[Title 26 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2017 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 26
Internal Revenue
________________________
Part 1 (Secs. 1.61 to 1.139)
Revised as of April 1, 2017
Containing a codification of documents of general
applicability and future effect
As of April 1, 2017
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
[[Page ii]]
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[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 26:
Chapter I--Internal Revenue Service, Department of
the Treasury (Continued) 3
Finding Aids:
Table of CFR Titles and Chapters........................ 633
Alphabetical List of Agencies Appearing in the CFR...... 653
Table of OMB Control Numbers............................ 663
List of CFR Sections Affected........................... 681
[[Page iv]]
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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
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To determine whether a Code volume has been amended since its
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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
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those instances where a regulation published in the Federal Register
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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.
PAST PROVISIONS OF THE CODE
Provisions of the Code that are no longer in force and effect as of
the revision date stated on the cover of each volume are not carried.
Code users may find the text of provisions in effect on any given date
in the past by using the appropriate List of CFR Sections Affected
(LSA). For the convenience of the reader, a ``List of CFR Sections
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the Code prior to the LSA listings at the end of the volume, consult
previous annual editions of the LSA. For changes to the Code prior to
2001, consult the List of CFR Sections Affected compilations, published
for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.
``[RESERVED]'' TERMINOLOGY
The term ``[Reserved]'' is used as a place holder within the Code of
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not accidentally dropped due to a printing or computer error.
INCORPORATION BY REFERENCE
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This material, like any other properly issued regulation, has the force
of law.
What is a proper incorporation by reference? The Director of the
Federal Register will approve an incorporation by reference only when
the requirements of 1 CFR part 51 are met. Some of the elements on which
approval is based are:
(a) The incorporation will substantially reduce the volume of
material published in the Federal Register.
(b) The matter incorporated is in fact available to the extent
necessary to afford fairness and uniformity in the administrative
process.
(c) The incorporating document is drafted and submitted for
publication in accordance with 1 CFR part 51.
What if the material incorporated by reference cannot be found? If
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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 Authorities
and Rules. A list of CFR titles, chapters, subchapters, and parts and an
alphabetical list of agencies publishing in the CFR are also included in
this volume.
[[Page vii]]
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.
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the revision dates of the 50 CFR titles.
REPUBLICATION OF MATERIAL
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INQUIRIES
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The e-CFR is a regularly updated, unofficial editorial compilation
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of the Federal Register and the Government Publishing Office. It is
available at www.ecfr.gov.
Oliver A. Potts,
Director,
Office of the Federal Register.
April 1, 2017.
[[Page ix]]
THIS TITLE
Title 26--Internal Revenue is composed of twenty-two volumes. The
contents of these volumes represent all current regulations issued by
the Internal Revenue Service, Department of the Treasury, as of April 1,
2017. The first fifteen volumes comprise part 1 (Subchapter A--Income
Tax) and are arranged by sections as follows: Secs. 1.0-1.60;
Secs. 1.61-1.139; Secs. 1.140-1.169; Secs. 1.170-1.300; Secs. 1.301-
1.400; Secs. 1.401-1.409; Secs. 1.410-1.440; 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. 1.1401-1.1550; and Sec. 1.1551 to end
of part 1. The sixteenth 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.
For this volume, Cheryl E. Sirofchuck was Chief Editor. The Code of
Federal Regulations publication program is under the direction of John
Hyrum Martinez, assisted by Stephen J. Frattini.
[[Page 1]]
TITLE 26--INTERNAL REVENUE
(This book contains part 1, Secs. 1.61 to 1.139)
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Part
chapter i--Internal Revenue Service, Department of the
Treasury (Continued)...................................... 1
[[Page 3]]
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)
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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, Mar. 31, 1980.
SUBCHAPTER A--INCOME TAX (CONTINUED)
Part Page
1 Income taxes (Continued).................... 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 (CONTINUED)--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.
1.61-22 Taxation of split-dollar life insurance arrangements.
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.
1.66-1 Treatment of community income.
1.66-2 Treatment of community income where spouses live apart.
1.66-3 Denial of the Federal income tax benefits resulting from the
operation of community property law where spouse not notified.
1.66-4 Request for relief from the Federal income tax liability
resulting from the operation of community property law.
1.66-5 Effective date.
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).
1.67-4 Costs paid or incurred by estates or non-grantor trusts.
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.
[[Page 6]]
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.
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.
1.105-5 Accident and health plans.
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 [Reserved]
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.
1.108-7 Reduction of attributes.
1.108-8 Indebtedness satisfied by partnership interest.
1.108-9 Application of the bankruptcy and the insolvency provisions of
section 108 to grantor trusts and disregarded entities.
1.108(c)-1T [Reserved]
1.108(i)-0 Definitions and effective/applicability dates.
[[Page 7]]
1.108(i)-1 Deferred discharge of indebtedness income and deferred
original issue discount deductions of C corporations.
1.108(i)-2 Application of section 108(i) to partnerships and S
corporations.
1.108(i)-3 Rules for the deduction of OID.
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.
1.118-1 Contributions to the capital of a corporation.
1.118-2 Contribution in aid of construction.
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.
1.121-4 Special rules.
1.121-5 Suspension of 5-year period for certain members of the
uniformed services and Foreign Service.
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.
1.125-3 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).
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.
Section 1.66-4 also issued under 26 U.S.C. 66(c);
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 1.108(i)-0 also issued under 26 U.S.C. 108(i)(7) and 1502.
Section 1.108(i)-1 also issued under 26 U.S.C. 108(i)(7) and 1502.
Section 1.108(i)-2 also issued under 26 U.S.C. 108(i)(7).
Section 1.108(i)-2T also issued under 26 U.S.C. 108(i)(7).
[[Page 8]]
Section 1.108(i)-3 also issued under 26 U.S.C. 108(i)(7) and 1502.
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.
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 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
[[Page 9]]
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 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
[[Page 10]]
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 example, if an employee or independent contractor
is the owner (as defined in Sec. 1.61-22(c)(1)) of a life insurance
contract and the payments with regard to such contract are not split-
dollar loans under Sec. 1.7872-15(b)(1), the employee or independent
contractor must include in income the amount of any such payments by the
employer or service recipient with respect to such contract during any
year to the extent that the employee's or independent contractor's
rights to the life insurance contract are substantially vested (within
the meaning of Sec. 1.83-3(b)). This result is the same regardless of
whether the employee or independent contractor has at all times been the
owner of the life insurance contract or the contract previously has been
owned by the employer or service recipient as part of a split-dollar
life insurance arrangement (as defined in Sec. 1.61-22(b)(1) or (2)) and
was transferred by the employer or service recipient to the employee or
independent contractor under Sec. 1.61-22(g). 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.
(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.
[[Page 11]]
(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;
T.D. 9092, 68 FR 54344, Sept. 17, 2003]
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 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,
[[Page 12]]
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 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
[[Page 13]]
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 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
[[Page 14]]
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 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
[[Page 15]]
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.
(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 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
[[Page 16]]
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
$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
[[Page 17]]
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.
(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
[[Page 18]]
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 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
[[Page 19]]
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, 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
[[Page 20]]
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.
