.8 percent for quarterly annuity payments made at the end of the period is 1.0360. The present value of the annuity is, therefore, $39,473.67 ($10,000 X 3.8102 X 1.0360).
* * * * *
(7) Actuarial Table S and Table 2000CM where the valuation date is on or after May 1, 2009. Except as provided in § 20.7520-2(b) (pertaining to certain limitations on the use of prescribed tables), for determination of the present value of an interest that is dependent on the termination of a life interest, Table 2000CM and Table S (single life remainder factors applicable where the valuation date is on or after May 1, 2009) contained in this paragraph (d)(7) and Table J and Table K contained in paragraph (d)(6) of this section, must be used in the application of the provisions of this section when the section 7520 interest rate component is between 0.2 and 14 percent.
Table S
Based on Life Table 2000CM
Single Life Remainder Factors
Applicable On or After May 1, 2009
Based on Life Table 2000CM
Single Life Remainder Factors
Applicable On or After May 1, 2009
(Editor: IRS Tables are available in (i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives; (ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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; (iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.)
Table 2000CM
| Agex | lx | Agex | lx | Agex | lx |
| 0 | 100000 | 37 | 96921 | 74 | 66882 |
| 1 | 99305 | 38 | 96767 | 75 | 64561 |
| 2 | 99255 | 39 | 96600 | 76 | 62091 |
| 3 | 99222 | 40 | 96419 | 77 | 59476 |
| 4 | 99197 | 41 | 96223 | 78 | 56721 |
| 5 | 99176 | 42 | 96010 | 79 | 53833 |
| 6 | 99158 | 43 | 95782 | 80 | 50819 |
| 7 | 99140 | 44 | 95535 | 81 | 47694 |
| 8 | 99124 | 45 | 95268 | 82 | 44475 |
| 9 | 99110 | 46 | 94981 | 83 | 41181 |
| 10 | 99097 | 47 | 94670 | 84 | 37837 |
| 11 | 99085 | 48 | 94335 | 85 | 34471 |
| 12 | 99073 | 49 | 93975 | 86 | 31114 |
| 13 | 99057 | 50 | 93591 | 87 | 27799 |
| 14 | 99033 | 51 | 93180 | 88 | 24564 |
| 15 | 98998 | 52 | 92741 | 89 | 21443 |
| 16 | 98950 | 53 | 92270 | 90 | 18472 |
| 17 | 98891 | 54 | 91762 | 91 | 15685 |
| 18 | 98822 | 55 | 91211 | 92 | 13111 |
| 19 | 98745 | 56 | 90607 | 93 | 10773 |
| 20 | 98664 | 57 | 89947 | 94 | 8690 |
| 21 | 98577 | 58 | 89225 | 95 | 6871 |
| 22 | 98485 | 59 | 88441 | 96 | 5315 |
| 23 | 98390 | 60 | 87595 | 97 | 4016 |
| 24 | 98295 | 61 | 86681 | 98 | 2959 |
| 25 | 98202 | 62 | 85691 | 99 | 2122 |
| 26 | 98111 | 63 | 84620 | 100 | 1477 |
| 27 | 98022 | 64 | 83465 | 101 | 997 |
| 28 | 97934 | 65 | 82224 | 102 | 650 |
| 29 | 97844 | 66 | 80916 | 103 | 410 |
| 30 | 97750 | 67 | 79530 | 104 | 248 |
| 31 | 97652 | 68 | 78054 | 105 | 144 |
| 32 | 97549 | 69 | 76478 | 106 | 81 |
| 33 | 97441 | 70 | 74794 | 107 | 43 |
| 34 | 97324 | 71 | 73001 | 108 | 22 |
| 35 | 97199 | 72 | 71092 | 109 | 11 |
| 36 | 97065 | 73 | 69056 | 110 | 0 |
(e) Effective/applicability date. This section applies on and after May 1, 2009.
§ 20.2031-7T [Removed]
Par. 14. Section 20.2031-7T is removed.
§ 20.2031-7A [Amended]
Par. 14A. Section 20.2031-7A(f)(1) is amended by removing "§ 20.2031-7T(d)" from the first sentence and adding "§ 20.2031-7(d)" in its place.
