[Title 26 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2003 Edition]
[From the U.S. Government Printing Office]



[[Page i]]



                    26


          Part 1 (Secs. 1.61 to 1.169)

                         Revised as of April 1, 2003

Internal Revenue





          Containing a codification of documents of general 
          applicability and future effect
          As of April 1, 2003
          With Ancillaries
          Published by
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register



[[Page ii]]

                                      




                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003



  For sale by the Superintendent of Documents, U.S. Government Printing 
                                  Office
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      Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001



[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 26:
          Chapter I--Internal Revenue Service, Department of 
          the Treasury (Continued)                                   3
  Findings Aids:
      Table of CFR Titles and Chapters........................    1065
      Alphabetical List of Agencies Appearing in the CFR......    1083
      Table of OMB Control Numbers............................    1093
      List of CFR Sections Affected...........................    1111



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                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  26 CFR 1.61-1 
                       refers to title 26, part 
                       1, section 61-1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, April 1, 2003), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
volumes. For the period beginning January 1, 2001, a ``List of CFR 
Sections Affected'' is published at the end of each CFR volume.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I). A list of CFR titles, chapters, 
and parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
info@fedreg.nara.gov.

SALES

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ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, the LSA (List of 
CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers, Weekly Compilation of Presidential 
Documents and the Privacy Act Compilation are available in electronic 
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Government Printing Office. Phone 202-512-1530, or 888-293-6498 (toll-
free). E-mail, gpoaccess@gpo.gov.

[[Page vii]]

    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.archives.gov/federal--
register. The NARA site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

April 1, 2003.



[[Page ix]]



                               THIS TITLE

    Title 26--Internal Revenue is composed of twenty volumes. The 
contents of these volumes represent all current regulations issued by 
the Internal Revenue Service, Department of the Treasury, as of April 1, 
2003. The first thirteen volumes comprise part 1 (Subchapter A--Income 
Tax) and are arranged by sections as follows: Secs. 1.0-1-1.60; 
Secs. 1.61-1.169; Secs. 1.170-1.300; Secs. 1.301-1.400; Secs. 1.401-
1.440; Secs. 1.441-1.500; Secs. 1.501-1.640; Secs. 1.641-1.850; 
Secs. 1.851-1.907; Secs. 1.908-1.1000; Secs. 1.1001-1.1400; 
Secs. 1.1401--1.1503-2A; and Sec. 1.1551-1 to end. The fourteenth volume 
containing parts 2-29, includes the remainder of subchapter A and all of 
Subchapter B--Estate and Gift Taxes. The last six volumes contain parts 
30-39 (Subchapter C--Employment Taxes and Collection of Income Tax at 
Source); parts 40-49; parts 50-299 (Subchapter D--Miscellaneous Excise 
Taxes); parts 300-499 (Subchapter F--Procedure and Administration); 
parts 500-599 (Subchapter G--Regulations under Tax Conventions); and 
part 600 to end (Subchapter H--Internal Revenue Practice).

    The OMB control numbers for Title 26 appear in Sec. 602.101 of this 
chapter. For the convenience of the user, Sec. 602.101 appears in the 
Finding Aids section of the volumes containing parts 1 to 599.

[[Page x]]





[[Page 1]]



                       TITLE 26--INTERNAL REVENUE




            (This book contains part 1, Secs. 1.61 to 1.169)

  --------------------------------------------------------------------
                                                                    Part

chapter i--Internal Revenue Service, Department of the 
  Treasury (Continued)......................................           1

[[Page 3]]



    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)




  --------------------------------------------------------------------


  Editorial Note: IRS published a document at 45 FR 6088, Jan. 25, 1980, 
deleting statutory sections from their regulations. In Chapter I cross-
references to the deleted material have been changed to the 
corresponding sections of the IRS Code of 1954 or to the appropriate 
regulations sections. When either such change produced a redundancy, the 
cross-reference has been deleted. For further explanation, see 45 FR 
20795, March 31, 1980.

                  SUBCHAPTER A--INCOME TAX (CONTINUED)
Part                                                                Page
1               Income taxes................................           5

Supplementary Publications: Internal Revenue Service Looseleaf 
  Regulations System, Alcohol and Tobacco Tax Regulations, and 
  Regulations Under Tax Conventions.

  Editorial Note: Treasury Decision 6091, 19 FR 5167, Aug. 17, 1954, 
provides in part as follows:

  Paragraph 1. All regulations (including all Treasury decisions) 
prescribed by, or under authority duly delegated by, the Secretary of 
the Treasury, or jointly by the Secretary and the Commissioner of 
Internal Revenue, or by the Commissioner of Internal Revenue with the 
approval of the Secretary of the Treasury, or jointly by the 
Commissioner of Internal Revenue and the Commissioner of Customs or the 
Commissioner of Narcotics with the approval of the Secretary of the 
Treasury, applicable under any provision of law in effect on the date of 
enactment of the Code, to the extent such provision of law is repealed 
by the Code, are hereby prescribed under and made applicable to the 
provisions of the Code corresponding to the provision of law so repealed 
insofar as any such regulation is not inconsistent with the Code. Such 
regulations shall become effective as regulations under the various 
provisions of the Code as of the dates the corresponding provisions of 
law are repealed by the Code, until superseded by regulations issued 
under the Code.

  Par. 2. With respect to any provision of the Code which depends for 
its application upon the promulgation of regulations or which is to be 
applied in such manner as may be prescribed by regulations, all 
instructions or rules in effect immediately prior to the enactment of 
the Code, to the extent such instructions or rules could be prescribed 
as regulations under authority of such provision of the Code, shall be 
applied as regulations under such provision insofar as such instructions 
or rules are not inconsistent with the Code. Such instructions or rules 
shall be applied as regulations under the applicable provision of the 
Code as of the date such provision takes effect.

  Par. 3. If any election made or other act done pursuant to any 
provision of the Internal Revenue Code of 1939 or prior internal revenue 
laws would (except for the enactment of the Code) be effective for any 
period subsequent to such enactment, and if corresponding provisions are 
contained in the Code, such election or other act shall be given the 
same effect under the corresponding provisions of the Code to the extent 
not inconsistent therewith. The term ``act'' includes, but is not 
limited to, an allocation, identification, declaration, agreement, 
option, waiver, relinquishment, or renunciation.

  Par. 4. The limits of the various internal revenue districts have not 
been changed by the enactment of the Code. Furthermore, delegations of 
authority made pursuant to the provisions of Reorganization Plan No. 26 
of 1950 and Reorganization Plan No. 1 of 1952 (as well as redelegations 
thereunder), including those governing the authority of the Commissioner 
of Internal Revenue, the Regional Commissioners of Internal Revenue, or 
the District Directors of Internal Revenue, are applicable to the 
provisions of the Code to the extent consistent therewith.

[[Page 5]]



                  SUBCHAPTER A--INCOME TAX (CONTINUED)





PART 1--INCOME TAXES--Table of Contents




                      COMPUTATION OF TAXABLE INCOME

  Definition of Gross Income, Adjusted Gross Income, and Taxable Income

Sec.
1.61-1  Gross income.
1.61-2  Compensation for services, including fees, commissions, and 
          similar items.
1.61-2T  Taxation of fringe benefits--1985 through 1988 (temporary).
1.61-3  Gross income derived from business.
1.61-4  Gross income of farmers.
1.61-5  Allocations by cooperative associations; per-unit retain 
          certificates--tax treatment as to cooperatives and patrons.
1.61-6  Gains derived from dealings in property.
1.61-7  Interest.
1.61-8  Rents and royalties.
1.61-9  Dividends.
1.61-10  Alimony and separate maintenance payments; annuities; income 
          from life insurance and endowment contracts.
1.61-11  Pensions.
1.61-12  Income from discharge of indebtedness.
1.61-13  Distributive share of partnership gross income; income in 
          respect of a decedent; income from an interest in an estate or 
          trust.
1.61-14  Miscellaneous items of gross income.
1.61-15  Options received as payment of income.
1.61-21  Taxation of fringe benefits.
1.62-1  Adjusted gross income.
1.62-1T  Adjusted gross income (temporary).
1.62-2  Reimbursements and other expense allowance arrangements.
1.63-1  Change of treatment with respect to the zero bracket amount and 
          itemized deductions.
1.63-2  Cross reference.
1.67-1T  2-percent floor on miscellaneous itemized deductions 
          (temporary).
1.67-2T  Treatment of pass-through entities (temporary).
1.67-3  Allocation of expenses by real estate mortgage investment 
          conduits.
1.67-3T  Allocation of expenses by real estate mortgage investment 
          conduits (temporary).
1.67-4T  Allocation of expenses by nongrantor trusts and estates 
          (temporary). [Reserved]

               Items Specifically Included in Gross Income

1.71-1  Alimony and separate maintenance payments; income to wife or 
          former wife.
1.71-1T  Alimony and separate maintenance payments (temporary).
1.71-2  Effective date; taxable years ending after March 31, 1954, 
          subject to the Internal Revenue Code of 1939.
1.72-1  Introduction.
1.72-2  Applicability of section.
1.72-3  Excludable amounts not income.
1.72-4  Exclusion ratio.
1.72-5  Expected return.
1.72-6  Investment in the contract.
1.72-7  Adjustment in investment where a contract contains a refund 
          feature.
1.72-8  Effect of certain employer contributions with respect to 
          premiums or other consideration paid or contributed by an 
          employee.
1.72-9  Tables.
1.72-10  Effect of transfer of contracts on investment in the contract.
1.72-11  Amounts not received as annuity payments.
1.72-12  Effect of taking an annuity in lieu of a lump sum upon the 
          maturity of a contract.
1.72-13  Special rule for employee contributions recoverable in three 
          years.
1.72-14  Exceptions from application of principles of section 72.
1.72-15  Applicability of section 72 to accident or health plans.
1.72-16  Life insurance contracts purchased under qualified employee 
          plans.
1.72-17  Special rules applicable to owner-employees.
1.72-17A  Special rules applicable to employee annuities and 
          distributions under deferred compensation plans to self-
          employed individuals and owner-employees.
1.72-18  Treatment of certain total distributions with respect to self-
          employed individuals.
1.72(e)-1T  Treatment of distributions where substantially all 
          contributions are employee contributions (temporary).
1.72(p)-1  Loans treated as distributions.
1.73-1  Services of child.
1.74-1  Prizes and awards.
1.75-1  Treatment of bond premiums in case of dealers in tax-exempt 
          securities.
1.77-1  Election to consider Commodity Credit Corporation loans as 
          income.
1.77-2  Effect of election to consider commodity credit loans as income.
1.78-1  Dividends received from certain foreign corporations by certain 
          domestic corporations choosing the foreign tax credit.
1.79-0  Group-term life insurance--definitions of certain terms.
1.79-1  Group-term life insurance--general rules.
1.79-2  Exceptions to the rule of inclusion.

[[Page 6]]

1.79-3  Determination of amount equal to cost of group-term life 
          insurance.
1.79-4T  Questions and answers relating to the nondiscrimination 
          requirements for group-term life insurance (temporary).
1.82-1  Payments for or reimbursements of expenses of moving from one 
          residence to another residence attributable to employment or 
          self-employment.
1.83-1  Property transferred in connection with the performance of 
          services.
1.83-2  Election to include in gross income in year of transfer.
1.83-3  Meaning and use of certain terms.
1.83-4  Special rules.
1.83-5  Restrictions that will never lapse.
1.83-6  Deduction by employer.
1.83-7  Taxation of nonqualified stock options.
1.83-8  Applicability of section and transitional rules.
1.84-1  Transfer of appreciated property to political organizations.
1.85-1  Unemployment compensation.
1.88-1  Nuclear decommissioning costs.

              Items Specifically Excluded From Gross Income

1.101-1  Exclusion from gross income of proceeds of life insurance 
          contracts payable by reason of death.
1.101-2  Employees' death benefits.
1.101-3  Interest payments.
1.101-4  Payment of life insurance proceeds at a date later than death.
1.101-5  Alimony, etc., payments.
1.101-6  Effective date.
1.101-7  Mortality table used to determine exclusion for deferred 
          payments of life insurance proceeds.
1.102-1  Gifts and inheritances.
1.103-1  Interest upon obligations of a State, territory, etc.
1.103-2  Dividends from shares and stock of Federal agencies or 
          instrumentalities.
1.103-3  Interest upon notes secured by mortgages executed to Federal 
          agencies or instrumentalities.
1.103-4  Interest upon United States obligations.
1.103-5  Treasury bond exemption in the case of trusts or partnerships.
1.103-6  Interest upon United States obligations in the case of 
          nonresident aliens and foreign corporations, not engaged in 
          business in the United States.
1.103-7  Industrial development bonds.
1.103-8  Interest on bonds to finance certain exempt facilities.
1.103-9  Interest on bonds to finance industrial parks.
1.103-10  Exemption for certain small issues of industrial development 
          bonds.
1.103-11  Bonds held by substantial users.
1.103-16  Obligations of certain volunteer fire departments.
1.103(n)-1T  Limitation on aggregate amount of private activity bonds 
          (temporary).
1.103(n)-2T  Private activity bond defined (temporary).
1.103(n)-3T  Private activity bond limit (temporary).
1.103(n)-4T  Elective carryforward of unused private activity bond limit 
          (temporary).
1.103(n)-5T  Certification of no consideration for allocation 
          (temporary).
1.103(n)-6T  Determinations of population (temporary).
1.103(n)-7T  Election to allocate State ceiling to certain facilities 
          for local furnishing of electricity (temporary).
1.103A-2  Qualified mortgage bond.
1.104-1  Compensation for injuries or sickness.
1.105-1  Amounts attributable to employer contributions.
1.105-2  Amounts expended for medical care.
1.105-3  Payments unrelated to absence from work.
1.105-4  Wage continuation plans.
1.105-5  Accident and health plans.
1.105-6  Special rules for employees retired before January 27, 1975.
1.105-11  Self-insured medical reimbursement plan.
1.106-1  Contributions by employer to accident and health plans.
1.107-1  Rental value of parsonages.
1.108-1  Stock-for-debt exception not to apply in de minimis cases.
1.108-2  Acquisition of indebtedness by a person related to the debtor.
1.108-3  Intercompany losses and deductions.
1.108-4  Election to reduce basis of depreciable property under section 
          108(b)(5) of the Internal Revenue Code .
1.108-5  Time and manner for making election under the Omnibus Budget 
          Reconciliation Act of 1993.
1.108-6  Limitations on the exclusion of income from the discharge of 
          qualified real property business indebtedness.
1.108(c)-1T  [Reserved]
1.109-1  Exclusion from gross income of lessor of real property of value 
          of improvements erected by lessee.
1.110-1  Qualified lessee construction allowances.
1.111-1  Recovery of certain items previously deducted or credited.
1.112-1  Combat zone compensation of members of the Armed Forces.
1.113-1  Mustering-out payments for members of the Armed Forces.
1.117-1  Exclusion of amounts received as a scholarship or fellowship 
          grant.
1.117-2  Limitations.
1.117-3  Definitions.
1.117-4  Items not considered as scholarships or fellowship grants.
1.117-5  Federal grants requiring future service as a Federal employee.

[[Page 7]]

1.118-1  Contributions to the capital of a corporation.
1.119-1  Meals and lodging furnished for the convenience of the 
          employer.
1.120-1  Statutory subsistence allowance received by police.
1.120-3  Notice of application for recognition of status of qualified 
          group legal services plan.
1.121-1  Exclusion of gain from sale or exchange of a principal 
          residence.
1.121-2  Limitations.
1.121-3  Reduced maximum exclusion for taxpayers failing to meet certain 
          requirements.
1.121-3T  Reduced maximum exclusion for taxpayers failing to meet 
          certain requirements (temporary).
1.121-4  Special rules.
1.122-1  Applicable rules relating to certain reduced uniformed services 
          retirement pay.
1.123-1  Exclusion of insurance proceeds for reimbursement of certain 
          living expenses.
1.125-2T  Question and answer relating to the benefits that may be 
          offered under a cafeteria plan (temporary).
1.125-3  Effect of the Family and Medical Leave Act (FMLA) on the 
          operation of cafeteria plans.
1.125-4  Permitted election changes.
1.127-1  Amounts received under a qualified educational assistance 
          program.
1.127-2  Qualified educational assistance program.
1.132-0  Outline of regulations under section 132.
1.132-1  Exclusion from gross income for certain fringe benefits.
1.132-1T  Exclusion from gross income of certain fringe benefits--1985 
          through 1988 (temporary).
1.132-2  No-additional-cost services.
1.132-2T  No-additional-cost service--1985 through 1988 (temporary).
1.132-3  Qualified employee discounts.
1.132-3T  Qualified employee discount--1985 through 1988 (temporary).
1.132-4  Line of business limitation.
1.132-4T  Line of business limitation--1985 through 1988 (temporary).
1.132-5  Working condition fringes.
1.132-5T  Working condition fringe--1985 through 1988 (temporary).
1.132-6  De minimis fringes.
1.132-6T  De minimis fringe--1985 through 1988 (temporary).
1.132-7  Employer-operated eating facilities.
1.132-7T  Treatment of employer-operated eating facilities--1985 through 
          1988 (temporary).
1.132-8  Fringe benefit nondiscrimination rules.
1.132-8T  Nondiscrimination rules--1985 through 1988 (temporary).
1.133-1T  Questions and answers relating to interest on certain loans 
          used to acquire employer securities (temporary).
1.141-0  Table of contents.

          Tax Exemption Requirements for State and Local Bonds

1.141-1  Definitions and rules of general application.
1.141-2  Private activity bond tests.
1.141-3  Definition of private business use.
1.141-4  Private security or payment test.
1.141-5  Private loan financing test.
1.141-6  Allocation and accounting rules.
1.141-7  Special rules for output facilities.
1.141-8  $15 million limitation for output facilities.
1.141-9  Unrelated or disproportionate use test.
1.141-10  Coordination with volume cap. [Reserved]
1.141-11  Acquisition of nongovernmental output property. [Reserved]
1.141-12  Remedial actions.
1.141-13  Refunding issues. [Reserved]
1.141-14  Anti-abuse rules.
1.141-15  Effective dates.
1.141-16  Effective dates for qualified private activity bond 
          provisions.
1.142-0  Table of contents.
1.142-1  Exempt facility bonds.
1.142-2  Remedial actions.
1.142-3  Refunding issues. [Reserved]
1.142-4  Use of proceeds to provide a facility.
1.142(a)(5)-1  Exempt facility bonds: Sewage facilities.
1.142(f)(4)-1  Manner of making election to terminate tax-exempt bond 
          financing.
1.144-0  Table of contents.
1.144-1  Qualified small issue bonds, qualified student loan bonds, and 
          qualified redevelopment bonds.
1.144-2  Remedial actions.
1.144-3  Standard deduction for individuals choosing income averaging. 
          [Reserved]
1.145-0  Table of contents.
1.145-1  Qualified 501(c)(3) bonds.
1.145-2  Application of private activity bond regulations.
1.147-0  Table of contents.
1.147-1  Other requirements applicable to certain private activity 
          bonds.
1.147-2  Remedial actions.
1.147(b)-1  Bond maturity limitation--treatment of working capital.
1.148-0  Scope and table of contents.
1.148-1  Definitions and elections.
1.148-2  General arbitrage yield restriction rules.
1.148-3  General arbitrage rebate rules.
1.148-4  Yield on an issue of bonds.
1.148-5  Yield and valuation of investments.
1.148-6  General allocation and accounting rules.
1.148-7  Spending exceptions to the rebate requirement.

[[Page 8]]

1.148-8  Small issuer exception to rebate requirement.
1.148-9  Arbitrage rules for refunding issues.
1.148-10  Anti-abuse rules and authority of Commissioner.
1.148-11  Effective dates.
1.149(b)-1  Federally guaranteed bonds.
1.149(d)-1  Limitations on advance refundings.
1.149(e)-1  Information reporting requirements for tax-exempt bonds.
1.149(g)-1  Hedge bonds.
1.150-1  Definitions.
1.150-2  Proceeds of bonds used for reimbursement.
1.150-4  Change in use of facilities financed with tax-exempt private 
          activity bonds.
1.150-5  Filing notices and elections.

   Regulations Applicable to Certain Bonds Sold Prior to July 8, 1997

1.148-1A  Definitions and elections.
1.148-2A  General arbitrage yield restriction rules.
1.148-3A  General arbitrage rebate rules.
1.148-4A  Yield on an issue of bonds.
1.148-5A  Yield and valuation of investments.
1.148-6A  General allocation and accounting rules.
1.148-9A  Arbitrage rules for refunding issues.
1.148-10A  Anti-abuse rules and authority of Commissioner.
1.148-11A  Effective dates.
1.149(d)-1A  Limitations on advance refundings.
1.150-1A  Definitions.

                   Deductions for Personal Exemptions

1.151-1  Deductions for personal exemptions.
1.151-2  Additional exemptions for dependents.
1.151-3  Definitions.
1.151-4  Amount of deduction for each exemption under section 151.
1.152-1  General definition of a dependent.
1.152-2  Rules relating to general definition of dependent.
1.152-3  Multiple support agreements.
1.152-4  Support test in case of child of divorced or separated parents.
1.152.4T  Dependency exemption in the case of a child of divorced 
          parents, etc. (temporary).
1.153-1  Determination of marital status.
1.154  Statutory provisions; cross references.

          Itemized Deductions for Individuals and Corporations

1.161-1  Allowance of deductions.
1.162-1  Business expenses.
1.162-2  Traveling expenses.
1.162-3  Cost of materials.
1.162-4  Repairs.
1.162-5  Expenses for education.
1.162-6  Professional expenses.
1.162-7  Compensation for personal services.
1.162-8  Treatment of excessive compensation.
1.162-9  Bonuses to employees.
1.162-10  Certain employee benefits.
1.162-10T  Questions and answers relating to the deduction of employee 
          benefits under the Tax Reform Act of 1984; certain limits on 
          amounts deductible (temporary).
1.162-11  Rentals.
1.162-12  Expenses of farmers.
1.162-13  Depositors' guaranty fund.
1.162-14  Expenditures for advertising or promotion of good will.
1.162-15  Contributions, dues, etc.
1.162-16  Cross reference.
1.162-17  Reporting and substantiation of certain business expenses of 
          employees.
1.162-18  Illegal bribes and kickbacks.
1.162-19  Capital contributions to Federal National Mortgage 
          Association.
1.162-20  Expenditures attributable to lobbying, political campaigns, 
          attempts to influence legislation, etc., and certain 
          advertising.
1.162-21  Fines and penalties.
1.162-22  Treble damage payments under the antitrust laws.
1.162-25  Deductions with respect to noncash fringe benefits.
1.162-25T  Deductions with respect to noncash fringe benefits 
          (temporary).
1.162-27  Certain employee remuneration in excess of $1,000,000.
1.162-28  Allocation of costs to lobbying activities.
1.162-29  Influencing legislation.
1.163-1  Interest deduction in general.
1.163-2  Installment purchases where interest charge is not separately 
          stated.
1.163-3  Deduction for discount on bond issued on or before May 27, 
          1969.
1.163-4  Deduction for original issue discount on certain obligations 
          issued after May 27, 1969.
1.163-5  Denial of interest deduction on certain obligations issued 
          after December 31, 1982, unless issued in registered form.
1.163-5T  Denial of interest deduction on certain obligations issued 
          after December 31, 1982, unless issued in registered form 
          (temporary).
1.163-6T  Reduction of deduction where section 25 credit taken 
          (temporary).
1.163-7  Deduction for OID on certain debt instruments.
1.163-8T  Allocation of interest expense among expenditures (temporary).
1.163-9T  Personal interest (temporary).
1.163-10T  Qualified residence interest (temporary).
1.163-12  Deduction of original issue discount on instrument held by 
          related foreign person.
1.163-13  Treatment of bond issuance premium.

[[Page 9]]

1.163(d)-1  Time and manner for making election under the Omnibus Budget 
          Reconciliation Act of 1993.
1.164-1  Deduction for taxes.
1.164-2  Deduction denied in case of certain taxes.
1.164-3  Definitions and special rules.
1.164-4  Taxes for local benefits.
1.164-5  Certain retail sales taxes and gasoline taxes.
1.164-6  Apportionment of taxes on real property between seller and 
          purchaser.
1.164-7  Taxes of shareholder paid by corporation.
1.164-8  Payments for municipal services in atomic energy communities.
1.165-1  Losses.
1.165-2  Obsolescence of nondepreciable property.
1.165-3  Demolition of buildings.
1.165-4  Decline in value of stock.
1.165-5  Worthless securities.
1.165-6  Farming losses.
1.165-7  Casualty losses.
1.165-8  Theft losses.
1.165-9  Sale of residential property.
1.165-10  Wagering losses.
1.165-11  Election in respect of losses attributable to a disaster.
1.165-12  Denial of deduction for losses on registration-required 
          obligations not in registered form.
1.165-13T  Questions and answers relating to the treatment of losses on 
          certain straddle transactions entered into before the 
          effective date of the Economic Recovery Tax Act of 1981, under 
          section 108 of the Tax Reform Act of 1984 (temporary).
1.166-1  Bad debts.
1.166-2  Evidence of worthlessness.
1.166-3  Partial or total worthlessness.
1.166-4  Reserve for bad debts.
1.166-5  Nonbusiness debts.
1.166-6  Sale of mortgaged or pledged property.
1.166-7  Worthless bonds issued by an individual.
1.166-8  Losses of guarantors, endorsers, and indemnitors incurred on 
          agreements made before January 1, 1976.
1.166-9  Losses of guarantors, endorsers, and indemnitors incurred, on 
          agreements made after December 31, 1975, in taxable years 
          beginning after such date.
1.166-10  Reserve for guaranteed debt obligations.
1.167(a)-1  Depreciation in general.
1.167(a)-2  Tangible property.
1.167(a)-3  Intangibles.
1.167(a)-4  Leased property.
1.167(a)-5  Apportionment of basis.
1.167(a)-5T  Application of section 1060 to section 167 (temporary).
1.167(a)-6  Depreciation in special cases.
1.167(a)-7  Accounting for depreciable property.
1.167(a)-8  Retirements.
1.167(a)-9  Obsolescence.
1.167(a)-10  When depreciation deduction is allowable.
1.167(a)-11  Depreciation based on class lives and asset depreciation 
          ranges for property placed in service after December 31, 1970.
1.167(a)-12  Depreciation based on class lives for property first placed 
          in service before January 1, 1971.
1.167(a)-13T  Certain elections for intangible property (temporary).
1.167(a)-14  Treatment of certain intangible property excluded from 
          section 197.
1.167(b)-0  Methods of computing depreciation.
1.167(b)-1  Straight line method.
1.167(b)-2  Declining balance method.
1.167(b)-3  Sum of the years-digits method.
1.167(b)-4  Other methods.
1.167(c)-1  Limitations on methods of computing depreciation under 
          section 167(b) (2), (3), and (4).
1.167(d)-1  Agreement as to useful life and rates of depreciation.
1.167(e)-1  Change in method.
1.167(f)-1  Reduction of salvage value taken into account for certain 
          personal property.
1.167(g)-1  Basis for depreciation.
1.167(h)-1  Life tenants and beneficiaries of trusts and estates.
1.167(i)-1  Depreciation of improvements in the case of mines, etc.
1.167(l)-1  Limitations on reasonable allowance in case of property of 
          certain public utilities.
1.167(l)-2  Public utility property; election as to post-1969 property 
          representing growth in capacity.
1.167(l)-3  Multiple regulation, asset acquisitions, reorganizations, 
          etc.
1.167(l)-4  Public utility property; election to use asset depreciation 
          range system.
1.167(m)-1  Class lives.
1.168-5  Special rules.
1.168(d)-0  Table of contents for the applicable convention rules.
1.168(d)-1  Applicable convention--Half-year and mid-quarter 
          conventions.
1.168(f)(8)-1T  Safe-harbor lease information returns concerning 
          qualified mass commuting vehicles (temporary).
1.168(h)-1  Like-kind exchanges involving tax-exempt use property.
1.168(i)-0  Table of contents for the general asset account rules.
1.168(i)-1  General asset accounts.
1.168(i)-2  Lease term.
1.168(j)-1T  Questions and answers concerning tax-exempt entity leasing 
          rules (temporary).
1.168A-1  Amortization of emergency facilities; general rule.
1.168A-2  Election of amortization.
1.168A-3  Election to discontinue amortization.

[[Page 10]]

1.168A-4  Definitions.
1.168A-5  Adjusted basis of emergency facility.
1.168A-6  Depreciation of portion of emergency facility not subject to 
          amortization.
1.168A-7  Payment by United States of unamortized cost of facility.
1.169-1  Amortization of pollution control facilities.
1.169-2  Definitions.
1.169-3  Amortizable basis.
1.169-4  Time and manner of making elections

    Authority: 26 U.S.C. 7805, unless otherwise noted.
    Section 1.61-2T also issued under 26 U.S.C. 61.
    Section 1.61-21 also issued under 26 U.S.C. 61.
    Sections 1.62-1T and 1.62-2 also issued under 26 U.S.C. 62;
    Sections 1.67-2T and 1.67-3T also issued under 26 U.S.C. 67(c);
    Section 1.67-3 also issued under 26 U.S.C. 67(c).
    Sections 1.72-4, 1.72-5, 1.72-6, 1.72-7, 1.72-8, and 1.72-11 also 
issued under 26 U.S.C. 72(c).
    Section 1.101-7 also issued under 26 U.S.C. 101(d)(2)(B)(ii);
    Section 1.103-10 also issued under 26 U.S.C. 103(b)(6);
    Section 1.103A-2 also issued under 26 U.S.C. 103A(j);
    Section 1.108-1 also issued under 26 U.S.C. 108(e)(8) and 
108(e)(10(B);
    Section 1.108-2 also issued under 26 U.S.C. 108;
    Section 1.108-3 also issued under 26 U.S.C. 108, 267, and 1502.
    Section 1.108-4 also issued under 26 U.S.C. 108.
    Section 1.108-5 also issued under 26 U.S.C. 108.
    Section 1.108(c)-1 also issued under the authority of 26 U.S.C. 
108(d)(9);
    Section 1.110-1 also issued under 26 U.S.C. 110(d);
    Sections 1.132-0 through 1.132-8T also issued under 26 U.S.C. 132;
    Sections 1.148-0 through 1.148-11 also issued under 26 U.S.C. 148 
(f), (g), and (i);
    Sections 1.148-6 also issued under 26 U.S.C. 148 (f), (g), and (i);
    Section 1.149(b)-1 also issued under 26 U.S.C. 149(b)(3)(B) (v);
    Section 1.149(d)-1 also issued under 26 U.S.C. 149(d)(7);
    Section 1.149(e)-1 also issued under 26 U.S.C. 149(e);
    Section 1.149(g)-1 also issued under 26 U.S.C. 149(g)(5);
    Sections 1.150-4 also issued under 26 U.S.C. 150 (c)(5);
    Section 1.163-8T also issued under 26 U.S.C. 469(k)(4);
    Section 1.163-9T also issued under 26 U.S.C. 163(h)(3)(D);
    Section 1.163-11T is also issued under 26 U.S.C. 163(h);
    Section 1.165-12 also issued under 26 U.S.C. 165(j)(3);
    Section 1.166-10 also issued under 26 U.S.C. 166(f);
    Section 1.168(d)-1 also issued under 26 U.S.C. 168(d)(3);
    Section 1.168(f)(8)-1T also added under sec. 112(c), Black Lung 
Benefits Revenue Act of 1981 (Pub. L. 97-119);
    Section 1.168(h)-1 also issued under 26 U.S.C. 168.
    Section 1.168(i)-1 also issued under 26 U.S.C. 168(i)(4).
    Section 1.168(i)-2 also issued under 26 U.S.C. 168.
    Section 1.168(j)-1T also added under 26 U.S.C. 168(j)(10).

    Source: T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 
1960, unless otherwise noted.

                      COMPUTATION OF TAXABLE INCOME

  Definition of Gross Income, Adjusted Gross Income, and Taxable Income



Sec. 1.61-1  Gross income.

    (a) General definition. Gross income means all income from whatever 
source derived, unless excluded by law. Gross income includes income 
realized in any form, whether in money, property, or services. Income 
may be realized, therefore, in the form of services, meals, 
accommodations, stock, or other property, as well as in cash. Section 61 
lists the more common items of gross income for purposes of 
illustration. For purposes of further illustration, Sec. 1.61-14 
mentions several miscellaneous items of gross income not listed 
specifically in section 61. Gross income, however, is not limited to the 
items so enumerated.
    (b) Cross references. Cross references to other provisions of the 
Code are to be found throughout the regulations under section 61. The 
purpose of these cross references is to direct attention to the more 
common items which are included in or excluded from gross income 
entirely, or treated in some special manner. To the extent that another 
section of the Code or of the regulations thereunder, provides specific 
treatment for any item of income, such

[[Page 11]]

other provision shall apply notwithstanding section 61 and the 
regulations thereunder. The cross references do not cover all possible 
items.
    (1) For examples of items specifically included in gross income, see 
Part II (section 71 and following), Subchapter B, Chapter 1 of the Code.
    (2) For examples of items specifically excluded from gross income, 
see part III (section 101 and following), Subchapter B, Chapter 1 of the 
Code.
    (3) For general rules as to the taxable year for which an item is to 
be included in gross income, see section 451 and the regulations 
thereunder.



Sec. 1.61-2  Compensation for services, including fees, commissions, and similar items.

    (a) In general. (1) Wages, salaries, commissions paid salesmen, 
compensation for services on the basis of a percentage of profits, 
commissions on insurance premiums, tips, bonuses (including Christmas 
bonuses), termination or severance pay, rewards, jury fees, marriage 
fees and other contributions received by a clergyman for services, pay 
of persons in the military or naval forces of the United States, retired 
pay of employees, pensions, and retirement allowances are income to the 
recipients unless excluded by law. Several special rules apply to 
members of the Armed Forces, National Oceanic and Atmospheric 
Administration, and Public Health Service of the United States; see 
paragraph (b) of this section.
    (2) The Code provides special rules including the following items in 
gross income:
    (i) Distributions from employees' trusts, see sections 72, 402, and 
403, and the regulations thereunder;
    (ii) Compensation for child's services (in child's gross income), 
see section 73 and the regulations thereunder;
    (iii) Prizes and awards, see section 74 and the regulations 
thereunder.
    (3) Similarly, the Code provides special rules excluding the 
following items from gross income in whole or in part:
    (i) Gifts, see section 102 and the regulations thereunder;
    (ii) Compensation for injuries or sickness, see section 104 and the 
regulations thereunder;
    (iii) Amounts received under accident and health plans, see section 
105 and the regulations thereunder;
    (iv) Scholarship and fellowship grants, see section 117 and the 
regulations thereunder;
    (v) Miscellaneous items, see section 122.
    (b) Members of the Armed Forces, National Oceanic and Atmospheric 
Administration, and Public Health Service. (1) Subsistence and uniform 
allowances granted commissioned officers, chief warrant officers, 
warrant officers, and enlisted personnel of the Armed Forces, National 
Oceanic and Atmospheric Administration, and Public Health Service of the 
United States, and amounts received by them as commutation of quarters, 
are excluded from gross income. Similarly, the value of quarters or 
subsistence furnished to such persons is excluded from gross income.
    (2) For purposes of this section, quarters or subsistence includes 
the following allowances for expenses incurred after December 31, 1993, 
by members of the Armed Forces, members of the commissioned corps of the 
National Oceanic and Atmospheric Administration, and members of the 
commissioned corps of the Public Health Service, to the extent that the 
allowances are not otherwise excluded from gross income under another 
provision of the Internal Revenue Code: a dislocation allowance, 
authorized by 37 U.S.C. 407; a temporary lodging allowance, authorized 
by 37 U.S.C. 405; a temporary lodging expense, authorized by 37 U.S.C. 
404a; and a move-in housing allowance, authorized by 37 U.S.C. 405. No 
deduction is allowed under this chapter for any expenses reimbursed by 
such excluded allowances. For the exclusion from gross income of--
    (i) Disability pensions, see section 104(a)(4) and the regulations 
thereunder;
    (ii) Miscellaneous items, see section 122.
    (3) The per diem or actual expense allowance, the monetary allowance 
in lieu of transportation, and the mileage allowance received by members 
of the Armed Forces, National Oceanic and Atmospheric Administration, 
and the Public Health Service, while in a travel

[[Page 12]]

status or on temporary duty away from their permanent stations, are 
included in their gross income except to the extent excluded under the 
accountable plan provisions of Sec. 1.62-2.
    (c) Payment to charitable, etc., organization on behalf of person 
rendering services. The value of services is not includible in gross 
income when such services are rendered directly and gratuitously to an 
organization described in section 170(c). Where, however, pursuant to an 
agreement or understanding, services are rendered to a person for the 
benefit of an organization described in section 170(c) and an amount for 
such services is paid to such organization by the person to whom the 
services are rendered, the amount so paid constitutes income to the 
person performing the services.
    (d) Compensation paid other than in cash--(1) In general. Except as 
otherwise provided in paragraph (d)(6)(i) of this section (relating to 
certain property transferred after June 30, 1969), if services are paid 
for in property, the fair market value of the property taken in payment 
must be included in income as compensation. If services are paid for in 
exchange for other services, the fair market value of such other 
services taken in payment must be included in income as compensation. If 
the services are rendered at a stipulated price, such price will be 
presumed to be the fair market value of the compensation received in the 
absence of evidence to the contrary. For special rules relating to 
certain options received as compensation, see Secs. 1.61-15, 1.83-7, and 
section 421 and the regulations thereunder. For special rules relating 
to premiums paid by an employer for an annuity contract which is not 
subject to section 403(a), see section 403(c) and the regulations 
thereunder and Sec. 1.83-8(a). For special rules relating to 
contributions made to an employees' trust which is not exempt under 
section 501, see section 402(b) and the regulations thereunder and 
Sec. 1.83-8(a).
    (2) Property transferred to employee or independent contractor. (i) 
Except as otherwise provided in section 421 and the regulations 
thereunder and Sec. 1.61-15 (relating to stock options), and paragraph 
(d)(6)(i) of this section, if property is transferred by an employer to 
an employee or if property is transferred to an independent contractor, 
as compensation for services, for an amount less than its fair market 
value, then regardless of whether the transfer is in the form of a sale 
or exchange, the difference between the amount paid for the property and 
the amount of its fair market value at the time of the transfer is 
compensation and shall be included in the gross income of the employee 
or independent contractor. In computing the gain or loss from the 
subsequent sale of such property, its basis shall be the amount paid for 
the property increased by the amount of such difference included in 
gross income
    (ii)(a) Cost of life insurance on the life of the employee. 
Generally, life insurance premiums paid by an employer on the life of 
his employee where the proceeds of such insurance are payable to the 
beneficiary of such employee are part of the gross income of the 
employee. However, the amount includible in the employee's gross income 
is determined with regard to the provisions of section 403 and the 
regulations thereunder in the case of an individual contract issued 
after December 31, 1962, or a group contract, which provides incidental 
life insurance protection and which satisfies the requirements of 
section 401(g) and Sec. 1.401-9, relating to the nontransferability of 
annuity contracts. For the special rules relating to the includibility 
in an employee's gross income of an amount equal to the cost of certain 
group term life insurance on the employee's life which is carried 
directly or indirectly by his employer, see section 79 and the 
regulations thereunder. For special rules relating to the exclusion of 
contributions by an employer to accident and health plans for the 
employee, see section 106 and the regulations thereunder.
    (b) Cost of group-term life insurance on the life of an individual 
other than an employee. The cost (determined under paragraph (d)(2) of 
Sec. 1.79-3) of group-term life insurance on the life of an individual 
other than an employee (such as the spouse or dependent of the employee) 
provided in connection with the performance of services by the employee 
is includible in the gross income of the employee.

[[Page 13]]

    (3) Meals and living quarters. The value of living quarters or meals 
which an employee receives in addition to his salary constitutes gross 
income unless they are furnished for the convenience of the employer and 
meet the conditions specified in section 119 and the regulations 
thereunder. For the treatment of rental value of parsonages or rental 
allowance paid to ministers, see section 107 and the regulations 
thereunder; for the treatment of statutory subsistence allowances 
received by police, see section 120 and the regulations thereunder.
    (4) Stock and notes transferred to employee or independent 
contractor. Except as otherwise provided by section 421 and the 
regulations thereunder and Sec. 1.61-15 (relating to stock options), and 
paragraph (d)(6)(i) of this section, if a corporation transfers its own 
stock to an employee or independent contractor as compensation for 
services, the fair market value of the stock at the time of transfer 
shall be included in the gross income of the employee or independent 
contractor. Notes or other evidences of indebtedness received in payment 
for services constitute income in the amount of their fair market value 
at the time of the transfer. A taxpayer receiving as compensation a note 
regarded as good for its face value at maturity, but not bearing 
interest, shall treat as income as of the time of receipt its fair 
discounted value computed at the prevailing rate. As payments are 
received on such a note, there shall be included in income that portion 
of each payment which represents the proportionate part of the discount 
originally taken on the entire note.
    (5) Property transferred on or before June 30, 1969, subject to 
restrictions. Notwithstanding paragraph (d) (1), (2), or (4) of this 
section, if any property is transferred after September 24, 1959, by an 
employer to an employee or independent contractor as compensation for 
services, and such property is subject to a restriction which has a 
significant effect on its value at the time of transfer, the rules of 
Sec. 1.421-6(d)(2) shall apply in determining the time and the amount of 
compensation to be included in the gross income of the employee or 
independent contractor. This (5) is also applicable to transfers subject 
to a restriction which has a significant effect on its value at the time 
of transfer and to which Sec. 1.83-8(b) (relating to transitional rules 
with respect to transfers of restricted property) applies. For special 
rules relating to options to purchase stock or other property which are 
issued as compensation for services, see Sec. 1.61-15 and section 421 
and the regulations thereunder.
    (6) Certain property transferred, premiums paid, and contributions 
made in connection with the performance of services after June 30, 1969-
-(i) Exception. Paragraph (d) (1), (2), (4), and (5) of this section and 
Sec. 1.61-15 do not apply to the transfer of property (as defined in 
Sec. 1.83-3(e)) after June 30, 1969, unless Sec. 1.83-8 (relating to the 
applicability of section 83 and transitional rules) applies. If section 
83 applies to a transfer of property, and the property is not subject to 
a restriction that has a significant effect on the fair market value of 
such property, then the rules contained in paragraph (d) (1), (2), and 
(4) of this section and Sec. 1.61-15 shall also apply to such transfer 
to the extent such rules are not inconsistent with section 83.
    (ii) Cross references. For rules relating to premiums paid by an 
employer for an annuity contract which is not subject to section 403(a), 
see section 403(c) and the regulations thereunder. For rules relating to 
contributions made to an employees' trust which is not exempt under 
section 501(a), see section 402(b) and the regulations thereunder.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6696, 28 FR 
13450, Dec. 12, 1963; T.D. 6856, 30 FR 13316, Oct. 20, 1965; T.D. 7544, 
43 FR 31913, July 24, 1978; T.D. 7623, 44 FR 28800, May 17, 1979; T.D. 
8256, 54 FR 28582, July 6, 1989; T.D. 8607, 60 FR 40076, Aug. 7, 1995]



Sec. 1.61-2T  Taxation of fringe benefits--1985 through 1988 (temporary).

    (a) Fringe benefits--(1) In general. Section 61(a)(1) provides that, 
except as otherwise provided in subtitle A, gross income includes 
compensation for services, including fees, commissions, fringe benefits, 
and similar items. Examples of fringe benefits include: an employer-
provided automobile, a flight

[[Page 14]]

on an employer-provided aircraft, an employer-provided free or 
discounted commercial airline flight, an employer-provided vacation, and 
employer-provided discount on property or services, and emkployer-
provided membership in a country club or other social club, and an 
employer-provided ticket to an entertainment or sporting event.
    (2) Fringe benefits excluded from income. To the extent that a 
particular fringe benefit is specifically excluded from gross income 
pursuant to another section of subtitle A, that section shall govern the 
treatment of the fringe benefit. Thus, if the requirements of the 
governing section are satisfied, the fringe benefits may be excludable 
from gross income. Examples of excludable fringe benefits are qualified 
tuition reductions provided to an employee (section 177(d)); meals and 
lodging furnished to an employee for the convenience of the employer 
(section 119); and benefits provided under a dependent care assistance 
program (section 129). Similarly, the value of the use by an employee of 
an employer-provided vehicle or a flight provided to an employee on an 
employer-provided aircraft may be excludable from income under section 
105 (because, for example, the trnsportation is provided for medical 
reasons) if and to the extent that the requirements of that section are 
satisfied. Section 61 and the regulations thereunder shall apply, 
however, to the extent that they are not inconsistent with such other 
section. For example, many fringe benefits specifically addressed in 
other sections of subtitle A are excluded from gross income only to the 
extent that they do not exceed specific dollar or percentage limits, or 
only if certain other requirements are met. If the limits are exceeded 
or the requirements are not met, some or all of the fringe benefit may 
be includible in gross income. See paragraph (b)(3) of this section.
    (3) Compensation for services. A fringe benefit provided in 
connection with the performance of services shall be considered to have 
been provided as compensation for servcies. Refraining from the 
performance of services (such as pursuant to a covenant not to compete) 
is deemed to be the performance of services for purposes of this 
section.
    (4) Recipient of a fringe benefit--(i) Definition. A fringe benefit 
is included in the income of the ``recipient'' of the fringe benefit. 
The recipient of a fringe benefit is the person performing the services 
in connection with which the fringe benefit is provided. Thus, a person 
may be considered to be a recipient, even though that person did not 
actually receive the fringe benefit. For example, a fringe benefit 
provided to any person is connection with the performance of services by 
another person is considered to have been provided to the person who 
performs the services and not the person who receives the fringe 
benefit. In addition, if a fringe benefit is provided to a person, but 
taxable to a second person as the recipient, such benefit is referred to 
as provided to the second person and use by the first person is 
considered use by the second person. For example, provision of an 
automobile to an employee's spouse by the employer is taxable to the 
employee as the recipient. The automobile is referred to as available to 
the employee and use by the employee's spouse is considered use by the 
employee.
    (ii) Recipient may be other than an employee. The recipient of a 
fringe benefit need not be an employee of the provider of the fringe 
benefit, but may be a partner, director, or an independent contractor. 
For convenience, the term ``employee'' includes a reference to any 
recipient of a fringe benefit, unless otherwise specifically provided in 
this section.
    (5) Provider of a fringe benefit. The ``provider'' of a fringe 
benefit is that person for whom the services are performed, regardless 
of whether that person actually provides the fringe benefit to the 
recipient. The provider of a fringe benefit need not be the employer of 
the recipient of the fringe benefit, but may be, for example, a client 
or customer of an independent contractor. For convenience, the term 
``employer'' includes a reference to any provider of a fringe benefit, 
unless otherwise specifically provided in this section.
    (6) Effective date. This section is effective from January 1, 1985, 
to December 31, 1988, with respect to fringe benefits

[[Page 15]]

furnished before January 1, 1989. No inference may be drawn from the 
promulgation or terms of this section concerning the application of law 
in effect prior to January 1, 1985.
    (b) Valuation of fringe benefits--(1) In general. An employee must 
include in gross income the amount by which the fair market value of the 
fringe benefit exceeds the sum of (i) the amount, if any, paid for the 
benefit, and (ii) the amount, if any, specifically excluded from gross 
income by some other section of subtitle A. Therefore, for example, if 
the employee pays fair market value for what is received, no amount is 
includible in the gross income of the employee.
    (2) Fair market value. In general, fair market value is determined 
on the basis of all the facts and circumstances. Specifically, the fair 
market value of a fringe benefit is that amount a (hypothetical person 
would have to pay a hypothetical third party to obtain (i.e., purchase 
or lease) the particular fringe benefit. Thus, for example, the effect 
of any special relationship that may exist between the employer and the 
employee must be disregarded. This also means that an employee's 
subjective perception of the value of a fringe benefit is not relevant 
to the determination of a fringe benefit's fair market value. In 
addition, the cost incurred by the employer is not determinative of the 
fair market value of the fringe benefit. For special rules relating to 
the valuation of certain fringe benefits, see paragraph (c) of this 
section.
    (3) Exclusion from income based on cost. If a statutory exclusion 
phrased in terms of cost applies to the provision of a fringe benefit, 
section 61 does not require the inclusion in the recipient's gross 
income of the difference between the fair market value and the 
excludable cost of that fringe benefit. For example, section 129 
provides an exclusion from an employee's gross income for amounts paid 
or incurred by an employer to provide dependent care assistance to 
employees. Even if the fair market value of the dependent care 
assistance exceeds the employer's cost, the excess is not subject to 
inclusion under section 61 and this section. If the statutory cost 
exclusion is a limited amount, however, then the fair market value of 
the fringe benefit attributable to any excess cost is subject to 
inclusion.
    (4) Fair market value of the availability of an employer-provided 
vehicle. If the vehicle special valuation rules of paragraph (d), (e), 
or (f) of this section are not used by a taxpayer entitled to use such 
rules, the value of the availability of an employer-provided vehicle is 
determined under the general valuation principles set forth in this 
section. In general, such valuation must be determined by reference to 
the cost to a hypothetical person of leasing from a hypothetical third 
party the same or comparable vehicle on the same or comparable terms in 
the geographic area in which the vehicle is available for use. Unless 
the employee can substantiate that the same or comparable vehicle could 
have been leased on a cents-per-mile basis, the value of the 
availability of the vehicle cannot be determined by reference to a 
cents-per-mile rate applied to the number of miles the vehicle is 
driven. An example of a comparable lease term is the amount of time that 
the vehicle is available to the employee for use, e.g., a one-year 
period.
    (5) Fair market value of a flight on an employer-provided aircraft. 
If the non-commercial flight special valuation rule of paragraph (g) of 
this section is not used (or is not properly used) by a taxpayer 
entitled to use such rule, the value of a flight on an employer-provided 
aircraft is determined under the general valuation principles set forth 
in this section. An example of how the general valuation principles 
would apply is that if an employee whose flight is primarily personal 
controls the use of an aircraft with respect to such flight, such flight 
is valued by reference to how much it would cost a hypothetical person 
to charter the same or comparable aircraft for the same or comparable 
flight. The cost to charter the aircraft must be allocated among all 
employees on board the aircraft based on all the facts and 
circumstances, including which employees controlled the use of the 
aircraft. Notwithstanding the allocation required by the preceding 
sentence, no additional amount shall be included in

[[Page 16]]

the income of any employee whose flight is properly valued under the 
special valuation rule of paragraph (g) of this section.
    (c) Special valuation rules--(1) In general. Paragraphs (d) through 
(j) of this section provide special valuation rules that may be used 
under certain circumstances for certain commonly provided fringe 
benefits. Paragraph (d) provides a lease valuation rule relating to 
employer-provided automobiles. Paragraph (e) provides a cents-per-mile 
valuation rule relating to employer-provided vehicles. Paragraph (f) 
provides a commuting valuation rule relating to employer-provided 
vehicles. Paragraph (g) provides a flight valuation rule relating to 
flights on employer-provided aircraft. Paragraph (h) provides a flight 
valuation rule relating to flights on commercial airlines. Paragraph(i) 
is reserved. Paragraph (j) provides a meal valuation rule relating to 
employer-operated eating facilities for employees. For general rules 
relating to the valuation of fringe benefits not eligible for valuation 
under the special valuation rules, see paragraph (d) of this section.
    (2) Use of the special valuation rules--(i) In general. The Special 
valuation rules may be used for income, employment tax, and reporting 
purposes. Use of any of the special valuation rules is optional. An 
employer need not use the same vehicle special valuation rule for all 
vehicles provided to all employees. For example, an employer may use the 
automobile lease valuation rule for automobiles provided to some 
employees, and the commuting and vehicle cents-per-mile valuation rules 
for automobiles provided to other employees. Except as otherwise 
provided, however, if either the commercial flight valuation rule or the 
noncommercial flight valuation rule is used, such rule must be used by 
an employer to value all flights taken by employees in a calendar year. 
Effective January 1, 1986, if an employer uses one of the special rules 
to value the benefit provided to an employee, the employee may not use 
another special rule to value that benefit. The employee may, however, 
use general valuation rules based on facts and circumstances (see 
paragraph (b) of this section). Effective January 1, 1986, an employee 
may only use a special valuation rule if the employer uses the rule. If 
a special rule is used, it must be used for all purposes. If an employer 
properly uses a special rule and the employee uses the special rule, the 
employee must include in gross income the amount determined by the 
employer under the special rule less any amount reimbursed by the 
employee to the employer. The employer and the employee may use the 
special rules to determine the amount of the reimbursement due the 
employer by the employee. If an employer properly uses a special rule 
and properly determines the amount of an employee's working condition 
fringe under section 132 and Sec. 1.132-1T (under the general rule or 
under a special rule), and the employee uses the special valuation rule, 
the employee must include in gross income the amount determined by the 
employer less any amount reimbursed by the employee to the employer.
    (ii) Transitional rules--(A) Use of vehicle special valuation rules 
for 1985 and 1986. For purposes of valuing the use or availability of a 
vehicle, the consistency rules provided in paragraphs (d)(6) and (e)(5) 
of this section (relating to the automobile lease valuation rule and the 
vehicle cents-per-mile valuation rule, respectively) apply for 1987 and 
thereafter. Therefore, for 1985 and 1986 an employer (and employee, 
subject to paragraph (c)(2)(i) of this section) may use any applicable 
special valuation rule (or no special valuation rule) to value the use 
or availability of a vehicle, subject to paragraph (c)(2)(ii)(B) of this 
section.
    (B) Consistency Rules for 1985 and 1986. If an employer uses the 
automobile lease valuation rule of paragraph (d) of this section in 1985 
or 1986 with respect to an automobile, such rule must be used for the 
entire calendar year with respect to the automobile except for any 
period during which the commuting valuation rule of paragraph (f) of 
this section is properly used. If an employer uses the vehicle cents-
per-mile valuation rule of pararaph (e) of this section in 1985 or 1986 
with respect to a vehicle, such rule must be used for the entire 
calendar year with respect to the vehicle except for any period during 
which the commuting valuation

[[Page 17]]

rule of paragraph (f) of this section is properly used. The rules of 
this paragraph (c)(2)(ii)(B) also apply to employees using the special 
valuation rules of paragraphs (d) or (e) of this section.
    (C) Employee's use of special valuation rules for 1985. An employee 
may use a special valuation rule (other than the rule in paragraph (e) 
of this section relating to the vehicle cents-per-mile valuation rule) 
during 1985 even if the employer does not use the same special valuation 
rule during 1985. An employee's use of a special valuation rule in 1986 
and thereafter must be consistent with his employer's use of the rule as 
required under paragraph (c)(2)(i) of this section.
    (D) Examples. The following examples illustrate the rules of 
paragraph (c)(2)(ii) of this section:

    Example (1). Assume that an employer properly uses the automobile 
lease valuation rule in 1985. The employer may use the vehicle cents-
per-mile valuation rule in 1986 if the requirements of the vehicle 
cents-per-mile valuation rule are satisfied.
    Example (2). Assume that an employer does not use a special 
valuation rule to value the availability of an automobile in 1985. The 
employer may use any of the special valuation rules in 1986 if the 
requirements of the rule chosen are satisfied. The same applies for 
1987.
    Example (3). Assume that an employer properly uses the vehicle 
cents-per-mile valuation rule in 1985. The employer may continue to use 
to the rule or use any of the other special valuation rules to value the 
benefit provided in 1986 if the requirements of the rule chosen are 
satisfied. Alternatively, the employer may use none of the special 
valuation rules in 1986 but use any of the rules in 1987 if the 
requirements of the rule chosen are satisfied.
    Example (4). Assume that an employee properly uses the automobile 
lease valuation rule in 1985. In 1986 and thereafter the employee may 
use a special valuation rule only if the employee's employer uses the 
same special valuation rule. The employee may use general valuation 
principles to value the benefit provided in 1986 and thereafter.

    (3) Election to use the special valuation rules--A particular 
special valuation rule is deemed to have been elected by the employer 
(and, if applicable, by the employee), if the employer (and, if 
applicable, the employee) determines the value of the fringe benefit 
provided by applying the special valuation rule and treats such value as 
the fair market value of the fringe benefit for income, employment tax, 
and reporting purposes. Neither the employer nor the employee is 
required to notify the Internal Revenue Service of the election.
    (4) Application of section 414 to employers. For purposes of 
paragraphs (c) through (j) of this section, except as otherwise provided 
therein, the term ``employer'' includes all entities required to be 
treated as a single employer under section 414 (b), (c), or (m).
    (5) Valuation formulas contained in the special valuation rules. The 
valuation formulas contained in the special valuation rules are provided 
only for use in connection with such rules. Thus, when a special 
valuation rule is properly applied to a fringe benefit, the Commissioner 
will accept the value calculated pursuant to the rule as the fair market 
value of that fringe benefit. However, when a special valuation rule is 
not properly applied to a fringe benefit (see, for example, paragraph 
(g)(11) of this section), or when a special valuation rule is not used 
to value a fringe benefit by a taxpayer entitled to use the rule, the 
fair market value of that fringe benefit may not be determined by 
reference to any value calculated under any special valuation rule. 
Under the circumstances described in the preceding sentence, the fair 
market value of the fringe benefit must be determined pursuant to 
paragraph (b) of this section.
    (6) Modification of the special valuation rules. The Commissioner 
may, if he deems it necessary, add, delete, or modify the special 
valuation rules, including the valuation formulas contained herein, on a 
prospective basis.
    (7) Special Accounting Period. If the employer is using the special 
accounting rule provided in Announcement 85-113 (1985-31 I.R.B., August 
5, 1985) (relating to the reporting of and withholding on the value of 
noncash fringe benefits), benefits which are deemed provided in a 
subsequent calendar year pursuant to such rule are considered as 
provided in such subsequent calendar year for purposes of the special 
valuation rules. Thus, if a particular special valuation rule is in 
effect for a calendar year, it applies to benefits deemed provided 
during such calendar year under the special accounting rule.

[[Page 18]]

    (d) Automobile lease valuation rule--(1) In general--(i) Annual 
Lease Value. Under the special valuation rule of this paragraph (d), if 
an employer provides an employee with an automobile that is available to 
the employee for an entire calendar year, the value of the benefit 
provided in the Annual Lease Value (determined under paragraph (d)(2) of 
this section) of that automobile. Except as otherwise provided, for an 
automobile that is available to an employee for less than an entire 
calendar year, the value of the benefit provided is either a pro-rated 
Annual Lease Value or the Daily Lease Value (as defined in paragraph 
(d)(4) of this section), whichever is applicable. Absent any statutory 
exclusion relating to the employer-provided automobile (see, for 
example, section 132(a)(3) and Sec. 1.132-5T(b)), the amount of the 
Annual Lease Value (or a pro-rated Annual Lease Value or the Daily Lease 
Value, as applicable) is included in the gross income of the employee.
    (ii) Definition of automobile. For purposes of this paragraph (d), 
the term ``automobile'' means any four-wheeled vehicle manufactured 
primarily for use on public streets, roads, and highways.
    (2) Calculation of Annual Lease Valu e--(i) In general. The Annual 
Lease Value of a particular automobile is calculated as follows:
    (A) Determine the fair market value of the automobile as of the 
first date on which the automobile is made available to any employee of 
the employer for personal use. For an automobile first made available to 
any employee for personal use prior to January 1, 1985, determine the 
fair market value as of January 1, 1985. For rules relating to 
determination of the fair market value of an automobile for purposes of 
this paragraph (d), see paragraph (d)(5) of this section.
    (B) Select the dollar range in column 1 of the Annual Lease Value 
Table, set forth in paragraph (d)(2)(iii) of this section, corresponding 
to the fair market value of the automobile. Except as otherwise provided 
in paragraphs (d)(2) (iv) and (v) of this section, the Annual Lease 
Value for each year of availability of the automobile is the 
corresponding amount in column 2 of the Table.
    (ii) Use by employee only in 1985. If the employee, but not the 
employer, is using the special rule of this paragraph (d), the employee 
may calculate the Annual Lease Value in the same manner as described in 
paragraph (d)(2)(i)(A) of this section, except that the fair market 
value of the automobile is determined as of the first date on which the 
automobile is made available to the employee for personal use or, for an 
automobile made available to the employee for personal use prior to 
January 1, 1985, by determining the fair market value as of January 1, 
1985. If the employer is also using the special rule of this paragraph 
(d), however, then the employee to whom the automobile is made available 
must use the special rule, if at all, by using the Annual Lease Value 
calculated by the employer. The rules of this paragraph (d)(2)(ii) apply 
only for 1985.
    (iii) Annual Lease Value Table.

------------------------------------------------------------------------
                                                                 Annual
                 Automobile fair market value                    lease
                                                                 value
(1)                                                                  (2)
 
------------------------------------------------------------------------
$0 to $999...................................................       $600
$1,000 to $1,999.............................................        850
$2,000 to $2,999.............................................      1,100
$3,000 to $3,999.............................................      1,350
$4,000 to $4,999.............................................      1,600
$5,000 to $5,999.............................................      1,850
$6,000 to $6,999.............................................      2,100
$7,000 to $7,999.............................................      2,350
$8,000 to $8,999.............................................      2,600
$9,000 to $9,999.............................................      2,850
$10,000 to $10,999...........................................      3,100
$11,000 to $11,999...........................................      3,350
$12,000 to $12,999...........................................      3,600
$13,000 to $13,999...........................................      3,850
$14,000 to $14,999...........................................      4,100
$15,000 to $15,999...........................................      4,350
$16,000 to $16,999...........................................      4,600
$17,000 to $17,999...........................................      4,850
$18,000 to $18,999...........................................      5,100
$19,000 to $19,999...........................................      5,350
$20,000 to $20,999...........................................      5,600
$21,000 to $21,999...........................................      5,580
$22,000 to $22,999...........................................      6,100
$23,000 to $23,999...........................................      6,350
$24,000 to $24,999...........................................      6,600
$25,000 to $25,999...........................................      6,850
$26,000 to $27,999...........................................      7,250
$28,000 to $29,999...........................................      7,750
$30,000 to $31,999...........................................      8,250
$32,000 to $33,999...........................................      8,750
$34,000 to $35,999...........................................      9,250
$36,000 to $37,999...........................................      9,750
$38,000 to $39,999...........................................     10,250
$40,000 to $41,999...........................................     10,750
$42,000 to $43,999...........................................     11,250
$44,000 to $45,999...........................................     11,750
$46,000 to $47,999...........................................     12,250

[[Page 19]]

 
$48,000 to $49,999...........................................     12,750
$50,000 to $51,999...........................................     13,250
$52,000 to $53,999...........................................     13,750
$54,000 to $55,999...........................................     14,250
$56,000 to $57,999...........................................     14,750
$58,000 to $59,999...........................................     15,250
------------------------------------------------------------------------


For vehicles having a fair market value in excess of $59,999, the Annual 
Lease Value is equal to: (.25 x the fair market value of the automobile) 
+ $500.
    (iv) Recalculation of annual lease value. The Annual Lease Values 
determined under the rules of this paragraph (d) are based on a four-
year lease term. Therefore, except as otherwise provided in paragraph 
(d)(2)(v) of this section, the Annual Lease Value calculated by applying 
paragraph (d)(2) (i) or (ii) of this section shall remain in effect for 
the period that begins with the first date the special valuation rule of 
paragraph (d) of this section is applied by the employer to the 
automobile and ends on December 31 of the fourth full calendar year 
following that date. The Annual Lease Value for each subsequent four-
year period is calculated by determining the fair market value of the 
automobile as of the January 1 following the period described in the 
previous sentence and selecting the amount in column 2 of the Annual 
Lease Value Table corresponding to the appropriate dollar range in 
column 1 of the Table. If, however, the employer is using the special 
accounting rule provided in Announcement 85-113 (1985-31 I.R.B., August 
5, 1985) (relating to the reporting of and withholding on the value of 
noncash fringe benefits), the employer may calculate the Annual Lease 
Value for each subsequent four-year period as of the beginning of the 
special accounting period that begins immediately prior to the January 1 
described in the previous sentence. For example, assume that pursuant to 
Announcement 85-113, an employer uses the special accounting rule. 
Assume further that beginning on November 1, 1985, the special 
accounting period is November 1 to October 31 and that the employer 
elects to use the special valuation rule of this paragraph (d) as of 
January 1, 1985. The employer may recalculate the Annual Lease Value as 
of November 1, 1988, rather than as of January 1, 1989.
    (v) Transfer of the automobile to another employee. Unless the 
primary purpose of the transfer is to reduce Federal taxes, if an 
employer transfers an automobile from one employee to another employee, 
the employer may recalculate the Annual Lease Value based on the fair 
market value of the automobile as of January 1 of the year of transfer. 
If, however, the employer is using the special accounting rule provided 
in Announcement 85-113 (1985-31 I.R.B., August 5, 1985) (relating to the 
reporting of and withholding on the value of noncash fringe benefits), 
the employer may recalculate the Annual Lease Value based on the fair 
market value of the automobile as of the beginning of the special 
accounting period in which the transfer occurs. If the employer does not 
recalculate the Annual Lease Value, and the employee to whom the 
automobile is transferred uses the special valuation rule, the employee 
may not recalculate the Annual Lease Value.
    (3) Services included in, or excluded from, the Annual Lease Value 
Table--(i) Maintenance and insurance included. The Annual Lease Values 
contained in the Annual Lease Value Table include the fair market value 
of maintenance of, and insurance for, the automobile. Neither an 
employer nor an employee may reduce the Annual Lease Value by the fair 
market value of any service included in the Annual Lease Value that is 
not provided by the employer, such as reducing the Annual Lease Value by 
the fair market value of a maintenance service contract or insurance. An 
employer or employee may take into account the services actually 
provided with respect to the automobile by valuing the availability of 
the automobile under the general valuation rules of paragraph (b) of 
this section.
    (ii) Fuel excluded--(A) In general. The Annual Lease Values do not 
include the fair market value of fuel provided by the employer, 
regardless of whether fuel is provided in kind or its cost is reimbursed 
by or charged to the employer.

[[Page 20]]

    (B) Valuation of fuel provided in kind. The provision of fuel in 
kind may be valued at fair market value based on all the facts and 
circumstances or, in the alternative, it may be valued at 5.5 cents per 
mile for all miles driven by the employee. However, the provision of 
fuel in kind may not be valued at 5.5 cents per mile for miles driven 
outside the United States, Canada, and Mexico. For purposes of this 
section, the United States includes the United States and its 
territories.
    (C) Valuation of fuel where cost reimbursed by or charged to 
employer. The fair market value of fuel, the cost of which is reimbursed 
by or charged to an employer, is generally the amount of the actual 
reimbursement or the amount charged, provided the purchase of the fuel 
is at arm's length. If an employer with a fleet of at least 20 
automobiles that meet the requirements of paragraph (d)(5)(v)(C) of this 
section reimburses employees for the cost of fuel or allows employees to 
charge the employer for the cost of the fuel, however, the fair market 
value of fuel provided to those automobiles may be determined by 
reference to the employer's fleet-average cents-per-mile fuel cost. The 
fleet-average cents-per-mile fuel cost in equal to the fleet-average 
per-gallon fuel cost divided by the fleet-average miles-per-gallon rate. 
The averages described in the preceding sentence must be determined by 
averaging the per-gallon fuel costs and miles-per-gallon rates of a 
representative sample of the automobiles in the fleet equal to the 
greater of ten percent of the automobiles in the fleet or 20 automobiles 
for a representative period, such as a two month period.
    (iii) All other services excluded. The fair market value of any 
service not specifically identified in paragraph (d)(3)(i) of this 
section that is provided by the employer with respect to an automobile 
(such as the services of a chauffeur) must be added to the Annual Lease 
Value of the automobile in determining the fair market value of the 
benefit provided.
    (4) Availability of an automobile for less than an entire calendar 
year--(i) Pro-rated Annual Lease Value used for continuous availability 
of 30 or more days. Except as otherwise provided in paragraph (d)(4)(iv) 
of this section, for periods of continuous availability of 30 or more 
days, but less than an entire calendar year, the value of the 
availability of the employer-provided automobile is the pro-rated Annual 
Lease Value. The pro-rated Annual Lease Value is calculated by 
multiplying the applicable Annual Lease Value by a fraction, the 
numerator of which is the number of days of availability and the 
denominator of which is 365.
    (ii) Daily Lease Value used for continuous availability of less than 
30 days. Except as otherwise provided in paragraph (d)(4)(iii) of this 
section, for periods of continuous availability of one or more but less 
than 30 days, the value of the availability of the employer-provided 
automobile is the Daily Lease Value. The Daily Lease Value is calculated 
by multiplying the applicable Annual Lease Value by a fraction, the 
numerator of which is four times the number of days of availability and 
the denominator of which is 365.
    (iii) Election to treat all periods as periods of at least 30 days. 
A pro-rated Annual Lease Value may be applied with respect to a period 
of continuous availability of less than 30 days, by treating the 
automobile as if it had been available for 30 days, if to do so would 
result in a lower valuation than applying the Daily Lease Value to the 
shorter period of actual availability.
    (iv) Periods of unavailability--(A) General rule. In general, a pro-
rated Annual Lease Value (as provided in paragraph (d)(4)(i) of this 
section) is used to value the availability of an employer-provided 
automobile when the automobile is available to an employee for a period 
of continuous availability of at least 30 days but less than the entire 
calendar year. Neither an employer nor an employee may use a pro-rated 
Annual Lease Value when the reduction of Federal taxes is the primary 
reason the automobile is unavailable to an employee during the calendar 
year.
    (B) Unavailability for personal reasons of the employee. If an 
automobile is unavailable to an employee because of personal reasons of 
the employee, such as while the employee is on vacation, a pro-rated 
Annual Lease Value may not

[[Page 21]]

be used. For example, assume an automobile is available to an employee 
during the first five months of the year and during the last five months 
of the year. Assume further that the period of unavailability occurs 
because the employee is on vacation. The Annual Lease Value, if it is 
applied, must be applied with respect to the entire 12 month period. The 
Annual Lease Value may not be pro-rated to take into account the two-
month period of unavailability.
    (5) Fair market value--(i) In general. For purposes of determining 
the Annual Lease Value of an automobile under the Annual Lease Value 
Table, the fair market value of an automobile is that amount a 
hypothetical person would have to pay a hypothetical third party to 
purchase the particular automobile provided. Thus, for example, any 
special relationship that may exist between the employee and the 
employer must be disregarded. Also, the employee's subjective perception 
of the value of the automobile is not relevant to the determination of 
the automobile's fair market value. In addition, except as provided in 
paragraph (d)(5) (ii) of this section, the cost incurred by the employer 
of either purchasing of leasing the automobile is not determinative of 
the fair market value of the automobile.
    (ii) Safe-harbor valuation rule. For purposes of calculating the 
Annual Lease Value of an automobile under this paragraph (d), the safe-
harbor value of the automobile may be used as the fair market value of 
the automobile For an automobile owned by the employer, the safe-harbor 
value of the automobile is the employer's cost of purchasing the 
automobile, provided the purchase is made at arm's length. For an 
automobile leased by the employer, the safe-harbor value of the 
automobile is the value determined under paragraph (d)(5)(iii) of this 
section.
    (iii) Use of nationally recognized pricing guides. The fair market 
value of an automobile that is (A) provided to an employee prior to 
January 1, 1985, (B) being revalued pursuant to paragraphs (d)(2) (iv) 
or (v) of this section, or (C) is a leased automobile being valued 
pursuant to paragraph (d)(5)(ii) of this section, may be determined by 
using the retail value of such automobile as reported in a nationally 
recognized publication that regularly reports new or used automobile 
retail values, whichever is applicable. The values contained in (and 
obtained from) the publication must be reasonable with respect to the 
automobile being valued.
    (iv) Fair market value of special equipment--(A) Certain equipment 
excluded. The fair market value of an automobile does not include the 
fair market value of any telephone or any specialized equipment that is 
added to or carried in the automobile if the presence of such equipment 
is necessitated by, and attributable to, the business needs of the 
employer.
    (B) Use of specialized equipment outside of employer's business. The 
value of specialized equipment must be included, however, if the 
employee to whom the automobile is available uses the specialized 
equipment in a trade of business of the employee other than the 
employee's trade or business of being an employee of the employer.
    (C) Equipment susceptible to personal use. The exclusion rule 
provided in this paragraph (d)(5)(iv) does not apply to specialized 
equipment susceptible to personal use.
    (v) Fleet-average valuation rule--(A) In general. An employer with a 
fleet of 20 or more automobiles may use a fleet-average value for 
purposes of calculating the Annual Lease Values of the automobiles in 
the fleet. The fleet-average value is the average of the fair market 
values of each automobile in the fleet. The fair market value of each 
automobile in the fleet shall be determined, pursuant to the rules of 
paragraphs (d)(5) (i) through (iv) of this section, as of the later of 
January 1, 1985, or the first date on which the automobile is made 
available to any employee of the employer for personal use.
    (B) Period for use of rule. The fleet-average valuation rule of this 
paragraph (d)(5)(v) may be used by an employer as of January 1 of any 
calendar year following the calendar year in which the employer acquires 
a fleet of 20 or more automobiles. The Annual Lease Value calculated for 
the automobiles in the fleet, based on the fleet-average value,

[[Page 22]]

shall remain in effect for the period that begins with the first January 
1 the fleet-average valuation rule of this paragraph (d)(5)(v) is 
applied by the employer to the automobiles in the fleet and ends on 
December 31 of the subsequent calendar year. The Annual Lease Value for 
each subsequent two year period is calculated by determining the fleet-
average value of the automobiles in the fleet as of the first January 1 
of such period. An employer may cease using the fleet-average valuation 
rule as of any January 1. The fleet-average valuation rule does not 
apply as of January 1 of the year in which the number of automobiles in 
the employer's fleet declines to fewer than 20. If, however, the 
employer is using the special accounting rule provided in Announcement 
85-113 (I.R.B. No. 31, August 5, 1985), the employer may apply the rules 
of this paragraph (d)(5)(v)(B) on the basis of the special accounting 
period rather than the calendar year. (This is accomplished by 
substituting (1) the beginning of the special accounting period that 
begins immediately prior to the January 1 described in this paragraph 
(d)(5)(v)(B) for January 1 wherever it appears in this paragraph 
(d)(5)(v)(B) and (2) the end of such accounting period for December 31.) 
The revaluation rules of paragraph (d)(2) (iv) and (v) of this section 
do not apply to automobiles valued under this paragraph (d)(5)(v).
    (C) Limitations on use of fleet-average rule. The rule provided in 
this paragraph (d)(5)(v) may not be used for any automobile whose fair 
market value (determined pursuant to paragraphs (d)(5) (i) through (iv) 
of this section as of either the first date on which the automobile is 
made available to any employee of the employer for personal use or, if 
later, January 1, 1985) exceeds $16,500. In addition, the rule provided 
in this paragraph (d)(5)(v) may only be used for automobiles that the 
employer reasonably expects will regularly be used in the employer's 
trade or business. Infrequent use of the vehicle, such as for trips to 
the airport or between the employer's multiple business premises, does 
not constitute regular use of the vehicle in the employer's trade or 
business.
    (D) Additional automobiles added to the fleet. If the rule provided 
in this paragraph (d)(5)(v) is used by an employer, it must be used for 
every automobile included in or added to the fleet that meets the 
requirements of paragraph (d)(5)(v)(C) of this section. The fleet-
average value in effect at the time an automobile is added to the fleet 
is treated as the fair market value of the automobile for purposes of 
determining the Annual Lease Value of the automobile until the fleet-
average value changes pursuant to paragraph (d)(5)(v)(B) of this 
section.
    (E) Use of the fleet-average rule by employees. An employee can only 
use the fleet-average value if it is used by the employer. If an 
employer uses the fleet-average value, and the employee uses the special 
valuation rule of paragraph (d) of this section, the employee must use 
the fleet-average value.
    (6) Consistency rules--(i) Use of the automobile lease valuation 
rule by an employer. Except as provided in paragraph (d)(5) (v)(B) of 
this section, an employer may adopt the automobile lease valuation rule 
of this paragraph (d) for an automobile only if the rule is adopted with 
respect to the later of the period that begins on January 1, 1987, or 
the first period in which the automobile is made available to an 
employee of the employer for personal use or, if the commuting valuation 
rule of paragraph (f) of this section is used when the automobile is 
first made available to an employee of the employer for personal use, 
the first period in which the commuting valuation rule is not used.
    (ii) An employer must use the automobile lease valuation rule for 
all subsequent periods. Once the automobile lease valuation rule has 
been adopted for an automobile by an employer, the rule must be used by 
the employer for all subsequent periods in which the employer makes the 
automobile available to any employee, except that the employer may, for 
any period during which use of the automobile qualifies for the 
commuting valuation rule of paragraph (f) of this section, use the 
commuting valuation rule with respect to the automobile.

[[Page 23]]

    (iii) Use of the automobile lease valuation rule by an employee. 
Except as provided in paragraph (c)(2)(ii)(C) of this section, an 
employee may adopt the automobile lease valuation rule for an automobile 
only if the rule is adopted (A) by the employer and (B) with respect to 
the first period in which the automobile for which the employer 
(consistent with paragraph (d)(6)(i) of this section) adopted the rule 
is made available to that employee for personal use, or, if the 
commuting valuation rule of paragraph (f) of this section is used when 
the automobile is first made available to that employee for personal 
use, the first period in which the commuting valuation rule is not used.
    (iv) An employee must use the automobile lease valuation rule for 
all subsequent periods. Once the automobile lease valuation rule has 
been adopted for an automobile by an employee, the rule must be used by 
the employee for all subsequent periods in which the automobile for 
which the rule is used is available to the employee, except that the 
employee may, for any period during which use of the automobile 
qualifies for use of the commuting valuation rule of paragraph (f) of 
this section and for which the employer uses the rule, use the commuting 
valuation rule with respect to the automobile.
    (v) Replacement automobiles. Notwithstanding anything in this 
paragraph (D)(6) to the contrary, if the automobile lease valuation rule 
is used by an employer, or by an employer and an employee, with respect 
to a particular automobile, and a replacement automobile is provided to 
the employee for the primary purpose of reducing Federal taxes, then the 
employer, or the employer and the employee, using the rule must continue 
to use the rule with respect to the replacement automobile.
    (e) Vehicle cents-per-mile valuation rule--(1) In general--(i) 
General rule. Under the vehicle cents-per-mile valuation rule of this 
paragraph (e), if an employer provides an employee with the use of a 
vehicle that (A) the employer reasonably expects will be regularly used 
in the employer's trade or business throughout the calendar year (or 
such shorter period as the vehicle may be owned or leased by the 
employer) or (B) satisfies the requirements of paragraph (e)(1)(ii) of 
this section, the value of the benefit provided in the calendar year is 
the standard mileage rate provided in the applicable Revenue Ruling or 
Revenue Procedure (``cents-per-mile rate'') multiplied by the total 
number of miles the vehicle is driven by the employee for personal 
purposes. For 1985, the standard mileage rate is 21 cents per mile for 
the first 15,000 miles and 11 cents per mile for all miles over 15,000. 
See Rev. Proc. 85-49. The standard mileage rate must be applied to 
personal miles independent of business miles. Thus, for example, if an 
employee drives 20,000 personal miles and 35,000 business miles in 1985, 
the value of the personal use of the vehicle is $3,700 
(15,000x$.21+5,000x$.11). For purposes of this section, the use of a 
vehicle for personal purposes is any use of the vehicle other than use 
in the employee's trade or business of being an employee of the 
employer. Infrequent use of the vehicle, such as for trips to the 
airport or between the employer's multiple business premises, does not 
constitute regular use of the vehicle in the employer's trade or 
business.
    (ii) Mileage rule. A vehicle satisfies the requirements of this 
paragraph (e)(1)(ii) in a calendar year if (A) it is actually driven at 
least 10,000 miles in the year, and (B) use of the vehicle during the 
year is primarily by employees. For example, if a vehicle is used by 
only one employee during the year and that employee drives a vehicle at 
least 10,000 miles in a calendar year, such vehicle satisfies the 
requirements of this paragraph (e)(1)(ii) even if all miles driven by 
the employee are personal. The requirements of this paragraph 
(e)(1)(ii), however, will not be satisfied if during the year the 
vehicle is transferred among employees in such a way which enables an 
employee whose use was at a rate significantly less that 10,000 miles 
per year to meet the 10,000 mile threshold. Assume that an employee uses 
a vehicle for the first six months of the year and drives 2,000 miles, 
and that vehicle is then used by other employees who drive the vehicle 
8,000 miles in the last six months of the year. Because the rate at 
which miles were driven in the first six months of the year would result 
in only 4,000

[[Page 24]]

miles being driven in the year, and because the first employee did not 
use the vehicle during the last six months of the year, the requirements 
of this paragraph (e)(1)(ii) are not satisfied. The requirement of 
paragraph (e)(1)(ii)(B) of this section is deemed satisfied if employees 
use the vehicle on a consistent basis for commuting. If the employer 
does not own or lease the vehicle during a portion of the year, the 
10,000 mile threshold is to be reduced proportionately to reflect the 
periods when the employer owned or leased the vehicle. For purposes of 
this paragraph (e)(1)(ii), use of the vehicle by an individual (other 
than the employee) whose use would be taxed to the employee is not 
considered use by the employee.
    (iii) Limitation on use of the vehicle cents-per-mile valuation 
rule. The value of the use of an automobile (as defined in paragraph 
(d)(1)(ii) of this section) may not be determined under the vehicle 
cents-per-mile valuation rule of this paragraph (e) if the fair market 
value of the automobile (determined pursuant to paragraphs (d)(5) (i) 
through (iv) of this section as of the later of January 1, 1985, or the 
first date on which the automobile is made available to any employee of 
the employer for personal use) exceeds $12,800. No inference may be 
drawn from the promulgation or terms of this section concerning the 
application of law in effect prior to January 1, 1985.
    (2) Definition of vehicle. For purposes of this paragraph (e), the 
term ``vehicle'' means any motorized wheeled vehicle manufactured 
primarily for use on public streets, roads, and highways. The term 
``vehicle'' includes an automobile as defined in paragraph (d)(1)(ii) of 
this section.
    (3) Services included in, or excluded from, the cents-per-mile rate-
-(i) Maintenance and insurance included. The cents-per-mile rate 
includes the fair market value of maintenance of, and insurance for, the 
vehicle. An employer may not reduce the cents-per-mile rate by the fair 
market value of any service included in the cents-per-mile rate but not 
provided by the employer. An employer or employee may take into account 
the services provided with respect to the automobile by valuing the 
availability of the automobile under the general valuation rules of 
paragraph (b) of this section.
    (ii) Fuel provided by the employer--(A) Miles driven in the United 
States, Canada, and Mexico. With respect to miles driven in the United 
States, Canada, and Mexico, the cents-per-mile rate includes the fair 
market value of fuel provided by the employer. If fuel is not provided 
by the employer, the cents-per-mile rate may be reduced by no more than 
5.5 cents or the amount specified in any applicable Revenue Ruling or 
Revenue Procedure. For purposes of this section, the United States 
includes the United States and its territories.
    (B) Miles driven outside the United States, Canada, and Mexico. With 
respect to miles driven outside the United States, Canada, and Mexico, 
the fair market value of fuel provided by the employer is not reflected 
in the cents-per-mile rate. Accordingly, the cents-per-mile rate may be 
reduced but by no more than 5.5 cents or the amount specified in any 
applicable Revenue Ruling or Revenue Procedure. If the employer provides 
the fuel in kind, it must be valued based on all the facts and 
circumstances. If the employer reimburses the employee for the cost of 
fuel or allows the employee to charge the employer for the cost of fuel, 
the fair market value of the fuel is generally the amount of the actual 
reimbursement or the amount charged, provided the purchase of fuel is at 
arm's length.
    (4) Valuation of personal use only. The vehicle cents-per-mile 
valuation rule of this paragraph (e) may only be used to value the miles 
driven for personal purposes. Thus, the employer must include an amount 
in an employee's income with respect to the use of a vehicle that is 
equal to the product of the number of personal miles driven by the 
employee and the appropriate cents-per-mile rate. The employer may not 
include in income a greater or lesser amount; for example, the employer 
may not include in income 100 percent (all business and personal miles) 
of the value of the use of the vehicle. The term ``personal miles'' 
means all miles driven by the employee except miles

[[Page 25]]

driven by the employee is the employee's trade or business of being an 
employee of the employer.
    (5) Consistency rules--(i) Use of the vehicle cents-per-mile 
valuation rule by an employer. An employer must adopt the vehicle cents-
per-mile valuation rule of this paragraph (e) for a vehicle by the later 
of the period that begins on January 1, 1987, or the first period in 
which the vehicle is used by an employee of the employer for personal 
use or, if the commuting valuation rule of paragraph (f) of this section 
is used when the vehicle is first used by an employee of the employer 
for personal use, the first period in which the commuting valuation rule 
is not used.
    (ii) An employer must use the vehicle cents-per-mile valuation rule 
for all subsequent periods. Once the vehicle cents-per-mile valuation 
rule has been adopted for a vehicle by an employer, the rule must be 
used by the employer for all subsequent periods in which the vehicle 
qualifies for use of the rule, except that (A) the employer may, for any 
period during which use of the vehicle qualifies for the commuting 
valuation rule of paragraph (f) of this section, use the commuting 
valuation rule with respect to the vehicle, and (B) if the employer 
elects to use the automobile lease valuation rule of paragraph (d) of 
this section for a period in which the vehicle does not qualify for use 
of the vehicle cents-per-mile valuation rule, then the employer must 
comply with the requirements of paragraph (d)(6) of this section. If the 
vehicle fails to qualify for use of the vehicle cents-per-mile valuation 
rule during a subsequent period, the employer may adopt for such 
subsequent period and thereafter any other special valuation rule for 
which the vehicle then qualifies. For purposes of paragraph (d)(6) of 
this section, the first day on which an automobile with respect to which 
the vehicle cents-per-mile rule had been used fails to qualify for use 
of the vehicle cents-per-mile valuation rule may be deemed to be the 
first day on which the automobile is available to an employee of the 
employer for personal use.
    (iii) Use of the vehicle cents-per-mile valuation rule by an 
employee. An employee may adopt the vehicle cents-per-mile valuation 
rule for a vehicle only if the rule is adopted (A) by the employer and 
(B) with respect to the first period in which the vehicle for which the 
employer (consistent with paragraph (e)(5)(i) of this section) adopted 
the rule is available to that employee for personal use or, if the 
commuting valuation rule of paragraph (f) of this section is used by 
both the employer and the employee when the vehicle is first used by an 
employee for personal use, the first period in which the commuting 
valuation rule is not used.
    (iv) An employee must use the vehicle cents-per-mile valuation rule 
for all subsequent periods. Once the vehicle cents-per-mile valuation 
rule has been adopted for a vehicle by an employee, the rule must be 
used by the employee for all subsequent periods of personal use of the 
vehicle by the employee for which the rule is used by the employer, 
except that the employee may, for any period during which use of the 
vehicle qualifies for use of the commuting valuation rule of paragraph 
(f) of this section and for which such rule is used by the employer, use 
the commuting valuation rule with respect to the vehicle.
    (v) Replacement vehicles. Notwithstanding anything in this paragraph 
(e)(5) to the contrary, if the vehicle cents-per-mile valuation rule is 
used by an employer, or by an employer and an employee, with respect to 
a particular vehicle, and a replacement vehicle is provided to the 
employee for the primary purpose of reducing Federal taxes, then the 
employer, or the employer and the employee, using the rule must continue 
to use the rule with respect to the replacement vehicle if the 
replacement vehicle qualifies for use of the rule.
    (f) Commuting valuation rule--(1) In general. Under the commuting 
valuation rule of this paragraph (f), the value of the commuting use of 
an employer-provided vehicle may be determined pursuant to paragraph 
(f)(3) of this section if the following criteria are met by the employer 
and employees with respect to the vehicle:
    (i) The vehicle is owned or leased by the employer and is provided 
to one or more employees for use in connection

[[Page 26]]

with the employer's trade or business and is used in the employer's 
trade or business;
    (ii) For bona fide noncompensatory business reasons, the employer 
requires the employee to commute to and/or from work in the vehicle;
    (iii) The employer has established a written policy under which the 
employee may not use the vehicle for personal purposes, other than for 
commuting or de minimis personal use (such as a stop for a personal 
errand on the way between a business delivery and the employee's home);
    (iv) Except for de minimis personal use, the employee does not use 
the vehicle for any personal purpose other than commuting; and
    (v) The employee required to use the vehicle for commuting is not a 
control employee of the employer (as defined in paragraphs (f) (5) and 
(6) of this section).

If the vehicle is a chauffeur-driven vehicle, the commuting valuation 
rule of this paragraph (f) may not be used to value the commuting use of 
any passenger who commutes in the vehicle. The rule may be used, 
however, to value the commuting use of the chauffeur. Personal use of a 
vehicle is all use of the vehicle by the employee that is not used in 
the employee's trade or business of being an employee of the employer.
    (2) Special rules. Notwithstanding anything in paragraph (f)(1) of 
this section to the contrary, the following special rules apply--
    (i) Written policy not required in 1985. The policy described in 
paragraph (f)(1)(iii) of this section prohibiting personal use need not 
be written with respect to the commuting use which occurs prior to 
January 1, 1986;
    (ii) Commuting use during 1985. For commuting use that occurs after 
December 31, 1984, but before January 1, 1986, the restrictions of 
paragraph (f)(1)(v) of this section shall be applied by substituting 
``an employee who is an officer or a five-percent owner of the 
employer'' in lieu of ``a control employee''. For purposes of 
determining who is a five-percent owner, any individual who owns (or is 
considered as owning) five or more percent of the fair market value of 
an entity (the ``owned entity'') is considered a five-percent owner of 
all entities that would be aggregated with the owned entity under the 
rules of section 414 (b), (c), or (m). An employee who is an officer of 
an employer shall be treated as an officer of all entities treated as a 
single employer pursuant to section 414 (b), (c), or (m). The 
definitions provided in paragraphs (f)(5)(i) and (f)(6) of this section 
may be used to define an officer; and
    (iii) Control employee exception. If the vehicle in which the 
employee is required to commute is not an automobile as defined in 
paragraph (d)(1)(ii) of this section, the restrictions of paragraph 
(f)(1)(v) of this section do not apply.
    (3) Commuting value--(i) $1.50 per one-way commute. If the 
requirements of this paragraph (f) are satisfied, the value of the 
commuting use of an employer-provided vehicle is $1.50 per one-way 
commute (e.g., from home to work or from work to home).
    (ii) Value per employee. If there is more than one employee who 
commutes in the vehicle, such as in the case of an employer-sponsored 
car pool, the amount includible in the income of each employee is $1.50 
per one-way commute. Thus, the amount includible for each round-trip 
commute is $3.00 per employee.
    (4) Definition of vehicle. For purposes of this paragraph (f), the 
term ``vehicle'' means any motorized wheeled vehicle manufactured 
primarily for use on public streets, roads, and highways. The term 
``vehicle'' includes an automobile as defined in paragraph (d)(1)(ii) of 
this section.
    (5) Control employee defined--Non-government employer. For purposes 
of this paragraph (f), a control employee of a non-government employer 
is any employee--
    (i) Who is a Board- or shareholder-appointed, confirmed, or elected 
officer of the employer,
    (ii) Who is a director of the employer, or
    (iii) Who owns a one-percent or greater equity, capital, or profits 
interest in the employer.

For purposes of determining who is a one-percent owner under paragraph 
(f)(5)(iii) of this section, any individual

[[Page 27]]

who owns (or is considered as owning under section 318(a) or principles 
similar to section 318(a) for entities other than corporations) one 
percent or more of the fair market value of an entity (the ``owned 
entity'') is considered a one-percent owner of all entities which would 
be aggregated with the owned entity under the rules of section 414 (b), 
(c), or (m). An employee who is an officer of an employer shall be 
treated as an officer of all entities treated as a single employer 
pursuant to section 414 (b), (c) or (m).
    (6) Control employee defined--Government employer. For purposes of 
this paragraph (f), a control employee of a government employer if any--
    (i) Elected official,
    (ii) Federal employee who is appointed by the President and 
confirmed by the Senate. In the case of commissioned officers of the 
United States Armed Forces, an officer is any individual with the rank 
of brigadier general or above or the rank of rear admiral (lower half) 
or above; or
    (iii) State or local executive officer comparable to the individuals 
described in paragraph (f)(6) (i) and (ii) of this section.