(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
[[Page 21]]
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 (15,000 x $.21
+ 5,000 x $.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 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
[[Page 22]]
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 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
[[Page 23]]
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 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
[[Page 24]]
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 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
[[Page 25]]
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 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
[[Page 26]]
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, 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
[[Page 27]]
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 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
[[Page 28]]
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 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.
[[Page 29]]
(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 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
[[Page 30]]
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.
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
[[Page 31]]
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 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 operating 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
[[Page 32]]
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--
(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
[[Page 33]]
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 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
[[Page 34]]
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.
(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.
[[Page 35]]
(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 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.
[[Page 36]]
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,
(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
[[Page 37]]
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)
(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.
[[Page 38]]
(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--
(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
[[Page 39]]
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
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
[[Page 40]]
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 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
[[Page 41]]
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 and except as otherwise
provided by the Commissioner in published guidance (see
Sec. 601.601(d)(2) of this chapter), 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 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; T.D. 9135, 69 FR 41192,
July 8, 2004]
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
[[Page 42]]
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, 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
[[Page 43]]
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--
(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.
[[Page 44]]
(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 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.
[[Page 45]]
(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 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).
[[Page 46]]
(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;
(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
[[Page 47]]
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 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.
[[Page 48]]
(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.
(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.
[[Page 49]]
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 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.
[[Page 50]]
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 (.4 x ($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 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;
[[Page 51]]
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 ($9,250 x .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 (.20 x
$15,000). Eighty percent of $15,000, or $12,000, is excluded from A's
income as a working condition fringe.
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 (($15,000 x
.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 (.20 x $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
[[Page 52]]
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/($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
[[Page 53]]
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 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
[[Page 54]]
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 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--
[[Page 55]]
(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. 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,
[[Page 56]]
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--
(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
[[Page 57]]
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) 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
[[Page 58]]
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.
(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
[[Page 59]]
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 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
[[Page 60]]
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 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
[[Page 61]]
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 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
[[Page 62]]
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
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
[[Page 63]]
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 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
((15,000 x $.24) + (5,000 x $.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
[[Page 64]]
(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 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
[[Page 65]]
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 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
[[Page 66]]
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 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
[[Page 67]]
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 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
[[Page 68]]
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 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
[[Page 69]]
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
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
[[Page 70]]
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 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: $100.36 ((.313 x (($.1449 x 500) + ($.1105 x
1,000) + ($.1062 x 500))) + $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.
[[Page 71]]
(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 4 x ((300 percent x the
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
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
[[Page 72]]
(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 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.
[[Page 73]]
(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 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
[[Page 74]]
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 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
[[Page 75]]
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 employer. Except as otherwise
provided in paragraph (g)(13) or paragraph (g)(14)(iii) of this section
or in 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
in a calendar year, the rule must be used to value all flights provided
to all employees in the calendar year.
(ii) Use by employee. Except as otherwise provided in paragraph
(g)(13) or (g)(14)(iii) of this section or in 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.
(iii) Exception for entertainment flights provided to specified
individuals after October 22, 2004. Notwithstanding the provisions of
paragraph (g)(14)(i) of this section, an employer may use the general
valuation rules of paragraph (b) of this section to value the
entertainment use of an aircraft provided after October 22, 2004, to a
specified individual. An employer who uses the general valuation rules
of paragraph (b) of this section to value any entertainment use of an
aircraft by a specified individual in a calendar year must use the
general valuation rules of paragraph (b) of this section to value all
entertainment use of aircraft provided to all specified individuals
during that calendar year.
(A) Specified individuals defined. For purposes of paragraph
(g)(14)(iii) of this section, specified individual is defined in section
274(e)(2)(B) and Sec. 1.274-9(b).
(B) Entertainment defined. For purposes of paragraph (g)(14)(iii) of
this section, entertainment is defined in Sec. 1.274-2(b)(1).
(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. 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
[[Page 76]]
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 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
[[Page 77]]
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 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
[[Page 78]]
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; T.D. 9597,
77 FR 45483, Aug. 1, 2012]
Sec. 1.61-22 Taxation of split-dollar life insurance arrangements.
(a) Scope--(1) In general. This section provides rules for the
taxation of a split-dollar life insurance arrangement for purposes of
the income tax, the gift tax, the Federal Insurance Contributions Act
(FICA), the Federal Unemployment Tax Act (FUTA), the Railroad Retirement
Tax Act (RRTA), and the Self-Employment Contributions Act of 1954
(SECA). For the Collection of Income Tax at Source on Wages, this
section also provides rules for the taxation of a split-dollar life
insurance arrangement, other than a payment under a split-dollar life
insurance arrangement that is a split-dollar loan under Sec. 1.7872-
15(b)(1). A split-dollar life insurance arrangement (as defined in
paragraph (b) of this section) is subject to the rules of paragraphs (d)
through (g) of this section, Sec. 1.7872-15, or general tax rules. For
rules to determine which rules apply to a split-dollar life insurance
arrangement, see paragraph (b)(3) of this section.
(2) Overview. Paragraph (b) of this section defines a split-dollar
life insurance arrangement and provides rules to determine whether an
arrangement is subject to the rules of paragraphs (d) through (g) of
this section, Sec. 1.7872-15, or general tax rules. Paragraph (c) of
this section defines certain other terms. Paragraph (d) of this section
sets forth rules for the taxation of economic benefits provided under a
split-
[[Page 79]]
dollar life insurance arrangement. Paragraph (e) of this section sets
forth rules for the taxation of amounts received under a life insurance
contract that is part of a split-dollar life insurance arrangement.
Paragraph (f) of this section provides rules for additional tax
consequences of a split-dollar life insurance arrangement, including the
treatment of death benefit proceeds. Paragraph (g) of this section
provides rules for the transfer of a life insurance contract (or an
undivided interest in the contract) that is part of a split-dollar life
insurance arrangement. Paragraph (h) of this section provides examples
illustrating the application of this section. Paragraph (j) of this
section provides the effective date of this section.
(b) Split-dollar life insurance arrangement--(1) In general. A
split-dollar life insurance arrangement is any arrangement between an
owner and a non-owner of a life insurance contract that satisfies the
following criteria--
(i) Either party to the arrangement pays, directly or indirectly,
all or any portion of the premiums on the life insurance contract,
including a payment by means of a loan to the other party that is
secured by the life insurance contract;
(ii) At least one of the parties to the arrangement paying premiums
under paragraph (b)(1)(i) of this section is entitled to recover (either
conditionally or unconditionally) all or any portion of those premiums
and such recovery is to be made from, or is secured by, the proceeds of
the life insurance contract; and
(iii) The arrangement is not part of a group-term life insurance
plan described in section 79 unless the group-term life insurance plan
provides permanent benefits to employees (as defined in Sec. 1.79-0).
(2) Special rule--(i) In general. Any arrangement between an owner
and a non-owner of a life insurance contract is treated as a split-
dollar life insurance arrangement (regardless of whether the criteria of
paragraph (b)(1) of this section are satisfied) if the arrangement is
described in paragraph (b)(2)(ii) or (iii) of this section.