Par. 15. Section 20.2055-2 is amended by:
1. Revising the heading in paragraph (e)(3) and revising paragraphs (e)(3)(iii) and (f)(4).
2. Adding paragraph (f)(6).
The revisions and addition read as follows:
§ 20.2055-2 Transfers not exclusively for charitable purposes.
* * * * *
(e) * * *
(3) Effective/applicability date. * * *
(iii) 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 is generally 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 this rule in paragraphs (e)(2)(vi)(a) and(e)(2)(vii)(a) of this section are provided in the case of transfers pursuant to a will or revocable trust executed 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 of a decedent dying 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. For example, in the case of an annuity interest payable for the life of an individual age 40 at the time of the transfer on or after May 1, 2009, assuming an interest rate of 7.4 percent under section 7520, the annuity factor from column 1 of Table S(7.4), contained in IRS Publication 1457, "Actuarial Valuations Version 3A", for the life of an individual age 40 is 12.1519 (1.000000 minus .10076, divided by .074). Based on Table B(7.4), contained in Publication 1457, "Actuarial Valuations Version 3A", the factor 12.1519 corresponds to a term of years between 32 and 33 years. Accordingly, the annuity interest must be reformed into an interest payable for a term of 33 years. 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).
* * * * *
(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 May 1, 2009, or under § 20.2031-7A in the case of decedents where the valuation date of the gross estate is before May 1, 2009.
* * * * *
(6) Effective/applicability date. Paragraphs (e)(3)(iii) and (f)(4) of this section apply on and after May 1, 2009.
§ 20.2055-2T [Removed]
Par. 16. Section 20.2055-2T is removed.
Par. 17. Section 20.2056A-4 is amended by:
1. Revising paragraph (c)(4)(ii)(B) and Example 4 of paragraph (d).
2. Adding paragraph (e).
The revisions and addition 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 annuity or other payment is the present value of the nonassignable annuity or other payment as of the date of the decedent's death, determined in accordance with the interest rates and mortality data 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 annuity factor equal to the quotient. This is determined by using column 1 of Table B, for the applicable interest rate, contained in Publication 1457, "Actuarial Valuations Version 3A". A copy of this publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov. If the quotient obtained falls between two terms, the longer term is used.
* * * * *
(d) * * *
Example 4. Computation of corpus portion of annuity payment. (i) At the time of D's death on or after May 1, 2009, 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 6.0 percent. The annuity factor at 6.0 percent for a person age 60 is 11.0625 (1.000000 minus .33625, divided by .06). The adjustment factor at 6.0 percent in Table K for monthly payments is 1.0272. Accordingly, the right to receive $72,000 per year on a monthly basis is equal to the right to receive $73,958.40 ($72,000 x 1.0272) on an annual basis.
(ii) The corpus portion of each annuity payment received by S is determined as follows. The first step is to determine the annuity factor for the number of years that would be required to exhaust a hypothetical fund that has a present value and a payout corresponding to S 's interest in the payments under the plan, determined as follows:
(A) Present value of S 's annuity: $73,958.40 x 11.0625 = $818,164.80.
(B) Annuity Factor for Expected Annuity Term: $818,164.80 / $73,958.40 = 11.0625.
(iii) The second step is to determine the number of years that would be required for S 's annuity to exhaust a hypothetical fund of $818,164.80. The term certain annuity factor of 11.0625 falls between the annuity factors for 18 and 19 years in a 6.0 percent term certain annuity table (Column 1 of Table B, Publication 1457 Actuarial Valuations Version 3A, which may be obtained on the IRS Internet site). Accordingly, the expected annuity term is 19 years.
(iv) The third step is to determine the corpus amount by dividing the expected term of 19 years into the present value of the hypothetical fund as follows:
(A) Corpus amount of annual payment: $818,164.80/19 = $43,061.31.
(B) [Reserved].
(v) 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 (i) of this Example 4) as follows:
(A) Corpus portion of each annuity payment: $43,061.31/$73,958.40 = .58.
(B) [Reserved].
(vi) Accordingly, 58 percent of each payment to S is deemed to be a distribution of corpus. A marital deduction is allowed for $818,164.80, 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.
* * * * *
(e) Effective/applicability date. Paragraph (c)(4)(ii)(B) and Example 4 in paragraph (d) of this section are applicable with respect to decedents dying on or after May 1, 2009.