For purposes of this paragraph (f), the term ``government'' includes any 
Federal, state, or local governmental unit, and any agency or 
instrumentality thereof.
    (g) Non-commercial flight valuation rule--(1) In general. Under the 
non-commercial flight valuation rule of this paragraph (g), if an 
employee is provided with a flight on an employer-provided aircraft, the 
value of the flight is calculated using the aircraft valuation formula 
provided in paragraph (g)(5) of this section. Except as otherwise 
provided, for purposes of this paragraph (g), a flight provided to a 
person whose flight would be taxable to an employee as the recipient is 
referred to as provided to the employee, and a flight taken by such 
person is considered a flight taken by the employee.
    (2) Eligible flights and eligible aircraft. The valuation rule of 
this paragraph (g) may be used to value flights on all employer-provided 
aircraft, including helicopters. The valuation rule of this paragraph 
(g) may be used to value international as well as domestic flights. The 
valuation rule of this paragraph (g) may not be used to value a flight 
on any commercial aircraft on which air transportation is sold to the 
public on a per-seat basis. For a special valuation rule relating to 
certain flights on commercial aircraft, see paragraph (h) of this 
section.
    (3) Definition of a flight--(i) General rule. Except as otherwise 
provided in paragraph (g)(3)(iii) of this section (relating to 
intermediate stops), for purposes of this paragraph (g), an individual's 
flight is the distance (in statute miles) between the place at which the 
individual boards the aircraft and the place at which the individual 
deplanes.
    (ii) Valuation of each flight. Under the valuation rule of this 
paragraph (g), value is determined separately for each flight. Thus, a 
round-trip is comprised of at least two flights. For example, an 
employee who takes a personal trip on an employer-provided aircraft from 
New York, New York to Denver, Colorado, Denver to Los Angeles, 
California, and Los Angeles to New York has taken three flights and must 
apply the aircraft valuation formula separately to each flight. The 
value of a flight must be determined on a passenger-by-passenger basis. 
For example, if an individual accompanies an employee and the flight 
taken by the individual would be taxed to the employee, the employee 
would be taxed on the special rule value of the flight by the employee 
and by the individual.
    (iii) Intermediate stop. If the primary purpose of a landing is 
necessitated by weather conditions, by an emergency, for purposes of 
refueling or obtaining other services relating to the aircraft, or for 
purposes of the employer's business unrelated to the employee whose 
flight is being valued (``an intermediate stop''), the distance between 
the place at which the trip originates and the place at which the 
intermediate stop occurs is not considered a flight. For example, assume 
that an employee's trip originates in St. Louis, Missouri, on route to 
Seattle, Washington, but, because of weather conditions, the aircraft 
lands in Denver, Colorado, and the employee stays in Denver overnight. 
Assume further that the next day the aircraft flies to Seattle

[[Page 28]]

where the employee deplanes. The employee's flight is the distance 
between the airport in St. Louis and the airport in Seattle. Assume that 
a trip originates in New York, New York, with five passengers and makes 
an intermediate stop in Chicago, Illinois, before going on to Los 
Angeles, California. If one of the five passengers deplanes in Chicago, 
the distance of that passenger's flight would be the distance between 
the airport in New York and the airport in Chicago. The intermediate 
stop is disregarded when measuring the flights taken by each of the 
other passengers. Their flights would be the distance between the 
airport in New York and the airport in Los Angeles.
    (4) Personal and non-personal flights--(i) In general. The valuation 
rule of this paragraph (g) applies to personal flights on employer-
provided aircraft. A personal flight is one the value of which is not 
excludable under another section of subtitle A, such as under section 
132(d) (relating to a working condition fringe). However, solely for 
purposes of paragraphs (g)(4)(ii) and (g)(4)(iii) of this section, 
references to personal flights do not include flights a portion of which 
would not be excludable by reason of section 274.(c).
    (ii) Trip primarily for employer's business. If an employee 
combines, in one trip, personal and business flights on an employer-
provided aircraft and the employee's trip is primarily for the 
employer's business (see Sec. 1.162-2(b)(2)), the employee must include 
in income the excess of the value of all the flights that comprise the 
trip over the value of the flights that would have been taken had there 
been no personal flights but only business flights. For example, assume 
that an employee flies on an employer-provided aircraft from Chicago, 
Illinois to Miami, Florida, for the employer's business and that from 
Miami the employee flies on the employer-provided aircraft to Orlando, 
Florida, for personal purposes and then flies back to Chicago. Assume 
further that the primary purpose of the trip is for the employer's 
business. The amount includible in income is the excess of the value of 
the three flights (Chicago to Miami, Miami to Orlando, and Orlando to 
Chicago), over the value of the flights that would have been taken had 
there been no personal flights but only business flights (Chicago to 
Miami and Miami to Chicago).
    (iii) Primarily personal trip. In an employee combines, in one trip, 
personal and business flights on an employer-provided aircraft and the 
aircraft's trip is primarily personal (see Sec. 1.162-2(b)(2)), the 
amount includible in the employee's income is the value of the personal 
flights that would have been taken had there been no business flights 
but only personal flights. For example, assume that an employee flies on 
an employer-provided aircraft from San Francisco, California, to Los 
Angeles, California, for the employer's business and that from Los 
Angeles the employee flies on an employer-provided aircraft to Palm 
Springs, California, primarily for personal reasons and then flies back 
to San Francisco. Assume further that the primary purpose of the trip is 
personal. The amount includible in the employee's income is the value of 
personal flights that would have been taken had there been no business 
flights but only personal flights (San Francisco to Palm Springs and 
Palm Springs to San Francisco).
    (iv) Application of section 274(c). The value of employer-provided 
travel outside the United States away from home may not be excluded from 
the employee's gross income as a working condition fringe, by either the 
employer or the employee, to the extent not deductible by reason of 
section 274(c). The valuation rule of this paragraph (g) applies to that 
portion of the value of any flight not excludable by reason of section 
274(c). Such value must be included in income in addition to the amounts 
determined under paragraphs (g)(4)(ii) and (g)(4)(iii) of this section.
    (v) Flight by individuals who are not personal guests. If an 
individual who is not an employee of the employer providing the aircraft 
is on a flight, and the individual is not the personal guest of any 
employee, the flight by the individual is not taxable to any employee of 
the employer providing the aircraft. The rule in the preceding sentence 
applies where the individual is provided the flight by the employer for 
noncompensatory business reasons of the employer. For example, assume 
that G,

[[Page 29]]

and employee of company Y, accompanies A, an employee of company X, on 
company X's aircraft for the purpose of inspecting land under 
consideration for purchase by company X from company Y. The flight by G 
is not taxable to A.
    (5) Aircraft valuation formula. Under the valuation rule of this 
paragraph (g), the value of a flight is determined by multiplying the 
base aircraft valuation formula for the period during which the flight 
was taken by the appropriate aircraft multiple (as provided in paragraph 
(g)(7) of this section) and then adding the applicable terminal charge. 
The base aircraft valuation formula (also known as the Standard Industry 
Fare Level formula or SIFL) in effect on June 30, 1985, is as follows: 
($.1402 per mile for the first 500 miles, $.1069 per mile for miles 
between 501 and 1500, and $.1028 per mile for miles over 1500). The 
terminal charge in effect on June 30, 1985, is $25.62. The SIFL cents-
per-mile rates in the formula and the terminal charge are calculated by 
the Department of Transportation and are revised semi-annually.
    (6) SIFL formula in effect for a particular flight. For purposes of 
this paragraph (g), in determining the value of a particular flight 
during the first six months of a calendar year, the SIFL formula (and 
terminal charge) in effect on December 31 of the preceding year applies, 
and in determining the value of a particular flight during the last six 
months of a calendar year, the SIFL formula (and terminal charge) in 
effect on June 30 of that year applies. The following is the SIFL 
formula in effect on December 31, 1984: ($.1480 per mile for the first 
500 miles, $.1128 per mile for miles between 501 and 1500, and $.1085 
per mile for miles over 1500). The terminal charge in effect on December 
31, 1984, is $27.05.
    (7) Aircraft multiples--(i) In general. The aircraft multiples are 
based on the maximum certified takeoff weight of the aircraft. For 
purposes of applying the aircraft valuation formula described in 
paragraph (g)(5) of this section, the aircraft multiples are as follows:

                              [In percent]
------------------------------------------------------------------------
                                                      Aircraft multiple
                                                           for a--
                                                   ---------------------
 Maximum certified takeoff weight of the aircraft                 Non-
                                                     Control    control
                                                     employee   employee
------------------------------------------------------------------------
6,000 lbs. or less................................       62.5       15.6
6,001 to 10,000 lbs...............................      125.0       23.4
10,001 to 25,000 lbs..............................      300.0       31.3
25,001 lbs. or more...............................      400.0       31.3
------------------------------------------------------------------------

    (ii) Flights treated as provided a to control employee. Except as 
provided in paragraph (g)(10) of this section, any flight provided to an 
individual whose flight would be taxable to a control employee (as 
defined in paragraph (g)(8) and (9) of this section) as the recipient 
shall be valued as if such flight has been provided to that control 
employee. For example, assume that the chief executive officer of an 
employer, his spouse, and his two children fly on an employer-provided 
aircraft for personal purposes. Assume further that the maximum 
certified takeoff weight of the aircraft is 12,000 lbs. The amount 
includible in the employee's income is 4 x ((300 percent x base aircraft 
valuation formula) plus the applicable terminal charge).
    (8) Control employee defined--Nongovernment employer. For purposes 
of this paragraph (g), a control employee of a non-government employer 
is any employee--
    (i) Who is a Board- or shareholder- appointed, confirmed, or elected 
officer of the employer, limited to the lesser of (A) one-percent of all 
employees (increased to the next highest integer, if not an integer) or 
(B) ten employees;
    (ii) Whose compensation equals or exceeds the compensation of the 
top one percent most highly-paid employees of the employer (increased to 
the next highest integer, if not an integer) limited to a maximum of 25 
employees;
    (iii) Who owns a ten-percent or greater equity, capital or profits 
interest in the employer; or
    (iv) Who is a director of the employer.

For purposes of this paragraph (g), any employee who is a family member 
(within the meaning of section 267(c)(4)) of a control employee is also 
a control employee. Pursuant to this paragraph (g)(8), an employee may 
be a control employee under more than one

[[Page 30]]

of the requirements listed in paragraphs (g)(8) (i) through (iv) of this 
section. For example, an employee may be both an officer under paragraph 
(g)(8)(i) of this section and a highly-paid employee under paragraph 
(g)(8)(ii) of this section. In this case, for purposes of the officer 
limitation rule of paragraph (g)(8)(i) of this section and the highly-
paid employee limitation rule of paragraph (g)(8)(ii) of this section, 
the employee would be counted as reducing both such limitation rules. In 
no event shall an employee whose compensation is less than $50,000 be a 
control employee under paragraph (g)(8)(ii) of this section. For 
purposes of determining who is a ten-percent owner under paragraph 
(g)(8)(iii) of this section, any individual who owns (or is considered 
as owning under section 318(a) or principles similar to section 318(a) 
for entities other than corporations) ten percent or more of the fair 
market value of an entity (the ``owned entity'') is considered a ten-
percent owner of all entities which would be aggregated with the owned 
entity under the rules of section 414 (b), (c), or (m). For purposes of 
determining who is an officer under paragraph (g)(8)(i) of this section, 
notwithstanding anything in this section to the contrary, if the 
employer would be aggregated with other employers under the rules of 
section 414 (b), (c), or (m), the officer definition and the limitations 
are applied to each separate employer rather than to the aggregated 
employer. If applicable, the officer limitation rule of paragraph 
(g)(8)(i) of this section is applied to employees in descending order of 
their compensation. Thus, if an employer has 11 board-appointed 
officers, the employee with the least compensation of those officers 
would not be an officer under paragraph (g)(8)(i) of this section. For 
purposes of this paragraph (g), the term ``compensation'' means the 
amount reported on a Form W-2 as income for the prior calendar year. 
Compensation includes all amounts received from all entities treated as 
a single employer under section 414 (b), (c), or (m).
    (9) Control employee defined--Government. For purposes of this 
paragraph (g), a control employee of a government employer is any--
    (i) Elected officials;
    (ii) Federal employee who is appointed by the President and 
confirmed by the Senate. In the case of commissioned officers of the 
United States Armed Forces, an officer is any individual with the rank 
or brigadier general or above or the rank of rear admiral (lower half) 
or above; or
    (iii) State or local executive officer comparable to the individuals 
in paragraph (g)(9)(i) and (ii) of this section.

For purposes of this paragraph (g), the term ``government'' includes any 
Federal, state, or local government unit, and any agency or 
instrumentality thereof.
    (10) Seating capacity rule--(i) In general. Where 50 percent of more 
of the regular passenger seating capacity of an aircraft (as used by the 
employer) is occupied by individuals whose flights are primarily for the 
employer's business (and whose flights are excludable from income under 
section 132(d)), the value of a flight on that aircraft by any employee 
who is not flying primarily for the employer's business (or who is 
flying primarily for the employer's business but the value of whose 
flight is not excludable under section 132(d) by reason of section 
274(c)) is deemed to be zero. See Sec. 1.132-5T which limits the 
exclusion under section 132(d) to situations where the employee receives 
the flight in connection with the performance of services for the 
employer providing the aircraft. For purposes of this paragraph (g)(10), 
the term ``employee'' includes only employees and partners of the 
employer providing the aircraft and does not include independent 
contractors and directors of the employer.

For purposes of this paragraph (g)(10), the second sentence of paragraph 
(g)(1) of this section will not apply. Instead, a flight taken by an 
individual who is either treated as an employee pursuant to section 
132(f)(1) or whose flight is treated as a flight taken by an employee 
pursuant to section 132(f)(2) is considered a flight taken by an 
employee. If (A) a flight is considered taken by an individual other 
than an employee (as defined in this paragraph (g)(10)), (B) the value 
of that individual's flight is not excludable under section 132(d), and 
(C) the seating capacity

[[Page 31]]

rule of this paragraph (g)(10) otherwise applies, then the value of the 
flight provided to such an individual is the value of a flight provided 
to a non-control employee (even if the individual who would be taxed on 
the value of such individual's flight is a control employee).
    (ii) Application of 50-percent test to multiple flights. The seating 
capacity rule of this paragraph (g)(10) must be met both at the time the 
individual whose flight is being valued boards the aircraft and at the 
time the individual deplanes. For example, assume that employee A boards 
an employer-provided aircraft for personal purposes in New York, New 
York, and that at that time 80 percent of the regular passenger seating 
capacity of the aircraft is occupied by individuals whose flights are 
primarily for the employer's business (and whose flights are excludable 
from income under section 132(d)) (``the business passengers''). If the 
aircraft flies directly to Hartford, Connecticut where all of the 
passengers, including A, deplane, the requirements of the seating 
capacity rule of this paragraph (g)(10) have been satisfied. If instead, 
some of the passengers, including A, remain on the aircraft in Hartford 
and the aircraft continues on to Boston, Massachusetts, where they all 
deplane, the requirements of the seating capacity rule of this paragraph 
(g)(10) will not be satisfied unless at least 50 percent of the seats 
comprising the aircraft's regular passenger seating capacity were 
occupied by the business passengers at the time A deplanes in Boston.
    (iii) Regular passenger seating capacity. The regular passenger 
seating capacity of an aircraft is the maximum number of seats that have 
at any time been on the aircraft (while owned or leased by the 
employer). Except to the extent excluded pursuant to paragraph 
(g)(10)(v) of this section, regular seating capacity includes all seats 
which may be occupied by members of the flight crew. It is irrelevant 
that on a particular flight, less than the maximum number of seats are 
available for use, because, for example, some of the seats are removed. 
When determining the maximum number of seats, those seats that cannot at 
any time be legally used during takeoff and are not any time used during 
takeoff are not counted.
    (iv) Examples. The rules of paragraph (g)(10)(iii) of this section 
are illustrated by the following examples:

    Example (1). Employer A and employer B order the same aircraft, 
except that A orders it with 10 seats and B orders it with eight seats. 
A always uses its aircraft as a 10-seat aircraft; B always uses its 
aircraft as an eight-seat aircraft. The regular passenger seating 
capacity of A's aircraft is 10 and of B's aircraft is eight.
    Example (2). Assume the same facts as in example (1), except that 
whenever A's chief executive officer and spouse use the aircraft eight 
seats are removed. Even if substantially all of the use of the aircraft 
is by the chief executive officer and spouse the regular passenger 
seating capacity of the aircraft is 10.
    Example (3). Assume the same facts as in example (1), except that 
whenever more than eight people want to fly in B's aircraft, two extra 
seats are added. Even if substantially all of the use of the aircraft 
occurs with eight seats, the regular passenger seating capacity of the 
aircraft is 10.

    (v) Seats occupied by flight crew. When determining the regular 
passenger seating capacity of an aircraft, any seat occupied by a member 
of the flight crew (whether or not such individual is an employee of the 
employer providing the aircraft) shall not be counted, unless the 
purpose of the flight by such individual is not primarily to serve as a 
member of the flight crew. If the seat occupied by a member of the 
flight crew is not counted as a passenger seat pursuant to the previous 
sentence, such member of the flight crew is disregarded in applying the 
50 percent test described in the first sentence of paragraph (g)(10)(i) 
of this section. For example, assume that, prior to the application of 
this paragraph (g)(10)(v), the regular passenger seating capacity of an 
aircraft is two seats.


Assume further that an employee pilots the aircraft and that the 
employee's flight is not primarily for the employer's business. If the 
employee's spouse occupies the other seat for personal purposes, the 
seating capacity rule is not met and the value of both

[[Page 32]]

flights must be included in the employee's income. If, however, the 
employee's flight were primarily for the employer's business (unrelated 
to serving as a member of the flight crew), then the seating capacity 
rule is met and the value of the flight for the employee's spouse is 
deemed to be zero. If the employee's flight were primarily to serve as a 
member of the flight crew, then the seating capacity rule is not met and 
the value of a flight by any passenger for primarily personal reasons is 
not deemed to be zero.
    (11) Erroneous use of the non-commercial flight valuation rule--(i) 
In general. If the non-commercial flight valuation rule of this 
paragraph (g) is used by an employer or a control employee, as the case 
may be, on a return as originally filed, on the grounds that either the 
control employee is not in fact a control employee, or that the aircraft 
is within a specific weight classification, and either position is 
subsequently determined to be erroneous, the valuation rule of this 
paragraph (g) (including paragraph (g)(13) of this section) is not 
available to value the flight taken by that control employee by the 
person or persons taking the erroneous position. With respect to the 
weight classifications, the previous sentence does not apply if the 
position taken is that the weight of the aircraft is greater than it is 
subsequently determined to be. If, with respect to a flight by a control 
employee, the seating capacity rule of paragraph (g)(10) of this section 
is used by an employer or the control employee, as the case may be, on a 
return as originally filed, and it is subsequently determined that the 
requirements of paragraph (g)(10) of this section were not met, the 
valuation rule of this paragraph (g) (including paragraph (g)(13) of 
this section) is not available to value the flight taken by that control 
employee by the person or persons taking the erroneous position.
    (ii) Value of flight excluded as a working condition fringe. If 
either an employer or an employee, on a return as originally filed, 
excludes from the employee's income or wages the value of a flight on 
the grounds that the flight was excludable as a working condition fringe 
under section 132, and that position is subsequently determined to be 
erroneous, the valuation rule of this paragraph (g) (including paragraph 
(g)(13) of this section) is not available to value the flight taken by 
that employee by the person or persons taking the erroneous position.
    (12) Consistency rules--(i) Use by the employer. Except as otherwise 
provided in paragraphs (g)(11) and (g)(13)(iv) of this section, if the 
non-commercial flight valuation rule of this paragraph (g) is used by an 
employer to value flights provided in a calendar year, the rule must be 
used to value all flights provided in the calendar year.
    (ii) Use by the employee. Except as otherwise provided in paragraphs 
(g)(11) and (g)(13)(iv) of this section, if the non-commercial flight 
valuation rule of this paragraph (g) is used by an employee to value a 
flight taken in a calendar year, the rule must be used to value all 
flights taken in the calendar year.
    (13) Transitional valuation rule--(i) In general. If the value of a 
flight determined under this paragraph (g)(13) is lower than the value 
of the flight otherwise determined under paragraph (g) of this section, 
the value of the flight is the lower amount. The transitional valuation 
rule of this paragraph (g)(13) is available only for flights provided 
after December 31, 1984, and before January 1, 1986.
    (ii) Transitional valuation rule aircraft multiples. The appropriate 
aircraft multiples under the transitional valuation rule are as follows:
    (A) 125 percent of the base aircraft valuation formula, plus the 
applicable terminal charge, for any flight by any employee who is not a 
key employee (as defined in paragraph (g)(13)(iii) of this section.)
    (B) 125 percent of the base aircraft valuation formula, plus the 
applicable terminal charge, for a flight by a key employee if there is a 
primary business purpose of the trip by the aircraft. For purposes of 
this paragraph (g)(13)(ii) (B), entertaining an employee or other 
individual is not a business purpose.
    (C) 600 percent of the base aircraft valuation formula, plus the 
applicable terminal charge, for a flight by a key employee if there is 
not primary business for the trip by the aircraft.

[[Page 33]]


Where there is no business purpose for the trip by the aircraft, the 
alternative valuation rule may not be used to value a flight by a key 
employee. For purposes of this section, compensating an employee is not 
a business purpose.
    (iii) Key employee defined. A ``key employee'' is any employee who 
is a five-percent owner or an officer of the employer, or who, with 
respect to a particular trip by the aircraft, controls the use of the 
aircraft. For purposes of determining who is a five-percent owner, any 
individual who owns (or is considered as owning) five or more percent of 
the fair market value of an entity (the ``owned entity'') is considered 
a five-percent owner of all entities that would be aggregated with the 
owned entity under the rules of section 414(b), (c), or (m).
    (iv) Erroneous use of transitional valuation rule. If the 
transitional valuation rule is used by an employer or a key employee, as 
the case may be, on a return as originally filed, on the grounds that--
    (A) The key employee is not in fact a key employee,
    (B) An aircraft trip had a primary business purpose, or
    (C) An aircraft trip had some business purpose,

and such position is subsequently determined to be erroneous, neither 
the transitional valuation rule nor the non-commercial flight valuation 
rule of this paragraph (g) is available to value such flight taken by 
that key employee by the person or persons taking the erroneous 
position.
    (h) Commercial flight valuation rule--(1) In general. Under the 
commercial flight valuation rule of this paragraph (h), the value of a 
space-available flight (as defined in paragraph (h)(2) of this section) 
on a commercial aircraft is 25 percent of the actual carrier's highest 
unrestricted coach fare in effect for the particular flight taken.
    (2) Space-available flight. The commercial flight valuation rule of 
this paragraph (h) is available to value a space-available flight. The 
term ``space-available flight'' means a flight on a commercial aircraft 
(i) for which the airline (the acutal carrier) incurs no substantial 
additional cost (including forgone revenue) determined without regard to 
any amount paid for the flight and (ii) which is subject to the same 
types of restrictions customarily associated with flying on an employee 
``standby'' or ``space-available'' basis. A flight may be a space-
available flight even if the airline that is the actual carrier is not 
the employer of the employee.
    (3) Commercial aircraft. If the actual carrier does not offer, in 
the ordinary course of its business, air transportation to customers on 
a per-seat basis, the commercial flight valuation rule of this paragraph 
(h) is not available. Thus, if, in the ordinary course of its line of 
business, the employer only offers air transportation to customers on a 
charter basis, the commerical flight valuation rule of this paragraph 
(h) may not be used to value a space-available flight on the employer's 
aircraft. Similarly, if, in the ordinary course of its line of business, 
an employer only offers air transportation to customers for the 
transport of cargo, the commercial flight valuation rule of this 
paragraph (h) may not be used to value a space-available flight on the 
employer's aircraft.
    (4) Timing of inclusion. The date that the flight is taken is the 
relevant date for purposes of applying section 61(a)(1) and this section 
to a space-available flight on a commercial aircraft. The date of 
purchase or issuance of a pass or ticket is not relevant. Thus, this 
section applies to a flight taken on or after January 1, 1985, 
regardless of the date on which the pass or ticket for the flight was 
purchased or issued.
    (5) Consistency rules--(i) Use by employer. If the commercial flight 
valuation rule of this paragraph (h) is used by an employer to value 
flights provided in a calendar year, the rule must be used to value all 
flights provided in the calendar year.
    (ii) Use by employee. If the commercial flight valuation rule of 
this paragraph (h) is used by an employee to value a flight taken in a 
calendar year, the rule must be used to value all flights taken by such 
employee in the calendar year.
    (i) [Reserved]
    (j) Valuation of meals provided at an employer-operated eating 
facility for employees--(1) In general. The valuation

[[Page 34]]

rule of this paragraph (j) may be used to value a meal provided at an 
employer-operated eating facility for employees (as defined in 
Sec. 1.132-7T). For rules relating to an exclusion for the value of 
meals provided at an employer-operated eating facility for employees, 
see Sec. 1.132-7T.
    (2) Valuation formula--(i) In general. The value of all meals 
provided at an employer-operated eating facility for employees during a 
calendar year is 150 percent of the direct operaitng costs of the eating 
facility (``total meal value''). For purposes of this paragraph (j), the 
definition of direct operating costs provided in Sec. 1.132-7T applies. 
The taxable value of meals provided at an eating facility may be 
determined in two ways. The ``individual meal subsidy'' may be treated 
as the taxable value of a meal provided at the eating facility (see 
paragraph (j)(2)(ii) of this section). Alternatively, the employer may 
allocate the ``total meal subsidy'' among employees (see paragraph 
(j)(2)(iii) of this section).
    (ii) ``Individual meal subsidy'' defined. The ``individual meal 
subsidy'' is determined by multiplying the price charged for a 
particular meal by a fraction, the numerator of which is the total meal 
value and the denominator of which is the gross receipts of the eating 
facility, and then subtracting the amount paid for the meal. The taxable 
value of meals provided to a particular employee during a calendar year, 
therefore, is the sum of the individual meal subsidies provided to the 
employee during the calendar year.
    (iii) Allocation of ``total meal subsidy.'' Instead of using the 
individual meal value method, the employer may allocate the ``total meal 
subsidy'' (total meal value less the gross receipts of the facility) 
among employees in any manner reasonable under the circumstances.

[T.D. 8063, 50 FR 52285, Dec. 23, 1985, as amended by T.D. 8256, 54 FR 
28582, July 6, 1989; T.D. 8457, 57 FR 62195, Dec. 30, 1992]



Sec. 1.61-3  Gross income derived from business.

    (a) In general. In a manufacturing, merchandising, or mining 
business, ``gross income'' means the total sales, less the cost of goods 
sold, plus any income from investments and from incidental or outside 
operations or sources. Gross income is determined without subtraction of 
depletion allowances based on a percentage of income to the extent that 
it exceeds cost depletion which may be required to be included in the 
amount of inventoriable costs as provided in Sec. 1.471-11 and without 
subtraction of selling expenses, losses or other items not ordinarily 
used in computing costs of goods sold or amounts which are of a type for 
which a deduction would be disallowed under section 162 (c), (f), or (g) 
in the case of a business expense. The cost of goods sold should be 
determined in accordance with the method of accounting consistently used 
by the taxpayer. Thus, for example, an amount cannot be taken into 
account in the computation of cost of goods sold any earlier than the 
taxable year in which economic performance occurs with respect to the 
amount (see Sec. 1.446-1(c)(1)(ii)).
    (b) State contracts. The profit from a contract with a State or 
political subdivision thereof must be included in gross income. If 
warrants are issued by a city, town, or other political subdivision of a 
State, and are accepted by the contractor in payment for public work 
done, the fair market value of such warrants should be returned as 
income. If, upon conversion of the warrants into cash, the contractor 
does not receive and cannot recover the full value of the warrants so 
returned, he may deduct any loss sustained from his gross income for the 
year in which the warrants are so converted. If, however, he realizes 
more than the value of the warrants so returned, he must include the 
excess in his gross income for the year in which realized.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7207, 37 FR 20767, Oct. 5, 1972; T.D. 7285, 38 FR 26184, 
Sept. 19, 1973; T.D. 8408, 57 FR 12419, Apr. 10, 1992]



Sec. 1.61-4  Gross income of farmers.

    (a) Farmers using the cash method of accounting. A farmer using the 
cash receipts and disbursements method of accounting shall include in 
his gross income for the taxable year--

[[Page 35]]

    (1) The amount of cash and the value of merchandise or other 
property received during the taxable year from the sale of livestock and 
produce which he raised,
    (2) The profits from the sale of any livestock or other items which 
were purchased,
    (3) All amounts received from breeding fees, fees from rent of 
teams, machinery, or land, and other incidental farm income,
    (4) All subsidy and conservation payments received which must be 
considered as income, and
    (5) Gross income from all other sources.

The profit from the sale of livestock or other items which were 
purchased is to be ascertained by deducting the cost from the sales 
price in the year in which the sale occurs, except that in the case of 
the sale of purchased animals held for draft, breeding, or dairy 
purposes, the profits shall be the amount of any excess of the sales 
price over the amount representing the difference between the cost and 
the depreciation allowed or allowable (determined in accordance with the 
rules applicable under section 1016(a) and the regulations thereunder). 
However, see section 162 and the regulations thereunder with respect to 
the computation of taxable income on other than the crop method where 
the cost of seeds or young plants purchased for further development and 
cultivation prior to sale is involved. Crop shares (whether or not 
considered rent under State law) shall be included in gross income as of 
the year in which the crop shares are reduced to money or the equivalent 
of money. See section 263A for rules regarding costs that are required 
to be capitalized.
    (b) Farmers using an accrual method of accounting. A farmer using an 
accrual method of accounting must use inventories to determine his gross 
income. His gross income on an accrual method is determined by adding 
the total of the items described in subparagraphs (1) through (5) of 
this paragraph and subtracting therefrom the total of the items 
described in subparagraphs (6) and (7) of this paragraph. These items 
are as follows:
    (1) The sales price of all livestock and other products held for 
sale and sold during the year;
    (2) The inventory value of livestock and products on hand and not 
sold at the end of the year;
    (3) All miscellaneous items of income, such as breeding fees, fees 
from the rent of teams, machinery, or land, or other incidental farm 
income;
    (4) Any subsidy or conservation payments which must be considered as 
income;
    (5) Gross income from all other sources;
    (6) The inventory value of the livestock and products on hand and 
not sold at the beginning of the year; and
    (7) The cost of any livestock or products purchased during the year 
(except livestock held for draft, dairy, or breeding purposes, unless 
included in inventory).

All livestock raised or purchased for sale shall be added in the 
inventory at their proper valuation determined in accordance with the 
method authorized and adopted for the purpose. Livestock acquired for 
draft, breeding, or dairy purposes and not for sale may be included in 
the inventory (see subparagraphs (2), (6), and (7) of this paragraph) 
instead of being treated as capital assets subject to depreciation, 
provided such practice is followed consistently from year to year by the 
taxpayer. When any livestock included in an inventory are sold, their 
cost must not be taken as an additional deduction in computing taxable 
income, because such deduction is reflected in the inventory. See the 
regulations under section 471. See section 263A for rules regarding 
costs that are required to be capitalized. Crop shares (whether or not 
considered rent under State law) shall be included in gross income as of 
the year in which the crop shares are reduced to money or the equivalent 
of money.
    (c) Special rules for certain receipts. In the case of the sale of 
machinery, farm equipment, or any other property (except stock in trade 
of the taxpayer, or property of a kind which would properly be included 
in the inventory of the taxpayer if on hand at the close of the taxable 
year, or property held by the

[[Page 36]]

taxpayer primarily for sale to customers in the ordinary course of his 
trade or business), any excess of the proceeds of the sale over the 
adjusted basis of such property shall be included in the taxpayer's 
gross income for the taxable year in which such sale is made. See, 
however, section 453 and the regulations thereunder for special rules 
relating to certain installment sales. If farm produce is exchanged for 
merchandise, groceries, or the like, the market value of the article 
received in exchange is to be included in gross income. Proceeds of 
insurance, such as hail or fire insurance on growing crops, should be 
included in gross income to the extent of the amount received in cash or 
its equivalent for the crop injured or destroyed. See section 451(d) for 
special rule relating to election to include crop insurance proceeds in 
income for taxable year following taxable year of destruction. For 
taxable years beginning after July 12, 1972, where a farmer is engaged 
in producing crops and the process of gathering and disposing of such 
crops is not completed within the taxable year in which such crops are 
planted, the income therefrom may, with the consent of the Commissioner 
(see section 446 and the regulations thereunder), be computed upon the 
crop method. For taxable years beginning on or before July 12, 1972, 
where a farmer is engaged in producing crops which take more than a year 
from the time of planting to the time of gathering and disposing, the 
income therefrom may, with the consent of the Commissioner (see section 
446 and the regulations thereunder), be computed upon the crop method. 
In any case in which the crop method is used, the entire cost of 
producing the crop must be taken as a deduction for the year in which 
the gross income from the crop is realized, and not earlier.
    (d) Definition of ``farm''. As used in this section, the term 
``farm'' embraces the farm in the ordinarily accepted sense, and 
includes stock, dairy, poultry, fruit, and truck farms; also 
plantations, ranches, and all land used for farming operations. All 
individuals, partnerships, or corporations that cultivate, operate, or 
manage farms for gain or profit, either as owners or tenants, are 
designated as farmers. For more detailed rules with respect to the 
determination of whether or not an individual is engaged in farming, see 
Sec. 1.175-3. For rules applicable to persons cultivating or operating a 
farm for recreation or pleasure, see sections 162 and 165, and the 
regulations thereunder.
    (e) Cross references. (1) For election to include Commodity Credit 
Corporation loans as income, see section 77 and regulations thereunder.
    (2) For definition of gross income derived from farming for purposes 
of limiting deductibility of soil and water conservation expenditures, 
see section 175 and regulations thereunder.
    (3) For definition of gross income from farming in connection with 
declarations of estimated income tax, see section 6073 and regulations 
thereunder.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7198, 37 FR 13679, July 13, 1972; T.D. 8729, 62 FR 
44546, Aug. 22, 1997]



Sec. 1.61-5  Allocations by cooperative associations; per-unit retain certificates--tax treatment as to cooperatives and patrons.

    (a) In general. Amounts allocated on the basis of the business done 
with or for a patron by a cooperative association, whether or not 
entitled to tax treatment under section 522, in cash, merchandise, 
capital stock, revolving fund certificates, retain certificates, 
certificates of indebtedness, letters of advice or in some other manner 
disclosing to the patron the dollar amount allocated, shall be included 
in the computation of the gross income of such patron for the taxable 
year in which received to the extent prescribed in paragraph (b) of this 
section, regardless of whether the allocation is deemed, for the purpose 
of section 522, to be made at the close of a preceding taxable year of 
the cooperative association. The determination of the extent of 
taxability of such amounts is in no way dependent upon the method of 
accounting employed by the patron or upon the method, cash, accrual, or 
otherwise, upon which the taxable income of such patron is computed.

[[Page 37]]

    (b) Extent of taxability. (1) Amounts allocated to a patron on a 
patronage basis by a cooperative association with respect to products 
marketed for such patron, or with respect to supplies, equipment, or 
services, the cost of which was deductible by the patron under section 
162 or section 212, shall be included in the computation of the gross 
income of such patron, as ordinary income, to the following extent:
    (i) If the allocation is in cash, the amount of cash received.
    (ii) If the allocation is in merchandise, the amount of the fair 
market value of such merchandise at the time of receipt by the patron.
    (iii) If the allocation is in the form of revolving fund 
certificates, retain certificates, certificates of indebtedness, letters 
of advice, or similar documents, the amount of the fair market value of 
such document at the time of its receipt by the patron. For purposes of 
this subdivision, any document containing an unconditional promise to 
pay a fixed sum of money on demand or at a fixed or determinable time 
shall be considered to have a fair market value at the time of its 
receipt by the patron, unless it is clearly established to the contrary. 
However, for purposes of this subdivision, any document which is payable 
only in the discretion of the cooperative association, or which is 
otherwise subject to conditions beyond the control of the patron, shall 
be considered not to have any fair market value at the time of its 
receipt by the patron, unless it is clearly established to the contrary.
    (iv) If the allocation is in the form of capital stock, the amount 
of the fair market value, if any, of such capital stock at the time of 
its receipt by the patron.
    (2) If any allocation to which subparagraph (1) of this paragraph 
applies is received in the form of a document of the type described in 
subparagraph (1) (iii) or (iv) of this paragraph and is redeemed in full 
or in part or is otherwise disposed of, there shall be included in the 
computation of the gross income of the patron, as ordinary income, in 
the year of redemption or other disposition, the excess of the amount 
realized on the redemption or other disposition over the amount 
previously included in the computation of gross income under such 
subparagraph.
    (3)(i) Amounts which are allocated on a patronage basis by a 
cooperative association with respect to supplies, equipment, or 
services, the cost of which was not deductible by the patron under 
section 162 or section 212, are not includible in the computation of the 
gross income of such patron. However, in the case of such amounts which 
are allocated with respect to capital assets (as defined in section 
1221) or property used in the trade or business within the meaning of 
section 1231, such amounts shall, to the extent set forth in 
subparagraph (1) of this paragraph, be taken into account by such patron 
in determining the cost of the property to which the allocation relates. 
Notwithstanding the preceding sentence, to the extent that such amounts 
are in excess of the unrecovered cost of such property, and to the 
extent that such amounts relate to such property which the patron no 
longer owns, they shall be included in the computation of the gross 
income of such patron.
    (ii) If any patronage dividend is allocated to the patron in the 
form of a document of the type described in subparagraph (1) (iii) or 
(iv) of this paragraph, and if such allocation is with respect to 
capital assets (as defined in section 1221) or property used in the 
trade or business within the meaning of section 1231, any amount 
realized on the redemption or other disposition of such document which 
is in excess of the amount which was taken into account upon the receipt 
of the document by the patron shall be taken into account by such patron 
in the year of redemption or other disposition as an adjustment to basis 
or as an inclusion in the computation of gross income, as the case may 
be.
    (iii) Any adjustment to basis in respect of an amount to which 
subdivision (i) or (ii) of this subparagraph applies shall be made as of 
the first day of the taxable year in which such amount is received.
    (iv) The application of the provisions of this subparagraph may be 
illustrated by the following examples:

    Example (1). On July 1, 1959, P, a patron of a cooperative 
association, purchases a tractor for use in his farming business from 
such

[[Page 38]]

association for $2,200. The tractor has an estimated useful life of five 
years and an estimated salvage value of $200. P files his income tax 
returns on a calendar year basis and claims depreciation on the tractor 
for the year 1959 of $200 pursuant to his use of the straight-line 
method at the rate of $400 per year. On July 1, 1960, the cooperative 
association allocates to P with respect to his purchase of the tractor a 
dividend of $300 in cash. P will reduce his depreciation allowance with 
respect to the tractor for 1960 (and subsequent taxable years) to 
$333.33, determined as follows:

Cost of tractor, July 1, 1959..................................   $2,200
  Less:
    Depreciation for 1959 (6 mos.)....................     $200
    Adjustment as of Jan. 1, 1960, for cash patronage       300
     dividend.........................................
    Salvage value.....................................      200
                                                       ----------
                                                            700
                                                                --------
      Basis for depreciation for the remaining 4\1/2\ years of     1,500
       estimated life..........................................
Basis for depreciation divided by the 4\1/2\ years of remaining   333.33
 life..........................................................
 

    Example (2). Assume the same facts as in example (1), except that on 
July 1, 1960, the cooperative association allocates a dividend to P with 
respect to his purchase of the tractor in the form of a revolving fund 
certificate having a face amount of $300. The certificate is redeemable 
in cash at the discretion of the directors of the association and is 
subject to diminution by any future losses of the association, and has 
no fair market value when received by P. Since the certificate had no 
fair market value when received by P, no amount with respect to such 
certificate was taken into account by him in the year 1960. In 1965, P 
receives $300 cash from the association in full redemption of the 
certificate. Prior to 1965, he had recovered through depreciation $2,000 
of the cost of the tractor, leaving an unrecovered cost of $200 (the 
salvage value). For the year 1965, the redemption proceeds of $300 are 
applied against the unrecovered cost of $200, reducing the basis to 
zero, and the balance of the redemption proceeds, $100, is includible in 
the computation of P's gross income.
    Example (3). Assume the same facts as in example (2), except that 
the certificate is redeemed in full on July 1, 1962. The full $300 
received on redemption of the certificate will be applied against the 
unrecovered cost of the tractor as of January 1, 1962, computed as 
follows:

Cost of tractor, July 1, 1959..................................   $2,200
  Less:
    Depreciation for 1959 (6 mos.)....................     $200
    Depreciation for 1960.............................      400
    Depreciation for 1961.............................      400
                                                       ----------
                                                          1,000
                                                                --------
      Unrecovered cost on Jan. 1, 1962.........................    1,200
Adjustment as of Jan. 1, 1962, for proceeds of the redemption        300
 of the revolving fund certificate.............................
                                                       ----------
Unrecovered cost on Jan. 1, 1962, after adjustment.............      900
    Less: Salvage value........................................      200
                                                       ----------
      Basis for depreciation on Jan. 1, 1962...................      700
If P uses the tractor in his business until June 30,
 1964, he would be entitled to the following
 depreciation allowances with respect to the tractor:
  For 1962............................................      280
  For 1963............................................      280
  For 1964 (6 mos.)...................................      140
                                                       ----------
                                                            700
                                                                --------
Balance to be depreciated......................................        0
 

    Example (4). Assume the same facts as in example (3), except that P 
sells the tractor in 1961. The entire $300 received in 1962 in 
redemption of the revolving fund certificate is includible in the 
computation of P's gross income for the year 1962.

    (c) Special rule. If, for any taxable year ending before December 3, 
1959, a taxpayer treated any patronage dividend received in the form of 
a document described in paragraph (b) (1) (iii) or (iv) of this section 
in accordance with the regulations then applicable (whether such 
dividend is subject to paragraph (b) (1) or (3) of this section), such 
taxpayer is not required to change the treatment of such patronage 
dividends for any such prior taxable year. On the other hand, the 
taxpayer may, if he so desires, amend his income tax returns to treat 
the receipt of such patronage dividend in accordance with the provisions 
of this section, but no provision in this paragraph shall be construed 
as extending the period of limitations within which a claim for credit 
or refund may be filed under section 6511.
    (d) Per-unit retain certificates; tax treatment of cooperative 
associations; distribution and reinvestment alternative. (1)(i) In the 
case of a taxable year to which this paragraph applies to a cooperative 
association, such association shall, in computing the amount paid or 
returned to a patron with respect to products marketed for such patron, 
take into account the stated dollar amount of any per-unit retain 
certificate (as defined in paragraph (g) of this section)--
    (a) Which is issued during the payment period for such year (as 
defined in subparagraph (3) of this paragraph) with respect to such 
products,

[[Page 39]]

    (b) With respect to which the patron is a qualifying patron (as 
defined in subparagraph (2) of this paragraph), and
    (c) Which clearly states the fact that the patron has agreed to 
treat the stated dollar amount thereof as representing a cash 
distribution to him which he has reinvested in the cooperative 
association.
    (ii) No amount shall be taken into account by a cooperative 
association by reason of the issuance of a per-unit retain certificate 
to a patron who was not a qualifying patron with respect to such 
certificate. However, any amount paid in redemption of a per-unit retain 
certificate which was issued to a patron who was not a qualifying patron 
with respect to such certificate shall be taken into account by the 
cooperative in the year of redemption, as an amount paid or returned to 
such patron with respect to products marketed for him. This subdivision 
shall apply only to per-unit retain certificates issued with respect to 
taxable years of the cooperative association to which this paragraph 
applied to the association (that is, taxable years with respect to which 
per-unit retain certificates were issued to one or more patrons who are 
qualifying patrons).
    (2)(i) A patron shall be considered to be a ``qualifying patron'' 
with respect to a per-unit retain certificate if there is in effect an 
agreement between the cooperative association and such patron which 
clearly provides that such patron agrees to treat the stated dollar 
amounts of all per-unit retain certificates issued to him by the 
association as representing cash distributions which he has 
constructively received and which he has, of his own choice, reinvested 
in the cooperative association. Such an agreement may be included in a 
by-law of the cooperative which is adopted prior to the time the 
products to which the per-unit retain certificates relate are marketed. 
However, except where there is in effect a ``written agreement'' 
described in subdivision (ii) of this subparagraph, a patron shall not 
be considered to be a ``qualifying patron'' with respect to a per-unit 
retain certificate if it has been established by a determination of the 
Tax Court of the United States, or any other court of competent 
jurisdiction, which has become final, that the stated dollar amount of 
such certificate, or of a similar certificate issued under similar 
circumstances to such patron or any other patron by the cooperative 
association, is not required to be included (as ordinary income) in the 
gross income of such patron, or such other patron, for the taxable year 
of the patron in which received.
    (ii) The ``written agreement'' referred to in subdivision (i) of 
this subparagraph is an agreement in writing, signed by the patron, on 
file with the cooperative association, and revocable as provided in this 
subdivision. Unless such an agreement specifically provides to the 
contrary, it shall be effective for per-unit retain certificates issued 
with respect to the taxable year of the cooperative association in which 
the agreement is received by the association, and unless revoked, for 
per-unit retain certificates issued with respect to all subsequent 
taxable years. A ``written agreement'' must be revocable by the patron 
at any time after the close of the taxable year in which it is made. To 
be effective, a revocation must be in writing, signed by the patron, and 
furnished to the cooperative association. A revocation shall be 
effective only for per-unit retain certificates issued with respect to 
taxable years of the cooperative association following the taxable year 
in which it is furnished to the association. Notwithstanding the 
preceding sentence, a revocation shall not be effective for per-unit 
retain certificates issued with respect to products marketed for the 
patron under a pooling arrangement in which such patron participated 
before such revocation. The following is an example of an agreement 
which would meet the requirements of this subparagraph:

    I agree that, for purposes of determining the amount I have received 
from this cooperative in payment for my goods, I shall treat the face 
amount of any per-unit retain certificates issued to me on and after ---
------- as representing a cash distribution which I have constructively 
received and which I have reinvested in the cooperative.

________________________________________________________________________
                                                                (Signed)


[[Page 40]]


    (3) For purposes of this paragraph and paragraph (e) of this 
section, the payment period for any taxable year of the cooperative is 
the period beginning with the first day of such taxable year and ending 
with the 15th day of the 9th month following the close of such year.
    (4) This paragraph shall apply to any taxable year of a cooperative 
association if, with respect to such taxable year, the association has 
issued per-unit retain certificates to one or more of its patrons who 
are qualifying patrons with respect to such certificates within the 
meaning of subparagraph (2) of this paragraph.
    (e) Tax treatment of cooperative association; taxable years for 
which paragraph (d) does not apply. (1) In the case of a taxable year to 
which paragraph (d) of this section does not apply to a cooperative 
association, such association shall, in computing the amount paid or 
returned to a patron with respect to products marketed for such patron, 
take into account the fair market value (at the time of issue) of any 
per-unit retain certificates which are issued by the association with 
respect to such products during the payment period for such taxable 
year.
    (2) An amount paid in redemption of a per-unit retain certificate 
issued with respect to a taxable year of the cooperative association for 
which paragraph (d) of this section did not apply to the association, 
shall, to the extent such amount exceeds the fair market value of the 
certificate at the time of its issue, be taken into account by the 
association in the year of redemption, as an amount paid or returned to 
a patron with respect to products marketed for such patron.
    (3) For purposes of this paragraph and paragraph (f)(2) of this 
section, any per-unit retain certificate containing an unconditional 
promise to pay a fixed sum of money on demand or at a fixed or 
determinable time shall be considered to have a fair market value at the 
time of its issue, unless it is clearly established to the contrary. On 
the other hand, any per-unit retain certificate (other than capital 
stock) which is redeemable only in the discretion of the cooperative 
association, or which is otherwise subject to conditions beyond the 
control of the patron, shall be considered not to have any fair market 
value at the time of its issue, unless it is clearly established to the 
contrary.
    (f) Tax treatment of patron. (1) The following rules apply for 
purposes of computing the amount includible in gross income with respect 
to a per-unit retain certificate which was issued to a patron by a 
cooperative association with respect to a taxable year of such 
association for which paragraph (d) of this section applies.
    (i) If the patron is a qualifying patron with respect to such 
certificate (within the meaning of paragraph (d) (2) of this section), 
he shall, in accordance with his agreement, include (as ordinary income) 
the stated dollar amount of the certificate in gross income for his 
taxable year in which the certificate is received by him.
    (ii) If the patron is not a qualifying patron with respect to such 
certificate, no amount is includible in gross income on the receipt of 
the certificate; however, any gain on the redemption, sale, or other 
disposition of such certificate shall, to the extent of the stated 
dollar amount thereof, be considered as gain from the sale or exchange 
of property which is not a capital asset.
    (2) The amount of the fair market value of a per-unit retain 
certificate which is issued to a patron by a cooperative association 
with respect to a taxable year of the association for which paragraph 
(d) of this section does not apply shall be included, as ordinary 
income, in the gross income of the patron for the taxable year in which 
the certificate is received. Any gain on the redemption, sale, or other 
disposition of such a per-unit retain certificate shall, to the extent 
its stated dollar amount exceeds its fair market value at the time of 
issue, be treated as gain on the redemption, sale, or other disposition 
of property which is not a capital asset.
    (g) ``Per-unit retain certificate'' defined. For purposes of 
paragraphs (d), (e), and (f), of this section, the term ``per-unit 
retain certificate'' means any capital stock, revolving fund 
certificate, retain certificate, certificate of indebtedness, letter of 
advice, or other written notice--

[[Page 41]]

    (1) Which is issued to a patron with respect to products marketed 
for such patron;
    (2) Which discloses to the patron the stated dollar amount allocated 
to him on the books of the cooperative association; and
    (3) The stated dollar amount of which is fixed without reference to 
net earnings.
    (h) Effective date. This section shall not apply to any amount the 
tax treatment of which is prescribed in section 1385 and Sec. 1.1385-1. 
Paragraphs (d), (e), and (f) of this section shall apply to per-unit 
retain certificates as defined in paragraph (g) of this section issued 
by a cooperative association during taxable years of the association 
beginning after April 30, 1966, with respect to products marketed for 
patrons during such years.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6855, 30 FR 
13134, Oct. 15, 1965]



Sec. 1.61-6  Gains derived from dealings in property.

    (a) In general. Gain realized on the sale or exchange of property is 
included in gross income, unless excluded by law. For this purpose 
property includes tangible items, such as a building, and intangible 
items, such as goodwill. Generally, the gain is the excess of the amount 
realized over the unrecovered cost or other basis for the property sold 
or exchanged. The specific rules for computing the amount of gain or 
loss are contained in section 1001 and the regulations thereunder. When 
a part of a larger property is sold, the cost or other basis of the 
entire property shall be equitably apportioned among the several parts, 
and the gain realized or loss sustained on the part of the entire 
property sold is the difference between the selling price and the cost 
or other basis allocated to such part. The sale of each part is treated 
as a separate transaction and gain or loss shall be computed separately 
on each part. Thus, gain or loss shall be determined at the time of sale 
of each part and not deferred until the entire property has been 
disposed of. This rule may be illustrated by the following examples:

    Example (1). A, a dealer in real estate, acquires a 10-acre tract 
for $10,000, which he divides into 20 lots. The $10,000 cost must be 
equitably apportioned among the lots so that on the sale of each A can 
determine his taxable gain or deductible loss.
    Example (2). B purchases for $25,000 property consisting of a used 
car lot and adjoining filling station. At the time, the fair market 
value of the filling station is $15,000 and the fair market value of the 
used car lot is $10,000. Five years later B sells the filling station 
for $20,000 at a time when $2,000 has been properly allowed as 
depreciation thereon. B's gain on this sale is $7,000, since $7,000 is 
the amount by which the selling price of the filling station exceeds the 
portion of the cost equitably allocable to the filling station at the 
time of purchase reduced by the depreciation properly allowed.

    (b) Nontaxable exchanges. Certain realized gains or losses on the 
sale or exchange of property are not ``recognized'', that is, are not 
included in or deducted from gross income at the time the transaction 
occurs. Gain or loss from such sales or exchanges is generally 
recognized at some later time. Examples of such sales or exchanges are 
the following:
    (1) Certain formations, reorganizations, and liquidations of 
corporations, see sections 331, 333, 337, 351, 354, 355, and 361;
    (2) Certain formations and distributions of partnerships, see 
sections 721 and 731;
    (3) Exchange of certain property held for productive use or 
investment for property of like kind, see section 1031;
    (4) A corporation's exchange of its stock for property, see section 
1032;
    (5) Certain involuntary conversions of property if replaced, see 
section 1033;
    (6) Sale or exchange of residence if replaced, see section 1034;
    (7) Certain exchanges of insurance policies and annuity contracts, 
see section 1035; and
    (8) Certain exchanges of stock for stock in the same corporation, 
see section 1036.
    (c) Character of recognized gain. Under Subchapter P, Chapter 1 of 
the Code, relating to capital gains and losses, certain gains derived 
from dealings in property are treated specially, and under certain 
circumstances the maximum rate of tax on such gains is 25 percent, as 
provided in section 1201. Generally, the property subject to this

[[Page 42]]

treatment is a ``capital asset'', or treated as a ``capital asset''. For 
definition of such assets, see sections 1221 and 1231, and the 
regulations thereunder. For some of the rules either granting or denying 
this special treatment, see the following sections and the regulations 
thereunder:
    (1) Transactions between partner and partnership, section 707;
    (2) Sale or exchange of property used in the trade or business and 
involuntary conversions, section 1231;
    (3) Payment of bonds and other evidences of indebtedness, section 
1232;
    (4) Gains and losses from short sales, section 1233;
    (5) Options to buy or sell, section 1234;
    (6) Sale or exchange of patents, section 1235;
    (7) Securities sold by dealers in securities, section 1236;
    (8) Real property subdivided for sale, section 1237;
    (9) Amortization in excess of depreciation, section 1238;
    (10) Gain from sale of certain property between spouses or between 
an individual and a controlled corporation, section 1239;
    (11) Taxability to employee of termination payments, section 1240.



Sec. 1.61-7  Interest.

    (a) In general. As a general rule, interest received by or credited 
to the taxpayer constitutes gross income and is fully taxable. Interest 
income includes interest on savings or other bank deposits; interest on 
coupon bonds; interest on an open account, a promissory note, a 
mortgage, or a corporate bond or debenture; the interest portion of a 
condemnation award; usurious interest (unless by State law it is 
automatically converted to a payment on the principal); interest on 
legacies; interest on life insurance proceeds held under an agreement to 
pay interest thereon; and interest on refunds of Federal taxes. For 
rules determining the taxable year in which interest, including interest 
accrued or constructively received, is included in gross income, see 
section 451 and the regulations thereunder. For the inclusion of 
interest in income for the purpose of the retirement income credit, see 
section 37 and the regulations thereunder. For credit of tax withheld at 
source on interest on tax-free covenant bonds, see section 32 and the 
regulations thereunder. For rules relating to interest on certain 
deferred payments, see section 483 and the regulations thereunder.
    (b) Interest on Government obligations--(1) Wholly tax-exempt 
interest. Interest upon the obligations of a State, Territory, or a 
possession of the United States, or any political subdivision of any of 
the foregoing, or of the District of Columbia, is wholly exempt from 
tax. Interest on certain United States obligations issued before March 
1, 1941, is exempt from tax to the extent provided in the acts of 
Congress authorizing the various issues. See section 103 and the 
regulations thereunder.
    (2) Partially tax-exempt interest. Interest earned on certain United 
States obligations is partly tax exempt and partly taxable. For example, 
the interest on United States Treasury bonds issued before March 1, 
1941, to the extent that the principal of such bonds exceeds $5,000, is 
exempt from normal tax but is subject to surtax. See sections 35 and 
103, and the regulations thereunder.
    (3) Fully taxable interest. In general, interest on United States 
obligations issued on or after March 1, 1941, and obligations issued by 
any agency or instrumentality of the United States after that date, is 
fully taxable; but see section 103 and the regulations thereunder. A 
taxpayer using the cash receipts and disbursements method of accounting 
who owns United States savings bonds issued at a discount has an 
election as to when he will report the interest; see section 454 and the 
regulations thereunder.
    (c) Obligations bought at a discount; bonds bought when interest 
defaulted or accrued. When notes, bonds, or other certificates of 
indebtedness are issued by a corporation or the Government at a discount 
and are later redeemed by the debtor at the face amount, the original 
discount is interest, except as otherwise provided by law. See also 
paragraph (b) of this section for the rules relating to Government 
bonds. If

[[Page 43]]

a taxpayer purchases bonds when interest has been defaulted or when the 
interest has accrued but has not been paid, any interest which is in 
arrears but has accrued at the time of purchase is not income and is not 
taxable as interest if subsequently paid. Such payments are returns of 
capital which reduce the remaining cost basis. Interest which accrues 
after the date of purchase, however, is taxable interest income for the 
year in which received or accrued (depending on the method of accounting 
used by the taxpayer).
    (d) Bonds sold between interest dates; amounts received in excess of 
original issue discount; interest on life insurance. When bonds are sold 
between interest dates, part of the sales price represents interest 
accrued to the date of the sale and must be reported as interest income. 
Amounts received in excess of the original issue discount upon the 
retirement or sale of a bond or other evidence of indebtedness may under 
some circumstances constitute capital gain instead of ordinary income. 
See section 1232 and the regulations thereunder. Interest payments on 
amounts payable as employees' death benefits (whether or not section 
101(b) applies thereto) and on the proceeds of life insurance policies 
payable by reason of the insured's death constitute gross income under 
some circumstances. See section 101 and the regulations thereunder for 
details. Where accrued interest on unwithdrawn insurance policy 
dividends is credited annually and is subject to withdrawal annually by 
the taxpayer, such interest credits constitute gross income to such 
taxpayer as of the year of credit. However, if under the terms of the 
insurance policy the interest on unwithdrawn policy dividends is subject 
to withdrawal only on the anniversary date of the policy (or some other 
date specified therein), then such interest shall constitute gross 
income to the taxpayer for the taxable year in which such anniversary 
date (or other specified date) falls.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6723, 29 FR 
5342, Apr. 21, 1964; T.D. 6873, 31 FR 941, Jan. 25, 1966]



Sec. 1.61-8  Rents and royalties.

    (a) In general. Gross income includes rentals received or accrued 
for the occupancy of real estate or the use of personal property. For 
the inclusion of rents in income for the purpose of the retirement 
income credit, see section 37 and the regulations thereunder. Gross 
income includes royalties. Royalties may be received from books, 
stories, plays, copyrights, trademarks, formulas, patents, and from the 
exploitation of natural resources, such as coal, gas, oil, copper, or 
timber. Payments received as a result of the transfer of patent rights 
may under some circumstances constitute capital gain instead of ordinary 
income. See section 1235 and the regulations thereunder. For special 
rules for certain income from natural resources, see Subchapter I 
(section 611 and following), Chapter 1 of the Code, and the regulations 
thereunder.
    (b) Advance rentals; cancellation payments. Except as provided in 
section 467 and the regulations thereunder, gross income includes 
advance rentals, which must be included in income for the year of 
receipt regardless of the period covered or the method of accounting 
employed by the taxpayer. An amount received by a lessor from a lessee 
for cancelling a lease constitutes gross income for the year in which it 
is received, since it is essentially a substitute for rental payments. 
As to amounts received by a lessee for the cancellation of a lease, see 
section 1241 and the regulations thereunder.
    (c) Expenditures by lessee. As a general rule, if a lessee pays any 
of the expenses of his lessor such payments are additional rental income 
of the lessor. If a lessee places improvements on real estate which 
constitute, in whole or in part, a substitute for rent, such 
improvements constitute rental income to the lessor. Whether or not 
improvements made by a lessee result in rental income to the lessor in a 
particular case depends upon the intention of the parties, which may be 
indicated either by the terms of the lease or by the surrounding 
circumstances. For the exclusion from gross income of income (other than 
rent) derived by a lessor of real property on the termination of a 
lease, representing the value of such property attributable to buildings 
erected or other improvements made

[[Page 44]]

by a lessee, see section 109 and the regulations thereunder. For the 
exclusion from gross income of a lessor corporation of certain of its 
income taxes on rental income paid by a lessee corporation under a lease 
entered into before January 1, 1954, see section 110 and the regulations 
thereunder.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 8820, 64 FR 26851, May 18, 1999]



Sec. 1.61-9  Dividends.

    (a) In general. Except as otherwise specifically provided, dividends 
are included in gross income under sections 61 and 301. For the 
principal rules with respect to dividends includible in gross income, 
see section 316 and the regulations thereunder. As to distributions made 
or deemed to be made by regulated investment companies, see sections 851 
through 855, and the regulations thereunder. As to distributions made by 
real estate investment trusts, see sections 856 through 858, and the 
regulations thereunder. See section 116 for the exclusion from gross 
income of $100 ($50 for dividends received in taxable years beginning 
before January 1, 1964) of dividends received by an individual, except 
those from certain corporations. Furthermore, dividends may give rise to 
a credit against tax under section 34, relating to dividends received by 
individuals (for dividends received on or before December 31, 1964), and 
under section 37, relating to retirement income.
    (b) Dividends in kind; stock dividends; stock redemptions. Gross 
income includes dividends in property other than cash, as well as cash 
dividends. For amounts to be included in gross income when distributions 
of property are made, see section 301 and the regulations thereunder. A 
distribution of stock, or rights to acquire stock, in the corporation 
making the distribution is not a dividend except under the circumstances 
described in section 305(b). However, the term ``dividend'' includes a 
distribution of stock, or rights to acquire stock, in a corporation 
other than the corporation making the distribution. For determining when 
distributions in complete liquidation shall be treated as dividends, see 
section 333 and the regulations thereunder. For rules determining when 
amounts received in exchanges under section 354 or exchanges and 
distributions under section 355 shall be treated as dividends, see 
section 356 and the regulations thereunder.
    (c) Dividends on stock sold. When stock is sold, and a dividend is 
both declared and paid after the sale, such dividend is not gross income 
to the seller. When stock is sold after the declaration of a dividend 
and after the date as of which the seller becomes entitled to the 
dividend, the dividend ordinarily is income to the seller. When stock is 
sold between the time of declaration and the time of payment of the 
dividend, and the sale takes place at such time that the purchaser 
becomes entitled to the dividend, the dividend ordinarily is income to 
him. The fact that the purchaser may have included the amount of the 
dividend in his purchase price in contemplation of receiving the 
dividend does not exempt him from tax. Nor can the purchaser deduct the 
added amount he advanced to the seller in anticipation of the dividend. 
That added amount is merely part of the purchase price of the stock. In 
some cases, however, the purchaser may be considered to be the recipient 
of the dividend even though he has not received the legal title to the 
stock itself and does not himself receive the dividend. For example, if 
the seller retains the legal title to the stock as trustee solely for 
the purpose of securing the payment of the purchase price, with the 
understanding that he is to apply the dividends received from time to 
time in reduction of the purchase price, the dividends are considered to 
be income to the purchaser.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6777, 29 FR 
17807, Dec. 16, 1964]



Sec. 1.61-10  Alimony and separate maintenance payments; annuities; income from life insurance and endowment contracts.

    (a) In general. Alimony and separate maintenance payments, 
annuities, and income from life insurance and endowment contracts in 
general constitute gross income, unless excluded by law. Annuities paid 
by religious, charitable,

[[Page 45]]

and educational corporations are generally taxable to the same extent as 
other annuities. An annuity charged upon devised land is taxable to the 
donee-annuitant to the extent that it becomes payable out of the rents 
or other income of the land, whether or not it is a charge upon the 
income of the land.
    (b) Cross references. For the detailed rules relating to--
    (1) Alimony and separate maintenance payments, see section 71 and 
the regulations thereunder;
    (2) Annuities, certain proceeds of endowment and life insurance 
contracts, see section 72 and the regulations thereunder;
    (3) Life insurance proceeds paid by reason of death of insured, 
employees' death benefits, see section 101 and the regulations 
thereunder;
    (4) Annuities paid by employees' trusts, see section 402 and the 
regulations thereunder;
    (5) Annuities purchased for employee by employer, see section 403 
and the regulations thereunder.



Sec. 1.61-11  Pensions.

    (a) In general. Pensions and retirement allowances paid either by 
the Government or by private persons constitute gross income unless 
excluded by law. Usually, where the taxpayer did not contribute to the 
cost of a pension and was not taxable on his employer's contributions, 
the full amount of the pension is to be included in his gross income. 
But see sections 72, 402, and 403, and the regulations thereunder. When 
amounts are received from other types of pensions, a portion of the 
payment may be excluded from gross income. Under some circumstances, 
amounts distributed from a pension plan in excess of the employee's 
contributions may constitute long-term capital gain, rather than 
ordinary income.
    (b) Cross references. For the inclusion of pensions in income for 
the purpose of the retirement income credit, see section 37 and the 
regulations thereunder. Detailed rules concerning the extent to which 
pensions and retirement allowances are to be included in or excluded 
from gross income are contained in other sections of the Code and the 
regulations thereunder. Amounts received as pensions or annuities under 
the Social Security Act (42 U.S.C. ch. 7) or the Railroad Retirement Act 
(45 U.S.C. ch. 9) are excluded from gross income. For other partial and 
total exclusions from gross income, see the following:
    (1) Annuities in general, section 72 and the regulations thereunder;
    (2) Employees' annuities, sections 402 and 403 and the regulations 
thereunder;
    (3) References to other acts of Congress exempting veterans' 
pensions and railroad retirement annuities and pensions, section 122.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6856, 30 FR 
13316, Oct. 20, 1965]



Sec. 1.61-12  Income from discharge of indebtedness.

    (a) In general. The discharge of indebtedness, in whole or in part, 
may result in the realization of income. If, for example, an individual 
performs services for a creditor, who in consideration thereof cancels 
the debt, the debtor realizes income in the amount of the debt as 
compensation for his services. A taxpayer may realize income by the 
payment or purchase of his obligations at less than their face value. In 
general, if a shareholder in a corporation which is indebted to him 
gratuitously forgives the debt, the transaction amounts to a 
contribution to the capital of the corporation to the extent of the 
principal of the debt.
    (b) Proceedings under Bankruptcy Act. (1) Income is not realized by 
a taxpayer by virtue of the discharge, under section 14 of the 
Bankruptcy Act (11 U.S.C. 32), of his indebtedness as the result of an 
adjudication in bankruptcy, or by virtue of an agreement among his 
creditors not consummated under any provision of the Bankruptcy Act, if 
immediately thereafter the taxpayer's liabilities exceed the value of 
his assets. Furthermore, unless one of the principal purposes of seeking 
a confirmation under the Bankruptcy Act is the avoidance of income tax, 
income is not realized by a taxpayer in the case of a cancellation or 
reduction of his indebtedness under--

[[Page 46]]

    (i) A plan of corporate reorganization confirmed under Chapter X of 
the Bankruptcy Act (11 U.S.C., ch. 10);
    (ii) An ``arrangement'' or a ``real property arrangement'' confirmed 
under Chapter XI or XII, respectively, of the Bankruptcy Act (11 U.S.C., 
ch. 11, 12); or
    (iii) A ``wage earner's plan'' confirmed under Chapter XIII of the 
Bankruptcy Act (11 U.S.C., ch. 13).
    (2) For adjustment of basis of certain property in the case of 
cancellation or reduction of indebtedness resulting from a proceeding 
under the Bankruptcy Act, see the regulations under section 1016.
    (c) Issuance and repurchase of debt instruments--(1) Issuance. An 
issuer does not realize gain or loss upon the issuance of a debt 
instrument. For rules relating to an issuer's interest deduction for a 
debt instrument issued with bond issuance premium, see Sec. 1.163-13.
    (2) Repurchase--(i) In general. An issuer does not realize gain or 
loss upon the repurchase of a debt instrument. However, if a debt 
instrument provides for payments denominated in, or determined by 
reference to, a nonfunctional currency, an issuer may realize a currency 
gain or loss upon the repurchase of the instrument. See section 988 and 
the regulations thereunder. For purposes of this paragraph (c)(2), the 
term repurchase includes the retirement of a debt instrument, the 
conversion of a debt instrument into stock of the issuer, and the 
exchange (including an exchange under section 1001) of a newly issued 
debt instrument for an existing debt instrument.
    (ii) Repurchase at a discount. An issuer realizes income from the 
discharge of indebtedness upon the repurchase of a debt instrument for 
an amount less than its adjusted issue price (within the meaning of 
Sec. 1.1275-1(b)). The amount of discharge of indebtedness income is 
equal to the excess of the adjusted issue price over the repurchase 
price. See section 108 and the regulations thereunder for additional 
rules relating to income from discharge of indebtedness. For example, to 
determine the repurchase price of a debt instrument that is repurchased 
through the issuance of a new debt instrument, see section 108(e)(10).
    (iii) Repurchase at a premium. An issuer may be entitled to a 
repurchase premium deduction upon the repurchase of a debt instrument 
for an amount greater than its adjusted issue price (within the meaning 
of Sec. 1.1275-1(b)). See Sec. 1.163-7(c) for the treatment of 
repurchase premium.
    (iv) Effective date. This paragraph (c)(2) applies to debt 
instruments repurchased on or after March 2, 1998.
    (d) Cross references. For exclusion from gross income of--
    (1) Income from discharge of indebtedness in certain cases, see 
sections 108 and 1017, and regulations thereunder;
    (2) Forgiveness of Government payments to encourage exploration, 
development, and mining for defense purposes, see section 621 and 
regulations thereunder.
    (e) Cross reference. For rules relating to the treatment of 
liabilities on the sale or other disposition of encumbered property, see 
Sec. 1.1001-2.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6984, 33 FR 
19174, Dec. 24, 1968; T.D. 7741, 45 FR 81745, Dec. 12, 1980; T.D. 8746, 
62 FR 68175, Dec. 31, 1997]



Sec. 1.61-13  Distributive share of partnership gross income; income in respect of a decedent; income from an interest in an estate or trust.

    (a) In general. A partner's distributive share of partnership gross 
income (under section 702(c)) constitutes gross income to him. Income in 
respect of a decedent (under section 691) constitutes gross income to 
the recipient. Income from an interest in an estate or trust constitutes 
gross income under the detailed rules of Part I (section 641 and 
following), Subchapter J, Chapter 1 of the Code. In many cases, these 
sections also determine who is to include in his gross income the income 
from an estate or trust.
    (b) Creation of sinking fund by corporation. If a corporation, for 
the sole purpose of securing the payment of its bonds or other 
indebtedness, places property in trust or sets aside certain amounts in 
a sinking fund under the control of a trustee who may be authorized to 
invest and reinvest such sums from time to time, the property

[[Page 47]]

or fund thus set aside by the corporation and held by the trustee is an 
asset of the corporation, and any gain arising therefrom is income of 
the corporation and shall be included as such in its gross income.



Sec. 1.61-14  Miscellaneous items of gross income.

    (a) In general. In addition to the items enumerated in section 
61(a), there are many other kinds of gross income. For example, punitive 
damages such as treble damages under the antitrust laws and exemplary 
damages for fraud are gross income. Another person's payment of the 
taxpayer's income taxes constitutes gross income to the taxpayer unless 
excluded by law. Illegal gains constitute gross income. Treasure trove, 
to the extent of its value in United States currency, constitutes gross 
income for the taxable year in which it is reduced to undisputed 
possession.
    (b) Cross references. (1) Prizes and awards, see section 74 and 
regulations thereunder;
    (2) Damages for personal injury or sickness, see section 104 and the 
regulations thereunder;
    (3) Income taxes paid by lessee corporation, see section 110 and 
regulations thereunder;
    (4) Scholarships and fellowship grants, see section 117 and 
regulations thereunder;
    (5) Miscellaneous exemptions under other acts of Congress, see 
section 122;
    (6) Tax-free covenant bonds, see section 1451 and regulations 
thereunder.
    (7) Notional principal contracts, see Sec. 1.446-3.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6856, 30 FR 
13316, Oct. 20, 1965; T.D. 8491, 58 FR 53127, Oct. 14, 1993]



Sec. 1.61-15  Options received as payment of income.

    (a) In general. Except as otherwise provided in Sec. 1.61-2(d)(6)(i) 
(relating to certain restricted property transferred after June 30, 
1969), if any person receives an option in payment of an amount 
constituting compensation of such person (or any other person), such 
option is subject to the rules contained in Sec. 1.421-6 for purposes of 
determining when income is realized in connection with such option and 
the amount of such income. In this regard, the rules of Sec. 1.421-6 
apply to an option received in payment of an amount constituting 
compensation regardless of the form of the transaction. Thus, the rules 
of Sec. 1.421-6 apply to an option transferred for less than its fair 
market value in a transaction taking the form of a sale or exchange if 
the difference between the amount paid for the option and its fair 
market value at the time of transfer is the payment of an amount 
constituting compensation of the transferee or any other person. This 
section, for example, makes the rules of Sec. 1.421-6 applicable to 
options granted in whole or partial payment for services of an 
independent contractor. If an amount of money or property is paid for an 
option to which this paragraph applies, then the amount paid shall be 
part of the basis of such option.
    (b) Options to which paragraph (a) does not apply. (1) Paragraph (a) 
of this section does not apply to:
    (i) An option which is subject to the rules contained in section 
421; and
    (ii) An option which is not granted as the payment of an amount 
constituting compensation, such as an option which is acquired solely as 
an investment (including an option which is part of an investment unit 
described in paragraph (b) of Sec. 1.1232-3). For rules relating to the 
taxation of options described in this subdivision, see section 1234 and 
the regulations thereunder.
    (2) If a person acquires an option which is not subject to the rules 
contained in section 421, and if such option has a readily ascertainable 
fair market value, such person may establish that such option was not 
acquired as payment of an amount constituting compensation by showing 
that the amount of money or its equivalent paid for the option equaled 
the readily ascertainable fair market value of the option. If a person 
acquires an option which is not subject to the rules contained in 
section 421, and if such option does not have a readily ascertainable 
fair market value, then to establish that such option was not acquired 
as payment of an amount constituting compensation, such person must show 
that, from an examination of all the surrounding circumstances, there 
was no reason for

[[Page 48]]

the option to have been granted as the payment of an amount constituting 
compensation. For example, such person must show that he had neither 
rendered nor was obligated to render substantial services in 
consideration for the granting of the option. In determining whether an 
option, such as an option acquired in connection with an obligation as 
part of an investment unit, has been granted as compensation for 
services, the ordinary services performed by an investor in his own 
self-interest in connection with his investing activities will not be 
treated as the consideration for the grant of the option. For example, 
if a small business investment company takes an active part in the 
management of its debtor small business company, the rendering of such 
management services will not be treated as the consideration for the 
granting of the option, provided such services are rendered for an 
independent consideration, or are merely protective of the small 
business investment company's investment in the borrower. See paragraph 
(c) of Sec. 1.421-6 for the meaning of the term ``readily ascertainable 
fair market value.''
    (c) Statement required in connection with certain options. (1) Any 
person acquiring any option to purchase securities (other than an option 
described in subparagraph (2) of this paragraph) shall attach a 
statement to his income tax return for the taxable year in which the 
option was acquired. For the definition of the term ``securities'', see 
section 165(g)(2).
    (2) The statement otherwise required by subparagraph (1) of this 
paragraph shall not be required with respect to the following options:
    (i) Options subject to the rules contained in section 305(a) or 
section 421;
    (ii) Options acquired as part of an investment unit consisting of an 
option and a debenture, note, or other similar obligation--
    (a) If such unit is acquired as part of a public offering and the 
amount of money or its equivalent paid for such unit is not less than 
the public offering price, or
    (b) If such unit is actively traded on an established market and the 
amount of money or its equivalent paid for such unit is not less than 
the price paid for such unit in contemporaneous purchases of such unit 
by persons independent of both the seller and the taxpayer;
    (iii) Options acquired as part of a public offering, if the amount 
of money or its equivalent paid for such option is not less than the 
public offering price; and
    (iv) Options which are actively traded on an established market and 
which are acquired for money or its equivalent at a price not less than 
the price paid for such options in contemporaneous purchases of such 
options by persons independent of both the seller and the taxpayer.
    (3) The statement required by subparagraph (1) of this paragraph 
shall contain the following information:
    (i) Name and address of the taxpayer;
    (ii) Description of the securities subject to the option (including 
number of shares of stock);
    (iii) Period during which the option is exercisable;
    (iv) Whether the option had a readily ascertainable fair market 
value at date of grant; and
    (v) Whether the option is subject to paragraph (a) of this section.
    (4) If the statement required by subparagraph (1) of this paragraph 
indicates either that the option is not subject to paragraph (a) of this 
section, or that the option is subject to paragraph (a) of this section 
but that such option had a readily ascertainable fair market value at 
date of grant, then such statement shall contain the following 
additional information:
    (i) Option price;
    (ii) Value at date of grant of securities subject to the option;
    (iii) Restrictions (if any) on exercise or transfer of option;
    (iv) Restrictions (if any) on transfer of securities subject to the 
option;
    (v) Value of the option (if readily ascertainable);
    (vi) How value of option was determined;
    (vii) Amount of money (or its equivalent) paid for the option;
    (viii) Person from whom the option was acquired;

[[Page 49]]

    (ix) A concise description of the circumstances surrounding the 
acquisition of the option and any other factors relied upon by the 
taxpayer to establish that the option is not subject to paragraph (a) of 
this section, or, if the option is treated by the taxpayer as subject to 
paragraph (a) of this section, that the option had a readily 
ascertainable fair market value at date of grant.
    (d) Effective date. This section shall apply to options granted 
after July 11, 1963, other than options required to be granted pursuant 
to the terms of a written contract entered into on or before such date.

[T.D. 6696, 28 FR 13450, Dec. 12, 1963, as amended by T.D. 6706, 29 FR 
2911, Mar. 3, 1964; T.D. 6984, 33 FR 19175, Dec. 24, 1968; T.D. 7554, 43 
FR 31913, July 24, 1978]



Sec. 1.61-21  Taxation of fringe benefits.

    (a) Fringe benefits--(1) In general. Section 61(a)(1) provides that, 
except as otherwise provided in subtitle A of the Internal Revenue Code 
of 1986, gross income includes compensation for services, including 
fees, commissions, fringe benefits, and similar items. For an outline of 
the regulations under this section relating to fringe benefits, see 
paragraph (a)(7) of this section. Examples of fringe benefits include: 
an employer-provided automobile, a flight on an employer-provided 
aircraft, an employer-provided free or discounted commercial airline 
flight, an employer-provided vacation, an employer-provided discount on 
property or services, an employer-provided membership in a country club 
or other social club, and an employer-provided ticket to an 
entertainment or sporting event.
    (2) Fringe benefits excluded from income. To the extent that a 
particular fringe benefit is specifically excluded from gross income 
pursuant to another section of subtitle A of the Internal Revenue Code 
of 1986, that section shall govern the treatment of that fringe benefit. 
Thus, if the requirements of the governing section are satisfied, the 
fringe benefits may be excludable from gross income. Examples of 
excludable fringe benefits include qualified tuition reductions provided 
to an employee (section 117(d)); meals or lodging furnished to an 
employee for the convenience of the employer (section 119); benefits 
provided under a dependent care assistance program (section 129); and 
no-additional-cost services, qualified employee discounts, working 
condition fringes, and de minimis fringes (section 132). Similarly, the 
value of the use by an employee of an employer-provided vehicle or a 
flight provided to an employee on an employer-provided aircraft may be 
excludable from income under section 105 (because, for example, the 
transportation is provided for medical reasons) if and to the extent 
that the requirements of that section are satisfied. Section 134 
excludes from gross income ``qualified military benefits.'' An example 
of a benefit that is not a qualified military benefit is the personal 
use of an employer-provided vehicle. The fact that another section of 
subtitle A of the Internal Revenue Code addresses the taxation of a 
particular fringe benefit will not preclude section 61 and the 
regulations thereunder from applying, to the extent that they are not 
inconsistent with such other section. For example, many fringe benefits 
specifically addressed in other sections of subtitle A of the Internal 
Revenue Code are excluded from gross income only to the extent that they 
do not exceed specific dollar or percentage limits, or only if certain 
other requirements are met. If the limits are exceeded or the 
requirements are not met, some or all of the fringe benefit may be 
includible in gross income pursuant to section 61. See paragraph (b)(3) 
of this section.
    (3) Compensation for services. A fringe benefit provided in 
connection with the performance of services shall be considered to have 
been provided as compensation for such services. Refraining from the 
performance of services (such as pursuant to a covenant not to compete) 
is deemed to be the performance of services for purposes of this 
section.
    (4) Person to whom fringe benefit is taxable--(i) In general. A 
taxable fringe benefit is included in the income of the person 
performing the services in connection with which the fringe benefit is 
furnished. Thus, a fringe benefit may be taxable to a person even though 
that person did not actually receive the fringe benefit. If a fringe 
benefit is furnished to someone other than the

[[Page 50]]

service provider such benefit is considered in this section as furnished 
to the service provider, and use by the other person is considered use 
by the service provider. For example, the provision of an automobile by 
an employer to an employee's spouse in connection with the performance 
of services by the employee is taxable to the employee. The automobile 
is considered available to the employee and use by the employee's spouse 
is considered use by the employee.
    (ii) All persons to whom benefits are taxable referred to as 
employees. The person to whom a fringe benefit is taxable need not be an 
employee of the provider of the fringe benefit, but may be, for example, 
a partner, director, or an independent contractor. For convenience, the 
term ``employee'' includes any person performing services in connection 
with which a fringe benefit is furnished, unless otherwise specifically 
provided in this section.
    (5) Provider of a fringe benefit referred to as an employer. The 
``provider'' of a fringe benefit is that person for whom the services 
are performed, regardless of whether that person actually provides the 
fringe benefit to the recipient. The provider of a fringe benefit need 
not be the employer of the recipient of the fringe benefit, but may be, 
for example, a client or customer of the employer or of an independent 
contractor. For convenience, the term ``employer'' includes any provider 
of a fringe benefit in connection with payment for the performance of 
services, unless otherwise specifically provided in this section.
    (6) Effective date. Except as otherwise provided, this section is 
effective as of January 1, 1989 with respect to fringe benefits provided 
after December 31, 1988. See Sec. 1.61-2T for rules in effect from 
January 1, 1985, to December 31, 1988.
    (7) Outline of this section. The following is an outline of the 
regulations in this section relating to fringe benefits:

Sec. 1.61-21 (a) Fringe benefits.
    (1) In general.
    (2) Fringe benefits excluded from income.
    (3) Compensation for services.
    (4) Person to whom fringe benefit is taxable.
    (5) Provider of a fringe benefit referred to as an employer.
    (6) Effective date.
    (7) Outline of this section.
Sec. 1.61-21 (b) Valuation of fringe benefits
    (1) In general.
    (2) Fair market value.
    (3) Exclusion from income based on cost.
    (4) Fair market value of the availability of an employer-provided 
vehicle.
    (5) Fair market value of chauffeur services.
    (6) Fair market value of a flight on an employer-provided piloted 
aircraft.
    (7) Fair market value of the use of an employer-provided aircraft 
for which the employer does not furnish a pilot.
Sec. 1.61-21 (c) Special valuation rules.
    (1) In general.
    (2) Use of the special valuation rules.
    (3) Additional rules for using special valuation.
    (4) Application of section 414 to employers.
    (5) Valuation formulae contained in the special valuation rules.
    (6) Modification of the special valuation rules.
    (7) Special accounting rule.
Sec. 1.61-21 (d) Automobile lease valuation rule.
    (1) In general.
    (2) Calculation of Annual Lease Value.
    (3) Services included in, or excluded from, the Annual Lease Value 
Table.
    (4) Availability of an automobile for less than an entire calendar 
year.
    (5) Fair market value.
    (6) Special rules for continuous availability of certain 
automobiles.
    (7) Consistency rules.
Sec. 1.61-21 (e) Vehicle cents-per-mile valuation rule.
    (1) In general.
    (2) Definition of vehicle.
    (3) Services included in, or excluded from, the cents-per-mile rate.
    (4) Valuation of personal use only.
    (5) Consistency rules.
Sec. 1.61-21 (f) Commuting valuation rule.
    (1) In general.
    (2) Special rules.
    (3) Commuting value.
    (4) Definition of vehicle.
    (5) Control employee defined--Non-government employer.
    (6) Control employee defined--Government employer.
    (7) ``Compensation'' defined.
Sec. 1.61-21 (g) Non-commercial flight valuation rule.
    (1) In general.
    (2) Eligible flights and eligible aircraft.
    (3) Definition of a flight.
    (4) Personal and non-personal flights.
    (5) Aircraft valuation formula.
    (6) Discretion to provide new formula.
    (7) Aircraft multiples.
    (8) Control employee defined--Non-government employer.

[[Page 51]]

    (9) Control employee defined--Government employer.
    (10) ``Compensation'' defined.
    (11) Treatment of former employees.
    (12) Seating capacity rule.
    (13) Erroneous use of the non-commercial flight valuation rule.
    (14) Consistency rules.
Sec. 1.61-21 (h) Commercial flight valuation rule.
    (1) In general.
    (2) Space-available flight.
    (3) Commercial aircraft.
    (4) Timing of inclusion.
    (5) Consistency rules.
Sec. 1.61-21 (i) [Reserved]
Sec. 1.61-21 (j) Valuation of meals provided at an employer-operated 
          eating facility for employees.
    (1) In general.
    (2) Valuation formula.
Sec. 1.61-21 (k) Commuting valuation rule for certain employees.
    (1) In general.
    (2) Trip-by-trip basis.
    (3) Commuting value.
    (4) Definition of employer-provided transportation.
    (5) Unsafe conditions.
    (6) Qualified employee defined.
    (7) Examples.
    (8) Effective date.

    (b) Valuation of fringe benefits--(1) In general. An employee must 
include in gross income the amount by which the fair market value of the 
fringe benefit exceeds the sum of--
    (i) The amount, if any, paid for the benefit by or on behalf of the 
recipient, and
    (ii) The amount, if any, specifically excluded from gross income by 
some other section of subtitle A of the Internal Revenue Code of 1986.

Therefore, for example, if the employee pays fair market value for what 
is received, no amount is includible in the gross income of the 
employee. In general, the determination of the fair market value of a 
fringe benefit must be made before subtracting out the amount, if any, 
paid for the benefit and the amount, if any, specifically excluded from 
gross income by another section of subtitle A. See paragraphs (d)(2)(ii) 
and (e)(1)(iii) of this section.
    (2) Fair market value. In general, fair market value is determined 
on the basis of all the facts and circumstances. Specifically, the fair 
market value of a fringe benefit is the amount that an individual would 
have to pay for the particular fringe benefit in an arm's-length 
transaction. Thus, for example, the effect of any special relationship 
that may exist between the employer and the employee must be 
disregarded. Similarly, an employee's subjective perception of the value 
of a fringe benefit is not relevant to the determination of the fringe 
benefit's fair market value nor is the cost incurred by the employer 
determinative of its fair market value. For special rules relating to 
the valuation of certain fringe benefits, see paragraph (c) of this 
section.
    (3) Exclusion from income based on cost. If a statutory exclusion 
phrased in terms of cost applies to the provision of a fringe benefit, 
section 61 does not require the inclusion in the recipient's gross 
income of the difference between the fair market value and the 
excludable cost of that fringe benefit. For example, section 129 
provides an exclusion from an employee's gross income for amounts 
contributed by an employer to a dependent care assistance program for 
employees. Even if the fair market value of the dependent care 
assistance exceeds the employer's cost, the excess is not subject to 
inclusion under section 61 and this section. However, if the statutory 
cost exclusion is a limited amount, the fair market value of the fringe 
benefit attributable to any excess cost is subject to inclusion. This 
would be the case, for example, where an employer pays or incurs a cost 
of more than $5,000 to provide dependent care assistance to an employee.
    (4) Fair market value of the availability of an employer-provided 
vehicle--(i) In general. If the vehicle special valuation rules of 
paragraph (d), (e), or (f) of this section do not apply with respect to 
an employer-provided vehicle, the value of the availability of that 
vehicle is determined under the general valuation principles set forth 
in this section. In general, that value equals the amount that an 
individual would have to pay in an arm's-length transaction to lease the 
same or comparable vehicle on the same or comparable conditions in the 
geographic area in which the vehicle is available for use. An example of 
a comparable condition is the amount of time that the vehicle is 
available to the employee for use, e.g., a one-year

[[Page 52]]

period. Unless the employee can substantiate that the same or comparable 
vehicle could have been leased on a cents-per-mile basis, the value of 
the availability of the vehicle cannot be computed by applying a cents-
per-mile rate to the number of miles the vehicle is driven.
    (ii) Certain equipment excluded. The fair market value of a vehicle 
does not include the fair market value of any specialized equipment not 
susceptible to personal use or any telephone that is added to or carried 
in the vehicle, provided that the presence of that equipment or 
telephone is necessitated by, and attributable to, the business needs of 
the employer. However, the value of specialized equipment must be 
included, if the employee to whom the vehicle is available uses the 
specialized equipment in a trade or business of the employee other than 
the employee's trade or business of being an employee of the employer.
    (5) Fair market value of chauffeur services--(i) Determination of 
value--(A) In general. The fair market value of chauffeur services 
provided to the employee by the employer is the amount that an 
individual would have to pay in an arm's-length transaction to obtain 
the same or comparable chauffeur services in the geographic area for the 
period in which the services are provided. In determining the applicable 
fair market value, the amount of time, if any, the chauffeur remains on-
call to perform chauffeur services must be included. For example, assume 
that A, an employee of corporation M, needs a chauffeur to be on-call to 
provide services to A during a twenty-four hour period. If during that 
twenty-four hour period, the chauffeur actually drives A for only six 
hours, the fair market value of the chauffeur services would have to be 
the value of having a chauffeur on-call for a twenty-four hour period. 
The cost of taxi fare or limousine service for the six hours the 
chauffeur actually drove A would not be an accurate measure of the fair 
market value of chauffeur services provided to A. Moreover, all other 
aspects of the chauffeur's services (including any special 
qualifications of the chauffeur (e.g., training in evasive driving 
skills) or the ability of the employee to choose the particular 
chauffeur) must be taken into consideration.
    (B) Alternative valuation with reference to compensation paid. 
Alternatively, the fair market value of the chauffeur services may be 
determined by reference to the compensation (as defined in paragraph 
(b)(5)(ii) of this section) received by the chauffeur from the employer.
    (C) Separate valuation for chauffeur services. The value of 
chauffeur services is determined separately from the value of the 
availability of an employer-provided vehicle.
    (ii) Definition of compensation--(A) In general. For purposes of 
this paragraph (b)(5)(ii), the term ``compensation'' means compensation 
as defined in section 414(q)(7) and the fair market value of nontaxable 
lodging (if any) provided by the employer to the chauffeur in the 
current year.
    (B) Adjustments to compensation--For purposes of this paragraph 
(b)(5)(ii), a chauffeur's compensation is reduced proportionately to 
reflect the amount of time during which the chauffeur performs 
substantial services for the employer other than as a chauffeur and is 
not on-call as a chauffeur. For example, assume a chauffeur is paid 
$25,000 a year for working a ten-hour day, five days a week and also 
receives $5,000 in nontaxable lodging. Further assume that during four 
hours of each day, the chauffeur is not on-call to perform services as a 
chauffeur because that individual is performing secretarial functions 
for the employer. Then, for purposes of determining the fair market 
value of this chauffeur's services, the employer may reduce the 
chauffeur's compensation by \4/10\ or $12,000 (.4x ($25,000+$5,000) = 
$12,000). Therefore, in this example, the fair market value of the 
chauffeur's services is $18,000 ($30,000 -$12,000). However, for 
purposes of this paragraph (b)(5)(ii), a chauffeur's compensation is not 
to be reduced by any amounts paid to the chauffeur for time spent ``on-
call,'' even though the chauffeur actually performs other services for 
the employer during such time. For purposes of this paragraph 
(b)(5)(ii), a determination that a chauffeur is performing substantial 
services for the employer other than as a chauffeur is

[[Page 53]]

based upon the facts and circumstances of each situation. An employee 
will be deemed to be performing substantial services for the employer 
other than as a chauffeur if a certain portion of each working day is 
regularly spent performing other services for the employer.
    (iii) Calculation of chauffeur services for personal purposes of the 
employee. The fair market value of chauffeur services provided to the 
employee for personal purposes may be determined by multiplying the fair 
market value of chauffeur services, as determined pursuant to paragraph 
(b)(5)(i) (A) or (B) of this section, by a fraction, the numerator of 
which is equal to the sum of the hours spent by the chauffeur actually 
providing personal driving services to the employee and the hours spent 
by the chauffeur in ``personal on-call time,'' and the denominator of 
which is equal to all hours the chauffeur spends in driving services of 
any kind paid for by the employer, including all hours that are ``on-
call.''
    (iv) Definition of on-call time. For purposes of this paragraph, the 
term ``on-call time'' means the total amount of time that the chauffeur 
is not engaged in the actual performance of driving services, but during 
which time the chauffeur is available to perform such services. With 
respect to a round-trip, time spent by a chauffeur waiting for an 
employee to make a return trip is generally not treated as on-call time; 
rather such time is treated as part of the round-trip.
    (v) Definition of personal on-call time. For purposes of this 
paragraph, the term ``personal on-call time'' means the amount of time 
outside the employee's normal working hours for the employer when the 
chauffeur is available to the employee to perform driving services.
    (vi) Presumptions. (A) An employee's normal working hours will be 
presumed to consist of a ten hour period during which the employee 
usually conducts business activities for that employer.
    (B) It will be presumed that if the chauffeur is on-call to provide 
driving services to an employee during the employee's normal working 
hours, then that on-call time will be performed for business purposes.
    (C) Similarly, if the chauffeur is on-call to perform driving 
services to an employee after normal working hours, then that on-call 
time will be presumed to be ``personal on-call time.''
    (D) The presumptions set out in paragraph (b)(5)(vi) (A), (B), and 
(C) of this section may be rebutted. For example, an employee may 
demonstrate by adequate substantiation that his or her normal working 
hours consist of more than ten hours. Furthermore, if the employee keeps 
adequate records and is able to substantiate that some portion of the 
driving services performed by the chauffeur after normal working hours 
is attributable to business purposes, then personal on-call time may be 
reduced by an amount equal to such personal on-call time multiplied by a 
fraction, the numerator of which is equal to the time spent by the 
chauffeur after normal working hours driving the employee for business 
purposes, and the denominator of which is equal to the total time spent 
by the chauffeur driving the employee after normal working hours for all 
purposes.
    (vii) Examples. The rules of this paragraph (b)(5) may be 
illustrated by the following examples:

    Example (1). An employer makes available to employee A an automobile 
and a full-time chauffeur B (who performs no other services for A's 
employer) for an entire calendar year. Assume that the automobile lease 
valuation rule of paragraph (d) of this section is used and that the 
Annual Lease Value of the automobile is $9,250. Assume further that B's 
compensation for the year is $12,000 (as defined in section 414(q)(7)) 
and that B is furnished lodging with a value of $3,000 that is 
excludable from B's gross income. The maximum amount subject to 
inclusion in A's gross income for use of the automobile and chauffeur is 
therefore $24,250 ($12,000+$3,000+$9,250). If 70 percent of the miles 
placed on the automobile during the year are for A's employer's 
business, then $6,475 is excludable from A's gross income with respect 
to the automobile as a working condition fringe ($9,250x.70). Thus, 
$2,775 is includible in A's gross income with respect to the automobile 
($9,250-$6,475). With respect to the chauffeur, if 20 percent of the 
chauffeur's time is spent actually driving A or being on-call to drive A 
for personal purposes; then $3,000 is includible in A's income 
(.20x$15,000). Eighty percent of $15,000, or $12,000, is excluded from 
A's income as a working condition fringe.

[[Page 54]]

    Example (2). Assume the same facts as in example (1) except that in 
addition to providing chauffeur services, B is responsible for 
performing substantial non-chauffeur-related duties (such as clerical or 
secretarial functions) during which time B is not ``on-call'' as a 
chauffeur. If B spends only 75 percent of the time performing chauffeur 
services, then the maximum amount subject to inclusion in A's gross 
income for use of the automobile and chauffeur is $20,500 
(($15,000x.75)+$9,250). If B is actually driving A for personal purposes 
or is on-call to drive A for personal purposes for 20 percent of the 
time during which B is available to provide chauffeur services, then 
$2,250 is includible in A's gross income (.20x$11,250). The income 
inclusion with respect to the automobile is the same as in example (1).
    Example (3). Assume the same facts as in example (2) except that 
while B is performing non-chauffeur-related duties, B is on call as A's 
chauffeur. No part of B's compensation is excluded when determining the 
value of the benefit provided to A. Thus, as in example (1), $3,000 is 
includible in A's gross income with respect to the chauffeur.

    (6) Fair market value of a flight on an employer-provided piloted 
aircraft--(i) In general. If the non-commercial flight special valuation 
rule of paragraph (g) of this section does not apply, the value of a 
flight on an employer-provided piloted aircraft is determined under the 
general valuation principles set forth in this paragraph.
    (ii) Value of flight. If an employee takes a flight on an employer-
provided piloted aircraft and that employee's flight is primarily 
personal (see Sec. 1.162-2(b)(2)), the value of the flight is equal to 
the amount that an individual would have to pay in an arm's-length 
transaction to charter the same or a comparable piloted aircraft for 
that period for the same or a comparable flight. A flight taken under 
these circumstances may not be valued by reference to the cost of 
commercial airfare for the same or a comparable flight. The cost to 
charter the aircraft must be allocated among all employees on board the 
aircraft based on all the facts and circumstances unless one or more of 
the employees controlled the use of the aircraft. Where one or more 
employees control the use of the aircraft, the value of the flight shall 
be allocated solely among such controlling employees, unless a written 
agreement among all the employees on the flight otherwise allocates the 
value of such flight. Notwithstanding the allocation required by the 
preceding sentence, no additional amount shall be included in the income 
of any employee whose flight is properly valued under the special 
valuation rule of paragraph (g) of this section. For purposes of this 
paragraph (b)(6), ``control'' means the ability of the employee to 
determine the route, departure time and destination of the flight. The 
rules provided in paragraph (g)(3) of this section will be used for 
purposes of this section in defining a flight. Notwithstanding the 
allocation required by the preceding sentence, no additional amount 
shall be included in the income of an employee for that portion of any 
such flight which is excludible from income pursuant to section 132(d) 
or Sec. 1.132-5 as a working condition fringe.
    (iii) Examples. The rules of paragraph (b)(6) of this section may be 
illustrated by the following examples:

    Example (1). An employer makes available to employees A and B a 
piloted aircraft in New York, New York. A wants to go to Los Angeles, 
California for personal purposes. B needs to go to Chicago, Illinois for 
business purposes, and then wants to go to Los Angeles, California for 
personal purposes. Therefore, the aircraft first flies to Chicago, and B 
deplanes and then boards the plane again. The aircraft then flies to Los 
Angeles, California where A and B deplane. The value of the flight to 
employee A will be no more than the amount that an individual would have 
to pay in an arm's length transaction to charter the same or a 
comparable piloted aircraft for the same or comparable flight from New 
York City to Los Angeles. No amount will be imputed to employee A for 
the stop at Chicago. As to employee B, the value of the personal flight 
will be no more than the value or the flight from Chicago to Los 
Angeles. Pursuant to the rules set forth in Sec. 1.132-5(k), the flight 
from New York to Chicago will not be included in employee B's income 
since that flight was taken solely for business purposes. The charter 
cost must be allocated between A and B, since both employees controlled 
portions of the flight. Assume that the employer allocates according to 
the relative value of each employee's flight. If the charter value of 
A's flight from New York City to Los Angeles is $1,000 and the value of 
B's flight from Chicago to Los Angeles is $600 and the value of the 
actual flight from New York to Chicago to Los Angeles is $1,200, then 
the amount to be allocated to employee A is $750 ($1,000/

[[Page 55]]

($1,000+$600)x$1,200) and the amount to be allocated to employee B is 
$450 ($600/($1000+$600)x$1,200).
    Example (2). Assume the same facts as in example (1), except that 
employee A also deplanes at Chicago, Illinois, but for personal 
purposes. The value of the flight to employee A then becomes the value 
of a flight from New York to Chicago to Los Angeles, i.e., $1,200. 
Therefore, the amount to be allocated to employee A is $800 ($1,200/
($1,200+$600)x$1,200) and the amount to be allocated to employee B is 
$400 ($600/($1,200+$600)x $1,200).