(ii) Compensatory arrangements. An arrangement is described in this
paragraph (b)(2)(ii) if the following criteria are satisfied--
(A) The arrangement is entered into in connection with the
performance of services and is not part of a group-term life insurance
plan described in section 79;
(B) The employer or service recipient pays, directly or indirectly,
all or any portion of the premiums; and
(C) Either--
(1) The beneficiary of all or any portion of the death benefit is
designated by the employee or service provider or is any person whom the
employee or service provider would reasonably be expected to designate
as the beneficiary; or
(2) The employee or service provider has any interest in the policy
cash value of the life insurance contract.
(iii) Shareholder arrangements. An arrangement is described in this
paragraph (b)(2)(iii) if the following criteria are satisfied--
(A) The arrangement is entered into between a corporation and
another person in that person's capacity as a shareholder in the
corporation;
(B) The corporation pays, directly or indirectly, all or any portion
of the premiums; and
(C) Either--
(1) The beneficiary of all or any portion of the death benefit is
designated by the shareholder or is any person whom the shareholder
would reasonably be expected to designate as the beneficiary; or
(2) The shareholder has any interest in the policy cash value of the
life insurance contract.
(3) Determination of whether this section or Sec. 1.7872-15 applies
to a split-dollar life insurance arrangement--(i) Split-dollar life
insurance arrangements involving split-dollar loans under Sec. 1.7872-
15. Except as provided in paragraph (b)(3)(ii) of this section,
paragraphs (d) through (g) of this section do not apply to any split-
dollar loan as defined in Sec. 1.7872-15(b)(1). Section 1.7872-15
applies to any such loan. See paragraph (b)(5) of this section for the
treatment of a payment made by a non-owner under a split-dollar life
insurance arrangement if the payment is not a split-dollar loan.
(ii) Exceptions. Paragraphs (d) through (g) of this section apply
(and
[[Page 80]]
Sec. 1.7872-15 does not apply) to any split-dollar life insurance
arrangement if--
(A) The arrangement is entered into in connection with the
performance of services, and the employer or service recipient is the
owner of the life insurance contract (or is treated as the owner of the
contract under paragraph (c)(1)(ii)(A)(1) of this section); or
(B) The arrangement is entered into between a donor and a donee (for
example, a life insurance trust) and the donor is the owner of the life
insurance contract (or is treated as the owner of the contract under
paragraph (c)(1)(ii)(A)(2) of this section).
(4) Consistency requirement. A split-dollar life insurance
arrangement described in paragraph (b)(1) or (2) of this section must be
treated in the same manner by the owner and the non-owner of the life
insurance contract under either the rules of this section or
Sec. 1.7872-15. In addition, the owner and non-owner must fully account
for all amounts under the arrangement under paragraph (b)(5) of this
section, paragraphs (d) through (g) of this section, or Sec. 1.7872-15.
(5) Non-owner payments that are not split-dollar loans. If a non-
owner of a life insurance contract makes premium payments (directly or
indirectly) under a split-dollar life insurance arrangement, and the
payments are neither split-dollar loans nor consideration for economic
benefits described in paragraph (d) of this section, then neither the
rules of paragraphs (d) through (g) of this section nor the rules in
Sec. 1.7872-15 apply to such payments. Instead, general income tax,
employment tax, self-employment tax, and gift tax principles apply to
the premium payments. See, for example, Sec. 1.61-2(d)(2)(ii)(A).
(6) Waiver, cancellation, or forgiveness. If a repayment obligation
described in Sec. 1.7872-15(a)(2) is waived, cancelled, or forgiven at
any time, then the parties must take the amount waived, cancelled, or
forgiven into account in accordance with the relationships between the
parties (for example, as compensation in the case of an employee-
employer relationship).
(7) Change in the owner. If payments made by a non-owner to an owner
were treated as split-dollar loans under Sec. 1.7872-15 and the split-
dollar life insurance arrangement is modified such that, after the
modification, the non-owner is the owner (within the meaning of
paragraph (c)(1) of this section) of the life insurance contract under
the arrangement, paragraphs (d) through (g) of this section apply to the
split-dollar life insurance arrangement from the date of the
modification. The payments made (both before and after the modification)
are not treated as split-dollar loans under Sec. 1.7872-15 on or after
the date of the modification. The non-owner of the life insurance
contract under the modified split-dollar life insurance arrangement must
fully take into account all economic benefits provided under the
arrangement under paragraph (d) of this section on or after the date of
the modification. For the treatment of a transfer of the contract when
the unmodified arrangement is governed by paragraphs (d) through (g) of
this section, see paragraph (g) of this section.
(c) Definitions. The following definitions apply for purposes of
this section:
(1) Owner--(i) In general. With respect to a life insurance
contract, the person named as the policy owner of such contract
generally is the owner of such contract. If two or more persons are
named as policy owners of a life insurance contract and each person has,
at all times, all the incidents of ownership with respect to an
undivided interest in the contract, each person is treated as the owner
of a separate contract to the extent of such person's undivided
interest. If two or more persons are named as policy owners of a life
insurance contract but each person does not have, at all times, all the
incidents of ownership with respect to an undivided interest in the
contract, the person who is the first-named policy owner is treated as
the owner of the entire contract.
(ii) Special rule for certain arrangements--(A) In general.
Notwithstanding paragraph (c)(1)(i) of this section--
(1) An employer or service recipient is treated as the owner of a
life insurance contract under a split-dollar life insurance arrangement
that is entered into in connection with the performance of services if,
at all times, the only economic benefit that will be provided under the
arrangement is current
[[Page 81]]
life insurance protection as described in paragraph (d)(3) of this
section; and
(2) A donor is treated as the owner of a life insurance contract
under a split-dollar life insurance arrangement that is entered into
between a donor and a donee (for example, a life insurance trust) if, at
all times, the only economic benefit that will be provided under the
arrangement is current life insurance protection as described in
paragraph (d)(3) of this section.
(B) Modifications. If an arrangement described in paragraph
(c)(1)(ii)(A) of this section is modified such that the arrangement is
no longer described in paragraph (c)(1)(ii)(A) of this section, the
following rules apply:
(1) If, immediately after such modification, the employer, service
recipient, or donor is the owner of the life insurance contract under
the split-dollar life insurance arrangement (determined without regard
to paragraph (c)(1)(ii)(A) of this section), the employer, service
recipient, or donor continues to be treated as the owner of the life
insurance contract.
(2) If, immediately after such modification, the employer, service
recipient, or donor is not the owner of the life insurance contract
under the split-dollar life insurance arrangement (determined without
regard to paragraph (c)(1)(ii)(A) of this section), the employer,
service recipient, or donor is treated as having made a transfer of the
entire life insurance contract to the employee, service provider, or
donee under the rules of paragraph (g) of this section as of the date of
such modification.
(3) For purposes of this paragraph (c)(1)(ii)(B), entering into a
successor split-dollar life insurance arrangement that has the effect of
providing any economic benefit in addition to that described in
paragraph (d)(3) of this section is treated as a modification of the
prior split-dollar life insurance arrangement.