§ 20.2056A-4T [Removed]
Par. 18. Section 20.2056A-4T is removed.
Par. 19. Section 20.7520-1 is amended by revising the section heading and by revising paragraphs (a)(1), (a)(2), (b)(2), (c)(1), (c)(2), and (d) to read as follows:
§ 20.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests.
(a) General actuarial valuations. (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 for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. See § 20.2031-7(d) (and, for periods prior to May 1, 2009, § 20.2031-7A) for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.
(2) In the case of a transfer to a pooled income fund, see § 1.642(c)-6(e) of this chapter (or, for periods prior to May 1, 2009, § 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 regulations at that time. For decedent's estates with valuation dates on or after May 1, 2009, the mortality component table (Table 2000CM) is contained in § 20.2031-7(d)(7). See § 20.2031-7A for mortality component tables applicable to decedent's estates with valuation dates before May 1, 2009.
(c) * * *
(1) Regulation sections containing tables with interest rates between 0.2 and 14 percent for valuation dates on or after May 1, 2009. Section 1.642(c)-6(e)(6) of this chapter contains Table S used for determining the present value of a single life remainder interest in a pooled income fund as defined in § 1.642(c)-5. See § 1.642(c)-6A for single life remainder factors applicable to valuation dates before May 1, 2009. Section 1.664-4(e)(6) contains Table F (payout factors) and Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years). Section 1.664-4(e)(7) contains Table U(1) (unitrust single life remainder factors). These tables are used in determining the present value of a remainder interest in a charitable remainder unitrust as defined in § 1.664-3. See § 1.664-4A for unitrust single life remainder factors applicable to valuation dates before May 1, 2009. Section 20.2031-7(d)(6) contains Table B (actuarial factors used in determining the present value of an interest for a term of years), Table K (annuity end-of-interval adjustment factors), and Table J (term certain annuity beginning-of-interval adjustment factors). Section 20.2031-7(d)(7) contains Table S (single life remainder factors), and Table 2000CM (mortality components). These tables are used in determining the present value of annuities, life estates, remainders, and reversions. See § 20.2031-7A for single life remainder factors applicable to valuation dates before May 1, 2009.
(2) Internal Revenue Service publications containing tables with interest rates between 0.2 and 22 percent for valuation dates on or after May 1, 2009. The following documents are available, at no charge, electronically via the IRS Internet site at www.irs.gov:
(i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, 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.
(ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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.
(iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.
(d) Effective/applicability date. This section applies on and after May 1, 2009.
§ 20.7520-1T [Removed]
Par. 20. Section 20.7520-1T is removed.
PART 25 -- GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
Par. 21. The authority citation for part 25 is amended by removing entries for §§ 25.2512-5T and 25.7520-1T to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 22. Section 25.2512-0 is amended by removing the entry for § 25.2512-5T from the table.
Par. 23. Section 25.2512-5 is amended by revising paragraphs (c), (d), and (e) to read as follows:
§ 25.2512-5 Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests.
* * * * *
(c) Actuarial valuations. The present value of annuities, unitrust interests, life estates, terms of years, remainders, and reversions transferred by gift on or after May 1, 2009, is determined under paragraph (d) of this section. The present value of annuities, unitrust interests, life estates, terms of years, remainders, and reversions transferred by gift before May 1, 2009, is determined under the following sections:
| Transfers | ||
| After | Before | Applicable Regulations |
| -- | 01-01-52 | 25.2512-5A(a) |
| 12-31-51 | 01-01-71 | 25.2512-5A(b) |
| 12-31-70 | 12-01-83 | 25.2512-5A(c) |
| 11-30-83 | 05-01-89 | 25.2512-5A(d) |
| 04-30-89 | 05-01-99 | 25.2512-5A(e) |
| 04-30-99 | 05-01-09 | 25.2512-5A(f) |
(d) Actuarial valuations on or after May 1, 2009 -- (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), if the valuation date for the gift is on or after May 1, 2009, the fair market value of annuities, life estates, terms of years, remainders, and reversions transferred on or after May 1, 2009, is the present value of such interests determined under paragraph (d)(2) of this section and by use of standard or special section 7520 actuarial factors. 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 §§ 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, life estate, remainder, or reversion 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) 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) (see § 1.642(c)-6A for certain prior periods). The fair market value of a remainder interest in a charitable remainder annuity trust, as described in § 1.6642(a), is its 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 term for years 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 (e)(5).