    (7) Fair market value of the use of an employer-provided aircraft 
for which the employer does not furnish a pilot. (i) In general. If the 
non-commercial flight special valuation rule of paragraph (g) of this 
section does not apply and if an employer provides an employee with the 
use of an aircraft without a pilot, the value of the use of the 
employer-provided aircraft is determined under the general valuation 
principles set forth in this paragraph (b)(7).
    (ii) Value of flight. In general, if an employee takes a flight on 
an employer-provided aircraft for which the employer does not furnish a 
pilot, the value of that flight is equal to the amount that an 
individual would have to pay in an arm's-length transaction to lease the 
same or comparable aircraft on the same or comparable terms for the same 
period in the geographic area in which the aircraft is used. For 
example, if an employer makes its aircraft available to an employee who 
will pilot the aircraft for a two-hour flight, the value of the use of 
the aircraft is the amount that an individual would have to pay in an 
arm's-length transaction to rent a comparable aircraft for that period 
in the geographic area in which the aircraft is used. As another 
example, assume that an employee uses an employer-provided aircraft to 
commute between home and work. The value of the use of the aircraft is 
the amount that an individual would have to pay in an arm's-length 
transaction to rent a comparable aircraft for commuting in the 
geographic area in which the aircraft is used. If the availability of 
the flight is of benefit to more than one employee, then such value 
shall be allocated among such employees on the basis of the relevant 
facts and circumstances.
    (c) Special valuation rules--(1) In general. Paragraphs (d) through 
(k) of this section provide special valuation rules that may be used 
under certain circumstances for certain commonly provided fringe 
benefits. For general rules relating to the valuation of fringe benefits 
not eligible for valuation under the special valuation rules or fringe 
benefits with respect to which the special valuation rules are not used, 
see paragraph (b) of this section.
    (2) Use of the special valuation rules--(i) For benefits provided 
before January 1, 1993. The special valuation rules may be used for 
income tax, employment tax, and reporting purposes. The employer has the 
option to use any of the special valuation rules. However, an employee 
may only use a special valuation rule if the employer uses the rule. 
Moreover, an employee may only use the special rule that the employer 
uses to value the benefit provided; the employee may not use another 
special rule to value that benefit. The employee may always use general 
valuation rules based on facts and circumstances (see paragraph (b) of 
this section) even if the employer uses a special rule. If a special 
rule is used, it must be used for all purposes. If an employer properly 
uses a special rule and the employee uses the special rule, the employee 
must include in gross income the amount determined by the employer under 
the special rule reduced by the sum of--
    (A) Any amount reimbursed by the employee to the employer, and
    (B) Any amount excludable from income under another section of 
subtitle A of the Internal Revenue Code of 1986. If an employer properly 
uses a special rule and properly determines the amount of an employee's 
working condition fringe under section 132 and Sec. 1.132-5 (under the 
general rule or under a special rule), and the employee uses the special 
valuation rule, the employee must include in gross income the amount 
determined by the employer less any amount reimbursed by the employee to 
the employer. The employer and employee may use the special rules to 
determine the amount of the reimbursement due the employer by the 
employee. Thus, if an employee reimburses an employer for the value

[[Page 56]]

of a benefit as determined under a special valuation rule, no amount is 
includable in the employee's gross income with respect to the benefit. 
The provisions of this paragraph are effective for benefits provided 
before January 1, 1993.
    (ii) For benefits provided after December 31, 1992. The special 
valuation rules may be used for income tax, employment tax, and 
reporting purposes. The employer has the option to use any of the 
special valuation rules. An employee may use a special valuation rule 
only if the employer uses that rule or the employer does not meet the 
condition of paragraph (c)(3)(ii)(A) of this section, but one of the 
other conditions of paragraph (c)(3)(ii) of this section is met. The 
employee may always use general valuation rules based on facts and 
circumstances (see paragraph (b) of this section) even if the employer 
uses a special rule. If a special rule is used, it must be used for all 
purposes. If an employer properly uses a special rule and the employee 
uses the special rule, the employee must include in gross income the 
amount determined by the employer under the special rule reduced by the 
sum of--
    (A) Any amount reimbursed by the employee to the employer; and
    (B) Any amount excludable from income under another section of 
subtitle A of the Internal Revenue Code of 1986. If an employer properly 
uses a special rule and properly determines the amount of an employee's 
working condition fringe under section 132 and Sec. 1.132-5 (under the 
general rule or under a special rule), and the employee uses the special 
valuation rule, the employee must include in gross income the amount 
determined by the employer less any amount reimbursed by the employee to 
the employer. The employer and employee may use the special rules to 
determine the amount of the reimbursement due the employer by the 
employee. Thus, if an employee reimburses an employer for the value of a 
benefit as determined under a special valuation rule, no amount is 
includible in the employee's gross income with respect to the benefit. 
The provisions of this paragraph are effective for benefits provided 
after December 31, 1992.
    (iii) Vehicle special valuation rules--(A) Vehicle by vehicle basis. 
Except as provided in paragraphs (d)(7)(v) and (e)(5)(v) of this 
section, the vehicle special valuation rules of paragraphs (d), (e), and 
(f) of this section apply on a vehicle by vehicle basis. An employer 
need not use the same vehicle special valuation rule for all vehicles 
provided to all employees. For example, an employer may use the 
automobile lease valuation rule for automobiles provided to some 
employees, and the commuting and vehicle cents-per-mile valuation rules 
for automobiles provided to other employees. For purposes of valuing the 
use or availability of a vehicle, the consistency rules provided in 
paragraphs (d)(7) and (e)(5) of this section (relating to the automobile 
lease valuation rule and the vehicle cents-per-mile valuation rule, 
respectively) apply.
    (B) Shared vehicle usage. If an employer provides a vehicle to 
employees for use by more than one employee at the same time, such as 
with an employer-sponsored vehicle commuting pool, the employer may use 
any of the special valuation rules that may be applicable to value the 
use of the vehicle by the employees. The employer must use the same 
special valuation rule to value the use of the vehicle by each employee 
who shares such use. The employer must allocate the value of the use of 
the vehicle based on the relevant facts and circumstances among the 
employees who share use of the vehicle. For example, assume that an 
employer provides an automobile to four of its employees and that the 
employees use the automobile in an employer-sponsored vehicle commuting 
pool. Assume further that the employer uses the automobile lease 
valuation rule of paragraph (d) of this section and that the Annual 
Lease Value of the automobile is $5,000.

The employer must treat $5,000 as the value of the availability of the 
automobile to the employees, and must apportion the $5,000 value among 
the employees who share the use of the automobile based on the relevant 
facts and circumstances. Each employee's share of the value of the 
availability of the automobile is then to be reduced by the amount, if 
any, of each employee's

[[Page 57]]

working condition fringe exclusion and the amount reimbursed by the 
employee to the employer.
    (iv) Commercial and noncommercial flight valuation rules. Except as 
otherwise provided, if either the commercial flight valuation rule or 
the non-commercial flight valuation rule is used, that rule must be used 
by an employer to value all eligible flights taken by all employees in a 
calendar year. See paragraph (g)(14) of this section for the applicable 
consistency rules.
    (3) Additional rules for using special valuation--(i) Election to 
use special valuation rules for benefits provided before January 1, 
1993. A particular special valuation rule is deemed to have been elected 
by the employer (and, if applicable, by the employee), if the employer 
(and, if applicable, the employee) determines the value of the fringe 
benefit provided by applying the special valuation rule and treats that 
value as the fair market value of the fringe benefit for income, 
employment tax, and reporting purposes. Neither the employer nor the 
employee must notify the Internal Revenue Service of the election. The 
provisions of this paragraph are effective for benefits provided before 
January 1, 1993.
    (ii) Conditions on the use of special valuation rules for benefits 
provided after December 31, 1992. Neither the employer nor the employee 
may use a special valuation rule to value a benefit provided after 
December 31, 1992, unless one of the following conditions is satisfied--
    (A) The employer treats the value of the benefit as wages for 
reporting purposes within the time for filing the returns for the 
taxable year (including extensions) in which the benefit is provided;
    (B) The employee includes the value of the benefit in income within 
the time for filing the returns for the taxable year (including 
extensions) in which the benefit is provided;
    (C) The employee is not a control employee as defined in paragraphs 
(f)(5) and (f)(6) of this section; or
    (D) The employer demonstrates a good faith effort to treat the 
benefit correctly for reporting purposes.
    (4) Application of section 414 to employers. For purposes of 
paragraphs (c) through (k) of this section, except as otherwise provided 
therein, the term ``employer'' includes all entities required to be 
treated as a single employer under section 414 (b), (c), (m), or (o).
    (5) Valuation formulae contained in the special valuation rules. The 
valuation formula contained in the special valuation rules are provided 
only for use in connection with those rules. Thus, when a special 
valuation rule is properly applied to a fringe benefit, the Commissioner 
will accept the value calculated pursuant to the rule as the fair market 
value of that fringe benefit. However, when a special valuation rule is 
not properly applied to a fringe benefit (see, for example, paragraph 
(g)(13) of this section), or when a special valuation rule is used to 
value a fringe benefit by a taxpayer not entitled to use the rule, the 
fair market value of that fringe benefit may not be determined by 
reference to any value calculated under any special valuation rule. 
Under the circumstances described in the preceding sentence, the fair 
market value of the fringe benefit must be determined pursuant to the 
general valuation rules of paragraph (b) of this section.
    (6) Modification of the special valuation rules. The Commissioner 
may, to the extent necessary for tax administration, add, delete, or 
modify any special valuation rule, including the valuation formulae 
contained herein, on a prospective basis by regulation, revenue ruling 
or revenue procedure.
    (7) Special accounting rule. If the employer is using the special 
accounting rule provided in Announcement 85-113 (1985-31 I.R.B. 31, 
August 5, 1985) (see Sec. 601.601(d)(2)(ii)(b) of this chapter) 
(relating to the reporting of and withholding on the value of noncash 
fringe benefits), benefits which are deemed provided in a subsequent 
calendar year pursuant to that rule are considered as provided in that 
subsequent calendar year for purposes of the special valuation rules. 
Thus, if a particular special valuation rule is in effect for a calendar 
year, it applies to benefits deemed provided during that calendar year 
under the special accounting rule.
    (d) Automobile lease valuation rule--(1) In general--(i) Annual 
Lease Value.

[[Page 58]]

Under the special valuation rule of this paragraph (d), if an employer 
provides an employee with an automobile that is available to the 
employee for an entire calendar year, the value of the benefit provided 
is the Annual Lease Value (determined under paragraph (d)(2) of this 
section) of that automobile. Except as otherwise provided, for an 
automobile that is available to an employee for less than an entire 
calendar year, the value of the benefit provided is either a pro-rated 
Annual Lease Value or the Daily Lease Value (both as defined in 
paragraph (d)(4) of this section), whichever is applicable. Absent any 
statutory exclusion relating to the employer-provided automobile (see, 
for example, section 132(a)(3) and Sec. 1.132-5(b)), the amount of the 
Annual Lease Value (or a pro-rated Annual Lease Value or the Daily Lease 
Value, as applicable) is included in the gross income of the employee.
    (ii) Definition of automobile. For purposes of this paragraph (d), 
the term ``automobile'' means any four-wheeled vehicle manufactured 
primarily for use on public streets, roads, and highways.
    (2) Calculation of Annual Lease Value--(i) In general. The Annual 
Lease Value of a particular automobile is calculated as follows:
    (A) Determine the fair market value of the automobile as of the 
first date on which the automobile is made available to any employee of 
the employer for personal use. For an automobile first made available to 
any employee for personal use prior to January 1, 1985, determine the 
fair market value as of January l of the first year the special 
valuation rule of this paragraph (d) is used with respect to the 
automobile. For rules relating to determination of the fair market value 
of an automobile for purposes of this paragraph (d), see paragraph 
(d)(5) of this section.
    (B) Select the dollar range in column 1 of the Annual Lease Value 
Table, set forth in paragraph (d)(2)(iii) of this section corresponding 
to the fair market value of the automobile. Except as otherwise provided 
in paragraphs (d)(2) (iv) and (v) of this section, the Annual Lease 
Value for each year of availability of the automobile is the 
corresponding amount in column 2 of the Table.
    (ii) Calculation of Annual Lease Value of automobile owned or leased 
by both an employer and an employee--(A) Purchased automobiles. 
Notwithstanding anything in this section to the contrary, if an employee 
contributes an amount toward the purchase price of an automobile in 
return for a percentage ownership interest in the automobile, the Annual 
Lease Value or the Daily Lease Value, whichever is applicable, is 
determined by reducing the fair market value of the employer-provided 
automobile by the lesser of--
    (1) The amount contributed, or
    (2) An amount equal to the employee's percentage ownership interest 
multiplied by the unreduced fair market value of the automobile.

If the automobile is subsequently revalued, the revalued amount 
(determined without regard to this paragraph (d)(2)(ii)(A)) is reduced 
by an amount which is equal to the employee's percentage ownership 
interest in the vehicle). If the employee does not receive an ownership 
interest in the employer-provided automobile, then the Annual Lease 
Value or the Daily Lease Value, whichever is applicable, is determined 
without regard to any amount contributed. For purposes of this paragraph 
(d)(2)(ii)(A), an employee's ownership interest in an automobile will 
not be recognized unless it is reflected in the title of the automobile. 
An ownership interest reflected in the title of an automobile will not 
be recognized if under the facts and circumstances the title does not 
reflect the benefits and burdens of ownership.
    (B) Leased automobiles. Notwithstanding anything in this section to 
the contrary, if an employee contributes an amount toward the cost to 
lease an automobile in return for a percentage interest in the 
automobile lease, the Annual Lease Value or the Daily Lease Value, 
whichever is applicable, is determined by reducing the fair market value 
of the employer-provided automobile by the amount specified in the 
following sentence. The amount specified in this sentence is the 
unreduced fair market value of a vehicle multiplied by the lesser of--

[[Page 59]]

    (1) The employee's percentage interest in the lease, or
    (2) A fraction, the numerator of which is the amount contributed and 
the denominator of which is the entire lease cost.

If the automobile is subsequently revalued, the revalued amount 
(determined without regard to this paragraph (d)(2)(ii)(B)) is reduced 
by an amount which is equal to the employee's percentage interest in the 
lease) multiplied by the revalued amount. If the employee does not 
receive an interest in the automobile lease, then the Annual Lease Value 
or the Daily Lease Value, whichever is applicable, is determined without 
regard to any amount contributed. For purposes of this paragraph 
(d)(2)(ii)(B), an employee's interest in an automobile lease will not be 
recognized unless the employee is a named co-lessee on the lease. An 
interest in a lease will not be recognized if under the facts and 
circumstances the lease does not reflect the true obligations of the 
lessees.
    (C) Example. The rules of paragraph (d)(2)(ii) (A) and (B) of this 
section are illustrated by the following example:

    Example. Assume that an employer pays $15,000 and an employee pays 
$5,000 toward the purchase of an automobile. Assume further that the 
employee receives a 25 percent interest in the automobile and is named 
as a co-owner on the title to the automobile. Under the rule of 
paragraph (d)(2)(ii)(A) of this section, the Annual Lease Value of the 
automobile is determined by reducing the fair market value of the 
automobile ($20,000) by the $5,000 employee contribution. Thus, the 
Annual Lease Value of the automobile under the table in paragraph 
(d)(2)(iii) of this section is $4,350. If the employee in this example 
does not receive an ownership interest in the automobile and is provided 
the use of the automobile for two years, the Annual Lease Value would be 
determined without regard to the $5,000 employee contribution. Thus, the 
Annual Lease Value would be $5,600. The $5,000 employee contribution 
would reduce the amount includible in the employee's income after taking 
into account the amount, if any, excluded from income under another 
provision of subtitle A of the Internal Revenue Code, such as the 
working condition fringe exclusion. Thus, if the employee places 50 
percent of the mileage on the automobile for the employer's business 
each year, then the amount includible in the employee's income in the 
first year would be ($5,600-2,800-2,800), or $0, the amount includible 
in the employee's income in the second year would be ($5,600-2,800-2,200 
($5,000-2,800)) or $600 and the amount includible in the third year 
would be ($5,600-2,800) or $2,800 since the employee's contribution has 
been completely used in the first two years.

    (iii ) Annual Lease Value Table.

------------------------------------------------------------------------
                 Automobile fair market value                    Annual
--------------------------------------------------------------   lease
                                                                 value
                             (1)                              ----------
                                                                  (2)
------------------------------------------------------------------------
$0 to 999....................................................       $600
1,000 to 1,999...............................................        850
2,000 to 2,999...............................................      1,100
3,000 to 3,999...............................................      1,350
4,000 to 4,999...............................................      1,600
5,000 to 5,999...............................................      1,850
6,000 to 6,999...............................................      2,100
7,000 to 7,999...............................................      2,350
8,000 to 8,999...............................................      2,600
9,000 to 9,999...............................................      2,850
10,000 to 10,999.............................................      3,100
11,000 to 11,999.............................................      3,350
12,000 to 12,999.............................................      3,600
13,000 to 13,999.............................................      3,850
14,000 to 14,999.............................................      4,100
15,000 to 15,999.............................................      4,350
16,000 to 16,999.............................................      4,600
17,000 to 17,999.............................................      4,850
18,000 to 18,999.............................................      5,100
19,000 to 19,999.............................................      5,350
20,000 to 20,999.............................................      5,600
21,000 to 21,999.............................................      5,850
22,000 to 22,999.............................................      6,100
23,000 to 23,999.............................................      6,350
24,000 to 24,999.............................................      6,600
25,000 to 25,999.............................................      6,850
26,000 to 27,999.............................................      7,250
28,000 to 29,999.............................................      7,750
30,000 to 31,999.............................................      8,250
32,000 to 33,999.............................................      8,750
34,000 to 35,999.............................................      9,250
36,000 to 37,999.............................................      9,750
38,000 to 39,999.............................................     10,250
40,000 to 41,999.............................................     10,750
42,000 to 43,999.............................................     11,250
44,000 to 45,999.............................................     11,750
46,000 to 47,999.............................................     12,250
48,000 to 49,999.............................................     12,750
50,000 to 51,999.............................................     13,250
52,000 to 53,999.............................................     13,750
54,000 to 55,999.............................................     14,250
56,000 to 57,999.............................................     14,750
58,000 to 59,999.............................................     15,250
------------------------------------------------------------------------


For vehicles having a fair market value in excess of $59,999, the Annual 
Lease Value is equal to: (.25 x the fair market value of the automobile) 
+ $500.
    (iv) Recalculation of Annual Lease Value. The Annual Lease Values 
determined under the rules of this paragraph (d) are based on four-year 
lease terms. Therefore, except as otherwise provided in paragraph 
(d)(2)(v) of this section, the Annual Lease Value calculated by applying 
paragraph (d)(2) (i)

[[Page 60]]

or (ii) of this section shall remain in effect for the period that 
begins with the first date the special valuation rule of paragraph (d) 
of this section is applied by the employer to the automobile and ends on 
December 31 of the fourth full calendar year following that date. The 
Annual Lease Value for each subsequent four-year period is calculated by 
determining the fair market value of the automobile as of the first 
January 1 following the period described in the previous sentence and 
selecting the amount in column 2 of the Annual Lease Value Table 
corresponding to the appropriate dollar range in column 1 of the Table. 
If, however, the employer is using the special accounting rule provided 
in Announcement 85-113 (1985-31 I.R.B. 31, August 5, 1985) (relating to 
the reporting of and withholding on the value of noncash fringe 
benefits), the employer may calculate the Annual Lease Value for each 
subsequent four-year period as of the beginning of the special 
accounting period that begins immediately prior to the January 1 
described in the previous sentence. For example, assume that pursuant to 
Announcement 85-113, an employer uses the special accounting rule. 
Assume further that beginning on November 1, 1988, the special 
accounting period is November 1 to October 31 and that the employer 
elects to use the special valuation rule of this paragraph (d) as of 
January 1, 1989. The employer may recalculate the Annual Lease Value as 
of November 1, 1992, rather than as of January 1, 1993.
    (v) Transfer of the automobile to another employee. Unless the 
primary purpose of the transfer is to reduce Federal taxes, if an 
employer transfers the use of an automobile from one employee to another 
employee, the employer may recalculate the Annual Lease Value based on 
the fair market value of the automobile as of January 1 of the calendar 
year of transfer. If, however, the employer is using the special 
accounting rule provided in Announcement 85-113 (1985-31 I.R.B. 31, 
August 5, 1985) (relating to the reporting of and withholding on the 
value of noncash fringe benefits), the employer may recalculate the 
Annual Lease Value based on the fair market value of the automobile as 
of the beginning of the special accounting period in which the transfer 
occurs. If the employer does not recalculate the Annual Lease Value, and 
the employee to whom the automobile is transferred uses the special 
valuation rule, the employee may not recalculate the Annual Lease Value.
    (3) Services included in, or excluded from, the Annual Lease Value 
Table--(i) Maintenance and insurance included. The Annual Lease Values 
contained in the Annual Lease Value Table include the fair market value 
of maintenance of, and insurance for, the automobile. Neither an 
employer nor an employee may reduce the Annual Lease Value by the fair 
market value of any service included in the Annual Lease Value that is 
not provided by the employer, such as reducing the Annual Lease Value by 
the fair market value of a maintenance service contract or insurance. An 
employer or employee who wishes to take into account only the services 
actually provided with respect to an automobile may value the 
availability of the automobile under the general valuation rules of 
paragraph (b) of this section.
    (ii) Fuel excluded--(A) In general. The Annual Lease Values do not 
include the fair market value of fuel provided by the employer, whether 
fuel is provided in kind or its cost is reimbursed by or charged to the 
employer. Thus, if an employer provides fuel, the fuel must be valued 
separately for inclusion in income.
    (B) Valuation of fuel provided in kind. The provision of fuel in 
kind may be valued at fair market value based on all the facts and 
circumstances or, in the alternative, it may be valued at 5.5 cents per 
mile for all miles driven by the employee. However, the provision of 
fuel in kind may not be valued at 5.5 cents per mile for miles driven 
outside the United States, Canada or Mexico. For purposes of this 
section, the United States includes the United States, its possessions 
and its territories.
    (C) Valuation of fuel where cost reimbursed by or charged to an 
employer. The fair market value of fuel, the cost of which is reimbursed 
by or charged to an employer, is generally the amount of the actual 
reimbursement or the amount charged, provided the purchase of the fuel 
is at arm's-length.

[[Page 61]]

    (D) Fleet-average cents-per-mile fuel cost. If an employer with a 
fleet of at least 20 automobiles that meets the requirements of 
paragraph (d)(5)(v)(D) of this section reimburses employees for the cost 
of fuel or allows employees to charge the employer for the cost of fuel, 
the fair market value of fuel provided to those automobiles may be 
determined by reference to the employer's fleet-average cents-per-mile 
fuel cost. The fleet-average cents-per-mile fuel cost is equal to the 
fleet-average per-gallon fuel cost divided by the fleet-average miles-
per-gallon rate. The averages described in the preceding sentence must 
be determined by averaging the per-gallon fuel costs and miles-per-
gallon rates of a representative sample of the automobiles in the fleet 
equal to the greater of ten percent of the automobiles in the fleet or 
20 automobiles for a representative period, such as a two-month period. 
In lieu of determining the fleet-average cents-per-mile fuel cost, if an 
employer is using the fleet-average valuation rule of paragraph 
(d)(5)(v) of this section and if determining the amount of the actual 
reimbursement or the amount charged for the purchase of fuel would 
impose unreasonable administrative burdens on the employer, the 
provision of fuel may be valued under the rule provided in paragraph 
(d)(3)(ii)(B) of this section.
    (iii) Treatment of other services. The fair market value of any 
service not specifically identified in paragraph (d)(3)(i) of this 
section that is provided by the employer with respect to an automobile 
(other than the services of a chauffeur) must be added to the Annual 
Lease Value of the automobile in determining the fair market value of 
the benefit provided. See paragraph (b) (5) of this section for rules 
relating to the valuation of chauffeur services.
    (4) Availability of an automobile for less than an entire calendar 
year--(i) Pro-rated Annual Lease Value used for continuous availability 
of at least 30 days.--(A) In general. Except as otherwise provided in 
paragraph (d)(4)(iv) of this section, for periods of continuous 
availability of at least 30 days, but less than an entire calendar year, 
the value of the availability of an automobile provided by an employer 
electing to use the automobile lease valuation rule of this paragraph 
(d) is the pro-rated Annual Lease Value. The pro-rated Annual Lease 
Value is calculated by multiplying the applicable Annual Lease Value by 
a fraction, the numerator of which is the number of days of availability 
and the denominator of which is 365.
    (B) Special rule for continuous availability of at least 30 days 
that straddles two reporting years. If an employee is provided with the 
continuous availability of an automobile for at least 30 days, but the 
continuous period straddles two calendar years (or two special 
accounting periods if the special accounting rule of Announcement 85-113 
(1985-31 I.R.B. 31, August 5, 1985) (relating to the reporting of and 
withholding on noncash fringe benefits) is used), the pro-rated Annual 
Lease Value, rather than the Daily Lease Value, may be applied with 
respect to such period of continuous availability.
    (ii) Daily Lease Value used for continuous availability of less than 
30 days. Except as otherwise provided in paragraph (d)(4)(iii) of this 
section, for periods of continuous availability of one or more but less 
than 30 days, the value of the availability of the employer-provided 
automobile is the Daily Lease Value. The Daily Lease Value is calculated 
by multiplying the applicable Annual Lease Value by a fraction, the 
numerator of which is four times the number of days of availability and 
the denominator of which is 365.
    (iii) Election to treat all periods as periods of at least 30 days. 
The value of the availability of an employer-provided automobile for a 
period of continuous availability of less than 30 days may be determined 
by applying the pro-rated Annual Lease Value by treating the automobile 
as if it had been available for 30 days, if doing so would result in a 
lower valuation than applying the Daily Lease Value to the shorter 
period of actual availability.
    (iv) Periods of unavailability--(A) General rule. In general, a pro-
rated Annual Lease Value (as provided in paragraph (d)(4)(i) of this 
section) is used to value the availability of an employer-provided 
automobile when the automobile is available to an employee for a 
continuous period of at least 30 days but

[[Page 62]]

less than the entire calendar year. Neither an employer nor an employee, 
however, may use a pro-rated Annual Lease Value when the reduction of 
Federal taxes is the primary reason the automobile is unavailable to an 
employee at certain times during the calendar year.
    (B) Unavailability for personal reasons of the employee. If an 
automobile is unavailable to an employee because of personal reasons of 
the employee, such as while the employee is on vacation, a pro-rated 
Annual Lease Value, if used, must not take into account such periods of 
unavailability. For example, assume that an automobile is available to 
an employee during the first five months of the year and during the last 
five months of the year. Assume further that the period of 
unavailability occurs because the employee is on vacation. The Annual 
Lease Value, if it is applied, must be applied with respect to the 
entire 12-month period. The Annual Lease Value may not be pro-rated to 
take into account the two-month period of unavailability.
    (5) Fair market value--(i) In general. For purposes of determining 
the Annual Lease Value of an automobile under the Annual Lease Value 
Table, the fair market value of an automobile is the amount that an 
individual would have to pay in an arm's-length transaction to purchase 
the particular automobile in the jurisdiction in which the vehicle is 
purchased or leased. That amount includes all amounts attributable to 
the purchase of an automobile such as sales tax and title fees as well 
as the purchase price of the automobile. Any special relationship that 
may exist between the employee and the employer must be disregarded. 
Also, the employee's subjective perception of the value of the 
automobile is not relevant to the determination of the automobile's fair 
market value, and, except as provided in paragraph (d)(5)(ii) of this 
section, the cost incurred by the employer in connection with the 
purchase or lease of the automobile is not determinative of the fair 
market value of the automobile.
    (ii) Safe-harbor valuation rule--(A) General rule. For purposes of 
calculating the Annual Lease Value of an automobile under this paragraph 
(d), the safe-harbor value of the automobile may be used as the fair 
market value of the automobile.
    (B) Automobiles owned by the employer. For an automobile owned by 
the employer, the safe-harbor value of the automobile is the employer's 
cost of purchasing the automobile (including sales tax, title, and other 
expenses attributable to such purchase), provided the purchase is made 
at arm's-length. Notwithstanding the preceding sentence, the safe-harbor 
value of this paragraph (d)(5)(ii)(B) is not available with respect to 
an automobile manufactured by the employer. Thus, for example, if one 
entity manufactures an automobile and sells it to an entity with which 
it is aggregated pursuant to paragraph (c)(4) of this section, this 
paragraph (d)(5)(ii)(B) does not apply to value the automobile by the 
aggregated employer. In this case, value must be determined under 
paragraph (d)(5)(i) of this section.
    (C) Automobiles leased by the employer. For an automobile leased but 
not manufactured by the employer, the safe-harbor value of the 
automobile is either the manufacturer's suggested retail price of the 
automobile less eight percent (including sales tax, title, and other 
expenses attributable to such purchase), or the value determined under 
paragraph (d)(5)(iii) of this section.
    (iii) Use of nationally recognized pricing sources. The fair market 
value of an automobile that is--
    (A) Provided to an employee prior to January 1, 1985,
    (B) Being revalued pursuant to paragraph (d)(2) (iv) or (v) of this 
section, or
    (C) A leased automobile being valued pursuant to paragraph 
(d)(5)(ii) of this section, may be determined by reference to the retail 
value of such automobile as reported by a nationally recognized pricing 
source that regularly reports new or used automobile retail values, 
whichever is applicable. That retail value must be reasonable with 
respect to the automobile being valued. Pricing sources consist of 
publications and electronic data bases.
    (iv) Fair market value of special equipment. When determining the 
fair market value of an automobile, the employer may exclude the fair 
market

[[Page 63]]

value of any specialized equipment or telephone that is added to or 
carried in the automobile provided that the presence of that equipment 
or telephone is necessitated by, and attributable to, the business needs 
of the employer. The value of the specialized equipment must be included 
if the employee to whom the automobile is available uses the specialized 
equipment in a trade or business of the employee other than the 
employee's trade or business of being an employee of the employer.
    (v) Fleet-average valuation rule--(A) In general. An employer with a 
fleet of 20 or more automobiles meeting the requirements of this 
paragraph (d)(5)(v) (including the business-use and fair market value 
conditions of paragraph (d)(5)(v)(D) of this section) may use a fleet-
average value for purposes of calculating the Annual Lease Values of the 
automobiles in the fleet. The fleet-average value is the average of the 
fair market values of all automobiles in the fleet. The fair market 
value of each automobile in the fleet shall be determined, pursuant to 
the rules of paragraphs (d)(5) (i) through (iv) of this section, as of 
the date described in paragraph (d)(2)(i)(A) of this section.
    (B) Period for use of rule. The fleet-average valuation rule of this 
paragraph (d)(5)(v) may be used by an employer as of January 1 of any 
calendar year following the calendar year in which the employer acquires 
a sufficient number of automobiles to total a fleet of 20 or more 
automobiles. The Annual Lease Value calculated for the automobiles in 
the fleet, based on the fleet-average value, shall remain in effect for 
the period that begins with the first January 1 the fleet-average 
valuation ru1e of this paragraph (d)(5)(v) is applied by the employer to 
the automobiles in the fleet and ends on December 31 of the subsequent 
calendar year. The Annual Lease Value for each subsequent two-year 
period is calculated by determining the fleet-average value of the 
automobiles in the fleet as of the first January 1 of such period. An 
employer may cease using the fleet-average valuation rule as of any 
January 1. If, however, the employer is using the special accounting 
rule provided in Announcement 85-113 (1985-31 I.R.B. 31, August 5, 1985) 
(relating to the reporting of and withholding on noncash fringe 
benefits), the employer may apply the rules of this paragraph 
(d)(5)(v)(B) on the basis of the special accounting period rather than 
the calendar year. (This is accomplished by substituting (1) the 
beginning of the special accounting period that begins immediately prior 
to the January 1 described in this paragraph (d)(5)(v)(B) for January 1 
wherever it appears in this paragraph (d)(5)(v) (B) and (2) the end of 
such accounting period for December 31.) If the number of qualifying 
automobiles in the employer's fleet declines to fewer than 20 for more 
than 50 percent of the days in a year, then the fleet-average valuation 
rule does not apply as of January 1 of such year. In this case, the 
Annual Lease Value must be determined separately for each remaining 
automobile. The revaluation rules of paragraphs (d)(2) (iv) and (v) of 
this section do not apply to automobiles valued under this paragraph 
(d)(5)(v).
    (C) Automobiles included in the fleet. An employer may include in a 
fleet any automobile that meets the requirements of this paragraph 
(d)(5)(v) and is available to any employee of the employer for personal 
use. An employer may include in the fleet only automobiles the 
availability of which is valued under the automobile lease valuation 
rule of this paragraph (d). An employer need not include in the fleet 
all automobiles valued under the automobile lease valuation rule. An 
employer may have more than one fleet for purposes of the fleet-average 
rule of this paragraph (d)(5)(v). For example, an employer may group 
automobiles in a fleet according to their physical type or use.
    (D) Limitations on use of fleet-average rule. The rule provided in 
this paragraph (d)(5)(v) may not be used for any automobile the fair 
market value of which (determined pursuant to paragraphs (d)(5) (i) 
through (iv) of this section as of either the first date on which the 
automobile is made available to any employee of the employer for 
personal use or, if later, January 1, 1985) exceeds $16,500. The fair 
market value limitation of $16,500 shall be adjusted pursuant to section 
280F(d)(7) of the Internal Revenue Code of 1986. The first such 
adjustment shall be for calendar

[[Page 64]]

year 1989 (substitute October 1986 for October 1987 in applying the 
formula). In addition, the rule provided in this paragraph (d)(5)(v) may 
only be used for automobiles that the employer reasonably expects will 
regularly be used in the employer's trade or business. For rules 
concerning when an automobile is regularly used in the employer's 
business, see paragraph (e)(1)(iv) of this section.
    (E) Additional automobiles added to the fleet. The fleet-average 
value in effect at the time an automobile is added to a fleet is treated 
as the fair market value of the additional automobile for purposes of 
determining the Annual Lease Value of the automobile until the fleet-
average value changes pursuant to paragraph (d)(5)(v)(B) of this 
section.
    (F) Use of the fleet-average rule by employees. An employee may only 
use the fleet-average rule if it is used by the employer. If an employer 
uses the fleet-average rule, and the employee uses the special valuation 
rule of paragraph (d) of this section, the employee must use the fleet-
average value determined by the employer.
    (6) Special rules for continuous availability of certain 
automobiles--(i) Fleet automobiles. If an employer is using the fleet-
average valuation ru1e of paragraph (d)(5)(v) of this section and the 
employer provides an employee with the continuous availability of an 
automobile from the same fleet during a period (though not necessarily 
the same fleet automobile for the entire period), the employee is 
treated as having the use of a single fleet automobile for the entire 
period, e.g., an entire calendar year. Thus, when applying the 
automobile lease valuation rule of this paragraph (d), the employer may 
treat the fleet-average value as the fair market value of the automobile 
deemed available to the employee for the period for purposes of 
calculating the Annual Lease Value, (or pro-rated Annual Lease Value or 
Daily Lease Value whichever is applicable) of the automobile. If an 
employer provides an employee with the continuous availability of more 
than one fleet automobile during a period, the employer may treat the 
fleet-average value as the fair market value of each automobile provided 
to the employee provided that the rules of paragraph (d)(5)(v)(D) of 
this section are satisfied.
    (ii) Demonstration automobiles--(A) In general. If an automobile 
dealership provides an employee with the continuous availability of a 
demonstration automobile (as defined in Sec. 1.132-5(o)(3)) during a 
period (though not necessarily the same demonstration automobile for the 
entire period), the employee is treated as having the use of a single 
demonstration automobile for the entire period, e.g., an entire calendar 
year. If an employer provides an employee with the continuous 
availability of more than one demonstration automobile during a period, 
the employer may treat the value determined under paragraph 
(d)(6)(ii)(B) of this section as the fair market value of each 
automobile provided to the employee. For rules relating to the treatment 
as a working condition fringe of the qualified automobile demonstration 
use of a demonstration automobile by a full-time automobile salesman, 
see Sec. 1.132-5(o).
    (B) Determining the fair market value of a demonstration automobile. 
When applying the automobile lease valuation rule of this paragraph (d), 
the employer may treat the average of the fair market values of the 
demonstration automobiles which are available to an employee and held in 
the dealership's inventory during the calendar year as the fair market 
value of the demonstration automobile deemed available to the employee 
for the period for purposes of calculating the Annual Lease Value of the 
automobile. If under the facts and circumstances it is inappropriate to 
take into account, with respect to an employee, certain models of 
demonstration automobiles, the value of the benefit is determined 
without reference to the fair market values of such models. For example, 
assume that an employee has the continuous availability for an entire 
calendar year of one demonstration automobile, although not the same one 
for the entire year. Assume further that the fair market values of the 
automobiles in the dealership inventory during the year range from 
$8,000 to $20,000. If there is not a substantial period (such as three

[[Page 65]]

months) during the year when the employee uses demonstration automobiles 
valued at less than $16,000, then those automobiles are not considered 
in determining the value of the benefit provided to the employee. In 
this case, the average of the fair market values of the demonstration 
automobiles in the dealership's inventory valued at $16,000 or more is 
treated as the fair market value of the automobile deemed available to 
the employee for the calendar year for purposes of calculating the 
Annual Lease Value of the automobile.
    (7) Consistency rules--(i) Use of the automobile lease valuation 
rule by an employer. Except as provided in paragraph (d)(5)(v)(B) of 
this section, an employer may adopt the automobile lease valuation rule 
of this paragraph (d) for an automobile only if the rule is adopted to 
take effect by the later of--
    (A) January 1, 1989, or
    (B) The first day on which the automobile is made available to an 
employee of the employer for personal use (or, if the commuting 
valuation rule of paragraph (f) of this section is used when the 
automobile is first made available to an employee of the employer for 
personal use, the first day on which the commuting valuation rule is not 
used).
    (ii) An employer must use the automobile lease valuation rule for 
all subsequent years. Once the automobile lease valuation rule has been 
adopted for an automobile by an employer, the rule must be used by the 
employer for all subsequent years in which the employer makes the 
automobile available to any employee except that the employer may, for 
any year during which (or for any employee for whom) use of the 
automobile qualifies for the commuting valuation rule of paragraph (f) 
of this section, use the commuting valuation rule with respect to the 
automobile.
    (iii) Use of the automobile lease valuation rule by an employee. An 
employee may adopt the automobile lease valuation rule for an automobile 
only if the rule is adopted--
    (A) By the employer, and
    (B) Beginning with the first day on which the automobile for which 
the employer (consistent with paragraph (d)(7)(i) of this section) 
adopted the rule is made available to that employee for personal use 
(or, if the commuting valuation rule of paragraph (f) of this section is 
used when the automobile is first made available to that employee for 
personal use, the first day on which the commuting valuation rule is not 
used).
    (iv) An employee must use the automobile lease valuation rule for 
all subsequent years. Once the automobile lease valuation rule has been 
adopted for an automobile by an employee, the rule must be used by the 
employee for all subsequent years in which the automobile for which the 
rule is used is available to the employee. However, the employee may, 
for any year during which use of the automobile qualifies for use of the 
commuting valuation rule of paragraph (f) of this section and for which 
the employer uses such rule, use the commuting valuation rule with 
respect to the automobile.
    (v) Replacement automobiles. Notwithstanding anything in this 
paragraph (d)(7) to the contrary, if the automobile lease valuation rule 
is used by an employer, or by an employer and an employee, with respect 
to a particular automobile, and a replacement automobile is provided to 
the employee for the primary purpose of reducing Federal taxes, then the 
employer, or the employer and the employee, using the rule must continue 
to use the rule with respect to the replacement automobile.
    (e) Vehicle cents-per-mile valuation rule--(1) In general--(i) 
General rule. Under the vehicle cents-per-mile valuation rule of this 
paragraph (e), if an employer provides an employee with the use of a 
vehicle that--
    (A) The employer reasonably expects will be regularly used in the 
employer's trade or business throughout the calendar year (or such 
shorter period as the vehicle may be owned or leased by the employer), 
or
    (B) Satisfies the requirements of paragraph (e)(1)(ii) of this 
section, the value of the benefit provided in the calendar year is the 
standard mileage rate provided in the applicable Revenue Ruling or 
Revenue Procedure (``cents-per-mile rate'') multiplied by the total 
number of miles the vehicle is driven by the employee for personal 
purposes. The cents-per-mile rate is to be applied

[[Page 66]]

prospectively from the first day of the taxable year following the date 
of publication of the applicable Revenue Ruling or Revenue Procedure. An 
employee who uses an employer-provided vehicle, in whole or in part, for 
a trade or business other than the employer's trade or business, may 
take a deduction for such business use based upon the vehicle cents-per-
mile rule as long as such deduction is at the same standard mileage rate 
as that used in calculating the employee's income inclusion. The 
standard mileage rate must be applied to personal miles independent of 
business miles. Thus, for example, if the standard mileage rate were 24 
cents per mile for the first 15,000 miles and 11 cents per mile for all 
miles over 15,000 and an employee drives 20,000 personal miles and 
45,000 business miles in a year, the value of the personal use of the 
vehicle is $4,150 ((15,000x$.24)+(5,000x$.11)). For purposes of this 
section, the use of a vehicle for personal purposes is any use of the 
vehicle other than use in the employee's trade or business of being an 
employee of the employer.
    (ii) Mileage rule. A vehicle satisfies the requirements of this 
paragraph (e)(1)(ii) for a calendar year if--
    (A) It is actually driven at least 10,000 miles in that year; and
    (B) Use of the vehicle during the year is primarily by employees. 
For example, if a vehicle is used by only one employee during the 
calendar year and that employee drives the vehicle at least 10,000 miles 
during the year, the vehicle satisfies the requirements of this 
paragraph (e)(1)(ii) even if all miles driven by the employee are 
personal. A vehicle is considered used during the year primarily by 
employees in accordance with the requirement of paragraph (e)(1)(ii)(B) 
of this section if employees use the vehicle on a consistent basis for 
commuting. If the employer does not own or lease the vehicle during a 
portion of the year, the 10,000 mile threshold is to be reduced 
proportionately to reflect the periods when the employer did not own or 
lease the vehicle. For purposes of this paragraph (e)(1)(ii), use of the 
vehicle by an individual (other than the employee) whose use would be 
taxed to the employee is not considered use by the employee.
    (iii) Limitation on use of the vehicle cents-per-mile valuation 
rule--(A) In general. Except as otherwise provided in the last sentence 
of this paragraph (e)(1)(iii)(A), the value of the use of an automobile 
(as defined in paragraph (d)(1)(ii) of this section) may not be 
determined under the vehicle cents-per-mile valuation rule of this 
paragraph (e) for a calendar year if the fair market value of the 
automobile (determined pursuant to paragraphs (d)(5) (i) through (iv) of 
this section as of the later of January 1, 1985, or the first date on 
which the automobile is made available to any employee of the employer 
for personal use) exceeds the sum of the maximum recovery deductions 
allowable under section 280F(a)(2) for a five-year period for an 
automobile first placed in service during that calendar year (whether or 
not the automobile is actually placed in service during that year) as 
adjusted by section 280F(d)(7). With respect to a vehicle placed in 
service prior to January 1, 1989, the limitation on value will be not 
less than $12,800. With respect to a vehicle placed in service in or 
after 1989, the limitation on value is $12,800 as adjusted by section 
280F(d)(7).
    (B) Application of limitation with respect to a vehicle owned by 
both an employer and an employee. If an employee contributes an amount 
towards the purchase price of a vehicle in return for a percentage 
ownership interest in the vehicle, for purposes of determining whether 
the limitation of this paragraph (e)(1)(iii) applies, the fair market 
value of the vehicle is reduced by the lesser of--
    (1) The amount contributed, or
    (2) An amount equal to the employee's percentage ownership interest 
multiplied by the unreduced fair market value of the vehicle. If the 
employee does not receive an ownership interest in the employer-provided 
vehicle, then the fair market value of the vehicle is determined without 
regard to any amount contributed. For purposes of this paragraph 
(e)(1)(iii)(B), an employee's ownership interest in a vehicle will not 
be recognized unless it is reflected in the title of the vehicle. An 
ownership interest reflected in the title

[[Page 67]]

of a vehicle will not be recognized if under the facts and circumstances 
the title does not reflect the benefits and burdens of ownership.
    (C) Application of limitation with respect to a vehicle leased by 
both an employer and employee. If an employee contributes an amount 
toward the cost to lease a vehicle in return for a percentage interest 
in the vehicle lease, for purposes of determining whether the limitation 
of this paragraph (e)(1)(iii) applies, the fair market value of the 
vehicle is reduced by the amount specified in the following sentence. 
The amount specified in this sentence is the unreduced fair market value 
of a vehicle multiplied by the lesser of--
    (1) The employee's percentage interest in the lease, or
    (2) A fraction, the numerator of which is the amount contributed and 
the denominator of which is the entire lease cost. If the employee does 
not receive an interest in the vehicle lease, then the fair market value 
is determined without regard to any amount contributed. For purposes of 
this paragraph (e)(1)(iii)(C), an employee's interest in a vehicle lease 
will not be recognized unless the employee is a named co-lessee on the 
lease. An interest in a lease will not be recognized if under the facts 
and circumstances, the lease does not reflect the true obligations of 
the lessees.
    (iv) Regular use in an employer's trade or business. Whether a 
vehicle is regularly used in an employer's trade or business is 
determined on the basis of all facts and circumstances. A vehicle is 
considered regularly used in an employer's trade or business for 
purposes of paragraph (e)(1)(i)(A) of this section if one of the 
following safe harbor conditions is satisfied:
    (A) At least 50 percent of the vehicle's total annual mileage is for 
the employer's business; or
    (B) The vehicle is generally used each workday to transport at least 
three employees of the employer to and from work in an employer-
sponsored commuting vehicle pool. Infrequent business use of the 
vehicle, such as for occasional trips to the airport or between the 
employer's multiple business premises, does not constitute regular use 
of the vehicle in the employer's trade or business.
    (v) Application of rule to shared usage. If an employer regularly 
provides a vehicle to employees for use by more than one employee at the 
same time, such as with an employer-sponsored vehicle commuting pool, 
the employer may use the vehicle cents-per-mile valuation rule to value 
the use of the vehicle by each employee who shares such use. See 
Sec. 1.61-21(c)(2)(ii)(B) for provisions relating to the allocation of 
the value of an automobile to more than one employee.
    (2) Definition of vehicle. For purposes of this paragraph (e), the 
term ``vehicle'' means any motorized wheeled vehicle manufactured 
primarily for use on public streets, roads, and highways. The term 
``vehicle'' includes an automobile as defined in paragraph (d)(1)(ii) of 
this section.
    (3) Services included in, or excluded from, the cents-per-mile rate-
-(i) Maintenance and insurance included. The cents-per-mile rate 
includes the fair market value of maintenance of, and insurance for, the 
vehicle. The cents-per-mile rate may not be reduced by the fair market 
value of any service included in the cents-per-mile rate but not 
provided by the employer. An employer or employee who wishes to take 
into account only the particular services provided with respect to a 
vehicle may value the availability of the vehicle under the general 
valuation rules of paragraph (b) of this section.
    (ii) Fuel provided by the employer--(A) Miles driven in the United 
States, Canada, or Mexico. With respect to miles driven in the United 
States, Canada, or Mexico, the cents-per-mile rate includes the fair 
market value of fuel provided by the employer. If fuel is not provided 
by the employer, the cents-per-mile rate may be reduced by no more than 
5.5 cents or the amount specified in any applicable Revenue Ruling or 
Revenue Procedure. For purposes of this section, the United States 
includes the United States, its possessions and its territories.
    (B) Miles driven outside the United States, Canada, or Mexico. With 
respect to miles driven outside the United States, Canada, or Mexico, 
the fair market value of fuel provided by the

[[Page 68]]

employer is not reflected in the cents-per-mile rate. Accordingly, the 
cents-per-mile rate may be reduced but by no more than 5.5 cents or the 
amount specified in any applicable Revenue Ruling or Revenue Procedure. 
If the employer provides the fuel in kind, it must be valued based on 
all the facts and circumstances. If the employer reimburses the employee 
for the cost of fuel or allows the employee to charge the employer for 
the cost of fuel, the fair market value of the fuel is generally the 
amount of the actual reimbursement or the amount charged, provided the 
purchase of fuel is at arm's length.
    (iii) Treatment of other services. The fair market value of any 
service not specifically identified in paragraph (e)(3)(i) of this 
section that is provided by the employer with respect to a vehicle is 
not reflected in the cents-per-mile rate. See paragraph (b)(5) of this 
section for rules relating to valuation of chauffeur services.
    (4) Valuation of personal use only. The vehicle cents-per-mile 
valuation rule of this paragraph (e) may only be used to value the miles 
driven for personal purposes. Thus, the employer must include an amount 
in an employee's income with respect to the use of a vehicle that is 
equal to the product of the number of personal miles driven by the 
employee and the appropriate cents-per-mile rate. The term ``personal 
miles'' means all miles for which the employee used the automobile 
except miles driven in the employee's trade or business of being an 
employee of the employer. Unless additional services are provided with 
respect to the vehicle (see paragraph (e)(3)(iii) of this section), the 
employer may not include in income a greater amount; for example, the 
employer may not include in income 100 percent (all business and 
personal miles) of the value of the use of the vehicle.
    (5) Consistency rules--(i) Use of the vehicle cents-per-mile 
valuation rule by an employer. An employer must adopt the vehicle cents-
per-mile valuation rule of this paragraph (e) for a vehicle to take 
effect by the later of--
    (A) January 1, 1989, or
    (B) The first day on which the vehicle is used by an employee of the 
employer for personal use (or, if the commuting valuation rule of 
paragraph (f) of this section is used when the vehicle is first used by 
an employee of the employer for personal use, the first day on which the 
commuting valuation rule is not used).
    (ii) An employer must use the vehicle cents-per-mile valuation rule 
for all subsequent years. Once the vehicle cents-per-mile valuation rule 
has been adopted for a vehicle by an employer, the rule must be used by 
the employer for all subsequent years in which the vehicle qualifies for 
use of the rule, except that the employer may, for any year during which 
use of the vehicle qualifies for the commuting valuation rule of 
paragraph (f) of this section, use the commuting valuation rule with 
respect to the vehicle. If the vehicle fails to qualify for use of the 
vehicle cents-per-mile valuation rule during a subsequent year, the 
employer may adopt for such subsequent year and thereafter any other 
special valuation rule for which the vehicle then qualifies. If the 
employer elects to use the automobile lease valuation rule of paragraph 
(d) of this section for a period in which the automobile does not 
qualify for use of the vehicle cents-per-mile valuation rule, then the 
employer must comply with the requirements of paragraph (d)(7) of this 
section. For purposes of paragraph (d)(7) of this section, the first day 
on which the automobile with respect to which the vehicle cents-per-mile 
rule had been used fails to qualify for use of the vehicle cents-per-
mile valuation rule may be deemed to be the first day on which the 
automobile is available to an employee of the employer for personal use.
    (iii) Use of the vehicle cents-per-mile valuation rule by an 
employee. An employee may adopt the vehicle cents-per-mile valuation 
rule for a vehicle only if the rule is adopted--
    (A) By the employer, and
    (B) Beginning with respect to the first day on which the vehicle for 
which the employer (consistent with paragraph (e)(5)(i) of this section) 
adopted the rule is available to that employee for personal use (or, if 
the commuting valuation rule of paragraph (f) of this section is used 
when the vehicle is first used by an employee for

[[Page 69]]

personal use, the first day on which the commuting valuation rule is not 
used).
    (iv) An employee must use the vehicle cents-per-mile valuation rule 
for all subsequent years. Once the vehicle cents-per-mile valuation rule 
has been adopted for a vehicle by an employee, the rule must be used by 
the employee for all subsequent years of personal use of the vehicle by 
the employee for which the rule is used by the employer. However, see 
paragraph (f) of this section for rules relating to the use of the 
commuting valuation rule for a subsequent year.
    (v) Replacement vehicles. Notwithstanding anything in this paragraph 
(e)(5) to the contrary, if the vehicle cents-per-mile valuation rule is 
used by an employer, or by an employer and an employee, with respect to 
a particular vehicle. and a replacement vehicle is provided to the 
employee for the primary purpose of reducing Federal taxes, then the 
employer, or the employer and the employee, using the rule must continue 
to use the rule with respect to the replacement vehicle if the 
replacement vehicle qualifies for use of the rule.
    (f) Commuting valuation rule--(1) In general. Under the commuting 
valuation rule of this paragraph (f), the value of the commuting use of 
an employer-provided vehicle may be determined pursuant to paragraph 
(f)(3) of this section if the following criteria are met by the employer 
and employees with respect to the vehicle:
    (i) The vehicle is owned or leased by the employer and is provided 
to one or more employees for use in connection with the employer's trade 
or business and is used in the employer's trade or business;
    (ii) For bona fide noncompensatory business reasons, the employer 
requires the employee to commute to and/or from work in the vehicle;
    (iii) The employer has established a written policy under which 
neither the employee, nor any individual whose use would be taxable to 
the employee, may use the vehicle for personal purposes, other than for 
commuting or de minimis personal use (such as a stop for a personal 
errand on the way between a business delivery and the employee's home);
    (iv) Except for de minimis personal use, the employee does not use 
the vehicle for any personal purpose other than commuting; and
    (v) The employee required to use the vehicle for commuting is not a 
control employee of the employer (as defined in paragraphs (f) (5) and 
(6) of this section).

Personal use of a vehicle is all use of the vehicle by an employee that 
is not used in the employee's trade or business of being an employee of 
the employer. An employer-provided vehicle that is generally used each 
workday to transport at least three employees of the employer to and 
from work in an employer-sponsored commuting vehicle pool is deemed to 
meet the requirements of paragraphs (f)(1) (i) and (ii) of this section.
    (2) Special rules. Notwithstanding anything in paragraph (f)(1) of 
this section to the contrary, the following special rules apply--
    (i) Chauffeur-driven vehicles. If a vehicle is chauffeur-driven, the 
commuting valuation rule of this paragraph (f) may not be used to value 
the commuting use of any person (other than the chauffeur) who rides in 
the vehicle. (See paragraphs (d) and (e) of this section for other 
vehicle special valuation rules.) The special rule of this paragraph (f) 
may be used to value the commuting-only use of the vehicle by the 
chauffeur if the conditions of paragraph (f)(1) of this section are 
satisfied. For purposes of this paragraph (f)(2), an individual will not 
be considered a chauffeur if he or she performs non-driving services for 
the employer, is not available to perform driving services while 
performing such other services and whose only driving services consist 
of driving a vehicle used for commuting by other employees of the 
employer.
    (ii) Control employee exception. If the vehicle in which the 
employee is required to commute is not an automobile as defined in 
paragraph (d)(1)(ii) of this section, the restriction of paragraph 
(f)(1)(v) of this section (relating to control employees) does not 
apply.
    (3) Commuting value--(i) $1.50 per one-way commute. If the 
requirements of this paragraph (f) are satisfied, the

[[Page 70]]

value of the commuting use of an employer-provided vehicle is $1.50 per 
one-way commute (e.g., from home to work or from work to home). The 
value provided in this paragraph (f)(3) includes the value of any goods 
or services directly related to the vehicle (e.g., fuel).
    (ii) Value per employee. If there is more than one employee who 
commutes in the vehicle, such as in the case of an employer-sponsored 
commuting vehicle pool, the amount includible in the income of each 
employee is $1.50 per one-way commute. Thus, the amount includible for 
each round-trip commute is $3.00 per employee. See paragraphs (d)(7)(vi) 
and (e)(5)(vi) of this section for use of the automobile lease valuation 
and vehicle cents-per-mile valuation special rules for valuing the use 
or availability of the vehicle in the case of an employer-sponsored 
vehicle or automobile commuting pool.
    (4) Definition of vehicle. For purposes of this paragraph (f), the 
term ``vehicle'' means any motorized wheeled vehicle manufactured 
primarily for use on public streets, roads, and highways. The term 
``vehicle'' includes an automobile as defined in paragraph (d)(1)(ii) of 
this section.
    (5) Control employee defined--Non-government employer. For purposes 
of this paragraph (f), a control employee of a non-government employer 
is any employee--
    (i) Who is a Board- or shareholder-appointed, confirmed, or elected 
officer of the employer whose compensation equals or exceeds $50,000,
    (ii) Who is a director of the employer,
    (iii) Whose compensation equals or exceeds $100,000, or
    (iv) Who owns a one-percent or greater equity, capital, or profits 
interest in the employer.

For purposes of determining who is a one-percent owner under paragraph 
(f)(5)(iv) of this section, any individual who owns (or is considered as 
owning under section 318(a) or principles similar to section 318(a) for 
entities other than corporations) one percent or more of the fair market 
value of an entity (the ``owned entity'') is considered a one-percent 
owner of all entities which would be aggregated with the owned entity 
under the rules of section 414 (b), (c), (m), or (o). For purposes of 
determining who is an officer or director with respect to an employer 
under this paragraph (f)(5), notwithstanding anything in this section to 
the contrary, if an entity would be aggregated with other entities under 
the rules of section 414 (b), (c), (m), or (o), the officer definition 
(but not the compensation requirement) and the director definition apply 
to each such separate entity rather tha to the aggregated employer. An 
employee who is an officer or a director of an entity (the ``first 
entity'') shall be treated as an officer or a director of all entities 
aggregated with the first entity under the rules of section 414 (b), 
(c), (m), or (o). Instead of applying the control employee definition of 
this paragraph (f)(5), an employer may treat all, and only, employees 
who are ``highly compensated'' employees (as defined in Sec. 1.132-8(g)) 
as control employees for purposes of this paragraph (f).
    (6) Control employee defined--Government employer. For purposes of 
this paragraph (f), a control employee of a government employer is any--
    (i) Elected official, or
    (ii) Employee whose compensation equals or exceeds the compensation 
paid to a Federal Government employee holding a position at Executive 
Level V, determined under Chapter 11 of title 2, United States Code, as 
adjusted by section 5318 of Title 5 United States Code.

For purposes of this paragraph (f), the term ``government'' includes any 
Federal, state or local governmental unit, and any agency or 
instrumentality thereof. Instead of applying the control employee 
definition of paragraph (f)(6), an employer may treat all and only 
employees who are ``highly compensated'' employees (as defined in 
Sec. 1.132-8(f)) as control employees for purposes of this paragraph 
(f).
    (7) ``Compensation'' defined. For purposes of this paragraph (f), 
the term ``compensation'' has the same meaning as in section 414(q)(7). 
Compensation includes all amounts received from all entities treated as 
a single employer under section 414 (b), (c), (m), or (o). Levels of 
compensation shall be adjusted at the same time and in the same manner 
as provided in section

[[Page 71]]

415(d). The first such adjustment shall be for calendar year 1988.
    (g) Non-commercial flight valuation rule--(1) In general. Under the 
non-commercial flight valuation rule of this paragraph (g), except as 
provided in paragraph (g)(12) of this section, if an employee is 
provided with a flight on an employer-provided aircraft, the value of 
the flight is calculated using the aircraft valuation formula of 
paragraph (g)(5) of this section. For purposes of this paragraph (g), 
the value of a flight on an employer-provided aircraft by an individual 
who is less than two years old is deemed to be zero. See paragraph 
(b)(1) of this section for rules relating to the amount includible in 
income when an employee reimburses the employee's employer for all or 
part of the fair market value of the benefit provided.
    (2) Eligible flights and eligible aircraft. The valuation rule of 
this paragraph (g) may be used to value flights on all employer-provided 
aircraft, including helicopters. The valuation rule of this paragraph 
(g) may be used to value international as well as domestic flights. The 
valuation rule of this paragraph (g) may not be used to value a flight 
on any commercial aircraft on which air transportation is sold to the 
public on a per-seat basis. For a special valuation rule relating to 
certain flights on commercial aircraft, see paragraph (h) of this 
section.
    (3) Definition of a flight--(i) General rule. Except as otherwise 
provided in paragraph (g)(3)(iii) of this section (relating to 
intermediate stops), for purposes of this paragraph (g), a flight is the 
distance (in statute miles, i.e., 5,280 feet per statute mile) between 
the place at which the individual boards the aircraft and the place at 
which the individual deplanes.
    (ii) Valuation of each flight. Under the valuation rule of this 
paragraph (g), value is determined separately for each flight. Thus, a 
round-trip is comprised of at least two flights. For example, an 
employee who takes a personal trip on an employer-provided aircraft from 
New York City to Denver, then Denver to Los Angeles, and finally Los 
Angeles to New York City has taken three flights and must apply the 
aircraft valuation formula separately to each flight. The value of a 
flight must be determined on a passenger-by-passenger basis. For 
example, if an individual accompanies an employee and the flight taken 
by the individual would be taxed to the employee, the employee would be 
taxed on the special rule value of the flight by the employee and the 
flight by the individual.
    (iii) Intermediate stop. If a landing is necessitated by weather 
conditions, by an emergency, for purposes of refueling or obtaining 
other services relating to the aircraft or for any other purpose 
unrelated to the personal purposes of the employee whose flight is being 
valued, that landing is an intermediate stop. Additional mileage 
attributable to an intermediate stop is not considered when determining 
the distance of an employee's flight.
    (iv) Examples. The rules of paragraph (g)(3)(iii) of this section 
may be illustrated by the following examples:

    Example (1). Assume that an employee's trip originates in St. Louis, 
Missouri, with Seattle, Washington as its destination, but, because of 
weather conditions, the aircraft lands in Denver, Colorado, and the 
employee stays in Denver overnight. Assume further that the next day the 
aircraft flies to Seattle where the employee deplanes. The employee's 
flight is the distance between the airport in St. Louis and the airport 
in Seattle.
    Example (2). Assume that a trip originates in New York, New York, 
with five passengers and that the aircraft makes a stop in Chicago, 
Illinois, so that one of the passengers can deplane for a purpose 
unrelated to the personal purposes of the other passengers whose flights 
are being valued. The aircraft then goes on to Los Angeles, California, 
where the other four passengers will deplane. The flight of the 
passenger who deplaned in Chicago is the distance between the airport in 
New York and the airport in Chicago. The stop in Chicago is disregarded 
as an intermediate stop, however, when measuring the flights taken by 
each of the other four passengers. Their flights would be the distance 
between the airport in New York and the airport in Los Angeles.

    (4) Personal and non-personal flights--(i) In general. The valuation 
rule of this paragraph (g) applies to personal flights on employer-
provided aircraft. A personal flight is one the value of which is not 
excludable under another section of subtitle A of the Internal Revenue 
Code of 1986, such as under section 132(d) (relating to a working

[[Page 72]]

condition fringe). However, solely for purposes of paragraphs (g)(4)(ii) 
and (g)(4)(iii) of this section, references to personal flights do not 
include flights a portion of which would not be excludable from income 
by reason of section 274(c).
    (ii) Trip primarily for employer's business. If an employee 
combines, in one trip, personal and business flights on an employer-
provided aircraft and the employee's trip is primarily for the 
employer's business (see Sec. 1.162-2(b)(2)), the employee must include 
in income the excess of the value of all the flights that comprise the 
trip over the value of the flights that would have been taken had there 
been no personal flights but only business flights. For example, assume 
that an employee flies on an employer-provided aircraft from Chicago, 
Illinois, to Miami, Florida, for the employer's business and that from 
Miami the employee flies on the employer-provided aircraft to Orlando, 
Florida, for personal purposes and then flies back to Chicago. Assume 
further that the primary purpose of the trip is for the employer's 
business. The amount includible in income is the excess of the value of 
the three flights (Chicago to Miami, Miami to Orlando, and Orlando to 
Chicago), over the value of the flights that would have been taken had 
there been no personal flights but only business flights (Chicago to 
Miami and Miami to Chicago).
    (iii) Primarily personal trip. If an employee combines, in one trip, 
personal and business flights on an employer-provided aircraft and the 
employee's trip is primarily personal (see Sec. 1.162-2(b)(2)), the 
amount includible in the employee's income is the value of the personal 
flights that would have been taken had there been no business flights 
but only personal flights. For example, assume that an employee flies on 
an employer-provided aircraft from San Francisco, California, to Los 
Angeles, California, for the employer's business and that from Los 
Angeles the employee flies on an employer-provided aircraft to Palm 
Springs, California, primarily for personal reasons and then flies back 
to San Francisco. Assume further that the primary purpose of the trip is 
personal. The amount includible in the employee's income is the value of 
personal flights that would have been taken had there been no business 
flights but only personal flights (San Francisco to Palm Springs and 
Palm Springs to San Francisco).
    (iv) Application of section 274(c). The value of employer- provided 
travel outside the United States away from home may not be excluded from 
the employee's gross income as a working condition fringe, by either the 
employer or the employee, to the extent not deductible by reason of 
section 274(c). The valuation rule of this paragraph (g) applies to that 
portion of the value any flight not excludable by reason of section 
274(c). Such value is includible in income in addition to the amounts 
determined under paragraphs (g)(4)(ii) and (g)(4)(iii) of this section.
    (v) Flights by individuals who are not personal guests. If an 
individual who is not an employee of the employer providing the aircraft 
is on a flight, and the individual is not the personal guest of any 
employee of the employer, the flight by the individual is not taxable to 
any employee of the employer providing the aircraft. The rule in the 
preceding sentence applies where the individual is provided the flight 
by the employer for noncompensatory business reasons of the employer. 
For example, assume that G, an employee of company Y, accompanies A, an 
employee of company X, on company X's aircraft for the purpose of 
inspecting land under consideration for purchase by company X from 
company Y. The flight by G is not taxable to A. No inference may be 
drawn from this paragraph (g)(4)(v) concerning the taxation of a flight 
provided to an individual who is neither an employee of the employer nor 
a personal guest of any employee of the employer.
    (5) Aircraft valuation formula. Under the valuation rule of this 
paragraph (g), the value of a flight is determined under the base 
aircraft valuation formula (also known as the Standard Industry Fare 
Level formula or SIFL) by multiplying the SIFL cents-per-mile rates 
applicable for the period during which the flight was taken by the 
appropriate aircraft multiple (as provided in paragraph (g)(7) of this 
section) and then adding the applicable terminal charge. The SIFL cents-
per-mile rates

[[Page 73]]

in the formula and the terminal charge are calculated by the Department 
of Transportation and are revised semi-annually. The base aircraft 
valuation formula in effect from January 1, 1989 through June 30, 1989, 
is as follows: a terminal charge of $26.48 plus ($.1449 per mile for the 
first 500 miles, $.1105 per mile for miles between 501 and 1500, and 
$.1062 per mile for miles over 1500). For example, if a flight taken on 
January 15, 1989, by a non-control employee on an employer-provided 
aircraft with a maximum certified takeoff weight of 26,000 lbs. is 2,000 
miles long, the value of the flight determined under this paragraph 
(g)(5) is: $100.36 ((.313x(($.1449x500)+($.1105x1,000)+ 
($.1062x500)))+$26.48). The aircraft valuation formula applies 
separately to each flight being valued under this paragraph (g). 
Therefore, the number of miles an employee has flown on employer-
provided aircraft flights prior to the flight being valued does not 
affect the determination of the value of the flight.
    (6) Discretion to provide new formula. The Commissioner may 
prescribe a different base aircraft valuation formula by regulation, 
Revenue Ruling or Revenue Procedure in the event that the calculation of 
the Standard Industry Fare Level is discontinued.
    (7) Aircraft multiples--(i) In general. The aircraft multiples are 
based on the maximum certified takeoff weight of the aircraft. When 
applying the aircraft valuation formula to a flight, the appropriate 
aircraft multiple is multiplied by the product of the applicable SIFL 
cents-per-mile rates multiplied by the number of miles in the flight and 
then the terminal charge is added to the product. For purposes of 
applying the aircraft valuation formula described in paragraph (g)(5) of 
this section, the aircraft multiples are as follows:

------------------------------------------------------------------------
                                                  Aircraft     Aircraft
                                                  multiple     multiple
   Maximum certified take-off weight of the        for a      for a non-
                   aircraft                       control      control
                                                  employee     employee
                                                 (percent)    (percent)
------------------------------------------------------------------------
6,000 lbs. or less............................         62.5         15.6
6,001-10,000 lbs..............................        125           23.4
10,001-25,000 lbs.............................        300           31.3
25,001 lbs. or more...........................        400           31.3
------------------------------------------------------------------------

    (ii) Flights treated as provided to a control employee. Except as 
provided in paragraph (g)(12) of this section, any fIight provided to an 
individual whose flight would be taxable to a control employee (as 
defined in paragraphs (g) (8) and (9) of this section) as the recipient 
shall be valued as if such flight had been provided to that control 
employee. For example, assume that the chief executive officer of an 
employer, his spouse, and his two children fly on an employer-provided 
aircraft for personal purposes. Assume further that the maximum 
certified takeoff weight of the aircraft is 12,000 lbs. The amount 
includible in the employee's income is 4x((300 percentxthe applicable 
SIFL cents-per-mile rates provided in paragraph (g)(5) of this section 
multiplied by the number of miles in the flight) plus the applicable 
terminal charge).
    (8) Control employee defined--Non-government employer--(i) 
Definition. For purposes of this paragraph (g), a control employee of a 
non-government employer is any employee--
    (A) Who is a Board- or shareholder-appointed, confirmed, or elected 
officer of the employer, limited to the lesser of--
    (1) One percent of all employees (increased to the next highest 
integer, if not an integer) or
    (2) Ten employees;
    (B) Who is among the top one percent most highly-paid employees of 
the employer (increased to the next highest integer, if not an integer) 
limited to a maximum of 50;
    (C) Who owns a five-percent or greater equity, capital, or profits 
interest in the employer; or
    (D) Who is a director of the employer.
    (ii) Special rules for control employee definition--(A) In general. 
For purposes of this paragraph (g), any employee who is a family member 
(within the meaning of section 267(c)(4)) of a control employee is also 
a control employee. For purposes of paragraph (g)(8)(i)(B) of this 
section, the term ``employee'' does not include any individual unless 
such individual is a common-law employee, partner, or one-percent or 
greater shareholder of the employer. Pursuant to this paragraph (g)(8), 
an employee may be a control employee under more than one of the

[[Page 74]]

requirements listed in paragraphs (g)(8)(i) (A) through (D) of this 
section. For example, an employee may be both an officer under paragraph 
(g)(8)(i)(A) of this section and a highly-paid employee under paragraph 
(g)(8)(i)(B) of this section. In this case, for purposes of the officer 
limitation rule of paragraph (g)(8)(i)(A) of this section and the 
highly-paid employee limitation rule of paragraph (g)(8)(i)(B) of this 
section, the employee would be counted in applying both limitations. For 
purposes of determining the one-percent limitation under paragraphs 
(g)(8)(i) (A) and (B) of this section, an employer shall exclude from 
consideration employees described in Sec. 1.132-8(b)(3). Instead of 
applying the control employee definition of this paragraph (g)(8), an 
employer may treat all (and only) employees who are ``highly 
compensated'' employees (as defined in Sec. 1.132-8(f)) as control 
employees for purposes of this paragraph (g).
    (B) Special rules for officers, owners, and highly-paid control 
employees. In no event shall an employee whose compensation is less than 
$50,000 be a control employee under paragraph (g)(8)(i) (A) or (B) of 
this section. For purposes of determining who is a five-percent (or one-
percent) owner under this paragraph (g)(8), any individual who owns (or 
is considered as owning under section 318(a) or principles similar to 
section 318(a) for entities other than corporations) five percent (or 
one-percent) or more of the fair market value of an entity (the ``owned 
entity'') is considered a five-percent (or one-percent) owner of all 
entities which would be aggregated with the owned entity under the rules 
of section 414(b), (c), (m), or (o). For purposes of determining who is 
an officer or director with respect to an employer under this paragraph 
(g)(8), notwithstanding anything in this section to the contrary, if the 
employer would be aggregated with other employers under the rules of 
section 414 (b), (c), (m), or (o), the officer definition and the 
limitations and the director definition are applied to each such 
separate employer rather than to the aggregated employer. An employee 
who is an officer or director of one employer (the ``first employer'') 
shall not be counted as an officer or a director of any other employer 
aggregated with the first employer under the rules of section 414 (b), 
(c), or (m). If applicable, the officer limitations rule of paragraph 
(g)(8)(i)(A) of this section is applied to employees in descending order 
of their compensation. Thus, if an employer has 11 board-appointed 
officers and the limit imposed under paragraph (g)(8)(i)(A) of this 
section is 10 officers, the employee with the least compensation of 
those officers would not be a control employee under paragraph 
(g)(8)(i)(A) of this section.
    (9) Control employee defined--Government employer. For purposes of 
this paragraph (g), a control employee of a government employer is any--
    (i) Elected official, or
    (ii) Employee whose compensation equals or exceeds the compensation 
paid to a Federal Government employee holding a position at Executive 
Level V, determined under Chapter 11 of title 2, United States Code, as 
adjusted by section 5318 of title 5 United States Code.

For purposes of paragraph (f), the term ``government'' includes any 
Federal, state or local governmental unit, and any agency or 
instrumentality thereof. lnstead of applying the control employee 
definition of paragraph (f)(6), an employer may treat all and only 
employees who are ``highly compensated'' employees (as defined in 
Sec. 1.132-8(f)) as control employees for purposes of this paragraph 
(f).
    (10) ``Compensation'' defined. For purposes of this paragraph (g), 
the term ``compensation'' has the same meaning as in section 414(q)(7). 
Compensation includes all amounts received from all entities treated as 
a single employer under section 414 (b), (c), (m), or (o). Levels of 
compensation shall be adjusted at the same time and in the same manner 
as provided in section 415(d). The first such adjustment was for 
calendar year 1988.
    (11) Treatment of former employees. For purposes of this paragraph 
(g), an employee who was a control employee of the employer (as defined 
in this paragraph (g)) at any time after reaching age 55, or within 
three years of separation from the service of the employer, is a control 
employee with respect to flights taken after separation from the

[[Page 75]]

service of the employer. An individual who is treated as a control 
employee under this paragraph (g)(11) is not counted when determining 
the limitation of paragraph (g)(8)(i) (A) and (B) of this section. Thus, 
the total number of individuals treated as control employees under such 
paragraphs may exceed the limitations of such paragraphs to the extent 
that this paragraph (g)(11) applies.
    (12) Seating capacity rule--(i) In general--(A) General rule. Where 
50 percent or more of the regular passenger seating capacity of an 
aircraft (as used by the employer) is occupied by individuals whose 
flights are primarily for the employer's business (and whose flights are 
excludable from income under section 132(d)), the value of a flight on 
that aircraft by any employee who is not flying primarily for the 
employer's business (or who is flying primarily for the employer's 
business but the value of whose flight is not excludable under section 
132(d) by reason of section 274(c)) is deemed to be zero. See 
Sec. 1.132-5 which limits the working condition fringe exclusion under 
section 132(d) to situations where the employee receives the flight in 
connection with the performance of services for the employer providing 
the aircraft.
    (B) Special rules--(1) Definition of ``employee.'' For purposes of 
this paragraph (g)(12), the term ``employee'' includes only employees of 
the employer, including a partner of a partnership, providing the 
aircraft and does not include independent contractors and directors of 
the employer. A flight taken by an individual other than an ``employee'' 
as defined in the preceding sentence is considered a flight taken by an 
employee for purposes of this paragraph (g)(12) only if that individual 
is treated as an employee pursuant to section 132(f)(1) or that 
individual's flight is treated as a flight taken by an employee pursuant 
to section 132(f)(2). If--
    (i) A flight by an individual is not considered a flight taken by an 
employee (as defined in this paragraph (g)(12)(i)),
    (ii) The value of that individual's flight is not excludable under 
section 132(d), and
    (iii) The seating capacity rule of this paragraph (g) (12) otherwise 
applies, then the value of the flight provided to such an individual is 
the value of a flight provided to a non-control employee pursuant to 
paragraph (g)(5) of this section (even if the individual who would be 
taxed on the value of the flight is a control employee).
    (2) Example. The special rules of paragraph (g)(12)(i)(B)(1) of this 
section are illustrated by the following example:

    Example. Assume that 60 percent of the regular passenger seating 
capacity of an employer's aircraft is occupied by individuals whose 
flights are primarily for the employer's business and are excludable 
from income under section 132(d). If a control employee, his spouse, and 
his dependent child fly on the employer's aircraft for primarily 
personal reasons, the value of the three flights is deemed to be zero. 
If, however, the control employee's cousin were provided a flight on the 
employer's aircraft, the value of the flight taken by the cousin is 
determined by applying the aircraft valuation formula of paragraph 
(g)(5) of this section (including the terminal charge) and the non-
control employee aircraft multiples of paragraph (g)(7) of this section.

    (ii) Application of 50-percent test to multiple flights. The seating 
capacity rule of this paragraph (g)(12) must be met both at the time the 
individual whose flight is being valued boards the aircraft and at the 
time the individual deplanes. For example, assume that employee A boards 
an employer-provided aircraft for personal purposes in New York, New 
York, and that at that time 80 percent of the regular passenger seating 
capacity of the aircraft is occupied by individuals whose flights are 
primarily for the employer's business (and whose flights are excludable 
from income under section 132(d)) (``the business passengers''). If the 
aircraft flies directly to Hartford, Connecticut where all of the 
passengers, including A, deplane, the requirements of the seating 
capacity rule of this paragraph (g)(12) have been satisfied. If instead, 
some of the passengers, including A, remain on the aircraft in Hartford 
and the aircraft continues on to Boston, Massachusetts, where they all 
deplane, the requirements of the seating capacity rule of this paragraph 
(g)(12) will not be satisfied with respect to A's flight from New York 
to Boston unless

[[Page 76]]

at least 50 percent of the seats comprising the aircraft's regular 
passenger seating capacity were occupied by the business passengers at 
the time A deplanes in Boston.
    (iii) Regular passenger seating capacity. (A) General rule. Except 
as otherwise provided, the regular passenger seating capacity of an 
aircraft is the maximum number of seats that have at any time on or 
prior to the date of the flight been on the aircraft (while owned or 
leased by the employer). Except to the extent excluded pursuant to 
paragraph (g)(12)(v) of this section, regular seating capacity includes 
all seats which may be occupied by members of the flight crew. It is 
irrelevant that, on a particular flight, less than the maximum number of 
seats are available for use because, for example, some of the seats are 
removed.
    (B) Special rules. When determining the maximum number of seats that 
have at any time on or prior to the date of the flight been on the 
aircraft (while owned or leased by the employer), seats that could not 
at any time be legally used during takeoff and have not at any time been 
used during takeoff are not counted. As of the date an employer 
permanently reduces the seating capacity of an aircraft, the regular 
passenger seating capacity is the reduced number of seats on the 
aircraft. The previous sentence shall not apply if at any time within 24 
months after such reduction any seats are added in the aircraft. Unless 
the conditions of this paragraph (g)(12)(iii)(B) are satisfied, 
jumpseats and removable seats used solely for purposes of flight crew 
training are counted for purposes of the seating capacity rule of this 
paragraph (g)(12).
    (iv) Examples. The rules of paragraph (g)(12)(iii) of this section 
are illustrated by the following examples:

    Example (1). Employer A and employer B order the same aircraft, 
except that A orders it with 10 seats and B orders it with eight seats. 
A always uses its aircraft as a 10-seat aircraft; B always uses its 
aircraft as an eight-seat aircraft. The regular passenger seating 
capacity of A's aircraft is 10 and of B's aircraft is eight.
    Example (2). Assume the same facts as in example (1), except that 
whenever A's chief executive officer and spouse use the aircraft eight 
seats are removed. Even if substantially all of the use of the aircraft 
is by the chief executive officer and spouse, the regular passenger 
seating capacity of the aircraft is 10.
    Example (3). Assume the same facts as in example (1), except that 
whenever more than eight people want to fly in B's aircraft, two extra 
seats are added. Even if substantially all of the use of the aircraft 
occurs with eight seats, the regular passenger seating capacity of the 
aircraft is 10.
    Example (4). Employer C purchases an aircraft with 12 seats. Three 
months later C remodels the interior of the aircraft and permanently 
removes four of the seats. Upon completion of the remodeling, the 
regular passenger seating capacity of the aircraft is eight. If, 
however, any seats are added within 24 months after the remodeling, the 
regular seating capacity of the aircraft is treated as 12 throughout the 
entire period.

    (v) Seats occupied by flight crew. When determining the regular 
passenger seating capacity of an aircraft, any seat occupied by a member 
of the flight crew (whether or not such individual is an employee of the 
employer providing the aircraft) shall not be counted, unless the 
purpose of the flight by such individual is not primarily to serve as a 
member of the flight crew. If the seat occupied by a member of the 
flight crew is not counted as a passenger seat pursuant to the previous 
sentence, such member of the flight crew is disregarded in applying the 
50-percent test described in the first sentence of paragraph (g)(12)(i) 
of this section. For example, assume that prior to application of this 
paragraph (g)(12)(v) the regular passenger seating capacity of an 
aircraft is one. Assume further that an employee pilots the aircraft and 
that the employee's flight is nor primarily for the employer's business. 
If the employee's spouse occupies the other seat for personal purposes, 
the seating capacity rule is not met and the value of both flights must 
be included in the employee's income. If, however, the employee's flight 
were primarily for the employer's business (unrelated to serving as a 
member of the flight crew), then the seating capacity rule is met and 
the value of the flight for the employee's spouse is deemed to be zero. 
If the employee's flight were primarily to serve as a member of the 
flight crew, then the seating capacity rule is not met and the value of 
a flight by any

[[Page 77]]

passenger for primarily personal reasons is not deemed to be zero.
    (13) Erroneous use of the non-commercial flight valuation rule--(i) 
Certain errors in the case of a flight by a control employee. If--
    (A) The non-commercial flight valuation rule of this paragraph (g) 
is applied by an employer or a control employee, as the case may be, on 
a return as originally filed or on an amended return on the grounds that 
either--
    (1) The control employee is not in fact a control employee, or
    (2) The aircraft is within a specific weight classification, and
    (B) Either position is subsequently determined to be erroneous, the 
valuation rule of this paragraph (g) is not available to value the 
flight taken by that control employee by the person or persons taking 
the erroneous position. With respect to the weight classifications, the 
previous sentence does not apply if the position taken is that the 
weight of the aircraft is greater than it is subsequently determined to 
be. If, with respect to a flight by a control employee, the seating 
capacity rule of paragraph (g)(12) of this section is used by an 
employer or the control employee, as the case may be, on a return as 
originally filed or on an amended return, the valuation rule of this 
paragraph (g) is not available to value the flight taken by that control 
employee by the person or persons taking the erroneous position.
    (ii) Value of flight excluded as a working condition fringe. If 
either an employer or an employee, on a return as originally filed or on 
an amended return, excludes from the employee's income or wages all or 
any part of the value of a flight on the grounds that the flight was 
excludable as a working condition fringe under section 132, and that 
position is subsequently determined to be erroneous, the valuation rule 
of this paragraph (g) is not available to value the flight taken by that 
employee by the person or persons taking the erroneous position. 
Instead, the general valuation rules of paragraphs (b) (5) and (6) of 
this section apply.
    (14) Consistency rules--(i) Use by the employer. Except as otherwise 
provided in paragraph (g)(13) of this section or Sec. 1.132-5 (m)(4), if 
the non-commercial flight valuation rule of this paragraph (g) is used 
by an employer to value any flight provided to an employee in a calendar 
year, the rule must be used to value all flights provided to all 
employees in the calendar year.
    (ii) Use by the employee. Except as otherwise provided in paragraph 
(g)(13) of this section or Sec. 1.132-5 (m)(4), if the non-commercial 
flight valuation rule of this paragraph (g) is used by an employee to 
value a flight provided by an employer in a calendar year, the rule must 
be used to value all flights provided to the employee by that employer 
in the calendar year.
    (h) Commercial flight valuation rule--(1) In general. Under the 
commercial flight valuation rule of this paragraph (h), the value of a 
space-available flight (as defined in paragraph (h) (2) of this section) 
on a commercial aircraft is 25 percent of the actual carrier's highest 
unrestricted coach fare in effect for the particular flight taken. The 
rule of this paragraph (h) is available only to an individual described 
in Sec. 1.132-1(b)(1).
    (2) Space-available flight. The commercial flight valuation rule of 
this paragraph (h) is available to value a space-available flight. The 
term ``space-available flight'' means a flight on a commercial aircraft-
-
    (i) Which is subject to the same types of restrictions customarily 
associated with flying on an employee ``stand-by'' or ``space-
available'' basis, and
    (ii) Which meets the definition of a no-additional-cost service 
under section 132(b), except that the flight is provided to an 
individual other than the employee or an individual treated as the 
employee under section 132(f). Thus, a flight is not a space-available 
flight if the employer guarantees the employee a seat on the flight or 
if the nondiscrimination requirements of section 132(h)(1) and 
Sec. 1.132-8 are not satisfied. A flight may be a space-available flight 
even if the airline that is the actual carrier is not the employer of 
the employee.
    (3) Commercial aircraft. If the actual carrier does not offer, in 
the ordinary course of its business, air transportation to customers on 
a per-seat basis, the commercial flight valuation rule of this paragraph 
(h) is not available.

[[Page 78]]

Thus, if, in the ordinary course of its line of business, the employer 
only offers air transportation to customers on a charter basis, the 
commercial flight valuation rule of this paragraph (h) may not be used 
to value a space-available flight on the employer's aircraft. If the 
commercial flight valuation rule is not available, the flight may be 
valued under the non-commercial flight valuation rule of paragraph (g) 
of this section.
    (4) Timing of inclusion. The date that the flight is taken is the 
relevant date for purposes of applying section 61(a)(1) and this section 
to a space-available flight on a commercial aircraft. The date of 
purchase or issuance of a pass or ticket is not relevant. Thus, this 
section applies to a flight taken on or after January 1, 1989, 
regardless of the date on which the pass or ticket for the flight was 
purchased or issued.
    (5) Consistency rules--(i) Use by employer. If the commercial flight 
valuation rule of this paragraph (h) is used by an employer to value any 
flight provided in a calendar year, the rule must be used to value all 
flights eligible for use of the rule provided in the calendar year.
    (ii) Use by employee. If the commercial flight valuation rule of 
this paragraph (h) is used by an employee to value a flight provided by 
an employer in a calendar year, the rule must be used to value all 
flights provided by that employer eligible for use of the rule taken by 
such employee in the calendar year.
    (i) [Reserved.]
    (j) Valuation of meals provided at an employer-operated eating 
facility for employees--(1) In general. The valuation rule of this 
paragraph (j) may be used to value a meal provided at an employer-
operated eating facility for employees (as defined in Sec. 1.132-7). For 
rules relating to an exclusion for the value of meals provided at an 
employer-operated eating facility for employees, see section 132(e)(2) 
and Sec. 1.132-7.
    (2) Valuation formula--(i) In general. The value of all meals 
provided at an employer-operated eating facility for employees during a 
calendar year (``total meal value'') is 150 percent of the direct 
operating costs of the eating facility determined separately with 
respect to such eating facility whether or not the direct operating 
costs test is applied separately to such eating facility under 
Sec. 1.132-7(b)(2). For purposes of this paragraph (j), the definition 
of direct operating costs provided in Sec. 1.132-7(b) and the 
adjustments specified in Sec. 1.132-7(a)(2) apply. The taxable value of 
meals provided at an eating facility may be determined in two ways. The 
``individual meal subsidy'' may be treated as the taxable value of a 
meal provided at the eating facility (see paragraph (j)(2)(ii) of this 
section) to a particular employee. Alternatively, the employer may 
allocate the ``total meal subsidy'' among employees (see paragraph 
(j)(2)(iii) of this section).
    (ii) ``Individual meal subsidy'' defined. The ``individual meal 
subsidy'' is determined by multiplying the amount paid by the employee 
for a particular meal by a fraction, the numerator of which is the total 
meal value and the denominator of which is the gross receipts of the 
eating facility for the calendar year and then subtracting the amount 
paid by the employee for the meal. The taxable value of meals provided 
to a particular employee during a calendar year, therefore, is the sum 
of the individual meal subsidies provided to the employee during the 
calendar year. This rule is available only if there is a charge for each 
meal selection and if each employee is charged the same price for any 
given meal selection.
    (iii) Allocation of ``total meal subsidy.'' Instead of using the 
individual meal subsidy method provided in paragraph (j)(2)(ii) of this 
section, the employer may allocate the ``total meal subsidy'' (total 
meal value less the gross receipts of the facility) among employees in 
any manner reasonable under the circumstances. It will be presumed 
reasonable for an employer to allocate the total meal subsidy on a per-
employee basis if the employer has information that would substantiate 
to the satisfaction of the Commissioner that each employee was provided 
approximately the same number of meals at the facility.
    (k) Commuting valuation rule for certain employees--(1) In general. 
Under the rule of this paragraph (k), the value of

[[Page 79]]

the commuting use of employer-provided transportation may be determined 
under paragraph (k)(3) of this section if the following criteria are met 
by the employer and employee with respect to the transportation:
    (i) The transportation is provided, solely because of unsafe 
conditions, to an employee who would ordinarily walk or use public 
transportation for commuting to or from work;
    (ii) The employer has established a written policy (e.g., in the 
employer's personnel manual) under which the transportation is not 
provided for the employee's personal purposes other than for commuting 
due to unsafe conditions and the employer's practice in fact corresponds 
with the policy;
    (iii) The transportation is not used for personal purposes other 
than commuting due to unsafe conditions; and
    (iv) The employee receiving the employer-provided transportation is 
a qualified employee of the employer (as defined in paragraph (k)(6) of 
this section).
    (2) Trip-by-trip basis. The special valuation rule of this paragraph 
(k) applies on a trip-by-trip basis. If an employer and employee fail to 
meet the criteria of paragraph (k)(1) of this section with respect to 
any trip, the value of the transportation for that trip is not 
determined under paragraph (k)(3) of this section and the amount 
includible in the employee's income is determined by reference to the 
fair market value of the transportation.
    (3) Commuting value--(i) $1.50 per one-way commute. If the 
requirements of this paragraph (k) are satisfied, the value of the 
commuting use of the employer-provided transportation is $1.50 per one-
way commute (i.e., from home to work or from work to home).
    (ii) Value per employee. If transportation is provided to more than 
one qualified employee at the same time, the amount includible in the 
income of each employee is $1.50 per one-way commute.
    (4) Definition of employer-provided transportation. For purposes of 
this paragraph (k), ``employer-provided transportation'' means 
transportation by vehicle (as defined in paragraph (f)(4) of this 
section) that is purchased by the employer (or that is purchased by the 
employee and reimbursed by the employer) from a party that is not 
related to the employer for the purpose of transporting a qualified 
employee to or from work. Reimbursements made by an employer to an 
employee to cover the cost of purchasing transportation (e.g., hiring 
cabs) must be made under a bona fide reimbursement arrangement.
    (5) Unsafe conditions. Unsafe conditions exist if a reasonable 
person would, under the facts and circumstances, consider it unsafe for 
the employee to walk to or from home, or to walk to or use public 
transportation at the time of day the employee must commute. One of the 
factors indicating whether it is unsafe is the history of crime in the 
geographic area surrounding the employee's workplace or residence at the 
time of day the employee must commute.
    (6) Qualified employee defined--(i) In general. For purposes of this 
paragraph (k), a qualified employee is one who meets the following 
requirements with respect to the employer:
    (A) The employee performs services during the current year, is paid 
on an hourly basis, is not claimed under section 213(a)(1) of the Fair 
Labor Standards Act of 1938 (as amended), 29 U.S.C. 201-219 (FLSA), to 
be exempt from the minimum wage and maximum hour provisions of the FLSA, 
and is within a classification with respect to which the employer 
actually pays, or has specified in writing that it will pay, 
compensation for overtime equal to or exceeding one and one-half times 
the regular rate as provided by section 207 of the FLSA; and
    (B) The employee does not receive compensation from the employer in 
excess of the amount permitted by section 414(q)(1)(C) of the Code.
    (ii) ``Compensation'' and ``paid on an hourly basis'' defined. For 
purposes of this paragraph (k), ``compensation'' has the same meaning as 
in section 414(q)(7). Compensation includes all amounts received from 
all entities treated as a single employer under section 414 (b), (c), 
(m), or (o). Levels of compensation shall be adjusted at the same time 
and in the same manner as provided in section 415(d). If an employee's 
compensation is stated on an

[[Page 80]]

annual basis, the employee is treated as ``paid on an hourly basis'' for 
purposes of this paragraph (k) as long as the employee is not claimed to 
be exempt from the minimum wage and maximum hour provisions of the FLSA 
and is paid overtime wages either equal to or exceeding one and one-half 
the employee's regular hourly rate of pay.
    (iii) FLSA compliance required. An employee will not be considered a 
qualified employee for purposes of this paragraph (k), unless the 
employer is in compliance with the recordkeeping requirements concerning 
that employee's wages, hours, and other conditions and practices of 
employment as provided in section 211(c) of the FLSA and 29 CFR part 
516.
    (iv) Issues arising under the FLSA. If questions arise concerning an 
employee's classification under the FLSA, the pronouncements and rulings 
of the Administrator of the Wage and Hour Division, Department of Labor 
are determinative.
    (v) Non-qualified employees. If an employee is not a qualified 
employee within the meaning of this paragraph (k)(6), no portion of the 
value of the commuting use of employer-provided transportation is 
excluded under this paragraph (k).
    (7) Examples. This paragraph (k) is illustrated by the following 
examples:

    Example 1. A and B are word-processing clerks employed by Y, an 
accounting firm in a large metropolitan area, and both are qualified 
employees under paragraph (k)(6) of this section. The normal working 
hours for A and B are from 11:00 p.m. until 7:00 a.m. and public 
transportation, the only means of transportation available to A or B, 
would be considered unsafe by a reasonable person at the time they are 
required to commute from home to work. In response, Y hires a car 
service to pick up A and B at their homes each evening for purposes of 
transporting them to work. The amount includible in the income of both A 
and B is $1.50 for the one-way commute from home to work.
    Example 2. Assume the same facts as in Example 1, except that Y also 
hires a car service to return A and B to their homes each morning at the 
conclusion of their shifts and public transportation would not be 
considered unsafe by a reasonable person at the time of day A and B 
commute to their homes. The value of the commute from work to home is 
includible in the income of both A and B by reference to fair market 
value since unsafe conditions do not exist for that trip.
    Example 3. C is an associate for Z, a law firm in a metropolitan 
area. The normal working hours for C's law firm are from 9 a.m. until 6 
p.m., but C's ordinary office hours are from 10 a.m. until 8 p.m. Public 
transportation, the only means of transportation available to C at the 
time C commutes from work to home during the evening, would be 
considered unsafe by a reasonable person. In response, Z hires a car 
service to take C home each evening. C does not receive annual 
compensation from Z in excess of the amount permitted by section 
414(q)(1)(C) of the Code. However, C is treated as an employee exempt 
from the provisions of the FLSA and, accordingly, is not paid overtime 
wages. Therefore, C is not a qualified employee within the meaning of 
paragraph (k)(6) of this section. The value of the commute from work to 
home is includible in C's income by reference to fair market value.

    (8) Effective date. This paragraph (k) applies to employer-provided 
transportation provided to a qualified employee on or after July 1, 
1991.

[T.D. 8256, 54 FR 28582, July 6, 1989, as amended by T.D. 8389, 57 FR 
1870, Jan. 16, 1992; T.D. 8457, 57 FR 62195, Dec. 30, 1992]



Sec. 1.62-1  Adjusted gross income.