(iii) Attribution rules for compensatory arrangements. For purposes
of this section, if a split-dollar life insurance arrangement is entered
into in connection with the performance of services, the employer or
service recipient is treated as the owner of the life insurance contract
if the owner (within the meaning of paragraph (c)(1)(i) of this section)
of the life insurance contract under the split-dollar life insurance
arrangement is--
(A) A trust described in section 402(b);
(B) A trust that is treated as owned (within the meaning of sections
671 through 677) by the employer or the service recipient;
(C) A welfare benefit fund within the meaning of section 419(e)(1);
or
(D) A member of the employer or service recipient's controlled group
(within the meaning of section 414(b)) or a trade or business that is
under common control with the employer or service recipient (within the
meaning of section 414(c)).
(iv) Life insurance contracts owned by partnerships. [Reserved]
(2) Non-owner--(i) Definition. With respect to a life insurance
contract, a non-owner is any person (other than the owner of such
contract under paragraph (c)(1) of this section) that has any direct or
indirect interest in such contract (but not including a life insurance
company acting only in its capacity as the issuer of a life insurance
contract).
(ii) Example. The following example illustrates the provisions of
this paragraph (c)(2):
Example. (i) On January 1, 2009, Employer R and Trust T, an
irrevocable life insurance trust that is not treated under sections 671
through 677 as owned by a grantor or other person, enter into a split-
dollar life insurance arrangement in connection with the performance of
services under which R will pay all the premiums on the life insurance
contract until the termination of the arrangement or the death of E, an
employee of R. C, the beneficiary of T, is E's child. R is the owner of
the contract under paragraph (c)(1)(i) of this section. E is the insured
under the life insurance contract. Upon termination of the arrangement
or E's death, R is entitled to receive the lesser of the aggregate
premiums or the policy cash value of the contract and T will be entitled
to receive any remaining amounts. Under the terms of the arrangement and
applicable state law, the policy cash value is fully accessible by R and
R's creditors but T has the right to borrow or withdraw at any time the
portion of the policy cash value exceeding the amount payable to R.
(ii) Because E and T each have an indirect interest in the life
insurance contract that is
[[Page 82]]
part of the split-dollar life insurance arrangement, each is a non-owner
under paragraph (c)(2)(i) of this section. E and T each are provided
economic benefits described in paragraph (d)(2) of this section pursuant
to the split-dollar life insurance arrangement. Economic benefits are
provided by owner R to E as a payment of compensation, and separately
provided by E to T as a gift.
(3) Transfer of entire contract or undivided interest therein. A
transfer of the ownership of a life insurance contract (or an undivided
interest in such contract) that is part of a split-dollar life insurance
arrangement occurs on the date that a non-owner becomes the owner
(within the meaning of paragraph (c)(1) of this section) of the entire
contract or of an undivided interest in the contract.
(4) Undivided interest. An undivided interest in a life insurance
contract consists of an identical fractional or percentage interest or
share in each right, benefit, and obligation with respect to the
contract. In the case of any arrangement purporting to create undivided
interests where, in substance, the rights, benefits or obligations are
shared to any extent among the holders of such interests, the
arrangement will be treated as a split-dollar life insurance
arrangement.
(5) Employment tax. The term employment tax means any tax imposed
by, or collected under, the Federal Insurance Contributions Act (FICA),
the Federal Unemployment Tax Act (FUTA), the Railroad Retirement Tax Act
(RRTA), and the Collection of Income Tax at Source on Wages.
(6) Self-employment tax. The term self-employment tax means the tax
imposed by the Self-Employment Contributions Act of 1954 (SECA).
(d) Economic benefits provided under a split-dollar life insurance
arrangement--(1) In general. In the case of a split-dollar life
insurance arrangement subject to the rules of paragraphs (d) through (g)
of this section, economic benefits are treated as being provided to the
non-owner of the life insurance contract. The non-owner (and the owner
for gift and employment tax purposes) must take into account the full
value of all economic benefits described in paragraph (d)(2) of this
section, reduced by the consideration paid directly or indirectly by the
non-owner to the owner for those economic benefits. Depending on the
relationship between the owner and the non-owner, the economic benefits
may constitute a payment of compensation, a distribution under section
301, a contribution to capital, a gift, or a transfer having a different
tax character. Further, depending on the relationship between or among a
non-owner and one or more other persons (including a non-owner or non-
owners), the economic benefits may be treated as provided from the owner
to the non-owner and as separately provided from the non-owner to such
other person or persons (for example, as a payment of compensation from
an employer to an employee and as a gift from the employee to the
employee's child).
(2) Value of economic benefits. The value of the economic benefits
provided to a non-owner for a taxable year under the arrangement
equals--
(i) The cost of current life insurance protection provided to the
non-owner as determined under paragraph (d)(3) of this section;
(ii) The amount of policy cash value to which the non-owner has
current access within the meaning of paragraph (d)(4)(ii) of this
section (to the extent that such amount was not actually taken into
account for a prior taxable year); and
(iii) The value of any economic benefits not described in paragraph
(d)(2)(i) or (ii) of this section provided to the non-owner (to the
extent not actually taken into account for a prior taxable year).
(3) Current life insurance protection--(i) Amount of current life
insurance protection. In the case of a split-dollar life insurance
arrangement described in paragraph (d)(1) of this section, the amount of
the current life insurance protection provided to the non-owner for a
taxable year (or any portion thereof in the case of the first year or
the last year of the arrangement) equals the excess of the death benefit
of the life insurance contract (including paid-up additions thereto)
over the total amount payable to the owner (including any outstanding
policy loans that offset amounts otherwise payable to the owner) under
the split-dollar life
[[Page 83]]
insurance arrangement, less the portion of the policy cash value
actually taken into account under paragraph (d)(1) of this section or
paid for by the non-owner under paragraph (d)(1) of this section for the
current taxable year or any prior taxable year.
(ii) Cost of current life insurance protection. The cost of current
life insurance protection provided to the non-owner for any year (or any
portion thereof in the case of the first year or the last year of the
arrangement) equals the amount of the current life insurance protection
provided to the non-owner (determined under paragraph (d)(3)(i) of this
section) multiplied by the life insurance premium factor designated or
permitted in guidance published in the Internal Revenue Bulletin (see
Sec. 601.601(d)(2)(ii) of this chapter).
(4) Policy cash value--(i) In general. For purposes of this
paragraph (d), policy cash value is determined disregarding surrender
charges or other similar charges or reductions. Policy cash value
includes policy cash value attributable to paid-up additions.
(ii) Current access. For purposes of this paragraph (d), a non-owner
has current access to that portion of the policy cash value--
(A) To which, under the arrangement, the non-owner has a current or
future right; and
(B) That currently is directly or indirectly accessible by the non-
owner, inaccessible to the owner, or inaccessible to the owner's general
creditors.
(5) Valuation date--(i) General rules. For purposes of this
paragraph (d), the amount of the current life insurance protection and
the policy cash value shall be determined on the same valuation date.
The valuation date is the last day of the non-owner's taxable year,
unless the owner and non-owner agree to instead use the policy
anniversary date as the valuation date. Notwithstanding the previous
sentence, if the split-dollar life insurance arrangement terminates
during the taxable year of the non-owner, the value of such economic
benefits is determined on the day that the arrangement terminates.