(ii) Ordinary remainder and reversionary interests. If the interest to be valued is to take effect after a definite number of years or 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 interest actuarial factor (that corresponds to the applicable section 7520 interest rate and remainder interest period) in Table B (for a term certain) or in Table S (for one measuring life), as the case may be. Table B is contained in § 20.2031-7(d)(6) of this chapter and Table S (for one measuring life when the valuation date is on or after May 1, 2009) is included in § 20.2031-7(d)(7) and Internal Revenue Service Publication 1457. See § 20.2031-7A containing Table S for valuation of interests before May 1, 2009. For information about obtaining actuarial factors for other types of remainder interests, see paragraph (d)(4) of this section.
(iii) Ordinary 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 use certain nonincome-producing 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 term-of-years or life interest actuarial factor (that corresponds to the applicable section 7520 interest rate and term-of-years or life interest period). Internal Revenue Service Publication 1457 includes actuarial factors for a remainder interest after a term of years in Table B and after the life of one individual in Table S (for one measuring life when the valuation date is on or after May 1, 2009). However, term-of-years and life interest actuarial factors are not included in Table B in § 20.2031-7(d)(6) of this chapter or Table S in § 20.2031-7(d)(7) (or in § 20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of term-of-years and life interest actuarial factors) is not conveniently available, an actuarial factor for the interest may be derived mathematically. This actuarial factor may be derived by subtracting the correlative remainder factor (that corresponds to the applicable section 7520 interest rate) in Table B (for a term of years) in § 20.2031-7(d)(6) or in Table S (for the life of one individual) in § 20.2031-7(d)(7), as the case may be, from 1.000000. For information about obtaining actuarial factors for other types of term-of-years and life interests, 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 actuarial factor (that corresponds to the applicable section 7520 interest rate and annuity period). Internal Revenue Service Publication 1457 includes actuarial factors in Table B (for a remainder interest after an annuity payable for a term of years) and in Table S (for a remainder interest after an annuity payable for the life of one individual when the valuation date is on or after May 1, 2009). However, annuity actuarial factors are not included in Table B in § 20.20317(d)(6) of this chapter or Table S in § 20.2031-7(d)(7) (or in § 20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of annuity actuarial factors) is not conveniently available, an annuity factor for a term of years or for one life may be derived mathematically. This annuity factor may be derived by subtracting the applicable remainder factor (that corresponds to the applicable section 7520 interest rate and annuity period) in Table B (in the case of a term-of-years annuity) in § 20.2031-7(d)(6) or in Table S (in the case of a one-life annuity) in § 20.2031-7(d)(7), as the case may be, from 1.000000 and then dividing the result by the applicable section 7520 interest rate expressed as a decimal number. See § 20.2031-7(d)(2)(iv) for an example that illustrates the computation of the present value of an annuity.
(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 set forth in Table K in § 20.2031-7(d)(6) at the appropriate interest rate component for payments made at the end of the specified periods. The provisions of this paragraph (d)(2)(iv)(B) are illustrated by the following example:
Example. In July of a year after 2009 but before 2019, the donor agreed 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 6.6 percent. Under Table S in § 20.2031-7(d)(7), the factor at 6.6 percent for determining the present value of a remainder interest payable at the death of an individual aged 68 is .42001. Converting the remainder factor to an annuity factor, as described above, the annuity factor for determining the present value of an annuity transferred to an individual age 68 is 8.7877 (1.000000 minus .42001 divided by .066). The adjustment factor from Table K in § 20.2031-7(d)(6) in the column for payments made at the end of each semiannual period at the rate of 6.6 percent is 1.0162. The aggregate annual amount of the annuity, $10,000, is multiplied by the factor 8.7877 and the product is multiplied by 1.0162. The present value of the donee's annuity is, therefore, $89,300.61 ($10,000 X 8.7877 X 1.0162).