    (a)-(b) [Reserved]
    (c) Deductions allowable in computing adjusted gross income. The 
deductions specified in section 62(a) for purposes of computing adjusted 
gross income are--
    (1) Deductions set forth in Sec. 1.62-1T(c); and
    (2) Deductions allowable under part VI, subchapter B, chapter 1 of 
the Internal Revenue Code, (section 161 and following) that consist of 
expenses paid or incurred by the taxpayer in connection with the 
performance of services as an employee under a reimbursement or other 
expense allowance arrangement (as defined in Sec. 1.62-2) with his or 
her employer. For the rules pertaining to expenses paid or incurred in 
taxable years beginning before January 1, 1989, see Sec. 1.62-1T (c)(2) 
and (f) (as contained in 26 CFR part 1 (Secs. 1.61 to 1.169) revised 
April 1, 1992).
    (d) through (h) [Reserved]
    (i) Effective date. Paragraph (c) of this section is effective for 
taxable years beginning on or after January 1, 1989.

[T.D. 8451, 57 FR 57668, Dec. 7, 1992; 57 FR 60568, Dec. 21, 1992]

[[Page 81]]



Sec. 1.62-1T  Adjusted gross income (temporary).

    (a) Basis for determining the amount of certain deductions. The term 
``adjusted gross income'' means the gross income computed under section 
61 minus such of the deductions allowed by chapter 1 of the Code as are 
specified in section 62(a). Adjusted gross income is used as the basis 
for determining the following:
    (1) The limitation on the amount of miscellaneous itemized 
deductions (under section 67).
    (2) The limitation on the amount of the deduction for casualty 
losses (under section 165(h)(2)),
    (3) The limitation on the amount of the deduction for charitable 
contributions (under section 170(b)(1)),
    (4) The limitation on the amount of the deduction for medical and 
dental expenses (under section 213),
    (5) The limitation on the amount of the deduction for qualified 
retirement contributions for active participants in certain pension 
plans (under section 219(g)), and
    (6) The phase-out of the exemption from the disallowance of passive 
activity losses and credits (under section 469(i)(3)).
    (b) Double deduction not permitted. Section 62 (a) merely specifies 
which of the deductions provided in chapter 1 of the Code shall be 
allowed in computing adjusted gross income. It does not create any new 
deductions. The fact that a particular item may be described in more 
than one of the paragraphs under section 62(a) does not permit the item 
to be deducted twice in computing adjusted gross income or taxable 
income.
    (c) Deductions allowable in computing adjusted gross income. The 
deductions specified in section 62(a) for purposes of computing adjusted 
gross income are:
    (1) Deductions allowable under chapter 1 of the Code (other than by 
part VII (section 211 and folllowing), subchapter B of such chapter) 
that are attributable to a trade or business carried on by the taxpayer 
not consisting of services performed as an employee;
    (2) [Reserved]
    (3) For taxable years beginning after December 31, 1986, deductions 
allowable under section 162 that consist of expenses paid or incurred by 
a qualified performing artist (as defined in section 62(b)) in 
connection with the performance by him or her of services in the 
performing arts as an employee;
    (4) Deductions allowable under part VI as losses from the sale or 
exchange of property;
    (5) Deductions allowable under part VI, section 212, or section 611 
that are attributable to property held for the production of rents or 
royalties;
    (6) Deductions for depreciation or depletion allowable under 
sections 167 or 611 to a life tenant of property or to an income 
beneficiary of property held in trust or to an heir, legatee, or devisee 
of an estate;
    (7) Deductions allowed by section 404 for contributions on behalf of 
a self-employed individual;
    (8) Deductions allowed by section 219 for contributions to an 
individual retirement account described in section 408(a), or for an 
individual retirement annuity described in section 408(b);
    (9) Deductions allowed by section 402(e)(3) with respect to a lump-
sum distribution;
    (10) For taxable years beginning after December 31, 1972, deductions 
allowed by section 165 for losses incurred in any transaction entered 
into for profit though not connected with a trade or business, to the 
extent that such losses include amounts forfeited to a bank, mutual 
savings bank, savings and loan association, building and loan 
association, cooperative bank or homestead association as a penalty for 
premature withdrawal of funds from a time savings account, certificate 
of deposit, or similar class of deposit;
    (11) For taxable years beginning after December 31, 1976, deductions 
for alimony and separate maintenance payments allowed by section 215;
    (12) Deductions allowed by section 194 for the amortization of 
reforestation expenditures; and
    (13) Deductions allowed by section 165 for the repayment (made in a 
taxable year beginning after December 28, 1980) to a trust described in 
paragraph (9) or (17) of section 501(c) of supplemental unemployment 
compensation benefits received from such trust if such repayment is 
required because of the receipt of trade readjustment allowances under 
section 231 or 232 of the Trade Act of 1974 (19 U.S.C. 2291 and 2292).

[[Page 82]]

    (d) Expenses directly related to a trade or business. For the 
purpose of the deductions specified in section 62, the performance of 
personal services as an employee does not constitute the carrying on of 
a trade or business, except as otherwise expressly provided. The 
practice of a profession, not as an employee, is considered the conduct 
of a trade or business within the meaning of such section. To be 
deductible for the purposes of determining adjusted gross income, 
expenses must be those directly, and not those merely remotely, 
connected with the conduct of a trade or business. For example, taxes 
are deductible in arriving at adjusted gross income only if they 
constitute expenditures directly attributable to a trade or business or 
to property from which rents or royalties are derived. Thus, property 
taxes paid or incurred on real property used in a trade or business are 
deductible, but state taxes on net income are not deductible even though 
the taxpayer's income is derived from the conduct of a trade or 
business.
    (e) Reimbursed and unreimbursed employee expenses--(1) In general. 
Expenses paid or incurred by an employee that are deductible from gross 
income under part VI in computing taxable income (determined without 
regard to section 67) and for which the employee is reimbursed by the 
employer, its agent, or third party (for whom the employee performs a 
benefit as an employee of the employer) under an express agreement for 
reimbursement or pursuant to an express expense allowance arrangement 
may be deducted from gross income in computing adjusted gross income. 
Except as provided in paragraphs (e)(2) and (e)(4) of this section, for 
taxable years beginning after December 31, 1986, if the amount of a 
reimbursement made by an employer, its agent, or third party to an 
employee is less than the total amount of the business expenses paid or 
incurred by the employee, the determination of to which of the 
employee's business expenses the reimbursement applies and the amount of 
each expense that is covered by the reimbursement is made on the basis 
of all of the facts and circumstances of the particular case.
    (2) Facts and circumstances unclear on business expenses for meals 
and entertainment. If--
    (i) The facts and circumstances do not make clear--
    (A) That a reimbursement does not apply to business expenses for 
meals or entertainment, or
    (B) The amount of business expenses for meals or entertainment that 
is covered by the reimbursement, and
    (ii) The employee pays or incurs business expenses for meals or 
entertainment,

the amount of the reimbursement that applies to such expenses (or 
portion thereof with respect to which the facts and circumstances are 
unclear) shall be determined by multiplying the amount of the employee's 
business expenses for meals and entertainment (or portion thereof with 
respect to which the facts and circumstances are unclear) by a fraction, 
the numerator of which is the total amount of the reimbursement (or 
portion thereof with respect to which the facts and circumstances are 
unclear) and the denominator of which is the aggregate amount of all the 
business expenses of the employee (or portion thereof with respect to 
which the facts and circumstances are unclear).
    (3) Deductibility of unreimbursed expenses. The amount of expenses 
that is determined not to be reimbursed pursuant to paragraph (e) (1) or 
(2) of this section is deductible from adjusted gross income in 
determining the employee's taxable income subject to the limitations 
applicable to such expenses (e.g., the 2-percent floor of section 67 and 
the 80-percent limitation on meal and entertainment expenses provided 
for in section 274(n)).
    (4) Unreimbursed expenses of State legislators. For taxable years 
beginning after December 31, 1986, any portion of the amount allowed as 
a deduction to State legislators pursuant to section 162(h)1)(B) that is 
not reimbursed by the State or a third party shall be allocated between 
lodging and meals in the same ratio as the amounts allowable for lodging 
and meals under the Federal per diem applicable to the legislator's 
State capital at the end of the legislator's taxable year (see Appendix 
1-A of the Federal Travel Regulations (FTR), which as of March 28, 1988, 
are

[[Page 83]]

contained in GSA Bulletin FPMR A-40, Supplement 20). For purposes of 
this paragraph (e)(4), the amount allowable for meals under the Federal 
per diem shall be the amount of the Federal per diem allowable for meals 
and incidental expenses reduced by $2 per legislative day (or other 
amount allocated to incidental expenses in 1-7.5(a)(2) of the FTR). The 
unreimbursed portion of each type of expense is deductible from adjusted 
gross income in determining the State legislator's taxable income 
subject to the limitations applicable to such expenses. For example, the 
unreimbursed portion allocable to meals shall be reduced by 20 percent 
pursuant to section 274(n) before being subjected to the 2-percent floor 
of section 67 for purposes of computing the taxable income of a State 
legislator. See Sec. 1.67-1T(a)(2).
    (5) Expenses paid directly by an employer, its agent, or third 
party. In the case of an employer, its agent, or a third party who 
provides property or services to an employee or who pays an employee's 
expenses directly instead of reimbursing the employee, see section 132 
and the regulations thereunder for the income tax treatment of such 
expenses.
    (6) Examples. The provisions of this paragraph (e) may be 
illustrated by the following examples:

    Example (1). During 1987, A, an employee, while on business trips 
away from home pays $300 for travel fares, $200 for lodging and $100 for 
meals. In addition, A pays $50 for business meals in the area of his 
place of employment (``local meals''), $250 for continuing education 
courses, and $100 for business-related entertainment (other than meals). 
The total amount of the reimbursements received by A for his employee 
expenses from his employer is $750, and it is assumed that A's expenses 
meet the deductibility requirements of sections 162 and 274. A includes 
the amount of the reimbursement in his gross income. A's employer 
designates the reimbursement to cover in full A's expenses for travel 
fares, lodging, and meals while away from home, local meals, and 
entertainment, and no facts or circumstances indicate a contrary 
intention of the employer. Because the facts and circumstances make 
clear the amount of A's business expenses for meals and entertainment 
that is covered by the reimbursement, the reimbursement will be 
allocated to these expenses. In determining his adjusted gross income 
under section 62, A may deduct the full amount of the reimbursement for 
travel fares, lodging, and meals while away from home, local meals, and 
entertainment. In determining his taxable income under section 63, A may 
deduct his expenses for continuing education courses to the extent 
allowable by sections 67 and 162.
    Example (2). Assume the facts are the same as in example (1) except 
that the facts and circumstances make clear that the reimbursement 
covers all types of deductible expenses but they do not make clear the 
amount of each type of expense that is covered by the reimbursement. The 
amount of the reimbursement that is allocated to A's business expenses 
for meals and entertainment is $187.50. This amount is determined by 
multiplying the total amount of A's business expenses for meals and 
entertainment ($250) by the ratio of A's total reimbursement to A's 
total business expenses ($750/$1,000). The remaining amount of the 
reimbursement, $562.50 ($750-$187.50), is allocated to A's business 
expenses other than meal and entertainment expenses. Therefore, in 
determining his adjusted gross income under section 62, A may deduct 
$750 for reimbursed business expenses (including meals and 
entertainment). In determining his taxable income under section 63, A 
may deduct (subject to the limitations and conditions of sections 67, 
162, and 274) the unreimbursed portion of his expenses for meals and 
entertainment ($62.50 ($250-$187.50), and other employee business 
expenses ($187.50 ($750-$562.50)).
    Example (3). Assume the facts are the same as in example (1) except 
that the amount of the reimbursement is $500. Assume further that the 
facts and circumstances make clear that the reimbursement covers $100 of 
expenses for meals and that the remaining $400 of the reimbursement 
covers all types of deductible expenses (including any expenses for 
meals in excess of the $100 already designated) other than expenses for 
entertainment. The amount of the reimbursement that is allocated to A's 
business expenses for meals and entertainment is $125. This amount is 
equal to the sum of the amount of the reimbursement that clearly applies 
to meals ($100) and the amount of the reimbursement with respect to 
which the facts are unclear that is allocated to meals ($25). The latter 
amount is determined by multiplying the total amount of A's business 
expenses for meals and entertainment with respect to which the facts are 
unclear ($50) by the ratio of A's total reimbursement with respect to 
which the facts are unclear to A's total business expenses with respect 
to which the facts are unclear ($400/$800). The remaining amount of the 
reimbursement, $375 ($500-$125) is allocated to A's business expenses 
other than meals and entertainment. Therefore, in determining his 
adjusted gross income under section 62, A may deduct

[[Page 84]]

$500 for reimbursed business expenses (including meals). In determining 
his taxable income under section 63, A may deduct (subject to the 
limitations and conditions of sections 67, 162, and 274) the 
unreimbursed portion of his expenses for meals ($25 ($150-$125)), 
entertainment ($100), and other employee business expenses ($375 ($750-
$375)).
    Example (4). During 1987 B, a research scientist, is employed by 
Corporation X. B gives a speech before members of Association Y, a 
professional organization of scientists, describing her most recent 
research findings. Pursuant to a reimbursement arrangement, Y reimburses 
B for the full amount of her travel fares to the site of the speech and 
for the full amount of her expenses for lodging and meals while there. B 
includes the amount of the reimbursement in her gross income. B may 
deduct the full amount of her travel expenses pursuant to section 
62(a)(2)(A) in computing her adjusted gross income.

    (f) [Reserved]
    (g) Moving expenses. For taxable years beginning after December 31, 
1986, a taxpayer described in section 217(a) shall not take into account 
the deduction described in section 217 relating to moving expenses in 
computing adjusted gross income under section 62 even if the taxpayer is 
reimbursed for his or her moving expenses. Such a taxpayer shall include 
the amount of any reimbursement for moving expenses in income pursuant 
to section 82. The deduction described in section 217 shall be taken 
into account in computing the taxable income of the taxpayer under 
section 63. Pursuant to section 67(b)(6), the 2-percent floor described 
in section 67(a) does not apply to moving expenses.
    (h) Cross-reference. See 26 CFR 1.62-1 (Rev. as of April 1, 1986) 
with respect to pre-1987 deductions for travel, meal, lodging, 
transportation, and other trade or business expenses of an employee, 
reimbursed expenses of an employee, expenses of an outside salesperson, 
long-term capital gains, contributions described in section 405(c) to a 
bond purchase plan on behalf of a self-employed individual, moving 
expenses, amounts not received as benefits pursuant to section 
1379(b)(3), and retirement bonds described in section 409 (allowed by 
section 219).

[T.D. 8189, 53 FR 9873, Mar. 28, 1988, as amended by T.D. 8276, 54 FR 
51024, Dec. 12, 1989; T.D. 8324, 55 FR 51691, Dec. 17, 1990; T.D. 8451, 
57 FR 57668, Dec. 7, 1992]



Sec. 1.62-2  Reimbursements and other expense allowance arrangements.

    (a) Table of contents. The contents of this section are as follows:

(a) Table of contents.
(b) Scope.
(c) Reimbursement or other expense allowance arrangement.
(1) Defined.
(2) Accountable plans.
(i) In general.
(ii) Special rule for failure to return excess.
(3) Nonaccountable plans.
(i) In general.
(ii) Special rule for failure to return excess.
(4) Treatment of payments under accountable plans.
(5) Treatment of payments under nonaccountable plans.
(d) Business connection.
(1) In general.
(2) Other bona fide expenses.
(3) Reimbursement requirement.
(i) In general.
(ii) Per diem allowances.
(e) Substantiation.
(1) In general.
(2) Expenses governed by section 274(d).
(3) Expenses not governed by section 274(d).
(f) Returning amounts in excess of expenses.
(1) In general.
(2) Per diem or mileage allowances.
(g) Reasonable period.
(1) In general.
(2) Safe harbors.
(i) Fixed date method.
(ii) Periodic payment method.
(3) Pattern of overreimbursements.
(h) Withholding and payment of employment taxes.
(1) When excluded from wages.
(2) When included in wages.
(i) Accountable plans.
(A) General rule.
(B) Per diem or mileage allowances.
(1) In general.
(2) Reimbursements.
(3) Advances.
(4) Special rules.
(ii) Nonaccountable plans.
(i) Application.
(j) Examples.
(k) Anti-abuse provision.
(l) Cross references.
(m) Effective dates.


[[Page 85]]


    (b) Scope. For purposes of determining ``adjusted gross income,'' 
section 62(a)(2)(A) allows an employee a deduction for expenses allowed 
by part VI (section 161 and following), subchapter B, chapter 1 of the 
Code, paid by the employee, in connection with the performance of 
services as an employee of the employer, under a reimbursement or other 
expense allowance arrangement with a payor (the employer, its agent, or 
a third party). Section 62(c) provides that an arrangement will not be 
treated as a reimbursement or other expense allowance arrangement for 
purposes of section 62(a)(2)(A) if--
    (1) Such arrangement does not require the employee to substantiate 
the expenses covered by the arrangement to the payor, or
    (2) Such arrangement provides the employee the right to retain any 
amount in excess of the substantiated expenses covered under the 
arrangement.

This section prescribes rules relating to the requirements of section 
62(c).
    (c) Reimbursement or other expense allowance arrangement--(1) 
Defined. For purposes of Secs. 1.62-1, 1.62-1T, and 1.62-2, the phrase 
``reimbursement or other expense allowance arrangement'' means an 
arrangement that meets the requirements of paragraphs (d) (business 
connection, (e) (substantiation), and (f) (returning amounts in excess 
of expenses) of this section. A payor may have more than one arrangement 
with respect to a particular employee, depending on the facts and 
circumstances. See paragraph (d)(2) of this section (payor treated as 
having two arrangements under certain circumstances).
    (2) Accountable plans--(i) In general. Except as provided in 
paragraph (c)(2)(ii) of this section, if an arrangement meets the 
requirements of paragraphs (d), (e), and (f) of this section, all 
amounts paid under the arrangement are treated as paid under an 
``accountable plan.''
    (ii) Special rule for failure to return excess. If an arrangement 
meets the requirements of paragraphs (d), (e), and (f) of this section, 
but the employee fails to return, within a reasonable period of time, 
any amount in excess of the amount of the expenses substantiated in 
accordance with paragraph (e) of this section, only the amounts paid 
under the arrangement that are not in excess of the substantiated 
expenses are treated as paid under an accountable plan.
    (3) Nonaccountable plans--(i) In general. If an arrangement does not 
satisfy one or more of the requirements of paragraphs (d), (e), or (f) 
of this section, all amounts paid under the arrangement are treated as 
paid under a ``nonaccountable plan.'' If a payor provides a 
nonaccountable plan, an employee who receives payments under the plan 
cannot compel the payor to treat the payments as paid under an 
accountable plan by voluntarily substantiating the expenses and 
returning any excess to the payor.
    (ii) Special rule for failure to return excess. If an arrangement 
meets the requirements of paragraphs (d), (e), and (f) of this section, 
but the employee fails to return, within a reasonable period of time, 
any amount in excess of the amount of the expenses substantiated in 
accordance with paragraph (e) of this section, the amounts paid under 
the arrangement that are in excess of the substantiated expenses are 
treated as paid under a nonaccountable plan.
    (4) Treatment of payments under accountable plans. Amounts treated 
as paid under an accountable plan are excluded from the employee's gross 
income, are not reported as wages or other compensation on the 
employee's Form W-2, and are exempt from the withholding and payment of 
employment taxes (Federal Insurance Contributions Act (FICA), Federal 
Unemployment Tax Act (FUTA), Railroad Retirement Tax Act (RRTA), 
Railroad Unemployment Repayment Tax (RURT), and income tax.) See 
paragraph (l) of this section for cross references.
    (5) Treatment of payments under nonaccountable plans. Amounts 
treated as paid under a nonaccountable plan are included in the 
employee's gross income, must be reported as wages or other compensation 
on the employee's Form W-2, and are subject to withholding and payment 
of employment taxes (FICA, FUTA, RRTA, RURT, and income tax). See 
paragraph (h) of this

[[Page 86]]

section. Expenses attributable to amounts included in the employee's 
gross income may be deducted, provided the employee can substantiate the 
full amount of his or her expenses (i.e., the amount of the expenses, if 
any, the reimbursement for which is treated as paid under an accountable 
plan as well as those for which the employee is claiming the deduction) 
in accordance with Secs. 1.274-5T and 1.274(d)-1 or Sec. 1.162-17, but 
only as a miscellaneous itemized deduction subject to the limitations 
applicable to such expenses (e.g., the 80-percent limitation on meal and 
entertainment expenses provided in section 274(n) and the 2-percent 
floor provided in section 67).
    (d) Business connection--(1) In general. Except as provided in 
paragraphs (d)(2) and (d)(3) of this section, an arrangement meets the 
requirements of this paragraph (d) if it provides advances, allowances 
(including per diem allowances, allowances only for meals and incidental 
expenses, and mileage allowances), or reimbursements only for business 
expenses that are allowable as deductions by part VI (section 161 and 
the following), subchapter B, chapter 1 of the Code, and that are paid 
or incurred by the employee in connection with the performance of 
services as an employee of the employer. The payment may be actually 
received from the employer, its agent, or a third party for whom the 
employee performs a service as an employee of the employer, and may 
include amounts charged directly or indirectly to the payor through 
credit card systems or otherwise. In addition, if both wages and the 
reimbursement or other expense allowance are combined in a single 
payment, the reimbursement or other expense allowance must be identified 
either by making a separate payment or by specifically identifying the 
amount of the reimbursement or other expense allowance.
    (2) Other bona fide expenses. If an arrangement provides advances, 
allowances, or reimbursements for business expenses described in 
paragraph (d)(1) of this section (i.e., deductible employee business 
expenses) and for other bona fide expenses related to the employer's 
business (e.g., travel that is not away from home) that are not 
deductible under part VI (section 161 and the following), subchapter B, 
chapter 1 of the Code, the payor is treated as maintaining two 
arrangements. The portion of the arrangement that provides payments for 
the deductible employee business expenses is treated as one arrangement 
that satisfies this paragraph (d). The portion of the arrangement that 
provides payments for the nondeductible employee expenses is treated as 
a second arrangement that does not satisfy this paragraph (d) and all 
amounts paid under this second arrangement will be treated as paid under 
a nonaccountable plan. See paragraphs (c)(5) and (h) of this section.
    (3) Reimbursement requirement--(i) In general. If a payor arranges 
to pay an amount to an employee regardless of whether the employee 
incurs (or is reasonably expected to incur) business expenses of a type 
described in paragraph (d)(1) or (d)(2) of this section, the arrangement 
does not satisfy this paragraph (d) and all amounts paid under the 
arrangement are treated as paid under a nonaccountable plan. See 
paragraphs (c)(5) and (h) of this section.
    (ii) Per diem allowances. An arrangement providing a per diem 
allowance for travel expenses of a type described in paragraph (d)(1) or 
(d)(2) of this section that is computed on a basis similar to that used 
in computing the employee's wages or other compensation (e.g., the 
number of hours worked, miles traveled, or pieces produced) meets the 
requirements of this paragraph (d) only if, on December 12, 1989, the 
per diem allowance was identified by the payor either by making a 
separate payment or by specifically identifying the amount of the per 
diem allowance, or a per diem allowance computed on that basis was 
commonly used in the industry in which the employee is employed. See 
section 274(d) and Sec. 1.274(d)-1. A per diem allowance described in 
this paragraph (d)(3)(ii) may be adjusted in a manner that reasonably 
reflects actual increases in employee business expenses occurring after 
December 12, 1989.
    (e) Substantiation--(1) In general. An arrangement meets the 
requirements of this paragraph (e) if it requires each business expense 
to be substantiated to

[[Page 87]]

the payor in accordance with paragraph (e)(2) or (e)(3) of this section, 
whichever is applicable, within a reasonable period of time. See 
Sec. 1.274-5T or Sec. 1.162-17.
    (2) Expenses governed by section 274(d). An arrangement that 
reimburses travel, entertainment, use of a passenger automobile or other 
listed property, or other business expenses governed by section 274(d) 
meets the requirements of this paragraph (e)(2) if information 
sufficient to satisfy the substantiation requirements of section 274(d) 
and the regulations thereunder is submitted to the payor. See 
Sec. 1.274-5. Under section 274(d), information sufficient to 
substantiate the requisite elements of each expenditure or use must be 
submitted to the payor. For example, with respect to travel away from 
home, Sec. 1.274-5(b)(2) requires that information sufficient to 
substantiate the amount, time, place, and business purpose of the 
expense must be submitted to the payor. Similarly, with respect to use 
of a passenger automobile or other listed property, Sec. 1.274-5(b)(6) 
requires that information sufficient to substantiate the amount, time, 
use, and business purpose of the expense must be submitted to the payor. 
See Sec. 1.274-5(g), however, which grants the Commissioner authority to 
prescribe rules permitting the amount of certain expenses to be deemed 
substantiated to the payor (in lieu of substantiating the actual amount 
of such expenses) by means of per diem or mileage rates for travel away 
from home or transportation expenses. See also Sec. 1.274-5(j)(1), which 
grants the Commissioner the authority to establish a method under which 
a taxpayer may use a specified amount for meals while traveling away 
from home in lieu of substantiating the actual cost of meals, and 
Sec. 1.274-5(j)(2), which grants the Commissioner the authority to 
establish a method under which a taxpayer may use mileage rates to 
determine the amount of the ordinary and necessary expenses of using a 
vehicle for local transportation and transportation to, from, and at the 
destination while traveling away from home in lieu of substantiating the 
actual costs. Substantiation of the amount of a business expense in 
accordance with rules prescribed pursuant to the authority granted by 
Sec. 1.274-5(g) or (j) will be treated as substantiation of the amount 
of such expense for purposes of this section.
    (3) Expenses not governed by section 274(d). An arrangement that 
reimburses business expenses not governed by section 274(d) meets the 
requirements of this paragraph (e)(3) if information is submitted to the 
payor sufficient to enable the payor to identify the specific nature of 
each expense and to conclude that the expense is attributable to the 
payor's business activities. Therefore, each of the elements of an 
expenditure or use must be substantiated to the payor. It is not 
sufficient if an employee merely aggregates expenses into broad 
categories (such as ``travel'') or reports individual expenses through 
the use of vague, nondescriptive terms (such as ``miscellaneous business 
expenses''). See Sec. 1.162-17(b).
    (f) Returning amounts in excess of expenses--(1) In general. Except 
as provided in paragraph (f)(2) of this section, an arrangement meets 
the requirements of this paragraph (f) if it requires the employee to 
return to the payor within a reasonable period of time may amount paid 
under the arrangement in excess of the expenses substantiated in 
accordance with paragraph (e) of this section. The determination of 
whether an arrangement requires an employee to return amounts in excess 
of substantiated expenses will depend on the facts and circumstances. An 
arrangement whereby money is advanced to an employee to defray expenses 
will be treated as satisfying the requirements of this paragraph (f) 
only if the amount of money advanced is reasonably calculated not to 
exceed the amount of anticipated expenditures, the advance of money is 
made on a day within a reasonable period of the day that the anticipated 
expenditures are paid or incurred, and any amounts in excess of the 
expenses substantiated in accordance with paragraph (e) of this section 
are required to be returned to the payor within a reasonable period of 
time after the advance is received.
    (2) Per diem or mileage allowances. The Commissioner may, in his 
discretion, prescribe rules in pronouncements of

[[Page 88]]

general applicability under which a reimbursement or other expense 
allowance arrangement that provides per diem allowances providing for 
ordinary and necessary expenses of traveling away from home (exclusive 
of transportation costs to and from destination) or mileage allowances 
providing for ordinary and necessary expenses of local travel and 
tranportation while traveling away from home will be treated as 
satisfying the requirements of this paragraph (f), even though the 
arrangement does not require the employee to return the portion of such 
an allowance that relates to the days or miles of travel substantiated 
and that exceeds the amount of the employee's expenses deemed 
substantiated pursuant to rules prescribed under section 274(d), 
provided the allowance is paid at a rate for each day or mile of travel 
that is reasonably calculated not to exceed the amount of the employee's 
expenses or anticipated expenses and the employee is required to return 
to the payor within a reasonable period of time any portion of such 
allowance which relates to days or miles of travel not substantiated in 
accordance with paragraph (e) of this section.
    (g) Reasonable period--(1) In general. The determination of a 
reasonable period of time will depend on the facts and circumstances.
    (2) Safe harbors--(i) Fixed date method. An advance made within 30 
days of when an expense is paid or incurred, an expense substantiated to 
the payor within 60 days after it is paid or incurred, or an amount 
returned to the payor within 120 days after an expense is paid or 
incurred will be treated as having occurred within a reasonable period 
of time.
    (ii) Periodic statement method. If a payor provides employees with 
periodic statements (no less frequently than quarterly) stating the 
amount, if any, paid under the arrangement in excess of the expenses the 
employee has substantiated in accordance with paragraph (e) of this 
section, and requesting the employee to substantiate any additional 
business expenses that have not yet been substantiated (whether or not 
such expenses relate to the expenses with respect to which the original 
advance was paid) and/or to return any amounts remaining unsubstantiated 
within 120 days of the statement, an expense substantiated or an amount 
returned within that period will be treated as being substantiated or 
returned within a reasonable period of time.
    (3) Pattern of overreimbursements. If, under a reimbursement or 
other expense allowance arrangement, a payor has a plan or practice to 
provide amounts to employees in excess of expenses substantiated in 
accordance with paragraph (e) of this section and to avoid reporting and 
withholding on such amounts, the payor may not use either of the safe 
harbors provided in paragraph (g)(2) of this section for any years 
during which such plan or practice exists.
    (h) Withholding and payment of employment taxes--(1) When excluded 
from wages. If an arrangement meets the requirements of paragraphs (d), 
(e), and (f) of this section, the amounts paid under the arrangement 
that are not in excess of the expenses substantiated in accordance with 
paragraph (e) of this section (i.e., the amounts treated as paid under 
an accountable plan) are not wages and are not subject to withholding 
and payment of employment taxes. If an arrangement provides advances, 
allowances, or reimbursements for meal and entertainment expenses and a 
portion of the payment is treated as paid under a nonaccountable plan 
under paragraph (d)(2) of this section due solely to section 274(n), 
then notwithstanding paragraph (h)(2)(ii) of this section, these 
nondeductible amounts are neither treated as gross income nor subject to 
withholding and payment of employment taxes.
    (2) When included in wages--(i) Accountable plans--(A) General rule. 
Except as provided in paragraph (h)(2)(i)(B) of this section, if the 
expenses covered under an arrangement that meets the requirements of 
paragraphs (d), (e), and (f) of this section are not substantiated to 
the payor in accordance with paragraph (e) of this section within a 
reasonable period of time or if any amounts in excess of the 
substantiated expenses are not returned to the payor in accordance with 
paragraph (f) of this section within a reasonable period of time, the 
amount

[[Page 89]]

which is treated as paid under a nonaccountable plan under paragraph 
(c)(3)(ii) of this section is subject to withholding and payment of 
employment taxes no later than the first payroll period following the 
end of the reasonable period. A payor may treat any amount not 
substantiated or returned within the periods specified in paragraph 
(g)(2) of this section as not substantiated or returned within a 
reasonable period of time.
    (B) Per diem or mileage allowances--(1) In general. If a payor pays 
a per diem or mileage allowance under an arrangement that meets the 
requirements of the paragraphs (d), (e), and (f) of this section, the 
portion, if any, of the allowance paid that relates to days or miles of 
travel substantiated in accordance with paragraph (e) of this section 
and that exceeds the amount of the employee's expenses deemed 
substantiated for such travel pursuant to rules prescribed under section 
274(d) and Sec. 1.274(d)-1 or Sec. 1.274-5T(j) is treated as paid under 
a nonaccountable plan. See paragraph (c)(3)(ii) of this section. Because 
the employee is not required to return this excess portion, the 
reasonable period of time provisions of paragraph (g) of this section 
(relating to the return of excess amounts) do not apply to this excess 
portion.
    (2) Reimbursements. Except as provided in paragraph (h)(2)(i)(B)(4) 
of this section, in the case of a per diem or mileage allowance paid as 
a reimbursement at a rate for each day or mile of travel that exceeds 
the amounts of the employee's expenses deemed substantiated for a day or 
mile of travel, the excess portion described in paragraph (h)(2)(i) of 
this section is subject to withholding and payment of employment taxes 
in the payroll period in which the payor reimburses the expenses for the 
days or miles of travel substantiated in accordance with paragraph (e) 
of this section.
    (3) Advances. Except as provided in paragraph (h)(2)(i)(B)(4) of 
this section, in the case of a per diem or mileage allowance paid as an 
advance at a rate for each day or mile of travel that exceeds the amount 
of the employee's expenses deemed substantiated for a day or mile of 
travel, the excess portion described in paragraph (h)(2)(i) of this 
section is subject to withholding and payment of employment taxes no 
later than the first payroll period following the payroll period in 
which the expenses with respect to which the advance was paid (i.e., the 
days or miles of travel) are substantiated in accordance with paragraph 
(e) of this section. The expenses with respect to which the advance was 
paid must be substantiated within a reasonable period of time. See 
paragraph (g) of this section.
    (4) Special rules. The Commissioner may, in his discretion, 
prescribe special rules in pronouncements of general applicability 
regarding the timing of withholding and payment of employment taxes on 
per diem and mileage allowances.
    (ii) Nonaccountable plans. If an arrangement does not satisfy one or 
more of the requirements of paragraphs (d), (e), or (f) of this section, 
all amounts paid under the arrangement are wages and are subject to 
withholding and payment of employment taxes when paid.
    (i) Application. The requirements of paragraphs (d) (business 
connection), (e) (substantiation), and (f) (returning amounts in excess 
of expenses) of this section will be applied on an employee-by-employee 
basis. Thus, for example, the failure by one employee to substantiate 
expenses under an arrangement in accordance with paragraph (e) of this 
section will not cause amounts paid to other employees to be treated as 
paid under a nonaccountable plan.
    (j) Examples. The rules contained in this section may be illustrated 
by the following examples:

    Example(1). Reimbursement requirement. Employer S pays its engineers 
$200 a day. On those days that an engineer travels away from home on 
business for Employer S, Employer S designates $50 of the $200 as paid 
to reimburse the engineer's travel expenses. Because Employer S would 
pay an engineer $200 a day regardless of whether the engineer was 
traveling away from home, the arrangement does not satisfy the 
reimbursement requirement of paragraph (d)(3)(i) of this section. Thus, 
no part of the $50 Employer S designated as a reimbursement is treated 
as paid under an accountable plan. Rather, all payments under the 
arrangement are treated as paid under a nonaccountable plan. Employer S 
must report the entire $200 as wages or other compensation on the 
employees'

[[Page 90]]

Forms W-2 and must withhold and pay employment taxes on the entire $200 
when paid.
    Example (2). Reimbursement requirement, multiple arrangements. 
Airline T pays all its employees a salary. Airline T also pays an 
allowance under an arrangement that otherwise meets the requirements of 
paragraphs (d), (e), and (f) of this section to its pilots and flight 
attendants who travel away from their home base airports, whether or not 
they are ``away from home.'' Because the allowance is paid only to those 
employees who incur (or are reasonably expected to incur) expenses of a 
type described in paragraph (d)(1) or (d)(2) of this section, the 
arrangement satisfies the reimbursement requirement of paragraph 
(d)(3)(i) of this section. Under paragraph (d)(2) of this section, 
Airline T is treated as maintaining two arrangements. The portion of the 
arrangement providing the allowances for away from home travel is 
treated as an accountable plan. The portion of the arrangement providing 
the allowances for non-away from home travel is treated as a 
nonaccountable plan. Airline T must report the non-away from home 
allowances as wages or other compensation on the employees' Forms W-2 
and must withhold and pay employment taxes on these payments when paid.
    Example (3). Reimbursement requirement. Corporation R pays all its 
salespersons a salary. Corporation R also pays a travel allowance under 
an arrangement that otherwise meets the requirements of paragraphs (d), 
(e), and (f) of this section. This allowance is paid to all 
salespersons, including salespersons that Corporation R knows, or has 
reason to know, do not travel away from their offices on Corporation R 
business and would not be reasonably expected to incur travel expenses. 
Because the allowance is not paid only to those employees who incur (or 
are reasonably expected to incur) expenses of a type described in 
paragraph (d)(1) or (d)(2) of this section, the arrangement does not 
satisfy the reimbursement requirement of paragraph (d)(3)(i) of this 
section. Thus, no part of the allowance Corporation R designated as a 
reimbursement is treated as paid under an accountable plan. Rather, all 
payments under the arrangement are treated as paid under a 
nonaccountable plan. Corporation R must report all payments under the 
arrangement as wages or other compensation on the employees' Forms W-2 
and must withhold and pay employment taxes on the payments when paid.
    Example (4). Separate arrangement, miscellaneous expenses. Under an 
arrangement that meets the requirements of paragraphs (d), (e), and (f) 
of this section, County U reimburses its employees for lodging and meal 
expenses incurred when they travel away from home on County U business. 
For its own convenience, County U also separately pays certain of its 
employees a $25 monthly allowance to cover the cost of small 
miscellaneous office expenses. County U does not require its employees 
to substantiate these miscellaneous expenses and does not require them 
to return the amounts by which the monthly allowance exceeds the 
miscellaneous expenses. The monthly allowance arrangement is a 
nonaccountable plan. County U must report the monthly allowances as 
wages or other compensation on the employees' Forms W-2 and must 
withhold and pay employment taxes on the monthly allowances when paid. 
The nonaccountable plan providing the monthly allowances is treated as 
separate from the accountable plan providing reimbursements for lodging 
and meal expenses incurred for travel away from home on County U 
business.
    Example (5). Excessive advances. In anticipation of employee 
business expenses that Corporation V does not reasonably expect to 
exceed $400 in any quarter, Corporation V nonetheless advances $1,000 to 
Employee A for such expenses. Whenever Employee A substantiates an 
expense in accordance with paragraph (e) of this section, Corporation V 
provides an additional advance in an amount equal to the amount 
substantiated, thereby providing a continuing advance of $1,000. Because 
the amounts advanced under this arrangement are not reasonably 
calculated so as not to exceed the amount of anticipated expenditures 
and because the advance of money is not made on a day within a 
reasonable period of the day that the anticipated expenditures are paid 
or incurred, the arrangement is a nonaccountable plan. The arrangement 
fails to satisfy the requirements of paragraphs (d) (business 
connection) and (f) (reasonable calculation of advances) of this 
section. Thus, Corporation V must report the entire amount of each 
advance as wages or other compensation and must withhold and pay 
employment taxes on the entire amount of each advance when paid.
    Example (6). Excess mileage advance. Under an arrangement that meets 
the requirements of paragraphs (d), (e), and (f) of this section, 
Employer W pays its employees a mileage allowance at a rate of 30 cents 
per mile (when the amount deemed substantiated for each mile of travel 
substantiated is 26 cents per mile) to cover automobile business 
expenses. The allowance is paid at a rate for each mile of travel that 
is reasonably calculated not to exceed the amount of the employee's 
expenses or anticipated expenses. Employer W does not require the return 
of the portion of the mileage allowance (4 cents) that exceeds the 
amount deemed substantiated for each mile of travel substantiated in 
accordance with paragraph (e) of this section. In June, Employer W 
advances Employee B $150 for 500 miles to be traveled by Employee B 
during the month. In July, Employee B substantiates 500 miles of 
business travel. The amount deemed substantiated by Employee

[[Page 91]]

B is $130. However, Employer W does not require Employee B to return the 
remaining $20 of the advance. No later than the first payroll period 
following the payroll period in which the business miles of travel are 
substantiated, Employer W must withhold and pay employment taxes on $20 
(500 miles x 4 cents per mile).
    Example (7). Excess per diem reimbursement. Under an arrangement 
that meets the requirements of paragraphs (d), (e), and (f) of this 
section, Employer X pays its employees a per diem allowance to cover 
lodging, meal, and incidental expenses incurred for travel away from 
home on Employer X business at a rate equal to 120 percent of the amount 
deemed substantiated for each day of travel to the localities to which 
the employees travel. Employer X does not require the employees to 
return the 20 percent by which the reimbursement for those expenses 
exceeds the amount deemed substantiated for each day of travel 
substantiated in accordance with paragraph (e) of this section. Employee 
C substantiates six days of business travel away from home: Two days in 
a locality for which the amount deemed substantiated is $100 a day and 
four days in a locality for which the amount deemed substantiated is 
$125 a day. Employer X reimburses Employee C $840 for the six days of 
travel away from home (2x(120%x$100)+4x(120%x$125)), and does not 
require Employee C to return the excess portion ($140 excess portion = 
(2 daysx$20 ($120-$100)+4 daysx$25 ($150-$125)). For the payroll period 
in which Employer X reimburses the expenses, Employer X must withhold 
and pay employment taxes on $140.
    Example (8). Return Requirement. Employer Y provides expense 
allowances to certain of its employees to cover business expenses of a 
type described in paragraph (d)(1) of this section under an arrangement 
that requires the employees to substantiate their expenses within a 
reasonable period of time and to return any excess amounts within a 
reasonable period of time. Each time an employee returns an excess 
amount to Employer Y, however, Employer Y pays the employee a ``bonus'' 
equal to the amount returned by the employee. The arrangement fails to 
satisfy the requirements of paragraph (f) (returning amounts in excess 
of expenses) of this section. Thus, Employer Y must report the entire 
amount of the expense allowance payments as wages or other compensation 
and must withhold and pay employment taxes on the payments when paid. 
Compare example (6) (where the employee is not required to return the 
portion of the mileage allowance that exceeds the amount deemed 
substantiated for each mile of travel substantiated).
    Example (9). Timely substantiation. Employer Z provides a $500 
advance to Employee D for a trip away from home on Employer Z business. 
Employee D incurs $500 in business expenses on the trip. Employer Z uses 
the periodic statement method safe harbor. At the end of the quarter 
during which the trip occurred, Employer Z sends a quarterly statement 
to Employee D stating that $500 was advanced to Employee D during the 
quarter and that no expenses were substantiated and no excess amounts 
returned. The statement advises Employee D that Employee D must 
substantiate any additional business expenses within 120 days of the 
date of the statement, and must return any unsubstantiated excess within 
the 120-day period. Employee D fails to substantiate any expenses or to 
return the excess within the 120-day period. Employer Z treats the $500 
as wages and withholds and pays employment taxes on the $500. After the 
120-day period has expired, Employee D substantiates the $500 in travel 
expenses in accordance with paragraph (e) of this section. Employer Z 
properly reported and withheld and paid employment taxes on the $500 and 
no adjustments may be made. Employee D must include the $500 in gross 
income and may deduct the $500 of expenses as a miscellaneous itemized 
deduction subject to the 2-percent floor provided in section 67.

    (k) Anti-abuse provision. If a payor's reimbursement or other 
expense allowance arrangement evidences a pattern of abuse of the rules 
of section 62(c) and this section, all payments made under the 
arrangement will be treated as made under a nonaccountable plan.
    (l) Cross references. For employment tax regulations relating to 
reimbursement and expense allowance arrangements, see Secs. 31.3121 (a)-
3, 31.3231(e)-(3), 31.3306(b)-2, and 31.3401(a)-4, which generally apply 
to payments made under reimbursement or other expense allowance 
arrangements received by an employee on or after July 1, 1990 with 
respect to expenses paid or incurred on or after July 1, 1990. For 
reporting requirements, see Sec. 1.6041-3(i), which generally applies to 
payments made under reimbursement or other expense allowance 
arrangements received by an employee on or after January 1, 1989 with 
respect to expenses paid or incurred on or after January 1, 1989.
    (m) Effective dates. This section generally applies to payments made 
under reimbursement or other expense allowance arrangements received by 
an employee in taxable years of the employee beginning on or after 
January 1, 1989, with respect to expenses paid or incurred in taxable 
years beginning on or after January 1, 1989. Paragraph (h) of

[[Page 92]]

this section generally applies to payments made under reimbursement or 
other expense allowance arrangements received by an employee on or after 
July 1, 1990 with respect to expenses paid or incurred on or after July 
1, 1990. Paragraphs (d)(3)(ii) and (h)(2)(i)(B) of this section apply to 
payments made under reimbursement or other expense allowance 
arrangements received by an employee on or after January 1, 1991 with 
respect to expenses paid or incurred on or after January 1, 1991. 
Paragraph (e)(2) of this section applies to payments made under 
reimbursement or other expense allowance arrangements received by an 
employee with respect to expenses paid or incurred after December 31, 
1997.

[T.D. 8324, 55 FR 51691, Dec. 17, 1990; 56 FR 8911, Mar. 4, 1991, as 
amended by T.D. 8451, 57 FR 57668, Dec. 7, 1992; T.D. 8666, 61 FR 27005, 
May 30, 1996; T.D. 8784, 63 FR 52600, Oct. 1, 1998; T.D. 8864, 65 FR 
4122, Jan. 26, 2000]



Sec. 1.63-1  Change of treatment with respect to the zero bracket amount and itemized deductions.

    (a) In general. An individual who files a return on which the 
individual itemizes deductions in accordance with section 63(g) may 
later make a change of treatment by recomputing taxable income for the 
taxable year to which that return relates without itemizing deductions. 
Similarly, an individual who files a return on which the individual 
computes taxable income without itemizing deductions may later make a 
change of treatment by itemizing deductions in accordance with section 
63(g) in recomputing taxable income for the taxable year to which that 
return relates.
    (b) No extension of time for claiming credit or refund. A change of 
treatment described in paragraph (a) of this section does not extend the 
period of time prescribed in section 6511 within which the taxpayer may 
make a claim for credit or refund of tax.
    (c) Special requirements if spouse filed separate return--(1) 
Requirements. If the spouse of the taxpayer filed a separate return for 
a taxable year corresponding to the taxable year of the taxpayer, the 
taxpayer may not make a change of treatment described in paragraph (a) 
of this section for that year unless--
    (i) The spouse makes a change of treatment on the separate return 
consistent with the change of treatment sought by the taxpayer; and
    (ii) The taxpayer and the taxpayer's spouse file a consent in 
writing to the assessment of any deficiency of either spouse to the 
extent attributable to the change of treatment, even though the 
assessment of the deficiency would otherwise be prevented by the 
operation of any law or rule of law. The consent must be filed with the 
district director for the district in which the taxpayer applies for the 
change of treatment, and the period during which a deficiency may be 
assessed shall be established by agreement of the spouses and the 
district director.
    (2) Corresponding taxable year. A taxable year of one spouse 
corresponds to a taxable year of the other spouse if both taxable years 
end in the same calendar year. If the taxable year of one spouse ends 
with death, however, the corresponding taxable year of the surviving 
spouse is that in which the death occurs.
    (d) Inapplicable if tax liability has been compromised. The taxpayer 
may not make a change of treatment described in paragraph (a) of this 
section for any taxable year if--
    (1) The tax liability of the taxpayer for the taxable year has been 
compromised under section 7122; or
    (2) The tax liability of the taxpayer's spouse for a taxable year 
corresponding to the taxable year of the taxpayer has been compromised 
under section 7122. See paragraph (c)(2) of this section for the 
determination of a corresponding taxable year.
    (e) Effective date. This section applies to taxable years beginning 
after 1976.

[T.D. 7585, 44 FR 1105, Jan. 4, 1979]



Sec. 1.63-2  Cross reference.

    For rules with respect to charitable contribution deductions for 
nonitemizing taxpayers, see section 63 (b)(1)(C) and (i) and section 
170(i) of the Internal Revenue Code of 1954.

(Secs. 170(a)(1) and 7805 of the Internal Revenue Code of 1954 (68A 
Stat. 58, 26 U.S.C. 170(a)(1); 68A Stat. 917, 26 U.S.C. 7805)

[T.D. 8002, 49 FR 50666, Dec. 31, 1984]

[[Page 93]]



Sec. 1.67-1T  2-percent floor on miscellaneous itemized deductions (temporary).

    (a) Type of expenses subject to the floor--(1) In general. With 
respect to individuals, section 67 disallows deductions for 
miscellaneous itemized deductions (as defined in paragraph (b) of this 
section) in computing taxable income (i.e., so-called ``below-the-line'' 
deductions) to the extent that such otherwise allowable deductions do 
not exceed 2 percent of the individual's adjusted gross income (as 
defined in section 62 and the regulations thereunder). Examples of 
expenses that, if otherwise deductible, are subject to the 2-percent 
floor include but are not limited to--
    (i) Unreimbursed employee expenses, such as expenses for 
transportation, travel fares and lodging while away from home, business 
meals and entertainment, continuing education courses, subscriptions to 
professional journals, union or professional dues, professional 
uniforms, job hunting, and the business use of the employee's home.
    (ii) Expenses for the production or collection of income for which a 
deduction is otherwise allowable under section 212 (1) and (2), such as 
investment advisory fees, subscriptions to investment advisory 
publications, certain attorneys' fees, and the cost of safe deposit 
boxes,
    (iii) Expenses for the determination of any tax for which a 
deduction is otherwise allowable under section 212(3), such as tax 
counsel fees and appraisal fees, and
    (iv) Expenses for an activity for which a deduction is otherwise 
allowable under section 183.

See section 62 with respect to deductions that are allowable in 
computing adjusted gross income (i.e., so-called ``above-the-line'' 
deductions).
    (2) Other limitations. Except as otherwise provided in paragraph (d) 
of this section, to the extent that any limitation or restriction is 
placed on the amount of a miscellaneous itemized deduction, that 
limitation shall apply prior to the application of the 2-percent floor. 
For example, in the case of an expense for food or beverages, only 80 
percent of which is allowable as a deduction because of the limitations 
provided in section 274(n), the otherwise deductible 80 percent of the 
expense is treated as a miscellaneous itemized deduction and is subject 
to the 2-percent limitation of section 67.
    (b) Definition of miscellaneous itemized deductions. For purposes of 
this section, the term ``miscellaneous itemized deductions'' means the 
deductions allowable from adjusted gross income in determining taxable 
income, as defined in section 63, other than--
    (1) The standard deduction as defined in section 63(c),
    (2) Any deduction allowable for impairment-related work expenses as 
defined in section 67(d),
    (3) The deduction under section 72(b)(3) (relating to deductions if 
annuity payments cease before the investment is recovered),
    (4) The deductions allowable under section 151 for personal 
exemptions,
    (5) The deduction under section 163 (relating to interest),
    (6) The deduction under section 164 (relating to taxes),
    (7) The deduction under section 165(a) for losses described in 
subsection (c)(3) or (d) of section 165,
    (8) The deduction under section 170 (relating to charitable 
contributions and gifts),
    (9) The deduction under section 171 (relating to deductions for 
amortizable bond premiums),
    (10) The deduction under section 213 (relating to medical and dental 
expenses),
    (11) The deduction under section 216 (relating to deductions in 
connection with cooperative housing corporations),
    (12) The deduction under section 217 (relating to moving expenses),
    (13) The deduction under section 691(c) (relating to the deduction 
for estate taxes in the case of income in respect of the decedent),
    (14) The deduction under 1341 (relating to the computation of tax if 
a taxpayer restores a substantial amount held under claim of right), and
    (15) Any deduction allowable in connection with personal property 
used in a short sale.
    (c) Allocation of expenses. If a taxpayer incurs expenses that 
relate to

[[Page 94]]

both a trade or business activity (within the meaning of section 162) 
and a production of income or tax preparation activity (within the 
meaning of section 212), the taxpayer shall allocate such expenses 
between the activities on a reasonable basis.
    (d) Members of Congress--(1) In general. With respect to the 
deduction for living expenses of Members of Congress referred to in 
section 162(a), the 2-percent floor described in section 67 and 
paragraph (a) of this section shall be applied to the deduction before 
the application of the $3,000 limitation on deductions for living 
expenses referred to in section 162(a). (For purposes of this paragraph 
(d), the term ``Member(s) of Congress'' includes any Delegate or 
Resident Commissioner.) The amount of miscellaneous itemized deductions 
of a Member of Congress that is disallowed pursuant to section 67 and 
paragraph (a) of this section shall be allocated between deductions for 
living expenses (within the meaning of section 162(a)) and other 
miscellaneous itemized deductions. The amount of deductions for living 
expenses of a Member of Congress that is disallowed pursuant to section 
67 and paragraph (a) of this section is determined by multiplying the 
aggregate amount of such living expenses (determined without regard to 
the $3,000 limitation of section 162(a) but with regard to any other 
limitations) by a fraction, the numerator of which is the aggregate 
amount disallowed pursuant to section 67 and paragraph (a) of this 
section with respect to miscellaneous itemized deductions of the Member 
of Congress and the denominator of which is the amount of miscellaneous 
itemized deductions (including deductions for living expenses) of the 
Member of Congress (determined without regard to the $3,000 limitation 
of section 162(a) but without regard to any other limitations). The 
amount of deductions for miscellaneous itemized deductions (other than 
deductions for living expenses) of a Member of Congress that are 
disallowed pursuant to section 67 and paragraph (a) of this section is 
determined by multiplying the amount of miscellaneous itemized 
deductions (other than deductions for living expenses) of the Member of 
Congress (determined with regard to any limitations) by the fraction 
described in the preceding sentence.
    (2) Example. The provisions of this paragraph (d) may be illustrated 
by the following example:

    Example For 1987 A, a Member of Congress, has adjusted gross income 
of $100,000, and miscellaneous itemized deductions of $10,750 of which 
$3,750 is for meals, $3,000 is for other living expenses, and $4,000 is 
for other miscellaneous itemized deductions (none of which is subject to 
any percentage limitations other than the 2-percent floor of section 
67). The amount of A's business meal expenses that are disallowed under 
section 274(n) is $750 ($3,750x20%). The amount of A's miscellaneous 
itemized deductions that are disallowed under section 67 is $2,000 
($100,000x2%). The portion of the amount disallowed under section 67 
that is allocated to A's living expenses is $1,200. This portion is 
equal to the amount of A's deductions for living expenses allowable 
after the application of section 274(n) and before the application of 
section 67 ($6,000) multiplied by the ratio of A's total miscellaneous 
itemized deductions disallowed under section 67 to A's total 
miscellaneous itemized deductions, determined without regard to the 
$3,000 limitation of section 162(a) ($2,000/$10,000). Thus, after 
application of section 274(n) and section 67, A's deduction for living 
expenses is $4,800 ($6,750-$750-$1,200). However, pursuant to section 
162(a), A may deduct only $3,000 of such expenses. The amount of A's 
other miscellaneous itemized deductions that are disallowed under 
section 67 is $800 ($4,000x$2,000/$10,000). Thus, $3,200 ($4,000-$800) 
of A's miscellaneous itemized deductions (other than deductions for 
living expenses) are allowable after application of section 67. A's 
total allowable miscellaneous itemized deductions are $6,200 
($3,000+$3,200).

    (e) State legislators. See Sec. 1.62-1T(e)(4) with respect to rules 
regarding state legislator's expenses.

[T.D. 8189, 53 FR 9875, Mar. 28, 1988]



Sec. 1.67-2T  Treatment of pass-through entities (temporary).

    (a) Application of section 67. This section provides rules for the 
application of section 67 to partners, shareholders, beneficiaries, 
participants, and others with respect to their interests in pass-through 
entities (as defined in paragraph (g) of this section). In general, an 
affected investor (as defined in paragraph (h) of this section) in a 
pass-through entity shall separately take into account as an item of 
income and

[[Page 95]]

as an item of expense an amount equal to his or her allocable share of 
the affected expenses (as defined in paragraph (i) of this section) of 
the pass-through entity for purposes of determining his or her taxable 
income. Except as provided in paragraph (e)(1)(ii)(B) of this section, 
the expenses so taken into account shall be treated as paid or incurred 
by the affected investor in the same manner as paid or incurred by the 
pass-through entity. For rules regarding the application of section 67 
to affected investors in--
    (1) Partnerships, S corporations, and grantor trusts, see paragraph 
(b) of this section,
    (2) Real estate mortgage investment conduits, see paragraph (c) of 
this section,
    (3) Common trust funds, see paragraph (d) of this section,
    (4) Nonpublicly offered regulated investment companies, see 
paragraph (e) of this section, and
    (5) Publicly offered regulated investment companies, see paragraph 
(p) of this section.
    (b) Partnerships, S corporations, and grantor trusts--(1) In 
general. Pursuant to section 702(a) and 1366(a) of the Code and the 
regulations thereunder, each partner of a partnership or shareholder of 
an S corporation shall take into account separately his or her 
distributive or pro rata share of any items of deduction of such 
partnership or corporation that are defined as miscellaneous itemized 
deductions pursuant to section 67(b). The 2-percent limitation described 
in section 67 does not apply to the partnership or corporation with 
respect to such deductions, but such deductions shall be included in the 
deductions of the partner or shareholder to which that limitation 
applies. Similarly, the limitation applies to the grantor or other 
person treated as the owner of a grantor trust with respect to items 
that are paid or incurred by a grantor trust and are treated as 
miscellaneous itemized deductions of the grantor or other person 
pursuant to Subpart E, Part 1, Subchapter J, Chapter 1 of the Code, but 
not to the trust itself. The 2-percent limitation applies to amounts 
otherwise deductible in taxable years of partners, shareholders, or 
grantors beginning after December 31, 1986, regardless of the taxable 
year of the partnership, corporation, or trust.
    (2) Example. The provisions of this paragraph (b) may be illustrated 
by the following example:

    Example. P, a partnership, incurs $1,000 in expenses to which 
section 212 applies during its taxable year. A, an individual, is a 
partner in P. A's distributive share of the expenses to which section 
212 applies is $20, determined without regard to the 2-percent 
limitation of section 67. Pursuant to section 702(a), A must take $20 of 
expenses to which section 212 applies into account in determining his 
income tax. Pursuant to section 67, in determining his taxable income A 
may deduct his miscellaneous itemized deductions (including his $20 
distributive share of deductions from P) to the extent the total amount 
exceeds 2 percent of his adjusted gross income.

    (c) Real estate mortgage investment conduit. See Sec. 1.67-3T for 
rules regarding the application of section 67 to holders of interests in 
REMICs.
    (d) Common trust funds--(1) In general. For purposes of determining 
the taxable income of an affected investor that is a participant in a 
common trust fund--
    (i) The ordinary taxable income and ordinary net loss of the common 
trust fund shall be computed under section 584(d)(2) without taking into 
account any affected expenses, and
    (ii) Each affected investor shall be treated as having paid or 
incurred an expense described in section 212 in an amount equal to the 
affected investor's proportionate share of the affected expenses.

The 2-percent limitation described in section 67 applies to amounts 
otherwise deductible in taxable years of participants beginning after 
December 31, 1986, regardless of the taxable year of the common trust 
fund.
    (2) Example. The provisions of this paragraph (d) may be illustrated 
by the following example:

    Example. During 1987, the gross income and deductions of common 
trust fund C, a calendar year taxpayer, consist of the following items: 
(i) $50,000 of short-term capital gains; (ii) $150,000 of long-term 
capital gains; (iii) $1,000,000 of dividend income; (iv) $10,000 of 
deductions that are not affected expenses; and (v) $60,000 of deductions 
that are affected expenses. The proportionate share of Trust T

[[Page 96]]

in the income and losses of C is one percent. In computing its taxable 
income for 1987, T, a calendar year taxpayer, shall take into account 
the following items: (A) $500 of short-term capital gains (one percent 
of $50,000, C's short-term capital gains); (B) $1,500 of long-term 
capital gains (one percent of $150,000, C's long-term capital gains); 
(C) $9,900 of ordinary taxable income (one percent of $990,000, the 
excess of $100,000, C's gross income after excluding capital gains and 
losses, over $10,000, C's deductions that are not affected expenses); 
(D) $600 of expenses described in section 212 (one percent of $60,000, 
C's affected expenses).

    (e) Nonpublicly offered regulated investment companies--(1) In 
general. For purposes of determining the taxable income of an affected 
investor that is a shareholder of a nonpublicly offered regulated 
investment company (as defined in paragraph (g)(3) of this section) 
during a calendar year--
    (i) The current earnings and profits of the nonpublicly offered 
regulated investment company shall be computed without taking into 
account any affected RIC expenses that are allocated among affected 
investors, and
    (ii) The affected investor shall be treated--
    (A) As having received or accrued a dividend in an amount equal to 
the affected investor's allocable share of the affected RIC expenses of 
the nonpublicly offered regulated investment company for the calendar 
year, and
    (B) As having paid or incurred an expense described in section 212 
(or section 162 in the case of an affected investor that is a 
nonpublicly offered regulated investment company) in an amount equal to 
the affected investor's allocable share of the affected RIC expenses of 
the nonpublicly offered regulated investment company for the calendar 
year

in the affected investor's taxable year with which (or within which) the 
calendar year with respect to which the expenses are allocated ends. An 
affected investor's allocable share of the affected RIC expenses is the 
amount allocated to that affected investor pursuant to paragraph (k) of 
this section.
    (2) Shareholders that are not affected investors. A shareholder of a 
nonpublicly offered regulated investment company that is not an affected 
investor shall not take into account in computing its taxable income any 
amount of income or expense with respect to its allocable share of 
affected RIC expenses.
    (3) Example. The provisions of this paragraph (e) may be illustrated 
by the following example:

    Example. During calendar year 1987, nonpublicly offered regulated 
investment company M distributes to individual shareholder A, a calendar 
year taxpayer, capital gain dividends of $1,000 and other dividends of 
$5,000. A's allocable share of the affected RIC expenses of M is $200. 
In computing A's taxable income for 1987, A shall take into account the 
following items: (i) $1,000 of long-term capital gains (the capital gain 
dividends received by A); (ii) $5,200 of dividend income (the sum of the 
other dividends received by A and A's allocable share of the affected 
RIC expenses of M); and (iii) $200 of expenses described in section 212 
(A's allocable share of the affected RIC expenses of M). A is allowed a 
deduction for miscellaneous itemized deductions (including A's $200 
allocable share of the affected RIC expenses of M, which is treated as 
an expense described in section 212) for 1987 only to the extent the 
aggregate of such deductions exceeds 2 percent of A's adjusted gross 
income for 1987.

    (f) Cross-reference. See Sec. 1.67-1T with respect to limitations on 
deductions for expenses described in section 212 (including amounts 
treated as such expenses under this section).
    (g) Pass-through entity--(1) In general. Except as provided in 
paragraph (g)(2) of this section, for purposes of section 67(c) and this 
section, a pass-through entity is--
    (i) A trust (or any portion thereof) to which Subpart E, Part 1, 
Subchapter J, Chapter 1 of the Code applies,
    (ii) A partnership,
    (iii) An S corporation,
    (iv) A common trust fund described in section 584,
    (v) A nonpublicly offered regulated investment company,
    (vi) A real estate mortgage investment conduit, and
    (vii) Any other person--
    (A) Which is not subject to the income tax imposed by Subtitle A, 
Chapter 1, or which is allowed a deduction in computing such tax for 
distributions to owners or beneficiaries, and
    (B) The character of the income of which may affect the character of 
the income recognized with respect to that person by its owners or 
beneficiaries.

[[Page 97]]


Entities that do not meet the requirements of paragraph (g)(1)(vii) (A) 
and (B) of this section, such as qualified pension plans, individual 
retirement accounts, and insurance companies holding assets in separate 
asset accounts to fund variable contracts defined in section 817(d), are 
not described in this paragraph (g)(1).
    (2) Exception. For purposes of section 67(c) and this section, a 
pass-through entity does not include:
    (i) An estate;
    (ii) A trust (or any portion thereof) not described in paragraph 
(g)(1)(i) of this section,
    (iii) A cooperative described in section 1381(a)(2), determined 
without regard to subparagraphs (A) and (C) thereof, or
    (iv) A real estate investment trust.
    (3) Nonpublicly offered regulated investment company--(i) In 
general. For purposes of this section, the term ``nonpublicly offered 
regulated investment company'' means a regulated investment company to 
which Part I of Subchapter M of the Code applies that is not a publicly 
offered regulated investment company.
    (ii) Publicly offered regulated investment company. For purposes of 
this section, the term ``publicly offered regulated investment company'' 
means a regulated investment company to which Part I of Subchapter M of 
the Code applies the shares of which are--
    (A) Continuously offered pursuant to a public offering (within the 
meaning of section 4 of the Securities Act of 1933, as amended (15 
U.S.C. 77a to 77aa)),
    (B) Regularly traded on an established securities market, or
    (C) Held by or for no fewer than 500 persons at all times during the 
taxable year.
    (h) Affected investor--(1) In general. For purposes of this section, 
the term ``affected investor'' means a partner, shareholder, 
beneficiary, participant, or other interest holder in a pass-through 
entity at any time during the pass-through entity's taxable year that 
is--
    (i) An individual (other than a nonresident alien whose income with 
respect to his or her interest in the pass-through entity is not 
effectively connected with the conduct of a trade or business within the 
United States),
    (ii) A person, including a trust or estate, that computes its 
taxable income in the same manner as in the case of an individual; or
    (iii) A pass-through entity if one or more of its partners, 
shareholders, beneficiaries, participants, or other interest holders is 
(A) a pass-through entity or (B) a person described in paragraph (h)(1) 
(i) or (ii) of this section.
    (2) Examples. The provisions of this paragraph (h) may be 
illustrated by the following examples:

    Example (1). Corporation X holds shares of nonpublicly offered 
regulated investment company R in its capacity as a nominee or custodian 
for individual A, the beneficial owner of the shares. Because the owner 
of the shares for Federal income tax purposes is an individual, the 
shares are owned by an affected investor.
    Example (2). Individual retirement account I owns shares of a 
nonpublicly offered regulated investment company. Because an individual 
retirement account is not a person described in paragraph (h)(1) of this 
section, the shares are not owned by an affected investor.

    (i) Affected expenses--(1) In general. In general, for purposes of 
this section, the term ``affected expenses'' means expenses that, if 
paid or incurred by an individual, would be deductible, if at all, as 
miscellaneous itemized deductions as defined in section 67(b).
    (2) Special rule for nonpublicly offered regulated investment 
companies. In the case of a nonpublicly offered regulated investment 
company, the term ``affected expenses'' means only affected RIC 
expenses.
    (j) Affected RIC expenses--(1) In general. In general, for purposes 
of this section the term ``affected RIC expenses'' means the excess of--
    (i) The aggregate amount of the expenses (other than expenses 
described in sections 62(a)(3) and 67(b) and Sec. 1.67-1T(b)) paid or 
incurred in the calendar year that are allowable as a deduction in 
determining the investment company taxable income (without regard to 
section 852(b)(2)(D)) of the nonpublicly offered regulated investment 
company for a taxable year that begins or ends with or within the 
calendar year, over

[[Page 98]]

    (ii) The amount of expenses taken into account under paragraph 
(j)(1)(i) of this section that are allocable to the following items 
(whether paid separately or included as part of a fee paid to an 
investment advisor or other person for a variety of services):
    (A) Registration fees;
    (B) Directors' or trustees' fees;
    (C) Periodic meetings of directors, trustees, or shareholders;
    (D) Transfer agent fees;
    (E) Legal and accounting fees (other than fees for income tax return 
preparation or income tax advice); and
    (F) Shareholder communications required by law (e.g. the preparation 
and mailing of prospectuses and proxy statements).

Expenses described in paragraph (j)(1)(ii) (A) through (F) of this 
section do not include, for example, expenses allocable to investment 
advice, marketing activities, shareholder communications and other 
services not specifically described in paragraph (j)(1)(ii) (A) through 
(F) of this section, and custodian fees.
    (2) Safe harbor. If a nonpublicly offered regulated investment 
company makes an election under this paragraph (j)(2), the affected RIC 
expenses for a calendar year shall be treated as equal to 40 percent of 
the amount determined under paragraph (j)(1)(i) of this section for that 
calendar year. The nonpublicly offered regulated investment company 
shall make the election by attaching to its income tax return for the 
taxable year that includes the last day of the first calendar year for 
which the nonpublicly offered regulated investment company makes the 
election a statement that it is making an election under paragraph 
(j)(2) of this section. An election made pursuant to this paragraph 
(j)(2) shall remain in effect for all subsequent calendar years unless 
revoked with the consent of the Commissioner.
    (3) Reduction for unused RIC expenses. The amount determined under 
paragraph (j)(1)(i) of this section shall be reduced by the nonpublicly 
offered regulated investment company's net operating loss, if any, for 
the taxable year ending with or within the calendar year. In computing 
the nonpublicly offered regulated investment company's net operating 
loss for purposes of this section, the deduction for dividends paid 
shall not be allowed and any net capital gain for the taxable year shall 
be excluded.
    (4) Exception. The affected RIC expenses of a nonpublicly offered 
regulated investment company will be treated as zero if the amount of 
its gross income for the calendar year (determined without regard to 
capital gain net income) is not greater than 1 percent of the sum of (i) 
such gross income and (ii) the amount of its interest income for the 
calendar year that is not includible in gross income pursuant to section 
103.
    (k) Allocation of expenses among nonpublicly offered regulated 
investment company shareholders--(1) General rule. A nonpublicly offered 
regulated investment company shall allocate to each of its affected 
investors that is a shareholder at any time during the calendar year, 
the affected investor's allocable share of the affected RIC expenses of 
the nonpublicly offered regulated investment company for that calendar 
year. (See paragraph (m) of this section for rules regarding estimates 
with respect to the amount of an affected investor's share of affected 
RIC expenses upon which certain persons can rely for certain purposes.) 
A nonpublicly offered regulated investment company may use any 
reasonable method to make the allocation. A method of allocation shall 
not be reasonable if--
    (i) The method can be expected to have the effect, if applied to all 
affected RIC expenses and all shareholders (whether or not affected 
investors), of allocating to the shareholders an amount of affected RIC 
expenses that is less than the affected RIC expenses of the nonpublicly 
offered regulated investment company for the calendar year,
    (ii) The method can be expected to have the effect of allocating a 
disproportionately high share of the affected RIC expenses of the 
nonpublicly offered regulated investment company to shareholders that 
are not affected investors or affected investors, the amount of whose 
miscellaneous itemized deductions (including their allocable share of 
affected RIC expenses)

[[Page 99]]

exceeds the 2-percent floor described in section 67, or
    (iii) A principal purpose of the method of allocation is to avoid 
allocating affected RIC expenses to persons described in paragraph 
(h)(1) (i) or (ii) of this section whose miscellaneous itemized 
deductions (inclusive of their allocable share of affected RIC expenses) 
may not exceed the 2-percent floor described in section 67.
    (2) Reasonable allocation method described--(i) In general. The 
allocation method described in this paragraph (k)(2) shall be treated as 
a reasonable allocation method. Under the method described in this 
paragraph, an affected investor's allocable share of the affected RIC 
expenses of a nonpublicly offered regulated investment company is the 
amount that bears the same ratio to the amount of affected RIC expenses 
of the nonpublicly offered regulated investment company for the calendar 
year as--
    (A) The amount of dividends paid to the affected investor during the 
calendar year, bears to
    (B) The sum of--
    (1) The aggregate amount of dividends paid by the nonpublicly 
offered regulated investment company during the calendar year to all 
shareholders, and
    (2) Any amount on which tax is imposed under section 852(b)(1) for 
any taxable year of the nonpublicly offered regulated investment company 
ending within or with the calendar year.
    (ii) Exception. Paragraph (k)(2)(i) of this section does not apply 
if the amount of the deduction for dividends paid during the calendar 
year is zero.
    (iii) Dividends paid. For purposes of this paragraph (k)(2)--
    (A) Dividends that are treated as paid during a calendar year 
pursuant to section 852(b)(7) are treated as paid during that calendar 
year and not during the succeeding calendar year.
    (B) The term ``dividends paid'' does not include capital gain 
dividends (as defined in section 852(b)(3)(C)), exempt-interest 
dividends (as defined in section 852(b)(5)(A)), or any amount to which 
section 302(a) applies.
    (C) The dividends paid during a calendar year is determined without 
regard to section 855(a).
    (3) Reasonable allocation made by District Director. If a 
nonpublicly offered regulated investment company does not make a 
reasonable allocation of affected RIC expenses to its affected investors 
as required by paragraph (k)(1) of this section, a reasonable allocation 
shall be made by the District Director of the internal revenue district 
in which the principal place of business or principal office or agency 
of the nonpublicly offered regulated investment company is located.
    (4) Examples. The provisions of this paragraph (k) may be 
illustrated by the following examples:

    Example (1). Nonpublicly offered regulated investment company M, in 
calculating its investment company taxable income, claims a dividends 
paid deduction for a portion of redemption distributions (to which 
section 302(a) applies) to shareholders, as well as for nonredemption 
distributions. M allocates affected expenses among shareholders who have 
received nonredemption distributions by multiplying the amount of 
nonredemption distributions distributed to each shareholder by a 
fraction, the numerator of which is the affected RIC expenses of M and 
the denominator of which is M's investment company taxable income, 
determined on a calendar year basis and without regard to deductions 
described in section 852(b)(2)(D). No affected RIC expenses are 
allocated with respect to the redemption distributions. This allocation 
method can be expected to have the effect of allocating among the 
shareholders an amount of expenses that is less than the total amount of 
affected RIC expenses of M. Accordingly, the allocation method is not 
reasonable.
    Example (2). Nonpublicly offered regulated investment company N has 
two classes of stock, a ``capital'' class and an ``income'' class. 
Owners of the capital class receive the benefit of all capital 
appreciation on the stocks owned by N, and bear the burden of certain 
capital expenditures of N; owners of the income class receive the 
benefit of all other income of N, and bear the burden of all expenses of 
N that are deductible under section 162. M allocates all affected RIC 
expenses among shareholders of the income class shares under a method 
that would be reasonable if the income class were the only class of N 
stock. Corporations and other shareholders that are not affected 
investors own a higher proportion of income class shares than of capital 
class shares. The affected RIC expenses of N are properly allocated 
among the shareholders who bear the burden of those expenses. 
Accordingly, the allocation method does not have the effect of 
allocating a disproportionately high share of

[[Page 100]]

the affected RIC expenses of N to shareholders that are not affected 
investors merely because a disproportionate share of income class shares 
are owned by shareholders that are not affected investors. The 
allocation method is reasonable.
    Example (3). Nonpublicly offered regulated investment company O has 
two classes of stock, Class A and Class B. Shares of Class A, which may 
be purchased without payment of a sales or brokerage commission, are 
charged with the expenses of a Rule 12b-1 distribution plan of O. Shares 
of Class B, which may be purchased only upon payment of a sales or 
brokerage commission, are not charged with the expenses of the Rule 12b-
1 distribution plan of O. O allocates all affected RIC expenses among 
shareholders of Class A and Class B shares under a method that would be 
reasonable if Class A or Class B shares, respectively, were the only 
class of O stock. The affected RIC expenses attributable to the Rule 
12b-1 plan are allocated to the shareholders of Class A shares. 
Shareholders that are not affected investors own a higher proportion of 
Class A shares than of Class B shares. The affected RIC expenses of O 
are properly allocated among the shareholders who bear the burden of 
those expenses. Accordingly, the allocation method does not have the 
effect of allocating a disproportionately high share of the affected RIC 
expenses of O to shareholders that are not affected investors merely 
because a disproportionately high share of Class A shares are owned by 
persons that are not affected investors. The allocation method is 
reasonable.
    Example (4). Assume the facts are the same as in example (3) except 
that a portion of the affected RIC expenses attributable to the Rule 
12b-1 plan are allocated to the shareholders of Class B shares, and 
shareholders that are not affected investors own a higher proportion of 
Class B shares than of Class A shares. Thus, the affected RIC expenses 
are not allocated among the class of shareholders that bear the burden 
of the expenses. Accordingly, the allocation method has the effect of 
allocating a disproportionate share of the affected RIC expenses of O to 
the shareholders of Class B shares. Because shareholders that are not 
affected investors own a higher proportion of Class B shares than Class 
A shares, the method can be expected to allocate a disproportionately 
high share of the affected RIC expenses of O to shareholders that are 
not affected investors. Accordingly, the allocation method is not 
reasonable.

    (l) Affected RIC expenses not subject to backup withholding. The 
amount of dividend income that an affected investor in a nonpublicly 
offered regulated investment company is treated as having received or 
accrued under paragraph (e)(1)(ii) of this section is not subject to 
backup withholding under section 3406.
    (m) Reliance by nominees and pass-through investors on notices--(1) 
General rule. Persons described in paragraph (m)(3) of this section may, 
for the purposes described in that paragraph (m)(3), treat an affected 
investor's allocable share of the affected RIC expenses of a nonpublicly 
offered regulated investment company as being equal to an amount 
determined by the nonpublicly offered regulated investment company on 
the basis of a reasonable estimate (e.g., of allocable expenses as a 
percentage of dividend distributions or allocable expenses per share) 
that is (i) reported in writing by the nonpublicly offered regulated 
investment company to the person or (ii) reported in a newspaper or 
financial publication having a nationwide circulation (e.g., the Wall 
Street Journal or Standard and Poor's Weekly Dividend Record).
    (2) Estimates must be reasonable. In general, for purposes of 
paragraph (m)(1) of this section, estimates of affected RIC expenses of 
a nonpublicly offered regulated investment company will be treated as 
reasonable only if the nonpublicly offered regulated investment company 
makes a reasonable effort to offset material understatements (or 
overstatements) of affected RIC expenses for a period by increasing (or 
decreasing) estimates of affected RIC expenses for a subsequent period. 
Understatements or overstatements of affected RIC expenses that are not 
material may be corrected by making offsetting adjustments in future 
periods, provided that understatements and overstatements are treated 
consistently.
    (3) Application. Paragraph (m)(1) of this section shall apply to the 
following persons for the following purposes:
    (i) A nominee who, pursuant to section 6042(a)(1)(B) and paragraph 
(n)(2) of this section, is required to report dividends paid by a 
nonpublicly offered regulated investment company to the Internal Revenue 
Service and to the person to whom the payment is made,

[[Page 101]]

for purposes of reporting to the Internal Revenue Service and the person 
to whom the payment is made the amount of affected RIC expenses 
allocated to such person.
    (ii) An affected investor to whom a nominee (to which paragraph 
(m)(3)(i) of this section applies) reports, for purposes of calculating 
the affected investor's taxable income and the amount of its affected 
expenses.
    (iii) A shareholder that is a pass-through entity, for purposes of 
calculating its taxable income and the amount of its affected expenses.
    (n) Return of information and reporting to affected investors by a 
nonpublicly offered regulated investment company--(1) In general--(i) 
Return of information. A nonpublicly offered regulated investment 
company shall make an information return (e.g., Form 1099-DIV, Dividends 
and Distributions, for 1987) with respect to each affected investor to 
which an allocation of affected RIC expenses is required to be made 
pursuant to paragraph (k) of this section and for which the nonpublicly 
offered regulated investment company is required to make an information 
return to the Internal Revenue Service pursuant to section 6042 (or 
would be required to make such information return but for the $10 
threshold described in section 6042 (a)(1) (A) and (B). The nonpublicly 
offered regulated investment company shall make the information return 
for each calendar year and shall state separately on such return--
    (A) The amount of affected RIC expenses required to be allocated to 
the affected investor for the calendar year pursuant to paragraph (k) of 
this section,
    (B) The sum of--
    (1) The aggregate amount of the dividends paid to the affected 
investor during the calendar year, and
    (2) The amount of the affected RIC expenses required to be allocated 
to the affected investor for the calendar year pursuant to paragraph (k) 
of this section, and
    (C) Such other information as may be specified by the form or its 
instructions.
    (ii) Statement to be furnished to affected investors. A nonpublicly 
offered regulated investment company shall provide to each affected 
investor for each calendar year (whether or not the nonpublicly offered 
regulated investment company is required to make an information return 
with respect to the affected investor pursuant to section 6042), a 
written statement showing the following information:
    (A) The information described in paragraph (n)(1)(i) of this section 
with respect to the affected investor;
    (B) The name and address of the nonpublicly offered regulated 
investment company;
    (C) The name and address of the affected investor; and
    (D) If the nonpublicly offered regulated investment company is 
required to report the amount of the affected investor's allocation of 
affected RIC expense to the Internal Revenue Service pursuant to 
paragraph (n)(1)(i) of this section a statement to that effect.
    (iii) Affected investor's shares held by a nominee. If an affected 
investor's shares in a nonpublicly offered regulated investment company 
are held in the name of a nominee, the nonpublicly offered regulated 
investment company may make the information return described in 
paragraph (n)(1)(i) of this section with respect to the nominee in lieu 
of the affected investor and may provide the written statement described 
in paragraph (n)(1)(ii) of this section to such nominee in lieu of the 
affected investor.
    (2) By a nominee--(i) In general. Except as otherwise provided for 
in paragraph (n)(2)(iii) of this section, in any case in which a 
nonpublicly offered regulated investment company provides, pursuant to 
paragraph (n)(1)(iii) of this section, a written statement to the 
nominee of an affected investor for a calendar year, the nominee shall--
    (A) If the nominee is required to make an information return 
pursuant to section 6042 (or would be required to make an information 
return but for the $10 threshold described in section 6042(a)(1) (A) and 
(B), make an information return (e.g., Form 1099-DIV, Dividends and 
Distributions, for 1987) for the calendar year with respect to each 
affected investor and state separately on such information return the 
information described in paragraph (n)(1)(i) of this section, and

[[Page 102]]

    (B) Furnish each affected investor with a written statement for the 
calendar year showing the information required by paragraph (n)(2)(ii) 
of this section (whether or not the nominee is required to make an 
information return with respect to the affected investor pursuant to 
section 6042).
    (ii) Form of statement. The written statement required to be 
furnished for a calendar year pursuant to paragraph (n)(2)(i)(B) of this 
section shall show the following information:
    (A) The affected investor's proportionate share of the items 
described in paragraph (n)(1)(i) of this section for the calendar year,
    (B) The name and address of the nominee,
    (C) The name and address of the affected investor, and
    (D) If the nominee is required to report the affected investor's 
share of the allocable investment expenses to the Internal Revenue 
Service pursuant to paragraph (n)(2)(i)(A) of this section, a statement 
to that effect.
    (iii) Return not required. A nominee is not required to make an 
information return with respect to an affected investor pursuant to 
paragraph (n)(2)(i)(A) of this section if the nominee is excluded from 
the requirements of section 6042 pursuant to Sec. 1.6042-2(a)(1) (ii) or 
(iii).
    (iv) Statement not required. A nominee is not required to furnish a 
written statement to an affected investor pursuant to paragraph 
(n)(2)(i)(B) of this section if the nonpublicly offered regulated 
investment company furnishes the written statement to the affected 
investor pursuant to an agreement with the nominee described in 
Sec. 1.6042-2(a)(1)(iii).
    (v) Special rule. Paragraph (n)(1) (i) and (ii) of this section 
applies to a nonpublicly offered regulated investment company that 
agrees with the nominee to satisfy the requirements of section 6042 as 
described in Sec. 1.6042-2(a)(1)(iii) with respect to the affected 
investor.
    (3) Time and place for furnishing returns. The returns required by 
paragraph (n)(1)(i) and (2)(i)(A) of this section for any calendar year 
shall be filed at the time and place that a return required under 
section 6042 is required to be filed. See Sec. 1.6042-2(c) .
    (4) Time for furnishing statements. The statements required by 
paragraph (n)(1)(ii) and (2)(i)(B) of this section to be furnished by a 
nonpublicly offered regulated investment company and a nominee, 
respectively, to an affected investor for a calendar year shall be 
furnished to such affected investor on or before January 31 of the 
following year.
    (5) Duplicative returns and statements not required--(i) Information 
return. The requirements of paragraph (n)(1)(i) and (2)(i)(A) of this 
section for the making of an information return shall be met by the 
timely filing of an information return pursuant to section 6042 that 
contains the information required by paragraph (n)(1)(i).
    (ii) Written statement. The requirements of paragraph (n)(1)(ii) and 
(2)(i)(B) of this section for the furnishing of a written statement 
(including the statement required by paragraph (n)(1)(ii)(D) and 
(2)(ii)(D) of this section) shall be met by furnishing the affected 
investor a copy of the information return to which section 6042 applies 
(whether or not the nonpublicly offered regulated investment company or 
nominee is required to file an information return with respect to the 
affected investor pursuant to section 6042) that contains the 
information required by paragraph (n)(1)(ii) or (2)(ii), whichever is 
applicable, of this section. Nonpublicly offered regulated investment 
companies and nominees may use a substitute form that contains 
provisions substantially similar to those of the prescribed form if the 
nonpublicly offered regulated investment company or nominee complies 
with all revenue procedures relating to substitute forms in effect at 
the time. The statement shall be furnished either in person or in a 
statement mailed by first-class mail that includes adequate notice that 
the statement is enclosed. A statement shall be considered to be 
furnished to an affected investor within the meaning of this section if 
it is mailed to such affected investor at its last known address.
    (o) Return of information by a common trust fund. With respect to 
each affected investor to which paragraph (d) of this section applies, 
the common trust fund shall state on the return it

[[Page 103]]

is required to make pursuant to section 6032 for its taxable year, the 
following information:
    (1) The amount of the affected investor's proportionate share of the 
affected expenses for the taxable year as described in paragraph 
(d)(1)(ii) of this section.
    (2) The amount of the affected investor's proportionate share of 
ordinary taxable income or ordinary net loss for the taxable year 
determined pursuant to paragraph (d)(1)(i) of this section, and
    (3) Such other information as may be specified by the form or its 
instructions.
    (p) Publicly offered regulated investment companies. [Reserved]

[T.D. 8189, 53 FR 9876, Mar. 28, 1988; 53 FR 13464, Apr. 25, 1988]



Sec. 1.67-3  Allocation of expenses by real estate mortgage investment conduits.

    (a) Allocation of allocable investment expenses. [Reserved]
    (b) Treatment of allocable investment expenses. [Reserved]
    (c) Computation of proportionate share. [Reserved]
    (d) Example. [Reserved]
    (e) Allocable investment expenses not subject to backup withholding. 
[Reserved]
    (f) Notice to pass-through interest holders--(1) Information 
required. A REMIC must provide to each pass-through interest holder to 
which an allocation of allocable investment expense is required to be 
made under Sec. 1.67-3T(a)(1) notice of the following--
    (i) If, pursuant to paragraph (f)(2)(i) or (ii) of this section, 
notice is provided for a calendar quarter, the aggregate amount of 
expenses paid or accrued during the calendar quarter for which the REMIC 
is allowed a deduction under section 212;
    (ii) If, pursuant to paragraph (f)(2)(ii) of this section, notice is 
provided to a regular interest holder for a calendar year, the aggregate 
amount of expenses paid or accrued during each calendar quarter that the 
regular interest holder held the regular interest in the calendar year 
and for which the REMIC is allowed a deduction under section 212; and
    (iii) The proportionate share of these expenses allocated to that 
pass-through interest holder, as determined under Sec. 1.67-3T(c).
    (2) Statement to be furnished--(i) To residual interest holder. For 
each calendar quarter, a REMIC must provide to each pass-through 
interest holder who holds a residual interest during the calendar 
quarter the notice required under paragraph (f)(1) of this section on 
Schedule Q (Form 1066), as required in Sec. 1.860F-4(e).
    (ii) To regular interest holder. For each calendar year, a single-
class REMIC (as described in Sec. 1.67-3T(a)(2)(ii)(B)) must provide to 
each pass-through interest holder who held a regular interest during the 
calendar year the notice required under paragraph (f)(1) of this 
section. Quarterly reporting is not required. The information required 
to be included in the notice may be separately stated on the statement 
described in Sec. 1.6049-7(f) instead of on a separate statement 
provided in a separate mailing. See Sec. 1.6049-7(f)(4). The separate 
statement provided in a separate mailing must be furnished to each pass-
through interest holder no later than the last day of the month 
following the close of the calendar year.
    (3) Returns to the Internal Revenue Service--(i) With respect to 
residual interest holders. Any REMIC required under paragraphs (f)(1) 
and (2)(i) of this section to furnish information to any pass-through 
interest holder who holds a residual interest must also furnish such 
information to the Internal Revenue Service as required in Sec. 1.860F-
4(e)(4).
    (ii) With respect to regular interest holders. A single-class REMIC 
(as described in Sec. 1.67-3T(a)(2)(ii)(B)) must make an information 
return on Form 1099 for each calendar year, with respect to each pass-
through interest holder who holds a regular interest to which an 
allocation of allocable investment expenses is required to be made 
pursuant to Sec. 1.67-3T(a)(1) and (2)(ii). The preceding sentence 
applies with respect to a holder for a calendar year only if the REMIC 
is required to make an information return to the Internal Revenue 
Service with respect to that holder for that year pursuant to section 
6049 and Sec. 1.6049-7(b)(2)(i) (or would

[[Page 104]]

be required to make an information return but for the $10 threshold 
described in section 6049(a)(1) and Sec. 1.6049-7(b)(2)(i)). The REMIC 
must state on the information return--
    (A) The sum of--
    (1) The aggregate amounts includible in gross income as interest (as 
defined in Sec. 1.6049-7(a)(1)(i) and (ii)), for the calendar year; and
    (2) The sum of the amount of allocable investment expenses required 
to be allocated to the pass-through interest holder for each calendar 
quarter during the calendar year pursuant to Sec. 1.67-3T(a); and
    (B) Any other information specified by the form or its instructions.
    (4) Interest held by nominees and other specified persons--(i) Pass-
through interest holder's interest held by a nominee. If a pass-through 
interest holder's interest in a REMIC is held in the name of a nominee, 
the REMIC may make the information return described in paragraphs 
(f)(3)(i) and (ii) of this section with respect to the nominee in lieu 
of the pass-through interest holder and may provide the written 
statement described in paragraphs (f)(2)(i) and (ii) of this section to 
that nominee in lieu of the pass-through interest holder.
    (ii) Regular interests in a single-class REMIC held by certain 
persons. If a person specified in Sec. 1.6049-7(e)(4) holds a regular 
interest in a single-class REMIC (as described in Sec. 1.67-
3T(a)(2)(ii)(B)), then the single-class REMIC must provide the 
information described in paragraphs (f)(1) and (f)(3)(ii)(A) and (B) of 
this section to that person with the information specified in 
Sec. 1.6049-7(e)(2) as required in Sec. 1.6049-7(e).
    (5) Nominee reporting--(i) In general. In any case in which a REMIC 
provides information pursuant to paragraph (f)(4) of this section to a 
nominee of a pass-through interest holder for a calendar quarter or, as 
provided in paragraph (f)(2)(ii) of this section, for a calendar year--
    (A) The nominee must furnish each pass-through interest holder with 
a written statement described in paragraph (f)(2)(i) or (ii) of this 
section, whichever is applicable, showing the information described in 
paragraph (f)(1) of this section; and
    (B) The nominee must make an information return on Form 1099 for 
each calendar year, with respect to the pass-through interest holder and 
state on this information return the information described in paragraphs 
(f)(3)(ii) (A) and (B) of this section, if--
    (1) The nominee is a nominee for a pass-through interest holder who 
holds a regular interest in a single-class REMIC (as described in 
Sec. 1.67-3T(a)(2)(ii)(B)); and
    (2) The nominee is required to make an information return pursuant 
to section 6049 and Sec. 1.6049-7 (b)(2)(i) and (b)(2)(ii)(B) (or would 
be required to make an information return but for the $10 threshold 
described in section 6049(a)(2) and Sec. 1.6049-7(b)(2)(i)) with respect 
to the pass-through interest holder.
    (ii) Time for furnishing statement. The statement required by 
paragraph (f)(5)(i)(A) of this section to be furnished by a nominee to a 
pass-through interest holder for a calendar quarter or calendar year 
must be furnished to this holder no later than 30 days after receiving 
the written statement described in paragraph (f)(2)(i) or (ii) of this 
section from the REMIC. If, however, pursuant to paragraph (f)(2)(ii) of 
this section, the information is separately stated on the statement 
described in Sec. 1.6049-7(f), then the information must be furnished to 
the pass-through interest holder in the time specified in Sec. 1.6049-
7(f)(5).
    (6) Special rules--(i) Time and place for furnishing returns. The 
returns required by paragraphs (f)(3)(ii) and (f)(5)(i)(B) of this 
section for any calendar year must be filed at the time and place that a 
return required under section 6049 and Sec. 1.6049-7(b)(2) is required 
to be filed. See Sec. 1.6049-4(g) and Sec. 1.6049-7(b)(2)(iv).
    (ii) Duplicative returns not required. The requirements of 
paragraphs (f)(3)(ii) and (f)(5)(i)(B) of this section for the making of 
an information return are satisfied by the timely filing of an 
information return pursuant to section 6049 and Sec. 1.6049-7(b)(2) that 
contains the information required by paragraph (f)(3)(ii) of this 
section.

[T.D. 8431, 57 FR 40321, Sept. 3, 1992]

[[Page 105]]



Sec. 1.67-3T  Allocation of expenses by real estate mortgage investment conduits (temporary).

    (a) Allocation of allocable investment expenses--(1) In general. A 
real estate mortgage investment conduit or REMIC (as defined in section 
860D) shall allocate to each of its pass-through interest holders that 
holds an interest at any time during the calendar quarter the holder's 
proportionate share (as determined under paragraph (c) of this section) 
of the aggregate amount of allocable investment expenses of the REMIC 
for the calendar quarter.
    (2) Pass-through interest holder--(i) In general--(A) Meaning of 
term. Except as provided in paragraph (a)(2)(ii) of this section, the 
term ``pass-through interest holder'' means any holder of a REMIC 
residual interest (as definition in section 860G(a)(2)) that is--
    (1) An individual (other than a nonresident alien whose income with 
respect to his or her interest in the REMIC is not effectively connected 
with the conduct of a trade or business within the United States),
    (2) A person, including a trust or estate, that computes its taxable 
income in the same manner as in the case of an individual, or
    (3) A pass-through entity (as defined in paragraph (a)(3) of this 
section) if one or more of its partners, shareholders, beneficiaries, 
participants, or other interest holders is (i) a pass-through entity or 
(ii) a person described in paragraph (a)(2)(i)(A) (1) or (2) of this 
section.
    (B) Examples. The provisions of this paragraph (a)(2)(i) may be 
illustrated by the following examples:

    Example (1). Corporation X holds a residual interest in REMIC R in 
its capacity as a nominee or custodian for individual A, the beneficial 
owner of the interest. Because the owner of the interest for Federal 
income tax purposes is an individual, the interest is owned by a pass-
through interest holder.
    Example (2). Individual retirement account I holds a residual 
interest in a REMIC. Because an individual retirement account is not a 
person described in paragraph (a)(2)(i)(A) of this section, the interest 
is not held by a pass-through interest holder.

    (ii) Single-class REMIC--(A) In general. In the case of a single-
class REMIC, the term ``pass-through interest holder'' means any holder 
of either--
    (1) A REMIC regular interest (as defined in section 860G(a)(1)), or
    (2) A REMIC residual interest, that is described in paragraph 
(a)(2)(i)(A) (1), (2), or (3) of this section.
    (B) Single-class REMIC. For purposes of paragraph (a)(2)(ii)(A) of 
this section, a single-class REMIC IS either--
    (1) A REMIC that would be classified as an investment trust under 
Sec. 301.7701-4(c)(1) but for its qualification as a REMIC under section 
860D and Sec. 1.860D-1T, or
    (2) A REMIC that--
    (i) Is substantially similar to an investment trust under 
Sec. 301.7701-4(c)(1), and
    (ii) Is structured with the principal purpose of avoiding the 
requirement of paragraphs (a)(1) and (2)(ii)(A) of this section to 
allocate allocable investment expenses to pass-through interest holders 
that hold regular interests in the REMIC.