(ii) Consistency requirement. The owner and non-owner of the split-
dollar life insurance arrangement must use the same valuation date. In
addition, the same valuation date must be used for all years prior to
termination of the split-dollar life insurance arrangement unless the
parties receive consent of the Commissioner to change the valuation
date.
(iii) Artifice or device. Notwithstanding paragraph (d)(5)(i) of
this section, if any artifice or device is used to understate the amount
of any economic benefit on the valuation date in paragraph (d)(5)(i) of
this section, then, for purposes of this paragraph (d), the date on
which the amount of the economic benefit is determined is the date on
which the amount of the economic benefit is greatest during that taxable
year.
(iv) Special rule for certain taxes. For purposes of employment tax
(as defined in paragraph (c)(5) of this section), self-employment tax
(as defined in paragraph (c)(6) of this section), and sections 6654 and
6655 (relating to the failure to pay estimated income tax), the portions
of the current life insurance protection and the policy cash value that
are treated as provided by the owner to the non-owner shall be treated
as so provided on the last day of the taxable year of the non-owner.
Notwithstanding the previous sentence, if the split-dollar life
insurance arrangement terminates during the taxable year of the non-
owner, such portions of the current life insurance protection and the
policy cash value shall be treated as so provided on the day that the
arrangement terminates.
(6) Examples. The following examples illustrate the rules of this
paragraph (d). Except as otherwise provided, both examples assume the
following facts: employer (R) is the owner (as defined in paragraph
(c)(1)(i) of this section) and employee (E) is the non-owner (as defined
in paragraph (c)(2)(i) of this section) of a life insurance contract
that is part of a split-dollar life insurance arrangement that is
subject to the provisions of paragraphs (d) through (g) of this section;
the contract is a life insurance contract as defined in section 7702 and
not a modified endowment contract as defined in section 7702A; R does
not withdraw or obtain a loan of any portion of the policy
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cash value and does not surrender any portion of the life insurance
contract; the compensation paid to E is reasonable; E is not provided
any economic benefits described in paragraph (d)(2)(iii) of this
section; E does not make any premium payments; E's taxable year is the
calendar year; the value of the economic benefits is determined on the
last day of E's taxable year; and E reports on E's Federal income tax
return for each year that the split-dollar life insurance arrangement is
in effect the amount of income required to be reported under paragraph
(d) of this section. The examples are as follows:
Example 1. (i) Facts. On January 1 of year 1, R and E enter into the
split-dollar life insurance arrangement. Under the arrangement, R pays
all of the premiums on the life insurance contract until the termination
of the arrangement or E's death. The arrangement provides that upon
termination of the arrangement or E's death, R is entitled to receive
the lesser of the aggregate premiums paid or the policy cash value of
the contract and E is entitled to receive any remaining amounts. Under
the terms of the arrangement and applicable state law, the policy cash
value is fully accessible by R and R's creditors but E has the right to
borrow or withdraw at any time the portion of the policy cash value
exceeding the amount payable to R. To fund the arrangement, R purchases
a life insurance contract with constant death benefit protection equal
to $1,500,000. R makes premium payments on the life insurance contract
of $60,000 in each of years 1, 2, and 3. The policy cash value equals
$55,000 as of December 31 of year 1, $140,000 as of December 31 of year
2, and $240,000 as of December 31 of year 3.
(ii) Analysis. Under the terms of the split-dollar life insurance
arrangement, E has the right for year 1 and all subsequent years to
borrow or withdraw the portion of the policy cash value exceeding the
amount payable to R. Thus, under paragraph (d)(4)(ii) of this section, E
has current access to such portion of the policy cash value for each
year that the arrangement is in effect. In addition, because R pays all
of the premiums on the life insurance contract, R provides to E all of
the economic benefits that E receives under the arrangement. Therefore,
under paragraph (d)(1) of this section, E includes in gross income the
value of all economic benefits described in paragraphs (d)(2)(i) and
(ii) of this section provided to E under the arrangement.
(iii) Results for year 1. For year 1, E is provided, under paragraph
(d)(2)(ii) of this section, $0 of policy cash value (excess of $55,000
policy cash value determined as of December 31 of year 1 over $55,000
payable to R). For year 1, E is also provided, under paragraph (d)(2)(i)
of this section, current life insurance protection of $1,445,000
($1,500,000 minus $55,000 payable to R). Thus, E includes in gross
income for year 1 the cost of $1,445,000 of current life insurance
protection.
(iv) Results for year 2. For year 2, E is provided, under paragraph
(d)(2)(ii) of this section, $20,000 of policy cash value ($140,000
policy cash value determined as of December 31 of year 2 minus $120,000
payable to R). For year 2, E is also provided, under paragraph (d)(2)(i)
of this section, current life insurance protection of $1,360,000
($1,500,000 minus the sum of $120,000 payable to R and the aggregate of
$20,000 of policy cash value that E actually includes in income on E's
year 1 and year 2 federal income tax returns). Thus, E includes in gross
income for year 2 the sum of $20,000 of policy cash value and the cost
of $1,360,000 of current life insurance protection.
(v) Results for year 3. For year 3, E is provided, under paragraph
(d)(2)(ii) of this section, $40,000 of policy cash value ($240,000
policy cash value determined as of December 31 of year 3 minus the sum
of $180,000 payable to R and $20,000 of aggregate policy cash value that
E actually included in gross income on E's year 1 and year 2 federal
income tax returns). For year 3, E is also provided, under paragraph
(d)(2)(i) of this section, current life insurance protection of
$1,260,000 ($1,500,000 minus the sum of $180,000 payable to R and
$60,000 of aggregate policy cash value that E actually includes in gross
income on E's year 1, year 2, and year 3 federal income tax returns).
Thus, E includes in gross income for year 3 the sum of $40,000 of policy
cash value and the cost of $1,260,000 of current life insurance
protection.
Example 2. (i) Facts. The facts are the same as in Example 1 except
that E cannot directly or indirectly access any portion of the policy
cash value, but the terms of the split-dollar life insurance arrangement
or applicable state law provide that the policy cash value in excess of
the amount payable to R is inaccessible to R's general creditors.
(ii) Analysis. Under the terms of the split-dollar life insurance
arrangement or applicable state law, the portion of the policy cash
value exceeding the amount payable to R is inaccessible to R's general
creditors and E has a current or future right to that portion of the
cash value. Thus, under paragraph (d)(4)(ii) of this section, E has
current access to such portion of the policy cash value for each year
that the arrangement is in effect. In addition, because R pays all of
the premiums on the life insurance contract, R provides to E all of the
economic benefits that E receives under the arrangement. Therefore,
under paragraph (d)(1) of this section, E
[[Page 85]]
includes in gross income the value of all economic benefits described in
paragraphs (d)(2)(i) and (ii) of this section provided to E under the
arrangement.
(iii) Results for years 1, 2 and 3. The results for this example are
the same as the results in Example 1.
(e) Amounts received under the contract--(1) In general. Except as
otherwise provided in paragraph (f)(3) of this section, any amount
received under a life insurance contract that is part of a split-dollar
life insurance arrangement subject to the rules of paragraphs (d)
through (g) of this section (including, but not limited to, a policy
owner dividend, proceeds of a specified policy loan described in
paragraph (e)(2) of this section, or the proceeds of a withdrawal from
or partial surrender of the life insurance contract) is treated, to the
extent provided directly or indirectly to a non-owner of the life
insurance contract, as though such amount had been paid to the owner of
the life insurance contract and then paid by the owner to the non-owner.