(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 is then multiplied by the adjustment factor in Table J in § 20.2031-7(d)(6) of this chapter at the appropriate interest rate component for payments made at the beginning of specified periods. 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. 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 values from the tables in §§ 20.2031-7(d)(6) and 20.2031-7(d)(7) of this chapter as described in the following example:
Example. The donor transfers $100,000 into a trust early in 2010, and retains the right to receive an annuity from the trust in the amount of $6,000 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 occurs is 5.8 percent, the present value of the donor's retained interest would be $42,575.65, determined as follows:
| TABLE S value at 5.8 percent, age 60 | .34656 |
| TABLE S value at 5.8 percent, age 70 | .49025 |
| TABLE 2000CM value at age 70 | 74794 |
| TABLE 2000CM value at age 60 | 87595 |
| TABLE B value at 5.8 percent, 10 years | 569041 |
| TABLE K value at 5.8 percent | 1.0143 |
| Factor for donor's retained interest at 5.8 percent: | |
| (1.00000 - .34656) - (.569041 X (74794/87595) X (1.00000 - .49025)) = 6.9959 ______________________________________________________________________ | |
| .058 | |
| Present value of donor's retained interest: ($6,000 X 6.9959 X 1.0143) | $42,575.65 |
(B) Unitrust interests. The present value of a unitrust 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 values from the tables in §§ 1.664-4(e)(6) and 1.664-4(e)(7) of this chapter as described in the following example:
Example. 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 2009 but before 2019. The trust instrument requires that each year the trust pay to the donor, in equal semiannual installments on June 30th and December 31st, 6 percent of the fair market value of the trust assets, valued as of January 1st each year, for 10 years or until the prior death of the donor. The section 7520 rate for the January in which the transfer occurs is 6.6 percent. Under Table F(6.6) in § 1.664-4(e)(6), the appropriate adjustment factor is .953317 for semiannual payments payable at the end of the semiannual period. The adjusted payout rate is 5.720 percent (6% X .953317). The present value of the donor's retained interest is $41,920.00 determined as follows:
| TABLE U(1) value at 5.6 percent, age 60 | .33970 |
| TABLE U(1) value at 5.6 percent, age 70 | .48352 |
| TABLE 2000CM value at age 70 | 74794 |
| TABLE 2000CM value at age 60 | 87595 |
| TABLE D value at 5.6 percent, 10 years | .561979 |
| Factor for donor's retained interest at 5.6 percent: | |
| (1.000000 - .33970) - (.561979 X (74794/87595) X (1.000000 - .48352)) = | .41247 |
| TABLE U(1) value at 5.8 percent, age 60 | .32846 |
| TABLE U(1) value at 5.8 percent, age 70 | .47241 |
| TABLE 2000CM value at age 70 | 74794 |
| TABLE 2000CM value at age 60 | 87595 |
| TABLE D value at 5.8 percent, 10 years | .550185 |
| Factor for donor's retained interest at 5.8 percent: | |
| (1.000000 - .32846) - (.550185 X (74974/87595) X (1.000000 - .47241)) = | .42369 |
| Difference .01122 | |
| Interpolation adjustment: | |
| 5.720% - 5.6% x ____________ = _______ 0.2% .01122 x = .00673 | |
| Factor at 5.6 percent, age 60 | .41247 |
| Plus: Interpolation adjustment | .00673 |
| ______ | |
| Interpolated Factor | .41920 |
| Present value of donor's retained interest: | |
| ($100,000 X .41920) | $41,920.00 |
(3) 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 use of 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 § 20.2031-7(d)(7) or § 20.2031-7A(f)(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 use the same actuarial tables (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all transfers made on the same date must be valued based on the same tables).
(4) Publications and actuarial computations by the Internal Revenue Service. Many standard actuarial factors not included in § 20.2031-7(d)(6) or § 20.2031-7(d)(7) of this chapter are included in Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). Internal Revenue Service Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. A copy of this publication is available, at no charge, electronically via the IRS Internet site at www.irs.gov. If a special factor is required in the case of a completed gift, the Internal Revenue Service may furnish the factor to the donor upon a request for a ruling. 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 include payment of the required user fee.
(e) Effective/applicability date. This section applies on and after May 1, 2009.
§ 25.2512-5T [Removed]
Par. 24. Section 25.2512-5T is removed.
§ 25.2512-5A [Amended]
Par. 24A. Section 25.2512-5A(f)(1) is amended by removing "§ 25.2512-5T(d)" from the first sentence and adding "§ 25.2512-5(d)" in its place.