For purposes of this paragraph (a)(2)(ii)(B), in determining whether a 
REMIC would be classified as an investment trust or is substantially 
similar to an investment trust, all interests in the REMIC shall be 
treated as ownership interests in the REMIC, without regard to whether 
or not they would be classified as debt for Federal income tax purposes 
in the absence of a REMIC election.
    (C) Examples. The provisions of paragraph (a)(2)(ii) of this section 
must be illustrated by the following examples:

    Example (1). Corporation M transfers mortgages to a bank under a 
trust agreement as described in Example (2) of Sec. 301.7701-4(c)(2). 
There are two classes of certificates. Holders of class C certificates 
are entitled to receive 90 percent of the payment of principal and 
interest on the mortgages; holders of class D certificates are entitled 
to receive the remaining 10 percent. The two classes of certificates are 
identical except that, in the event of a default on the underlying 
mortgages, the payment rights of class D certificates holders are 
subordinated to the rights of class C certificate holders. M sells the 
class C certificates to investors and retains the class D certificates. 
The trust would be classified as an investment trust under 
Sec. 301.7701-4(c)(1) but for its qualification a REMIC under section 
860D the class C certificates represent regular interests in the

[[Page 106]]

REMIC and the class D certificates represent residual interest in the 
REMIC. The REMIC is a single-class REMIC within the meaning of paragraph 
(a)(2)(ii)(B)(1) of this section and, accordingly, holders of both the 
class C and class D certificates who are described in paragraph 
(a)(2)(i)(A) (1), (2), or (3) of this section are treated as pass-
through interest holders.
    Example (2). Assume that the facts are the same as in Example (1) 
except that M structures the REMIC to include a second regular interest 
represented by class E certificates. The principal purpose of M in 
structuring the REMIC to include class E certificates is to avoid 
allocating allocable investment expenses to class C certificate holders. 
The class E certificate holders are entitled to receive the payments 
otherwise due the class D certificate holders until they have been paid 
a stated amount of principal plus interest. The fair market value of the 
class E certificate is ten percent of the fair market value of the class 
D certificate and, therefore, less than one percent of the fair market 
value of the REMIC. The REMIC would not be classified as an investment 
trust under Sec. 301.7701-4(c)(1) because the existence of the class E 
certificates is not incidental to the trust's purpose of facilitating 
direct investment in the assets of the trust. Nevertheless, because the 
fair market value of the class E certificates is de minimis, the REMIC 
is substantially similar to an investment trust under Sec. 301.7701-
4(c)(1). In addition, avoidance of the requirement to allocate allocable 
investment expenses to regular interest holders is the principal purpose 
of M in structuring the REMIC to include class E certificates. 
Therefore, the REMIC is a single-class REMIC within the meaning of 
paragraph (a)(2)(ii)(B)(2) of this section, and, accordingly, holders of 
both residual and regular interests who are described in paragraph 
(a)(2)(i)(A) (1), (2), or (3) of this section are treated as pass-
through interest holders.

    (3) Pass-through entity--(i) In general. Except as provided in 
paragraph (a)(3)(ii) of this section, for purposes of this section, a 
pass-through entity is--
    (A) A trust (or any portion thereof) to which Subpart E, Part 1, 
Subchapter J, Chapter 1 of the Code applies,
    (B) A partnership,
    (C) An S corporation,
    (D) A common trust fund described in section 584,
    (E) A nonpublicly offered regulated investment company (as defined 
in paragraph (a)(5)(i) of this section),
    (F) A REMIC, and
    (G) Any other person--
    (1) Which is not subject to income tax imposed by Subtitle A, 
Chapter 1, or which is allowed a deduction in computing such tax for 
distributions to owners or beneficiaries, and
    (2) The character of the income of which may affect the character of 
the income recognized with respect to that person by its owners or 
beneficiaries.


Entities that do not meet the requirements of paragraphs (a)(3)(i)(G) 
(1) and (2), such as qualified pension plans, individual retirement 
accounts, and insurance companies holding assets in separate asset 
accounts to fund variable contracts defined in section 817(d), are not 
described in this paragraph (a)(3)(i).
    (ii) Exception. For purposes of this section, a pass-through entity 
does not include--
    (A) An estate,
    (B) A trust (or any portion thereof) not described in paragraph 
(a)(3)(i)(A) of this section,
    (C) A cooperative described without regard to subparagraphs (A) and 
(C) thereof, or
    (D) A real estate investment trust.
    (4) Allocable investment expenses. The term ``allocable investment 
expenses'' means the aggregate amount of the expenses paid or accrued in 
the calendar quarter for which a deduction is allowable under section 
212 in determining the taxable income of the REMIC for the calendar 
quarter.
    (5) Nonpublicly offered regulated investment company--(i) In 
general. For purposes of this section, the term ``nonpublicly offered 
regulated investment company'' means a regulated investment company to 
which Part I of Subchapter M of the Code applies that is not a publicly 
offered regulated investment company.
    (ii) Publicly offered regulated investment company. For purposes of 
this section, the term ``publicly offered regulated investment company'' 
means a regulated investment company to which Part I of subchapter M of 
the Code applies, the shares of which are--
    (A) Continuously offered pursuant to a public offering (within the 
meaning of section 4 of the Securities Act of 1933, as amended (15 
U.S.C. 77a to 77aa)),
    (B) Regularly traded on an established securities market, or

[[Page 107]]

    (C) Held by or for no fewer than 500 persons at all times during the 
taxable year.
    (b) Treatment of allocable investment expenses--(1) By pass-through 
interest holders--(i) Taxable year ending with calendar quarter. A pass-
through interest holder whose taxable year is the calendar year or ends 
with a calendar quarter shall be treated as having--
    (A) Received or accrued income, and
    (B) Paid or incurred an expense described in section 212 (or section 
162 in the case of a pass-through interest holder that is a regulated 
investment company), in an amount equal to the pass-through interest 
holder's proportionate share of the allocable investment expenses of the 
REMIC for those calendar quarters that fall within the holder's taxable 
year.
    (ii) Taxable year not ending with calendar quarter. A pass-through 
interest holder whose taxable year does not end with a calendar quarter 
shall be treated as having--
    (A) Received or accrued income, and
    (B) Paid or incurred an expense described in section 212 (or section 
162 in the case of a pass-through interest holder that is a regulated 
investment company), in an amount equal to the sum of--
    (C) The pass-through interest holder's proportionate share of the 
allocable investment expenses of the REMIC for those calendar quarters 
that fall within the holder's taxable year, and
    (D) For each calendar quarter that overlaps the beginning or end of 
the taxable year, the sum of the daily amounts of the allocable 
investment expenses allocated to the holder pursuant to paragraph 
(c)(1)(ii) of this section for the days in the quarter that fall within 
the holder's taxable year.
    (2) Proportionate share of allocable investment expenses. For 
purposes of paragraph (b) of this section, a pass-through interest 
holder's proportionate share of the allocable investment expenses is the 
amount allocated to the pass-through interest holder pursuant to 
paragraph (a)(1) of this section.
    (3) Cross-reference. See Sec. 1.67-1T with respect to limitations on 
deductions for expenses described in section 212 (including amounts 
treated as such expenses under this section).
    (4) Interest income to holders of regular interests in certain 
REMICs. Any amount allocated under this section to the holder of a 
regular interest in a single-class REMIC (as described in paragraph 
(a)(2)(ii)(B) of this section) shall be treated as interest income.
    (5) No adjustment to basis. The basis of any holder's interest in a 
REMIC shall not be increased or decreased by the amount of the holder's 
proportionate share of allocable investment expenses.
    (6) Interest holders other than pass-through interest holders. An 
interest holder of a REMIC that is not a pass-through interest holder 
shall not take into account in computing its taxable income any amount 
of income or expense with respect to its proportionate share of 
allocable investment expenses.
    (c) Computation of proportionate share--(1) In general. For purposes 
of paragraph (a)(1) of this section, a REMIC shall compute a pass-
through interest holder's proportionate share of the REMIC's allocable 
investment expenses by--
    (i) Determining the daily amount of the allocable investment 
expenses for the calendar quarter by dividing the total amount of such 
expenses by the number of days in that calendar quarter.
    (ii) Allocating the daily amount of the allocable investment 
expenses to the pass-through interest holder in proportion to its 
respective holdings on that day, and
    (iii) Totaling the interest holder's daily amounts of allocable 
investment expenses for the calendar quarter.
    (2) Other holders taken into account. For purposes of paragraph 
(c)(1)(ii) of this section, a pass-through interest holder's 
proportionate share of the daily amount of the allocable investment 
expenses is determined by taking into account all holders of residual 
interests in the REMIC, whether or not pass-through interest holders.
    (3) Single-class REMIC--(i) Daily allocation. In lieu of the 
allocation specified in paragraph (c)(1)(ii) of this section, a single-
class REMIC (as described in paragraph (a)(2)(ii)(B) of this section) 
shall allocate the daily

[[Page 108]]

amount of the allocable investment expenses to each pass-through 
interest holder in proportion to the amount of income accruing to the 
holder with respect to its interest in the REMIC on that day.
    (ii) Other holders taken into account. For purposes of paragraph 
(c)(3)(i) of this section, the amount of the allocable investment 
expenses that is allocated on any day to each pass-through interest 
holder shall be determined by multiplying the daily amount of allocable 
investment expenses (determined pursuant to paragraph (c)(1)(i) of this 
section) by a fraction, the numerator of which is equal to the amount of 
income that accrues (but not less than zero) to the pass-through 
interest holder on that day and the denominator of which is the total 
amount of income (as determined under paragraph (c)(3)(iii) of this 
section) that accrues to all regular and residual interest holders, 
whether or not pass-through interest holders, on that day.
    (iii) Total income accruing. The total amount of income that accrues 
to all regular and residual interest holders is the sum of--
    (A) The amount includible under section 860B in the gross income 
(but not less than zero) of the regular interest holders, and
    (B) The amount of REMIC taxable income (but not less than zero) 
taken into account under section 860C by the residual interest holders.
    (4) Dates of purchase and disposition. For purposes of this section, 
a pass-through interest holder holds an interest on the date of its 
purchase but not on the date of its disposition.
    (d) Example. The provisions of this section may be illustrated by 
the following example:

    Example (i) During the calendar quarter ending March 31, 1989, REMIC 
X, which is not a single-class REMIC, incurs $900 of allocable 
investment expenses. At the beginning of the calendar quarter, X has 4 
residual interest holders, who hold equal proportionate shares, and 10 
regular interest holders. The residual interest holders, all of whom 
have calendar-year taxable years, are as follows:
    A, an individual,
    C, a C corporation that is a nominee for individual I.
    S, an S corporation, and
    M, a C corporation that is not a nominee.
    (ii) Except for A, all of the residual interest holders hold their 
interests in X for the entire calendar quarter. On January 31, 1989, A 
sells his interest to S. Thus, for the first month of the calendar 
quarter, each residual interest holder holds a 25 percent interest 
(100%/4 interest holders) in X. For the last two months, S's holding is 
increased to 50 percent and A's holding is decreased to zero. The daily 
amount of allocable investment expenses for the calendar quarter is $10 
($900/90 days).
    (iii) The amount of allocable investment expenses apportioned to the 
residual interest holders is as follows:
    (A) $75 ($10 x 25% x 30 days) is allocated to A for the 30 days that 
A holds an interest in X during the calendar quarter. A includes $75 in 
gross income in calendar year 1989. The amount of A's expenses described 
in section 212 is increased by $75 in calendar year 1989. A's deduction 
under section 212 (including the $75 amount of the allocation) is 
subject to the limitations contained in section 67.
    (B) $225 ($10 x 25% x 90 days) is allocated to C. Because C is a 
nominee for I, C does not include $225 in gross income or increase its 
deductible expenses by $225. Instead, I includes $225 in gross income in 
calendar year 1989, her taxable year. The amount of I's expenses 
described in section 212 is increased by $225. I's deduction under 
section 212 (including the $225 amount of the allocation) is subject to 
the limitations contained in section 67.
    (C) $375 (($10 x 25% x 30 days) + ($10 x 50% x 60 days)) is 
allocated to S. S includes in gross income $375 of allocable investment 
expenses in calendar year 1989. The amount of S's expenses described in 
section 212 for that taxable year is increased by $375. S allocates the 
$375 to its shareholders in accordance with the rules described in 
sections 1366 and 1377 in calendar year 1989. Thus, each shareholder of 
S includes its pro rata share of the $375 in gross income in its taxable 
year in which or with which calendar year 1989 ends. The amount of each 
shareholder's expenses described in section 212 is increased by the 
amount of the shareholder's allocation for the shareholder's taxable 
year in which or with which calendar year 1989 ends. The shareholder's 
deduction under section 212 (including the allocation under this 
section) is subject to the limitations contained in section 67.
    (D) No amount is allocated to M. However, M's interest is taken into 
account for purposes of determining the proportionate share of those 
residual interest holders to whom an allocation is required to be made.
    (iv) No allocation is made to the 10 regular interest holders 
pursuant to paragraph (a) of this section. In addition, the interests 
held by these interest holders are not taken into account for purposes 
of determining the proportionate share of the residual interest

[[Page 109]]

holders to whom an allocation is required to be made.

    (e) Allocable investment expenses not subject to backup withholding. 
The amount of allocable investment expenses required to be allocated to 
a pass-through interest holder pursuant to paragraph (a)(1) of this 
section is not subject to backup withholding under section 3406.
    (f) Notice to pass-through interest holders--(1) Information 
required. A REMIC must provide to each pass-through interest holder to 
which an allocation of allocable investment expense is required to be 
made under paragraph (a)(1) of this section notice of the following--
    (i) If, pursuant to paragraph (f)(2) (i) or (ii) of this section, 
notice is provided for a calendar quarter, the aggregate amount of 
expenses paid or accrued during the calendar quarter for which the REMIC 
is allowed a deduction under section 212;
    (ii) If, pursuant to paragraph (f)(2)(ii) of this section, notice is 
provided to a regular interest holder for a calendar year, the aggregate 
amount of expenses paid or accrued during each calendar quarter that the 
regular interest holder held the regular interest in the calendar year 
and for which the REMIC is allowed a deduction under section 212; and
    (iii) The proportionate share of these expenses allocated to that 
pass-through interest holder, as determined under paragraph (c) of this 
section.
    (2) Statement to be furnished--(i) To residual interest holder. For 
each calendar quarter, a REMIC shall provide to each pass-through 
interest holder who holds a residual interest during the calendar 
quarter the notice required under paragraph (f)(1) of this section on 
Schedule Q (Form 1066), as required in Sec. 1.860F-4(e).
    (ii) To regular interest holder--(A) In general. For each calendar 
year, a single-class REMIC (as described in paragraph (a)(2)(ii)(B) of 
this section) must provide to each pass-through interest holder who held 
a regular interest during the calendar year the notice required under 
paragraph (f)(1) of this section. Quarterly reporting is not required. 
The information required to be included in the notice may be separately 
stated on the statement described in Sec. 1.6049-7(f) instead of on a 
separate statement provided in a separate mailing. See Sec. 1.6049-
7(f)(4). The separate statement provided in a separate mailing must be 
furnished to each pass-through interest holder no later than the last 
day of the month following the close of the calendar year.
    (B) Special rule for 1987. The information required under paragraph 
(f)(2)(ii)(A) of this section for any calendar quarter of 1987 shall be 
mailed (or otherwise delivered) to each pass-through interest holder who 
holds a regular interest during that calendar quarter no later than 
March 28, 1988.
    (3) Returns to the Internal Revenue Service--(i) With respect to 
residual interest holders. Any REMIC required under paragraphs (f)(1) 
and (2)(i) of this section to furnish information to any pass-through 
interest holder who holds a residual interest shall also furnish such 
information to the Internal Revenue Service as required in Sec. 1.860F-
4(e)(4).
    (ii) With respect to regular interest holders. A single-class REMIC 
(as described in paragraph (a)(2)(ii)(B) of this section) shall make an 
information return on Form 1099 for each calendar year beginning after 
December 31, 1987, with respect to each pass-through interest holder who 
holds a regular interest to which an allocation of allocable investment 
expenses is required to be made pursuant to paragraphs (a)(1) and 
(2)(ii) of this section. The preceding sentence applies with respect to 
a holder for a calendar year only if the REMIC is required to make an 
information return to the Internal Revenue Service with respect to that 
holder for that year pursuant to section 6049 and Sec. 1.6049-7(b)(2)(i) 
(or would be required to make an information return but for the $10 
threshold described in section 6049(a)(1) and Sec. 1.6049-7(b)(2)(i)). 
The REMIC shall state on the information return--
    (A) The sum of--
    (1) The aggregate amounts includible in gross income as interest (as 
defined in Sec. 1.6049-7(a)(1) (i) and (ii)), for the calendar year, and
    (2) The sum of the amount of allocable investment expenses required 
to

[[Page 110]]

be allocated to the pass-through interest holder for each calendar 
quarter during the calendar year pursuant to paragraph (a) of this 
section, and
    (B) Any other information specified by the form or its instructions.
    (4) Interest held by nominees and other specified persons--(i) Pass-
through interest holder's interest held by a nominee. If a pass-through 
interest holder's interest in a REMIC is held in the name of a nominee, 
the REMIC may make the information return described in paragraphs (f)(3) 
(i) and (ii) of this section with respect to the nominee in lieu of the 
pass-through interest holder and may provide the written statement 
described in paragraphs (f)(2) (i) and (ii) of this section to that 
nominee in lieu of the pass-through interest holder.
    (ii) Regular interests in a single-class REMIC held by certain 
persons. For calendar quarters and calendar years after December 31, 
1991, if a person specified in Sec. 1.6049-7(e)(4) holds a regular 
interest in a single-class REMIC (as described in paragraph 
(a)(2)(ii)(B) of this section), then the single-class REMIC must provide 
the information described in paragraphs (f)(1) and (f)(3)(ii) (A) and 
(B) of this section to that person with the information specified in 
Sec. 1.6049-7(e)(2) as required in Sec. 1.6049-7(e).
    (5) Nominee reporting--(i) In general. In any case in which a REMIC 
provides information pursuant to paragraph (f)(4) of this section to a 
nominee of a pass-through interest holder for a calendar quarter or, as 
provided in paragraph (f)(2)(ii) of this section, for a calendar year--
    (A) The nominee shall furnish each pass-through interest holder with 
a written statement described in paragraph (f)(2) (i) or (ii) of this 
section, whichever is applicable, showing the information described in 
paragraph (f)(1) of this section, and
    (B) If--
    (1) The nominee is a nominee for a pass-through interest holder who 
holds a regular interest in a single-class REMIC (as described in 
paragraph (a)(2)(ii)(B) of this section), and
    (2) The nominee is required to make an information return pursuant 
to section 6049 and Sec. 1.6049-7(b)(2)(i) and (b)(2)(ii)(B) (or would 
be required to make an information return but for the $10 threshold 
described in section 6049(a)(2) and Sec. 1.6049-7(b)(2)(i)) with respect 
to the pass-through interest holder,

the nominee shall make an information return on Form 1099 for each 
calendar year beginning after December 31, 1987, with respect to the 
pass-through interest holder and state on this information return the 
information described in paragraph (f)(3)(ii) (A) and (B) of this 
section.
    (ii) Time for furnishing statement. The statement required by 
paragraph (f)(5)(i)(A) of this section to be furnished by a nominee to a 
pass-through interest holder for a calendar quarter or calendar year 
shall be furnished to this holder no later than 30 days after receiving 
the written statement described in paragraph (f)(2) (i) or (ii) of this 
section from the REMIC. If, however, pursuant to paragraph (f)(2)(ii) of 
this section, the information is separately stated on the statement 
described in Sec. 1.6049-7(f), then the information must be furnished to 
the pass-through interest holder in the time specified in Sec. 1.6049-
7(f)(5).
    (6) Special rules--(i) Time and place for furnishing returns. The 
returns required by paragraphs (f)(3)(ii) and (f)(5)(i)(B) of this 
section for any calendar year shall be filed at the time and place that 
a return required under section 6049 and Sec. 1.6049-7(b)(2) is required 
to be filed. See Sec. 1.6049-4(g) and Sec. 1.6049-7(b)(2)(iv).
    (ii) Duplicative returns not required. The requirements of 
paragraphs (f)(3)(ii) and (f)(5)(i)(B) of this section for the making of 
an information return shall be met by the timely filing of an 
information return pursuant to section 6049 and Sec. 1.6049-7(b)(2) that 
contains the information required by paragraph (f)(3)(ii) of this 
section.

[T.D. 8186, 53 FR 7507, Mar 9, 1988, as amended by T.D. 8366, 56 FR 
49515, Sept. 30, 1991]

[[Page 111]]



Sec. 1.67-4T  Allocation of expenses by nongrantor trusts and estates (temporary). [Reserved]

               Items Specifically Included in Gross Income



Sec. 1.71-1  Alimony and separate maintenance payments; income to wife or former wife.

    (a) In general. Section 71 provides rules for treatment in certain 
cases of payments in the nature of or in lieu of alimony or an allowance 
for support as between spouses who are divorced or separated. For 
convenience, the payee spouse will hereafter in this section be referred 
to as the ``wife'' and the spouse from whom she is divorced or separated 
as the ``husband.'' See section 7701(a)(17). For rules relative to the 
deduction by the husband of periodic payments not attributable to 
transferred property, see section 215 and the regulations thereunder. 
For rules relative to the taxable status of income of an estate or trust 
in case of divorce, etc., see section 682 and the regulations 
thereunder.
    (b) Alimony or separate maintenance payments received from the 
husband--(1) Decree of divorce or separate maintenance. (i) In the case 
of divorce or legal separation, paragraph (1) of section 71(a) requires 
the inclusion in the gross income of the wife of periodic payments 
(whether or not made at regular intervals) received by her after a 
decree of divorce or of separate maintenance. Such periodic payments 
must be made in discharge of a legal obligation imposed upon or incurred 
by the husband because of the marital or family relationship under a 
court order or decree divorcing or legally separating the husband and 
wife or a written instrument incident to the divorce status or legal 
separation status.
    (ii) For treatment of payments attributable to property transferred 
(in trust or otherwise), see paragraph (c) of this section.
    (2) Written separation agreement. (i) Where the husband and wife are 
separated and living apart and do not file a joint income tax return for 
the taxable year, paragraph (2) of section 71(a) requires the inclusion 
in the gross income of the wife of periodic payments (whether or not 
made at regular intervals) received by her pursuant to a written 
separation agreement executed after August 16, 1954. The periodic 
payments must be made under the terms of the written separation 
agreement after its execution and because of the marital or family 
relationship. Such payments are includable in the wife's gross income 
whether or not the agreement is a legally enforceable instrument. 
Moreover, if the wife is divorced or legally separated subsequent to the 
written separation agreement, payments made under such agreement 
continue to fall within the provisions of section 71(a)(2).
    (ii) For purposes of section 71(a)(2) any written separation 
agreement executed on or before August 16, 1954, which is altered or 
modified in writing by the parties in any material respect after that 
date will be treated as an agreement executed after August 16, 1954, 
with respect to payments made after the date of alteration or 
modification.
    (iii) For treatment of payments attributable to property transferred 
(in trust or otherwise), see paragraph (c) of this section.
    (3) Decree for support. (i) Where the husband and wife are separated 
and living apart and do not file a joint income tax return for the 
taxable year, paragraph (3) of section 71(a) requires the inclusion in 
the gross income of the wife of periodic payments (whether or not made 
at regular intervals) received by her after August 16, 1954, from her 
husband under any type of court order or decree (including an 
interlocutory decree of divorce or a decree of alimony pendente lite) 
entered after March 1, 1954, requiring the husband to make the payments 
for her support or maintenance. It is not necessary for the wife to be 
legally separated or divorced from her husband under a court order or 
decree; nor is it necessary for the order or decree for support to be 
for the purpose of enforcing a written separation agreement.
    (ii) For purposes of section 71(a)(3), any decree which is altered 
or modified by a court order entered after March 1, 1954, will be 
treated as a decree entered after such date.
    (4) Scope of section 71(a). Section 71(a) applies only to payments 
made because

[[Page 112]]

of the family or marital relationship in recognition of the general 
obligation to support which is made specific by the decree, instrument, 
or agreement. Thus, section 71(a) does not apply to that part of any 
periodic payment which is attributable to the repayment by the husband 
of, for example, a bona fide loan previously made to him by the wife, 
the satisfaction of which is specified in the decree, instrument, or 
agreement as a part of the general settlement between the husband and 
wife.
    (5) Year of inclusion. Periodic payments are includible in the 
wife's income under section 71(a) only for the taxable year in which 
received by her. As to such amounts, the wife is to be treated as if she 
makes her income tax returns on the cash receipts and disbursements 
method, regardless of whether she normally makes such returns on the 
accrual method. However, if the periodic payments described in section 
71(a) are to be made by an estate or trust, such periodic payments are 
to be included in the wife's taxable year in which they are includible 
according to the rules as to income of estates and trusts provided in 
sections 652, 662, and 682, whether or not such payments are made out of 
the income of such estates or trusts.
    (6) Examples. The foregoing rules are illustrated by the following 
examples in which it is assumed that the husband and wife file separate 
income tax returns on the calendar year basis:

    Example (1). W files suit for divorce from H in 1953. In 
consideration of W's promise to relinquish all marital rights and not to 
make public H's financial affairs, H agrees in writing to pay $200 a 
month to W during her lifetime if a final decree of divorce is granted 
without any provision for alimony. Accordingly, W does not request 
alimony and no provision for alimony is made under a final decree of 
divorce entered December 31, 1953. During 1954, H pays W $200 a month, 
pursuant to the promise. The $2,400 thus received by W is includible in 
her gross income under the provisions of section 71(a)(1). Under section 
215, H is entitled to a deduction of $2,400 from his gross income.
    Example (2). During 1945, H and W enter into an antenuptial 
agreement, under which, in consideration of W's relinquishment of all 
marital rights (including dower) in H's property, and, in order to 
provide for W's support and household expenses, H promises to pay W $200 
a month during her lifetime. Ten years after their marriage, W sues H 
for divorce but does not ask for or obtain alimony because of the 
provision already made for her support in the antenuptial agreement. 
Likewise, the divorce decree is silent as to such agreement and H's 
obligation to support W. Section 71(a) does not apply to such a case. 
If, however, the decree were modified so as to refer to the antenuptial 
agreement, or if reference had been made to the antenuptial agreement in 
the court's decree or in a written instrument incident to the divorce 
status, section 71(a)(1) would require the inclusion in W's gross income 
of the payments received by her after the decree. Similarly, if a 
written separation agreement were executed after August 16, 1954, and 
incorporated the payment provisions of the antenuptial agreement, 
section 71(a)(2) would require the inclusion in W's income of payments 
received by W after W begins living apart from H, whether or not the 
divorce decree was subsequently entered and whether or not W was living 
apart from H when the separation agreement was executed, provided that 
such payments were made after such agreement was executed and pursuant 
to its terms. As to including such payments in W's income, if made by a 
trust created under the antenuptial agreement, regardless of whether 
referred to in the decree or a later instrument, or created pursuant to 
the written separation agreement, see section 682 and the regulations 
thereunder.
    Example (3). H and W are separated and living apart during 1954. W 
sues H for support and on February 1, 1954, the court enters a decree 
requiring H to pay $200 a month to W for her support and maintenance. No 
part of the $200 a month support payments is includible in W's income 
under section 71(a)(3) or deductible by H under section 215. If, 
however, the decree had been entered after March 1, 1954, or had been 
altered or modified by a court order entered after March 1, 1954, the 
payments received by W after August 16, 1954, under the decree as 
altered or modified would be includible in her income under section 
71(a)(3) and deductible by H under section 215.
    Example (4). W sues H for divorce in 1954. On January 15, 1954, the 
court awards W temporary alimony of $25 a week pending the final decree. 
On September 1, 1954, the court grants W a divorce and awards her $200 a 
month permanent alimony. No part of the $25 a week temporary alimony 
received prior to the decree is includible in W's income under section 
71(a), but the $200 a month received during the remainder of 1954 by W 
is includible in her income for 1954. Under section 215, H is entitled 
to deduct such $200 payments from his income. If, however, the decree 
awarding W temporary alimony had been entered after March 1, 1954, or 
had been altered or modified by a court order entered

[[Page 113]]

after March 1, 1954, temporary alimony received by her after August 16, 
1954, would be includible in her income under section 71(a)(3) and 
deductible by H under section 215.

    (c) Alimony and separate maintenance payments attributable to 
property. (1)(i) In the case of divorce or legal separation, paragraph 
(1) of section 71(a) requires the inclusion in the gross income of the 
wife of periodic payments (whether or not made at regular intervals) 
attributable to property transferred, in trust or otherwise, and 
received by her after a decree of divorce or of separate maintenance. 
Such property must have been transferred in discharge of a legal 
obligation imposed upon or incurred by the husband because of the 
marital or family relationship under a decree of divorce or separate 
maintenance or under a written instrument incident to such divorce 
status or legal separation status.
    (ii) Where the husband and wife are separated and living apart and 
do not file a joint income tax return for the taxable year, paragraph 
(2) of section 71(a) requires the inclusion in the gross income of the 
wife of periodic payments (whether or not made at regular intervals) 
received by her which are attributable to property transferred, in trust 
or otherwise, under a written separation agreement executed after August 
16, 1954. The property must be transferred because of the marital or 
family relationship. The periodic payments attributable to the property 
must be received by the wife after the written separation agreement is 
executed.
    (iii) The periodic payments received by the wife attributable to 
property transferred under subdivisions (i) and (ii) of this 
subparagraph and includible in her gross income are not to be included 
in the gross income of the husband.
    (2) The full amount of periodic payments received under the 
circumstances described in section 71(a) (1), (2), and (3) is required 
to be included in the gross income of the wife regardless of the source 
of such payments. Thus, it matters not that such payments are 
attributable to property in trust, to life insurance, endowment, or 
annuity contracts, or to any other interest in property, or are paid 
directly or indirectly by the husband from his income or capital. For 
example, if in order to meet an alimony or separate maintenance 
obligation of $500 a month the husband purchases or assigns for the 
benefit of his wife a commercial annuity contract paying such amount, 
the full $500 a month received by the wife is includible in her income, 
and no part of such amount is includible in the husband's income or 
deductible by him. See section 72(k) and the regulations thereunder. 
Likewise, if property is transferred by the husband, subject to an 
annual charge of $5,000, payable to his wife in discharge of his alimony 
or separate maintenance obligation under the divorce or separation 
decree or written instrument incident to the divorce status or legal 
separation status or if such property is transferred pursuant to a 
written separation agreement and subject to a similar annual charge, the 
$5,000 received annually is, under section 71(a) (1) or (2), includible 
in the wife's income, regardless of whether such amount is paid out of 
income or principal of the property.
    (3) The same rule applies to periodic payments attributable to 
property in trust. The full amount of periodic payments to which section 
71(a) (1) and (2) applies is includible in the wife's income regardless 
of whether such payments are made out of trust income. Such periodic 
payments are to be included in the wife's income under section 71(a) (1) 
or (2) and are to be excluded from the husband's income even though the 
income of the trust would otherwise be includible in his income under 
Subpart E, Part I, Subchapter J, Chapter 1 of the Code, relating to 
trust income attributable to grantors and others as substantial owners. 
As to periodic payments received by a wife attributable to property in 
trust in cases to which section 71(a) (1) or (2) does not apply because 
the husband's obligation is not specified in the decree or an instrument 
incident to the divorce status or legal separation status or the 
property was not transferred under a written separation agreement, see 
section 682 and the regulations thereunder.

[[Page 114]]

    (4) Section 71(a) (1) or (2) does not apply to that part of any 
periodic payment attributable to that portion of any interest in 
property transferred in discharge of the husband's obligation under the 
decree or instrument incident to the divorce status or legal separation 
status, or transferred pursuant to the written separation agreement, 
which interest originally belonged to the wife. It will apply, however, 
if she received such interest from her husband in contemplation of or as 
an incident to the divorce or separation without adequate and full 
consideration in money or money's worth, other than the release of the 
husband or his property from marital obligations. An example of the 
first rule is a case where the husband and wife transfer securities, 
which were owned by them jointly, in trust to pay an annuity to the 
wife. In this case, the full amount of that part of the annuity received 
by the wife attributable to the husband's interest in the securities 
transferred in discharge of his obligation under the decree, or 
instrument incident to the divorce status or legal separation status, or 
transferred under the written separation agreement, is taxable to her 
under section 71(a) (1) or (2), while that portion of the annuity 
attributable to the wife's interest in the securities so transferred is 
taxable to her only to the extent it is out of trust income as provided 
in Part I (sections 641 and following), Subchapter J, Chapter 1 of the 
Code. If, however, the husband's transfer to his wife is made before 
such property is transferred in discharge of his obligation under the 
decree or written instrument, or pursuant to the separation agreement in 
an attempt to avoid the application of section 71(a) (1) or (2) to part 
of such payments received by his wife, such transfers will be considered 
as a part of the same transfer by the husband of his property in 
discharge of his obligation or pursuant to such agreement. In such a 
case, section 71(a) (1) or (2) will be applied to the full amount 
received by the wife. As to periodic payments received under a joint 
purchase of a commercial annuity contract, see section 72 and the 
regulations thereunder.
    (d) Periodic and installment payments. (1) In general, installment 
payments discharging a part of an obligation the principal sum of which 
is, in terms of money or property, specified in the decree, instrument, 
or agreement are not considered ``periodic payments'' and therefore are 
not to be included under section 71(a) in the wife's income.
    (2) An exception to the general rule stated in subparagraph (1) of 
this paragraph is provided, however, in cases where such principal sum, 
by the terms of the decree, instrument, or agreement, may be or is to be 
paid over a period ending more than 10 years from the date of such 
decree, instrument, or agreement. In such cases, the installment payment 
is considered a periodic payment for the purposes of section 71(a) but 
only to the extent that the installment payment, or sum of the 
installment payments, received during the wife's taxable year does not 
exceed 10 percent of the principal sum. This 10-percent limitation 
applies to installment payments made in advance but does not apply to 
delinquent installment payments for a prior taxable year of the wife 
made during her taxable year.
    (3)(i) Where payments under a decree, instrument, or agreement are 
to be paid over a period ending 10 years or less from the date of such 
decree, instrument, or agreement, such payments are not installment 
payments discharging a part of an obligation the principal sum of which 
is, in terms of money or property, specified in the decree, instrument, 
or agreement (and are considered periodic payments for the purposes of 
section 71(a)) only if such payments meet the following two conditions:
    (a) Such payments are subject to any one or more of the 
contingencies of death of either spouse, remarriage of the wife, or 
change in the economic status of either spouse, and
    (b) Such payments are in the nature of alimony or an allowance for 
support.
    (ii) Payments meeting the requirements of subdivision (i) are 
considered periodic payments for the purposes of section 71(a) 
regardless of whether--
    (a) The contingencies described in subdivision (i)(a) of this 
subparagraph are set forth in the terms of the decree, instrument, or 
agreement, or are imposed by local law, or

[[Page 115]]

    (b) The aggregate amount of the payments to be made in the absence 
of the occurrence of the contingencies described in subdivision (i)(a) 
of this subparagraph is explicitly stated in the decree, instrument, or 
agreement or may be calculated from the face of the decree, instrument, 
or agreement, or
    (c) The total amount which will be paid may be calculated 
actuarially.
    (4) Where payments under a decree, instrument, or agreement are to 
be paid over a period ending more than ten years from the date of such 
decree, instrument, or agreement, but where such payments meet the 
conditions set forth in subparagraph (3)(i) of this paragraph, such 
payments are considered to be periodic payments for the purpose of 
section 71 without regard to the rule set forth in subparagraph (2) of 
this paragraph. Accordingly, the rules set forth in subparagraph (2) of 
this paragraph are not applicable to such payments.
    (5) The rules as to periodic and installment payments are 
illustrated by the following examples:

    Example (1). Under the terms of a written instrument, H is required 
to make payments to W which are in the nature of alimony, in the amount 
of $100 a month for nine years. The instrument provides that if H or W 
dies the payments are to cease. The payments are periodic.
    Example (2). The facts are the same as in example (1) except that 
the written instrument explicitly provides that H is to pay W the sum of 
$10,800 in monthly payments of $100 over a period of nine years. The 
payments are periodic.
    Example (3). Under the terms of a written instrument, H is to pay W 
$100 a month over a period of nine years. The monthly payments are not 
subject to any of the contingencies of death of H or W, remarriage of W, 
or change in the economic status of H or W under the terms of the 
written instrument or by reason of local law. The payments are not 
periodic.
    Example (4). A divorce decree in 1954 provides that H is to pay W 
$20,000 each year for the next five years, beginning with the date of 
the decree, and then $5,000 each year for the next ten years. Assuming 
the wife makes her returns on the calendar year basis, each payment 
received in the years 1954 to 1958, inclusive, is treated as a periodic 
payment under section 71(a)(1), but only to the extent of 10 percent of 
the principal sum of $150,000. Thus, for such taxable years, only 
$15,000 of the $20,000 received is includible under section 71(a)(1) in 
the wife's income and is deductible by the husband under section 215. 
For the years 1959 to 1968, inclusive, the full $5,000 received each 
year by the wife is includible in her income and is deductible from the 
husband's income.

    (e) Payments for support of minor children. Section 71(a) does not 
apply to that part of any periodic payment which, by the terms of the 
decree, instrument, or agreement under section 71(a), is specifically 
designated as a sum payable for the support of minor children of the 
husband. The statute prescribes the treatment in cases where an amount 
or portion is so fixed but the amount of any periodic payment is less 
than the amount of the periodic payment specified to be made. In such 
cases, to the extent of the amount which would be payable for the 
support of such children out of the originally specified periodic 
payment, such periodic payment is considered a payment for such support. 
For example, if the husband is by terms of the decree, instrument, or 
agreement required to pay $200 a month to his divorced wife, $100 of 
which is designated by the decree, instrument, or agreement to be for 
the support of their minor children, and the husband pays only $150 to 
his wife, $100 is nevertheless considered to be a payment by the husband 
for the support of the children. If, however, the periodic payments are 
received by the wife for the support and maintenance of herself and of 
minor children of the husband without such specific designation of the 
portion for the support of such children, then the whole of such amounts 
is includible in the income of the wife as provided in section 71(a). 
Except in cases of a designated amount or portion for the support of the 
husband's minor children, periodic payments described in section 71(a) 
received by the wife for herself and any other person or persons are 
includible in whole in the wife's income, whether or not the amount or 
portion for such other person or persons is designated.



Sec. 1.71-1T  Alimony and separate maintenance payments (temporary).

    (a) In general.
    Q-1  What is the income tax treatment of alimony or separate 
maintenance payments?

[[Page 116]]

    A-1  Alimony or separate maintenance payments are, under section 71, 
included in the gross income of the payee spouse and, under section 215, 
allowed as a deduction from the gross income of the payor spouse.
    Q-2  What is an alimony or separate maintenance payment?
    A-2  An alimony or separate maintenance payment is any payment 
received by or on behalf of a spouse (which for this purpose includes a 
former spouse) of the payor under a divorce or separation instrument 
that meets all of the following requirements:
    (a) The payment is in cash (see A-5).
    (b) The payment is not designated as a payment which is excludible 
from the gross income of the payee and nondeductible by the payor (see 
A-8).
    (c) In the case of spouses legally separated under a decree of 
divorce or separate maintenance, the spouses are not members of the same 
household at the time the payment is made (see A-9).
    (d) The payor has no liability to continue to make any payment after 
the death of the payee (or to make any payment as a substitute for such 
payment) and the divorce or separation instrument states that there is 
no such liability (see A-10).
    (e) The payment is not treated as child support (see A-15).
    (f) To the extent that one or more annual payments exceed $10,000 
during any of the 6-post-separation years, the payor is obligated to 
make annual payments in each of the 6-post-separation years (see A-19).
    Q-3  In order to be treated as alimony or separate maintenance 
payments, must the payments be ``periodic'' as that term was defined 
prior to enactment of the Tax Reform Act of 1984 or be made in discharge 
of a legal obligation of the payor to support the payee arising out of a 
marital or family relationship?
    A-3  No. The Tax Reform Act of 1984 replaces the old requirements 
with the requirements described in A-2 above. Thus, the requirements 
that alimony or separate maintenance payments be ``periodic'' and be 
made in discharge of a legal obligation to support arising out of a 
marital or family relationship have been eliminated.
    Q-4  Are the instruments described in section 71(a) of prior law the 
same as divorce or separation instruments described in section 71, as 
amended by the Tax Reform Act of 1984?
    A-4  Yes.
    (b) Specific requirements.
    Q-5  May alimony or separate maintenance payments be made in a form 
other than cash?
    A-5  No. Only cash payments (including checks and money orders 
payable on demand) qualify as alimony or separate maintenance payments. 
Transfers of services or property (including a debt instrument of a 
third party or an annuity contract), execution of a debt instrument by 
the payor, or the use of property of the payor do not qualify as alimony 
or separate maintenance payments.
    Q-6  May payments of cash to a third party on behalf of a spouse 
qualify as alimony or separate maintenance payments if the payments are 
pursuant to the terms of a divorce or separation instrument?
    A-6  Yes. Assuming all other requirements are satisfied, a payment 
of cash by the payor spouse to a third party under the terms of the 
divorce or separation instrument will qualify as a payment of cash which 
is received ``on behalf of a spouse''. For example, cash payments of 
rent, mortgage, tax, or tuition liabilities of the payee spouse made 
under the terms of the divorce or separation instrument will qualify as 
alimony or separate maintenance payments. Any payments to maintain 
property owned by the payor spouse and used by the payee spouse 
(including mortgage payments, real estate taxes and insurance premiums) 
are not payments on behalf of a spouse even if those payments are made 
pursuant to the terms of the divorce or separation instrument. Premiums 
paid by the payor spouse for term or whole life insurance on the payor's 
life made under the terms of the divorce or separation instrument will 
qualify as payments on behalf of the payee spouse to the extent that the 
payee spouse is the owner of the policy.
    Q-7  May payments of cash to a third party on behalf of a spouse 
qualify as alimony or separate maintenance payments if the payments are 
made to the

[[Page 117]]

third party at the written request of the payee spouse?
    A-7  Yes. For example, instead of making an alimony or separate 
maintenance payment directly to the payee, the payor spouse may make a 
cash payment to a charitable organization if such payment is pursuant to 
the written request, consent or ratification of the payee spouse. Such 
request, consent or ratification must state that the parties intend the 
payment to be treated as an alimony or separate maintenance payment to 
the payee spouse subject to the rules of section 71, and must be 
received by the payor spouse prior to the date of filing of the payor's 
first return of tax for the taxable year in which the payment was made.
    Q-8  How may spouses designate that payments otherwise qualifying as 
alimony or separate maintenance payments shall be excludible from the 
gross income of the payee and nondeductible by the payor?
    A-8  The spouses may designate that payments otherwise qualifying as 
alimony or separate maintenance payments shall be nondeductible by the 
payor and excludible from gross income by the payee by so providing in a 
divorce or separation instrument (as defined in section 71(b)(2)). If 
the spouses have executed a written separation agreement (as described 
in section 71(b)(2)(B)), any writing signed by both spouses which 
designates otherwise qualifying alimony or separate maintenance payments 
as nondeductible and excludible and which refers to the written 
separation agreement will be treated as a written separation agreement 
(and thus a divorce or separation instrument) for purposes of the 
preceding sentence. If the spouses are subject to temporary support 
orders (as described in section 71(b)(2)(C)), the designation of 
otherwise qualifying alimony or separate payments as nondeductible and 
excludible must be made in the original or a subsequent temporary 
support order. A copy of the instrument containing the designation of 
payments as not alimony or separate maintenance payments must be 
attached to the payee's first filed return of tax (Form 1040) for each 
year in which the designation applies.
    Q-9  What are the consequences if, at the time a payment is made, 
the payor and payee spouses are members of the same household?
    A-9  Generally, a payment made at the time when the payor and payee 
spouses are members of the same household cannot qualify as an alimony 
or separate maintenance payment if the spouses are legally separated 
under a decree of divorce or of separate maintenance. For purposes of 
the preceding sentence, a dwelling unit formerly shared by both spouses 
shall not be considered two separate households even if the spouses 
physically separate themselves within the dwelling unit. The spouses 
will not be treated as members of the same household if one spouse is 
preparing to depart from the household of the other spouse, and does 
depart not more than one month after the date the payment is made. If 
the spouses are not legally separated under a decree of divorce or 
separate maintenance, a payment under a written separation agreement or 
a decree described in section 71(b)(2)(C) may qualify as an alimony or 
separate maintenance payment notwithstanding that the payor and payee 
are members of the same household at the time the payment is made.
    Q-10  Assuming all other requirements relating to the qualification 
of certain payments as alimony or separate maintenance payments are met, 
what are the consequences if the payor spouse is required to continue to 
make the payments after the death of the payee spouse?
    A-10  None of the payments before (or after) the death of the payee 
spouse qualify as alimony or separate maintenance payments.
    Q-11  What are the consequences if the divorce or separation 
instrument fails to state that there is no liability for any period 
after the death of the payee spouse to continue to make any payments 
which would otherwise qualify as alimony or separate maintenance 
payments?
    A-11  If the instrument fails to include such a statement, none of 
the payments, whether made before or after the death of the payee 
spouse, will qualify as alimony or separate maintenance payments.


[[Page 118]]


    Example (1). A is to pay B $10,000 in cash each year for a period of 
10 years under a divorce or separation instrument which does not state 
that the payments will terminate upon the death of B. None of the 
payments will qualify as alimony or separate maintenance payments.
    Example (2). A is to pay B $10,000 in cash each year for a period of 
10 years under a divorce or separation instrument which states that the 
payments will terminate upon the death of B. In addition, under the 
instrument, A is to pay B or B's estate $20,000 in cash each year for a 
period of 10 years. Because the $20,000 annual payments will not 
terminate upon the death of B, these payments will not qualify as 
alimony or separate maintenance payments. However, the separate $10,000 
annual payments will qualify as alimony or separate maintenance 
payments.

    Q-12  Will a divorce or separation instrument be treated as stating 
that there is no liability to make payments after the death of the payee 
spouse if the liability to make such payments terminates pursuant to 
applicable local law or oral agreement?
    A-12  No. Termination of the liability to make payments must be 
stated in the terms of the divorce or separation instrument.
    Q-13  What are the consequences if the payor spouse is required to 
make one or more payments (in cash or property) after the death of the 
payee spouse as a substitute for the continuation of pre-death payments 
which would otherwise qualify as alimony or separate maintenance 
payments?
    A-13  If the payor spouse is required to make any such substitute 
payments, none of the otherwise qualifying payments will qualify as 
alimony or separate maintenance payments. The divorce or separation 
instrument need not state, however, that there is no liability to make 
any such substitute payment.
    Q-14  Under what circumstances will one or more payments (in cash or 
property) which are to occur after the death of the payee spouse be 
treated as a substitute for the continuation of payments which would 
otherwise qualify as alimony or separate maintenance payments?
    A-14  To the extent that one or more payments are to begin to be 
made, increase in amount, or become accelerated in time as a result of 
the death of the payee spouse, such payments may be treated as a 
substitute for the continuation of payments terminating on the death of 
the payee spouse which would otherwise qualify as alimony or separate 
maintenance payments. The determination of whether or not such payments 
are a substitute for the continuation of payments which would otherwise 
qualify as alimony or separate maintenance payments, and of the amount 
of the otherwise qualifying alimony or separate maintenance payments for 
which any such payments are a substitute, will depend on all of the 
facts and circumstances.

    Example (1). Under the terms of a divorce decree, A is obligated to 
make annual alimony payments to B of $30,000, terminating on the earlier 
of the expiration of 6 years or the death of B. B maintains custody of 
the minor children of A and B. The decree provides that at the death of 
B, if there are minor children of A and B remaining, A will be obligated 
to make annual payments of $10,000 to a trust, the income and corpus of 
which are to be used for the benefit of the children until the youngest 
child attains the age of majority. These facts indicate that A's 
liability to make annual $10,000 payments in trust for the benefit of 
his minor children upon the death of B is a substitute for $10,000 of 
the $30,000 annual payments to B. Accordingly, $10,000 of each of the 
$30,000 annual payments to B will not qualify as alimony or separate 
maintenance payments.
    Example (2). Under the terms of a divorce decree, A is obligated to 
make annual alimony payments to B of $30,000, terminating on the earlier 
of the expiration of 15 years or the death of B. The divorce decree 
provides that if B dies before the expiration of the 15 year period, A 
will pay to B's estate the difference between the total amount that A 
would have paid had B survived, minus the amount actually paid. For 
example, if B dies at the end of the 10th year in which payments are 
made, A will pay to B's estate $150,000 ($450,000-$300,000). These facts 
indicate that A's liability to make a lump sum payment to B's estate 
upon the death of B is a substitute for the full amount of each of the 
annual $30,000 payments to B. Accordingly, none of the annual $30,000 
payments to B will qualify as alimony or separate maintenance payments. 
The result would be the same if the lump sum payable at B's death were 
discounted by an appropriate interest factor to account for the 
prepayment.

    (c) Child support payments.
    Q-15  What are the consequences of a payment which the terms of the 
divorce or separation instrument fix as

[[Page 119]]

payable for the support of a child of the payor spouse?
    A-15  A payment which under the terms of the divorce or separation 
instrument is fixed (or treated as fixed) as payable for the support of 
a child of the payor spouse does not qualify as an alimony or separate 
maintenance payment. Thus, such a payment is not deductible by the payor 
spouse or includible in the income of the payee spouse.
    Q-16  When is a payment fixed (or treated as fixed) as payable for 
the support of a child of the payor spouse?
    A-16  A payment is fixed as payable for the support of a child of 
the payor spouse if the divorce or separation instrument specifically 
designates some sum or portion (which sum or portion may fluctuate) as 
payable for the support of a child of the payor spouse. A payment will 
be treated as fixed as payable for the support of a child of the payor 
spouse if the payment is reduced (a) on the happening of a contingency 
relating to a child of the payor, or (b) at a time which can clearly be 
associated with such a contingency. A payment may be treated as fixed as 
payable for the support of a child of the payor spouse even if other 
separate payments specifically are designated as payable for the support 
of a child of the payor spouse.
    Q-17  When does a contingency relate to a child of the payor?
    A-17  For this purpose, a contingency relates to a child of the 
payor if it depends on any event relating to that child, regardless of 
whether such event is certain or likely to occur. Events that relate to 
a child of the payor include the following: the child's attaining a 
specified age or income level, dying, marrying, leaving school, leaving 
the spouse's household, or gaining employment.
    Q-18  When will a payment be treated as to be reduced at a time 
which can clearly be associated with the happening of a contingency 
relating to a child of the payor?
    A-18  There are two situations, described below, in which payments 
which would otherwise qualify as alimony or separate maintenance 
payments will be presumed to be reduced at a time clearly associated 
with the happening of a contingency relating to a child of the payor. In 
all other situations, reductions in payments will not be treated as 
clearly associated with the happening of a contingency relating to a 
child of the payor.
    The first situation referred to above is where the payments are to 
be reduced not more than 6 months before or after the date the child is 
to attain the age of 18, 21, or local age of majority. The second 
situation is where the payments are to be reduced on two or more 
occasions which occur not more than one year before or after a different 
child of the payor spouse attains a certain age between the ages of 18 
and 24, inclusive. The certain age referred to in the preceding sentence 
must be the same for each such child, but need not be a whole number of 
years.
    The presumption in the two situations described above that payments 
are to be reduced at a time clearly associated with the happening of a 
contingency relating to a child of the payor may be rebutted (either by 
the Service or by taxpayers) by showing that the time at which the 
payments are to be reduced was determined independently of any 
contingencies relating to the children of the payor. The presumption in 
the first situation will be rebutted conclusively if the reduction is a 
complete cessation of alimony or separate maintenance payments during 
the sixth post-separation year (described in A-21) or upon the 
expiration of a 72-month period. The presumption may also be rebutted in 
other circumstances, for example, by showing that alimony payments are 
to be made for a period customarily provided in the local jurisdiction, 
such as a period equal to one-half the duration of the marriage.

    Example: A and B are divorced on July 1, 1985, when their children, 
C (born July 15, 1970) and D (born September 23, 1972), are 14 and 12, 
respectively. Under the divorce decree, A is to make alimony payments to 
B of $2,000 per month. Such payments are to be reduced to $1,500 per 
month on January 1, 1991 and to $1,000 per month on January 1, 1995. On 
January 1, 1991, the date of the first reduction in payments, C will be 
20 years 5 months and 17 days old. On January 1, 1995, the date of the 
second reduction in payments, D will be 22 years 3 months and 9 days 
old. Each of the reductions in payments is to

[[Page 120]]

occur not more than one year before or after a different child of A 
attains the age of 21 years and 4 months. (Actually, the reductions are 
to occur not more than one year before or after C and D attain any of 
the ages 21 years 3 months and 9 days through 21 years 5 months and 17 
days.) Accordingly, the reductions will be presumed to clearly be 
associated with the happening of a contingency relating to C and D. 
Unless this presumption is rebutted, payments under the divorce decree 
equal to the sum of the reduction ($1,000 per month) will be treated as 
fixed for the support of the children of A and therefore will not 
qualify as alimony or separate maintenance payments.

    (d) Excess front-loading rules.
    Q-19  What are the excess front-loading rules?
    A-19  The excess front-loading rules are two special rules which may 
apply to the extent that payments in any calendar year exceed $10,000. 
The first rule is a minimum term rule, which must be met in order for 
any annual payment, to the extent in excess of $10,000, to qualify as an 
alimony or separate maintenance payment (see A-2(f)). This rule requires 
that alimony or separate maintenance payments be called for, at a 
minimum, during the 6 ``post-separation years''. The second rule is a 
recapture rule which characterizes payments retrospectively by requiring 
a recalculation and inclusion in income by the payor and deducation by 
the payee of previously paid alimony or separate maintenance payment to 
the extent that the amount of such payments during any of the 6 ``post-
separation years'' falls short of the amount of payments during a prior 
year by more than $10,000.
    Q-20  Do the excess front-loading rules apply to payments to the 
extent that annual payments never exceed $10,000?
    A-20  No. For example, A is to make a single $10,000 payment to B. 
Provided that the other requirements of section 71 are met, the payment 
will qualify as an alimony or separate maintenance payment. If A were to 
make a single $15,000 payment to B, $10,000 of the payment would qualify 
as an alimony or separate maintenance payment and $5,000 of the payment 
would be disqualified under the minimum term rule because payments were 
not to be made for the minimum period.
    Q-21  Do the excess front-loading rules apply to payments received 
under a decree described in section 71(b)(2)(C)?
    A-21  No. Payments under decrees described in section 71(b)(2)(C) 
are to be disregarded entirely for purposes of applying the excess 
front-loading rules.
    Q-22  Both the minimum term rule and the recapture rule refer to 6 
``post-separation years''. What are the 6 ``post separation years''?
    A-22  The 6 ``post-separation years'' are the 6 consecutive calendar 
years beginning with the first calendar year in which the payor pays to 
the payee an alimony or separate maintenance payment (except a payment 
made under a decree described in section 71(b)(2)(C)). Each year within 
this period is referred to as a ``post-separation year''. The 6-year 
period need not commence with the year in which the spouses separate or 
divorce, or with the year in which payments under the divorce or 
separation instrument are made, if no payments during such year qualify 
as alimony or separate maintenance payments. For example, a decree for 
the divorce of A and B is entered in October, 1985. The decree requires 
A to make monthly payments to B commencing November 1, 1985, but A and B 
are members of the same household until February 15, 1986 (and as a 
result, the payments prior to January 16, 1986, do not qualify as 
alimony payments). For purposes of applying the excess front-loading 
rules to payments from A to B, the 6 calendar years 1986 through 1991 
are post-separation years. If a spouse has been making payments pursuant 
to a divorce or separation instrument described in section 71(b)(2) (A) 
or (B), a modification of the instrument or the substitution of a new 
instrument (for example, the substitution of a divorce decree for a 
written separation agreement) will not result in the creation of 
additional post-separation years. However, if a spouse has been making 
payments pursuant to a divorce or separation instrument described in 
section 71(b)(2)(C), the 6-year period does not begin until the first 
calendar year in which alimony or separate maintenance payments are made

[[Page 121]]

under a divorce or separation instrument described in section 71(b)(2) 
(A) or (B).
    Q-23  How does the minimum term rule operate?
    A-23  The minimum term rule operates in the following manner. To the 
extent payments are made in excess of $10,000, a payment will qualify as 
an alimony or separate maintenance payment only if alimony or separate 
maintenance payments are to be made in each of the 6 post-separation 
years. For example, pursuant to a divorce decree, A is to make alimony 
payments to B of $20,000 in each of the 5 calendar years 1985 through 
1989. A is to make no payment in 1990. Under the minimum term rule, only 
$10,000 will qualify as an alimony payment in each of the calendar years 
1985 through 1989. If the divorce decree also required A to make a $1 
payment in 1990, the minimum term rule would be satisfied and $20,000 
would be treated as an alimony payment in each of the calendar years 
1985 through 1989. The recapture rule would, however, apply for 1990. 
For purposes of determining whether alimony or separate maintenance 
payments are to be made in any year, the possible termination of such 
payments upon the happening of a contingency (other than the passage of 
time) which has not yet occurred is ignored (unless such contingency may 
cause all or a portion of the payment to be treated as a child support 
payment).
    Q-24  How does the recapture rule operate?
    A-24   The recapture rule operates in the following manner. If the 
amount of alimony or separate maintenance payments paid in any post-
separation year (referred to as the ``computation year'') falls short of 
the amount of alimony or separate maintenance payments paid in any prior 
post-separation year by more than $10,000, the payor must compute an 
``excess amount'' for the computation year. The excess amount for any 
computation year is the sum of excess amounts determined with respect to 
each prior post-separation year. The excess amount determined with 
respect to a prior post-separation year is the excess of (1) the amount 
of alimony or separate maintenance payments paid by the payor spouse 
during such prior post-separation year, over (2) the amount of the 
alimony or separate maintenance payments paid by the payor spouse during 
the computation year plus $10,000. For purposes of this calculation, the 
amount of alimony or separate maintenance payments made by the payor 
spouse during any post-separation year preceding the computation year is 
reduced by any excess amount previously determined with respect to such 
year. The rules set forth above may be illustrated by the following 
example. A makes alimony payments to B of $25,000 in 1985 and $12,000 in 
1986. The excess amount with respect to 1985 that is recaptured in 1986 
is $3,000 ($25,000- ($12,000+$10,000)). For purposes of subsequent 
computation years, the amount deemed paid in 1985 is $22,000. If A makes 
alimony payments to B of $1,000 in 1987, the excess amount that is 
recaptured in 1987 will be $12,000. This is the sum of an $11,000 excess 
amount with respect to 1985 ($22,000-$1,000+$10,000)) and a $1,000 
excess amount with respect to 1986 ($12,000-($1,000+$10,000)). If, prior 
to the end of 1990, payments decline further, additional recapture will 
occur. The payor spouse must include the excess amount in gross income 
for his/her taxable year begining with or in the computation year. The 
payee spouse is allowed a deduction for the excess amount in computing 
adjusted gross income for his/her taxable year beginning with or in the 
computation year. However, the payee spouse must compute the excess 
amount by reference to the date when payments were made and not when 
payments were received.
    Q-25   What are the exceptions to the recapture rule?
    A-25   Apart from the $10,000 threshold for application of the 
recapture rule, there are three exceptions to the recapture rule. The 
first exception is for payments received under temporary support orders 
described in section 71(b)(2)(C) (see A-21). The second exception is for 
any payment made pursuant to a continuing liability over the period of 
the post-separation years to pay a fixed portion of the payor's income 
from a business or property or from compensation for employment or self-
employment. The third exception is

[[Page 122]]

where the alimony or separate manitenance payments in any post-
separation year cease by reason of the death of the payor or payee or 
the remarriage (as defined under applicable local law) of the payee 
before the close of the computation year. For example, pursuant to a 
divorce decree, A is to make cash payments to B of $30,000 in each of 
the calendar years 1985 through 1990. A makes cash payments of $30,000 
in 1985 and $15,000 in 1986, in which year B remarries and A's alimony 
payments cease. The recapture rule does not apply for 1986 or any 
subsequent year. If alimony or separate maintenance payments made by A 
decline or cease during a post-separation year for any other reason 
(including a failure by the payor to make timely payments, a 
modification of the divorce or separation instrument, a reduction in the 
support needs of the payee, or a reduction in the ability of the payor 
to provide support) excess amounts with respect to prior post-separation 
years will be subject to recapture.
    (e) Effective dates.
    Q-26  When does section 71, as amended by the Tax Reform Act of 
1984, become effective?
    A-26  Generally, section 71, as amended, is effective with respect 
to divorce or separation instruments (as defined in section 71(b)(2)) 
executed after December 31, 1984. If a decree of divorce or separate 
maintenance executed after December 31, 1984, incorporates or adopts 
without change the terms of the alimony or separate maintenance payments 
under a divorce or separation instrument executed before January 1, 
1985, such decree will be treated as executed before January 1, 1985. A 
change in the amount of alimony or separate maintenance payments or the 
time period over which such payments are to continue, or the addition or 
deletion of any contingencies or conditions relating to such payments is 
a change in the terms of the alimony or separate maintenance payments. 
For example, in November 1984, A and B executed a written separation 
agreement. In February 1985, a decree of divorce is entered in 
substitution for the written separation agreement. The decree of divorce 
does not change the terms of the alimony A pays to B. The decree of 
divorce will be treated as executed before January 1, 1985 and hence 
alimony payments under the decree will be subject to the rules of 
section 71 prior to amendment by the Tax Reform Act of 1984. If the 
amount or time period of the alimony or separate maintenance payments 
are not specified in the pre-1985 separation agreement or if the decree 
of divorce changes the amount or term of such payments, the decree of 
divorce will not be treated as executed before January 1, 1985, and 
alimony payments under the decree will be subject to the rules of 
section 71, as amended by the Tax Reform Act of 1984.
    Section 71, as amended, also applies to any divorce or separation 
instrument executed (or treated as executed) before January 1, 1985 that 
has been modified on or after January 1, 1985, if such modification 
expressly provides that section 71, as amended by the Tax Reform Act of 
1984, shall apply to the instrument as modified. In this case, section 
71, as amended, is effective with respect to payments made after the 
date the instrument is modified.

(Secs. 1041(d)(4) (98 Stat. 798, 26 U.S.C. 1041(d)(4), 152(e)(2)(A) (98 
Stat. 802, 26 U.S.C. 152(e)(2)(A), 215(c) (98 Stat. 800, 26 U.S.C. 
215(c)) and 7805 (68A Stat. 917, 26 U.S.C. 7805) of the Internal Revenue 
Code of 1954.

[T.D. 7973, 49 FR 34455, Aug. 31, 1984; 49 FR 36645, Sept. 19, 1984]



Sec. 1.71-2  Effective date; taxable years ending after March 31, 1954, subject to the Internal Revenue Code of 1939.

    Pursuant to section 7851(a)(1)(C), the regulations prescribed in 
Sec. 1.71-1, to the extent that they relate to payments under a written 
separation agreement executed after August 16, 1954, and to the extent 
that they relate to payments under a decree for support received after 
August 16, 1954, under a decree entered after March 1, 1954, shall also 
apply to taxable years beginning before January 1, 1954, and ending 
after August 16, 1954, although such years are subject to the Internal 
Revenue Code of 1939.



Sec. 1.72-1  Introduction.

    (a) General principle. Section 72 prescribes rules relating to the 
inclusion

[[Page 123]]

in gross income of amounts received under a life insurance, endowment, 
or annuity contract unless such amounts are specifically excluded from 
gross income under other provisions of Chapter 1 of the Code. In 
general, these rules provide that amounts subject to the provisions of 
section 72 are includible in the gross income of the recipient except to 
the extent that they are considered to represent a reduction or return 
of premiums or other consideration paid.
    (b) Amounts to be considered as a return of premiums. For the 
purpose of determining the extent to which amounts received represent a 
reduction or return of premiums or other consideration paid, the 
provisions of section 72 distinguish between ``amounts received as an 
annuity'' and ``amounts not received as an annuity''. In general, 
``amounts received as an annuity'' are amounts which are payable at 
regular intervals over a period of more than one full year from the date 
on which they are deemed to begin, provided the total of the amounts so 
payable or the period for which they are to be paid can be determined as 
of that date. See paragraph (b) (2) and (3) of Sec. 1.72-2. Any other 
amounts to which the provisions of section 72 apply are considered to be 
``amounts not received as an annuity''. See Sec. 1.72-11.
    (c) ``Amounts received as an annuity.'' (1) In the case of ``amounts 
received as an annuity'' (other than certain employees' annuities 
described in section 72(d) and in Sec. 1.72-13), a proportionate part of 
each amount so received is considered to represent a return of premiums 
or other consideration paid. The proportionate part of each annuity 
payment which is thus excludable from gross income is determined by the 
ratio which the investment in the contract as of the date on which the 
annuity is deemed to begin bears to the expected return under the 
contract as of that date. See Sec. 1.72-4.
    (2) In the case of employees' annuities of the type described in 
section 72(d), no amount received as an annuity in a taxable year to 
which the Internal Revenue Code of 1954 applies is includible in the 
gross income of a recipient until the aggregate of all amounts received 
thereunder and excluded from gross income under the applicable income 
tax law exceeds the consideration contributed (or deemed contributed) by 
the employee under Sec. 1.72-8. Thereafter, all amounts so received are 
includible in the gross income of the recipient. See Sec. 1.72-13.
    (d) ``Amounts not received as an annuity''. In the case of ``amounts 
not received as an annuity'', if such amounts are received after an 
annuity has begun and during its continuance, amounts so received are 
generally includible in the gross income of the recipient. Amounts not 
received as an annuity which are received at any other time are 
generally includible in the gross income of the recipient only to the 
extent that such amounts, when added to all amounts previously received 
under the contract which were excludable from the gross income of the 
recipient under the income tax law applicable at the time of receipt, 
exceed the premiums or other consideration paid (see Sec. 1.72-11). 
However, if the aggregate of premiums or other consideration paid for 
the contract includes amounts for which a deduction was allowed under 
section 404 as contributions on behalf of an owner-employee, the amounts 
received under the circumstances of the preceding sentence shall be 
includible in gross income until the amount so included equals the 
amount for which the deduction was so allowed. See paragraph (b) of 
Sec. 1.72-17.
    (e) Classification of recipients. For the purpose of the regulations 
under section 72, a recipient shall be considered an ``annuitant'' if he 
receives amounts under an annuity contract during the period that the 
annuity payments are to continue, whether for a term certain or during 
the continuing life or lives of the person or persons whose lives 
measure the duration of such annuity. However, a recipient shall be 
considered a ``beneficiary'' rather than an ``annuitant'' if the amounts 
he receives under a contract are received after the term of the annuity 
for a life or lives has expired and such amounts are paid by reason of 
the fact that the contract guarantees that payments of some minimum 
amount or for some minimum period shall be made. For special

[[Page 124]]

rules with respect to beneficiaries, see paragraphs (a)(1)(iii) and (c) 
of Sec. 1.72-11.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6676, 28 FR 
10134, Sept. 17, 1963]



Sec. 1.72-2  Applicability of section.

    (a) Contracts. (1) The contracts under which amounts paid will be 
subject to the provisions of section 72 include contracts which are 
considered to be life insurance, endowment, and annuity contracts in 
accordance with the customary practice of life insurance companies. For 
the purposes of section 72, however, it is immaterial whether such 
contracts are entered into with an insurance company. The term 
``endowment contract'' also includes the ``face-amount certificates'' 
described in section 72(1).
    (2) If two or more annuity obligations or elements to which section 
72 applies are acquired for a single consideration, such as an 
obligation to pay an annuity to A for his life accompanied by an 
obligation to pay an annuity to B for his life, there being a single 
consideration paid for both obligations (whether paid by one or more 
persons in equal or different amounts, and whether paid in a single sum 
or otherwise), such annuity elements shall be considered to comprise a 
single contract for the purpose of the application of section 72 and the 
regulations thereunder. For rules relating to the allocation of 
investment in the contract in the case of annuity elements payable to 
two or more persons, see paragraph (b) of Sec. 1.72-6.
    (3)(i) Sections 402 and 403 provide that certain distributions by 
employees' trusts and certain payments under employee plans are taxable 
under section 72. For taxable years beginning before January 1, 1964, 
section 72(e)(3), as in effect before such date, does not apply to such 
distributions or payments. For purposes of applying section 72 to such 
distributions and payments (other than those described in subdivision 
(iii) of this subparagraph), each separate program of the employer 
consisting of interrelated contributions and benefits shall be 
considered a single contract. Therefore, all distributions or payments 
(other than those described in subdivision (iii) of this subparagraph) 
which are attributable to a separate program of interrelated 
contributions and benefits are considered as received under a single 
contract. A separate program of interrelated contributions and benefits 
may be financed by the purchase from an insurance company of one or more 
group contracts or one or more individual contracts, or may be financed 
partly by the purchase of contracts from an insurance company and partly 
through an investment fund, or may be financed completely through an 
investment fund. A program may be considered separate for purposes of 
section 72 although it is only a part of a plan which qualifies under 
section 401. There may be several trusts under one separate program, or 
several separate programs may make use of a single trust. See, however, 
subdivision (iii) of this subparagraph for rules relating to what 
constitutes a ``contract'' for purposes of applying section 72 to 
distributions commencing before October 20, 1960.
    (ii) The following types of benefits, and the contributions used to 
provide them, are examples of separate programs of interrelated 
contributions and benefits:
    (a) Definitely determinable retirement benefits.
    (b) Definitely determinable benefits payable prior to retirement in 
case of disability.
    (c) Life insurance.
    (d) Accident and health insurance.

However, retirement benefits and life insurance will be considered part 
of a single separate program of interrelated contributions and benefits 
to the extent they are provided under retirement income, endowment, or 
other contracts providing life insurance protection. See examples (6), 
(7), and (8) contained in subdivision (iv) of this subparagraph for 
illustrations of the principles of this subdivision. See, also, 
Sec. 1.72-15 for rules relating to the taxation of amounts received 
under an employee plan which provides both retirement benefits and 
accident and health benefits.
    (iii) If any amount which is taxable under section 72 by reason of 
section 402 or 403 is actually distributed or made available to any 
person under an employees' trust or plan (other than the Civil Service 
Retirement Act, 5

[[Page 125]]

U.S.C. ch. 14) before October 20, 1960, section 72 shall, 
notwithstanding any other provisions in this subparagraph, be applied to 
all the distributions with respect to such person (or his beneficiaries) 
under such trust or plan (whether received before or after October 20, 
1960) as though such distributions were provided under a single 
contract. For purposes of applying section 72 to distributions to which 
this subdivision applies, therefore, the term ``contract'' shall be 
considered to include the entire interest of an employee in each trust 
or plan described in sections 402 and 403 to the extent that 
distributions thereunder are subject to the provisions of section 72. 
Section 72 shall be applied to distributions received under the Civil 
Service Retirement Act in the manner prescribed in subdivision (i) of 
this subparagraph (see example (4) in subdivision (iv) of this 
subparagraph).
    (iv) The application of this subparagraph may be illustrated by the 
following examples:

    Example (1). On January 1, 1961, X Corporation established a 
noncontributory profit-sharing plan for its employees providing that the 
amount standing to the account of each participant will be paid to him 
at the time of his retirement and also established a contributory 
pension plan for its employees providing for the payment to each 
participant of a lifetime pension after retirement. The profit-sharing 
plan is designed to enable the employees to participate in the profits 
of X Corporation; the amount of the contributions to it are determined 
by reference to the profits of X Corporation; and the amount of any 
distribution is determined by reference to the amount of contributions 
made on behalf of any participant and the earnings thereon. On the other 
hand, the pension plan is designed to provide a lifetime pension for a 
retired employee; the amount of the pension is to be determined by a 
formula set forth in the plan; and the amount of contributions to the 
plan is the amount necessary to provide such pensions. In view of the 
fact that each of these plans constitutes a separate program of 
interrelated contributions and benefits, the distributions from each 
shall be treated as received under a separate contract. If these plans 
had been established before October 20, 1960, then, in the case of an 
employee who receives a distribution under the plans before October 20, 
1960, the determination as to whether that distribution and all 
subsequent distributions to such employee are received under a single 
contract or under more than one contract shall be made by applying the 
rules in subdivision (iii) of this subparagraph. On the other hand, in 
the case of an employee who does not receive any distribution under 
these plans before October 20, 1960, the determination as to whether 
distributions to him are received under a single contract or under more 
than one contract shall be made in accordance with the rules illustrated 
by this example.
    Example (2). On January 1, 1961, Z Corporation established a profit-
sharing plan for its employees providing that any employee may make 
contributions, not in excess of 6 percent of his compensation, to a 
trust and that the employer would make matching contributions out of 
profits. Under the plan, a participant may receive a periodic 
distribution of the amount standing in his account during any period 
that he is absent from work due to a personal injury or sickness. On 
separation from service, the participant is entitled to receive a 
distribution of the balance standing in his account in accordance with 
one of several options. One option provides for the immediate 
distribution of one-half of the account and for the periodic 
distribution of the remaining one-half of the account. In addition, any 
participant may, after the completion of five years of participation, 
withdraw any part of his account, but in the case of such a withdrawal, 
the participant forfeits his rights to participate in the plan for a 
period of two years. Thus, a participant may receive distributions 
before separation from service; he may receive a distribution of a lump 
sum upon separation from service; he may also receive periodic 
distributions upon separation from service. However, since it is the 
total amount received under all the options that is interrelated with 
the contributions to the plan and not the amount received under any one 
option, this profit-sharing plan consists of only one separate program 
of interrelated contributions and benefits and all distributions under 
the plan (regardless of the option under which received) are treated as 
received under one contract. However, if, instead of providing that the 
amount standing in an employee's account would be paid to him during any 
period that he is absent from work due to a personal injury or sickness, 
the plan provided that a portion of the amount in the employee's account 
would be used to purchase incidental accident and health insurance, this 
plan would consist of two separate programs of interrelated 
contributions and benefits. The accident and health insurance, and the 
contributions used to purchase it, would be considered as one separate 
program of interrelated contributions and benefits and, therefore, a 
separate

[[Page 126]]

contract; whereas, the remaining contributions and benefits would be 
considered another separate program of interrelated contributions and 
benefits and, consequently, another separate contract.
    Example (3). On January 1, 1961, N Corporation established a profit-
sharing plan for its employees providing that the employees may make 
contributions, not in excess of 6 percent of their compensation, to a 
trust and that N Corporation would make matching contributions out of 
its profits. Under the plan, the employee may elect each year to have 
his and the employer's contributions for such year placed in either a 
savings arrangement or a retirement arrangement. Such an election is 
irrevocable. Under the savings arrangement, contributions to such 
arrangement for any one year and the earnings thereon will be 
distributed five years later. The retirement arrangement provides that 
all contributions thereto and the earnings thereon will be distributed 
when the employee is separated from the service of N Corporation. Since 
the distributions under the retirement arrangement are attributable 
solely to the contributions made to such arrangement and are not 
affected in any manner by contributions or distributions under the 
savings arrangement or any other plan, such distributions are treated as 
received under a separate program of interrelated contributions and 
benefits. Similarly, since distributions during any year under the 
savings arrangement are attributable only to contributions to such 
arrangement made during the fifth preceding year and are not affected in 
any manner by any other contributions to or distributions from such 
arrangement or any other plan, the savings arrangement constitutes a 
series of separate programs of interrelated contributions and benefits. 
The contributions to the savings arrangement for any year and the 
distribution in a subsequent year based thereon constitute a separate 
contract for purposes of section 72.
    Example (4). The Civil Service Retirement Act (5 U.S.C. Ch. 14) 
which provides retirement benefits for participating employees, consists 
of a compulsory program and a voluntary program. Under the compulsory 
program, all participating employees are required to make certain 
contributions and, upon retirement, are provided retirement benefits 
computed on the basis of compensation and length of service. Under the 
voluntary program, such participating employees are permitted to make 
contributions in addition to those required under the compulsory program 
and, upon retirement, are provided additional retirement benefits 
computed on the basis of their voluntary contributions. Distributions 
received under the Act constitute distributions from two separate 
contracts for purposes of section 72. Distributions received under the 
compulsory program are considered as received under a separate program 
of interrelated contributions and benefits since they are computed 
solely under the compulsory program and are not affected by any 
contributions or distributions under the voluntary program or under any 
other plan. For similar reasons, distributions which are attributable to 
the voluntary contributions are considered as received under a separate 
program of interrelated contributions and benefits.
    Example (5). On January 1, 1961, M Corporation established a 
contributory pension plan for its employees and created a trust to which 
it makes contributions to fund such plan. The plan provides that each 
participant will receive after age 65 a pension of 1\1/2\ percent of his 
compensation for each year of service performed subsequent to the 
establishment of such plan. In order to fund part of the benefits under 
the plan, the trustee purchased a group annuity contract. The remaining 
part of the benefits are to be paid out of a separate investment fund. 
This pension plan constitutes a single program of interrelated 
contributions and benefits and, therefore, all distributions received by 
an employee under the plan are considered as received under a single 
contract for purposes of section 72.
    Example (6). On January 1, 1961, Y Corporation established a 
noncontributory pension plan (including incidental death benefits) for 
its employees and created a trust to which it makes contributions to 
fund such plan. The plan provides that each participant will receive 
after age 65 a pension of 1\1/2\ percent of his compensation for each 
year of service performed subsequent to the establishment of such plan. 
In addition, such plan provides for the payment of a death benefit if 
the employee dies before age 65. The trustee funded the death benefits 
through the purchase of a group term insurance policy and funded the 
retirement benefits through the purchase of a group annuity contract. 
Because of a subsequent change in funding from the deferred annuity 
method to the deposit administration method, the trustee purchased a 
second group annuity contract to provide the retirement benefits under 
the plan accruing after the effective date of the change in method of 
funding. Thus, retirement benefits distributed to an employee whose 
service with Y Corporation commenced before the effective date of the 
change in method of funding will be attributable to both group annuity 
contracts. This pension plan includes two separate programs of 
interrelated contributions and benefits. The death benefits, and the 
contributions required to provide them, are considered as one separate 
program of interrelated contributions and benefits; whereas,

[[Page 127]]

the retirement benefits, and the contributions required to provide them, 
are considered as another separate program of interrelated contributions 
and benefits. Therefore, any retirement benefits received by an 
employee, whether attributable to one or both of the group annuity 
contracts, shall be considered as received under a single contract for 
purposes of section 72. In determining the tax treatment of any such 
retirement benefits under section 72, no amount of the premiums used to 
purchase the group term insurance policy shall be taken into account, 
since such premiums, and the death benefits which they purchased, 
constitute a separate program of interrelated contributions and 
benefits.
    Example (7). Assume the same facts as in example (6) except that, in 
lieu of funding the benefits in the manner described in that example, 
the trustee purchased individual retirement income contracts from an 
insurance company. Additional individual retirement income contracts are 
purchased in order to fund any increase in benefits resulting from 
increases in salary. Therefore, distributions to a particular employee 
may be attributable to a single retirement income contract or to more 
than one such contract. All distributions received by an employee under 
the pension plan, whether attributable to one or more retirement income 
contracts and whether made directly from the insurance company to the 
employee or made through the trustee, are considered as received under a 
single contract for purposes of section 72. For rules relating to the 
tax treatment of contributions and distributions under retirement 
income, endowment, or other life insurance contracts purchased by a 
trust described in section 401(a) and exempt under section 501(a), see 
paragraph (a) (2), (3), and (4) of Sec. 1.402(a)-1.
    Example (8). Assume the same facts as in example (6) except that, in 
lieu of funding the benefits in the manner described in that example, 
the trustee funded the death benefits and part of the retirement 
benefits by purchasing individual retirement income contracts from an 
insurance company. The remaining part of the retirement benefits (such 
as any increase in benefits resulting from increases in salary) are to 
be paid out of a separate investment fund. This pension plan includes, 
with respect to each participant, two separate contracts for purposes of 
section 72. The retirement income contract purchased by the trust for 
each participant is a separate program of interrelated contributions and 
benefits and all distributions attributable to such contract (whether 
made directly from the insurance company to the employee or made through 
the trustee) are considered as received under a single contract. For 
rules relating to the tax treatment of contributions and distributions 
under retirement income, endowment, or other life insurance contracts 
purchased by a trust described in section 401(a) and exempt under 
section 501(a), see paragraph (a) (2), (3), and (4) of Sec. 1.402(a)-1. 
The remaining distributions under the plan are considered as received 
under another separate program of interrelated contributions and 
benefits.

    (b) Amounts. (1)(i) In general, the amounts to which section 72 
applies are any amounts received under the contracts described in 
paragraph (a)(1) of this section. However, if such amounts are 
specifically excluded from gross income under other provisions of 
Chapter 1 of the Code, section 72 shall not apply for the purpose of 
including such amounts in gross income. For example, section 72 does not 
apply to amounts received under a life insurance contract if such 
amounts are paid by reason of the death of the insured and are 
excludable from gross income under section 101(a). See also sections 
101(d), relating to proceeds of life insurance paid at a date later than 
death, and 104(a)(4), relating to compensation for injuries or sickness.
    (ii) Section 72 does not exclude from gross income any amounts 
received under an agreement to hold an amount and pay interest thereon. 
See paragraph (a) of Sec. 1.72-14. However, section 72 does apply to 
amounts received by a surviving annuitant under a joint and survivor 
annuity contract since such amounts are not considered to be paid by 
reason of the death of an insured. For a special deduction for the 
estate tax attributable to the inclusion of the value of the interest of 
a surviving annuitant under a joint and survivor annuity contract in the 
estate of the deceased primary annuitant, see section 691(d) and the 
regulations thereunder.
    (2) Amounts subject to section 72 in accordance with subparagraph 
(1) of this paragraph are considered ``amounts received as an annuity'' 
only in the event that all of the following tests are met:
    (i) They must be received on or after the ``annuity starting date'' 
as that term is defined in paragraph (b) of Sec. 1.72-4;
    (ii) They must be payable in periodic installments at regular 
intervals (whether annually, semiannually, quarterly, monthly, weekly, 
or otherwise) over a period of more than one full

[[Page 128]]

year from the annuity starting date; and
    (iii) Except as indicated in subparagraph (3) of this paragraph, the 
total of the amounts payable must be determinable at the annuity 
starting date either directly from the terms of the contract or 
indirectly by the use of either mortality tables or compound interest 
computations, or both, in conjunction with such terms and in accordance 
with sound actuarial theory.


For the purpose of determining whether amounts subject to section 72(d) 
and Sec. 1.72-13 are ``amounts received as an annuity'', however, the 
provisions of subdivision (i) of this subparagraph shall be disregarded. 
In addition, the term ``amounts received as an annuity'' does not 
include amounts received to which the provisions of paragraph (b) or (c) 
of Sec. 1.72-11 apply, relating to dividends and certain amounts 
received by a beneficiary in the nature of a refund. If an amount is to 
be paid periodically until a fund plus interest at a fixed rate is 
exhausted, but further payments may be made thereafter because of 
earnings at a higher interest rate, the requirements of subdivision 
(iii) of this subparagraph are met with respect to the payments 
determinable at the outset by means of computations involving the fixed 
interest rate, but any payments received after the expiration of the 
period determinable by such computations shall be taxable as dividends 
received after the annuity starting date in accordance with paragraph 
(b)(2) of Sec. 1.72-11.
    (3)(i) Notwithstanding the requirement of subparagraph (2)(iii) of 
this paragraph, if amounts are to be received for a definite or 
determinable time (whether for a period certain or for a life or lives) 
under a contract which provides:
    (a) That the amount of the periodic payments may vary in accordance 
with investment experience (as in certain profit-sharing plans), cost of 
living indices, or similar fluctuating criteria, or
    (b) For specified payments the value of which may vary for income 
tax purposes, such as in the case of any annuity payable in foreign 
currency,


each such payment received shall be considered as an amount received as 
an annuity only to the extent that it does not exceed the amount 
computed by dividing the investment in the contract, as adjusted for any 
refund feature, by the number of periodic payments anticipated during 
the time that the periodic payments are to be made. If payments are to 
be made more frequently than annually, the amount so computed shall be 
multiplied by the number of periodic payments to be made during the 
taxable year for the purpose of determining the total amount which may 
be considered received as an annuity during such year. To this extent, 
the payments received shall be considered to represent a return of 
premium or other consideration paid and shall be excludable from gross 
income in the taxable year in which received. See paragraph (d) (2) and 
(3) of Sec. 1.72-4. To the extent that the payments received under the 
contract during the taxable year exceed the total amount thus considered 
to be received as an annuity during such year, they shall be considered 
to be amounts not received as an annuity and shall be included in the 
gross income of the recipient. See section 72(e) and paragraph (b)(2) of 
Sec. 1.72-11.
    (ii) For purposes of subdivision (i) of this subparagraph, the 
number of periodic payments anticipated during the time payments are to 
be made shall be determined by multiplying the number of payments to be 
made each year (a) by the number of years payments are to be made, or 
(b) if payments are to be made for a life or lives, by the multiple 
found by the use of the appropriate tables contained in Sec. 1.72-9, as 
adjusted in accordance with the table in paragraph (a)(2) of Sec. 1.72-
5.
    (iii) For an example of the computation to be made in accordance 
with this subparagraph and a special election which may be made in a 
taxable year subsequent to a taxable year in which the total payments 
received under a contract described in this subparagraph are less than 
the total of the amounts excludable from gross income in such year under 
subdivision (i) of

[[Page 129]]

this subparagraph, see paragraph (d)(3) of Sec. 1.72-4.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6497, 25 FR 
10019, Oct. 20, 1960; T.D. 6885, 31 FR 7798, June 2, 1966]



Sec. 1.72-3  Excludable amounts not income.

    In general, amounts received under contracts described in paragraph 
(a)(1) of Sec. 1.72-2 are not to be included in the income of the 
recipient to the extent that such amounts are excludable from gross 
income as the result of the application of section 72 and the 
regulations thereunder.



Sec. 1.72-4  Exclusion ratio.

    (a) General rule. (1)(i) To determine the proportionate part of the 
total amount received each year as an annuity which is excludable from 
the gross income of a recipient in the taxable year of receipt (other 
than amounts received under (a) certain employee annuities described in 
section 72(d) and Sec. 1.72-13, or (b) certain annuities described in 
section 72(o) and Sec. 1.122-1), an exclusion ratio is to be determined 
for each contract. In general, this ratio is determined by dividing the 
investment in the contract as found under Sec. 1.72-6 by the expected 
return under such contract as found under Sec. 1.72-5. Where a single 
consideration is given for a particular contract which provides for two 
or more annuity elements, an exclusion ratio shall be determined for the 
contract as a whole by dividing the investment in such contract by the 
aggregate of the expected returns under all the annuity elements 
provided thereunder. However, where the provisions of paragraph (b)(3) 
of Sec. 1.72-2 apply to payments received under such a contract, see 
paragraph (b)(3) of Sec. 1.72-6. In the case of a contract to which 
Sec. 1.72-6(d) (relating to contracts in which amounts were invested 
both before July 1, 1986, and after June 30, 1986) applies, the 
exclusion ratio for purposes of this paragraph (a) is determined in 
accordance with Sec. 1.72-6(d) and, in particular, Sec. 1.72-6(d)(5)(i).
    (ii) The exclusion ratio for the particular contract is then applied 
to the total amount received as an annuity during the taxable year by 
each recipient. See, however, paragraph (e)(3) of Sec. 1.72-5. Any 
excess of the total amount received as an annuity during the taxable 
year over the amount determined by the application of the exclusion 
ratio to such total amount shall be included in the gross income of the 
recipient for the taxable year of receipt.
    (2) The principles of subparagraph (1) may be illustrated by the 
following example:

    Example Taxpayer A purchased an annuity contract providing for 
payments of $100 per month for a consideration of $12,650. Assuming that 
the expected return under this contract is $16,000 the exclusion ratio 
to be used by A is $12,650/16,000; or 79.1 percent (79.06 rounded to the 
nearest tenth). If 12 such monthly payments are received by A during his 
taxable year, the total amount he may exclude from his gross income in 
such year is $949.20 ($1,200x79.1 percent).The balance of $250.80 
($1,200 less $949.20) is the amount to be included in gross income. If A 
instead received only five such payments during the year, he should 
exclude $395.50 (500x79.1 percent) of the total amounts received.


For examples of the computation of the exclusion ratio in cases where 
two annuity elements are acquired for a single consideration, see 
paragraph (b)(1) of Sec. 1.72-6.
    (3) The exclusion ratio shall be applied only to amounts received as 
an annuity within the meaning of that term under paragraph (b) (2) and 
(3) of Sec. 1.72-2. Where the periodic payments increase in amount after 
the annuity starting date in a manner not provided by the terms of the 
contract at such date, the portion of such payments representing the 
increase is not an amount received as an annuity. For the treatment of 
amounts not received as an annuity, see section 72(e) and Sec. 1.72-11. 
For special rules where paragraph (b)(3) of Sec. 1.72-2 applies to 
amounts received, see paragraph (d)(3) of this section.
    (4) After an exclusion ratio has been determined for a particular 
contract, it shall be applied to any amounts received as an annuity 
thereunder unless or until one of the following occurs:
    (i) The contract is assigned or transferred for a valuable 
consideration (see section 72(g) and paragraph (a) of Sec. 1.72-10);
    (ii) The contract matures or is surrendered, redeemed, or discharged 
in

[[Page 130]]

accordance with the provisions of paragraph (c) or (d) of Sec. 1.72-11;
    (iii) The contract is exchanged (or is considered to have been 
exchanged) in a manner described in paragraph (e) of Sec. 1.72-11.
    (b) Annuity starting date. (1) Except as provided in subparagraph 
(2) of this paragraph, the annuity starting date is the first day of the 
first period for which an amount is received as an annuity, except that 
if such date was before January 1, 1954, then the annuity starting date 
is January 1, 1954. The first day of the first period for which an 
amount is received as an annuity shall be whichever of the following is 
the later:
    (i) The date upon which the obligations under the contract became 
fixed, or
    (ii) The first day of the period (year, half-year, quarter, month, 
or otherwise, depending on whether payments are to be made annually, 
semiannually, quarterly, monthly, or otherwise) which ends on the date 
of the first annuity payment.
    (2) Notwithstanding the provisions of paragraph (b)(1) of this 
section, the annuity starting date shall be determined in accordance 
with whichever of the following provisions is appropriate:
    (i) In the case of a joint and survivor annuity contract described 
in section 72(i) and paragraph (b)(3) of Sec. 1.72-5, the annuity 
starting date is January 1, 1954, or the first day of the first period 
for which an amount is received as an annuity by the surviving 
annuitant, whichever is the later;
    (ii) In the case of the transfer of an annuity contract for a 
valuable consideration, as described in section 72(g) and paragraph (a) 
of Sec. 1.72-10, the annuity starting date shall be January 1, 1954, or 
the first day of the first period for which the transferee received an 
amount as an annuity, whichever is the later;
    (iii) If the provisions of paragraph (e) of Sec. 1.72-11 apply to an 
exchange of one contract for another, or to a transaction deemed to be 
such an exchange, the annuity starting date of the contract received (or 
deemed received) in exchange shall be January 1, 1954, or the first day 
of the first period for which an amount is received as an annuity under 
such contract, whichever is the later; and
    (iv) In the case of an employee who has retired from work because of 
personal injuries or sickness, and who is receiving amounts under a plan 
that is a wage continuation plan under section 105(d) and Sec. 1.105-4, 
the annuity starting date shall be the date the employee reaches 
mandatory retirement age, as defined in Sec. 1.105-4(a)(3)(i)(B). (See 
also Secs. 1.72-15 and 1.105-6 for transitional and other special 
rules.)
    (c) Fiscal year taxpayers. Fiscal year taxpayers receiving amounts 
as annuities in a taxable year to which the Internal Revenue Code of 
1954 applies shall determine the annuity starting date in accordance 
with section 72(c)(4) and this section. The annuity starting date for 
fiscal year taxpayers receiving amounts as an annuity in a taxable year 
to which the Internal Revenue Code of 1939 applies shall be January 1, 
1954, except where the first day of the first period for which an amount 
is received by such a taxpayer as an annuity is subsequent thereto and 
before the end of a fiscal year to which the Internal Revenue Code of 
1939 applied. In such case, the latter date shall be the annuity 
starting date. In all cases where a fiscal year taxpayer received an 
amount as an annuity in a taxable year to which the Internal Revenue 
Code of 1939 applied and subsequent to the annuity starting date 
determined in accordance with the provisions of this paragraph, such 
amount shall be disregarded for the purposes of section 72 and the 
regulations thereunder.
    (d) Exceptions to the general rule. (1) Where the provisions of 
section 72 would otherwise require an exclusion ratio to be determined, 
but the investment in the contract (determined under Sec. 1.72-6) is an 
amount of zero or less, no exclusion ratio shall be determined and all 
amounts received under such a contract shall be includible in the gross 
income of the recipient for the purposes of section 72.
    (2) Where the investment in the contract is equal to or greater than 
the total expected return under such contract found under Sec. 1.72-5, 
the exclusion

[[Page 131]]

ratio shall be considered to be 100 percent and all amounts received as 
an annuity under such contract shall be excludable from the recipient's 
gross income. See, for example, paragraph (f)(1) of Sec. 1.72-5. In the 
case of a contract to which Sec. 1.72-6(d) (relating to contracts in 
which amounts were invested both before July 1, 1986, and after June 30, 
1986) applies, this paragraph (d)(2) is applied in the manner prescribed 
in Sec. 1.72-6(d) and, in particular, Sec. 1.72-6(d)(5)(ii).
    (3)(i) If a contract provides for payments to be made to a taxpayer 
in the manner described in paragraph (b)(3) of Sec. 1.72-2, the 
investment in the contract shall be considered to be equal to the 
expected return under such contract and the resulting exclusion ratio 
(100%) shall be applied to all amounts received as an annuity under such 
contract. For any taxable year, payments received under such a contract 
shall be considered to be amounts received as an annuity only to the 
extent that they do not exceed the portion of the investment in the 
contract which is properly allocable to that year and hence excludable 
from gross income as a return of premiums or other consideration paid 
for the contract. The portion of the investment in the contract which is 
properly allocable to any taxable year shall be determined by dividing 
the investment in the contract (adjusted for any refund feature in the 
manner described in paragraph (d) of Sec. 1.72-7) by the applicable 
multiple (whether for a term certain, life, or lives) which would 
otherwise be used in determining the expected return for such a contract 
under Sec. 1.72-5. The multiple shall be adjusted in accordance with the 
provisions of the table in paragraph (a)(2) of Sec. 1.72-5, if any 
adjustment is necessary, before making the above computation. If 
payments are to be made more frequently than annually and the number of 
payments to be made in the taxable year in which the annuity begins are 
less than the number of payments to be made each year thereafter, the 
amounts considered received as an annuity (as otherwise determined under 
this subdivision) shall not exceed, for such taxable year (including a 
short taxable year), an amount which bears the same ratio to the portion 
of the investment in the contract considered allocable to each taxable 
year as the number of payments to be made in the first year bears to the 
number of payments to be made in each succeeding year. Thus, if payments 
are to be made monthly, only seven payments will be made in the first 
taxable year, and the portion of the investment in the contract 
allocable to a full year of payments is $600, the amounts considered 
received as an annuity in the first taxable year cannot exceed $350 
($600x\7/12\). See subdivision (iii) of this subparagraph for an example 
illustrating the determination of the portion of the investment in the 
contract allocable to one taxable year of the taxpayer.
    (ii) If subdivision (i) of this subparagraph applies to amounts 
received by a taxpayer and the total amount of payments he receives in a 
taxable year is less than the total amount excludable for such year 
under subdivision (i) of this subparagraph, the taxpayer may elect, in a 
succeeding taxable year in which he receives another payment, to 
redetermine the amounts to be received as an annuity during the current 
and succeeding taxable years. This shall be computed in accordance with 
the provisions of subdivision (i) of this subparagraph except that:
    (a) The difference between the portion of the investment in the 
contract allocable to a taxable year, as found in accordance with 
subdivision (i) of this subparagraph, and the total payments actually 
received in the taxable year prior to the election shall be divided by 
the applicable life expectancy of the annuitant (or annuitants), found 
in accordance with the appropriate table in Sec. 1.72-9 (and adjusted in 
accordance with paragraph (a)(2) of Sec. 1.72-5), or by the remaining 
term of a term certain annuity, computed as of the first day of the 
first period for which an amount is received as an annuity in the 
taxable year of the election; and
    (b) The amount determined under (a) of this subdivision shall be 
added to the portion of the investment in the contract allocable to each 
taxable year (as otherwise found). To the extent that the total periodic 
payments received under the contract in the taxable year

[[Page 132]]

of the election or any succeeding taxable year does not equal this total 
sum, such payments shall be excludable from the gross income of the 
recipient. To the extent such payments exceed the sum so found, they 
shall be fully includible in the recipient's gross income. See 
subdivision (iii) of this subparagraph for an example illustrating the 
redetermination of amounts to be received as an annuity and subdivision 
(iv) of this subparagraph for the method of making the election provided 
by this subdivision.
    (iii) The application of the principles of paragraph (d)(3) (i) and 
(ii) of this section may be illustrated by the following example:

    Example. Taxpayer A, a 64 year old male, files his return on a 
calendar year basis and has a life expectancy of 15.6 years on June 30, 
1954, the annuity starting date of a contract to which Sec. 1.72-2(b)(3) 
applies and which he purchased for $20,000. The contract provides for 
variable annual payments for his life. He receives a payment of $1,000 
on June 30, 1955, but receives no other payment until June 30, 1957. He 
excludes the $1,000 payment from his gross income for the year 1955 
since this amount is less than $1,324.50, the amount determined by 
dividing his investment in the contract ($20,000) by his life expectancy 
adjusted for annual payments, 15.1 (15.6-0.5), as of the original 
annuity starting date. Taxpayer A may elect, in his return for the 
taxable year 1957, to redetermine amounts to be received as an annuity 
under his contract as of June 30, 1956. For the purpose of determining 
the extent to which amounts received in 1957 or thereafter shall be 
considered amounts received as an annuity (to which a 100 percent 
exclusion ratio shall apply) he shall add $118.63 to the $1,324.50 
originally determined to be receivable as an annuity under the contract, 
making a total of $1,443.13. This is determined by dividing the 
difference between what was excludable in 1955 and 1956, $2,649 
(2x$1,324.50) and what he actually received in those years ($1,000) by 
his life expectancy adjusted for annual payments, 13.9 (14.4-0.5), as of 
his age at his nearest birthday (66) on the first day of the first 
period for which he received an amount as an annuity in the taxable year 
of election (June 30, 1956). The result, $1,443.13, is excludable in 
that year and each year thereafter as an amount received as an annuity 
to which the 100% exclusion ratio applies. It will be noted that in this 
example the taxpayer received amounts less than the excludable amounts 
in two successive years and deferred making his election until the third 
year, and thus was able to accumulate the portion of the investment in 
the contract allocable to each taxable year to the extent he failed to 
receive such portion in both years. Assuming that he received $1,500 in 
the taxable year of his election, he would include $56.87 in his gross 
income and exclude $1,443.13 therefrom for that year.