The amount received is taxable to the owner in accordance with the rules
of section 72. The non-owner (and the owner for gift tax and employment
tax purposes) must take the amount described in paragraph (e)(3) of this
section into account as a payment of compensation, a distribution under
section 301, a contribution to capital, a gift, or other transfer
depending on the relationship between the owner and the non-owner.
(2) Specified policy loan. A policy loan is a specified policy loan
to the extent--
(i) The proceeds of the loan are distributed directly from the
insurance company to the non-owner;
(ii) A reasonable person would not expect that the loan will be
repaid by the non-owner; or
(iii) The non-owner's obligation to repay the loan to the owner is
satisfied or is capable of being satisfied upon repayment by either
party to the insurance company.
(3) Amount required to be taken into account. With respect to a non-
owner (and the owner for gift tax and employment tax purposes), the
amount described in this paragraph (e)(3) is equal to the excess of--
(i) The amount treated as received by the owner under paragraph
(e)(1) of this section; over
(ii) The amount of all economic benefits described in paragraphs
(d)(2)(ii) and (iii) of this section actually taken into account by the
non-owner (and the owner for gift tax and employment tax purposes) plus
any consideration described in paragraph (d)(1) of this section paid by
the non-owner for such economic benefits described in paragraphs
(d)(2)(ii) and (iii) of this section. The amount determined under the
preceding sentence applies only to the extent that neither this
paragraph (e)(3)(ii) nor paragraph (g)(1)(ii) of this section previously
has applied to such economic benefits.
(f) Other tax consequences--(1) Introduction. In the case of a
split-dollar life insurance arrangement subject to the rules of
paragraphs (d) through (g) of this section, this paragraph (f) sets
forth other tax consequences to the owner and non-owner of a life
insurance contract that is part of the arrangement for the period prior
to the transfer (as defined in paragraph (c)(3) of this section) of the
contract (or an undivided interest therein) from the owner to the non-
owner. See paragraph (g) of this section and Sec. 1.83-6(a)(5) for tax
consequences upon the transfer of the contract (or an undivided interest
therein).
(2) Investment in the contract--(i) To the non-owner. A non-owner
does not receive any investment in the contract under section 72(e)(6)
with respect to a life insurance contract that is part of a split-dollar
life insurance arrangement subject to the rules of paragraphs (d)
through (g) of this section.
(ii) To owner. Any premium paid by an owner under a split-dollar
life insurance arrangement subject to the rules of paragraphs (d)
through (g) of this section is included in the owner's investment in the
contract under section 72(e)(6). No premium or amount described in
paragraph (d) of this section is deductible by the owner (except as
otherwise provided in Sec. 1.83-6(a)(5)). Any amount paid by a non-
owner, directly or indirectly, to the owner of the life insurance
contract for current life insurance protection or for any other
[[Page 86]]
economic benefit under the life insurance contract is included in the
owner's gross income and is included in the owner's investment in the
life insurance contract for purposes of section 72(e)(6) (but only to
the extent not otherwise so included by reason of having been paid by
the owner as a premium or other consideration for the contract).
(3) Treatment of death benefit proceeds--(i) Death benefit proceeds
to beneficiary (other than the owner). Any amount paid to a beneficiary
(other than the owner) by reason of the death of the insured is excluded
from gross income by such beneficiary under section 101(a) as an amount
received under a life insurance contract to the extent such amount is
allocable to current life insurance protection provided to the non-owner
pursuant to the split-dollar life insurance arrangement, the cost of
which was paid by the non-owner, or the value of which the non-owner
actually took into account pursuant to paragraph (d)(1) of this section.
(ii) Death benefit proceeds to owner as beneficiary. Any amount paid
or payable to an owner in its capacity as a beneficiary by reason of the
death of the insured is excluded from gross income of the owner under
section 101(a) as an amount received under a life insurance contract to
the extent such amount is not allocable to current life insurance
protection provided to the non-owner pursuant to the split-dollar life
insurance arrangement, the cost of which was paid by the non-owner, or
the value of which the non-owner actually took into account pursuant to
paragraph (d)(1) of this section.
(iii) Transfers of death benefit proceeds. Death benefit proceeds
paid to a party to a split-dollar life insurance arrangement (or the
estate or beneficiary of that party) that are not excludable from that
party's income under section 101(a) to the extent provided in paragraph
(f)(3)(i) or (ii) of this section, are treated as transferred to that
party in a separate transaction. The death benefit proceeds treated as
so transferred will be taxed in a manner similar to other transfers. For
example, if death benefit proceeds paid to an employee, the employee's
estate, or the employee's beneficiary are not excludable from the
employee's gross income under section 101(a) to the extent provided in
paragraph (f)(3)(i) of this section, then such payment is treated as a
payment of compensation by the employer to the employee.
(g) Transfer of entire contract or undivided interest therein--(1)
In general. Upon a transfer within the meaning of paragraph (c)(3) of
this section of a life insurance contract (or an undivided interest
therein) to a non-owner (transferee), the transferee (and the owner
(transferor) for gift tax and employment tax purposes) takes into
account the excess of the fair market value of the life insurance
contract (or the undivided interest therein) transferred to the
transferee at that time over the sum of--
(i) The amount the transferee pays to the transferor to obtain the
contract (or the undivided interest therein); and
(ii) The amount of all economic benefits described in paragraph
(d)(2)(ii) and (iii) of this section actually taken into account by the
transferee (and the transferor for gift tax and employment tax
purposes), plus any consideration described in paragraph (d)(1) of this
section paid by the transferee for such economic benefits described in
paragraphs (d)(2)(ii) and (iii) of this section. The amount determined
under the preceding sentence applies only to the extent that neither
this paragraph (g)(1)(ii) nor paragraph (e)(3)(ii) of this section
previously has applied to such economic benefits.
(2) Determination of fair market value. For purposes of paragraph
(g)(1) of this section, the fair market value of a life insurance
contract is the policy cash value and the value of all other rights
under such contract (including any supplemental agreements thereto and
whether or not guaranteed), other than the value of current life
insurance protection. Notwithstanding the preceding sentence, the fair
market value of a life insurance contract for gift tax purposes is
determined under Sec. 25.2512-6(a) of this chapter.
(3) Exception for certain transfers in connection with the
performance of services. To the extent the ownership of a life insurance
contract (or undivided
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interest in such contract) is transferred in connection with the
performance of services, paragraph (g)(1) of this section does not apply
until such contract (or undivided interest in such contract) is taxable
under section 83. For purposes of paragraph (g)(1) of this section, fair
market value is determined disregarding any lapse restrictions and at
the time the transfer of such contract (or undivided interest in such
contract) is taxable under section 83.