Par. 25. Section 25.2522(c)-3 is amended by revising paragraph (e) to read as follows:
§ 25.2522(c)-3 Transfers not exclusively for charitable, etc., purposes in the case of gifts made after July 31, 1969.
* * * * *
(e) Effective/applicability date. This section applies only to gifts made after July 31, 1969. In addition, 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. For example, in the case of an annuity interest payable for the life of an individual age 40 at the time of the transfer on or after May 1, 2009 (the effective date of Table S), assuming an interest rate of 7.4 percent under section 7520, the annuity factor from column 1 of Table S(7.4), contained in IRS Publication 1457, Actuarial Valuations Version 3A, for the life of an individual age 40 is 12.1519 (1 - .10076 / .074). Based on Table B(7.4), contained in Publication 1457, "Actuarial Valuations Version 3A", the factor 12.1519 corresponds to a term of years between 32 and 33 years. Accordingly, the annuity interest must be reformed into an interest payable for a term of 33 years. 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).
§ 25.2522(c)-3T [Removed]
Par. 26. Section 25.2522(c)-3T is removed.
Par. 27. Section 25.7520-1 is amended by revising the section heading and by revising paragraphs (a)(1), (a)(2), (b)(2), (c)(1), (c)(2), and (d) to read as follows:
§ 25.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests.
(a) General actuarial valuations. (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 for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. See § 20.2031-7(d) of this chapter (and, for periods prior to May 1, 2009, § 20.2031-7A) for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.
(2) In the case of a gift to a beneficiary of a pooled income fund, see § 1.642(c)-6(e) of this chapter (or, for periods prior to May 1, 2009, § 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 regulations at that time. For gifts with valuation dates on or after May 1, 2009, the mortality component table (Table 2000CM) is contained in § 20.2031-7(d)(7). See § 20.2031-7A of this chapter for mortality component tables applicable to gifts for which the valuation date falls before May 1, 2009.
(c) * * *
(1) Regulation sections containing tables with interest rates between 0.2 and 14 percent for valuation dates on or after May 1, 2009. Section 1.642(c)-6(e)(6) of this chapter contains Table S used for determining the present value of a single life remainder interest in a pooled income fund as defined in § 1.642(c)-5. See § 1.642(c)-6A for single life remainder factors applicable to valuation dates before May 1, 2009. Section 1.664-4(e)(6) contains Table F (payout factors) and Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years). Section 1.664-4(e)(7) contains Table U(1) (unitrust single life remainder factors). These tables are used in determining the present value of a remainder interest in a charitable remainder unitrust as defined in § 1.664-3. See § 1.664-4A for unitrust single life remainder factors applicable to valuation dates before May 1, 2009. Section 20.2031-7(d)(6) of this chapter contains Table B (actuarial factors used in determining the present value of an interest for a term of years), Table K (annuity end-of-interval adjustment factors), and Table J (term certain annuity beginning-of-interval adjustment factors). Section 20.2031-7(d)(7) contains Table S (single life remainder factors), and Table 2000CM (mortality components). These tables are used in determining the present value of annuities, life estates, remainders, and reversions. See § 20.2031-7A for single life remainder factors and mortality components applicable to valuation dates before May 1, 2009.
(2) Internal Revenue Service publications containing tables with interest rates between 0.2 and 22 percent for valuation dates on or after May 1, 2009. The following documents are available, at no charge, electronically via the IRS Internet site at www.irs.gov:
(i) Internal Revenue Service Publication 1457, "Actuarial Valuations Version 3A" (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, 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 of this chapter.
(ii) Internal Revenue Service Publication 1458, "Actuarial Valuations Version 3B" (2009). This publication includes 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.
(iii) Internal Revenue Service Publication 1459, "Actuarial Valuations Version 3C" (2009). This publication includes tables for computing depreciation adjustment factors. See § 1.170A-12 of this chapter.
(d) Effective/applicability date. This section applies on and after May 1, 2009.
§ 25.7520-1T [Removed]
Par. 28. Section 25.7520-1T is removed.
Par. 29. Section 25.7520-3 is amended by revising paragraph (b)(2)(v), Example 5, paragraph (b)(4), and paragraph (c) to read as follows:
§ 25.7520-3 Limitation on the application of section 7520.