    (iv) If the taxpayer chooses to make the election described in 
subdivision (ii) of this subparagraph, he shall file with his return a 
statement that he elects to make a redetermination of the amounts 
excludable from gross income under his annuity contract in accordance 
with the provisions of paragraph (d)(3) of Sec. 1.72-4. This statement 
shall also contain the following information:
    (a) The original annuity starting date and his age on that date,
    (b) The date of the first day of the first period for which he 
received an amount in the current taxable year,
    (c) The investment in the contract originally determined (as 
adjusted for any refund feature), and
    (d) The aggregate of all amounts received under the contract between 
the date indicated in (a) of this subdivision and the day after the date 
indicated in (b) of this subdivision to the extent such amounts were 
excludable from gross income.

He shall include in gross income any amounts received during the taxable 
year for which the return is made in accordance with the redetermination 
made under this subparagraph.
    (v) In the case of a contract to which Sec. 1.72-6(d) (relating to 
contracts in which amounts were invested both before July 1, 1986, and 
after June 30, 1986) applies, this paragraph (d)(3) is applied in the 
manner prescribed in Sec. 1.72-6(d) and, in particular, Sec. 1.72-
6(d)(5)(iii). This application may be illustrated by the following 
example:

    Example B, a male calendar year taxpayer, purchases a contract which 
provides for variable annual payments for life and to which Sec. 1.72-
2(b)(3) applies. The annuity starting date of the contract is June 30, 
1990, when B is 64 years old. B receives a payment of $1,000 on June 30, 
1991, but receives no other payment until June 30, 1993. B's total 
investment in the contract is $25,000. B's pre-July 1986 investment in 
the contract is $12,000. If B makes the election described in Sec. 1.72-
6(d)(6), separate computations are required to determine the amounts 
received as an annuity and excludable from gross income with

[[Page 133]]

respect to the pre-July 1986 investment in the contract and the post-
June 1986 investment in the contract. In the separate computations, B 
first determines the applicable portions of the total payment received 
which are allocable to the pre-July 1986 investment in the contract and 
the post-June 1986 investment in the contract. The portion of the 
payment received allocable to the pre-July 1986 investment in the 
contract is $480 ($12,000/$25,000 x $1,000). The portion of the payment 
received allocable to the post-June 1986 investment in the contract is 
$520 ($13,000/$25,000 x $1,000).
    Second, B determines the pre-July 1986 investment in the contract 
and the post-June 1986 investment in the contract allocable to the 
taxable year by dividing the pre-July 1986 and post-June 1986 
investments in the contract by the applicable life expectancy multiple. 
The life expectancy multiple applicable to pre-July 1986 investment in 
the contract is B's life expectancy as of the original annuity starting 
date adjusted for annual payments and is determined under Table I of 
Sec. 1.72-9 [15.1 (15.6-0.5)]. The life expectancy multiple applicable 
to post-June 1986 investment in the contract is determined under Table V 
of Sec. 1.72-9 (20.3 (20.8-0.5)). Thus, the pre-July 1986 investment in 
the contract allocable to each taxable year is $794.70 ($12,000/15.1), 
and the post-June 1986 investment in the contract so allocable is 
$640.39 ($13,000/20.3). Because the applicable portions of the total 
payment received in 1991 under the contract ($480 allocable to the pre-
July 1986 investment in the contract and $520 allocable to the post-June 
1986 investment in the contract) are treated as amounts received as an 
annuity and are excludable from gross income to the extent they do not 
exceed the portion of the corresponding investment in the contract 
allocable to 1991 ($794.70 pre-July 1986 investment in the contract and 
$640.39 post-June 1986 investment in the contract), the entire amount of 
each applicable portion of the total payment is excludable from gross 
income. B may elect, in the return filed for taxable year 1993, to 
redetermine amounts to be received as an annuity under the contract as 
of June 30, 1992. The extent to which the amounts received in 1993 or 
thereafter shall be considered amounts received as an annuity is 
determined as follows:

 
 
 
Pre-July 1986 investment in the contract allocable to          $1,589.40
 taxable years 1991 and 1992 ($794.70 x 2).................
Less: Portion of total payments allocable to pre-July 1986        480.00
 investment in the contract actually received as an annuity
 in taxable years 1991 and 1992............................
                                                            ------------
                                                                1,109.40
Divided by: Life expectancy multiple applicable to pre-July         13.9
 1986 investment in the contract for B, age 66 (14.4--0.5).
                                                            ------------
                                                                   79.81
Plus: Amount originally determined with respect to pre-July       794.70
 1986 investment in the contract...........................
                                                            ------------
Pre-July 1986 amount.......................................       874.51
                                                            ============
Post-June 1986 investment in the contract allocable to         $1,280.78
 taxable years 1991 and 1992 ($640.39 x 2).................
Less: Portion of total payments allocable to post-June 1986       520.00
 investment in the contract actually received as an annuity
 in taxable years 1991 and 1992............................
                                                            ------------
                                                                  760.78
Divided by: Life expectancy multiple applicable to post-            18.7
 June 1986 investment in the contract for B, age 66 (19.2-
 0.5)......................................................
                                                            ------------
                                                                   40.68
Plus: Amount originally determined with respect to post-          640.39
 June 1986 investment in the contract......................
                                                            ------------
Post-June 1986 amount......................................       681.07
 

    (vi) The method of making an election to perform the separate 
computations illustrated in paragraph (d)(3)(v) of this section is 
described in Sec. 1.72-6(d)(6).
    (e) Exclusion ratio in the case of two or more annuity elements 
acquired for a single consideration. (1)(i) Where two or more annuity 
elements are provided under a contract described in paragraph (a)(2) of 
Sec. 1.72-2, an exclusion ratio shall be determined for the contract as 
a whole and applied to all amounts received as an annuity under any of 
the annuity elements. To obtain this ratio, the investment in the 
contract determined in accordance with Sec. 1.72-6 shall be divided by 
the aggregate of the expected returns found with respect to each of the 
annuity elements in accordance with Sec. 1.72-5. For this purpose, it is 
immaterial that payments under one or more of the annuity elements 
involved have not commenced at the time when an amount is first received 
as an annuity under one or more of the other annuity elements.

[[Page 134]]

    (ii) The exclusion ratio found under subdivision (i) of this 
subparagraph does not apply to:
    (a) An annuity element payable to a surviving annuitant under a 
joint and survivor annuity contract to which section 72(i) and 
paragraphs (b)(3) and (e)(3) of Sec. 1.72-5 apply, or to
    (b) A contract under which one or more of the constituent annuity 
elements provides for payments described in paragraph (b)(3) of 
Sec. 1.72-2.

For rules with respect to a contract providing for annuity elements 
described in (b) of this subdivision, see subparagraph (2) of this 
paragraph.
    (2) If one or more of the annuity elements under a contract 
described in paragraph (a)(2) of Sec. 1.72-2 provides for payments to 
which paragraph (b)(3) of Sec. 1.72-2 applies:
    (i) With respect to the annuity elements to which paragraph (b)(3) 
of Sec. 1.72-2 does not apply, an exclusion ratio shall be determined by 
dividing the portion of the investment in the entire contract which is 
properly allocable to all such elements (in the manner provided in 
paragraph (b)(3)(ii) of Sec. 1.72-6) by the aggregate of the expected 
returns thereunder and such ratio shall be applied in the manner 
described in subdivision (i) of subparagraph (1); and
    (ii) With respect to the annuity elements to which paragraph (b)(3) 
of Sec. 1.72-2 does apply, the investment in the entire contract shall 
be reduced by the portion thereof found in subdivision (i) of this 
subparagraph and the resulting amount shall be used to determine the 
extent to which the aggregate of the payments received during the 
taxable year under all such elements is excludable from gross income. 
The amount so excludable shall be allocated to each recipient under such 
elements in the same ratio that the total of payments he receives each 
year bears to the total of the payments received by all such recipients 
during the year. The exclusion ratio with respect to the amounts so 
allocated shall be 100 percent. See paragraph (f)(2) of Sec. 1.72-5 and 
paragraph (b)(3) of Sec. 1.72-6.
    (iii) In the case of a contract to which Sec. 1.72-6(d) (relating to 
contracts in which amounts were invested both before July 1, 1986, and 
after June 30, 1986) applies, this paragraph (e) is applied in the 
manner prescribed in Sec. 1.72-6(d) and, in particular, Sec. 1.72-
6(d)(5)(iv).

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 7352, 40 FR 
16663, Apr. 14, 1975; T.D. 8115, 51 FR 45691, Dec. 19, 1986; 52 FR 
10223, Mar. 31, 1987]



Sec. 1.72-5  Expected return.

    (a) Expected return for but one life. (1) If a contract to which 
section 72 applies provides that one annuitant is to receive a fixed 
monthly income for life, the expected return is determined by 
multiplying the total of the annuity payments to be received annually by 
the multiple shown in Table I or V (whichever is applicable) of 
Sec. 1.72-9 under the age (as of the annuity starting date) and, if 
applicable, sex of the measuring life (usually the annuitant's). Thus, 
where a male purchases a contract before July 1, 1986, providing for an 
immediate annuity of $100 per month for his life and, as of the annuity 
starting date (in this case the date of purchase), the annuitant's age 
at his nearest birthday is 66, the expected return is computed as 
follows:

Monthly payment of $100x12 months equals annual payment of....    $1,200
Multiple shown in Table I, male, age 66.......................      14.4
                                                               ---------
Expected return (1,200x14.4)..................................    17,280
 


If, however, the taxpayer had purchased the contract after June 30, 
1986, the expected return would be $23,040, determined by multiplying 
19.2 (multiple shown in Table V, age 66) by $1,200.
    (2)(i) If payments are to be made quarterly, semiannually, or 
annually, an adjustment of the applicable multiple shown in Table I or V 
(whichever is applicable) may be required. A further adjustment may be 
required where the interval between the annuity starting date and the 
date of the first payment is less than the interval between future 
payments. Neither adjustment shall be made, however, if the payments are 
to be made more frequently than quarterly. The amount of the adjustment, 
if any, is to be found in accordance with the following table:

[[Page 135]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
 If the number of whole months from the annuity starting
           date to the first payment date is--             0-1     2      3      4      5      6       7        8        9        10       11       12
--------------------------------------------------------------------------------------------------------------------------------------------------------
And the payments under the contract are to be made:
    Annually............................................   +0.5   +0.4   +0.3   +0.2   +0.1      0        0     -0.1     -0.2     -0.3     -0.4     -0.5
                                                         -----------------------------------------------------------------------------------------------
    Semiannually........................................    +.2    +.1      0      0    -.1    -.2  .......  .......  .......  .......  .......  .......
                                                         -----------------------------------------------------------------------------------------------
    Quarterly...........................................    +.1      0    -.1  .....  .....  .....  .......  .......  .......  .......  .......  .......
--------------------------------------------------------------------------------------------------------------------------------------------------------


Thus, for a male, age 66, the multiple found in Table I, adjusted for 
quarterly payments the first of which is to be made one full month after 
the annuity starting date, is 14.5 (14.4+0.1); for semiannual payments 
the first of which is to be made six full months from the annuity 
starting date, the adjusted multiple is 14.2 (14.4-0.2); for annual 
payments the first of which is to be made one full month from the 
annuity starting date, the adjusted multiple is 14.9 (14.4+0.5). If the 
annuitant in the example shown in subparagraph (1) of this paragraph 
were to receive an annual payment of $1,200 commencing 12 full months 
after his annuity starting date, the amount of the expected return would 
be $16,680 ($1,200x13.9 [14.4-0.5]). Similarly, for an annuitant, age 
50, the multiple found in Table V, adjusted for quarterly payments the 
first of which is to be made one full month after the annuity starting 
date, is 33.2 (33.1+0.1); for semiannual payments the first of which is 
to be made six full months from the annuity starting date, the adjusted 
multiple is 32.9 (33.1-0.2); for annual payments the first of which is 
to be made one full month from the annuity starting date, the adjusted 
multiple is 33.6 (33.1+0.5).
    (ii) Notwithstanding the table in subdivision (i) of this 
subparagraph, adjustments of multiples for early or other than monthly 
payments determined prior to February 19, 1956, under the table 
prescribed in paragraph 1(b)(4) of T.D. 6118 (19 FR 9897, C.B. 1955-1, 
699), approved December 30, 1954, need not be redetermined.
    (3) If the contract provides for fixed payments to be made to an 
annuitant until death or until the expiration of a specified limited 
period, whichever occurs earlier, the expected return of such temporary 
life annuity is determined by multiplying the total of the annuity 
payments to be received annually by the multiple shown in Table IV or 
VIII (whichever is applicable) of Sec. 1.72-9 for the age (as of the 
annuity starting date) and, if applicable, sex of the annuitant and the 
nearest whole number of years in the specified period. For example, if a 
male annuitant, age 60 (at his nearest birthday), is to receive $60 per 
month for five years or until he dies, whichever is earlier, and there 
is no post-June 1986, investment in the contract, the expected return 
under such a contract is $3,456, computed as follows:

Monthly payments of $60x12 months equals annual payment of....      $720
Multiple shown in Table IV for male, age 60, for term of 5           4.8
 years........................................................
                                                               ---------
Expected return for 5 year temporary life annuity of $720 per     $3,456
 year ($720x4.8)..............................................
 


If the annuitant purchased the same contract after June 30, 1986, the 
expected return under the contract would be $3,528, computed as follows:

Monthly payments of $60x12 months equals annual payment          $720.00
 of....................................................
Multiple shown in Table VIII for annuitant, age 60, for              4.9
 term of 5 years.......................................
                                                        ----------------
Expected return for 5-year temporary life annuity of           $3,528.00
 $720 per year ($720x4.9)..............................
 


The adjustment provided by subparagraph (2) of this paragraph shall not 
be made with respect to the multiple found in Table IV or VIII 
(whichever is applicable).
    (4) If the contract provides for payments to be made to an annuitant 
for the annuitant's lifetime, but the amount of the annual payments is 
to

[[Page 136]]

be decreased after the expiration of a specified limited period, the 
expected return is computed by considering the contract as a combination 
of a whole life annuity for the smaller amount plus a temporary life 
annuity for an amount equal to the difference between the larger and the 
smaller amount. For example, if a male annuitant, age 60, is to receive 
$150 per month for five years or until his earlier death, and is to 
receive $90 per month for the remainder of his lifetime after such five 
years, the expected return is computed as if the annuitant's contract 
consisted of a whole life annuity for $90 per month plus a five year 
temporary life annuity of $60 per month. In such circumstances, the 
expected return if there is no post-June 1986 investment in the contract 
is computed as follows:

Monthly payments of $90x12 months equals annual payment           $1,080
 of....................................................
Multiple shown in Table I for male, age 60.............             18.2
                                                        ----------------
Expected return for whole life annuity of $1,080 per             $19,656
 year..................................................
Expected return for 5-year temporary life annuity of              $3,456
 $720 per year (as found in subparagraph (3) of this
 paragraph (a))........................................
                                                        ----------------
    Total expected return..............................          $23,112
 


If the annuitant purchased the same contract after June 30, 1986, the 
expected return would be $29,664, computed as follows:

Monthly payments of $90x12 months equals annual payment           $1,080
 of....................................................
Multiple shown in Table V for annuitant, age 60........             24.2
                                                        ----------------
Expected return for whole life annuity of $1,080 per             $26,136
 year..................................................
Plus: Expected return for 5-year temporary life annuity           $3,528
 of $720 per year (as found in subparagraph (3) of this
 paragraph (a))........................................
                                                        ----------------
    Total expected return..............................          $29,664
 


If payments are to be made quarterly, semiannually, or annually, an 
appropriate adjustment of the multiple found in Table I or V (whichever 
is applicable) for the whole life annuity should be made in accordance 
with subparagraph (2) of this paragraph.
    (5) If the contract described in subparagraph (4) of this paragraph 
provided that the amount of the annual payments to the annuitant were to 
be increased (instead of decreased) after the expiration of a specified 
limited period, the expected return would be computed as if the 
annuitant's contract consisted of a whole life annuity for the larger 
amount minus a temporary life annuity for an amount equal to the 
difference between the larger and smaller amount. Thus, if the annuitant 
described in subparagraph (4) of this paragraph were to receive $90 per 
month for five years or until his earlier death, and to receive $150 per 
month for the remainder of his lifetime after such five years, the 
expected return would be computed by subtracting the expected return 
under a five year temporary life annuity of $60 per month from the 
expected return under a whole life annuity of $150 per month. In such 
circumstances, the expected return if there is no post-June 1986 
investment in the contract is computed as follows:

Monthly payments of $150x12 months equals annual                  $1,800
 payment of............................................
Multiple shown in Table 1 (male, age 60)...............             18.2
                                                        ----------------
Expected return for annuity for whole life of $1,800             $32,760
 per year..............................................
Less expected return for 5-year temporary life annuity            $3,456
 of $720 per year (as found in subparagraph (3)).......
                                                        ----------------
    Net expected return................................          $29,304
 


If the annuitant purchased the same contract after June 30, 1986, the 
expected return would be $40,032, computed as follows:

Monthly payments of $150x12 months equals annual                  $1,800
 payments of...........................................
Multiple shown in Table V (age 60).....................             24.2
                                                        ----------------
Expected return for annuity for whole life of $1,800             $43,560
 per year..............................................

[[Page 137]]

 
Less expected return for 5-year temporary life annuity            $3,528
 of $720 per year (as found in subparagraph (3) of this
 paragraph (a))........................................
                                                        ----------------
    Net expected return................................          $40,032
 


If payments are to be made quarterly, semiannually, or annually, an 
appropriate adjustment of the multiple found in Table I or V (whichever 
is applicable) for the whole life annuity should be made in accordance 
with subparagraph (2) of this paragraph.
    (b) Expected return under joint and survivor and joint annuities. 
(1) In the case of a joint and survivor annuity contract involving two 
annuitants which provides the first annuitant with a fixed monthly 
income for life and, after the death of the first annuitant, provides an 
identical monthly income for life to a second annuitant, the expected 
return shall be determined by multiplying the total amount of the 
payments to be received annually by the multiple obtained from Table II 
or VI (whichever is applicable) of Sec. 1.72-9 under the ages (as of the 
annuity starting date) and, if applicable, sexes of the living 
annuitants. For example, a husband purchases a joint and survivor 
annuity contract providing for payments of $100 per month for life and, 
after his death, for the same amount to his wife for the remainder of 
her life. As of the annuity starting date his age at his nearest 
birthday is 70 and that of his wife at her nearest birthday is 67. If 
there is no post-June 1986 investment in the contract, the expected 
return is computed as follows:

Monthly payments of $100x12 months equals annual                  $1,200
 payment of............................................
Multiple shown in Table II (male, age 70, female, age               19.7
 67)...................................................
                                                        ----------------
Expected return ($1,200x19.7)..........................          $23,640
 


If the annuitants purchased the same contract after June 30, 1986, the 
expected return would be $26,400, computed as follows:

Monthly payments of $100x12 months equals annual                  $1,200
 payment of............................................
Multiple shown in Table VI (ages 70, 67)...............             22.0
                                                        ----------------
Expected return ($1,200x22.0)..........................          $26,400
 


If payments are to be made quarterly, semiannually, or annually, an 
appropriate adjustment of the multiple found in Table II or VI 
(whichever is applicable) should be made in accordance with paragraph 
(a)(2) of this section.
    (2) If a contract of the type described in subparagraph (1) of this 
paragraph provides that a different (rather than an identical) monthly 
income is payable to the second annuitant, the expected return is 
computed in the following manner. The applicable multiple in Table II or 
VI (whichever is applicable) is first found as in the example in 
subparagraph (1) of this paragraph. The multiple applicable to the first 
annuitant is then found in Table I or V (whichever is applicable) as 
though the contract were for a single life annuity. The multiple from 
Table I or V is then subtracted from the multiple obtained from Table II 
or VI and the resulting multiple is applied to the total payments to be 
received annually under the contract by the second annuitant. The result 
is the expected return with respect to the second annuitant. The portion 
of the expected return with respect to payments to be made during the 
first annuitant's life is then computed by applying the multiple found 
in Table I or V to the total annual payments to be received by such 
annuitant under the contract. The expected returns with respect to each 
of the annuitants separately are then aggregated to obtain the expected 
return under the entire contract.

    Example (1). A husband purchases a joint and survivor annuity 
providing for payments of $100 per month for his life and, after his 
death, payments to his wife of $50 per month for her life. As of the 
annuity starting date his age at his nearest birthday is 70 and that of 
his wife at her nearest birthday is 67. There is no post-June 1986 
investment in the contract.

Multiple from Table II (male, age 70, female, age 67)..             19.7
Multiple from Table I (male, age 70)...................             12.1
                                                        ----------------
Difference (multiple applicable to second annuitant)...              7.6
                                                        ================
Portion of expected return, second annuitant ($600x7.6)           $4,560

[[Page 138]]

 
Portion of expected return, first annuitant                      $14,520
 ($1,200x12.1).........................................
                                                        ----------------
    Expected return under the contract.................          $19,080
 


The expected return thus found, $19,080, is to be used in computing the 
amount to be excluded from gross income. Thus, if the investment in the 
contract in this example is $14,310, the exclusion ratio is $14,310/
$19,080; or 75 percent. The amount excludable from each monthly payment 
made to the husband is 75 percent of $100, or $75, and the remaining $25 
of each payment received by him shall be included in his gross income. 
After the husband's death, the amount excludable by the second annuitant 
(the surviving wife) would be 75 percent of each monthly payment of $50, 
or $37.50, and the remaining $12.50 of each payment shall be included in 
her gross income.
    Example (2). If the same contract were purchased after June 30, 
1986, the expected return would be $22,800, computed as follows:

Multiple from Table VI (ages 70, 67)...................             22.0
Multiple from Table V (age 70).........................             16.0
                                                        ----------------
Difference (multiple applicable to second annuitant)...              6.0
                                                        ================
Portion of expected return, second annuitant ($600x6.0)           $3,600
Plus: Portion of expected return, first annuitant                $19,200
 ($1,200x16.0).........................................
                                                        ----------------
Expected return under the contract.....................          $22,800
 


If the investment in the contract is $14,310, the exclusion ratio is 
$14,310/$22,800, or 62.8 percent. Thus, the husband would exclude $62.80 
of each $100 payment received by him. After his death, his wife would 
exclude 62.8 percent, or $31.40, of each $50 monthly payment.
    Example (3). If amounts were invested in the same contract both 
before July 1, 1986, and after June 30, 1986, and the election described 
in Sec. 1.72-6(d)(6) were made, two exclusion ratios would be determined 
pursuant to Sec. 1.72-6(d). Assume that the husband's total investment 
in the contract is $14,310 and that $7,310 is the pre-July 1986 
investment in the contract. The pre-July 1986 exclusion ratio would be 
$7,310/$19,080, or 38.3 percent. The post-June 1986 exclusion ratio 
would be $7,000/$22,800, or 30.7 percent. The husband would exclude 
$69.00 ($38.30+$30.70) of the $100 monthly payment received by him. The 
remaining $31.00 would be included in his gross income. After the 
husband's death, the amount excludable by his wife would be $34.50 (38.3 
percent of $50 plus 30.7 percent of $50). The remaining $15.50 would be 
included in gross income.


The same method is used if the payments are to be increased after the 
death of the first annuitant. Thus, if the payments to be made until the 
husband's death were $50 per month and his widow were to receive $100 
per month thereafter until her death, the 7.6 multiple in example (1) 
above would be applied to the $100 payments, yielding an expected return 
with respect to this portion of the annuity contract of $9,120 
($1,200x7.6). An expected return of $7,260 ($600x12.1) would be obtained 
with respect to the payments to be made to the husband, yielding a total 
expected return under the contract of $16,380 ($9,120 plus $7,260). If 
payments are to be made quarterly, semiannually, or annually, an 
appropriate adjustment of the multiples found in Tables I and II or 
Tables V and VI (whichever are applicable) should be made in accordance 
with paragraph (a)(2) of this section.
    (3) In the case of a joint and survivor annuity contract in respect 
of which the first annuitant died in 1951, 1952, or 1953, and the basis 
of the surviving annuitant's interest in the contract was determinable 
under section 113(a)(5) of the Internal Revenue Code of 1939, such basis 
shall be considered the ``aggregate of premiums or other consideration 
paid'' by the surviving annuitant for the contract. (For rules governing 
this determination, see 26 CFR (1939) 39.22(b)(2)-2 and 39.113(a)(5)-1 
(Regulations 118).) In determining such an annuitant's investment in the 
contract, such aggregate shall be reduced by any amounts received under 
the contract by the surviving annuitant before the annuity starting 
date, to the extent such amounts were excludable from his gross income 
at the time of receipt. The expected return of the surviving annuitant 
in such cases shall be determined in the manner prescribed in paragraph 
(a) of this section, as though the surviving annuitant alone were 
involved. For this purpose, the appropriate multiple for the survivor 
shall be obtained from Table I as of the annuity starting date 
determined in accordance with paragraph (b)(2)(i) of Sec. 1.72-4.

[[Page 139]]

    (4) If a contract involving two annuitants provides for fixed 
monthly payments to be made as a joint life annuity until the death of 
the first annuitant to die (in other words, only as long as both remain 
alive), the expected return under such contract shall be determined by 
multiplying the total of the annuity payments to be received annually 
under the contract by the multiple obtained from Table IIA or VIA 
(whichever is applicable) of Sec. 1.72-9 under the ages (as of the 
annuity starting date) and, if applicable, sexes of the annuitants. If, 
however, payments are to be made under the contract quarterly, 
semiannually, or annually, an appropriate adjustment of the multiple 
found in Table IIA or VIA shall be made in accordance with paragraph 
(a)(2) of this section.
    (5) If a joint and survivor annuity contract involving two 
annuitants provides that a specified amount shall be paid during their 
joint lives and a different specified amount shall be paid to the 
survivor upon the death of whichever of the annuitants is the first to 
die, the following preliminary computation shall be made in all cases 
preparatory to determining the expected return under the contract:
    (i) From Table II or VI (whichever is applicable), obtain the 
multiple under both of the annuitants' ages (as of the annuity starting 
date) and, if applicable, their appropriate sexes;
    (ii) From Table IIA or VIA (whichever is applicable), obtain the 
multiple applicable to both annuitants' ages (as of the annuity starting 
date) and, if applicable, their appropriate sexes;
    (iii) Apply the multiple found in subdivision (i) of this 
subparagraph to the total of the amounts to be received annually after 
the death of the first to die; and
    (iv) Apply the multiple found in subdivision (ii) of this 
subparagraph to the difference between the total of the amounts to be 
received annually before and the total of the amounts to be received 
annually after the death of the first to die.


If the original annual payment is in excess of the annual payment to be 
made after the death of the first to die, the expected return is the sum 
of the amounts determined under subdivisions (iii) and (iv) of this 
subparagraph. This may be illustrated by the following examples:

    Example (1). A husband purchases a joint and survivor annuity 
providing for payments of $100 a month for as long as both he and his 
wife live, and, after the death of the first to die, payments to the 
survivor of $75 a month for life. As of the annuity starting date, his 
age at his nearest birthday is 70 and that of his wife at her nearest 
birthday is 67. If there is no post-June 1986 investment in the 
contract, the expected return under the contract is computed as follows:

Multiple from Table II (male age 70, female age 67)....             19.7
Multiple from Table IIA (male age 70, female age 67)...              9.3
                                                        ================
Portion of expected return ($900x19.7--sum per year              $17,730
 after first death)....................................
Plus: Portion of expected return ($300x9.3--amount of             $2,790
 change in sum at first death).........................
    Expected return under the contract.................          $20,520
 


The total expected return in this example, $20,520, is to be used in 
computing the amount to be excluded from gross income. Thus, if the 
investment in the contract is $17,887, the exclusion ratio is $17,887/
$20,520, or 87.2 percent. The amount excludable from each monthly 
payment made while both are alive is 87.2 percent of $100, or $87.20, 
and the remaining $12.80 of each payment shall be included in gross 
income. After the death of the first to die, the amount excludable by 
the survivor shall be 87.2 percent of each monthly payment of $75, or 
$65.40, and the remaining $9.60 of each payment shall be included in 
gross income.
    Example (2). Assume the same facts as in example (1), except that 
the contract is purchased after June 30, 1986.
    The expected return under the contract is computed as follows:

Multiple from Table VI (ages 70, 67)...................             22.0
Multiple from Table VIA (ages 70, 67)..................             12.4
                                                        ================
Portion of expected return ($900x22.0--sum per year              $19,800
 after first death)....................................
Plus: Portion of expected return ($300x12.4--amount of            $3,720
 change in sum at first death).........................
                                                        ----------------
    Expected return under the contract.................          $23,520
 


Thus, if the investment in the contract is $17,887, the exclusion ratio 
is $17,887/$23,520, or 76.1 percent. The amount excludable from

[[Page 140]]

each monthly payment made while both are alive would be 76.1 percent of 
$100, or $76.10, and the remaining $23.90 of each payment would be 
included in gross income. After the death of the first to die, the 
amount excludable by the survivor would be 76.1 percent of each monthly 
payment of $75, or $57.08, and the remaining $17.92 of each payment 
would be included in gross income.
    Example (3). Assume the same facts as in examples (1) and (2), 
except that the total investment in the contract is $17,887, and that 
the pre-July 1986 investment in the contract is $8,000. Assume also that 
one of the annuitants makes the election described in Sec. 1.72-6(d)(6). 
Separate computations shall be performed pursuant to Sec. 1.72-6(d) to 
determine the amount excludable from gross income. The pre-July 1986 
exclusion ratio would be $8,000/$20,520, or 39 percent. The post-June 
1986 exclusion ratio would be $9,887/$23,520, or 42 percent. The amount 
excludable from each monthly payment made while both are alive would be 
$81 ((.39x100)+(.42x100)), and the remaining $19 would be included in 
gross income. After the death of the first to die, the amount excludable 
by the survivor would be $60.75 ((.39x75)+(.42x75)), and the remaining 
$14.25 would be included in gross income.


If the original annual payment is less than the annual payment to be 
made after the death of the first to die, the expected return is the 
difference between the amounts determined under subdivisions (iii) and 
(iv) of this subparagraph. If, however, payments are to be made 
quarterly, semiannually, or annually under the contract, the multiples 
obtained from both Tables II and IIA or Tables VI and VIA (whichever are 
applicable) shall first be adjusted in a manner prescribed in paragraph 
(a)(2) of this section.
    (6) If a contract provides for the payment of life annuities to two 
persons during their respective lives and, after the death of one 
(without regard to which one dies first), provides that the survivor 
shall receive for life both his own annuity payments and the payments 
made formerly to the deceased person, the expected return shall be 
determined in accordance with paragraph (e)(4) of this section.
    (7) If paragraph (b)(3) of Sec. 1.72-2 applies to payments provided 
under a contract and this paragraph applies to such payments, the 
principles of this paragraph shall be used in making the computations 
described in paragraph (d)(3) of Sec. 1.72-4. This may be illustrated by 
the following examples, examples (1) through (3) of which assume that 
there is no post-June 1986 investment in the contract:

    Example (1). Taxpayer A, a male age 63, pays $24,000 for a contract 
which provides that the proceeds (both income and return of capital) 
from eight units of an investment fund shall be paid monthly to him for 
his life and that after his death the proceeds from six such units shall 
be paid monthly to B, a female age 55, for her life. The portion of the 
investment in the contract allocable to each taxable year of A is 
$955.20 and that allocable to each taxable year of B is $716.40. This is 
determined in the following manner:

Multiple from Table II (male, age 63, and female, age               28.1
 55)...................................................
Number of units to be paid, in effect, as a joint and                 x6
 survivor annuity......................................
                                                        ----------------
Number of total annual unit payments anticipatable with            168.6
 respect to the joint and survivor annuity element.....
                                                        ----------------
Multiple from Table I (male, age 63)...................             16.2
Number of units to be paid, in effect, as a single life               x2
 annuity...............................................
                                                        ----------------
Number of total annual unit payments anticipatable with             32.4
 respect to A alone....................................
                                                        ----------------
Total number of unit payments anticipatable............              201
                                                        ================
Portion of investment in the contract allocable to unit          $119.40
 payments ($24,000/201) on an annual basis.............
Number of units payable to A while he continues to live               x8
                                                        ----------------
Portion of the investment in the contract allocable to           $955.20
 each taxable year of A................................
                                                        ----------------
Portion of investment in the contract allocable to unit          $119.40
 payments ($24,000/201) on an annual basis.............
Number of units payable to B for her life after A's                   x6
 death.................................................
                                                        ----------------
Portion of the investment in the contract allocable to           $716.40
 each taxable year of B................................
 


For the purpose of the above computation it is immaterial whether or not 
A lives to or beyond the life expectancy shown for him in Table I.

[[Page 141]]

    Example (2). Assume that Taxpayer A in example (1) receives payments 
for five years which are at least as large as the portion of the 
investment in the contract allocable to such years, but in the sixth 
year he receives a total of only $626.40 rather than the $955.20 
allocable to such year. A is 69 and B is 61 at the beginning of the 
first monthly period for which an amount is payable in the seventh 
taxable year. A makes the election in that year provided under paragraph 
(d)(3) of Sec. 1.72-4. The difference between the portion of the 
investment in the contract allocable to the sixth year and the amount 
actually received in that year is $328.80 ($955.20 less $626.40). In 
this case, 139.2 unit payments are anticipatable (on an annual basis), 
since the appropriate multiple from Table II of Sec. 1.72-9, 23.2, 
multiplied by the number of units payable, in effect, as a joint and 
survivor annuity yields this result (6x23.2). A's appropriate multiple 
from Table I of Sec. 1.72-9 for the two units which will cease to be 
paid at his death is 12.6, and the total number of unit payments 
anticipatable (on an annual basis) is, therefore, 164.4 (2x12.6 plus 
139.2). Dividing the difference previously found ($328.80) by the total 
number of unit payments thus determined (164.4) indicates that A will 
have an additional allocation of the investment in the contract of $16 
to the seventh and every succeeding full taxable year (8 unitsx$2), and 
B will have an additional allocation of the investment in the contract 
of $12 (6 unitsx$2) to each taxable year in which she receives 12 
monthly payments subsequent to the death of A. The total allocable to 
each taxable year of A is, therefore, $971.20, and that allocable to 
each taxable year of B will be $728.40.
    Example (3). If, in example (2), A had died at the end of the fifth 
year, in the sixth year B would have received a payment of $469.80 (that 
portion of the $626.40 that A would have received which is in the same 
ratio that 6 units bear to 8 units) and would thus have received $246.60 
less than the portion of the investment in the contract originally 
determined to be allocable to each of her taxable years. In these 
circumstances, B would be entitled to elect to redetermine the portion 
of the investment in the contract allocable to the taxable year of 
election and all subsequent years. The new amount allocable thereto 
would be found by dividing the $246.60 difference by her life expectancy 
as of the first day of the first period for which she received an amount 
as an annuity in the seventh year of the annuity contract, and adding 
the result to her originally determined allocation of $716.40.
    Example (4). On July 1, 1986, Taxpayer C, age 60, pays $28,000 for a 
contract which provides that the proceeds (both income and return of 
capital) from 10 units of an investment fund shall be paid monthly to C 
for C's life and that after C's death the proceeds from 4 such units 
shall be paid monthly to D, age 57, for D's life. The portion of the 
investment in the contract allocable to each taxable year of C is 
$1,037.00 and that allocable to each taxable year of D is $414.80. This 
is determined as follows:

Multiple from Table VI (ages 60, 57)...................             31.2
Number of units to be paid, in effect, as a joint and                 x4
 survivor annuity......................................
                                                        ----------------
Number of total annual unit payments anticipatable with            124.8
 respect to the joint and survivor annuity element.....
                                                        ================
Multiple from Table V (age 60).........................             24.2
Number of units to be paid, in effect, as a single life               x6
 annuity...............................................
                                                        ----------------
Number of total annual unit payments anticipatable with            145.2
 respect to C alone....................................
                                                        ----------------
Total number of unit payments anticipatable............              270
                                                        ================
Portion of investment in the contract allocable to unit           103.70
 payments ($28,000/270) on an annual basis.............
Number of units payable to C while C continues to live.              x10
                                                        ----------------
Portion of the investment in the contract allocable to         $1,037.00
 each taxable year of C................................
                                                        ----------------
Portion of investment in the contract allocable to unit          $103.70
 payments ($28,000/270) on an annual basis.............
Number of units payable to D for D's life after C's                   x4
 death.................................................
                                                        ----------------
Portion of the investment in the contract allocable to           $414.80
 each taxable year of D................................
 



For purposes of the above computation it is immaterial whether or not C 
lives to or beyond the life expectancy shown in Table V.
    Example (5). Assume the same facts as in example (4), except that 
C's total investment in the contract is $28,000, and C's pre-July 1986 
investment in the contract is $16,000. If C makes the election described 
in Sec. 1.72-6(d)(6), separate computations are required to determine 
the amount excludable from gross income with respect to the pre-July 
1986 investment in the contract and the post-June 1986 investment in the 
contract. The annuitant shall apply the appropriate pre-July 1986 and 
post-June 1986 life expectancy multiples to the applicable portions of 
the

[[Page 142]]

units to be paid as a joint and survivor annuity, and as a single life 
annuity.
    Pre-July 1986 Computation (all references to unit payments are to 
the pre-July 1986 applicable portion of such payments):

Multiple from Table II (male, age 60, female, age 57)..             27.6
Number of units to be paid, in effect, as a joint and                 x4
 survivor annuity......................................
                                                        ----------------
Number of total annual unit payments anticipatable with           110.40
 respect to the joint and survivor annuity element.....
                                                        ================
Multiple from Table I (male, age 60)...................             18.2
Number of units to be paid, in effect, as a single life               x6
 annuity...............................................
                                                        ----------------
Number of total annual unit payments anticipatable with           109.20
 respect to C alone....................................
                                                        ================
Total number of unit payments anticipatable............            219.6
                                                        ================
Portion of pre-July 1986 investment in the contract               $72.86
 allocable to unit payments ($16,000/219.60) on an
 annual basis..........................................
                                                        ----------------
Number of units payable to C while C continues to live.              x10
                                                        ----------------
Portion of pre-July 1986 investment in the contract               728.60
 allocable to each taxable year of C...................
                                                        ----------------
Portion of pre-July 1986 investment in the contract                72.86
 allocable to unit payments ($16,000/219.60) on an
 annual basis..........................................
Number of units payable to D for D's life after C's                   x4
 death.................................................
                                                        ----------------
Portion of pre-July 1986 investment in the contract              $291.44
 allocable to each taxable year of D...................
 

    Post-June 1986 Computation (all references to unit payments are to 
the post-June 1986 applicable portion of such payments):

Multiple from Table VI (ages 60, 57)...................             31.2
Number of units to be paid, in effect, as a joint and                 x4
 survivor annuity......................................
                                                        ----------------
Number of total annual unit payments anticipatable with           124.80
 respect to the joint and survivor annuity element.....
                                                        ================
Multiple from Table V (age 60).........................             24.2
Number of units to be paid, in effect, as a single life               x6
 annuity...............................................
                                                        ----------------
Number of total annual unit payments anticipatable with           145.20
 respect to C alone....................................
                                                        ----------------
Total number of unit payments anticipatable............              270
                                                        ================
Portion of post-June 1986 investment in the contract              $44.44
 allocable to unit payments ($12,000/270) on an annual
 basis.................................................
Number of units payable to C while C continues to live.              x10
                                                        ----------------
Portion of post-June 1986 investment in the contract             $444.40
 allocable to each taxable year of C...................
                                                        ================
Portion of post-June 1986 investment in the contract               44.44
 allocable to unit payments ($12,000/270) on an annual
 basis.................................................
Number of units payable to D for D's life after C's                   x4
 death.................................................
                                                        ----------------
Portion of post-June 1986 investment in the contract             $177.78
 allocable to each taxable year of D...................
 
Total computation:
 
  Total portion of the investment in the contract              $1,173.00
   allocable to each taxable year of C
   ($728.60+$444.40)...................................
  Total portion of the investment in the contract                $469.22
   allocable to each taxable year of D
   ($291.44+$177.78)...................................
 

    Example (6). Assume that taxpayer C in example (4) receives payments 
for four years which are at least as large as the portion of the 
investment in the contract allocable to such years, but in the fifth 
year receives a total of only $600 rather than the $1,037 allocable to 
such year. C is 65 and D is 62 at the beginning of the first monthly 
period for which an amount is payable in the sixth taxable year. C makes 
the election in that year provided under paragraph (d)(3) of Sec. 1.72-
4. The difference between the portion of the investment in the contract 
allocable to the fifth year and the amount actually received

[[Page 143]]

in that year is $437 ($1,037-$600). In this case, 106 unit payments are 
anticipatable with respect to the joint and survivor annuity element, 
since the appropriate multiple from Table VI of Sec. 1.72-9, 26.5, 
multiplied by the number of units payable, in effect, as a joint and 
survivor annuity yields this result (4 x 26.0). C's appropriate multiple 
from Table V of Sec. 1.72-9 for the six units which will cease to be 
paid at C's death is 20.0, and the number of unit payments anticipatable 
with respect to C alone is 120 (6 x 20). The total number of unit 
payments anticipatable is, therefore, 226 (120 plus 106). Dividing the 
difference previously found ($437) by the total number of unit payments 
thus determined (226) indicates that C will have an additional 
allocation of the investment in the contract of $19.30 to the sixth and 
every succeeding full taxable year (10 units x $1.93), and D will have 
an additional allocation of the investment in the contract of $7.72 (4 
units x $1.93) to each taxable year in which D receives 12 monthly 
payments subsequent to the death of C. The total allocable to each 
taxable year of C is, therefore, $1,056.30, and that allocable to each 
taxable year of D will be $422.52.
    Example (7). If, in example (6), C had died at the end of the fourth 
year, in the fifth year D would have received a payment of $240 (that 
portion of the $600 that C would have received which is in the same 
ratio that 4 units bear to 10 units) and would thus have received 
$174.80 less than the portion of the investment in the contract 
allocable to each of D's taxable years. In these circumstances, D would 
be entitled to elect to redetermine the portion of the investment in the 
contract allocable to the taxable year of election and all subsequent 
years. The new amount allocable thereto would be found by dividing the 
$174.80 difference by D's life expectancy as of the first day of the 
first period for which D received an amount as an annuity in the sixth 
year of the annuity contract, and adding the result to D's originally 
determined allocation of $414.80.

    (c) Expected return for term certain. In the case of a contract 
providing for specific periodic payments which are to be paid for a term 
certain such as a fixed number of months or years, without regard to 
life expectancy, the expected return is determined by multiplying the 
fixed number of years or months for which payments are to be made on or 
after the annuity starting date by the amount of the payment provided in 
the contract for each such period.
    (d) Expected return with respect to amount certain. In the case of 
contracts involving no life or lives as a measurement of their duration, 
but under which a determinable total amount is to be paid in 
installments of lesser amounts paid at periodic intervals, the expected 
return shall be the total amount guaranteed. If an amount is to be paid 
periodically until a fund plus interest at a fixed rate is exhausted, 
but further payments may be made thereafter because of earnings at a 
higher interest rate, this paragraph shall apply to the total amount 
anticipatable as a result of the amount of the fund plus the fixed 
interest thereon. Any amount which may be paid as the result of earnings 
at a greater interest rate shall be disregarded in determining the 
expected return. If such an amount is later received, it shall be 
considered an amount not received as an annuity after the annuity 
starting date. See paragraph (b)(2) of Sec. 1.72-11.
    (e) Expected return where two or more annuity elements providing for 
fixed payments are acquired for a single consideration. (1) In the case 
of a contract described in paragraph (a)(2) of Sec. 1.72-2, which 
provides for specified payments to be made under two or more annuity 
elements, the expected return shall be found for the contract as a whole 
by aggregating the expected returns found with respect to each annuity 
element. If individual life annuity elements are involved (including 
joint and survivor annuities where the primary annuitant died before 
January 1, 1954) the expected return for each of them shall be 
determined in the manner prescribed in paragraph (a) of this section. If 
joint and survivor annuity elements are involved, the expected return 
for such elements shall be determined under the appropriate subparagraph 
of paragraph (b) of this section. If terms certain or amounts certain 
are involved, the expected returns for such elements shall be determined 
under paragraph (c) or (d) of this section, respectively.
    (2) The aggregate expected return found in accordance with the rules 
set forth in subparagraph (1) of this paragraph shall constitute the 
expected return for the contract as a whole. The investment in the 
contract shall be divided by the amount thus determined to obtain the 
exclusion ratio for the contract as a whole, This exclusion ratio shall 
be applied to all amounts

[[Page 144]]

received as a annuity under the contract by any recipient (in accordance 
with the provisions of Sec. 1.72-4), except in the case of amounts 
received by a surviving annuitant under a joint and survivor annuity 
element to which the provisions of section 72(i) and paragraph (b)(3) of 
this section would apply if it were a separate contract. See 
subparagraph (3) of this paragraph.
    (3) In the case of a contract providing two or more annuity 
elements, one of which is a joint and survivor annuity element of the 
type described in section 72(i) and paragraph (b)(3) of this section, 
the general exclusion ratio for the contract as a whole, for the purpose 
of computations with respect to all the other annuity elements shall be 
determined in accordance with the principles of subparagraphs (1) and 
(2) of this paragraph. A special exclusion ratio shall thereafter be 
determined for the surviving annuitant receiving payments under the 
annuity element described in section 72(i) and paragraph (b)(3) of this 
section by using the investment in the contract and the expected return 
determined in accordance with the provisions of paragraph (b)(3) of this 
section.
    (4) In the case of a contract providing for payments to be made to 
two persons in the manner described in paragraph (b)(6) of this section, 
the expected return is to be computed as though there were two joint and 
survivor annuities under the same contract, in the following manner. 
First, the multiple appropriate to the ages (as of the annuity starting 
date) and, if applicable, sexes of the annuitants involved shall be 
found in Table II or VI (whichever is applicable) of Sec. 1.72-9 and 
adjusted, if necessary, in the manner described in paragraph (a)(2) of 
this section. Second, the multiple so found shall be applied to the sum 
of the payments to be made each year to both annuitants. The result is 
the expected return for the contract as a whole.
    (5) For rules relating to expected return where two or more annuity 
elements are acquired for a single consideration and one or more of such 
elements does not specify a fixed payment for each period, see paragraph 
(f) of this section.
    (f) Expected return with respect to obligations providing for 
payments described in paragraph (b)(3) of Sec. 1.72-2. (1) If a contract 
to which section 72 applies provides only for payments to be made in a 
manner described in paragraph (b)(3) of Sec. 1.72-2, the expected return 
for such contract as a whole shall be an amount equal to the investment 
in the contract found in accordance with section 72(c)(1) and Sec. 1.72-
6, as adjusted for any refund feature in accordance with Sec. 1.72-7.
    (2) If a contract to which section 72 applies provides for annuity 
elements, one or more of which (but not all) provide for payments to be 
made in a manner described in paragraph (b)(3) of Sec. 1.72-2:
    (i) With respect to the portion of the contract providing for 
annuity elements to which paragraph (b)(3) of Sec. 1.72-2 does not 
apply, the expected return shall be the aggregate of the expected 
returns found for each of such elements in accordance with the 
appropriate paragraph of this section; and
    (ii) With respect to all annuity elements to which paragraph (b)(3) 
of Sec. 1.72-2 does apply, the expected return for all such elements 
shall be an amount equal to the portion of the investment in the 
contract allocable to such elements in accordance with the provisions of 
paragraph (e)(2)(ii) of Sec. 1.72-4 and paragraph (b)(3)(ii)(b) of 
Sec. 1.72-6.
    (g) Expected return with respect to contracts subject to Sec. 1.72-
6(d). In the case of a contract to which Sec. 1.72-6(d) (relating to 
contracts in which amounts were invested both before July 1, 1986, and 
after June 30, 1986) applies, an expected return is computed using the 
multiples in Tables I through IV of Sec. 1.72-9 with respect to the pre-
July 1986 investment in the contract and a second expected return is 
computed using the multiples in Tables V through VIII of Sec. 1.72-9 
with respect to the post-June 1986 investment in the contract.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960, as 
amended by T.D. 8115, 51 FR 45694, Dec. 19, 1986]

[[Page 145]]



Sec. 1.72-6  Investment in the contract.

    (a) General rule. (1) For the purpose of computing the ``investment 
in the contract'', it is first necessary to determine the ``aggregate 
amount of premiums or other consideration paid'' for such contract. See 
section 72(c)(1). This determination is made as of the later of the 
annuity starting date of the contract or the date on which an amount is 
first received thereunder as an annuity. The amount so found is then 
reduced by the sum of the following amounts in order to find the 
investment in the contract:
    (i) The total amount of any return of premiums or dividends received 
(including unrepaid loans or dividends applied against the principal or 
interest on such loans) on or before the date on which the foregoing 
determination is made, and
    (ii) The total of any other amounts received with respect to the 
contract on or before such date which were excludable from the gross 
income of the recipient under the income tax law applicable at the time 
of receipt.

Amounts to which subdivision (ii) of this subparagraph applies shall 
include, for example, amounts considered to be return of premiums or 
other consideration paid under section 22(b)(2) of the Internal Revenue 
Code of 1939 and amounts considered to be an employer-provided death 
benefit under section 22(b)(1)(B) of such Code. For rules relating to 
the extent to which an employee or his beneficiary may include employer 
contributions in the aggregate amount of premiums or other consideration 
paid, see Sec. 1.72-8. If the aggregate amount of premiums or other 
consideration paid for the contract includes amounts for which 
deductions were allowed under section 404 as contributions on behalf of 
a self-employed individual, such amounts shall not be included in the 
investment in the contract.
    (2) For the purpose of subparagraph (1) of this paragraph, amounts 
received subsequent to the receipt of an amount as an annuity or 
subsequent to the annuity starting date, whichever is the later, shall 
be disregarded. See, however, Sec. 1.72-11.
    (3) The application of this paragraph may be illustrated by the 
following examples:

    Example (1). In 1950, B purchased an annuity contract for $10,000 
which was to provide him with an annuity of $1,000 per year for life. He 
received $1,000 in each of the years 1950, 1951, 1952, and 1953, prior 
to the annuity starting date (January 1, 1954). Under the Internal 
Revenue Code of 1939, $300 of each of these payments (3 percent of 
$10,000) was includible in his gross income, and the remaining $700 was 
excludable therefrom during each of the taxable years mentioned. In 
computing B's investment in the contract as of January 1, 1954, the 
total amount excludable from his gross income during the years 1950 
through 1953 ($2,800) must be subtracted from the consideration paid 
($10,000). Accordingly, B's investment in the contract as of January 1, 
1954, is $7,200 ($10,000 less $2,800).
    Example (2). In 1945, C contracted for an annuity to be paid to him 
beginning December 31, 1960. In 1945 and in each successive year until 
1960, he paid a premium of $5,000. Assuming he receives no payments of 
any kind under the contract until the date on which he receives the 
first annual payment as an annuity (December 31, 1960), his investment 
in the contract as of the annuity starting date (December 31, 1959) will 
be $75,000 ($5,000 paid each year for the 15 years from 1945 to 1959, 
inclusive).
    Example (3). Assume the same facts as in example (2), except that 
prior to the annuity starting date C has already received from the 
insurer dividends of $1,000 each in 1949, 1954, and 1959, such dividends 
not being includible in his gross income in any of those years. C's 
investment in the contract, as of the annuity starting date, will then 
be $72,000 ($75,000-$3,000).

    (b) Allocation of the investment in the contract where two or more 
annuity elements are acquired for a single consideration. (1) In the 
case of a contract described in Sec. 1.72-2(a)(2) which provides for two 
or more annuity elements, the investment in the contract determined 
under paragraph (a) shall be allocated to each of the annuity elements 
in the ratio that the expected return under each annuity element bears 
to the aggregate of the expected returns under all the annuity elements. 
The exclusion ratio for the contract as a whole shall be determined by 
dividing the investment in the contract (after adjustment for the 
present value of any or all refund features) by the aggregate of the 
expected returns under all the annuity elements. This may be illustrated 
by the following examples:


[[Page 146]]


    Example (1). If a contract provides for annuity payments of $1,000 
per year for life (with no refund feature) to both A and B, a male and 
female, respectively, each 70 years of age as of the annuity starting 
date, such contract is acquired for consideration of $19,575 (without 
regard to whether paid by A, B, or both), and there is no post-June 1986 
investment in the contract, the investment in the contract shall be 
allocated by determining the exclusion ratio for the contract as a whole 
in the following manner:

Expectancy of A under Table I and Sec.  1.72-5(a)(2), 11.6       $11,600
 (12.1-0.5), multiplied by $1,000.............................
Plus: Expectancy of B computed in a similar manner                14,500
 ($1,000x14.5 [15.0-0.5]).....................................
                                                               ---------
    Total expected return.....................................    26,100
 


The exclusion ratio for both A and B is then $19,575/$26,100, or 75 
percent. A and B shall each exclude from gross income three-fourths 
($750) of each $1,000 annual payment received and shall include the 
remaining one-fourth ($250) of each $1,000 annual payment received in 
gross income.
    Example (2). Assume the same facts as in example (1) except that of 
the total investment in the contract of $19,575, the pre-July 1986 
investment in the contract is $10,000. If the election described in 
Sec. 1.72-6(d)(6) is made with respect to the contract, the investment 
in the contract shall be allocated by determining an exclusion ratio for 
the contract as a whole based on separately computed exclusion ratios 
with respect to the pre-July 1986 investment in the contract and the 
post-June 1986 investment in the contract in the following manner:

Expectancy of A under Table I and Sec.  1.72-5(a)(2), 11.6       $11,600
 (12.1-0.5), multiplied by $1,000.............................
Plus: Expectancy of B under Table I and Sec.  1.72-5(a)(2),      $14,500
 14.5 (15.0-0.5), multiplied by $1,000........................
                                                               ---------
Pre-July 1986 expected return.................................   $26,100
Expectancy of A under Table V and Sec.  1.72-5(a)(2), 15.5       $15,500
 (16.0-0.5), multiplied by $1,000.............................
Plus: Expectancy of B under Table V and Sec.  1.72-5(a)(2),      $15,500
 15.5 (16.0-0.5), multiplied by $1,000........................
                                                               ---------
Post-June 1986 expected return................................   $31,000
                                                               =========
Pre-July 1986 exclusion ratio ($10,000/$26,100)...............      38.3
Post-June 1986 exclusion ratio ($9,575/31,000)................      30.9
 
A and B shall each exclude from gross income $692 (38.3
 percent of $1,000+30.9 percent of $1,000) of each $1,000
 payment and include the remaining $308 in gross income
 

    (2) In the case of a contract providing for specified annual annuity 
payments to be made to two persons during their joint lives and the 
payment of the aggregate of the two individual payments to the survivor 
for his life, the investment in the contract shall be allocated in 
accordance with the provisions of subparagraph (1) of this paragraph. 
For this purpose, the investment in the contract (without regard to the 
fact that differing amounts may have been contributed by the two 
annuitants) shall be divided by the expected return determined in 
accordance with paragraph (e)(4) of Sec. 1.72-5. The resulting exclusion 
ratio shall then be applied to any amounts received as an annuity by 
either annuitant.
    (3) In the case of a contract providing two or more annuity 
elements, one or more of which provides for payments to be made in a 
manner described in paragraph (b)(3) of Sec. 1.72-2, the investment in 
the contract shall be allocated to the various annuity elements in the 
following manner.
    (i) If all the annuity elements provide for payments to be made in 
the manner described in paragraph (b)(3) of Sec. 1.72-2, the investment 
in the contract shall be allocated on the basis of the amounts received 
by each recipient by apportioning the amount determined to be excludable 
under that section to each recipient in the same ratio as the total of 
the amounts received by him in the taxable year bears to the total of 
the amounts received by all recipients during the same period; and
    (ii) If one or more, but not all, of the annuity elements provide 
for payments to be made in a manner described in paragraph (b)(3) of 
Sec. 1.72-2:
    (a) With respect to all annuity elements to which that section does 
not apply, the investment in the contract for all such elements shall be 
the portion of the investment in the contract as a whole (found in 
accordance with the provisions of this section) which is properly 
allocable to all such elements; and

[[Page 147]]

    (b) With respect to all annuity elements to which paragraph (b)(3) 
of Sec. 1.72-2 does apply, the investment in the contract for all such 
elements shall be the investment in the contract as a whole (found in 
accordance with the provisions of this section) as reduced by the 
portion thereof determined under (a) of this subdivision.

For the purpose of determining, pursuant to (a) of this subdivision, the 
portion of the investment in the contract as a whole properly allocable 
to a particular annuity element, reference shall be made to the present 
value of such annuity element determined in accordance with paragraph 
(e)(1)(iii) (b) of Sec. 1.101-2.
    (iii) In the case of a contract to which paragraph (d) of this 
section applies, this paragraph (b) is applied in the manner prescribed 
in paragraph (d) and, in particular, paragraph (d)(5)(v) of this 
section.
    (c) Special rules. (1) For the special rule for determining the 
investment in the contract for a surviving annuitant in cases where the 
prior annuitant of a joint and survivor annuity contract died in 1951, 
1952, or 1953, see paragraph (b)(3) of Sec. 1.72-5.
    (2) For special rules relating to the determination of the 
investment in the contract where employer contributions are involved, 
see Sec. 1.72-8. See also paragraph (b) of Sec. 1.72-16 for a special 
rule relating to the determination of the premiums or other 
consideration paid for a contract where an employee is taxable on the 
premiums paid for life insurance protection that is purchased by and 
considered to be a distribution from an exempt employees' trust.
    (3) For the determination of an adjustment in investment in the 
contract in cases where a contract contains a refund feature, see 
Sec. 1.72-7.
    (4) In the case of ``face-amount certificates'' described in section 
72(1), the amount of consideration paid for purposes of computing the 
investment in the contract shall include any amount added to the 
holder's basis by reason of section 1232(a)(3)(E) (relating to basis 
adjustment for amount of original issue discount ratably included in 
gross income as interest under section 1232(a)(3)).
    (d) Pre-July 1986 and post-June 1986 investment in the contract. (1) 
This paragraph (d) applies to an annuity contract if:
    (i) The investment in the contract includes a pre-July 1986 
investment in the contract and a post-June 1986 investment in the 
contract (both as defined in Sec. 1.72-6(d)(3));
    (ii) The use of a multiple found in Tables I through VIII of 
Sec. 1.72-9 is required to determine the expected return under the 
contract; and
    (iii) The election described in paragraph (d)(6) of this section is 
made with respect to the contract.
    (2) In the case of annuity contract to which this paragraph (d) 
applies--
    (i) All computations required to determine the amount excludable 
from gross income shall be performed separately with respect to the pre-
July 1986 investment in the contract and the post-June 1986 investment 
in the contract as if each such amount were the entire investment in the 
contract;
    (ii) The multiples in Tables I through IV shall be used for 
computations involving the pre-July 1986 investment in the contract and 
the multiples in Tables V through VIII shall be used for computations 
involving the post-June 1986 investment in the contract; and
    (iii) The amount excludable from gross income shall be the sum of 
the amounts determined under the separate computations required by 
paragraph (d)(2)(i) of this section.
    (3) For purposes of the regulations under section 72, the pre-July 
1986 investment in the contract and post-June 1986 investment in the 
contract are determined in accordance with the following rules:
    (i)(A) Except as provided in Sec. 1.72-9, if the annuity starting 
date of the contract occurs before July 1, 1986, the pre-July 1986 
investment in the contract is the total investment in the contract as of 
the annuity starting date;
    (B) Except as provided in Sec. 1.72-9, if the annuity starting date 
of the contract occurs after June 30, 1986, and the contract does not 
provide for a disqualifying form of payment or settlement, the pre-July 
1986 investment in the contract is the investment in the contract 
computed as of June 30, 1986,

[[Page 148]]

as if June 30, 1986, had been the later of the annuity starting date of 
the contract or the date on which an amount is first received thereunder 
as an annuity;
    (C) If the annuity starting date of the contract occurs after June 
30, 1986, and the contract provides, at the option of the annuitant or 
of any other person (including, in the case of an employee's annuity, an 
option exercisable only by, or with the consent of, the employer), for a 
disqualifying form of payment or settlement, the pre-July 1986 
investment in the contract is zero (i.e., the total investment in the 
contract is post-June 1986 investment in the contract).
    (ii) The post-June 1986 investment in the contract is the amount by 
which the total investment in the contract as of the annuity starting 
date exceeds the pre-July 1986 investment in the contract.
    (iii) For purposes of paragraph (d)(3)(i) of this section, a 
disqualifying form of payment or settlement is any form of payment or 
settlement (whether or not selected) that permits the receipt of amounts 
under the contract in a form other than a life annuity. For example, 
each of the following options provides for a disqualifying form of 
payment or settlement:
    (A) An option to receive a lump sum in full discharge of the 
obligation under the contract.
    (B) An option to receive an amount under the contract after June 30, 
1986, and before the annuity starting date.
    (C) An option to receive an annuity for a period certain.
    (D) An option to receive payments under a refund feature (within the 
meaning of paragraphs (b) and (c) of Sec. 1.72-7) that is substantially 
equivalent to an annuity for a period certain.
    (E) An option to receive a temporary life annuity (within the 
meaning of Sec. 1.72-5 (a)(3)) that is substantially equivalent to an 
annuity for a period certain.

An option to receive alternative forms of life annuity is not a 
disqualifying option for purposes of paragraph (d)(3)(i) of this 
section. Thus, if the sole options provided under a contract are a 
single life annuity and a joint and survivor life annuity, paragraph 
(d)(3)(i) (C) of this section does not apply to such contract.
    (iv) For purposes of paragraph (d)(3)(iii) of this section, a refund 
feature is substantially equivalent to an annuity for a period certain 
if its value determined under Table VII of Sec. 1.72-9 exceeds 50 
percent. Similarly, a temporary life annuity is substantially equivalent 
to an annuity for a period certain if the multiple determined under 
Table VIII of Sec. 1.72-9 exceeds 50 percent of the maximum duration of 
the annuity.
    (4) In any separate computation under this paragraph (d), only the 
applicable portion of other amounts (such as the total expected return 
under the contract, or the total amount guaranteed under the contract as 
of the annuity starting date) shall be taken into account if the use of 
the entire amount in such computation is inconsistent with the use in 
the computation of only a portion of the investment in the contract. For 
example, such use is generally inconsistent if the computation requires 
a comparison of the investment in the contract and such other amount for 
the purpose of using the greater (or lesser) amount or the difference 
between the two. For purposes of the first sentence of this paragraph 
(d)(4), the applicable portion is the amount that bears the same ratio 
to the entire amount as the pre-July 1986, investment in the contract or 
the post-June 1986 investment in the contract, whichever is applicable, 
bears to the total investment in the contract as of the annuity starting 
date.
    (5) Application to particular computations. (i) In the case of a 
contract to which this paragraph (d) applies, the exclusion ratio for 
purposes of Sec. 1.72-4 (a) is the sum of the exclusion ratios 
separately computed in accordance with this paragraph (d). The exclusion 
ratio with respect to the pre-July 1986 investment in the contract is 
determined by dividing the pre-July 1986 investment in the contract by 
the expected return as found under Sec. 1.72-5 by applying the 
appropriate multiples of Tables I through IV of Sec. 1.72-9. Similarly, 
the exclusion ratio with respect to the post-June 1986 investment in the 
contract is determined by dividing the

[[Page 149]]

post-June 1986 investment in the contract by the expected return as 
found under Sec. 1.72-5 by applying the appropriate multiples in Tables 
V through VIII of Sec. 1.72-9.
    (ii) The applicability of Sec. 1.72-4(d)(2) to a contract to which 
this paragraph (d) applies shall be determined separately with respect 
to the post-June 1986 investment in the contract and the pre-July 1986 
investment in the contract and in each such determination only the 
applicable portion of the total expected return under the contract shall 
be taken into account. If Sec. 1.72-4(d)(2) applies with respect to 
either such investment in the contract, the separately computed 
exclusion ratio shall be considered to be the applicable portion of 100 
percent.
    (iii) If Sec. 1.72-4(d)(3) applies to a contract to which this 
paragraph (d) applies--
    (A) The applicable portions (as defined in paragraph (d)(4) of this 
section) of payments received under the contract for a taxable year 
shall be separately computed;
    (B) The pre-July 1986 investment in the contract and the post-June 
1986 investment in the contract shall be separately allocated to the 
taxable year; and
    (C) The separate applicable portions of the payments received under 
the contract for the taxable year shall be considered to be amounts 
received as an annuity (for which the exclusion ratio is 100 percent) 
only to the extent they do not exceed the portions of the corresponding 
investments in the contract which are properly allocable to that year.

See the example in Sec. 1.72-4(d)(3)(v).
    (iv) If Sec. 1.72-4(e) applies to a contract to which this paragraph 
(d) applies, the exclusion ratio shall be separately computed with 
respect to the pre-July 1986 investment in the contract and the post-
June 1986 investment in the contract. For purposes of the separate 
computations under Sec. 1.72-4(e)(2)(ii), only the applicable portion of 
payments received shall be taken into account and the exclusion ratio 
(100%) shall be applied to the separately computed portion allocated to 
each participant.
    (v) If paragraph (b)(3) of this section applies to a contract to 
which this paragraph (d) applies, separate allocations are required with 
respect to the pre-July 1986 investment in the contract and the post-
June 1986 investment in the contract.

For purposes of the separate computations required to determine the 
portion of the investment in the contract properly allocable to a 
particular annuity element, only the applicable portion of the present 
value of the annuity element determined in accordance with Sec. 1.101-
2(e)(1)(iii)(b) is taken into account.
    (vi) If Sec. 1.72-7 applies to a contract to which this paragraph 
(d) applies, separate computations are required to determine the 
adjustment to the pre-July 1986 investment in the contract and the post-
June 1986 investment in the contract. For purposes of such separate 
computations, only the applicable portions of the amounts described in 
Sec. 1.72-7 (b)(3)(ii), (c)(1)(ii)(B), (c)(2)(vii)(B), and (d)(1)(ii) 
are taken into account. Similarly, in the case of computations with 
respect to the guarantee of a specified amount under Sec. 1.72-7(d)(1), 
only the applicable portion of such amount is taken into account.
    (6) This paragraph (d) applies to a contract only if the first 
taxpayer to receive an amount as an annuity under the contract elects to 
perform separate computations with respect to the pre-July 1986 
investment in the contract and the post-June 1986 investment in the 
contract as if each such amount were the entire investment in contract. 
If two or more annuitants receive an amount as an annuity under the 
contract at the same time (such as under a joint-and-last-survivorship 
annuity contract), an election by one of the annuitants is treated as an 
election by each of the annuitants. The election is made by attaching a 
statement to the first return filed by the taxpayer for the first 
taxable year in which an amount is received as an annuity under the 
contract. The statement must indicate that the taxpayer is electing to 
apply the provisions of paragraph (d) of Sec. 1.72-6, and must also 
contain the name, address, and taxpayer identification number of each 
annuitant under the contract, and the amount of the

[[Page 150]]

pre-July 1986 investment in the contract.
    (7) If the investment in the contract includes a post-June 1986 
investment in the contract and the election described in paragraph 
(d)(6) of this section is not made--
    (i) The amount excludable from gross income shall be determined 
without regard to the separate computations described in this paragraph 
(d); and
    (ii) Only the multiples found in Tables V through VIII shall be used 
in determining the amount excludable from gross income.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6676, 28 FR 
10134, Sept. 17, 1963; T.D. 7311, 39 FR 11880, Apr. 1, 1974; T.D. 8115, 
51 FR 45700, Dec. 19, 1986; 52 FR 10223, Mar. 31, 1987]



Sec. 1.72-7  Adjustment in investment where a contract contains a refund feature.

    (a) Definition of a contract containing a refund feature. A contract 
to which section 72 applies, contains a refund feature if:
    (1) The total amount receivable as an annuity under such contract 
depends, in whole or in part, on the continuing life of one or more 
persons,
    (2) The contract provides for payments to be made to a beneficiary 
or the estate of an annuitant on or after the death of the annuitant if 
a specified amount or a stated number of payments has not been paid to 
the annuitant or annuitants prior to death, and
    (3) Such payments are in the nature of a refund of the consideration 
paid. See paragraph (c)(1) of Sec. 1.72-11.
    (b) Adjustment of investment for the refund feature in the case of a 
single life annuity. Where a single life annuity contract to which 
section 72 applies contains a refund feature and the special rule of 
paragraph (d) of this section does not apply, the investment in the 
contract shall be adjusted in the following manner:
    (1) Determine the number of years necessary for the guaranteed 
amount to be fully paid by dividing the maximum amount guaranteed as of 
the annuity starting date by the amount to be received annually under 
the contract to the extent such amount reduces the guaranteed amount. 
The number of years should be stated in terms of the nearest whole year, 
considering for this purpose a fraction of one-half or more as an 
additional whole year.
    (2) Consult Table III or VII (whichever is applicable) of Sec. 1.72-
9 for the appropriate percentage under the whole number of years found 
in subparagraph (1) of this paragraph and the age (as of the annuity 
starting date) and, if applicable, sex of the annuitant.
    (3) Multiply the percentage found in subparagraph (2) of this 
paragraph by whichever of the following is the smaller: (i) The 
investment in the contract found in accordance with Sec. 1.72-6 or (ii) 
the total amount guaranteed as of the annuity starting date.
    (4) Subtract the amount found in subparagraph (3) of this paragraph 
from the investment in the contract found in accordance with Sec. 1.72-
6.

The resulting amount is the investment in the contract adjusted for the 
present value of the refund feature without discount for interest and is 
to be used in determining the exclusion ratio to be applied to the 
payments received as an annuity. The percentage found in Tables III or 
VII shall not be adjusted in a manner described in paragraph (a)(2) of 
Sec. 1.72-5. These principles may be illustrated by the following 
examples:

    Example (1). On January 1, 1954, a husband, age 65, purchased for 
$21,053, an immediate installment refund annuity payable $100 per month 
for life. The contract provided that in the event the husband did not 
live long enough to recover the full purchase price, payments were to be 
made to his wife until the total payments under the contract equaled the 
purchase price. The investment in the contract adjusted for the purpose 
of determining the exclusion ratio is computed in the following manner:

Cost of the annuity contract (investment in the contract,        $21,053
 unadjusted)...............................................
Amount to be received annually.............................       $1,200
Number of years for which payment guaranteed ($21,053               17.5
 divided by $1,200)........................................
Rounded to nearest whole number of years...................           18
Percentage located in Table III for age 65 (age of the                30
 annuitant as of the annuity starting date) and 18 (the
 number of whole years) (percent)..........................

[[Page 151]]

 
Subtract value of the refund feature to the nearest dollar        $6,316
 (30 percent of $21,053)...................................
                                                            ------------
Investment in the contract adjusted for the present value        $14,737
 of the refund feature without discount for interest.......
 

    Example (2). Assume the same facts as in example (1), except that 
the total investment in the contract was made after June 30, 1986. The 
investment in the contract adjusted for the purpose of determining the 
exclusion ratio is computed as follows:

Cost of the annuity contract (investment in the contract,        $21,053
 unadjusted)...............................................
Amount to be received annually.............................       $1,200
Number of years for which payment guaranteed ($21,053/              17.5
 $1,200)...................................................
Rounded to nearest whole number of years...................           18
Percentage in Table VII for age 65 and 18 years (percent)..           15
Subtract value of the refund feature to the nearest dollar        $3,158
 (15 percent of $21,053)...................................
                                                            ------------
Investment in the contract adjusted for the present value        $17,895
 of the refund feature without discount for interest.......
 

    Example (3). Assume the same facts as in example (1), except that 
the pre-July 1986 investment in the contract is $10,000 and the post-
June 1986 investment in the contract is $11,053. If the annuitant makes 
the election described in Sec. 1.72-6(d)(6), separate computations must 
be performed pursuant to Sec. 1.72-6(d) to determine the adjusted 
investment in the contract. The pre-July 1986 investment in the contract 
and the post-June 1986 investment in the contract adjusted for the 
purpose of determining the exclusion ratios are, respectively, $7,000 
and $9,395, determined as follows:

Pre-July 1986 investment in the contract (unadjusted)......      $10,000
Pre-July 1986 portion of the amount to be received annually      $570.00
 ($10,000/$21,053x$1,200)..................................
    Number of years for which payment guaranteed ($10,000/         17.50
     $570).................................................
    Rounded to nearest whole number of years...............           18
    Percentage in Table III for age 65 and 18 years                   30
     (percent).............................................
    Subtract value of the refund feature to the nearest           $3,000
     dollar (30 percent of $10,000)........................
Pre-July 1986 investment in the contract adjusted for the         $7,000
 present value of the refund feature without discount for
 interest..................................................
                                                            ============
Post-June 1986 investment in the contract (unadjusted).....      $11,053
Post-June 1986 portion of the amount to be received                 $630
 annually ($11,053/$21,053x$1,200).........................
Number of years for which payment guaranteed ($11,053/$630)        17.54
Rounded to nearest whole number of years...................           18
Percentage in Table VII for age 65 and 18 years (percent)..           15
Subtract value of the refund feature to the nearest dollar        $1,658
 (15 percent of $11,053)...................................
                                                            ------------
Post-June 1986 investment in the contract adjusted for the        $9,395
 present value of the refund feature without discount for
 interest..................................................
 


If, in the above examples, the guaranteed amount had exceeded the 
investment in the contract (or applicable portion thereof), the 
percentage found in Table III or VII (whichever is applicable) should 
have been applied to the lesser of these amounts since any excess of the 
guaranteed amount over the investment in the contract (as found under 
Sec. 1.72-6) would not have constituted a refund of premiums or other 
consideration paid. In such a case, however, a different multiple might 
have been obtained from Table III or VII (whichever is applicable) since 
the number of years for which payments were guaranteed would have been 
greater.
    (c) Adjustment of investment for the refund feature in the case of a 
joint and survivor annuity. (1) Except as provided in paragraph (c)(2) 
of this section, if a joint and survivor annuity contract described in 
paragraph (b) (1), (2) or (6) of Sec. 1.72-5 contains a refund feature 
and the special rule of paragraph (d) of this section does not apply, 
the investment in the contract shall be adjusted in the following 
manner:
    (i) Find the percentage determined under the following formula:

[[Page 152]]

[GRAPHIC] [TIFF OMITTED] TC05OC91.042

In which:

V = The percentage, rounded to the nearest whole percent,
x = The age at the nearest birthday of the primary annuitant,
y = The age at the nearest birthday of the survivor annuitant,
N = The guaranteed amount divided by the annual annuity payable to the 
primary annuitant, rounded to the nearest integer,
P = The annual annuity continued to the survivor annuitant divided by 
the annual annuity payable to the primary annuitant,
[GRAPHIC] [TIFF OMITTED] TC05OC91.043

    (ii) Multiply the percentage found in paragraph (c)(1)(i) of this 
section by the lesser of (A) the investment in the contract found in 
accordance with Sec. 1.72-6, or (B) the total amount guaranteed as of 
the annuity starting date.
    (iii) Subtract the amount found in paragraph (c)(1)(ii) of this 
section from the investment in the contract found in accordance with 
Sec. 1.72-6.

In the case of a contract providing for payments to be made to two 
persons in the manner described in paragraph (b)(6) of Sec. 1.72-5, this 
paragraph (c)(1) is applied as though the older person were the primary 
annuitant and the younger person were the survivor annuitant. For 
purposes of this paragraph (c)(1), the number of survivors at 
agex (lx) is determined under the following table:

------------------------------------------------------------------------
                          x                                    lx
------------------------------------------------------------------------
5....................................................    1000000.
6....................................................     999729.
7....................................................     999493.
8....................................................     999284.
9....................................................     999069.
10...................................................     998849.
11...................................................     998620.
12...................................................     998382.
13...................................................     998135.
14...................................................     997876.
15...................................................     997606.
16...................................................     997322.
17...................................................     997025.
18...................................................     996714.
19...................................................     996387.
20...................................................     996044.
21...................................................     995684.
22...................................................     995304.
23...................................................     994905.
24...................................................     994484.
25...................................................     994041.
26...................................................     993573.
27...................................................     993080.
28...................................................     992563.
29...................................................     992024.
30...................................................     991461.
31...................................................     990876.
32...................................................     990269.
33...................................................     989638.
34...................................................     988984.
35...................................................     988303.
36...................................................     987593.
37...................................................     986846.
38...................................................     986055.
39...................................................     985210.
40...................................................     984298.
41...................................................     983310.
42...................................................     982230.
43...................................................     981046.

[[Page 153]]

 
44...................................................     979742.
45...................................................     978302.
46...................................................     976709.
47...................................................     974945.
48...................................................     972992.
49...................................................     970832.
50...................................................     968447.
51...................................................     966000.
52...................................................     963313.
53...................................................     960375.
54...................................................     957175.
55...................................................     953705.
56...................................................     949954.
57...................................................     945912.
58...................................................     941568.
59...................................................     936908.
60...................................................     931903.
61...................................................     926451.
62...................................................     920540.
63...................................................     914090.
64...................................................     907011.
65...................................................     899221.
66...................................................     890428.
67...................................................     880797.
68...................................................     870298.
69...................................................     858904.
70...................................................     846565.
71...................................................     832316.
72...................................................     816861.
73...................................................     800078.
74...................................................     781837.
75...................................................     762012.
76...................................................     740743.
77...................................................     717689.
78...................................................     692780.
79...................................................     665977.
80...................................................     637260.
81...................................................     607339.
82...................................................     575531.
83...................................................     541919.
84...................................................     506647.
85...................................................     469931.
86...................................................     432459.
87...................................................     394138.
88...................................................     355393.
89...................................................     316712.
90...................................................     278663.
91...................................................     242020.
92...................................................     207150.
93...................................................     174602.
94...................................................     144828.
95...................................................     118151.
96...................................................      94871.7
97...................................................      74863.6
98...................................................      58042.2
99...................................................      44176.1
100..................................................      32956.4
101..................................................      24044.8
102..................................................      17104.1
103..................................................      11815.5
104..................................................       7886.75
105..................................................       5054.94
106..................................................       3086.95
107..................................................       1778.82
108..................................................        955.465
109..................................................        470.955
110..................................................        208.668
111..................................................         80.7899
112..................................................         26.2340
113..................................................          6.69620
114..................................................          1.19385
115..................................................           .111460
------------------------------------------------------------------------

    (2) If the multiples in Tables I through IV of Sec. 1.72-9 are used 
to determine any portion of the expected return under a contract 
described in paragraph (c)(1) of this section, only the post-June 1986 
investment in the contract (if any) shall be adjusted in the manner 
described in paragraph (c)(1) of this section, and the pre-July 1986 
investment in the contract shall, in the case of a contract described in 
paragraph (b) (1) or (6) of Sec. 1.72-5, be adjusted in the following 
manner:
    (i) Determine the number of years necessary for the guaranteed 
amount to be fully paid by dividing the maximum amount guaranteed as of 
the annuity starting date by the amount to be received annually under 
the contract. The number of years should be stated in terms of the 
nearest whole year, considering for this purpose a fraction of one-half 
or more as an additional whole year.
    (ii) Consult Table III of Sec. 1.72-9 for the appropriate 
percentages under the whole number of years found in subdivision (i) of 
this subparagraph and the age (as of the annuity starting date) and sex 
of each annuitant. If the annuitants are not of the same sex, substitute 
for the female annuitant a male annuitant 5 years younger, or for the 
male annuitant a female annuitant 5 years older, so that Table III will 
be entered in both cases with the ages of annuitants of the same sex.
    (iii) Find the sum of the two percentages found in accordance with 
subdivision (ii) of this subparagraph.
    (iv) To the age of the elder of the two annuitants (as determined 
under subdivision (ii) of this subparagraph), add the number of years 
(indicated in the table below) opposite the number of years by which 
such annuitants' ages differ:

------------------------------------------------------------------------
                                                             Addition to
 Number of years difference in age (2 male annuitants or 2    older age
                     female annuitants)                        in years
------------------------------------------------------------------------
0 to 1, inclusive..........................................            9
2 to 3, inclusive..........................................            8
4 to 5, inclusive..........................................            7
6 to 8, inclusive..........................................            6
9 to 11, inclusive.........................................            5
12 to 15, inclusive........................................            4
16 to 20, inclusive........................................            3
21 to 27, inclusive........................................            2
28 to 42, inclusive........................................            1
Over 42....................................................            0
------------------------------------------------------------------------


[[Page 154]]

    (v) Consult Table III for the appropriate percentage under the whole 
number of years found in subdivision (i) of this subparagraph and the 
age and sex of the elder annuitant as adjusted under subdivision (iv) of 
this subparagraph.
    (vi) Subtract the percentage obtained in subdivision (v) of this 
subparagraph from the sum of the percentages found under subdivision 
(iii) of this subparagraph. If the result is less than one, subdivisions 
(vii) and (viii) of this subparagraph shall be disregarded and no 
adjustment made to the investment in the contract.
    (vii) Multiply the percentage found in subdivision (vi) of this 
subparagraph by whichever of the following is the smaller: (A) the 
investment in the contract found in accordance with Sec. 1.72-6 or (B) 
the total amount guaranteed as of the annuity starting date.
    (viii) Subtract the amount found in subdivision (vii) of this 
subparagraph from the investment in the contract found in accordance 
with Sec. 1.72-6.
    (3) The principles of this paragraph (c) may be illustrated by the 
following examples:

    Example (1). Prior to July 1, 1986, Taxpayer A, a 70-year-old male, 
purchases a joint and last survivor annuity for $33,050. The contract 
provides for payments of $100 a month to be paid first to himself for 
life and then to B, his 40-year-old daughter, if she survives him. The 
contract further provides that in the event both die before ten years' 
payments have been made, payments will be continued to C, a beneficiary, 
or to C's estate, until ten years' payments have been made. If there is 
no post-June 1986 investment in the contract, the investment in the 
contract adjusted for the purpose of determining the exclusion ratio is 
computed in the following manner:

Cost of the annuity contract (investment in the contract         $33,050
 unadjusted)...............................................
Guaranteed amount ($1,200x10)..............................      $12,000
                                                            ============
Percentage in Table III for male, age 70 (or female, age              21
 75) for duration of the guarantee (10)....................
Percentage in Table III for female, age 40 (or male, age               2
 35) for duration of the guarantee (10)....................
                                                            ------------
    Sum of percentages obtained............................           23
                                                            ============
Difference in years of age between two males, aged 70 and             35
 35 (or 2 females, aged 75 and 40).........................
Addition, in years, to older age...........................            1
Percentage in Table III for male one year older than A.....           22
Difference between percentages obtained (23 percent less 22            1
 percent)..................................................
Value of the refund feature to the nearest dollar (1                $120
 percent of $12,000).......................................
                                                            ------------
    Investment in the contract adjusted for present value        $32,930
     of the refund feature.................................
 

    Example (2). The facts are the same as in example (1), except that 
the total investment in the contract was made after June 30, 1986, A is 
73 years of age, and B is A's 70 year old spouse. The percentage 
determined under the formula in paragraph (c)(1)(i) of this section is 
two percent. Thus, the amount determined under paragraph (c)(1)(ii) of 
this section is $240 (2 percent of $12,000), and the investment in the 
contract adjusted for the present value of the refund feature is $32,810 
($33,050--$240).

    (4) If an annuity described in paragraph (b) of Sec. 1.72-5 contains 
a refund feature and the manner of determining the adjustment to the 
investment in the contract (or to any part of such investment) is not 
prescribed or requires use of the formula in paragraph (c)(1)(i) of this 
section, the Commissioner will determine the amount of the adjustment 
upon request. The request must contain the date of birth of each 
annuitant, the guaranteed amount, the annual annuity payable to each 
annuitant, and the annuity starting date. Send the request to the 
Commissioner of Internal Revenue, Attention: OP:E:EP:GA, Washington, 
D.C. 20224.
    (d) Adjustment of investment in the contract where paragraph (b)(3) 
of Sec. 1.72-2 applies to payments. (1) If paragraph (b)(3) of 
Sec. 1.72-2 applies to payments to be made under a contract and this 
section also applies because of the provision for a refund feature, an 
adjustment shall be made to the investment in the contract in accordance 
with this paragraph before making the computations required by paragraph 
(d)(3) of Sec. 1.72-4 and paragraph (d)(7) of Sec. 1.72-5. In the case 
of the guarantee of a specified amount, the adjustment shall be made by 
applying the appropriate multiple from Table III or VII (whichever

[[Page 155]]

is applicable), as otherwise determined under this section, to the 
investment in the contract or the guranteed amount, whichever is the 
lesser. The guarantee period shall be found by dividing the amount 
guaranteed by the amount determined by placing the payments received 
during the first taxable year (to guaranteed amount) on an annual basis. 
Thus, if monthly payments are first received by a taxpayer on a calendar 
year basis in August, his total payments (to the extent that they reduce 
the guaranteed amount) for the taxable year would be divided by 5 and 
multiplied by 12. The guaranteed amount would then be divided by the 
result of this computation to obtain the guarantee period. If the 
contract merely guarantees that proceeds from a unit or units of a fund 
shall be paid for a fixed number of years or the life (or lives) of an 
annuitant (or annuitants), whichever is the longer, the fixed number of 
years is the guarantee period. The appropriate percentage in Table III 
or VII shall be applied to whichever of the following is the smaller: 
(i) the investment in the contract; or (ii) the product of the payments 
received in the first taxable year, placed on an annual basis, 
multiplied by the number of years for which payment of the proceeds of a 
unit or units is guaranteed.
    (2) The principles of this paragraph may be illustrated by the 
following examples:

    Example (1). Taxpayer A, a 50-year-old male purchases for $25,000 a 
contract which provides for variable monthly payments to be paid to him 
for his life. The contract also provides that if he should die before 
receiving payments for fifteen years, payments shall continue according 
to the original formula to his estate or beneficiary until payments have 
been made for that period. Beginning with the month of September, A 
receives payments which total $450 for the first taxable year of 
receipt. This amount, placed on an annual basis, is $1,350 ($450 divided 
by 4, or $112.50; $112.50 multiplied by 12, or $1,350). If there is no 
post-June 1986 investment in the contract, the guaranteed amount is 
considered to be $20,250 ($1,350x15), and the multiple from Table III 
(found in the same manner as in paragraph (b) of this section), 9 
percent, applied to $20,250 (since this amount is less than the 
investment in the contract), results in a refund adjustment of 
$1,822,50. The latter amount, subtracted from the investment in the 
contract of $25,000, results in an adjusted investment in the contract 
of $23,177.50. If A dies before receiving payments for 15 years and the 
remaining payments are made to B, his beneficiary, B shall exclude the 
entire amount of such payments from his gross income until the amounts 
so received by B, together with the amount received by A and excludable 
from A's gross income, equal or exceed $25,000. Any excess and any 
payments thereafter received by B shall be fully includible in gross 
income.
    Example (2). Assume the same facts as in example (1), except that 
the total investment in the contract was made after June 30, 1986. The 
applicable multiple found in Table VII is 3 percent. When this is 
applied to the guaranteed amount of $20,250, it results in a refund 
adjustment of $607.50. The adjusted investment in the contract in 
$24,392.50 ($25,000--$607.50).

    (e) Adjustment of the investment in the contract where more than one 
annuity element is provided for a single consideration. In the case of 
contracts to which paragraph (b) of Sec. 1.72-6 applies for the purpose 
of allocating the investment in the contract to two or more annuity 
elements which are provided for a single consideration, if one or more 
of such elements involves a refund feature, the portion of the 
investment in the contract properly allocable to each such element shall 
be adjusted for the refund feature before aggregating all the 
investments in order to obtain the exclusion ratio which is to apply to 
the contract as a whole.

    Example (1). If taxpayer A, an insured 70 years of age, upon 
maturity of an endowment policy which cost him a net amount of $86,000, 
elected a dual settlement consisting of (1) monthly payments for his 
life aggregating $4,146 per year with 10 years' payments certain, and 
(2) monthly payments for his 60-year-old brother, B, aggregating $2,820 
per year with 20 years' payments certain, the exclusion ratio to be used 
by both A and B if there is no post-June 1986 investment in the contract 
would be determined in the following manner:

A's expected return (A's payments per year of $4,146          $50,166.60
 multiplied by his life expectancy from Table 1 of
 12.1)...............................................
B's expected return (B's payments per year of $2,820          $51,324.00
 multiplied by his life expectancy from Table 1 of
 18.2)...............................................
                                                      ------------------

[[Page 156]]

 
    Sum of expected returns to be used in determining        $101,490.60
     exclusion ratio.................................
                                                      ==================
Percentage of total expected return attributable to                 49.4
 A's expectancy of life ($50,166.60/$101,490.60).....
Percentage of total expected return attributable to                 50.6
 B's expectancy of life ($51,324/$101,490.60)........
Portion of investment in the contract allocable to            $42,484.00
 A's annuity (49.4 percent of $86,000)...............
Portion of investment in the contract allocable to            $43,516.00
 B's annuity (50.6 percent of $86,000)...............
Value of the refund feature with respect to A's                $8,707.00
 annuity (percentage from Table III for male, age 70,
 and duration 10, or 21 percent, multiplied by lesser
 of guaranteed amount and allocable portion of
 investment in the contract, $41,460)................
A's allocable portion of the investment in the                $33,777.00
 contract adjusted for refund feature ($42,484 less
 $8,707.00)..........................................
Value of the refund feature with respect to B's               $10,879.00
 annuity (percentage from Table III for male, age 60,
 and duration 20, or 25 percent, multiplied by lesser
 of guaranteed amount and allocable portion of
 investment in the contract, $43,516)................
B's allocable portion of the investment in the                $32,637.00
 contract adjusted for refund feature ($43,516 less
 $10,879.00).........................................
Sum of A's and B's allocable portions of the                  $66,414.00
 investment in the contract after adjustment for the
 refund feature......................................
Exclusion ratio for the contract as a whole (total                  65.4
 adjusted investment in the contract, $66,414,
 divided by the total expected return from above,
 $101,490.60) (percent)..............................
 

    Example (2). Assume the same facts as in example (1) except that the 
total investment in the contract was made after June 30, 1986. The 
exclusion ratio to be used by both A and B would be 56.9 percent, 
determined as follows:


A's expected return (A's payments per year of $4,146          $66,336.00
 multiplied by his life expectancy from Table V of
 16.0)...............................................
B's expected return (B's payments per year of $2,820          $68,244.00
 multiplied by his life expectancy from Table V of
 24.2)...............................................
                                                      ------------------
Sum of expected returns to be used in determining            $134,580.00
 exclusion ratio.....................................
                                                      ==================
Percentage of total expected return attributable to                 49.3
 A's expectancy of life ($66,336.00/$134,580.00).....
Percentage of total expected return attributable to                 50.7
 B's expectancy of life ($68,244.00/$134,580.00).....
Portion of investment in the contract allocable to            $42,398.00
 A's annuity (49.3 percent of $86,000)...............
Portion of investment in the contract allocable to            $43,602.00
 B's annuity (50.7 percent of $86,000)...............
Value of the refund feature with respect to A's                $4,560.60
 annuity (percentage from Table VII for age 70 and
 duration 10, or 11 percent, multiplied by lesser of
 the guaranteed amount and allocable portion of
 investment in the contract, $41,460)................
A's allocable portion of the investment in the                $37,837.40
 contract adjusted for refund feature ($42,398 less
 $4,560.60)..........................................
Value of the refund feature with respect to B's                $4,796.22
 annuity (percentage from Table VII for age 60 and
 duration 20, or 11 percent, multiplied by lesser of
 guaranteed amount and allocable portion of
 investment in the contract, $43,602)................
B's allocable portion of the investment in the                $38,805.78
 contract adjusted for refund feature ($43,602 less
 $4,796.22)..........................................
                                                      ------------------
Sum of A's and B's allocable portions of the                  $76,643.18
 investment in the contract after adjustment for the
 refund feature......................................

[[Page 157]]

 
Exclusion ratio for the contract as a whole (total                  56.9
 adjusted investment in the contract, $76,643.18,
 divided by the total expected return from above,
 $134,580.00) (percent)..............................
 

    (f) Adjustment of investment in the contract with respect to 
contracts subject to Sec. 1.72-6(d). In the case of a contract to which 
Sec. 1.72-6(d) (relating to contracts in which amounts were invested 
both before July 1, 1986, and after June 30, 1986) applies, this section 
is applied in the manner prescribed in Sec. 1.72-6(d) and, in 
particular, Sec. 1.72-6(d)(5)(vi).

[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960, as 
amended by T.D. 8115, 51 FR 45702, Dec. 19, 1986]



Sec. 1.72-8  Effect of certain employer contributions with respect to premiums or other consideration paid or contributed by an employee.