(4) Treatment of non-owner after transfer--(i) In general. After a
transfer of an entire life insurance contract (except when such transfer
is in connection with the performance of services and the transfer is
not yet taxable under section 83), the person who previously had been
the non-owner is treated as the owner of such contract for all purposes,
including for purposes of paragraph (b) of this section and for purposes
of Sec. 1.61-2(d)(2)(ii)(A). After the transfer of an undivided interest
in a life insurance contract (or, if later, at the time such transfer is
taxable under section 83), the person who previously had been the non-
owner is treated as the owner of a separate contract consisting of that
interest for all purposes, including for purposes of paragraph (b) of
this section and for purposes of Sec. 1.61-2(d)(2)(ii)(A).
(ii) Investment in the contract after transfer--(A) In general. The
amount treated as consideration paid to acquire the contract under
section 72(g)(1), in order to determine the aggregate premiums paid by
the transferee for purposes of section 72(e)(6)(A) after the transfer
(or, if later, at the time such transfer is taxable under section 83),
equals the greater of the fair market value of the contract or the sum
of the amounts determined under paragraphs (g)(1)(i) and (ii) of this
section.
(B) Transfers between a donor and a donee. In the case of a transfer
of a contract between a donor and a donee, the amount treated as
consideration paid by the transferee to acquire the contract under
section 72(g)(1), in order to determine the aggregate premiums paid by
the transferee for purposes of section 72(e)(6)(A) after the transfer,
equals the sum of the amounts determined under paragraphs (g)(1)(i) and
(ii) of this section except that--
(1) The amount determined under paragraph (g)(1)(i) of this section
includes the aggregate of premiums or other consideration paid or deemed
to have been paid by the transferor; and
(2) The amount of all economic benefits determined under paragraph
(g)(1)(ii) of this section actually taken into account by the transferee
does not include such benefits to the extent such benefits were
excludable from the transferee's gross income at the time of receipt.
(C) Transfers of an undivided interest in a contract. If a portion
of a contract is transferred to the transferee, then the amount to be
included as consideration paid to acquire the contract is determined by
multiplying the amount determined under paragraph (g)(4)(ii)(A) of this
section (as modified by paragraph (g)(4)(ii)(B) of this section, if the
transfer is between a donor and a donee) by a fraction, the numerator of
which is the fair market value of the portion transferred and the
denominator of which is the fair market value of the entire contract.
(D) Example. The following example illustrates the rules of this
paragraph (g)(4)(ii):
Example. (i) In year 1, donor D and donee E enter into a split-
dollar life insurance arrangement as defined in paragraph (b)(1) of this
section. D is the owner of the life insurance contract under paragraph
(c)(1) of this section. The life insurance contract is not a modified
endowment contract as defined in section 7702A. In year 5, D
gratuitously transfers the contract, within the meaning of paragraph
(c)(3) of this section, to E. At the time of the transfer, the fair
market value of the contract is $200,000 and D had paid $50,000 in
premiums under the arrangement. In addition, by the time of the
transfer, E had current access to $80,000 of policy cash value which was
excludable from E's gross income under section 102.
(ii) E's investment in the contract is $50,000, consisting of the
$50,000 of premiums paid by D. The $80,000 of policy cash value to which
E had current access is not included in E's investment in the contract
because such amount was excludable from E's gross income when E had
current access to that policy cash value.
(iii) No investment in the contract for current life insurance
protection. Except as provided in paragraph (g)(4)(ii)(B) of
[[Page 88]]
this section, no amount allocable to current life insurance protection
provided to the transferee (the cost of which was paid by the transferee
or the value of which was provided to the transferee) is treated as
consideration paid to acquire the contract under section 72(g)(1) to
determine the aggregate premiums paid by the transferee for purposes of
determining the transferee's investment in the contract under section
72(e) after the transfer.
(h) Examples. The following examples illustrate the rules of this
section. Except as otherwise provided, each of the examples assumes that
the employer (R) is the owner (as defined in paragraph (c)(1) of this
section) of a life insurance contract that is part of a split-dollar
life insurance arrangement subject to the rules of paragraphs (d)
through (g) of this section, that the employee (E) is not provided any
economic benefits described in paragraph (d)(2)(iii) of this section,
that the life insurance contract is not a modified endowment contract
under section 7702A, that the compensation paid to E is reasonable, and
that E makes no premium payments. The examples are as follows:
Example 1. (i) In year 1, R purchases a life insurance contract on
the life of E. R is named as the policy owner of the contract. R and E
enter into an arrangement under which R will pay all the premiums on the
life insurance contract until the termination of the arrangement or E's
death. Upon termination of the arrangement or E's death, R is entitled
to receive the greater of the aggregate premiums or the policy cash
value of the contract. The balance of the death benefit will be paid to
a beneficiary designated by E.
(ii) Because R is designated as the policy owner of the contract, R
is the owner of the contract under paragraph (c)(1)(i) of this section.
In addition, R would be treated as the owner of the contract regardless
of whether R were designated as the policy owner under paragraph
(c)(1)(i) of this section because the split-dollar life insurance
arrangement is described in paragraph (c)(1)(ii)(A)(1) of this section.
E is a non-owner of the contract. Under the arrangement between R and E,
a portion of the death benefit is payable to a beneficiary designated by
E. The arrangement is a split-dollar life insurance arrangement under
paragraph (b)(1) or (2) of this section. Because R pays all the premiums
on the life insurance contract, R provides to E the entire amount of the
current life insurance protection E receives under the arrangement.
Therefore, for each year that the split-dollar life insurance
arrangement is in effect, E must include in gross income under paragraph
(d)(1) of this section the value of current life insurance protection
described in paragraph (d)(2)(i) of this section provided to E in each
year.
Example 2. (i) The facts are the same as in Example 1 except that,
upon termination of the arrangement or E's death, R is entitled to
receive the lesser of the aggregate premiums or the policy cash value of
the contract. Under the terms of the arrangement and applicable state
law, the policy cash value is fully accessible by R and R's creditors
but E has the right to borrow or withdraw at any time the portion of the
policy cash value exceeding the amount payable to R.
(ii) Because R is designated as the policy owner, R is the owner of
the contract under paragraph (c)(1)(i) of this section. E is a non-owner
of the contract. For each year that the split-dollar life insurance
arrangement is in effect, E has the right to borrow or withdraw at any
time the portion of the policy cash value exceeding the amount payable
to R. Thus, under paragraph (d)(4)(ii) of this section, E has current
access to such portion of the policy cash value for each year that the
arrangement is in effect. In addition, because R pays all the premiums
on the life insurance contract, R provides to E all the economic
benefits that E receives under the arrangement. Therefore, for each year
that the split-dollar life insurance arrangement is in effect, E must
include in gross income under paragraph (d)(1) of this section, the
value of all economic benefits described in paragraph (d)(2)(i) and (ii)
of this section provided to E in each year.
Example 3. (i) The facts are the same as in Example 1 except that in
year 5, R and E modify the split-dollar life insurance arrangement to
provide that, upon termination of the arrangement or E's death, R is
entitled to receive the greater of the aggregate premiums or one-half
the policy cash value of the contract. Under the terms of the modified
arrangement and applicable state law, the policy cash value is fully
accessible by R and R's creditors but E has the right to borrow or
withdraw at any time the portion of the policy cash value exceeding the
amount payable to R.