* * * * *
(b) * * *
(2) * * *
(v) * * *
Example 5. Eroding corpus in an annuity trust. (i) The donor, who is age 60 and in normal health, transfers property worth $1,000,000 to a trust on or after May 1, 2009, but before 2019. 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 6.8 percent. First, it is necessary to determine whether the annuity may exhaust the corpus before all annuity payments are made. Because it is assumed that any measuring life may survive until age 110, any life annuity could require payments until the measuring life reaches age 110. Based on a section 7520 interest rate of 6.8 percent, the determination of whether the annuity may exhaust the corpus before the termination of the annuity interest is made as follows:
| Age to which life annuity may continue | 110 |
| less: Age of measuring life at date of transfer | 60 |
| Number of years annuity may continue | 50 |
| Annual annuity payment | $100,000.00 |
| times: Annuity factor for 50 years derived from Table B (1 - .037277 / .068) | 14.1577 |
| Present value of term certain annuity | $1,415,770.00 |
(ii) 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.
(iii) The annuity factor for a term of years at 6.8 percent is derived by subtracting the applicable remainder factor in Table B (see § 20.2031-7(d)(6)) from 1.000000 and then dividing the result by .068. An annuity of $100,000 payable at the end of each year for a period that has an annuity factor of 10.0 would have a present value exactly equal to the principal available to pay the annuity over the term. The annuity factor for 17 years is 9.8999 and the annuity factor for 18 years is 10.2059. Thus, it is determined that the $1,000,000 initial transfer will be sufficient to make 17 annual payments of $100,000, but not to make the entire 18th payment. The present value of an annuity of $100,000 payable at the end of each year for 17 years is $100,000 times 9.8999 or $989,990. The remaining amount is $10,010.00. Of the initial corpus amount, $10,010.00 is not needed to make payments for 17 years, so this amount, as accumulated for 18 years, will be available for the final payment. The 18-year accumulation factor is (1 + 0.068)18 or 3.268004, so the amount available in 18 years is $10,010.00 times 3.268004 or $32,712.72. Therefore, for purposes of analysis, the annuity payments are considered to be 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, $32,712.72. The second annuity component then must be $100,000 minus $32,712.72, or $67,287.28. Specifically, the initial corpus will be able to make payments of $67,287.28 per year for 17 years plus payments of $32,712.72 per year for 18 years. The total annuity is valued by adding the value of the two separate annuity components.
(iv) Based on Table H of Publication 1457, Actuarial Valuations Version 3A, which may be obtained from the IRS Internet site, the present value of an annuity of $67,287.28 per year payable for 17 years or until the prior death of a person aged 60 is $597,013.12 ($67,287.28 X 8.8726). The present value of an annuity of $32,712.72 per year payable for 18 years or until the prior death of a person aged 60 is $296,887.56 ($32,712.72 X 9.0756). Thus, the present value of the charitable annuity interest is $893,900.68 ($597,013.12 + $296,887.56).
* * * * *
(4) Example. The provisions of paragraph (b)(3) of this section are illustrated by the following example:
Example. Terminal illness. The donor transfers property worth $1,000,000 to a child on or after May 1, 2009 but before 2019, 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 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. The section 7520 interest rate for the month of the transfer is 7.6 percent, and the standard annuity factor at that interest rate for a person age 75 in normal health is 6.6493 (1 - .49465 / .076). Thus, if the donor were not terminally ill, the present value of the annuity would be $531,944.00 ($80,000 X 6.6493). 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) Effective/applicability dates. Section 25.7520-3(a) is effective as of May 1, 1989. The provisions of paragraph (b) of this section, except Example 5 in paragraph (b)(2)(v) and paragraph (b)(4), are effective with respect to gifts made after December 117 13, 1995. Example 5 in paragraph (b)(2)(v) and paragraph (b)(4) are effective with respect to gifts made on or after May 1, 2009.
§ 25.7520-3T [Removed]
Par. 30. Section 25.7520-3T is removed.
Steven T. Miller, Deputy Commissioner for Services and Enforcement.
Approved: July 22, 2011
Emily S. McMahon, Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-19675 Filed 08/09/2011 at 8:45 am; Publication Date: 08/10/2011]
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