    (a) Contributions in the nature of compensation--(1) Amounts 
includible in gross income of employee under subtitle A of the Code or 
prior income tax laws. Section 72(f) provides that for the purposes of 
section 72 (c), (d), and (e), amounts contributed by an employer for the 
benefit of an employee or his beneficiaries shall constitute 
consideration paid or contributed by the employee to the extent that 
such amounts were includible in the gross income of the employee under 
subtitle A of the Code or prior income tax laws. Amounts to which this 
paragraph applies include, for example, contributions made by an 
employer to or under a trust or plan which fails to qualify under the 
provisions of section 401(a), provided that the employee's rights to 
such contributions are nonforfeitable at the time the contributions are 
made. See sections 402(b) and 403(c) and the regulations thereunder. 
This subparagraph also applies to premiums paid by an employer (other 
than premiums paid on behalf of an owner-employee) for life insurance 
protection for an employee if such premiums are includible in the gross 
income of the employee when paid. See Sec. 1.72-16. However, such 
premiums shall only be considered as premiums and other consideration 
paid by the employee with respect to any benefits attributable to the 
contract providing the life insurance protection. See Sec. 1.72-16.
    (2) Amounts not includible in gross income of employee at time 
contributed if paid directly to employee at that time. Except as 
provided in subparagraph (3) of this paragraph, section 72(f) provides 
that for the purposes of section 72 (c), (d), and (e), amounts 
contributed by an employer for the benefit of an employee or his 
beneficiaries shall constitute consideration paid or contributed by the 
employee to the extent that such amounts would not have been includible 
in the gross income of the employee at the time contributed had they 
been paid directly to the employee at that time. Amounts to which this 
subparagraph applies include, for example, contributions made by an 
employer after December 31, 1950, and before January 1, 1963, if made on 
account of foreign services rendered by an employee during a period in 
which the employee qualified as a bona fide resident of a foreign 
country under section 911(a) of the Internal Revenue Code of 1954, or 
under section 116(a) of the Internal Revenue Code of 1939. In such a 
case, it would be immaterial whether such contributions were made under 
a qualified plan or otherwise. See subparagraph (4) of this paragraph 
for rules governing the determination of the amount of employer foreign 
service contributions to which this subparagraph applies. On the other 
hand, if contributions are made by an employer to a qualified plan at a 
time when compensation paid directly to the employee concerned with 
respect to the same services rendered would have been includible in the 
gross income of the employee, such as in the case of an employee of a 
State government where contributions are made in 1955 with respect to 
services rendered by the employee prior to the year 1939, this 
subparagraph does not apply to such contributions.
    (3) Limitation--(i) In general. Except as provided in subdivision 
(ii) of this subparagraph, the provisions of subparagraph (2) of this 
paragraph shall not apply to amounts which were contributed by the 
employer after December 31, 1962, and which would not have been 
includible in the gross income of

[[Page 158]]

the employee by reason of the application of section 911, if such 
amounts had been paid directly to the employee at the time of 
contribution. Employer contributions attributable to foreign services 
performed by the employee after December 31, 1962, do not constitute, 
for purposes of section 72 (c), (d), and (e), consideration paid or 
contributed by the employee.
    (ii) Exception. The provisions of subdivision (i) of this 
subparagraph shall not apply to amounts which were contributed by the 
employer to provide pension or annuity credits (determined in accordance 
with the provisions of subparagraph (4) of this paragraph) to the extent 
such credits are--
    (a) Attributable to foreign services performed before January 1, 
1963, with respect to which the employee qualified for the benefits of 
section 911(a) (or corresponding provisions of prior revenue laws), and
    (b) Provided pursuant to pension or annuity plan provisions in 
existence on March 12, 1962, and on that date applicable to such 
services.

Amounts described in this subdivision constitute, for purposes of 
section 72 (c), (d), and (e), consideration paid or contributed by the 
employee even though such amounts are contributed by the employer after 
December 31, 1962.
    (4) Determination of employer foreign service contributions which 
constitute consideration paid or contributed by employee. For purposes 
of subparagraphs (2) and (3)(ii) of this paragraph, employer foreign 
service contributions which constitute, for purposes of section 72 (c), 
(d), and (e), consideration paid or contributed by the employee shall be 
determined as follows:
    (i) Treatment of identifiable contributions. If, under the terms of 
the pension or annuity plan under which employer contributions were 
made, such contributions may be identified as--
    (a) Attributable to foreign services performed before January 1, 
1963, with respect to which the employee qualified for the benefits of 
section 911(a) (or corresponding provisions of prior revenue laws), and
    (b) Made under pension or annuity plan provisions in existence on 
March 12, 1962, which were applicable to the services referred to in (a) 
of this subdivision on that date,

the amount of employer contributions so identified shall be considered 
paid or contributed by the employee.
    (ii) Alternative rule for unidentifiable contributions. If employer 
contributions may not be identified in the manner described in 
subdivision (i) of this subparagraph, the amount of employer 
contributions attributable to foreign services performed before January 
1, 1963, and considered paid or contributed by the employee shall be 
determined on the basis of an estimated allocation which is reasonable 
and consistent with the circumstances and the provisions of the pension 
or annuity plan under which such contributions are made. For example, if 
an employee's benefits under a pension or annuity plan, which is 
unchanged after March 12, 1962, are determined with respect to his basic 
compensation during his entire period of credited service, the amount of 
employer contributions considered paid or contributed by the employee 
shall be an amount which bears the same ratio to total employer 
contributions for such employee under the pension or annuity plan as his 
basic compensation attributable to foreign services performed before 
January 1, 1963, with respect to which he qualified for the benefits of 
section 911(a) (or corresponding provisions of prior revenue laws) bears 
to his total basic compensation. On the other hand, if an employee's 
benefits under a pension or annuity plan, which is unchanged after March 
12, 1962, are determined with respect to his basic compensation during 
his final five years of credited service, the amount of employer 
contributions considered paid or contributed by the employee shall be an 
amount which bears the same ratio to total employer contributions for 
such employee as his number of years of credited service before January 
1, 1963, with respect to which he qualified for the benefits of section 
911(a) (or corresponding provisions of prior revenue laws) bears to his 
total number of years of credited service.
    (5) Amounts not includible in gross income of employee under 
subtitle A of the Code or prior income tax laws. Amounts contributed by 
an employer which were

[[Page 159]]

not includible in the gross income of the employee under Subtitle A of 
the Code or prior income tax laws, but which would have been includible 
therein had they been paid directly to the employee, do not constitute 
consideration paid or contributed by the employee for the purposes of 
section 72. For example, contributions made by an employer under a 
qualified employees' trust or plan, which contributions would have been 
includible in the gross income of the employee had such contributions 
been paid to him directly as compensation, do not constitute 
consideration paid or contributed by the employee. Accordingly, the 
aggregate amount of premiums or other consideration paid or contributed 
by an employee, insofar as compensatory employer contributions are 
concerned, consists solely of the (i) sum of all amounts actually 
contributed by the employee, plus (ii) contributions in the nature of 
compensation which are deemed to be paid or contributed by the employee 
under this paragraph.
    (b) Contributions in the nature of death benefits. In the case of an 
employee's beneficiary, the aggregate amount of premiums or other 
consideration paid or deemed to be paid or contributed by the employee 
shall also include:
    (1) Amounts (other than amounts paid as an annuity) to the extent 
such amounts are excludable from the beneficiary's gross income as a 
death benefit under section 101(b), and
    (2) Any amount or amounts of death benefits which are treated as 
additional consideration contributed by the employee under section 
101(b)(2)(D) and the regulations thereunder, or which were excludable 
from the beneficiary's gross income as a death benefit under section 
22(b)(1)(B) of the Internal Revenue Code of 1939 and the regulations 
thereunder.

Accordingly, in the case of an employee's beneficiary, any such amount 
shall be added to any amount or amounts deemed paid or contributed by 
the employee under paragraph (a)(1) of this section and to any amounts 
actually contributed by the employee for the purpose of finding the 
aggregate amount of premiums or other consideration paid or contributed 
by the employee.
    (c) Amounts ``made available'' to an employee or his beneficiary. 
Any amount which, although not actually paid, is made available to and 
includable in the gross income of an employee or his beneficiary under 
the rules of sections 402 and 403 and the regulations thereunder, shall 
be considered an amount contributed by the employee and shall be 
aggregated with amounts, if any, to which paragraphs (a) and (b) of this 
section apply for the purpose of determining the aggregate amount of 
premiums or other consideration paid by the employee.
    (d) Amounts includable in gross income of employee when his rights 
under annuity contract change to nonforfeitable rights. Any amount 
which, by reason of section 403(d) and after the application of 
paragraph (b) of Sec. 1.403 (b)-1, is required to be included in an 
employee's gross income for the year when his rights under an annuity 
contract change from forfeitable to nonforfeitable rights shall be 
considered an amount contributed by the employee and shall be aggregated 
with amounts, if any, to which paragraphs (a), (b), and (c) of this 
section apply for the purpose of determining the aggregate amount of 
premiums or other consideration paid or contributed by the employee for 
such annuity contract. In other words, if, under section 403(d), an 
employee of an organization exempt from tax under section 501(a) or 
521(a) is required to include an amount in gross income by reason of his 
rights under an annuity contract changing from forfeitable to 
nonforfeitable rights, such amount, to the extent it is not excludable 
from gross income under paragraph (b) of Sec. 1.403 (b)-1, shall be 
considered an amount contributed by such employee for the annuity 
contract.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6665, 28 FR 
7245, July 16, 1963; T.D. 6783, 29 FR 18356, Dec. 24, 1964]



Sec. 1.72-9  Tables.

    The following tables are to be used in connection with computations 
under section 72 and the regulations thereunder. Tables I, II, IIA, III, 
and IV are to be used if the investment in the contract does not include 
a post-June 1986 investment in the contract (as defined in Sec. 1.72-
6(d)(3)). Tables V, VI, VIA, VII,

[[Page 160]]

and VIII are to be used if the investment in the contract includes a 
post-June 1986 investment in the contract (as defined in Sec. 1.72-
6(d)(3)).
    In the case of a contract under which amounts are received as an 
annuity after June 30, 1986, a taxpayer receiving such amounts may elect 
to treat the entire investment in the contract as post-June 1986 
investment in the contract and thus apply Tables V through VIII. A 
taxpayer may make the election for any taxable year in which such 
amounts are received by attaching to the taxpayer's return for such 
taxable year a statement that the taxpayer is electing under Sec. 1.72-9 
to treat the entire investment in the contract as post-June 1986 
investment in the contract. The statement must contain the taxpayer's 
name, address, and taxpayer identification number. The election is 
irrevocable and applies with respect to all amounts that the taxpayer 
receives as an annuity under the contract in the taxable year for which 
the election is made or in any subsequent taxable year. (Note that for 
purposes of the examples in Secs. 1.72-4 through 1.72-11 the election 
described in this section is disregarded (i.e., it assumed that the 
taxpayer does not make an election under this section).) See also 
Sec. 1.72-6(d)(3) for rules treating the entire investment in a contract 
as post-June 1986 investment in a contract if the annuity starting date 
of the contract is after June 30, 1986, and the contract provides for a 
disqualifying form of payment or settlement, such as an option to 
receive a lump sum in full discharge of the obligation under the 
contract. In addition, see Sec. 1.72-6(d) for special rules concerning 
the tables to be used and the separate computations required if the 
investment in the contract includes both a pre-July 1986 investment in 
the contract and a post-June 1986 investment in the contract and the 
election described in Sec. 1.72-6(d)(6) is made with respect to the 
contract.

  Table I--Ordinary Life Annuities--One Life--Expected Return Multiples
------------------------------------------------------------------------
                            Ages
-------------------------------------------------------------  Multiples
                      Male                          Female
------------------------------------------------------------------------
6...............................................     11          65.0
7...............................................     12          64.1
8...............................................     13          63.2
9...............................................     14          62.3
10..............................................     15          61.4
 
11..............................................     16          60.4
12..............................................     17          59.5
13..............................................     18          58.6
14..............................................     19          57.7
15..............................................     20          56.7
 
16..............................................     21          55.8
17..............................................     22          54.9
18..............................................     23          53.9
19..............................................     24          53.0
20..............................................     25          52.1
 
21..............................................     26          51.1
22..............................................     27          50.2
23..............................................     28          49.3
24..............................................     29          48.3
25..............................................     30          47.4
 
26..............................................     31          46.5
27..............................................     32          45.6
28..............................................     33          44.6
29..............................................     34          43.7
30..............................................     35          42.8
 
31..............................................     36          41.9
32..............................................     37          41.0
33..............................................     38          40.0
34..............................................     39          39.1
35..............................................     40          38.2
 
36..............................................     41          37.3
37..............................................     42          36.5
38..............................................     43          35.6
39..............................................     44          34.7
40..............................................     45          33.8
 
41..............................................     46          33.0
42..............................................     47          32.1
43..............................................     48          31.2
44..............................................     49          30.4
45..............................................     50          29.6
 
46..............................................     51          28.7
47..............................................     52          27.9
48..............................................     53          27.1
49..............................................     54          26.3
50..............................................     55          25.5
 
51..............................................     56          24.7
52..............................................     57          24.0
53..............................................     58          23.2
54..............................................     59          22.4
55..............................................     60          21.7
 
56..............................................     61          21.0
57..............................................     62          20.3
58..............................................     63          19.6
59..............................................     64          18.9
60..............................................     65          18.2
 
61..............................................     66          17.5
62..............................................     67          16.9
63..............................................     68          16.2
64..............................................     69          15.6

[[Page 161]]

 
65..............................................     70          15.0
 
66..............................................     71          14.4
67..............................................     72          13.8
68..............................................     73          13.2
69..............................................     74          12.6
70..............................................     75          12.1
 
71..............................................     76          11.6
72..............................................     77          11.0
73..............................................     78          10.5
74..............................................     79          10.1
75..............................................     80           9.6
 
76..............................................     81           9.1
77..............................................     82           8.7
78..............................................     83           8.3
79..............................................     84           7.8
80..............................................     85           7.5
 
81..............................................     86           7.1
82..............................................     87           6.7
83..............................................     88           6.3
84..............................................     89           6.0
85..............................................     90           5.7
 
86..............................................     91           5.4
87..............................................     92           5.1
88..............................................     93           4.8
89..............................................     94           4.5
90..............................................     95           4.2
 
91..............................................     96           4.0
92..............................................     97           3.7
93..............................................     98           3.5
94..............................................     99           3.3
95..............................................    100           3.1
 
96..............................................    101           2.9
97..............................................    102           2.7
98..............................................    103           2.5
99..............................................    104           2.3
100.............................................    105           2.1
 
101.............................................    106           1.9
102.............................................    107           1.7
103.............................................    108           1.5
104.............................................    109           1.3
105.............................................    110           1.2
 
106.............................................    111           1.0
107.............................................    112            .8
108.............................................    113            .7
109.............................................    114            .6
110.............................................    115            .5
111.............................................    116           0
------------------------------------------------------------------------


[[Page 162]]


                                                 Table II--Ordinary Joint Life and Last Survivor Annuities--Two Lives--Expected Return Multiples
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Ages
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
              Male                      Female           Male 6        7        8        9        10       11       12       13       14       15       16       17       18       19       20
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
                                                        Female 11      12       13       14       15       16       17       18       19       20       21       22       23       24       25
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...............................  11................          73.5     73.0     72.6     72.2     71.8     71.4     71.0     70.7     70.4     70.0     69.7     69.5     69.2     68.9     68.7
7...............................  12................          73.0     72.6     72.1     71.7     71.3     70.9     70.5     70.1     69.8     69.4     69.1     68.8     68.5     68.3     68.0
8...............................  13................          72.6     72.1     71.6     71.2     70.8     70.4     70.0     69.6     69.2     68.9     68.5     68.2     67.9     67.6     67.3
9...............................  14................          72.2     71.7     71.2     70.7     70.3     69.9     69.4     69.0     68.7     68.3     67.9     67.6     67.3     67.0     66.7
10..............................  15................          71.8     71.3     70.8     70.3     69.8     69.4     68.9     68.5     68.1     67.7     67.4     67.0     66.7     66.4     66.1
 
11..............................  16................          71.4     70.9     70.4     69.9     69.4     68.9     68.5     68.0     67.6     67.2     66.8     66.5     66.1     65.8     65.4
12..............................  17................          71.0     70.5     70.0     69.4     68.9     68.5     68.0     67.5     67.1     66.7     66.3     65.9     65.5     65.2     64.8
13..............................  18................          70.7     70.1     69.6     69.0     68.5     68.0     67.5     67.1     66.6     66.2     65.8     65.4     65.0     64.6     64.2
14..............................  19................          70.4     69.8     69.2     68.7     68.1     67.6     67.1     66.6     66.1     65.7     65.3     64.8     64.4     64.0     63.7
15..............................  20................          70.0     69.4     68.9     68.3     67.7     67.2     66.7     66.2     65.7     65.2     64.8     64.3     63.9     63.5     63.1
 
16..............................  21................          69.7     69.1     68.5     67.9     67.4     66.8     66.3     65.8     65.3     64.8     64.3     63.8     63.4     63.0     62.6
17..............................  22................          69.5     68.8     68.2     67.6     67.0     66.5     65.9     65.4     64.8     64.3     63.8     63.4     62.9     62.5     62.0
18..............................  23................          69.2     68.5     67.9     67.3     66.7     66.1     65.5     65.0     64.4     63.9     63.4     62.9     62.4     62.0     61.5
19..............................  24................          68.9     68.3     67.6     67.0     66.4     65.8     65.2     64.6     64.0     63.5     63.0     62.5     62.0     61.5     61.0
20..............................  25................          68.7     68.0     67.3     66.7     66.1     65.4     64.8     64.2     63.7     63.1     62.6     62.0     61.5     61.0     60.6
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Ages
                                                              ----------------------------------------------------------------------------------------------------------------------------------
                Male                           Female             Male 21       22       23       24       25       26       27       28       29       30       31       32       33       34
                                                              ----------------------------------------------------------------------------------------------------------------------------------
                                                                 Female 26      27       28       29       30       31       32       33       34       35       36       37       38       39
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...................................  11.....................          68.4     68.2     68.0     67.8     67.6     67.5     67.3     67.1     67.0     66.8     66.7     66.6     66.5     66.4
7...................................  12.....................          67.8     67.5     67.3     67.1     66.9     66.7     66.5     66.4     66.2     66.1     65.9     65.8     65.7     65.6
8...................................  13.....................          67.1     66.8     66.6     66.4     66.2     66.0     65.8     65.6     65.4     65.3     65.1     65.0     64.9     64.7
9...................................  14.....................          66.4     66.2     65.9     65.7     65.4     65.2     65.0     64.8     64.7     64.5     64.3     64.2     64.1     63.9
10..................................  15.....................          65.8     65.5     65.2     65.0     64.7     64.5     64.3     64.1     63.9     63.7     63.6     63.4     63.3     63.1
 
11..................................  16.....................          65.1     64.8     64.6     64.3     64.1     63.8     63.6     63.4     63.2     63.0     62.8     62.6     62.5     62.3
12..................................  17.....................          64.5     64.2     63.9     63.6     63.4     63.1     62.9     62.7     62.4     62.2     62.0     61.9     61.7     61.5
13..................................  18.....................          63.9     63.6     63.3     63.0     62.7     62.4     62.2     61.9     61.7     61.5     61.3     61.1     60.9     60.8
14..................................  19.....................          63.3     63.0     62.7     62.3     62.0     61.8     61.5     61.2     61.0     60.8     60.6     60.4     60.2     60.0
15..................................  20.....................          62.7     62.4     62.0     61.7     61.4     61.1     60.8     60.6     60.3     60.1     59.8     59.6     59.4     59.2
 
16..................................  21.....................          62.2     61.8     61.4     61.1     60.8     60.5     60.2     59.9     59.6     59.4     59.1     58.9     58.7     58.5
17..................................  22.....................          61.6     61.2     60.9     60.5     60.2     59.8     59.5     59.2     58.9     58.7     58.4     58.2     57.9     57.7
18..................................  23.....................          61.1     60.7     60.3     59.9     59.6     59.2     58.9     58.6     58.3     58.0     57.7     57.5     57.2     57.0
19..................................  24.....................          60.6     60.2     59.7     59.4     59.0     58.6     58.3     57.9     57.6     57.3     57.0     56.8     56.5     56.3
20..................................  25.....................          60.1     59.6     59.2     58.8     58.4     58.0     57.7     57.3     57.0     56.7     56.4     56.1     55.8     55.6
 

[[Page 163]]

 
21..................................  26.....................          59.6     59.1     58.7     58.3     57.9     57.5     57.1     56.7     56.4     56.0     55.7     55.4     55.1     54.9
22..................................  27.....................          59.1     58.7     58.2     57.7     57.3     56.9     56.5     56.1     55.8     55.4     55.1     54.8     54.5     54.2
23..................................  28.....................          58.7     58.2     57.7     57.2     56.8     56.4     55.9     55.5     55.2     54.8     54.4     54.1     53.8     53.5
24..................................  29.....................          58.3     57.7     57.2     56.8     56.3     55.8     55.4     55.0     54.6     54.2     53.8     53.5     53.2     52.8
25..................................  30.....................          57.9     57.3     56.8     56.3     55.8     55.3     54.9     54.4     54.0     53.6     53.2     52.9     52.5     52.2
 
26..................................  31.....................          57.5     56.9     56.4     55.8     55.3     54.8     54.4     53.9     53.5     53.1     52.7     52.3     51.9     51.6
27..................................  32.....................          57.1     56.5     55.9     55.4     54.9     54.4     53.9     53.4     53.0     52.5     52.1     51.7     51.3     50.9
28..................................  33.....................          56.7     56.1     55.5     55.0     54.4     53.9     53.4     52.9     52.4     52.0     51.6     51.1     50.7     50.3
29..................................  34.....................          56.4     55.8     55.2     54.6     54.0     53.5     53.0     52.4     52.0     51.5     51.0     50.6     50.2     49.3
30..................................  35.....................          56.0     55.4     54.8     54.2     53.6     53.1     52.5     52.0     51.5     51.0     50.5     50.1     49.6     49.2
 
31..................................  36.....................          55.7     55.1     54.4     53.8     53.2     52.7     52.1     51.6     51.0     50.5     50.0     49.5     49.1     48.7
32..................................  37.....................          55.4     54.8     54.1     53.5     52.9     52.3     51.7     51.1     50.6     50.1     49.5     49.1     48.6     48.1
33..................................  38.....................          55.1     54.5     53.8     53.2     52.5     51.9     51.3     50.7     50.2     49.6     49.1     48.6     48.1     47.6
34..................................  39.....................          54.9     54.2     53.5     52.8     52.2     51.6     50.9     50.3     49.8     49.2     48.7     48.1     47.6     47.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Ages
                                                    --------------------------------------------------------------------------------------------------------------------------------------------
              Male                     Female          Male 35       36       37       38       39       40       41       42       43       44       45       46       47       48        49
                                                    --------------------------------------------------------------------------------------------------------------------------------------------
                                                      Female 40      41       42       43       44       45       46       47       48       49       50       51       52       53        54
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6..............................  11................         66.3     66.2     66.1     66.0     65.9     65.9     65.8     65.7     65.7     65.6     65.6     65.5     65.5     65.5       65.4
7..............................  12................         65.4     65.3     65.3     65.2     65.1     65.0     64.9     64.9     64.8     64.8     64.7     64.7     64.6     64.6       64.5
8..............................  13................         64.6     64.5     64.4     64.3     64.2     64.2     64.1     64.0     64.0     63.9     63.8     63.8     63.7     63.7       63.7
9..............................  14................         63.8     63.7     63.6     63.5     63.4     63.3     63.2     63.2     63.1     63.0     63.0     62.9     62.9     62.8       62.8
10.............................  15................         63.0     62.9     62.8     62.7     62.6     62.5     62.4     62.3     62.2     62.2     62.1     62.0     62.0     61.9       61.9
 
11.............................  16................         62.2     62.1     61.9     61.8     61.7     61.6     61.5     61.4     61.4     61.3     61.2     61.2     61.1     61.0       61.0
12.............................  17................         61.4     61.3     61.1     61.0     60.9     60.8     60.7     60.6     60.5     60.4     60.4     60.3     60.2     60.2       60.1
13.............................  18................         60.6     60.5     60.3     60.2     60.1     60.0     59.9     59.8     59.7     59.6     59.5     59.4     59.4     59.3       59.2
14.............................  19................         59.8     59.7     59.5     59.4     59.3     59.1     59.0     58.9     58.8     58.7     58.6     58.6     58.5     58.4       58.4
15.............................  20................         59.0     58.9     58.7     58.6     58.4     58.3     58.2     58.1     58.0     57.9     57.8     57.7     57.6     57.6       57.5
 
16.............................  21................         58.3     58.1     57.9     57.8     57.6     57.5     57.4     57.2     57.1     57.0     56.9     56.8     56.8     56.7       56.6
17.............................  22................         57.5     57.3     57.2     57.0     56.8     56.7     56.6     56.4     56.3     56.2     56.1     56.0     55.9     55.8       55.7
18.............................  23................         56.8     56.6     56.4     56.2     56.0     55.9     55.7     55.6     55.5     55.4     55.2     55.1     55.1     55.0       54.9
19.............................  24................         56.0     55.8     55.6     55.4     55.3     55.1     54.9     54.8     54.7     54.5     54.4     54.3     54.2     54.1       54.0
20.............................  25................         55.3     55.1     54.9     54.7     54.5     54.3     54.1     54.0     53.8     53.7     53.6     53.5     53.4     53.3       53.2
 
21.............................  26................         54.6     54.4     54.1     53.9     53.7     53.5     53.4     53.2     53.0     52.9     52.8     52.6     52.5     52.4       52.3
22.............................  27................         53.9     53.6     53.4     53.2     53.0     52.8     52.6     52.4     52.2     52.1     51.9     51.8     51.7     51.6       51.5
23.............................  28................         53.2     52.9     52.7     52.5     52.2     52.0     51.8     51.6     51.5     51.3     51.1     51.0     50.9     50.7       50.6
24.............................  29................         52.5     52.3     52.0     51.7     51.5     51.3     51.1     50.9     50.7     50.5     50.3     50.2     50.0     49.9       49.8
25.............................  30................         51.9     51.6     51.3     51.0     50.8     50.5     50.3     50.1     49.9     49.7     49.6     49.4     49.2     49.1       49.0
 
26.............................  31................         51.2     50.9     50.6     50.3     50.1     49.8     49.6     49.4     49.2     49.0     48.8     48.6     48.4     48.3       48.1
27.............................  32................         50.6     50.3     50.0     49.7     49.4     49.1     48.9     48.6     48.4     48.2     48.0     47.8     47.6     47.5       47.3

[[Page 164]]

 
28.............................  33................         50.0     49.6     49.3     49.0     48.7     48.4     48.2     47.9     47.7     47.5     47.2     47.1     46.9     46.7       46.5
29.............................  34................         49.4     49.0     48.7     48.3     48.0     47.7     47.5     47.2     47.0     46.7     46.5     46.3     46.1     45.9       45.7
30.............................  35................         48.8     48.4     48.1     47.7     47.4     47.1     46.8     46.5     46.2     46.0     45.8     45.5     45.3     45.2       45.0
 
31.............................  36................         48.2     47.8     47.5     47.1     46.8     46.4     46.1     45.8     45.6     45.3     45.0     44.8     44.6     44.4       44.2
32.............................  37................         47.7     47.3     46.9     46.5     46.1     45.8     45.5     45.2     44.9     44.6     44.3     44.1     43.9     43.7       43.4
33.............................  38................         47.2     46.7     46.3     45.9     45.5     45.2     44.8     44.5     44.2     43.9     43.7     43.4     43.2     42.9       42.7
34.............................  39................         46.7     46.2     45.8     45.4     45.0     44.6     44.2     43.9     43.6     43.3     43.0     42.7     42.5     42.2       42.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 165]]


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Ages
                                                  ------------------------------------------------------------------------------------------------------
             Male                     Female         Male 50     51     52     53     54     55     56     57     58     59     60     61     62     63
                                                  ------------------------------------------------------------------------------------------------------
                                                    Female 55    56     57     58     59     60     61     62     63     64     65     66     67     68
--------------------------------------------------------------------------------------------------------------------------------------------------------
6.............................  11...............        65.4   65.4   65.3   65.3   65.3   65.3   65.3   65.2   65.2   65.2   65.2   65.2   65.2   65.2
7.............................  12...............        64.5   64.5   64.4   64.4   64.4   64.4   64.3   64.3   64.3   64.3   64.3   64.3   64.3   64.2
8.............................  13...............        63.6   63.6   63.5   63.5   63.5   63.5   63.4   63.4   63.4   63.4   63.4   63.4   63.3   63.3
9.............................  14...............        62.7   62.7   62.7   62.6   62.6   62.6   62.5   62.5   62.5   62.5   62.5   62.4   62.4   62.4
10............................  15...............        61.8   61.8   61.8   61.7   61.7   61.7   61.6   61.6   61.6   61.6   61.6   61.5   61.5   61.5
 
11............................  16...............        61.0   60.9   60.9   60.8   60.8   60.8   60.7   60.7   60.7   60.7   60.6   60.6   60.6   60.6
12............................  17...............        60.1   60.0   60.0   59.9   59.9   59.9   59.8   59.8   59.8   59.8   59.7   59.7   59.7   59.7
13............................  18...............        59.2   59.1   59.1   59.0   59.0   59.0   58.9   58.9   58.9   58.9   58.8   58.8   58.8   58.8
14............................  19...............        58.3   58.2   58.2   58.2   58.1   58.1   58.0   58.0   58.0   57.9   57.9   57.9   57.9   57.9
15............................  20...............        57.4   57.4   57.3   57.3   57.2   57.2   57.1   57.1   57.1   57.0   57.0   57.0   57.0   56.9
 
16............................  21...............        56.5   56.5   56.4   56.4   56.3   56.3   56.2   56.2   56.2   56.1   56.1   56.1   56.1   56.0
17............................  22...............        55.7   55.6   55.5   55.5   55.4   55.4   55.3   55.3   55.3   55.2   55.2   55.2   55.1   55.1
18............................  23...............        54.8   54.7   54.7   54.6   54.6   54.5   54.5   54.4   54.4   54.3   54.3   54.3   54.2   54.2
19............................  24...............        53.9   53.9   53.8   53.7   53.7   53.6   53.6   53.5   53.5   53.4   53.4   53.4   53.3   53.3
20............................  25...............        53.1   53.0   52.9   52.8   52.8   52.7   52.7   52.6   52.6   52.5   52.5   52.4   52.4   52.4
 
21............................  26...............        52.2   52.1   52.0   52.0   51.9   51.8   51.8   51.7   51.7   51.6   51.6   51.5   51.5   51.5
22............................  27...............        51.4   51.3   51.2   51.1   51.0   51.0   50.9   50.8   50.8   50.7   50.7   50.6   50.6   50.6
23............................  28...............        50.5   50.4   50.3   50.2   50.2   50.1   50.0   50.0   49.9   49.8   49.8   49.7   49.7   49.7
24............................  29...............        49.7   49.6   49.5   49.4   49.3   49.2   49.1   49.1   49.0   49.0   48.9   48.9   48.8   48.8
25............................  30...............        48.8   48.7   48.6   48.5   48.4   48.3   48.3   48.2   48.1   48.1   48.0   48.0   47.9   47.9
 
26............................  31...............        48.0   47.9   47.8   47.7   47.6   47.5   47.4   47.3   47.3   47.2   47.1   47.1   47.0   47.0
27............................  32...............        47.2   47.1   46.9   46.8   46.7   46.6   46.5   46.5   46.4   46.3   46.2   46.2   46.1   46.1
28............................  33...............        46.4   46.3   46.1   46.0   45.9   45.8   45.7   45.6   45.5   45.4   45.4   45.3   45.2   45.2
29............................  34...............        45.6   45.4   45.3   45.2   45.1   44.9   44.8   44.7   44.7   44.6   44.5   44.4   44.4   44.3
30............................  35...............        44.8   44.6   44.5   44.4   44.2   44.1   44.0   43.9   43.8   43.7   43.6   43.6   43.5   43.4
 
31............................  36...............        44.0   43.9   43.7   43.6   43.4   43.3   43.2   43.1   43.0   42.9   42.8   42.7   42.6   42.0
32............................  37...............        43.3   43.1   42.9   42.8   42.6   42.5   42.4   42.2   42.1   42.0   41.9   41.9   41.8   41.7
33............................  38...............        42.5   42.3   42.1   42.0   41.8   41.7   41.5   41.4   41.3   41.2   41.1   41.0   40.9   40.8
34............................  39...............        41.8   41.6   41.4   41.2   41.0   40.9   40.7   40.6   40.5   40.4   40.3   40.2   40.1   40.0
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 166]]


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Ages
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
              Male                      Female           Male 64       65       66       67       68       69       70       71       72       73       74       75       76       77       78
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
                                                        Female 69      70       71       72       73       74       75       76       77       78       79       80       81       82       83
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...............................  11................          65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1
7...............................  12................          64.2     64.2     64.2     64.2     64.2     64.2     64.2     64.2     64.2     64.2     64.2     64.2     64.2     64.1     64.1
8...............................  13................          63.3     63.3     63.3     63.3     63.3     63.3     63.3     63.3     63.3     63.2     63.2     63.2     63.2     63.2     63.2
9...............................  14................          62.4     62.4     62.4     62.4     62.4     62.4     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3
10..............................  15................          61.5     61.5     61.5     61.5     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4
 
11..............................  16................          60.6     60.6     60.6     60.5     60.5     60.5     60.5     60.5     60.5     60.5     60.5     60.5     60.5     60.5     60.5
12..............................  17................          59.7     59.6     59.6     59.6     59.6     59.6     59.6     59.6     59.6     59.6     59.6     59.6     59.6     59.5     59.5
13..............................  18................          58.8     58.7     58.7     58.7     58.7     58.7     58.7     58.7     58.7     58.7     58.6     58.6     58.6     58.6     58.6
14..............................  19................          57.8     57.8     57.8     57.8     57.8     57.8     57.8     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7
15..............................  20................          56.9     56.9     56.9     56.9     56.9     56.8     56.8     56.8     56.8     56.8     56.8     56.8     56.8     56.8     56.8
 
16..............................  21................          56.0     56.0     56.0     56.0     55.9     55.9     55.9     55.9     55.9     55.9     55.9     55.9     55.9     55.9     55.8
17..............................  22................          55.1     55.1     55.1     55.0     55.0     55.0     55.0     55.0     55.0     55.0     55.0     54.9     54.9     54.9     54.9
18..............................  23................          54.2     54.2     54.1     54.1     54.1     54.1     54.1     54.1     54.0     54.0     54.0     54.0     54.0     54.0     54.0
19..............................  24................          53.3     53.2     53.2     53.2     53.2     53.2     53.2     53.1     53.1     53.1     53.1     53.1     53.1     53.1     53.1
20..............................  25................          52.4     52.3     52.3     52.3     52.3     52.2     52.2     52.2     52.2     52.2     52.2     52.2     52.2     52.1     52.1
 
21..............................  26................          51.4     51.4     51.4     51.4     51.3     51.3     51.3     51.3     51.3     51.3     51.3     51.2     51.2     51.2     51.2
22..............................  27................          50.5     50.5     50.5     50.5     50.4     50.4     50.4     50.4     50.4     50.3     50.3     50.3     50.3     50.3     50.3
23..............................  28................          49.6     49.6     49.6     49.5     49.5     49.5     49.5     49.5     49.4     49.4     49.4     49.4     49.4     49.4     49.4
24..............................  29................          48.7     48.7     48.7     48.6     48.6     48.6     48.6     48.5     48.5     48.5     48.5     48.5     48.5     48.4     48.4
25..............................  30................          47.8     47.8     47.8     47.7     47.7     47.7     47.6     47.6     47.6     47.6     47.6     47.5     47.5     47.5     47.5
 
26..............................  31................          46.9     46.9     46.8     46.8     46.8     46.8     46.7     46.7     46.7     46.7     46.6     46.6     46.6     46.6     46.6
27..............................  32................          46.0     46.0     45.9     45.9     45.9     45.8     45.8     45.8     45.8     45.7     45.7     45.7     45.7     45.7     45.7
28..............................  33................          45.1     45.1     45.1     45.0     45.0     44.9     44.9     44.9     44.9     44.8     44.8     44.8     44.8     44.8     44.8
29..............................  34................          44.3     44.2     44.2     44.1     44.1     44.0     44.0     44.0     44.0     43.9     43.9     43.9     43.9     43.9     43.8
30..............................  35................          43.4     43.3     43.3     43.2     43.2     43.1     43.1     43.1     43.1     43.0     43.0     43.0     43.0     42.9     42.9
 
31..............................  36................          42.5     42.4     42.4     42.3     42.3     42.3     42.2     42.2     42.2     42.1     42.1     42.1     42.1     42.0     42.0
32..............................  37................          41.6     41.6     41.5     41.5     41.4     41.4     41.3     41.3     41.3     41.2     41.2     41.2     41.2     41.1     41.1
33..............................  38................          40.8     40.7     40.7     40.6     40.5     40.5     40.5     40.4     40.4     40.3     40.3     40.3     40.3     40.2     40.2
34..............................  39................          39.9     39.9     39.8     39.7     39.7     39.6     39.6     39.5     39.5     39.5     39.4     39.4     39.4     39.3     39.3
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Ages
                                                              ----------------------------------------------------------------------------------------------------------------------------------
                Male                           Female             Male 79       80       81       82       83       84       85       86       87       88       89       90       91       92
                                                              ----------------------------------------------------------------------------------------------------------------------------------
                                                                 Female 84      85       86       87       88       89       90       91       92       93       94       95       96       97
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...................................  11.....................          65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.1     65.0     65.0     65.0     65.0     65.0
7...................................  12.....................          64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1
8...................................  13.....................          63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2
9...................................  14.....................          62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3

[[Page 167]]

 
10..................................  15.....................          61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4
 
11..................................  16.....................          60.5     60.5     60.5     60.5     60.5     60.5     60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4
12..................................  17.....................          59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5
13..................................  18.....................          58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6
14..................................  19.....................          57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7
15..................................  20.....................          56.8     56.8     56.8     56.8     56.8     56.8     56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7
 
16..................................  21.....................          55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8
17..................................  22.....................          54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9
18..................................  23.....................          54.0     54.0     54.0     54.0     54.0     54.0     54.0     54.0     54.0     54.0     54.0     54.0     54.0     53.9
19..................................  24.....................          53.1     53.1     53.1     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0
20..................................  25.....................          52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1
 
21..................................  26.....................          51.2     51.2     51.2     51.2     51.2     51.2     51.2     51.2     51.2     51.2     51.2     51.2     51.2     51.2
22..................................  27.....................          50.3     50.3     50.3     50.3     50.3     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2
23..................................  28.....................          49.4     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3
24..................................  29.....................          48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4
25..................................  30.....................          47.5     47.5     47.5     47.5     47.5     47.5     47.5     47.5     47.4     47.4     47.4     47.4     47.4     47.4
 
26..................................  31.....................          46.6     46.6     46.6     46.6     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5
27..................................  32.....................          45.7     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6
28..................................  33.....................          44.7     44.7     44.7     44.7     44.7     44.7     44.7     44.7     44.7     44.7     44.7     44.7     44.7     44.7
29..................................  34.....................          43.8     43.8     43.8     43.8     43.8     43.8     43.8     43.8     43.8     43.7     43.7     43.7     43.7     43.7
30..................................  35.....................          42.9     42.9     42.9     42.9     42.9     42.9     42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8
 
31..................................  36.....................          42.0     42.0     42.0     42.0     42.0     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9
32..................................  37.....................          41.1     41.1     41.1     41.1     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0
33..................................  38.....................          40.2     40.2     40.2     40.2     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1
34..................................  39.....................          39.3     39.3     39.3     39.3     39.2     39.2     39.2     39.2     39.2     39.2     39.2     39.2     39.2     39.2
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                             Ages
                                                                                    ----------------------------------------------------------------------------------------------------------------------------------------------------
                      Male                                     Female                   Male 93       94       95       96       97       98       99      100      101      102      103      104      105      106      107      108
                                                                                    ----------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Female 98      99      100      101      102      103      104      105      106      107      108      109      110      111      112      113
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6..............................................  11................................          65.0     65.0     65.0     65.0     65.0     65.0     65.0     65.0     65.0     65.0     65.0     65.0     65.0     65.0     65.0     65.0
7..............................................  12................................          64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1     64.1
8..............................................  13................................          63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2     63.2
9..............................................  14................................          62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3     62.3
10.............................................  15................................          61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4     61.4
 
11.............................................  16................................          60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4     60.4
12.............................................  17................................          59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5     59.5
13.............................................  18................................          58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6     58.6
14.............................................  19................................          57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7     57.7
15.............................................  20................................          56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7     56.7
 
16.............................................  21................................          55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8     55.8

[[Page 168]]

 
17.............................................  22................................          54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9     54.9
18.............................................  23................................          53.9     53.9     53.9     53.9     53.9     53.9     53.9     53.9     53.9     53.9     53.9     53.9     53.9     53.9     53.9     53.9
19.............................................  24................................          53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0     53.0
20.............................................  25................................          52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1     52.1
 
21.............................................  26................................          51.2     51.2     51.2     51.2     51.2     51.2     51.1     51.1     51.1     51.1     51.1     51.1     51.1     51.1     51.1     51.1
22.............................................  27................................          50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2     50.2
23.............................................  28................................          49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3     49.3
24.............................................  29................................          48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.4     48.3     48.3
25.............................................  30................................          47.4     47.4     47.4     47.4     47.4     47.4     47.4     47.4     47.4     47.4     47.4     47.4     47.4     47.4     47.4     47.4
 
26.............................................  31................................          46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5     46.5
27.............................................  32................................          45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6     45.6
28.............................................  33................................          44.7     44.6     44.6     44.6     44.6     44.6     44.6     44.6     44.6     44.6     44.6     44.6     44.6     44.6     44.6     44.6
29.............................................  34................................          43.7     43.7     43.7     43.7     43.7     43.7     43.7     43.7     43.7     43.7     43.7     43.7     43.7     43.7     43.7     43.7
30.............................................  35................................          42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8     42.8
 
31.............................................  36................................          41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9     41.9
32.............................................  37................................          41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0     41.0
33.............................................  38................................          40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.1     40.0
34.............................................  39................................          39.2     39.2     39.2     39.2     39.2     39.2     39.2     39.2     39.2     39.2     39.2     39.1     39.1     39.1     39.1     39.1
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Ages
                                                                       -------------------------------------------------------------------------------------------------------------------------
                   Male                               Female               Male 35       36       37       38       39       40       41       42       43       44       45       46       47
                                                                       -------------------------------------------------------------------------------------------------------------------------
                                                                          Female 40      41       42       43       44       45       46       47       48       49       50       51       52
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
35.......................................  40.........................          46.2     45.7     45.3     44.8     44.4     44.0     43.6     43.3     43.0     42.6     42.3     42.0     41.8
36.......................................  41.........................          45.7     45.2     44.8     44.3     43.9     43.5     43.1     42.7     42.3     42.0     41.7     41.4     41.1
37.......................................  42.........................          45.3     44.8     44.3     43.8     43.4     42.9     42.5     42.1     41.8     41.4     41.1     40.7     40.4
38.......................................  43.........................          44.8     44.3     43.8     43.3     42.9     42.4     42.0     41.6     41.2     40.8     40.5     40.1     39.8
39.......................................  44.........................          44.4     43.9     43.4     42.9     42.4     41.9     41.5     41.0     40.6     40.2     39.9     39.5     39.2
40.......................................  45.........................          44.0     43.5     42.9     42.4     41.9     41.4     41.0     40.5     40.1     39.7     39.3     38.9     38.6
 
41.......................................  46.........................          43.6     43.1     42.5     42.0     41.5     41.0     40.5     40.0     39.6     39.2     38.8     38.4     38.0
42.......................................  47.........................          43.3     42.7     42.1     41.6     41.0     40.5     40.0     39.6     39.1     38.7     38.2     37.8     37.5
43.......................................  48.........................          43.0     42.3     41.8     41.2     40.6     40.1     39.6     39.1     38.6     38.2     37.7     37.3     36.9
44.......................................  49.........................          42.6     42.0     41.4     40.8     40.2     39.7     39.2     38.7     38.2     37.7     37.2     36.8     36.4
45.......................................  50.........................          42.3     41.7     41.1     40.5     39.9     39.3     38.8     38.2     37.7     37.2     36.8     36.3     35.9
 
46.......................................  51.........................          42.0     41.4     40.7     40.1     39.5     38.9     38.4     37.8     37.3     36.8     36.3     35.9     35.4
47.......................................  52.........................          41.8     41.1     40.4     39.8     39.2     38.6     38.0     37.5     36.9     36.4     35.9     35.4     35.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 169]]


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Ages
                                                                       -------------------------------------------------------------------------------------------------------------------------
                   Male                               Female               Male 48       49       50       51       52       53       54       55       56       57       58       59       60
                                                                       -------------------------------------------------------------------------------------------------------------------------
                                                                          Female 53      54       55       56       57       58       59       60       61       62       63       64       65
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
35.......................................  40.........................          41.5     41.3     41.0     40.8     40.6     40.4     40.3     40.1     40.0     39.8     39.7     39.6     39.5
36.......................................  41.........................          40.8     40.6     40.3     40.1     39.9     39.7     39.5     39.3     39.2     39.0     38.9     38.8     38.6
37.......................................  42.........................          40.2     39.9     39.6     39.4     39.2     39.0     38.8     38.6     38.4     38.3     38.1     38.0     37.9
38.......................................  43.........................          39.5     39.2     39.0     38.7     38.5     38.3     38.1     37.9     37.7     37.5     37.3     37.2     37.1
39.......................................  44.........................          38.9     38.6     38.3     38.0     37.8     37.6     37.3     37.1     36.9     36.8     36.6     36.4     36.3
40.......................................  45.........................          38.3     38.0     37.7     37.4     37.1     36.9     36.6     36.4     36.2     36.0     35.9     35.7     35.5
 
41.......................................  46.........................          37.7     37.3     37.0     36.7     36.5     36.2     36.0     35.7     35.5     35.3     35.1     35.0     34.8
42.......................................  47.........................          37.1     36.8     36.4     36.1     35.8     35.6     35.3     35.1     34.8     34.6     34.4     34.2     34.1
43.......................................  48.........................          36.5     36.2     35.8     35.5     35.2     34.9     34.7     34.4     34.2     33.9     33.7     33.5     33.3
44.......................................  49.........................          36.0     35.6     35.3     34.9     34.6     34.3     34.0     33.8     33.5     33.3     33.0     32.8     32.6
45.......................................  50.........................          35.5     35.1     34.7     34.4     34.0     33.7     33.4     33.1     32.9     32.6     32.4     32.2     31.9
 
46.......................................  51.........................          35.0     34.6     34.2     33.8     33.5     33.1     32.8     32.5     32.2     32.0     31.7     31.5     31.3
47.......................................  52.........................          34.5     34.1     33.7     33.3     32.9     32.6     32.2     31.9     31.6     31.4     31.1     30.9     30.6
48.......................................  53.........................          34.0     33.6     33.2     32.8     32.4     32.0     31.7     31.4     31.1     30.8     30.5     30.2     30.0
49.......................................  54.........................          33.6     33.1     32.7     32.3     31.9     31.5     31.2     30.8     30.5     30.2     29.9     29.6     29.4
50.......................................  55.........................          33.2     32.7     32.3     31.8     31.4     31.0     30.6     30.3     29.9     29.6     29.3     29.0     28.8
 
51.......................................  56.........................          32.8     32.3     31.8     31.4     30.9     30.5     30.1     29.8     29.4     29.1     28.8     28.5     28.2
52.......................................  57.........................          32.4     31.9     31.4     30.9     30.5     30.1     29.7     29.3     28.9     28.6     28.2     27.9     27.6
53.......................................  58.........................          32.0     31.5     31.0     30.5     30.1     29.6     29.2     28.8     28.4     28.1     27.7     27.4     27.1
54.......................................  59.........................          31.7     31.2     30.6     30.1     29.7     29.2     28.8     28.3     27.9     27.6     27.2     26.9     26.5
55.......................................  60.........................          31.4     30.8     30.3     29.8     29.3     28.8     28.3     27.9     27.5     27.1     26.7     26.4     26.0
 
56.......................................  61.........................          31.1     30.5     29.9     29.4     28.9     28.4     27.9     27.5     27.1     26.7     26.3     25.9     25.5
57.......................................  62.........................          30.8     30.2     29.6     29.1     28.6     28.1     27.6     27.1     26.7     26.2     25.8     25.4     25.1
58.......................................  63.........................          30.5     29.9     29.3     28.8     28.2     27.7     27.2     26.7     26.3     25.8     25.4     25.0     24.6
59.......................................  64.........................          30.2     29.6     29.0     28.5     27.9     27.4     26.9     26.4     25.9     25.4     25.0     24.6     24.2
60.......................................  65.........................          30.0     29.4     28.8     28.2     27.6     27.1     26.5     26.0     25.5     25.1     24.6     24.2     23.8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Ages
                                                                       -------------------------------------------------------------------------------------------------------------------------
                   Male                               Female               Male 61       62       63       64       65       66       67       68       69       70       71       72       73
                                                                       -------------------------------------------------------------------------------------------------------------------------
                                                                          Female 66      67       68       69       70       71       72       73       74       75       76       77       78
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
35.......................................  40.........................          39.4     39.3     39.2     39.1     39.0     38.9     38.9     38.8     38.8     38.7     38.7     38.6     38.6
36.......................................  41.........................          38.5     38.4     38.3     38.2     38.2     38.1     38.0     38.0     37.9     37.9     37.8     37.8     37.7
37.......................................  42.........................          37.7     37.6     37.5     37.4     37.3     37.3     37.2     37.1     37.1     37.0     36.9     36.9     36.9
38.......................................  43.........................          36.9     36.8     36.7     36.6     36.5     36.4     36.4     36.3     36.2     36.2     36.1     36.0     36.0
39.......................................  44.........................          36.2     36.0     35.9     35.8     35.7     35.6     35.5     35.5     35.4     35.3     35.3     35.2     35.2
40.......................................  45.........................          35.4     35.3     35.1     35.0     34.9     34.8     34.7     34.6     34.6     34.5     34.4     34.4     34.3
 
41.......................................  46.........................          34.6     34.5     34.4     34.2     34.1     34.0     33.9     33.8     33.8     33.7     33.6     33.5     33.5

[[Page 170]]

 
42.......................................  47.........................          33.9     33.7     33.6     33.5     33.4     33.2     33.1     33.0     33.0     32.9     32.8     32.7     32.7
43.......................................  48.........................          33.2     33.0     32.9     32.7     32.6     32.5     32.4     32.3     32.2     32.1     32.0     31.9     31.9
44.......................................  49.........................          32.5     32.3     32.1     32.0     31.8     31.7     31.6     31.5     31.4     31.3     31.2     31.1     31.1
45.......................................  50.........................          31.8     31.6     31.4     31.3     31.1     31.0     30.8     30.7     30.6     30.5     30.4     30.4     30.3
 
46.......................................  51.........................          31.1     30.9     30.7     30.5     30.4     30.2     30.1     30.0     29.9     29.8     29.7     29.6     29.5
47.......................................  52.........................          30.4     30.2     30.0     29.8     29.7     29.5     29.4     29.3     29.1     29.0     28.9     28.8     28.7
48.......................................  53.........................          29.8     29.5     29.3     29.2     29.0     28.8     28.7     28.5     28.4     28.3     28.2     28.1     28.0
49.......................................  54.........................          29.1     28.9     28.7     28.5     28.3     28.1     28.0     27.8     27.7     27.6     27.5     27.4     27.3
50.......................................  55.........................          28.5     28.3     28.1     27.8     27.6     27.5     27.3     27.1     27.0     26.9     26.7     26.6     26.5
 
51.......................................  56.........................          27.9     27.7     27.4     27.2     27.0     26.8     26.6     26.5     26.3     26.2     26.0     25.9     25.8
52.......................................  57.........................          27.3     27.1     26.8     26.6     26.4     26.2     26.0     25.8     25.7     25.5     25.4     25.2     25.1
53.......................................  58.........................          26.8     26.5     26.2     26.0     25.8     25.6     25.4     25.2     25.0     24.8     24.7     24.6     24.4
54.......................................  59.........................          26.2     25.9     25.7     25.4     25.2     25.0     24.7     24.6     24.4     24.2     24.0     23.9     23.8
55.......................................  60.........................          25.7     25.4     25.1     24.9     24.6     24.4     24.1     23.9     23.8     23.6     23.4     23.3     23.1
 
56.......................................  61.........................          25.2     24.9     24.6     24.3     24.1     23.8     23.6     23.4     23.2     23.0     22.8     22.6     22.5
57.......................................  62.........................          24.7     24.4     24.1     23.8     23.5     23.3     23.0     22.8     22.6     22.4     22.2     22.0     21.9
58.......................................  63.........................          24.3     23.9     23.6     23.3     23.0     22.7     22.5     22.2     22.0     21.8     21.6     21.4     21.3
59.......................................  64.........................          23.8     23.5     23.1     22.8     22.5     22.2     21.9     21.7     21.5     21.2     21.0     20.9     20.7
60.......................................  65.........................          23.4     23.0     22.7     22.3     22.0     21.7     21.4     21.2     20.9     20.7     20.5     20.3     20.1
 
61.......................................  66.........................          23.0     22.6     22.2     21.9     21.6     21.3     21.0     20.7     20.4     20.2     20.0     19.8     19.6
62.......................................  67.........................          22.6     22.2     21.8     21.5     21.1     20.8     20.5     20.2     19.9     19.7     19.5     19.2     19.0
63.......................................  68.........................          22.2     21.8     21.4     21.1     20.7     20.4     20.1     19.8     19.5     19.2     19.0     18.7     18.5
64.......................................  69.........................          21.9     21.5     21.1     20.7     20.3     20.0     19.6     19.3     19.0     18.7     18.5     18.2     18.0
65.......................................  70.........................          21.6     21.1     20.7     20.3     19.9     19.6     19.2     18.9     18.6     18.3     18.0     17.8     17.5
 
66.......................................  71.........................          21.3     20.8     20.4     20.0     19.6     19.2     18.8     18.5     18.2     17.9     17.6     17.3     17.1
67.......................................  72.........................          21.0     20.5     20.1     19.6     19.2     18.8     18.5     18.1     17.8     17.5     17.2     16.9     16.7
68.......................................  73.........................          20.7     20.2     19.8     19.3     18.9     18.5     18.1     17.8     17.4     17.1     16.8     16.5     16.2
69.......................................  74.........................          20.4     19.9     19.5     19.0     18.6     18.2     17.8     17.4     17.1     16.7     16.4     16.1     15.8
70.......................................  75.........................          20.2     19.7     19.2     18.7     18.3     17.9     17.5     17.1     16.7     16.4     16.1     15.8     15.5
 
71.......................................  76.........................          20.0     19.5     19.0     18.5     18.0     17.6     17.2     16.8     16.4     16.1     15.7     15.4     15.1
72.......................................  77.........................          19.8     19.2     18.7     18.2     17.8     17.3     16.9     16.5     16.1     15.8     15.4     15.1     14.8
73.......................................  78.........................          19.6     19.0     18.5     18.0     17.5     17.1     16.7     16.2     15.8     15.5     15.1     14.8     14.4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 171]]


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       Ages
                                                                                ----------------------------------------------------------------------------------------------------------------
                     Male                                   Female                  Male 74       75       76       77       78       79       80       81       82       83       84       85
                                                                                ----------------------------------------------------------------------------------------------------------------
                                                                                   Female 79      80       81       82       83       84       85       86       87       88       89       90
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
35...........................................  40..............................          38.6     38.5     38.5     38.5     38.4     38.4     38.4     38.4     38.4     38.4     38.3     38.3
36...........................................  41..............................          37.7     37.6     37.6     37.6     37.6     27.5     37.5     37.5     37.5     37.5     37.5     37.4
37...........................................  42..............................          36.8     36.8     36.7     36.7     36.7     36.7     36.6     36.6     36.6     36.6     36.6     36.6
38...........................................  43..............................          36.0     35.9     35.9     35.9     35.8     35.8     35.8     35.8     35.7     35.7     35.7     35.7
39...........................................  44..............................          35.1     35.1     35.0     35.0     35.0     34.9     34.9     34.9     34.9     34.8     34.8     34.8
40...........................................  45..............................          34.3     34.2     34.2     34.1     34.1     34.1     34.1     34.0     34.0     34.0     34.0     34.0
 
41...........................................  46..............................          33.4     33.4     33.3     33.3     33.3     33.2     33.2     33.2     33.2     33.1     33.1     33.1
42...........................................  47..............................          32.6     32.6     32.5     32.5     32.4     32.4     32.4     32.3     32.3     32.3     32.3     32.3
43...........................................  48..............................          31.8     31.8     31.7     31.7     31.6     31.6     31.5     31.5     31.5     31.5     31.4     31.4
44...........................................  49..............................          31.0     30.9     30.9     30.8     30.8     30.8     30.7     30.7     30.7     30.6     30.6     30.6
45...........................................  50..............................          30.2     30.1     30.1     30.0     30.0     29.9     29.9     29.9     29.8     29.8     29.8     29.8
 
46...........................................  51..............................          29.4     29.4     29.3     29.2     29.2     29.2     29.1     29.1     29.0     29.0     29.0     28.9
47...........................................  52..............................          28.7     28.6     28.5     28.5     28.4     28.4     28.3     28.3     28.2     28.2     28.2     28.1
48...........................................  53..............................          27.9     27.8     27.8     27.7     27.6     27.6     27.5     27.5     27.5     27.4     27.4     27.4
49...........................................  54..............................          27.2     27.1     27.0     26.9     26.9     26.8     26.8     26.7     26.7     26.6     26.6     26.6
50...........................................  55..............................          26.4     26.3     26.3     26.2     26.1     26.1     26.0     26.0     25.9     25.9     25.8     25.8
 
51...........................................  56..............................          25.7     25.6     25.5     25.5     25.4     25.3     25.3     25.2     25.2     25.1     25.1     25.0
52...........................................  57..............................          25.0     24.9     24.8     24.7     24.7     24.6     24.5     24.5     24.4     24.4     24.3     24.3
53...........................................  58..............................          24.3     24.2     24.1     24.0     23.9     23.9     23.8     23.7     23.7     23.6     23.6     23.5
54...........................................  59..............................          23.6     23.5     23.4     23.3     23.2     23.2     23.1     23.0     23.0     22.9     22.9     22.8
55...........................................  60..............................          23.0     22.9     22.8     22.7     22.6     22.5     22.4     22.3     22.3     22.2     22.2     22.1
 
56...........................................  61..............................          22.3     22.2     22.1     22.0     21.9     21.8     21.7     21.6     21.6     21.5     21.5     21.4
57...........................................  62..............................          21.7     21.6     21.5     21.3     21.2     21.1     21.1     21.0     20.9     20.8     20.8     20.7
58...........................................  63..............................          21.1     21.0     20.8     20.7     20.6     20.5     20.4     20.3     20.2     20.2     20.1     20.0
59...........................................  64..............................          20.5     20.4     20.2     20.1     20.0     19.9     19.8     19.7     19.6     19.5     19.4     19.4
60...........................................  65..............................          19.9     19.8     19.6     19.5     19.4     19.3     19.1     19.0     19.0     18.9     18.8     18.7
 
61...........................................  66..............................          19.4     19.2     19.1     18.9     18.8     18.7     18.5     18.4     18.3     18.3     18.2     18.1
62...........................................  67..............................          18.8     18.7     18.5     18.3     18.2     18.1     18.0     17.8     17.7     17.7     17.6     17.5
63...........................................  68..............................          18.3     18.1     18.0     17.8     17.6     17.5     17.4     17.3     17.2     17.1     17.0     16.9
64...........................................  69..............................          17.8     17.6     17.4     17.3     17.1     17.0     16.8     16.7     16.6     16.5     16.4     16.3
65...........................................  70..............................          17.3     17.1     16.9     16.7     16.6     16.4     16.3     16.2     16.0     15.9     15.8     15.8
 
66...........................................  71..............................          16.9     16.6     16.4     16.3     16.1     15.9     15.8     15.6     15.5     15.4     15.3     15.2
67...........................................  72..............................          16.4     16.2     16.0     15.8     15.6     15.4     15.3     15.1     15.0     14.9     14.8     14.7
68...........................................  73..............................          16.0     15.7     15.5     15.3     15.1     15.0     14.8     14.6     14.5     14.4     14.3     14.2
69...........................................  74..............................          15.6     15.3     15.1     14.9     14.7     14.5     14.3     14.2     14.0     13.9     13.8     13.7
70...........................................  75..............................          15.2     14.9     14.7     14.5     14.3     14.1     13.9     13.7     13.6     13.4     13.3     13.2
 
71...........................................  76..............................          14.8     14.5     14.3     14.1     13.8     13.6     13.5     13.3     13.1     13.0     12.8     12.7
72...........................................  77..............................          14.5     14.2     13.9     13.7     13.5     13.2     13.0     12.9     12.7     12.5     12.4     12.3

[[Page 172]]

 
73...........................................  78..............................          14.1     13.8     13.6     13.3     13.1     12.9     12.7     12.5     12.3     12.1     12.0     11.8
74...........................................  79..............................          13.8     13.5     13.2     13.0     12.7     12.5     12.3     12.1     11.9     11.7     11.6     11.4
75...........................................  80..............................          13.5     13.2     12.9     12.6     12.4     12.2     11.9     11.7     11.5     11.4     11.2     11.0
 
76...........................................  81..............................          13.2     12.9     12.6     12.3     12.1     11.8     11.6     11.4     11.2     11.0     10.8     10.7
77...........................................  82..............................          13.0     12.6     12.3     12.1     11.8     11.5     11.3     11.1     10.8     10.7     10.5     10.3
78...........................................  83..............................          12.7     12.4     12.1     11.8     11.5     11.2     11.0     10.7     10.5     10.3     10.1     10.0
79...........................................  84..............................          12.5     12.2     11.8     11.5     11.2     11.0     10.7     10.5     10.2     10.0      9.8      9.6
80...........................................  85..............................          12.3     11.9     11.6     11.3     11.0     10.7     10.4     10.2     10.0      9.7      9.5      9.3
 
81...........................................  86..............................          12.1     11.7     11.4     11.1     10.7     10.5     10.2      9.9      9.7      9.5      9.3      9.1
82...........................................  87..............................          11.9     11.5     11.2     10.8     10.5     10.2     10.0      9.7      9.4      9.2      9.0      8.8
83...........................................  88..............................          11.7     11.4     11.0     10.7     10.3     10.0      9.7      9.5      9.2      9.0      8.7      8.5
84...........................................  89..............................          11.6     11.2     10.8     10.5     10.1      9.8      9.5      9.3      9.0      8.7      8.5      8.3
85...........................................  90..............................          11.4     11.0     10.7     10.3     10.0      9.6      9.3      9.1      8.8      8.5      8.3      8.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       Ages
                                                                                ----------------------------------------------------------------------------------------------------------------
                     Male                                   Female                  Male 86       87       88       89       90       91       92       93       94       95       96       97
                                                                                ----------------------------------------------------------------------------------------------------------------
                                                                                   Female 91      92       93       94       95       96       97       98       99      100      101      102
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
35...........................................  40..............................          38.3     38.3     38.3     38.3     38.3     38.3     38.3     38.3     38.3     38.3     38.3     38.3
36...........................................  41..............................          37.4     37.4     37.4     37.4     37.4     37.4     37.4     37.4     37.4     37.4     37.4     37.4
37...........................................  42..............................          36.5     36.5     36.5     36.5     36.5     36.5     36.5     36.5     36.5     36.5     36.5     36.5
38...........................................  43..............................          35.7     35.7     35.6     35.6     35.6     35.6     35.6     35.6     35.6     35.6     35.6     35.6
39...........................................  44..............................          34.8     34.8     34.8     34.8     34.8     34.8     34.7     34.7     34.7     34.7     34.7     34.7
40...........................................  45..............................          33.9     33.9     33.9     33.9     33.9     33.9     33.9     33.9     33.9     33.9     33.9     33.9
 
41...........................................  46..............................          33.1     33.1     33.1     33.0     33.0     33.0     33.0     33.0     33.0     33.0     33.0     33.0
42...........................................  47..............................          32.2     32.2     32.2     32.2     32.2     32.2     32.2     32.2     32.2     32.1     32.1     32.1
43...........................................  48..............................          31.4     31.4     31.4     31.3     31.3     31.3     31.3     31.3     31.3     31.3     31.3     31.3
44...........................................  49..............................          30.6     30.5     30.5     30.5     30.5     30.5     30.5     30.5     30.5     30.5     30.5     30.4
45...........................................  50..............................          29.7     29.7     29.7     29.7     29.7     29.7     29.7     29.6     29.6     29.6     29.6     29.6
 
46...........................................  51..............................          28.9     28.9     28.9     28.9     28.9     28.8     28.8     28.8     28.8     28.8     28.8     28.8
47...........................................  52..............................          28.1     28.1     28.1     28.1     28.0     28.0     28.0     28.0     28.0     28.0     28.0     28.0
48...........................................  53..............................          27.3     27.3     27.3     27.3     27.2     27.2     27.2     27.2     27.2     27.2     27.2     27.2
49...........................................  54..............................          26.5     26.5     26.5     26.5     26.5     26.4     26.4     26.4     26.4     26.4     26.4     26.4
50...........................................  55..............................          25.8     25.7     25.7     25.7     25.7     25.7     25.6     25.6     25.6     25.6     25.6     25.6
 
51...........................................  56..............................          25.0     25.0     24.9     24.9     24.9     24.9     24.9     24.9     24.8     24.8     24.8     24.8
52...........................................  57..............................          24.3     24.2     24.2     24.2     24.1     24.1     24.1     24.1     24.1     24.1     24.1     24.0
53...........................................  58..............................          23.5     23.5     23.4     23.4     23.4     23.4     23.4     23.3     23.3     23.3     23.3     23.3
54...........................................  59..............................          22.8     22.7     22.7     22.7     22.7     22.6     22.6     22.6     22.6     22.6     22.6     22.5

[[Page 173]]

 
55...........................................  60..............................          22.1     22.0     22.0     22.0     21.9     21.9     21.9     21.9     21.8     21.8     21.8     21.8
 
56...........................................  61..............................          21.4     21.3     21.3     21.3     21.2     21.2     21.2     21.1     21.1     21.1     21.1     21.1
57...........................................  62..............................          20.7     20.6     20.6     20.6     20.5     20.5     20.5     20.4     20.4     20.4     20.4     20.4
58...........................................  63..............................          20.0     19.9     19.9     19.9     19.8     19.8     19.8     19.8     19.7     19.7     19.7     19.7
59...........................................  64..............................          19.3     19.3     19.2     19.2     19.2     19.1     19.1     19.1     19.0     19.0     19.0     19.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Ages
                                                 -------------------------------------------------------------------------------------------------------
             Male                    Female          Male 98       99      100      101      102      103      104      105      106      107      108
                                                 -------------------------------------------------------------------------------------------------------
                                                   Female 103     104      105      106      107      108      109      110      111      112      113
--------------------------------------------------------------------------------------------------------------------------------------------------------
35............................  40..............          38.3     38.3     38.3     38.3     38.3     38.3     38.2     38.2     38.2     38.2     38.2
36............................  41..............          37.4     37.4     37.4     37.4     37.4     37.4     37.4     37.4     37.4     37.4     37.3
37............................  42..............          36.5     36.5     36.5     36.5     36.5     36.5     36.5     36.5     36.5     36.5     36.5
38............................  43..............          35.6     35.6     35.6     35.6     35.6     35.6     35.6     35.6     35.6     35.6     35.6
39............................  44..............          34.7     34.7     34.7     34.7     34.7     34.7     34.7     34.7     34.7     34.7     34.7
 
40............................  45..............          33.9     33.8     33.8     33.8     33.8     33.8     33.8     33.8     33.8     33.8     33.8
41............................  46..............          33.0     33.0     33.0     33.0     33.0     33.0     33.0     33.0     33.0     33.0     33.0
42............................  47..............          32.1     32.1     32.1     32.1     32.1     32.1     32.1     32.1     32.1     32.1     32.1
43............................  48..............          31.3     31.3     31.3     31.3     31.3     31.3     31.3     31.3     31.3     31.3     31.3
44............................  49..............          30.4     30.4     30.4     30.4     30.4     30.4     30.4     30.4     30.4     30.4     30.4
45............................  50..............          29.6     29.6     29.6     29.6     29.6     29.6     29.6     29.6     29.6     29.6     29.6
 
46............................  51..............          28.8     28.8     28.8     28.8     28.8     28.8     28.8     28.8     28.8     28.8     28.7
47............................  52..............          28.0     28.0     28.0     28.0     28.0     28.0     28.0     27.9     27.9     27.9     27.9
48............................  53..............          27.2     27.2     27.2     27.2     27.2     27.1     27.1     27.1     27.1     27.1     27.1
49............................  54..............          26.4     26.4     26.4     26.4     26.4     26.3     26.3     26.3     26.3     26.3     26.3
50............................  55..............          25.6     25.6     25.6     25.6     25.6     25.6     25.6     25.6     25.5     25.5     25.5
 
51............................  56..............          24.8     24.8     24.8     24.8     24.8     24.8     24.8     24.8     24.8     24.8     24.7
52............................  57..............          24.0     24.0     24.0     24.0     24.0     24.0     24.0     24.0     24.0     24.0     24.0
53............................  58..............          23.3     23.3     23.3     23.3     23.3     23.3     23.2     23.2     23.2     23.2     23.2
54............................  59..............          22.5     22.5     22.5     22.5     22.5     22.5     22.5     22.5     22.5     22.5     22.5
55............................  60..............          21.8     21.8     21.8     21.8     21.8     21.8     21.8     21.8     21.8     21.7     21.7
 
56............................  61..............          21.1     21.1     21.1     21.1     21.1     21.0     21.0     21.0     21.0     21.0     21.0
57............................  62..............          20.4     20.4     20.4     20.3     20.3     20.3     20.3     20.3     20.3     20.3     20.3
58............................  63..............          19.7     19.7     19.7     19.6     19.6     19.6     19.6     19.6     19.6     19.6     19.6
59............................  64..............          19.0     19.0     19.0     19.0     19.0     18.9     18.9     18.9     18.9     18.9     18.9
--------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       Ages
                                                                                ----------------------------------------------------------------------------------------------------------------
                     Male                                   Female                  Male 86       87       88       89       90       91       92       93       94       95       96       97
                                                                                ----------------------------------------------------------------------------------------------------------------
                                                                                   Female 91      92       93       94       95       96       97       98       99      100      101      102
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
60...........................................  65..............................          18.7     18.6     18.6     18.5     18.5     18.5     18.4     18.4     18.4     18.4     18.3     18.3

[[Page 174]]

 
61...........................................  66..............................          18.1     18.0     17.9     17.9     17.9     17.8     17.8     17.8     17.7     17.7     17.7     17.7
62...........................................  67..............................          17.4     17.4     17.3     17.3     17.2     17.2     17.1     17.1     17.1     17.1     17.0     17.0
63...........................................  68..............................          16.8     16.8     16.7     16.7     16.6     16.6     16.5     16.5     16.5     16.4     16.4     16.4
64...........................................  69..............................          16.2     16.2     16.1     16.1     16.0     16.0     15.9     15.9     15.9     15.8     15.8     15.8
65...........................................  70..............................          15.7     15.6     15.5     15.5     15.4     15.4     15.3     15.3     15.3     15.2     15.2     15.2
 
66...........................................  71..............................          15.1     15.0     15.0     14.9     14.8     14.8     14.7     14.7     14.7     14.6     14.6     14.6
67...........................................  72..............................          14.6     14.5     14.4     14.4     14.3     14.2     14.2     14.1     14.1     14.1     14.1     14.0
68...........................................  73..............................          14.1     14.0     13.9     13.8     13.8     13.7     13.6     13.6     13.6     13.5     13.5     13.5
69...........................................  74..............................          13.6     13.5     13.4     13.3     13.2     13.2     13.1     13.1     13.0     13.0     13.0     12.9
70...........................................  75..............................          13.1     13.0     12.9     12.8     12.7     12.7     12.6     12.5     12.5     12.5     12.4     12.4
 
71...........................................  76..............................          12.6     12.5     12.4     12.3     12.2     12.2     12.1     12.1     12.0     12.0     11.9     11.9
72...........................................  77..............................          12.1     12.0     11.9     11.8     11.8     11.7     11.6     11.6     11.5     11.5     11.4     11.4
73...........................................  78..............................          11.7     11.6     11.5     11.4     11.3     11.2     11.2     11.1     11.0     11.0     11.0     10.9
74...........................................  79..............................          11.3     11.2     11.1     11.0     10.9     10.8     10.7     10.7     10.6     10.6     10.5     10.5
75...........................................  80..............................          10.9     10.8     10.7     10.5     10.5     10.4     10.3     10.2     10.2     10.1     10.1     10.0
 
76...........................................  81..............................          10.5     10.4     10.3     10.2     10.1     10.0      9.9      9.8      9.7      9.7      9.7      9.6
77...........................................  82..............................          10.2     10.0      9.9      9.8      9.7      9.6      9.5      9.4      9.3      9.3      9.2      9.2
78...........................................  83..............................           9.8      9.7      9.5      9.4      9.3      9.2      9.1      9.0      9.0      8.9      8.9      8.8
79...........................................  84..............................           9.5      9.3      9.2      9.2      8.9      8.8      8.8      8.7      8.6      8.5      8.5      8.4
80...........................................  85..............................           9.2      9.0      8.9      8.7      8.6      8.5      8.4      8.3      8.3      8.2      8.1      8.1
 
81...........................................  86..............................           8.9      8.7      8.6      8.4      8.3      8.2      8.1      8.0      7.9      7.9      7.8      7.7
82...........................................  87..............................           8.6      8.4      8.3      8.1      8.0      7.9      7.8      7.7      7.6      7.5      7.5      7.4
83...........................................  88..............................           8.3      8.2      8.0      7.9      7.7      7.6      7.5      7.4      7.3      7.2      7.2      7.1
84...........................................  89..............................           8.1      7.9      7.8      7.6      7.5      7.3      7.2      7.1      7.0      7.0      6.9      6.8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Ages
                                                 -------------------------------------------------------------------------------------------------------
             Male                    Female          Male 98       99      100      101      102      103      104      105      106      107      108
                                                 -------------------------------------------------------------------------------------------------------
                                                   Female 103     104      105      106      107      108      109      110      111      112      113
--------------------------------------------------------------------------------------------------------------------------------------------------------
60............................  65..............          18.3     18.3     18.3     18.3     18.3     18.3     18.3     18.2     18.2     18.2     18.2
61............................  66..............          17.7     17.7     17.6     17.6     17.6     17.6     17.6     17.6     17.6     17.6     17.5
62............................  67..............          17.0     17.0     17.0     17.0     17.0     17.0     16.9     16.9     16.9     16.9     16.9
63............................  68..............          16.4     16.4     16.4     16.3     16.3     16.3     16.3     16.3     16.3     16.3     16.2
64............................  69..............          15.8     15.8     15.7     15.7     15.7     15.7     15.7     15.7     15.7     15.7     15.6
65............................  70..............          15.2     15.2     15.1     15.1     15.1     15.1     15.1     15.1     15.1     15.0     15.0
 
66............................  71..............          14.6     14.6     14.5     14.5     14.5     14.5     14.5     14.5     14.5     14.4     14.4
67............................  72..............          14.0     14.0     14.0     14.0     13.9     13.9     13.9     13.9     13.9     13.9     13.8
68............................  73..............          13.5     13.4     13.4     13.4     13.4     13.4     13.3     13.3     13.3     13.3     13.2

[[Page 175]]

 
69............................  74..............          12.9     12.9     12.9     12.8     12.8     12.8     12.8     12.8     12.8     12.7     12.7
70............................  75..............          12.4     12.4     12.3     12.3     12.3     12.3     12.3     12.2     12.2     12.2     12.1
 
71............................  76..............          11.9     11.9     11.8     11.8     11.8     11.8     11.7     11.7     11.7     11.7     11.6
72............................  77..............          11.4     11.4     11.3     11.3     11.3     11.3     11.2     11.2     11.2     11.2     11.1
73............................  78..............          10.9     10.9     10.9     10.8     10.8     10.8     10.7     10.7     10.7     10.7     10.6
74............................  79..............          10.5     10.4     10.4     10.4     10.3     10.3     10.3     10.3     10.2     10.2     10.1
75............................  80..............          10.0     10.0      9.9      9.9      9.9      9.8      9.8      9.8      9.8      9.7  .......
 
76............................  81..............           9.6      9.5      9.5      9.5      9.4      9.4      9.4      9.4      9.3      9.3  .......
77............................  82..............           9.2      9.1      9.1      9.1      9.0      9.0      9.0      8.9      8.9      8.9  .......
78............................  83..............           8.8      8.7      8.7      8.7      8.6      8.6      8.5      8.5      8.5      8.4  .......
79............................  84..............           8.4      8.4      8.3      8.3      8.2      8.2      8.2      8.1      8.1      8.0  .......
80............................  85..............           8.0      8.0      7.9      7.9      7.9      7.8      7.8      7.7      7.7      7.6  .......
 
81............................  86..............           7.7      7.6      7.6      7.6      7.5      7.5      7.4      7.4      7.3      7.3  .......
82............................  87..............           7.4      7.3      7.3      7.2      7.2      7.1      7.1      7.0      7.0      6.9  .......
83............................  88..............           7.1      7.0      6.9      6.9      6.8      6.8      6.7      6.7      6.7      6.6  .......
84............................  89..............           6.8      6.7      6.6      6.6      6.5      6.5      6.4      6.4      6.3  .......  .......
--------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Ages
                                                 -------------------------------------------------------------------------------------------------------
             Male                    Female          Male 86       87       88       89       90       91       92       93       94       95       96
                                                 -------------------------------------------------------------------------------------------------------
                                                    Female 91      92       93       94       95       96       97       98       99      100      101
--------------------------------------------------------------------------------------------------------------------------------------------------------
85............................  90..............           7.9      7.7      7.5      7.4      7.2      7.1      7.0      6.9      6.8      6.7      6.6
86............................  91..............           7.7      7.5      7.3      7.1      7.0      6.8      6.7      6.6      6.5      6.4      6.4
87............................  92..............           7.5      7.3      7.1      6.9      6.8      6.6      6.5      6.4      6.3      6.2      6.1
88............................  93..............           7.3      7.1      6.9      6.7      6.6      6.4      6.3      6.2      6.1      6.0      5.9
89............................  94..............           7.1      6.9      6.7      6.5      6.4      6.2      6.1      6.0      5.9      5.8      5.7
90............................  95..............           7.0      6.8      6.6      6.4      6.2      6.1      5.9      5.8      5.7      5.6      5.5
 
91............................  96..............           6.8      6.6      6.4      6.2      6.1      5.9      5.8      5.7      5.5      5.4      5.3
92............................  97..............           6.7      6.5      6.3      6.1      5.9      5.8      5.6      5.5      5.4      5.3      5.2
93............................  98..............           6.6      6.4      6.2      6.0      5.8      5.7      5.5      5.4      5.2      5.1      5.0
94............................  99..............           6.5      6.3      6.1      5.9      5.7      5.5      5.4      5.2      5.1      5.0      4.9
95............................  100.............           6.4      6.2      6.0      5.8      5.6      5.4      5.3      5.1      5.0      4.9      4.7
 
96............................  101.............           6.4      6.1      5.9      5.7      5.5      5.3      5.2      5.0      4.9      4.7      4.6
97............................  102.............           6.3      6.1      5.8      5.6      5.4      5.2      5.1      4.9      4.8      4.6      4.5
98............................  103.............           6.2      6.0      5.8      5.5      5.3      5.1      5.0      4.8      4.7      4.5      4.4
99............................  104.............           6.2      5.9      5.7      5.5      5.2      5.1      4.9      4.7      4.6      4.4      4.3
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 176]]


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Ages
                                                          ----------------------------------------------------------------------------------------------
               Male                         Female            Male 97       98       99      100      101      102      103      104      105      106
                                                          ----------------------------------------------------------------------------------------------
                                                            Female 102     103      104      105      106      107      108      109      110      111
--------------------------------------------------------------------------------------------------------------------------------------------------------
85................................  90...................           6.6      6.5      6.4      6.4      6.3      6.2      6.2      6.1      6.1      6.0
86................................  91...................           6.3      6.2      6.2      6.1      6.0      6.0      5.9      5.9      5.8      5.7
87................................  92...................           6.1      6.0      5.9      5.8      5.8      5.7      5.6      5.6      5.5      5.4
88................................  93...................           5.8      5.8      5.7      5.6      5.5      5.5      5.4      5.3      5.3      5.1
89................................  94...................           5.6      5.5      5.5      5.4      5.3      5.2      5.2      5.1      5.0  .......
 
90................................  95...................           5.4      5.3      5.2      5.2      5.1      5.0      4.9      4.9      4.8  .......
91................................  96...................           5.2      5.1      5.1      5.0      4.9      4.8      4.7      4.6      4.5  .......
92................................  97...................           5.1      5.0      4.9      4.8      4.7      4.6      4.5      4.4  .......  .......
93................................  98...................           4.9      4.8      4.7      4.6      4.5      4.4      4.3      4.2  .......  .......
94................................  99...................           4.8      4.7      4.6      4.5      4.4      4.3      4.1  .......  .......  .......
 
95................................  100..................           4.6      4.5      4.4      4.3      4.2      4.1      4.0  .......  .......  .......
96................................  101..................           4.5      4.4      4.3      4.2      4.1      3.9  .......  .......  .......  .......
97................................  102..................           4.4      4.3      4.1      4.0      3.9      3.7  .......  .......  .......  .......
98................................  103..................           4.3      4.1      4.0      3.9      3.7  .......  .......  .......  .......  .......
99................................  104..................           4.1      4.0      3.9      3.7  .......  .......  .......  .......  .......  .......
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 177]]


                                                         Table IIA--Annuities for Joint Life Only--Two Lives--Expected Return Multiples
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Ages
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
              Male                      Female           Male 6        7        8        9        10       11       12       13       14       15       16       17       18       19       20
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
                                                        Female 11      12       13       14       15       16       17       18       19       20       21       22       23       24       25
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...............................  11................          56.6     56.1     55.7     55.1     54.6     54.1     53.5     52.9     52.3     51.7     51.1     50.5     49.8     49.1     48.4
7...............................  12................          56.1     55.7     55.2     54.7     54.2     53.7     53.1     52.6     52.0     51.4     50.8     50.2     49.5     48.9     48.2
8...............................  13................          55.7     55.2     54.8     54.3     53.8     53.3     52.8     52.2     51.6     51.1     50.5     49.9     49.2     48.6     47.9
9...............................  14................          55.1     54.7     54.3     53.8     53.3     52.9     52.3     51.8     51.3     50.7     50.1     49.5     48.9     48.3     47.7
10..............................  15................          54.6     54.2     53.8     53.3     52.9     52.4     51.9     51.4     50.9     50.3     49.8     49.2     48.6     48.0     47.4
 
11..............................  16................          54.1     53.7     53.3     52.9     52.4     52.0     51.5     51.0     50.5     50.0     49.4     48.8     48.3     47.7     47.1
12..............................  17................          53.5     53.1     52.8     52.3     51.9     51.5     51.0     50.6     50.1     49.6     49.0     48.5     47.9     47.3     46.7
13..............................  18................          52.9     52.6     52.2     51.8     51.4     51.0     50.6     50.1     49.6     49.1     48.6     48.1     47.5     47.0     46.4
14..............................  19................          52.3     52.0     51.6     51.3     50.9     50.5     50.1     49.6     49.2     48.7     48.2     47.7     47.2     46.6     46.1
 
15..............................  20................          51.7     51.4     51.1     50.7     50.3     50.0     49.6     49.1     48.7     48.2     47.8     47.3     46.8     46.2     45.7
16..............................  21................          51.1     50.8     50.5     50.1     49.8     49.4     49.0     48.6     48.2     47.8     47.3     46.8     46.3     45.8     45.3
17..............................  22................          50.5     50.2     49.9     49.5     49.2     48.8     48.5     48.1     47.7     47.3     46.8     46.4     45.9     45.4     44.9
18..............................  23................          49.8     49.5     49.2     48.9     48.6     48.3     47.9     47.5     47.2     46.8     46.3     45.9     45.4     45.0     44.5
19..............................  24................          49.1     48.9     48.6     48.3     48.0     47.7     47.3     47.0     46.6     46.2     45.8     45.4     45.0     44.5     44.0
20..............................  25................          48.4     48.2     47.9     47.7     47.4     47.1     46.7     46.4     46.1     45.7     45.3     44.9     44.5     44.0     43.6
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Ages
                                                              ----------------------------------------------------------------------------------------------------------------------------------
                Male                           Female             Male 21       22       23       24       25       26       27       28       29       30       31       32       33       34
                                                              ----------------------------------------------------------------------------------------------------------------------------------
                                                                 Female 26      27       28       29       30       31       32       33       34       35       36       37       38       39
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...................................  11.....................          47.7     47.0     46.3     45.6     44.8     44.1     43.3     42.5     41.8     41.0     40.2     39.4     38.6     37.8
7...................................  12.....................          47.5     46.8     46.1     45.4     44.6     43.9     43.2     42.4     41.6     40.9     40.1     39.3     38.5     37.7
8...................................  13.....................          47.3     46.6     45.9     45.2     44.5     43.7     43.0     42.2     41.5     40.7     39.9     39.2     38.4     37.6
9...................................  14.....................          47.0     46.3     45.6     45.0     44.2     43.5     42.8     42.1     41.3     40.6     39.8     39.0     38.3     37.5
10..................................  15.....................          46.7     46.1     45.4     44.7     44.0     43.3     42.6     41.9     41.1     40.4     39.7     38.9     38.1     37.4
 
11..................................  16.....................          46.4     45.8     45.1     44.5     43.8     43.1     42.4     41.7     41.0     40.2     39.5     38.8     38.0     37.2
12..................................  17.....................          46.1     45.5     44.9     44.2     43.6     42.9     42.2     41.5     40.8     40.1     39.3     38.6     37.9     37.1
13..................................  18.....................          45.8     45.2     44.6     43.9     43.3     42.6     42.0     41.3     40.6     39.9     39.2     38.4     37.7     37.0
14..................................  19.....................          45.5     44.9     44.3     43.7     43.0     42.4     41.7     41.0     40.4     39.7     39.0     38.3     37.5     36.8
15..................................  20.....................          45.1     44.6     44.0     43.4     42.7     42.1     41.5     40.8     40.1     39.5     38.8     38.1     37.4     36.6
 
16..................................  21.....................          44.8     44.2     43.6     43.0     42.4     41.8     41.2     40.5     39.9     39.2     38.6     37.9     37.2     36.5
17..................................  22.....................          44.4     43.8     43.3     42.7     42.1     41.5     40.9     40.3     39.6     39.0     38.3     37.7     37.0     36.3
18..................................  23.....................          44.0     43.5     42.9     42.4     41.8     41.2     40.6     40.0     39.4     38.7     38.1     37.4     36.8     36.1
19..................................  24.....................          43.6     43.1     42.5     42.0     41.4     40.9     40.3     39.7     39.1     38.5     37.8     37.2     36.5     35.9
20..................................  25.....................          43.1     42.6     42.1     41.6     41.1     40.5     40.0     39.4     38.8     38.2     37.6     36.9     36.3     35.7
 
21..................................  26.....................          42.7     42.2     41.7     41.2     40.7     40.2     39.6     39.1     38.5     37.9     37.3     36.7     36.1     35.4

[[Page 178]]

 
22..................................  27.....................          42.2     41.8     41.3     40.8     40.3     39.8     39.3     38.7     38.2     37.6     37.0     36.4     35.8     35.2
23..................................  28.....................          41.7     41.3     40.8     40.4     39.9     39.4     38.9     38.4     37.8     37.3     36.7     36.1     35.5     34.9
24..................................  29.....................          41.2     40.8     40.4     39.9     39.5     39.0     38.5     38.0     37.5     36.9     36.4     35.8     35.2     34.6
25..................................  30.....................          40.7     40.3     39.9     39.5     39.0     38.6     38.1     37.6     37.1     36.6     36.0     35.5     34.9     34.4
 
26..................................  31.....................          40.2     39.8     39.4     39.0     38.6     38.1     37.7     37.2     36.7     36.2     35.7     35.2     34.6     34.1
27..................................  32.....................          39.6     39.3     38.9     38.5     38.1     37.7     37.2     36.8     36.3     35.8     35.3     34.8     34.3     33.7
28..................................  33.....................          39.1     38.7     38.4     38.0     37.6     37.2     36.8     36.3     35.9     35.4     34.9     34.5     33.9     33.4
29..................................  34.....................          38.5     38.2     37.8     37.5     37.1     36.7     36.3     35.9     35.5     35.0     34.6     34.1     33.6     33.1
30..................................  35.....................          37.9     37.6     37.3     36.9     36.6     36.2     35.8     35.4     35.0     34.6     34.1     33.7     33.2     32.7
 
31..................................  36.....................          37.3     37.0     36.7     36.4     36.0     35.7     35.3     34.9     34.6     34.1     33.7     33.3     32.8     32.3
32..................................  37.....................          36.7     36.4     36.1     35.8     35.5     35.2     34.8     34.5     34.1     33.7     33.3     32.9     32.4     32.0
33..................................  38.....................          36.1     35.8     35.5     35.2     34.9     34.6     34.3     33.9     33.6     33.2     32.8     32.4     32.0     31.6
34..................................  39.....................          35.4     35.2     34.9     34.6     34.4     34.1     33.7     33.4     33.1     32.7     32.3     32.0     31.6     31.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Ages
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
              Male                      Female           Male 35       36       37       38       39       40       41       42       43       44       45       46       47       48       49
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
                                                        Female 40      41       42       43       44       45       46       47       48       49       50       51       52       53       54
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...............................  11................          37.0     36.2     35.4     34.6     33.8     33.0     32.2     31.4     30.6     29.8     29.0     28.2     27.5     26.7     25.9
7...............................  12................          36.9     36.1     35.3     34.5     33.7     32.9     32.1     31.3     30.5     29.8     29.0     28.2     27.4     26.7     25.9
8...............................  13................          36.8     36.0     35.2     34.4     33.7     32.9     32.1     31.3     30.5     29.7     28.9     28.2     27.4     26.6     25.9
9...............................  14................          36.7     35.9     35.1     34.4     33.6     32.8     32.0     31.2     30.4     29.7     28.9     28.1     27.3     26.6     25.8
10..............................  15................          36.6     35.8     35.1     34.3     33.5     32.7     31.9     31.2     30.4     29.6     28.8     28.1     27.3     26.5     25.8
 
11..............................  16................          36.5     35.7     34.9     34.2     33.4     32.6     31.9     31.1     30.3     29.5     28.8     28.0     27.3     26.5     25.7
12..............................  17................          36.4     35.6     34.8     34.1     33.3     32.5     31.8     31.0     30.2     29.5     28.7     28.0     27.2     26.4     25.7
13..............................  18................          36.2     35.5     34.7     34.0     33.2     32.4     31.7     30.9     30.2     29.4     28.7     27.9     27.1     26.4     25.7
14..............................  19................          36.1     35.3     34.6     33.8     33.1     32.3     31.6     30.8     30.1     29.3     28.6     27.8     27.1     26.3     25.6
15..............................  20................          35.9     35.2     34.5     33.7     33.0     32.2     31.5     30.7     30.0     29.3     28.5     27.8     27.0     26.3     25.6
 
16..............................  21................          35.8     35.0     34.3     33.6     32.9     32.1     31.4     30.6     29.9     29.2     28.4     27.7     27.0     26.2     25.5
17..............................  22................          35.6     34.9     34.2     33.4     32.7     32.0     31.3     30.5     29.8     29.1     28.3     27.6     26.9     26.2     25.4
18..............................  23................          35.4     34.7     34.0     33.3     32.6     31.9     31.2     30.4     29.7     29.0     28.3     27.5     26.8     26.1     25.4
19..............................  24................          35.2     34.5     33.8     33.1     32.4     31.7     31.0     30.3     29.6     28.9     28.2     27.4     26.7     26.0     25.3
20..............................  25................          35.0     34.3     33.7     33.0     32.3     31.6     30.9     30.2     29.5     28.8     28.1     27.3     26.6     25.9     25.2
 
21..............................  26................          34.8     34.1     33.5     32.8     32.1     31.4     30.7     30.0     29.3     28.6     27.9     27.2     26.5     25.8     25.1
22..............................  27................          34.5     33.9     33.3     32.6     31.9     31.3     30.6     29.9     29.2     28.5     27.8     27.1     26.4     25.7     25.1
23..............................  28................          34.3     33.7     33.0     32.4     31.7     31.1     30.4     29.7     29.1     28.4     27.7     27.0     26.3     25.6     25.0
24..............................  29................          34.0     33.4     32.8     32.2     31.5     30.9     30.2     29.6     28.9     28.2     27.6     26.9     26.2     25.5     24.9
25..............................  30................          33.8     33.2     32.6     32.0     31.3     30.7     30.1     29.4     28.8     28.1     27.4     26.8     26.1     25.4     24.8

[[Page 179]]

 
 
26..............................  31................          33.5     32.9     32.3     31.7     31.1     30.5     29.9     29.2     28.6     27.9     27.3     26.6     26.0     25.3     24.6
27..............................  32................          33.2     32.6     32.1     31.5     30.9     30.3     29.6     29.0     28.4     27.8     27.1     26.5     25.8     25.2     24.5
28..............................  33................          32.9     32.3     31.8     31.2     30.6     30.0     29.4     28.8     28.2     27.6     27.0     26.3     25.7     25.0     24.4
29..............................  34................          32.6     32.0     31.5     30.9     30.4     29.8     29.2     28.6     28.0     27.4     26.8     26.2     25.5     24.9     24.3
30..............................  35................          32.2     31.7     31.2     30.6     30.1     29.5     29.0     28.4     27.8     27.2     26.6     26.0     25.4     24.7     24.1
 
31..............................  36................          31.9     31.4     30.9     30.3     29.8     29.3     28.7     28.1     27.6     27.0     26.4     25.8     25.2     24.6     24.0
32..............................  37................          31.5     31.0     30.5     30.0     29.5     29.0     28.4     27.9     27.3     26.8     26.2     25.6     25.0     24.4     23.8
33..............................  38................          31.1     30.7     30.2     29.7     29.2     28.7     28.2     27.6     27.1     26.5     26.0     25.4     24.8     24.2     23.6
34..............................  39................          30.7     30.3     29.8     29.3     28.9     28.4     27.9     27.3     26.8     26.3     25.7     25.2     24.6     24.0     23.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Ages
                                                              ----------------------------------------------------------------------------------------------------------------------------------
                Male                           Female             Male 50       51       52       53       54       55       56       57       58       59       60       61       62       63
                                                              ----------------------------------------------------------------------------------------------------------------------------------
                                                                 Female 55      56       57       58       59       60       61       62       63       64       65       66       67       68
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...................................  11.....................          25.2     24.4     23.7     22.9     22.2     21.5     20.8     20.1     19.4     18.7     18.0     17.4     16.7     16.1
7...................................  12.....................          25.1     24.4     23.6     22.9     22.2     21.5     20.8     20.1     19.4     18.7     18.0     17.4     16.7     16.1
8...................................  13.....................          25.1     24.4     23.6     22.9     22.2     21.4     20.7     20.0     19.4     18.7     18.0     17.4     16.7     16.1
9...................................  14.....................          25.1     24.3     23.6     22.9     22.1     21.4     20.7     20.0     19.3     18.7     18.0     17.3     16.7     16.1
10..................................  15.....................          25.0     24.3     23.6     22.8     22.1     21.4     20.7     20.0     19.3     18.6     18.0     17.3     16.7     16.1
 
11..................................  16.....................          25.0     24.3     23.5     22.8     22.1     21.4     20.7     20.0     19.3     18.6     18.0     17.3     16.7     16.1
12..................................  17.....................          25.0     24.2     23.5     22.8     22.1     21.4     20.7     20.0     19.3     18.6     18.0     17.3     16.7     16.0
13..................................  18.....................          24.9     24.2     23.5     22.7     22.0     21.3     20.6     19.9     19.3     18.6     17.9     17.3     16.7     16.0
14..................................  19.....................          24.9     24.1     23.4     22.7     22.0     21.3     20.6     19.9     19.2     18.6     17.9     17.3     16.6     16.0
15..................................  20.....................          24.8     24.1     23.4     22.7     22.0     21.3     20.6     19.9     19.2     18.5     17.9     17.3     16.6     16.0
 
16..................................  21.....................          24.8     24.0     23.3     22.6     21.9     21.2     20.5     19.9     19.2     18.5     17.9     17.2     16.6     16.0
17..................................  22.....................          24.7     24.0     23.3     22.6     21.9     21.2     20.5     19.8     19.2     18.5     17.8     17.2     16.6     16.0
18..................................  23.....................          24.7     23.9     23.2     22.5     21.8     21.1     20.5     19.8     19.1     18.5     17.8     17.2     16.6     15.9
19..................................  24.....................          24.6     23.9     23.2     22.5     21.8     21.1     20.4     19.8     19.1     18.4     17.8     17.2     16.5     15.9
20..................................  25.....................          24.5     23.8     23.1     22.4     21.7     21.1     20.4     19.7     19.1     18.4     17.8     17.1     16.5     15.9
 
21..................................  26.....................          24.4     23.7     23.1     22.4     21.7     21.0     20.3     19.7     19.0     18.4     17.7     17.1     16.5     15.9
22..................................  27.....................          24.4     23.7     23.0     22.3     21.6     21.0     20.3     19.6     19.0     18.3     17.7     17.1     16.5     15.9
23..................................  28.....................          24.3     23.6     22.9     22.2     21.6     20.9     20.2     19.6     18.9     18.3     17.7     17.0     16.4     15.8
24..................................  29.....................          24.2     23.5     22.8     22.2     21.5     20.8     20.2     19.5     18.9     18.3     17.6     17.0     16.4     15.8
25..................................  30.....................          24.1     23.4     22.8     22.1     21.4     20.8     20.1     19.5     18.8     18.2     17.6     17.0     16.4     15.8
 
26..................................  31.....................          24.0     23.3     22.7     22.0     21.4     20.7     20.1     19.4     18.8     18.2     17.5     16.9     16.3     15.7
27..................................  32.....................          23.9     23.2     22.6     21.9     21.3     20.6     20.0     19.4     18.7     18.1     17.5     16.9     16.3     15.7
28..................................  33.....................          23.8     23.1     22.5     21.8     21.2     20.6     19.9     19.3     18.7     18.1     17.4     16.8     16.2     15.6
29..................................  34.....................          23.6     23.0     22.4     21.7     21.1     20.5     19.8     19.2     18.6     18.0     17.4     16.8     16.2     15.6
30..................................  35.....................          23.5     22.9     22.3     21.6     21.0     20.4     19.8     19.1     18.5     17.9     17.3     16.7     16.1     15.6
 
31..................................  36.....................          23.4     22.7     22.1     21.5     20.9     20.3     19.7     19.1     18.5     17.9     17.3     16.7     16.1     15.5
32..................................  37.....................          23.2     22.6     22.0     21.4     20.8     20.2     19.6     19.0     18.4     17.8     17.2     16.6     16.0     15.5

[[Page 180]]

 
33..................................  38.....................          23.1     22.5     21.9     21.3     20.7     20.1     19.5     18.9     18.3     17.7     17.1     16.5     16.0     15.4
34..................................  39.....................          22.9     22.3     21.7     21.1     20.5     20.0     19.4     18.8     18.2     17.6     17.0     16.5     15.9     15.3
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Ages
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
              Male                      Female           Male 64       65       66       67       68       69       70       71       72       73       74       75       76       77       78
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
                                                        Female 69      70       71       72       73       74       75       76       77       78       79       80       81       82       83
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...............................  11................          15.5     14.9     14.3     13.7     13.1     12.6     12.0     11.5     11.0     10.5     10.0      9.6      9.1      8.7      8.2
7...............................  12................          15.5     14.9     14.3     13.7     13.1     12.6     12.0     11.5     11.0     10.5     10.0      9.6      9.1      8.7      8.2
8...............................  13................          15.5     14.9     14.3     13.7     13.1     12.6     12.0     11.5     11.0     10.5     10.0      9.6      9.1      8.7      8.2
9...............................  14................          15.5     14.9     14.3     13.7     13.1     12.6     12.0     11.5     11.0     10.5     10.0      9.5      9.1      8.7      8.2
10..............................  15................          15.4     14.8     14.3     13.7     13.1     12.6     12.0     11.5     11.0     10.5     10.0      9.5      9.1      8.7      8.2
 
11..............................  16................          15.4     14.8     14.2     13.7     13.1     12.6     12.0     11.5     11.0     10.5     10.0      9.5      9.1      8.7      8.2
12..............................  17................          15.4     14.8     14.2     13.7     13.1     12.5     12.0     11.5     11.0     10.5     10.0      9.5      9.1      8.6      8.2
13..............................  18................          15.4     14.8     14.2     13.6     13.1     12.5     12.0     11.5     11.0     10.5     10.0      9.5      9.1      8.6      8.2
14..............................  19................          15.4     14.8     14.2     13.6     13.1     12.5     12.0     11.5     11.0     10.5     10.0      9.5      9.1      8.6      8.2
15..............................  20................          15.4     14.8     14.2     13.6     13.1     12.5     12.0     11.5     11.0     10.5     10.0      9.5      9.1      8.6      8.2
 
16..............................  21................          15.4     14.8     14.2     13.6     13.1     12.5     12.0     11.5     11.0     10.5     10.0      9.5      9.1      8.6      8.2
17..............................  22................          15.4     14.8     14.2     13.6     13.0     12.5     12.0     11.5     10.9     10.5     10.0      9.5      9.1      8.6      8.2
18..............................  23................          15.3     14.7     14.2     13.6     13.0     12.5     12.0     11.4     10.9     10.4     10.0      9.5      9.1      8.6      8.2
19..............................  24................          15.3     14.7     14.1     13.6     13.0     12.5     12.0     11.4     10.9     10.4     10.0      9.5      9.1      8.6      8.2
20..............................  25................          15.3     14.7     14.1     13.6     13.0     12.5     11.9     11.4     10.9     10.4     10.0      9.5      9.0      8.6      8.2
 
21..............................  26................          15.3     14.7     14.1     13.5     13.0     12.5     11.9     11.4     10.9     10.4      9.9      9.5      9.0      8.6      8.2
22..............................  27................          15.3     14.7     14.1     13.5     13.0     12.4     11.9     11.4     10.9     10.4      9.9      9.5      9.0      8.6      8.2
23..............................  28................          15.2     14.6     14.1     13.5     13.0     12.4     11.9     11.4     10.9     10.4      9.9      9.5      9.0      8.6      8.2
24..............................  29................          15.2     14.6     14.0     13.5     12.9     12.4     11.9     11.4     10.9     10.4      9.9      9.5      9.0      8.6      8.2
25..............................  30................          15.2     14.6     14.0     13.5     12.9     12.4     11.9     11.4     10.9     10.4      9.9      9.5      9.0      8.6      8.2
 
26..............................  31................          15.1     14.6     14.0     13.4     12.9     12.4     11.9     11.3     10.8     10.4      9.9      9.4      9.0      8.6      8.2
27..............................  32................          15.1     14.5     14.0     13.4     12.9     12.4     11.8     11.3     10.8     10.4      9.9      9.4      9.0      8.6      8.2
28..............................  33................          15.1     14.5     13.9     13.4     12.9     12.3     11.8     11.3     10.8     10.3      9.9      9.4      9.0      8.6      8.1
29..............................  34................          15.0     14.5     13.9     13.4     12.8     12.3     11.8     11.3     10.8     10.3      9.9      9.4      9.0      8.5      8.1
30..............................  35................          15.0     14.4     13.9     13.3     12.8     12.3     11.8     11.3     10.8     10.3      9.8      9.4      9.0      8.5      8.1
 
31..............................  36................          14.9     14.4     13.8     13.3     12.8     12.2     11.7     11.2     10.8     10.3      9.8      9.4      8.9      8.5      8.1
32..............................  37................          14.9     14.3     13.8     13.3     12.7     12.2     11.7     11.2     10.7     10.3      9.8      9.4      8.9      8.5      8.1
33..............................  38................          14.8     14.3     13.8     13.2     12.7     12.2     11.7     11.2     10.7     10.2      9.8      9.3      8.9      8.5      8.1
34..............................  39................          14.8     14.2     13.7     13.2     12.7     12.2     11.7     11.2     10.7     10.2      9.8      9.3      8.9      8.5      8.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 181]]


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Ages
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
              Male                      Female           Male 79       80       81       82       83       84       85       86       87       88       89       90       91       92       93
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
                                                        Female 84      85       86       87       88       89       90       91       92       93       94       95       96       97       98
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...............................  11................           7.8      7.4      7.1      6.7      6.3      6.0      5.7      5.4      5.1      4.8      4.5      4.2      4.0      3.7      3.5
7...............................  12................           7.8      7.4      7.1      6.7      6.3      6.0      5.7      5.4      5.1      4.8      4.5      4.2      4.0      3.7      3.5
8...............................  13................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.4      5.1      4.8      4.5      4.2      4.0      3.7      3.5
9...............................  14................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.4      5.1      4.8      4.5      4.2      4.0      3.7      3.5
10..............................  15................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.4      5.1      4.8      4.5      4.2      4.0      3.7      3.5
 
11..............................  16................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.4      5.1      4.8      4.5      4.2      4.0      3.7      3.5
12..............................  17................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.4      5.1      4.8      4.5      4.2      4.0      3.7      3.5
13..............................  18................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.3      5.1      4.8      4.5      4.2      4.0      3.7      3.5
14..............................  19................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
15..............................  20................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
 
16..............................  21................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
17..............................  22................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
18..............................  23................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
19..............................  24................           7.8      7.4      7.0      6.7      6.3      6.0      5.7      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
20..............................  25................           7.8      7.4      7.0      6.7      6.3      6.0      5.6      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
 
21..............................  26................           7.8      7.4      7.0      6.7      6.3      6.0      5.6      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
22..............................  27................           7.8      7.4      7.0      6.7      6.3      6.0      5.6      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
23..............................  28................           7.8      7.4      7.0      6.6      6.3      6.0      5.6      5.3      5.0      4.8      4.5      4.2      4.0      3.7      3.5
24..............................  29................           7.8      7.4      7.0      6.6      6.3      6.0      5.6      5.3      5.0      4.7      4.5      4.2      4.0      3.7      3.5
25..............................  30................           7.8      7.4      7.0      6.6      6.3      6.0      5.6      5.3      5.0      4.7      4.5      4.2      4.0      3.7      3.5
 
26..............................  31................           7.8      7.4      7.0      6.6      6.3      6.0      5.6      5.3      5.0      4.7      4.5      4.2      4.0      3.7      3.5
27..............................  32................           7.7      7.4      7.0      6.6      6.3      5.9      5.6      5.3      5.0      4.7      4.5      4.2      4.0      3.7      3.5
28..............................  33................           7.7      7.4      7.0      6.6      6.3      5.9      5.6      5.3      5.0      4.7      4.5      4.2      4.0      3.7      3.5
29..............................  34................           7.7      7.3      7.0      6.6      6.3      5.9      5.6      5.3      5.0      4.7      4.5      4.2      4.0      3.7      3.5
30..............................  35................           7.7      7.3      7.0      6.6      6.3      5.9      5.6      5.3      5.0      4.7      4.5      4.2      4.0      3.7      3.5
 
31..............................  36................           7.7      7.3      7.0      6.6      6.3      5.9      5.6      5.3      5.0      4.7      4.5      4.2      4.0      3.7      3.5
32..............................  37................           7.7      7.3      7.0      6.6      6.3      5.9      5.6      5.3      5.0      4.7      4.5      4.2      4.0      3.7      3.5
33..............................  38................           7.7      7.3      6.9      6.6      6.2      5.9      5.6      5.3      5.0      4.7      4.5      4.2      3.9      3.7      3.5
34..............................  39................           7.7      7.3      6.9      6.6      6.2      5.9      5.6      5.3      5.0      4.7      4.4      4.2      3.9      3.7      3.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Ages
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
              Male                      Female           Male 94       95       96       97       98       99      100      101      102      103      104      105      106      107      108
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
                                                        Female 99     100      101      102      103      104      105      106      107      108      109      110      111      112      113
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6...............................  11................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
7...............................  12................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
8...............................  13................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
9...............................  14................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7

[[Page 182]]

 
10..............................  15................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
 
11..............................  16................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
12..............................  17................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
13..............................  18................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
14..............................  19................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
15..............................  20................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
 
16..............................  21................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
17..............................  22................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
18..............................  23................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
19..............................  24................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
20..............................  25................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
 
21..............................  26................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
22..............................  27................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
23..............................  28................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
24..............................  29................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
25..............................  30................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
 
26..............................  31................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
27..............................  32................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
28..............................  33................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
29..............................  34................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
30..............................  35................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
 
31..............................  36................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
32..............................  37................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
33..............................  38................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
34..............................  39................           3.3      3.1      2.9      2.7      2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Ages
                                                                       -------------------------------------------------------------------------------------------------------------------------
                   Male                               Female               Male 35       36       37       38       39       40       41       42       43       44       45       46       47
                                                                       -------------------------------------------------------------------------------------------------------------------------
                                                                          Female 40      41       42       43       44       45       46       47       48       49       50       51       52
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
35.......................................  40.........................          30.3     29.9     29.4     29.0     28.5     28.0     27.5     27.0     26.5     26.0     25.5     24.9     24.4
36.......................................  41.........................          29.9     29.5     29.0     28.6     28.2     27.7     27.2     26.7     26.2     25.7     25.2     24.7     24.2
37.......................................  42.........................          29.4     29.0     28.6     28.2     27.8     27.3     26.9     26.4     25.9     25.5     25.0     24.4     23.9
38.......................................  43.........................          29.0     28.6     28.2     27.8     27.4     27.0     26.5     26.1     25.6     25.2     24.7     24.2     23.7
39.......................................  44.........................          28.5     28.2     27.8     27.4     27.0     26.6     26.2     25.8     25.3     24.8     24.4     23.9     23.4
40.......................................  45.........................          28.0     27.7     27.3     27.0     26.6     26.2     25.8     25.4     25.0     24.5     24.1     23.6     23.1
 
41.......................................  46.........................          27.5     27.2     26.9     26.5     26.2     25.8     25.4     25.0     24.6     24.2     23.8     23.3     22.9

[[Page 183]]

 
42.......................................  47.........................          27.0     26.7     26.4     26.1     25.8     25.4     25.0     24.6     24.2     23.8     23.4     23.0     22.6
43.......................................  48.........................          26.5     26.2     25.9     25.6     25.3     25.0     24.6     24.2     23.9     23.5     23.1     22.7     22.2
44.......................................  49.........................          26.0     25.7     25.5     25.2     24.8     24.5     24.2     23.8     23.5     23.1     22.7     22.3     21.9
45.......................................  50.........................          25.5     25.2     25.0     24.7     24.4     24.1     23.8     23.4     23.1     22.7     22.4     22.0     21.6
 
46.......................................  51.........................          24.9     24.7     24.4     24.2     23.9     23.6     23.3     23.0     22.7     22.3     22.0     21.6     21.2
47.......................................  52.........................          24.4     24.2     23.9     23.7     23.4     23.1     22.9     22.6     22.2     21.9     21.6     21.2     20.9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Ages
                                                                       -------------------------------------------------------------------------------------------------------------------------
                   Male                               Female               Male 48       49       50       51       52       53       54       55       56       57       58       59       60
                                                                       -------------------------------------------------------------------------------------------------------------------------
                                                                          Female 53      54       55       56       57       58       59       60       61       62       63       64       65
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
35.......................................  40.........................          23.8     23.3     22.7     22.1     21.6     21.0     20.4     19.8     19.3     18.7     18.1     17.5     17.0
36.......................................  41.........................          23.6     23.1     22.5     22.0     21.4     20.8     20.3     19.7     19.1     18.6     18.0     17.4     16.9
37.......................................  42.........................          23.4     22.9     22.3     21.8     21.2     20.7     20.1     19.6     19.0     18.4     17.9     17.3     16.8
38.......................................  43.........................          23.2     22.6     22.1     21.6     21.1     20.5     20.0     19.4     18.9     18.3     17.8     17.2     16.7
39.......................................  44.........................          22.9     22.4     21.9     21.4     20.9     20.3     19.8     19.3     18.7     18.2     17.7     17.1     16.6
40.......................................  45.........................          22.7     22.2     21.7     21.2     20.7     20.1     19.6     19.1     18.6     18.0     17.5     17.0     16.5
 
41.......................................  46.........................          22.4     21.9     21.4     20.9     20.4     19.9     19.4     18.9     18.4     17.9     17.4     16.9     16.3
42.......................................  47.........................          22.1     21.6     21.2     20.7     20.2     19.7     19.2     18.7     18.2     17.7     17.2     16.7     16.2
43.......................................  48.........................          21.8     21.4     20.9     20.5     20.0     19.5     19.0     18.6     18.1     17.6     17.1     16.6     16.1
44.......................................  49.........................          21.5     21.1     20.6     20.2     19.8     19.3     18.8     18.4     17.9     17.4     16.9     16.4     15.9
45.......................................  50.........................          21.2     20.8     20.4     19.9     19.5     19.1     18.6     18.1     17.7     17.2     16.7     16.3     15.8
 
46.......................................  51.........................          20.9     20.5     20.1     19.7     19.2     18.8     18.4     17.9     17.5     17.0     16.6     16.1     15.6
47.......................................  52.........................          20.5     20.1     19.8     19.4     19.0     18.5     18.1     17.7     17.3     16.8     16.4     15.9     15.5
48.......................................  53.........................          20.2     19.8     19.4     19.1     18.7     18.3     17.9     17.5     17.0     16.6     16.2     15.7     15.3
49.......................................  54.........................          19.8     19.5     19.1     18.8     18.4     18.0     17.6     17.2     16.8     16.4     16.0     15.5     15.1
50.......................................  55.........................          19.4     19.1     18.8     18.4     18.1     17.7     17.3     16.9     16.6     16.2     15.8     15.3     14.9
 
51.......................................  56.........................          19.1     18.8     18.4     18.1     17.8     17.4     17.0     16.7     16.3     15.9     15.5     15.1     14.7
52.......................................  57.........................          18.7     18.4     18.1     17.8     17.4     17.1     16.8     16.4     16.0     15.7     15.3     14.9     14.5
53.......................................  58.........................          18.3     18.0     17.7     17.4     17.1     16.8     16.4     16.1     15.8     15.4     15.1     14.7     14.3
54.......................................  59.........................          17.9     17.6     17.3     17.0     16.8     16.4     16.1     15.8     15.5     15.1     14.8     14.4     14.1
55.......................................  60.........................          17.5     17.2     16.9     16.7     16.4     16.1     15.8     15.5     15.2     14.9     14.5     14.2     13.9
 
56.......................................  61.........................          17.0     16.8     16.6     16.3     16.0     15.8     15.5     15.2     14.9     14.6     14.3     13.9     13.6
57.......................................  62.........................          16.6     16.4     16.2     15.9     15.7     15.4     15.1     14.9     14.6     14.3     14.0     13.7     13.4
58.......................................  63.........................          16.2     16.0     15.8     15.5     15.3     15.1     14.8     14.5     14.3     14.0     13.7     13.4     13.1
59.......................................  64.........................          15.7     15.5     15.3     15.1     14.9     14.7     14.4     14.2     13.9     13.7     13.4     13.1     12.8
60.......................................  65.........................          15.3     15.1     14.9     14.7     14.5     14.3     14.1     13.9     13.6     13.4     13.1     12.8     12.6
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 184]]


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Ages
                                                                       -------------------------------------------------------------------------------------------------------------------------
                   Male                               Female               Male 61       62       63       64       65       66       67       68       69       70       71       72       73
                                                                       -------------------------------------------------------------------------------------------------------------------------
                                                                          Female 66      67       68       69       70       71       72       73       74       74       76       77       78
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
35.......................................  40.........................          16.4     15.8     15.3     14.7     14.2     13.7     13.1     12.6     12.1     11.6     11.1     10.7     10.2
36.......................................  41.........................          16.3     15.8     15.2     14.7     14.1     13.6     13.1     12.6     12.1     11.6     11.1     10.6     10.2
37.......................................  42.........................          16.2     15.7     15.1     14.6     14.1     13.6     13.0     12.5     12.0     11.5     11.1     10.6     10.1
38.......................................  43.........................          16.1     15.6     15.1     14.5     14.0     13.5     13.0     12.5     12.0     11.5     11.0     10.6     10.1
39.......................................  44.........................          16.0     15.5     15.0     14.5     13.9     13.4     12.9     12.4     11.9     11.5     11.0     10.5     10.1
40.......................................  45.........................          15.9     15.4     14.9     14.4     13.9     13.4     12.9     12.4     11.9     11.4     11.0     10.5     10.0
 
41.......................................  46.........................          15.8     15.3     14.8     14.3     13.8     13.3     12.8     12.3     11.8     11.4     10.9     10.5     10.0
42.......................................  47.........................          15.7     15.2     14.7     14.2     13.7     13.2     12.7     12.3     11.8     11.3     10.9     10.4     10.0
43.......................................  48.........................          15.6     15.1     14.6     14.1     13.6     13.1     12.7     12.2     11.7     11.3     10.8     10.4      9.9
44.......................................  49.........................          15.5     15.0     14.5     14.0     13.5     13.1     12.6     12.1     11.7     11.2     10.8     10.3      9.9
45.......................................  50.........................          15.3     14.8     14.4     13.9     13.4     13.0     12.5     12.0     11.6     11.1     10.7     10.3      9.8
 
46.......................................  51.........................          15.2     14.7     14.2     13.8     13.3     12.9     12.4     12.0     11.5     11.1     10.6     10.2      9.8
47.......................................  52.........................          15.0     14.6     14.1     13.7     13.2     12.8     12.3     11.9     11.4     11.0     10.6     10.1      9.7
48.......................................  53.........................          14.9     14.4     14.0     13.5     13.1     12.6     12.2     11.8     11.3     10.9     10.5     10.1      9.7
49.......................................  54.........................          14.7     14.3     13.8     13.4     13.0     12.5     12.1     11.7     11.3     10.8     10.4     10.0      9.6
50.......................................  55.........................          14.5     14.1     13.7     13.3     12.8     12.4     12.0     11.6     11.2     10.7     10.3      9.9      9.5
 
51.......................................  56.........................          14.3     13.9     13.5     13.1     12.7     12.3     11.9     11.5     11.1     10.7     10.3      9.9      9.5
52.......................................  57.........................          14.1     13.7     13.3     12.9     12.5     12.1     11.7     11.3     10.9     10.6     10.2      9.8      9.4
53.......................................  58.........................          13.9     13.6     13.2     12.8     12.4     12.0     11.6     11.2     10.8     10.5     10.1      9.7      9.3
54.......................................  59.........................          13.7     13.4     13.0     12.6     12.2     11.9     11.5     11.1     10.7     10.3     10.0      9.6      9.2
55.......................................  60.........................          13.5     13.2     12.8     12.4     12.1     11.7     11.3     11.0     10.6     10.2      9.9      9.5      9.1
 
56.......................................  61.........................          13.3     12.9     12.6     12.2     11.9     11.5     11.2     10.8     10.5     10.1      9.8      9.4      9.0
57.......................................  62.........................          13.0     12.7     12.4     12.1     11.7     11.4     11.0     10.7     10.3     10.0      9.6      9.3      8.9
58.......................................  63.........................          12.8     12.5     12.2     11.8     11.5     11.2     10.9     10.5     10.2      9.8      9.5      9.2      8.8
59.......................................  64.........................          12.6     12.3     11.9     11.6     11.3     11.0     10.7     10.4     10.0      9.7      9.4      9.1      8.7
60.......................................  65.........................          12.3     12.0     11.7     11.4     11.1     10.8     10.5     10.2      9.9      9.6      9.3      8.9      8.6
 
61.......................................  66.........................          12.0     11.8     11.5     11.2     10.9     10.6     10.3     10.0      9.7      9.4      9.1      8.8      8.5
62.......................................  67.........................          11.8     11.5     11.2     11.0     10.7     10.4     10.1      9.8      9.6      9.3      9.0      8.7      8.4
63.......................................  68.........................          11.5     11.2     11.0     10.7     10.5     10.2      9.9      9.7      9.4      9.1      8.8      8.5      8.2
64.......................................  69.........................          11.2     11.0     10.7     10.5     10.2     10.0      9.7      9.5      9.2      8.9      8.7      8.4      8.1
65.......................................  70.........................          10.9     10.7     10.5     10.2     10.0      9.8      9.5      9.3      9.0      8.8      8.5      8.2      8.0
 
66.......................................  71.........................          10.6     10.4     10.2     10.0      9.8      9.5      9.3      9.1      8.8      8.6      8.3      8.1      7.8
67.......................................  72.........................          10.3     10.1      9.9      9.7      9.5      9.3      9.1      8.9      8.6      8.4      8.1      7.9      7.7
68.......................................  73.........................          10.0      9.8      9.7      9.5      9.3      9.1      8.9      8.6      8.4      8.2      8.0      7.7      7.5
69.......................................  74.........................           9.7      9.6      9.4      9.2      9.0      8.8      8.6      8.4      8.2      8.0      7.8      7.6      7.3
70.......................................  75.........................           9.4      9.3      9.1      8.9      8.8      8.6      8.4      8.2      8.0      7.8      7.6      7.4      7.2
71.......................................  76.........................           9.1      9.0      8.8      8.7      8.5      8.3      8.1      8.0      7.8      7.6      7.4      7.2      7.0
72.......................................  77.........................           8.8      8.7      8.5      8.4      8.2      8.1      7.9      7.7      7.6      7.4      7.2      7.0      6.8

[[Page 185]]

 
73.......................................  78.........................           8.5      8.4      8.2      8.1      8.0      7.8      7.7      7.5      7.3      7.2      7.0      6.8      6.7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Ages
                                                                       -------------------------------------------------------------------------------------------------------------------------
                   Male                               Female               Male 74       75       76       77       78       79       80       81       82       83       84       85       86
                                                                       -------------------------------------------------------------------------------------------------------------------------
                                                                          Female 79      80       81       82       83       84       85       86       87       88       89       90       91
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
35.......................................  40.........................           9.7      9.3      8.9      8.5      8.1      7.7      7.3      6.9      6.6      6.2      5.9      5.6      5.3
36.......................................  41.........................           9.7      9.3      8.9      8.4      8.0      7.7      7.3      6.9      6.6      6.2      5.9      5.6      5.3
37.......................................  42.........................           9.7      9.3      8.8      8.4      8.0      7.6      7.3      6.9      6.5      6.2      5.9      5.6      5.3
38.......................................  43.........................           9.7      9.2      8.8      8.4      8.0      7.6      7.2      6.9      6.5      6.2      5.9      5.6      5.3
39.......................................  44.........................           9.6      9.2      8.8      8.4      8.0      7.6      7.2      6.9      6.5      6.2      5.9      5.6      5.3
40.......................................  45.........................           9.6      9.2      8.8      8.4      8.0      7.6      7.2      6.9      6.5      6.2      5.9      5.5      5.2
 
41.......................................  46.........................           9.6      9.2      8.7      8.3      7.9      7.6      7.2      6.8      6.5      6.2      5.8      5.5      5.2
42.......................................  47.........................           9.5      9.1      8.7      8.3      7.9      7.5      7.2      6.8      6.5      6.2      5.8      5.5      5.2
43.......................................  48.........................           9.5      9.1      8.7      8.3      7.9      7.5      7.2      6.8      6.5      6.1      5.8      5.5      5.2
44.......................................  49.........................           9.5      9.0      8.6      8.2      7.9      7.5      7.1      6.8      6.4      6.1      5.8      5.5      5.2
45.......................................  50.........................           9.4      9.0      8.6      8.2      7.8      7.5      7.1      6.8      6.4      6.1      5.8      5.5      5.2
 
46.......................................  51.........................           9.4      9.0      8.6      8.2      7.8      7.4      7.1      6.7      6.4      6.1      5.8      5.5      5.2
47.......................................  52.........................           9.3      8.9      8.5      8.1      7.8      7.4      7.1      6.7      6.4      6.1      5.8      5.5      5.2
48.......................................  53.........................           9.3      8.9      8.5      8.1      7.7      7.4      7.0      6.7      6.4      6.0      5.7      5.4      5.1
49.......................................  54.........................           9.2      8.8      8.4      8.1      7.7      7.3      7.0      6.7      6.3      6.0      5.7      5.4      5.1
50.......................................  55.........................           9.1      8.8      8.4      8.0      7.7      7.3      7.0      6.6      6.3      6.0      5.7      5.4      5.1
 
51.......................................  56.........................           9.1      8.7      8.3      8.0      7.6      7.3      6.9      6.6      6.3      6.0      5.7      5.4      5.1
52.......................................  57.........................           9.0      8.6      8.3      7.9      7.6      7.2      6.9      6.6      6.2      5.9      5.6      5.4      5.1
53.......................................  58.........................           8.9      8.6      8.2      7.9      7.5      7.2      6.9      6.5      6.2      5.9      5.6      5.3      5.1
54.......................................  59.........................           8.9      8.5      8.2      7.8      7.5      7.1      6.8      6.5      6.2      5.9      5.6      5.3      5.0
55.......................................  60.........................           8.8      8.4      8.1      7.7      7.4      7.1      6.8      6.4      6.1      5.8      5.6      5.3      5.0
 
56.......................................  61.........................           8.7      8.4      8.0      7.7      7.3      7.0      6.7      6.4      6.1      5.8      5.5      5.3      5.0
57.......................................  62.........................           8.6      8.3      7.9      7.6      7.3      7.0      6.7      6.4      6.1      5.8      5.5      5.2      5.0
58.......................................  63.........................           8.5      8.2      7.9      7.5      7.2      6.9      6.6      6.3      6.0      5.7      5.5      5.2      4.9
59.......................................  64.........................           8.4      8.1      7.8      7.5      7.1      6.8      6.5      6.3      6.0      5.7      5.4      5.2      4.9
60.......................................  65.........................           8.3      8.0      7.7      7.4      7.1      6.8      6.5      6.2      5.9      5.6      5.4      5.1      4.9
 
61.......................................  66.........................           8.2      7.9      7.6      7.3      7.0      6.7      6.4      6.1      5.9      5.6      5.3      5.1      4.8
62.......................................  67.........................           8.1      7.8      7.5      7.2      6.9      6.6      6.4      6.1      5.8      5.5      5.3      5.0      4.8
63.......................................  68.........................           8.0      7.7      7.4      7.1      6.8      6.6      6.3      6.0      5.7      5.5      5.2      5.0      4.7
64.......................................  69.........................           7.8      7.6      7.3      7.0      6.7      6.5      6.2      5.9      5.7      5.4      5.2      4.9      4.7
65.......................................  70.........................           7.7      7.4      7.2      6.9      6.6      6.4      6.1      5.9      5.6      5.4      5.1      4.9      4.7
 
66.......................................  71.........................           7.6      7.3      7.1      6.8      6.5      6.3      6.0      5.8      5.5      5.3      5.1      4.8      4.6
67.......................................  72.........................           7.4      7.2      6.9      6.7      6.4      6.2      6.0      5.7      5.5      5.2      5.0      4.8      4.6
68.......................................  73.........................           7.3      7.0      6.8      6.6      6.3      6.1      5.9      5.6      5.4      5.2      4.9      4.7      4.5
69.......................................  74.........................           7.1      6.9      6.7      6.4      6.2      6.0      5.8      5.5      5.3      5.1      4.9      4.7      4.5
70.......................................  75.........................           7.0      6.8      6.5      6.3      6.1      5.9      5.7      5.4      5.2      5.0      4.8      4.6      4.4

[[Page 186]]

 
 
71.......................................  76.........................           6.8      6.6      6.4      6.2      6.0      5.8      5.6      5.3      5.1      4.9      4.7      4.5      4.3
72.......................................  77.........................           6.6      6.4      6.3      6.1      5.9      5.7      5.5      5.3      5.0      4.9      4.7      4.5      4.3
73.......................................  78.........................           6.5      6.3      6.1      5.9      5.7      5.5      5.3      5.1      5.0      4.8      4.6      4.4      4.2
74.......................................  79.........................           6.3      6.1      6.0      5.8      5.6      5.4      5.2      5.0      4.9      4.7      4.5      4.3      4.1
75.......................................  80.........................           6.1      6.0      5.8      5.6      5.5      5.3      5.1      4.9      4.8      4.6      4.4      4.2      4.1
 
76.......................................  81.........................           6.0      5.8      5.6      5.5      5.3      5.2      5.0      4.8      4.7      4.5      4.3      4.1      4.0
77.......................................  82.........................           5.8      5.6      5.5      5.3      5.2      5.0      4.9      4.7      4.5      4.4      4.2      4.1      3.9
78.......................................  83.........................           5.6      5.5      5.3      5.2      5.0      4.9      4.7      4.6      4.4      4.3      4.1      4.0      3.8
79.......................................  84.........................           5.4      5.3      5.2      5.0      4.9      4.7      4.6      4.5      4.3      4.2      4.0      3.9      3.7
80.......................................  85.........................           5.2      5.1      5.0      4.9      4.7      4.6      4.5      4.3      4.2      4.1      3.9      3.8      3.6
 
81.......................................  86.........................           5.0      4.9      4.8      4.7      4.6      4.5      4.3      4.2      4.1      3.9      3.8      3.7      3.6
82.......................................  87.........................           4.9      4.8      4.7      4.5      4.4      4.3      4.2      4.1      4.0      3.8      3.7      3.6      3.5
83.......................................  88.........................           4.7      4.6      4.5      4.4      4.3      4.2      4.1      3.9      3.8      3.7      3.6      3.5      3.4
84.......................................  89.........................           4.5      4.4      4.3      4.2      4.1      4.0      3.9      3.8      3.7      3.6      3.5      3.4      3.3
85.......................................  90.........................           4.3      4.2      4.1      4.1      4.0      3.9      3.8      3.7      3.6      3.5      3.4      3.3      3.2
86.......................................  91.........................           4.1      4.1      4.0      3.9      3.8      3.7      3.6      3.6      3.5      3.4      3.3      3.2      3.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Ages
                                                 -------------------------------------------------------------------------------------------------------
             Male                    Female          Male 87       88       89       90       91       92       93       94       95       96       97
                                                 -------------------------------------------------------------------------------------------------------
                                                    Female 92      93       94       95       96       97       98       99      100      101      102
--------------------------------------------------------------------------------------------------------------------------------------------------------
35............................  40..............           5.0      4.7      4.4      4.2      3.9      3.7      3.5      3.3      3.1      2.9      2.7
36............................  41..............           5.0      4.7      4.4      4.2      3.9      3.7      3.5      3.3      3.1      2.9      2.7
37............................  42..............           5.0      4.7      4.4      4.2      3.9      3.7      3.5      3.3      3.1      2.9      2.7
38............................  43..............           5.0      4.7      4.4      4.2      3.9      3.7      3.5      3.3      3.1      2.8      2.6
39............................  44..............           5.0      4.7      4.4      4.2      3.9      3.7      3.5      3.3      3.0      2.8      2.6
40............................  45..............           5.0      4.7      4.4      4.2      3.9      3.7      3.5      3.3      3.0      2.8      2.6
 
41............................  46..............           5.0      4.7      4.4      4.2      3.9      3.7      3.5      3.2      3.0      2.8      2.6
42............................  47..............           4.9      4.7      4.4      4.2      3.9      3.7      3.5      3.2      3.0      2.8      2.6
43............................  48..............           4.9      4.7      4.4      4.1      3.9      3.7      3.5      3.2      3.0      2.8      2.6
44............................  49..............           4.9      4.7      4.4      4.1      3.9      3.7      3.4      3.2      3.0      2.8      2.6
45............................  50..............           4.9      4.6      4.4      4.1      3.9      3.7      3.4      3.2      3.0      2.8      2.6
 
46............................  51..............           4.9      4.6      4.4      4.1      3.9      3.7      3.4      3.2      3.0      2.8      2.6
47............................  52..............           4.9      4.6      4.4      4.1      3.9      3.7      3.4      3.2      3.0      2.8      2.6
48............................  53..............           4.9      4.6      4.4      4.1      3.9      3.6      3.4      3.2      3.0      2.8      2.6
49............................  54..............           4.9      4.6      4.3      4.1      3.9      3.6      3.4      3.2      3.0      2.8      2.6
50............................  55..............           4.8      4.6      4.3      4.1      3.9      3.6      3.4      3.2      3.0      2.8      2.6
 

[[Page 187]]

 
51............................  56..............           4.8      4.6      4.3      4.1      3.8      3.6      3.4      3.2      3.0      2.8      2.6
52............................  57..............           4.8      4.5      4.3      4.1      3.8      3.6      3.4      3.2      3.0      2.8      2.6
53............................  58..............           4.8      4.5      4.3      4.0      3.8      3.6      3.4      3.2      3.0      2.8      2.6
54............................  59..............           4.8      4.5      4.3      4.0      3.8      3.6      3.4      3.2      3.0      2.8      2.6
55............................  60..............           4.7      4.5      4.3      4.0      3.8      3.6      3.4      3.2      3.0      2.8      2.6
 
56............................  61..............           4.7      4.5      4.2      4.0      3.8      3.6      3.3      3.1      2.9      2.8      2.6
57............................  62..............           4.7      4.5      4.2      4.0      3.8      3.5      3.3      3.1      2.9      2.7      2.6
58............................  63..............           4.7      4.4      4.2      4.0      3.7      3.5      3.3      3.1      2.9      2.7      2.5
59............................  64..............           4.6      4.4      4.2      3.9      3.7      3.5      3.3      3.1      2.9      2.7      2.5
--------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Ages
                                                 -------------------------------------------------------------------------------------------------------
             Male                    Female          Male 98       99      100      101      102      103      104      105      106      107      108
                                                 -------------------------------------------------------------------------------------------------------
                                                   Female 103     104      105      106      107      108      109      110      111      112      113
--------------------------------------------------------------------------------------------------------------------------------------------------------
35............................  40..............           2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
36............................  41..............           2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.2      1.0      0.8      0.7
37............................  42..............           2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.1      1.0      0.8      0.7
38............................  43..............           2.5      2.3      2.1      1.9      1.7      1.5      1.3      1.1      1.0      0.8      0.7
39............................  44..............           2.4      2.3      2.1      1.9      1.7      1.5      1.3      1.1      1.0      0.8      0.7
 
40............................  45..............           2.4      2.2      2.1      1.9      1.7      1.5      1.3      1.1      1.0      0.8      0.7
41............................  46..............           2.4      2.2      2.1      1.9      1.7      1.5      1.3      1.1      1.0      0.8      0.7
42............................  47..............           2.4      2.2      2.0      1.9      1.7      1.5      1.3      1.1      1.0      0.8      0.7
43............................  48..............           2.4      2.2      2.0      1.9      1.7      1.5      1.3      1.1      1.0      0.8      0.7
44............................  49..............           2.4      2.2      2.0      1.9      1.7      1.5      1.3      1.1      1.0      0.8      0.7
 
45............................  50..............           2.4      2.2      2.0      1.8      1.7      1.5      1.3      1.1      1.0      0.8      0.7
46............................  51..............           2.4      2.2      2.0      1.8      1.7      1.5      1.3      1.1      1.0      0.8      0.7
47............................  52..............           2.4      2.2      2.0      1.8      1.7      1.5      1.3      1.1      1.0      0.8      0.7
48............................  53..............           2.4      2.2      2.0      1.8      1.7      1.5      1.3      1.1      1.0      0.8      0.7
49............................  54..............           2.4      2.2      2.0      1.8      1.7      1.5      1.3      1.1      1.0      0.8      0.7
 
50............................  55..............           2.4      2.2      2.0      1.8      1.6      1.5      1.3      1.1      1.0      0.8      0.7
51............................  56..............           2.4      2.2      2.0      1.8      1.6      1.5      1.3      1.1      1.0      0.8      0.7
52............................  57..............           2.4      2.2      2.0      1.8      1.6      1.5      1.3      1.1      1.0      0.8      0.7
53............................  58..............           2.4      2.2      2.0      1.8      1.6      1.5      1.3      1.1      1.0      0.8      0.7
54............................  59..............           2.4      2.2      2.0      1.8      1.6      1.5      1.3      1.1      1.0      0.8      0.7
 
55............................  60..............           2.4      2.2      2.0      1.8      1.6      1.4      1.3      1.1      1.0      0.8      0.7
56............................  61..............           2.4      2.2      2.0      1.8      1.6      1.4      1.3      1.1      1.0      0.8      0.7
57............................  62..............           2.4      2.2      2.0      1.8      1.6      1.4      1.3      1.1      0.9      0.8      0.7
58............................  63..............           2.4      2.2      2.0      1.8      1.6      1.4      1.3      1.1      0.9      0.8      0.7
59............................  64..............           2.3      2.2      2.0      1.8      1.6      1.4      1.3      1.1      0.9      0.8      0.7
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 188]]


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Ages
                                                 -------------------------------------------------------------------------------------------------------
             Male                    Female          Male 87       88       89       90       91       92       93       94       95       96       97
                                                 -------------------------------------------------------------------------------------------------------
                                                    Female 92      93       94       95       96       97       98       99      100      101      102
--------------------------------------------------------------------------------------------------------------------------------------------------------
60............................  65..............           4.6      4.4      4.1      3.9      3.7      3.5      3.3      3.1      2.9      2.7      2.5
61............................  66..............           4.6      4.3      4.1      3.9      3.7      3.5      3.3      3.1      2.9      2.7      2.5
62............................  67..............           4.5      4.3      4.1      3.9      3.7      3.5      3.3      3.1      2.9      2.7      2.5
63............................  68..............           4.5      4.3      4.1      3.8      3.6      3.4      3.2      3.0      2.9      2.7      2.5
64............................  69..............           4.5      4.2      4.0      3.8      3.6      3.4      3.2      3.0      2.8      2.7      2.5
 
65............................  70..............           4.4      4.2      4.0      3.8      3.6      3.4      3.2      3.0      2.8      2.6      2.5
66............................  71..............           4.4      4.2      4.0      3.8      3.6      3.4      3.2      3.0      2.8      2.6      2.4
67............................  72..............           4.3      4.1      3.9      3.7      3.5      3.3      3.1      3.0      2.8      2.6      2.4
68............................  73..............           4.3      4.1      3.9      3.7      3.5      3.3      3.1      2.9      2.8      2.6      2.4
69............................  74..............           4.2      4.0      3.8      3.6      3.5      3.3      3.1      2.9      2.7      2.6      2.4
 
70............................  75..............           4.2      4.0      3.8      3.6      3.4      3.2      3.1      2.9      2.7      2.5      2.4
71............................  76..............           4.1      3.9      3.8      3.6      3.4      3.2      3.0      2.9      2.7      2.5      2.3
72............................  77..............           4.1      3.9      3.7      3.5      3.3      3.2      3.0      2.8      2.7      2.5      2.3
73............................  78..............           4.0      3.8      3.7      3.5      3.3      3.1      3.0      2.8      2.6      2.5      2.3
74............................  79..............           3.9      3.8      3.6      3.4      3.3      3.1      2.9      2.8      2.6      2.4      2.3
 
75............................  80..............           3.9      3.7      3.5      3.4      3.2      3.0      2.9      2.7      2.6      2.4      2.2
76............................  81..............           3.8      3.6      3.5      3.3      3.2      3.0      2.8      2.7      2.5      2.4      2.2
77............................  82..............           3.7      3.6      3.4      3.3      3.1      3.0      2.8      2.6      2.5      2.3      2.2
78............................  83..............           3.7      3.5      3.4      3.2      3.1      2.9      2.7      2.6      2.4      2.3      2.1
79............................  84..............           3.6      3.4      3.3      3.1      3.0      2.8      2.7      2.5      2.4      2.2      2.1
 
80............................  85..............           3.5      3.4      3.2      3.1      2.9      2.8      2.6      2.5      2.3      2.2      2.0
81............................  86..............           3.4      3.3      3.1      3.0      2.9      2.7      2.6      2.4      2.3      2.1      2.0
82............................  87..............           3.3      3.2      3.1      2.9      2.8      2.7      2.5      2.4      2.2      2.1      2.0
83............................  88..............           3.2      3.1      3.0      2.9      2.7      2.6      2.5      2.3      2.2      2.0      1.9
84............................  89..............           3.1      3.0      2.9      2.8      2.7      2.5      2.4      2.3      2.1      2.0      1.9
--------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Ages
                                                 -------------------------------------------------------------------------------------------------------
             Male                    Female          Male 98       99      100      101      102      103      104      105      106      107      108
                                                 -------------------------------------------------------------------------------------------------------
                                                   Female 103     104      105      106      107      108      109      110      111      112      113
--------------------------------------------------------------------------------------------------------------------------------------------------------
60............................  65..............           2.3      2.1      2.0      1.8      1.6      1.4      1.3      1.1      0.9      0.8      0.7
61............................  66..............           2.3      2.1      2.0      1.8      1.6      1.4      1.2      1.1      0.9      0.8      0.7
62............................  67..............           2.3      2.1      1.9      1.8      1.6      1.4      1.2      1.1      0.9      0.8      0.7
63............................  68..............           2.3      2.1      1.9      1.7      1.6      1.4      1.2      1.1      0.9      0.8      0.7
64............................  69..............           2.3      2.1      1.9      1.7      1.6      1.4      1.2      1.1      0.9      0.8      0.7
65............................  70..............           2.3      2.1      1.9      1.7      1.6      1.4      1.2      1.1      0.9      0.8      0.7
 
66............................  71..............           2.3      2.1      1.9      1.7      1.5      1.4      1.2      1.1      0.9      0.8      0.7
67............................  72..............           2.2      2.1      1.9      1.7      1.5      1.4      1.2      1.0      0.9      0.7      0.7

[[Page 189]]

 
68............................  73..............           2.2      2.0      1.9      1.7      1.5      1.4      1.2      1.0      0.9      0.7      0.7
69............................  74..............           2.2      2.0      1.8      1.7      1.5      1.3      1.2      1.0      0.9      0.7      0.6
70............................  75..............           2.2      2.0      1.8      1.7      1.5      1.3      1.2      1.0      0.9      0.7      0.6
 
71............................  76..............           2.2      2.0      1.8      1.6      1.5      1.3      1.2      1.0      0.9      0.7      0.6
72............................  77..............           2.1      2.0      1.8      1.6      1.5      1.3      1.1      1.0      0.8      0.7      0.6
73............................  78..............           2.1      1.9      1.8      1.6      1.4      1.3      1.1      1.0      0.8      0.7      0.6
74............................  79..............           2.1      1.9      1.7      1.6      1.4      1.3      1.1      1.0      0.8      0.7      0.6
75............................  80..............           2.1      1.9      1.7      1.6      1.4      1.3      1.1      1.0      0.8      0.7  .......
 
76............................  81..............           2.0      1.9      1.7      1.5      1.4      1.2      1.1      0.9      0.8      0.7  .......
77............................  82..............           2.0      1.8      1.7      1.5      1.4      1.2      1.1      0.9      0.8      0.7  .......
78............................  83..............           2.0      1.8      1.6      1.5      1.3      1.2      1.0      0.9      0.8      0.7  .......
79............................  84..............           1.9      1.8      1.6      1.5      1.3      1.2      1.0      0.9      0.8      0.7  .......
80............................  85..............           1.9      1.7      1.6      1.4      1.3      1.1      1.0      0.9      0.7      0.7  .......
 
81............................  86..............           1.8      1.7      1.5      1.4      1.3      1.1      1.0      0.8      0.7      0.6  .......
82............................  87..............           1.8      1.7      1.5      1.4      1.2      1.1      1.0      0.8      0.7      0.6  .......
83............................  88..............           1.8      1.6      1.5      1.3      1.2      1.1      0.9      0.8      0.7      0.6  .......
84............................  89..............           1.7      1.6      1.4      1.3      1.2      1.0      0.9      0.8      0.7  .......  .......
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 190]]


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Ages
                                                          ----------------------------------------------------------------------------------------------
               Male                         Female            Male 87       88       89       90       91       92       93       94       95       96
                                                          ----------------------------------------------------------------------------------------------
                                                             Female 92      93       94       95       96       97       98       99      100      101
--------------------------------------------------------------------------------------------------------------------------------------------------------
85................................  90...................           3.1      2.9      2.8      2.7      2.6      2.5      2.3      2.2      2.1      1.9
86................................  91...................           3.0      2.8      2.7      2.6      2.5      2.4      2.3      2.1      2.0      1.9
87................................  92...................           2.9      2.8      2.6      2.5      2.4      2.3      2.2      2.1      1.9      1.8
88................................  93...................           2.8      2.7      2.6      2.4      2.3      2.2      2.1      2.0      1.9      1.7
89................................  94...................           2.6      2.6      2.5      2.4      2.2      2.1      2.0      1.9      1.8      1.7
90................................  95...................           2.5      2.4      2.4      2.3      2.2      2.0      1.9      1.8      1.7      1.6
 
91................................  96...................           2.4      2.3      2.2      2.2      2.1      2.0      1.9      1.7      1.6      1.5
92................................  97...................           2.3      2.2      2.1      2.0      2.0      1.9      1.8      1.7      1.6      1.5
93................................  98...................           2.2      2.1      2.0      1.9      1.9      1.8      1.7      1.6      1.5      1.4
94................................  99...................           2.1      2.0      1.9      1.8      1.7      1.7      1.6      1.5      1.4      1.3
95................................  100..................           1.9      1.9      1.8      1.7      1.6      1.6      1.5      1.4      1.3      1.2
 
96................................  101..................           1.8      1.7      1.7      1.6      1.5      1.5      1.4      1.3      1.2      1.1
97................................  102..................           1.7      1.6      1.6      1.5      1.4      1.4      1.3      1.2      1.1      1.1
98................................  103..................           1.6      1.5      1.4      1.4      1.3      1.3      1.2      1.1      1.0      1.0
99................................  104..................           1.4      1.4      1.3      1.3      1.2      1.1      1.1      1.0      1.0      0.9
--------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Ages
                                                          ----------------------------------------------------------------------------------------------
               Male                         Female            Male 97       98       99      100      101      102      103      104      105      106
                                                          ----------------------------------------------------------------------------------------------
                                                            Female 102     103      104      105      106      107      108      109      110      111
--------------------------------------------------------------------------------------------------------------------------------------------------------
85................................  90...................           1.8      1.7      1.5      1.4      1.3      1.1      1.0      0.9      0.8      0.7
86................................  91...................           1.7      1.6      1.5      1.3      1.2      1.1      1.0      0.8      0.7      0.7
87................................  92...................           1.7      1.6      1.4      1.3      1.2      1.1      0.9      0.8      0.7      0.6
88................................  93...................           1.6      1.5      1.4      1.3      1.1      1.0      0.9      0.8      0.7      0.6
89................................  94...................           1.6      1.4      1.3      1.2      1.1      1.0      0.9      0.7      0.7  .......
90................................  95...................           1.5      1.4      1.3      1.2      1.0      0.9      0.8      0.7      0.6  .......
 
91................................  96...................           1.4      1.3      1.2      1.1      1.0      0.9      0.8      0.7      0.6  .......
92................................  97...................           1.4      1.3      1.1      1.0      0.9      0.8      0.7      0.7  .......  .......
93................................  98...................           1.3      1.2      1.1      1.0      0.9      0.8      0.7      0.6  .......  .......
94................................  99...................           1.2      1.1      1.0      0.9      0.8      0.7      0.7  .......  .......  .......
95................................  100..................           1.1      1.0      1.0      0.9      0.8      0.7      0.6  .......  .......  .......
 
96................................  101..................           1.1      1.0      0.9      0.8      0.7      0.7  .......  .......  .......  .......
97................................  102..................           1.0      0.9      0.8      0.7      0.7      0.6  .......  .......  .......  .......
98................................  103..................           0.9      0.8      0.7      0.7      0.6  .......  .......  .......  .......  .......
99................................  104..................           0.8      0.7      0.7      0.6  .......  .......  .......  .......  .......  .......
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 191]]


                                                                           Table III--Percent Value of Refund Feature
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Ages                                                                            Duration of guaranteed amount--[Years]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                    Male                                 Female                 1        2        3        4        5        6        7        8        9        10       11       12       13
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6..........................................  11............................  .......  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1
7..........................................  12............................  .......  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1
8..........................................  13............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
9..........................................  14............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
10.........................................  15............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
 
11.........................................  16............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
12.........................................  17............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
13.........................................  18............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
14.........................................  19............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
15.........................................  20............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
 
16.........................................  21............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
17.........................................  22............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
18.........................................  23............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
19.........................................  24............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
20.........................................  25............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
 
21.........................................  26............................  .......  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1
22.........................................  27............................  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1        1
23.........................................  28............................  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1        1
24.........................................  29............................  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1        1
25.........................................  30............................  .......  .......  .......  .......  .......  .......        1        1        1        1        1        1        1
 
26.........................................  31............................  .......  .......  .......  .......  .......        1        1        1        1        1        1        1        1
27.........................................  32............................  .......  .......  .......  .......  .......        1        1        1        1        1        1        1        1
28.........................................  33............................  .......  .......  .......  .......  .......        1        1        1        1        1        1        1        1
29.........................................  34............................  .......  .......  .......  .......  .......        1        1        1        1        1        1        1        2
30.........................................  35............................  .......  .......  .......  .......        1        1        1        1        1        1        1        2        2
 
31.........................................  36............................  .......  .......  .......  .......        1        1        1        1        1        1        1        2        2
32.........................................  37............................  .......  .......  .......  .......        1        1        1        1        1        1        2        2        2
33.........................................  38............................  .......  .......  .......        1        1        1        1        1        1        1        2        2        2
34.........................................  39............................  .......  .......  .......        1        1        1        1        1        1        2        2        2        2
35.........................................  40............................  .......  .......  .......        1        1        1        1        1        2        2        2        2        2
 
36.........................................  41............................  .......  .......  .......        1        1        1        1        1        2        2        2        2        3
37.........................................  42............................  .......  .......        1        1        1        1        1        2        2        2        2        3        3
38.........................................  43............................  .......  .......        1        1        1        1        1        2        2        2        2        3        3
39.........................................  44............................  .......  .......        1        1        1        1        2        2        2        2        3        3        3
40.........................................  45............................  .......  .......        1        1        1        1        2        2        2        3        3        3        4
 
41.........................................  46............................  .......  .......        1        1        1        1        2        2        2        3        3        3        4
42.........................................  47............................  .......  .......        1        1        1        2        2        2        3        3        3        4        4

[[Page 192]]

 
43.........................................  48............................  .......        1        1        1        1        2        2        2        3        3        4        4        4
44.........................................  49............................  .......        1        1        1        1        2        2        3        3        3        4        4        5
45.........................................  50............................  .......        1        1        1        2        2        2        3        3        4        4        5        5
 
46.........................................  51............................  .......        1        1        1        2        2        3        3        3        4        4        5        5
47.........................................  52............................  .......        1        1        1        2        2        3        3        4        4        5        5        6
48.........................................  53............................  .......        1        1        2        2        2        3        3        4        5        5        6        6
49.........................................  54............................  .......        1        1        2        2        3        3        4        4        5        5        6        7
50.........................................  55............................  .......        1        1        2        2        3        3        4        5        5        6        7        7
 
51.........................................  56............................  .......        1        1        2        3        3        4        4        5        6        6        7        8
52.........................................  57............................        1        1        2        2        3        3        4        5        5        6        7        8        8
53.........................................  58............................        1        1        2        2        3        4        4        5        6        7        7        8        9
54.........................................  59............................        1        1        2        2        3        4        5        5        6        7        8        9       10
55.........................................  60............................        1        1        2        3        3        4        5        6        7        8        8        9       10
 
56.........................................  61............................        1        1        2        3        4        4        5        6        7        8        9       10       11
57.........................................  62............................        1        1        2        3        4        5        6        7        8        9       10       11       12
58.........................................  63............................        1        2        2        3        4        5        6        7        8        9       10       12       13
59.........................................  64............................        1        2        3        4        5        6        7        8        9       10       11       12       14
60.........................................  65............................        1        2        3        4        5        6        7        8       10       11       12       13       15
 
61.........................................  66............................        1        2        3        4        5        6        8        9       10       12       13       14       16
62.........................................  67............................        1        2        3        4        6        7        8       10       11       12       14       15       17
63.........................................  68............................        1        2        4        5        6        7        9       10       12       13       15       16       18
64.........................................  69............................        1        3        4        5        7        8        9       11       13       14       16       17       19
65.........................................  70............................        1        3        4        6        7        9       10       12       13       15       17       19       20
 
66.........................................  71............................        1        3        4        6        8        9       11       13       14       16       18       20       22
67.........................................  72............................        2        3        5        6        8       10       12       14       15       17       19       21       23
68.........................................  73............................        2        3        5        7        9       11       13       14       16       18       21       23       25
69.........................................  74............................        2        4        6        7        9       11       13       16       18       20       22       24       26
70.........................................  75............................        2        4        6        8       10       12       14       17       19       21       23       26       28
 
71.........................................  76............................        2        4        6        9       11       13       15       18       20       22       25       27       29
72.........................................  77............................        2        5        7        9       12       14       16       19       21       24       26       29       31
73.........................................  78............................        2        5        7       10       12       15       18       20       23       25       28       30       33
74.........................................  79............................        3        5        8       11       13       16       19       22       24       27       30       32       35
75.........................................  80............................        3        6        8       11       14       17       20       23       26       29       31       34       37
 
76.........................................  81............................        3        6        9       12       15       18       21       24       27       30       33       36       39
77.........................................  82............................        3        7       10       13       16       20       23       26       29       32       35       38       41
78.........................................  83............................        4        7       11       14       17       21       24       28       31       34       37       40       43
79.........................................  84............................        4        8       11       15       19       22       26       29       33       36       39       42       45

[[Page 193]]

 
80.........................................  85............................        4        8       12       16       20       24       27       31       34       38       41       44       47
 
81.........................................  86............................        4        9       13       17       21       25       29       33       36       40       43       46       49
82.........................................  87............................        5        9       14       18       23       27       31       35       38       42       45       48       51
83.........................................  88............................        5       10       15       19       24       28       33       37       40       44       47       50       53
84.........................................  89............................        5       11       16       21       26       30       34       38       42       46       49       52       55
85.........................................  90............................        6       11       17       22       27       32       36       41       44       48       51       55       57
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Ages                                                                            Duration of guaranteed amount--[Years]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                    Male                                 Female                 14       15       16       17       18       19       20       21       22       23       24       25       26
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6..........................................  11............................        1        1        1        1        1        1        1        1        1        1        2        2        2
7..........................................  12............................        1        1        1        1        1        1        1        1        1        1        2        2        2
8..........................................  13............................        1        1        1        1        1        1        1        1        1        1        2        2        2
9..........................................  14............................        1        1        1        1        1        1        1        1        1        1        2        2        2
10.........................................  15............................        1        1        1        1        1        1        1        1        1        2        2        2        2
 
11.........................................  16............................        1        1        1        1        1        1        1        1        1        2        2        2        2
12.........................................  17............................        1        1        1        1        1        1        1        1        1        2        2        2        2
13.........................................  18............................        1        1        1        1        1        1        1        1        2        2        2        2        2
14.........................................  19............................        1        1        1        1        1        1        1        1        2        2        2        2        2
15.........................................  20............................        1        1        1        1        1        1        1        1        2        2        2        2        2
 
16.........................................  21............................        1        1        1        1        1        1        1        2        2        2        2        2        2
17.........................................  22............................        1        1        1        1        1        1        1        2        2        2        2        2        2
18.........................................  23............................        1        1        1        1        1        1        2        2        2        2        2        2        2
19.........................................  24............................        1        1        1        1        1        2        2        2        2        2        2        2        2
20.........................................  25............................        1        1        1        1        1        2        2        2        2        2        2        2        3
 
21.........................................  26............................        1        1        1        1        2        2        2        2        2        2        2        3        3
22.........................................  27............................        1        1        1        1        2        2        2        2        2        2        3        3        3
23.........................................  28............................        1        1        1        2        2        2        2        2        2        2        3        3        3
24.........................................  29............................        1        1        2        2        2        2        2        2        2        3        3        3        3
25.........................................  30............................        1        1        2        2        2        2        2        2        3        3        3        3        3
 
26.........................................  31............................        1        2        2        2        2        2        2        3        3        3        3        3        4
27.........................................  32............................        2        2        2        2        2        2        3        3        3        3        3        4        4
28.........................................  33............................        2        2        2        2        2        3        3        3        3        3        4        4        4
29.........................................  34............................        2        2        2        2        2        3        3        3        3        4        4        4        5
30.........................................  35............................        2        2        2        2        3        3        3        3        4        4        4        5        5
 
31.........................................  36............................        2        2        2        3        3        3        3        4        4        4        5        5        5
32.........................................  37............................        2        2        3        3        3        3        4        4        4        5        5        5        6
33.........................................  38............................        2        3        3        3        3        4        4        4        5        5        5        6        6
34.........................................  39............................        3        3        3        3        4        4        4        5        5        5        6        6        7
35.........................................  40............................        3        3        3        4        4        4        5        5        5        6        6        7        7
 
36.........................................  41............................        3        3        4        4        4        5        5        5        6        6        7        7        8
37.........................................  42............................        3        3        4        4        4        5        5        6        6        7        7        8        8

[[Page 194]]

 
38.........................................  43............................        3        4        4        4        5        5        6        6        7        7        8        8        9
39.........................................  44............................        4        4        4        5        5        6        6        7        7        8        8        9        9
40.........................................  45............................        4        4        5        5        6        6        7        7        8        8        9        9       10
 
41.........................................  46............................        4        5        5        6        6        7        7        8        8        9        9       10       11
42.........................................  47............................        5        5        5        6        6        7        8        8        9        9       10       11       12
43.........................................  48............................                 5        6        6        7        8        8        9        9       10       11       12       12
44.........................................  49............................        5        6        6        7        7        8        9        9       10       11       12       12       13
45.........................................  50............................        6        6        7        7        8        9        9       10       11       12       12       13       14
46.........................................  51............................        6        7        7        8        9        9       10       11       12       12       13       14       15
47.........................................  52............................        7        7        8        9        9       10       11       12       12       13       14       15       16
48.........................................  53............................        7        8        8        9       10       11       12       12       13       14       15       16       17
49.........................................  54............................        8        8        9       10       11       11       12       13       14       15       16       17       18
50.........................................  55............................        8        9       10       11       11       12       13       14       15       16       17       18       20
 
51.........................................  56............................        9       10       10       11       12       13       14       15       16       17       18       20       21
52.........................................  57............................        9       10       11       12       13       14       15       16       17       18       20       21       22
53.........................................  58............................       10       11       12       13       14       15       16       17       19       20       21       22       24
54.........................................  59............................       11       12       13       14       15       16       17       18       20       21       22       24       25
55.........................................  60............................       11       13       14       15       16       17       18       20       21       22       24       25       26
 
56.........................................  61............................       12       13       15       16       17       18       20       21       22       24       25       27       28
57.........................................  62............................       13       14       16       17       18       20       21       22       24       25       27       28       30
58.........................................  63............................       14       15       17       18       19       21       22       24       25       27       28       30       31
59.........................................  64............................       15       16       18       19       21       22       24       25       27       28       30       31       33
60.........................................  65............................       16       18       19       20       22       24       25       27       28       30       32       33       35
 
61.........................................  66............................       17       19       20       22       23       25       27       28       30       32       33       35       37
62.........................................  67............................       18       20       22       23       25       27       28       30       32       33       35       37       38
63.........................................  68............................       20       21       23       25       26       28       30       32       33       35       37       39       40
64.........................................  69............................       21       23       24       26       28       30       32       33       35       37       39       41       42
65.........................................  70............................       22       24       26       28       30       32       33       35       37       39       41       42       44
 
66.........................................  71............................       24       26       28       29       31       33       35       37       39       41       43       44       46
67.........................................  72............................       25       27       29       31       33       35       37       39       41       43       45       46       48
68.........................................  73............................       27       29       31       33       35       37       39       41       43       45       47       48       50
69.........................................  74............................       28       30       33       35       37       39       41       43       45       47       48       50       52
70.........................................  75............................       30       32       34       37       39       41       43       45       47       49       50       52       54
 
71.........................................  76............................       32       34       36       39       41       43       45       47       49       51       52       54       56
72.........................................  77............................       34       36       38       41       43       45       47       49       51       53       54       56       58
73.........................................  78............................       35       38       40       43       45       47       49       51       53       55       56       58       59
74.........................................  79............................       37       40       42       45       47       49       51       53       55       57       58       60       61
75.........................................  80............................       39       42       44       47       49       51       53       55       57       58       60       62       63
 
76.........................................  81............................       41       44       46       49       51       53       55       57       59       60       62       63       65

[[Page 195]]

 
77.........................................  82............................       43       46       48       51       53       55       57       59       61       62       64       65       66
78.........................................  83............................       45       48       50       53       55       57       59       61       62       64       65       67       68
79.........................................  84............................       48       50       53       55       57       59       61       63       64       66       67       68       70
80.........................................  85............................       50       52       55       57       59       61       63       64       66       67       69       70       71
 
81.........................................  86............................       52       54       57       59       61       63       65       66       68       69       70       72       73
82.........................................  87............................       54       56       59       61       63       65       66       68       69       71       72       73       74
83.........................................  88............................       56       58       61       63       65       66       68       70       71       72       73       74       75
84.........................................  89............................       58       60       63       65       67       68       70       71       73       74       75       76       77
85.........................................  90............................       60       62       65       67       68       70       71       73       74       75       76       77  .......
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                         Ages                                                        Duration of guaranteed amount--[Years]
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Male                       Female            27         28         29         30         31         32         33         34         35
--------------------------------------------------------------------------------------------------------------------------------------------------------
6...............................  11.................          2          2          2          2          2          2          2          2          2
7...............................  12.................          2          2          2          2          2          2          2          2          3
8...............................  13.................          2          2          2          2          2          2          2          2          3
9...............................  14.................          2          2          2          2          2          2          2          3          3
10..............................  15.................          2          2          2          2          2          2          3          3          3
 
11..............................  16.................          2          2          2          2          2          2          3          3          3
12..............................  17.................          2          2          2          2          2          3          3          3          3
13..............................  18.................          2          2          2          2          2          3          3          3          3
14..............................  19.................          2          2          2          2          3          3          3          3          3
15..............................  20.................          2          2          2          3          3          3          3          3          3
 
16..............................  21.................          2          2          3          3          3          3          3          3          4
17..............................  22.................          2          2          3          3          3          3          3          4          4
18..............................  23.................          2          3          3          3          3          3          4          4          4
19..............................  24.................          3          3          3          3          3          4          4          4          4
20..............................  25.................          3          3          3          3          4          4          4          4          5
 
21..............................  26.................          3          3          3          4          4          4          4          5          5
22..............................  27.................          3          3          4          4          4          4          5          5          5
23..............................  28.................          3          3          4          4          4          5          5          5          5
24..............................  29.................          3          4          4          4          5          5          5          5          6
25..............................  30.................          4          4          4          5          5          5          6          6          6
 
26..............................  31.................          4          4          5          5          5          6          6          6          7
27..............................  32.................          4          5          5          5          6          6          6          7          7
28..............................  33.................          5          5          5          6          6          6          7          7          8
29..............................  34.................          5          5          6          6          6          7          7          8          8
30..............................  35.................          5          6          6          6          7          7          8          8          9
 
31..............................  36.................          6          6          6          7          7          8          8          9          9
32..............................  37.................          6          7          7          7          8          8          9         10         10
33..............................  38.................          7          7          7          8          8          9         10         10         11
34..............................  39.................          7          8          8          9          9         10         10         11         12
35..............................  40.................          8          8          9          9         10         10         11         12         12

[[Page 196]]

 
 
36..............................  41.................          8          9          9         10         10         11         12         13         13
37..............................  42.................          9          9         10         11         11         12         13         13         14
38..............................  43.................          9         10         11         11         12         13         13         14         15
39..............................  44.................         10         11         11         12         13         14         14         15         16
40..............................  45.................         11         11         12         13         14         15         15         16         17
 
41..............................  46.................         11         12         13         14         15         16         16         17         18
42..............................  47.................         12         13         14         15         16         17         18         18         19
43..............................  48.................         13         14         15         16         17         18         19         20         21
44..............................  49.................         14         15         16         17         18         19         20         21         22
45..............................  50.................         15         16         17         18         19         20         21         22         23
 
46..............................  51.................         16         17         18         19         20         21         22         24         25
47..............................  52.................         17         18         19         20         21         23         24         25         26
48..............................  53.................         18         19         20         22         23         24         25         26         28
49..............................  54.................         19         21         22         23         24         25         27         28         29
50..............................  55.................         21         22         23         24         26         27         28         29         31
 
51..............................  56.................         22         23         25         26         27         28         30         31         32
52..............................  57.................         23         25         26         27         29         30         31         33         34
53..............................  58.................         25         26         28         29         30         32         33         34         36
54..............................  59.................         26         28         29         31         32         33         35         36         38
55..............................  60.................         28         29         31         32         34         35         36         38         39
 
56..............................  61.................         29         31         32         34         35         37         38         40         41
57..............................  62.................         31         33         34         36         37         39         40         41         43
58..............................  63.................         33         34         36         37         39         40         42         43         45
59..............................  64.................         35         36         38         39         41         42         44         45         47
60..............................  65.................         36         38         40         41         43         44         46         47         48
 
61..............................  66.................         38         40         41         43         44         46         47         49         50
62..............................  67.................         40         42         43         45         46         48         49         51         52
63..............................  68.................         42         44         45         47         48         50         51         52         54
64..............................  69.................         44         46         47         49         50         52         53         54         55
65..............................  70.................         46         47         49         50         52         53         55         56         57
 
66..............................  71.................         48         49         51         52         54         55         56         58         59
67..............................  72.................         50         51         53         54         56         57         58         59         61
68..............................  73.................         52         53         55         56         57         59         60         61         62
69..............................  74.................         53         55         56         58         59         60         62         63         64
70..............................  75.................         55         57         58         60         61         62         62         64         65
 
71..............................  76.................         57         59         60         61         63         64         65         66         67
72..............................  77.................         59         60         62         63         64         65         66         67         68
73..............................  78.................         61         62         64         65         66         67         68         69         70

[[Page 197]]

 
74..............................  79.................         63         64         65         66         67         68         69         70         71
75..............................  80.................         64         66         67         68         69         70         71         72         72
 
76..............................  81.................         66         67         68         69         70         71         72         73  .........
77..............................  82.................         68         69         70         71         72         73         74  .........  .........
78..............................  83.................         69         70         71         72         73         74  .........  .........  .........
79..............................  84.................         71         72         73         74         75  .........  .........  .........  .........
80..............................  85.................         72         73         74         75  .........  .........  .........  .........  .........
 
81..............................  86.................         74         75         75  .........  .........  .........  .........  .........  .........
82..............................  87.................         75         76  .........  .........  .........  .........  .........  .........  .........
83..............................  88.................         76  .........  .........  .........  .........  .........  .........  .........  .........
84..............................  89.................  .........  .........  .........  .........  .........  .........  .........  .........  .........
85..............................  90.................  .........  .........  .........  .........  .........  .........  .........  .........  .........
--------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                               Ages                                                                            Duration of guaranteed amount--[Years]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                  Male                             Female              1        2        3        4        5        6        7        8        9        10       11       12       13       14
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
86.....................................  91.......................        6       12       18       24       29       34       38       43       47       50       54       57       59       62
87.....................................  92.......................        7       13       19       25       31       36       40       45       49       52       56       59       61       64
88.....................................  93.......................        7       14       21       27       32       38       42       47       51       55       58       61       63       66
89.....................................  94.......................        8       15       22       28       34       40       45       49       53       57       60       63       65       68
90.....................................  95.......................        8       16       23       30       36       42       47       51       55       59       62       65       67       70
 
91.....................................  96.......................        9       17       25       32       38       44       49       53       57       61       64       67       69       71
92.....................................  97.......................        9       18       26       34       40       46       51       55       59       63       66       69       71       73
93.....................................  98.......................       10       20       28       36       42       48       53       58       62       65       68       70       73       75
94.....................................  99.......................       11       21       30       37       44       50       55       60       64       67       70       72       74       76
95.....................................  100......................       12       22       31       39       46       52       58       62       66       69       72       74       76       78
 
96.....................................  101......................       12       24       33       42       49       55       60       64       68       71       73       76       78       79
97.....................................  102......................       13       25       35       44       51       57       62       66       70       73       75       77       79  .......
98.....................................  103......................       14       27       37       46       54       60       65       69       72       75       77       79  .......  .......
99.....................................  104......................       15       29       40       49       56       62       67       71       74       77       79  .......  .......  .......
100....................................  105......................       17       31       43       52       59       65       70       74       76       79  .......  .......  .......  .......
 
101....................................  106......................       18       33       46       55       63       68       73       76       79  .......  .......  .......  .......  .......
102....................................  107......................       20       36       49       59       66       71       75       78  .......  .......  .......  .......  .......  .......
103....................................  108......................       22       40       53       62       69       74       78  .......  .......  .......  .......  .......  .......  .......
104....................................  109......................       24       43       57       66       73       77  .......  .......  .......  .......  .......  .......  .......  .......
105....................................  110......................       27       48       61       70       76  .......  .......  .......  .......  .......  .......  .......  .......  .......
 
106....................................  111......................                53       66       74  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
107....................................  112......................       35       53       71  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
108....................................  113......................       40       64  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 198]]


--------------------------------------------------------------------------------------------------------------------------------------------------------
                         Ages                                                        Duration of guaranteed amount--[Years]
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Male                       Female           15       16       17       18       19       20       21       22       23       24       25
--------------------------------------------------------------------------------------------------------------------------------------------------------
86..............................  91.................       64       66       68       70       72       73       74       75       76       77  .......
87..............................  92.................       66       68       70       72       73       74       76       77       78  .......  .......
88..............................  93.................       68       70       72       73       75       76       77       78  .......  .......  .......
89..............................  94.................       70       72       73       75       76       77       78  .......  .......  .......  .......
90..............................  95.................       72       73       75       76       77       79  .......  .......  .......  .......  .......
 
91..............................  96.................       73       75       76       78       79  .......  .......  .......  .......  .......  .......
92..............................  97.................       75       76       78       79  .......  .......  .......  .......  .......  .......  .......
93..............................  98.................       76       78       79  .......  .......  .......  .......  .......  .......  .......  .......
94..............................  99.................       78       79  .......  .......  .......  .......  .......  .......  .......  .......  .......
95..............................  100................       79  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                           Table IV--Temporary Life Annuities \1\--One Life--Expected Return Multiples
                                                                                 [See footnote at end of table]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Ages                                                                    Temporary period--maximum duration of annuity--[Years]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                      Male                                     Female                   1          2          3          4          5          6          7          8          9          10
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0 to 8.........................................  0 to 13..........................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
9..............................................  14...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
10.............................................  15...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
 
11.............................................  16...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
12.............................................  17...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
13.............................................  18...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
14.............................................  19...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
15.............................................  20...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
 
16.............................................  21...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
17.............................................  22...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
18.............................................  23...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
19.............................................  24...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
20.............................................  25...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
 
21.............................................  26...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
22.............................................  27...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
23.............................................  28...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        8.0        8.9        9.9
24.............................................  29...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        7.9        8.9        9.9
25.............................................  30...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        7.9        8.9        9.9
 
26.............................................  31...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        7.9        8.9        9.9
27.............................................  32...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        7.9        8.9        9.9
28.............................................  33...............................        1.0        2.0        3.0        4.0        5.0        6.0        7.0        7.9        8.9        9.9
29.............................................  34...............................        1.0        2.0        3.0        4.0        5.0        6.0        6.9        7.9        8.9        9.9
30.............................................  35...............................        1.0        2.0        3.0        4.0        5.0        6.0        6.9        7.9        8.9        9.9

[[Page 199]]

 
 
31.............................................  36...............................        1.0        2.0        3.0        4.0        5.0        6.0        6.9        7.9        8.9        9.9
32.............................................  37...............................        1.0        2.0        3.0        4.0        5.0        6.0        6.9        7.9        8.9        9.9
33.............................................  38...............................        1.0        2.0        3.0        4.0        5.0        6.0        6.9        7.9        8.9        9.9
34.............................................  39...............................        1.0        2.0        3.0        4.0        5.0        5.9        6.9        7.9        8.9        9.8
35.............................................  40...............................        1.0        2.0        3.0        4.0        5.0        5.9        6.9        7.9        8.9        9.8
 
36.............................................  41...............................        1.0        2.0        3.0        4.0        5.0        5.9        6.9        7.9        8.9        9.8
37.............................................  42...............................        1.0        2.0        3.0        4.0        5.0        5.9        6.9        7.9        8.8        9.8
38.............................................  43...............................        1.0        2.0        3.0        4.0        5.0        5.9        6.9        7.9        8.8        9.8
39.............................................  44...............................        1.0        2.0        3.0        4.0        4.9        5.9        6.9        7.9        8.8        9.8
40.............................................  45...............................        1.0        2.0        3.0        4.0        4.9        5.9        6.9        7.8        8.8        9.7
 
41.............................................  46...............................        1.0        2.0        3.0        4.0        4.9        5.9        6.9        7.8        8.8        9.7
42.............................................  47...............................        1.0        2.0        3.0        4.0        4.9        5.9        6.9        7.8        8.8        9.7
43.............................................  48...............................        1.0        2.0        3.0        4.0        4.9        5.9        6.9        7.8        8.8        9.7
44.............................................  49...............................        1.0        2.0        3.0        4.0        4.9        5.9        6.8        7.8        8.7        9.7
45.............................................  50...............................        1.0        2.0        3.0        3.9        4.9        5.9        6.8        7.8        8.7        9.6
 
46.............................................  51...............................        1.0        2.0        3.0        3.9        4.9        5.9        6.8        7.8        8.7        9.6
47.............................................  52...............................        1.0        2.0        3.0        3.9        4.9        5.9        6.8        7.7        8.7        9.6
48.............................................  53...............................        1.0        2.0        3.0        3.9        4.9        5.9        6.8        7.7        8.6        9.5
49.............................................  54...............................        1.0        2.0        3.0        3.9        4.9        5.8        6.8        7.7        8.6        9.5
50.............................................  55...............................        1.0        2.0        3.0        3.9        4.9        5.8        6.8        7.7        8.6        9.5
 
51.............................................  56...............................        1.0        2.0        3.0        3.9        4.9        5.8        6.7        7.7        8.6        9.4
52.............................................  57...............................        1.0        2.0        3.0        3.9        4.9        5.8        6.7        7.6        8.5        9.4
53.............................................  58...............................        1.0        2.0        2.9        3.9        4.9        5.8        6.7        7.6        8.5        9.3
54.............................................  59...............................        1.0        2.0        2.9        3.9        4.8        5.8        6.7        7.6        8.4        9.3
55.............................................  60...............................        1.0        2.0        2.9        3.9        4.8        5.8        6.7        7.5        8.4        9.2
 
56.............................................  61...............................        1.0        2.0        2.9        3.9        4.8        5.7        6.6        7.5        8.4        9.2
57.............................................  62...............................        1.0        2.0        2.9        3.9        4.8        5.7        6.6        7.5        8.3        9.1
58.............................................  63...............................        1.0        2.0        2.9        3.9        4.8        5.7        6.6        7.4        8.3        9.1
59.............................................  64...............................        1.0        2.0        2.9        3.9        4.8        5.7        6.5        7.4        8.2        9.0
60.............................................  65...............................        1.0        2.0        2.9        3.8        4.8        5.6        6.5        7.3        8.1        8.9
 
61.............................................  66...............................        1.0        2.0        2.9        3.8        4.7        5.6        6.5        7.3        8.1        8.8
62.............................................  67...............................        1.0        2.0        2.9        3.8        4.7        5.6        6.4        7.2        8.0        8.8
63.............................................  68...............................        1.0        2.0        2.9        3.8        4.7        5.6        6.4        7.2        7.9        8.7
64.............................................  69...............................        1.0        1.9        2.9        3.8        4.7        5.5        6.3        7.1        7.9        8.6
65.............................................  70...............................        1.0        1.9        2.9        3.8        4.6        5.5        6.3        7.1        7.8        8.5
 
66.............................................  71...............................        1.0        1.9        2.9        3.8        4.6        5.4        6.2        7.0        7.7        8.4
67.............................................  72...............................        1.0        1.9        2.9        3.7        4.6        5.4        6.2        6.9        7.6        8.3
68.............................................  73...............................        1.0        1.9        2.8        3.7        4.6        5.4        6.1        6.8        7.5        8.2
69.............................................  74...............................        1.0        1.9        2.8        3.7        4.5        5.3        6.1        6.8        7.4        8.0
70.............................................  75...............................        1.0        1.9        2.8        3.7        4.5        5.3        6.0        6.7        7.3        7.9
 
71.............................................  76...............................        1.0        1.9        2.8        3.7        4.5        5.2        5.9        6.6        7.2        7.8

[[Page 200]]

 
72.............................................  77...............................        1.0        1.9        2.8        3.6        4.4        5.2        5.8        6.5        7.1        7.6
73.............................................  78...............................        1.0        1.9        2.8        3.6        4.4        5.1        5.8        6.4        7.0        7.5
74.............................................  79...............................        1.0        1.9        2.8        3.6        4.3        5.0        5.7        6.3        6.8        7.3
75.............................................  80...............................        1.0        1.9        2.7        3.5        4.3        5.0        5.6        6.2        6.7        7.1
 
76.............................................  81...............................        1.0        1.9        2.7        3.5        4.2        4.9        5.5        6.1        6.5        7.0
77.............................................  82...............................        1.0        1.9        2.7        3.5        4.2        4.8        5.4        5.9        6.4        6.8
78.............................................  83...............................        1.0        1.9        2.7        3.4        4.1        4.7        5.3        5.8        6.2        6.6
79.............................................  84...............................        1.0        1.8        2.7        3.4        4.1        4.7        5.2        5.7        6.1        6.4
80.............................................  85...............................        1.0        1.8        2.6        3.4        4.0        4.6        5.1        5.5        5.9        6.2
 
81.............................................  86...............................        1.0        1.8        2.6        3.3        3.9        4.5        5.0        5.4        5.7        6.0
82.............................................  87...............................        1.0        1.8        2.6        3.3        3.9        4.4        4.8        5.2        5.6        5.8
83.............................................  88...............................         .9        1.8        2.6        3.2        3.8        4.3        4.7        5.1        5.4        5.6
84.............................................  89...............................         .9        1.8        2.5        3.2        3.7        4.2        4.6        4.9        5.2        5.4
85.............................................  90...............................         .9        1.8        2.5        3.1        3.6        4.1        4.5        4.8        5.0        5.2
86.............................................  91...............................         .9        1.8        2.5        3.1        3.6        4.0        4.3        4.6        4.8        5.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Ages                                                                    Temporary period--maximum duration of annuity--[Years]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                      Male                                     Female                   11         12         13         14         15         16         17         18         19         20
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0 to 8.........................................  0 to 13..........................       10.9       11.9       12.9       13.9       14.9       15.8       16.8       17.8       18.8       19.7
9..............................................  14...............................       10.9       11.9       12.9       13.9       14.9       15.8       16.8       17.8       18.8       19.7
10.............................................  15...............................       10.9       11.9       12.9       13.9       14.9       15.8       16.8       17.8       18.8       19.7
 
11.............................................  16...............................       10.9       11.9       12.9       13.9       14.9       15.8       16.8       17.8       18.8       19.7
12.............................................  17...............................       10.9       11.9       12.9       13.9       14.9       15.8       16.8       17.8       18.8       19.7
13.............................................  18...............................       10.9       11.9       12.9       13.9       14.9       15.8       16.8       17.8       18.8       19.7
14.............................................  19...............................       10.9       11.9       12.9       13.9       14.9       15.8       16.8       17.8       18.8       19.7
15.............................................  20...............................       10.9       11.9       12.9       13.9       14.9       15.8       16.8       17.8       18.7       19.7
 
16.............................................  21...............................       10.9       11.9       12.9       13.9       14.8       15.8       16.8       17.8       18.7       19.7
17.............................................  22...............................       10.9       11.9       12.9       13.9       14.8       15.8       16.8       17.8       18.7       19.7
18.............................................  23...............................       10.9       11.9       12.9       13.9       14.8       15.8       16.8       17.8       18.7       19.7
19.............................................  24...............................       10.9       11.9       12.9       13.9       14.8       15.8       16.8       17.7       18.7       19.7
20.............................................  25...............................       10.9       11.9       12.9       13.9       14.8       15.8       16.8       17.7       18.7       19.7
 
21.............................................  26...............................       10.9       11.9       12.9       13.8       14.8       15.8       16.8       17.7       18.7       19.6
22.............................................  27...............................       10.9       11.9       12.9       13.8       14.8       15.8       16.7       17.7       18.7       19.6
23.............................................  28...............................       10.9       11.9       12.9       13.8       14.8       15.8       16.7       17.7       18.7       19.6
24.............................................  29...............................       10.9       11.9       12.9       13.8       14.8       15.8       16.7       17.7       18.6       19.6
25.............................................  30...............................       10.9       11.9       12.8       13.8       14.8       15.7       16.7       17.7       18.6       19.6

[[Page 201]]

 
 
26.............................................  31...............................       10.9       11.9       12.8       13.8       14.8       15.7       16.7       17.6       18.6       19.5
27.............................................  32...............................       10.9       11.9       12.8       13.8       14.8       15.7       16.7       17.6       18.6       19.5
28.............................................  33...............................       10.9       11.8       12.8       13.8       14.7       15.7       16.6       17.6       18.5       19.5
29.............................................  34...............................       10.9       11.8       12.8       13.8       14.7       15.7       16.6       17.6       18.5       19.4
30.............................................  35...............................       10.9       11.8       12.8       13.7       14.7       15.6       16.6       17.5       18.4       19.4
 
31.............................................  36...............................       10.8       11.8       12.8       13.7       14.7       15.6       16.5       17.5       18.4       19.3
32.............................................  37...............................       10.8       11.8       12.7       13.7       14.6       15.6       16.5       17.4       18.4       19.3
33.............................................  38...............................       10.8       11.8       12.7       13.7       14.6       15.6       16.5       17.4       18.3       19.2
34.............................................  39...............................       10.8       11.8       12.7       13.6       14.6       15.5       16.4       17.4       18.3       19.2
35.............................................  40...............................       10.8       11.7       12.7       13.6       14.6       15.5       16.4       17.3       18.2       19.1
 
36.............................................  41...............................       10.8       11.7       12.7       13.6       14.5       15.4       16.3       17.2       18.1       19.0
37.............................................  42...............................       10.8       11.7       12.6       13.6       14.5       15.4       16.3       17.2       18.1       18.9
38.............................................  43...............................       10.7       11.7       12.6       13.5       14.4       15.3       16.2       17.1       18.0       18.9
39.............................................  44...............................       10.7       11.6       12.6       13.5       14.4       15.3       16.2       17.1       17.9       18.8
40.............................................  45...............................       10.7       11.6       12.5       13.5       14.4       15.2       16.1       17.0       17.8       18.7
 
41.............................................  46...............................       10.7       11.6       12.5       13.4       14.3       15.2       16.1       16.9       17.8       18.6
42.............................................  47...............................       10.6       11.6       12.5       13.4       14.3       15.1       16.0       16.8       17.7       18.5
43.............................................  48...............................       10.6       11.5       12.4       13.3       14.2       15.1       15.9       16.7       17.6       18.4
44.............................................  49...............................       10.6       11.5       12.4       13.3       14.1       15.0       15.8       16.7       17.5       18.3
45.............................................  50...............................       10.5       11.4       12.3       13.2       14.1       14.9       15.7       16.6       17.4       18.1
 
46.............................................  51...............................       10.5       11.4       12.3       13.2       14.0       14.8       15.7       16.5       17.2       18.0
47.............................................  52...............................       10.5       11.4       12.2       13.1       13.9       14.7       15.6       16.3       17.1       17.8
48.............................................  53...............................       10.4       11.3       12.2       13.0       13.8       14.7       15.4       16.2       17.0       17.7
49.............................................  54...............................       10.4       11.3       12.1       12.9       13.8       14.6       15.3       16.1       16.8       17.5
50.............................................  55...............................       10.3       11.2       12.0       12.9       13.7       14.5       15.2       16.0       16.7       17.4
 
51.............................................  56...............................       10.3       11.1       12.0       12.8       13.6       14.3       15.1       15.8       16.5       17.2
52.............................................  57...............................       10.2       11.1       11.9       12.7       13.5       14.2       14.9       15.6       16.3       17.0
53.............................................  58...............................       10.2       11.0       11.8       12.6       13.4       14.1       14.8       15.5       16.1       16.8
54.............................................  59...............................       10.1       10.9       11.7       12.5       13.2       14.0       14.6       15.3       15.9       16.5
55.............................................  60...............................       10.1       10.9       11.6       12.4       13.1       13.8       14.5       15.1       15.7       16.3
 
56.............................................  61...............................       10.0       10.8       11.5       12.3       13.0       13.7       14.3       14.9       15.5       16.1
57.............................................  62...............................        9.9       10.7       11.4       12.2       12.8       13.5       14.1       14.7       15.3       15.8
58.............................................  63...............................        9.8       10.6       11.3       12.0       12.7       13.3       13.9       14.5       15.0       15.5
59.............................................  64...............................        9.8       10.5       11.2       11.9       12.5       13.2       13.7       14.3       14.8       15.3
60.............................................  65...............................        9.7       10.4       11.1       11.7       12.4       13.0       13.5       14.0       14.5       15.0
 
61.............................................  66...............................        9.6       10.3       11.0       11.6       12.2       12.8       13.3       13.8       14.2       14.7
62.............................................  67...............................        9.5       10.2       10.8       11.4       12.0       12.5       13.1       13.5       14.0       14.3
63.............................................  68...............................        9.4       10.0       10.7       11.3       11.8       12.3       12.8       13.2       13.7       14.0
64.............................................  69...............................        9.3        9.9       10.5       11.1       11.6       12.1       12.5       13.0       13.3       13.7
65.............................................  70...............................        9.1        9.8       10.3       10.9       11.4       11.9       12.3       12.7       13.0       13.3
 
66.............................................  71...............................        9.0        9.6       10.2       10.7       11.2       11.6       12.0       12.4       12.7       13.0

[[Page 202]]

 
67.............................................  72...............................        8.9        9.5       10.0       10.5       10.9       11.3       11.7       12.0       12.3       12.6
68.............................................  73...............................        8.7        9.3        9.8       10.3       10.7       11.1       11.4       11.7       12.0       12.2
69.............................................  74...............................        8.6        9.1        9.6       10.0       10.4       10.8       11.1       11.4       11.6       11.8
70.............................................  75...............................        8.4        8.9        9.4        9.8       10.2       10.5       10.8       11.0       11.2       11.4
 
71.............................................  76...............................        8.3        8.7        9.2        9.6        9.9       10.2       10.4       10.7       10.9       11.0
72.............................................  77...............................        8.1        8.6        8.9        9.3        9.6        9.9       10.1       10.3       10.5       10.6
73.............................................  78...............................        7.9        8.3        8.7        9.0        9.3        9.6        9.8        9.9       10.1       10.2
74.............................................  79...............................        7.7        8.1        8.5        8.8        9.0        9.2        9.4        9.6        9.7        9.8
75.............................................  80...............................        7.6        7.9        8.2        8.5        8.7        8.9        9.1        9.2        9.3        9.4
 
76.............................................  81...............................        7.4        7.7        8.0        8.2        8.4        8.6        8.7        8.8        8.9        9.0
77.............................................  82...............................        7.1        7.5        7.7        7.9        8.1        8.3        8.4        8.5        8.5        8.6
78.............................................  83...............................        6.9        7.2        7.4        7.6        7.8        7.9        8.0        8.1        8.2        8.2
79.............................................  84...............................        6.7        7.0        7.2        7.3        7.5        7.6        7.7        7.7        7.8        7.8
80.............................................  85...............................        6.5        6.7        6.9        7.1        7.2        7.3        7.3        7.4        7.4        7.4
 
81.............................................  86...............................        6.3        6.5        6.6        6.8        6.9        6.9        7.0        7.0        7.1  .........
82.............................................  87...............................        6.0        6.2        6.4        6.5        6.5        6.6        6.7        6.7  .........  .........
83.............................................  88...............................        5.8        6.0        6.1        6.2        6.2        6.3        6.3  .........  .........  .........
84.............................................  89...............................        5.6        5.7        5.8        5.9        5.9        6.0  .........  .........  .........  .........
85.............................................  90...............................        5.3        5.5        5.5        5.6        5.6  .........  .........  .........  .........  .........
86.............................................  91...............................        5.1        5.2        5.3        5.3  .........  .........  .........  .........  .........  .........
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Ages                                                                    Temporary period--maximum duration of annuity--[Years]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                      Male                                     Female                   21         22         23         24         25         26         27         28         29         30
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0 to 8.........................................  0 to 13..........................       20.7       21.7       22.7       23.6       24.6       25.6       26.5       27.5       28.4       29.4
9..............................................  14...............................       20.7       21.7       22.7       23.6       24.6       25.5       26.5       27.5       28.4       29.4
10.............................................  15...............................       20.7       21.7       22.7       23.6       24.6       25.5       26.5       27.5       28.4       29.4
 
11.............................................  16...............................       20.7       21.7       22.6       23.6       24.6       25.5       26.5       27.4       28.4       29.3
12.............................................  17...............................       20.7       21.7       22.6       23.6       24.6       25.5       26.5       27.4       28.4       29.3
13.............................................  18...............................       20.7       21.7       22.6       23.6       24.6       25.5       26.5       27.4       28.4       29.3
14.............................................  19...............................       20.7       21.7       22.6       23.6       24.5       25.5       26.4       27.4       28.3       29.3
15.............................................  20...............................       20.7       21.6       22.6       23.6       24.5       25.5       26.4       27.4       28.3       29.2
 
16.............................................  21...............................       20.7       21.6       22.6       23.6       24.5       25.5       26.4       27.3       28.3       29.2
17.............................................  22...............................       20.7       21.6       22.6       23.5       24.5       25.4       26.4       27.3       28.2       29.2
18.............................................  23...............................       20.7       21.6       22.6       23.5       24.5       25.4       26.3       27.3       28.2       29.1
19.............................................  24...............................       20.6       21.6       22.5       23.5       24.4       25.4       26.3       27.2       28.1       29.1
20.............................................  25...............................       20.6       21.6       22.5       23.5       24.4       25.3       26.3       27.2       28.1       29.0
 
21.............................................  26...............................       20.6       21.5       22.5       23.4       24.4       25.3       26.2       27.1       28.0       28.9
22.............................................  27...............................       20.6       21.5       22.5       23.4       24.3       25.3       26.2       27.1       28.0       28.9

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23.............................................  28...............................       20.6       21.5       22.4       23.4       24.3       25.2       26.1       27.0       27.9       28.8
24.............................................  29...............................       20.5       21.5       22.4       23.3       24.2       25.2       26.1       27.0       27.8       28.7
25.............................................  30...............................       20.5       21.4       22.4       23.3       24.2       25.1       26.0       26.9       27.8       28.6
 
26.............................................  31...............................       20.5       21.4       22.3       23.2       24.1       25.0       25.9       26.8       27.7       28.5
27.............................................  32...............................       20.4       21.3       22.3       23.2       24.1       25.0       25.8       26.7       27.6       28.4
28.............................................  33...............................       20.4       21.3       22.2       23.1       24.0       24.9       25.8       26.6       27.5       28.3
29.............................................  34...............................       20.3       21.2       22.1       23.0       23.9       24.8       25.7       26.5       27.4       28.2
30.............................................  35...............................       20.3       21.2       22.1       23.0       23.8       24.7       25.6       26.4       27.2       28.1
 
31.............................................  36...............................       20.2       21.1       22.0       22.9       23.8       24.6       25.5       26.3       27.1       27.9
32.............................................  37...............................       20.2       21.1       21.9       22.8       23.7       24.5       25.4       26.2       27.0       27.8
33.............................................  38...............................       20.1       21.0       21.9       22.7       23.6       24.4       25.2       26.0       26.8       27.6
34.............................................  39...............................       20.0       20.9       21.8       22.6       23.5       24.3       25.1       25.9       26.7       27.4
35.............................................  40...............................       20.0       20.8       21.7       22.5       23.3       24.2       25.0       25.7       26.5       27.2
 
36.............................................  41...............................       19.9       20.7       21.6       22.4       23.2       24.0       24.8       25.6       26.3       27.0
37.............................................  42.........................