(ii) For each year that the split-dollar life insurance arrangement
is in effect, E must include in gross income under paragraph (d)(1) of
this section the value of the economic benefits described in paragraph
(d)(2)(i) of this section provided to E under the arrangement during
that year. In year 5 (and subsequent years), E has the right to borrow
or withdraw at any time the portion of the policy cash value exceeding
the amount payable to R. Thus, under paragraph
[[Page 89]]
(d)(4)(ii) of this section, E has current access to such portion of the
policy cash value. Thus, in year 5 (and each subsequent year), E must
also include in gross income under paragraph (d)(1) of this section the
value of the economic benefits described in paragraph (d)(2)(ii) of this
section provided to E in each year.
(iii) The arrangement is not described in paragraph (c)(1)(ii)(A)(1)
of this section after it is modified in year 5. Because R is the
designated owner of the life insurance contract, R continues to be
treated as the owner of the contract under paragraph (c)(1)(ii)(B)(1) of
this section after the arrangement is modified. In addition, because the
modification made by R and E in year 5 does not involve the transfer
(within the meaning of paragraph (c)(3) of this section) of an undivided
interest in the life insurance contract from R to E, the modification is
not a transfer for purposes of paragraph (g) of this section.
Example 4. (i) The facts are the same as in Example 2 except that in
year 7, R and E modify the split-dollar life insurance arrangement to
provide that, upon termination of the arrangement or E's death, R will
be paid the lesser of 80 percent of the aggregate premiums or the policy
cash value of the contract. Under the terms of the modified arrangement
and applicable state law, the policy cash value is fully accessible by R
and R's creditors but E has the right to borrow or withdraw at any time
the portion of the policy cash value exceeding the lesser of 80 percent
of the aggregate premiums paid by R or the policy cash value of the
contract.
(ii) Commencing in year 7 (and in each subsequent year), E must
include in gross income the economic benefits described in paragraph
(d)(2)(ii) of this section as provided in this Example 4(ii) rather than
as provided in Example 2(ii). Thus, in year 7 (and in each subsequent
year) E must include in gross income under paragraph (d) of this
section, the excess of the policy cash value over the lesser of 80
percent of the aggregate premiums paid by R or the policy cash value of
the contract (to the extent E did not actually include such amounts in
gross income for a prior taxable year). In addition, in year 7 (and each
subsequent year) E must also include in gross income the value of the
economic benefits described in paragraph (d)(2)(i) of this section
provided to E under the arrangement in each such year.
Example 5. (i) The facts are the same as in Example 3 except that in
year 7, E is designated as the policy owner. At that time, E's rights to
the contract are substantially vested as defined in Sec. 1.83-3(b).
(ii) In year 7, R is treated as having made a transfer (within the
meaning of paragraph (c)(3) of this section) of the life insurance
contract to E. E must include in gross income the amount determined
under paragraph (g)(1) of this section.
(iii) After the transfer of the contract to E, E is the owner of the
contract and any premium payments by R will be included in E's income
under paragraph (b)(5) of this section and Sec. 1.61-2(d)(2)(ii)(A)
(unless R's payments are split-dollar loans as defined in Sec. 1.7872-
15(b)(1)).
Example 6. (i) In year 1, E and R enter into a split-dollar life
insurance arrangement as defined in paragraph (b)(2) of this section.
Under the arrangement, R is required to make annual premium payments of
$10,000 and E is required to make annual premium payments of $500. In
year 5, a $500 policy owner dividend payable to E is declared by the
insurance company. E directs the insurance company to use the $500 as
E's premium payment for year 5.
(ii) For each year the arrangement is in effect, E must include in
gross income the value of the economic benefits provided during the
year, as required by paragraph (d)(2) of this section, over the $500
premium payments paid by E. In year 5, E must also include in gross
income as compensation the excess, if any, of the $500 distributed to E
from the proceeds of the policy owner dividend over the amount
determined under paragraph (e)(3)(ii) of this section.
(iii) R must include in income the premiums paid by E during the
years the split-dollar life insurance arrangement is in effect,
including the $500 of the premium E paid in year 5 with proceeds of the
policy owner dividend. R's investment in the contract is increased in an
amount equal to the premiums paid by E, including the $500 of the
premium paid by E in year 5 from the proceeds of the policy owner
dividend. In year 5, R is treated as receiving a $500 distribution under
the contract, which is taxed pursuant to section 72.
Example 7. (i) The facts are the same as in Example 2 except that in
year 10, E withdraws $100,000 from the cash value of the contract.
(ii) In year 10, R is treated as receiving a $100,000 distribution
from the insurance company. This amount is treated as an amount received
by R under the contract and taxed pursuant to section 72. This amount
reduces R's investment in the contract under section 72(e). R is treated
as paying the $100,000 to E as cash compensation, and E must include
that amount in gross income less any amounts determined under paragraph
(e)(3)(ii) of this section.
Example 8. (i) The facts are the same as in Example 7 except E
receives the proceeds of a $100,000 specified policy loan directly from
the insurance company.
(ii) The transfer of the proceeds of the specified policy loan to E
is treated as a loan by the insurance company to R. Under the rules of
section 72(e), the $100,000 loan is not included in R's income and does
not reduce R's investment in the contract. R is treated as paying the
$100,000 of loan proceeds to E
[[Page 90]]
as cash compensation. E must include that amount in gross income less
any amounts determined under paragraph (e)(3)(ii) of this section.
(i) [Reserved]
(j) Effective date--(1) General rule--(i) In general. This section
applies to any split-dollar life insurance arrangement (as defined in
paragraph (b)(1) or (2) of this section) entered into after September
17, 2003.
(ii) Determination of when an arrangement is entered into. For
purposes of paragraph (j) of this section, a split-dollar life insurance
arrangement is entered into on the latest of the following dates:
(A) The date on which the life insurance contract under the
arrangement is issued;
(B) The effective date of the life insurance contract under the
arrangement;
(C) The date on which the first premium on the life insurance
contract under the arrangement is paid;
(D) The date on which the parties to the arrangement enter into an
agreement with regard to the policy; or
(E) The date on which the arrangement satisfies the definition of a
split-dollar life insurance arrangement (as defined in paragraph (b)(1)
or (2) of this section).
(2) Modified arrangements treated as new arrangements--(i) In
general. For purposes of paragraph (j)(1) of this section, if an
arrangement entered into on or before September 17, 2003 is materially
modified after September 17, 2003, the arrangement is treated as a new
arrangement entered into on the date of the modification.
(ii) Non-material modifications. The following is a non-exclusive
list of changes that are not material modifications under paragraph
(j)(2)(i) of this section (either alone or in conjunction with other
changes listed in paragraphs (j)(2)(ii)(A) through (I) of this
section)--
(A) A change solely in the mode of premium payment (for example, a
change from monthly to quarterly premiums);
(B) A change solely in the beneficiary of the life insurance
contract, unless the beneficiary is a party to the arrangement;
(C) A change solely in the interest rate payable under the life
insurance contract on a policy loan;
(D) A change solely necessary to preserve the status of the life
insurance contract under section 7702;
(E) A change solely to the ministerial provisions of the life
insurance contract (for example, a change in the address to send
payment);
(F) A change made solely under the terms of any agreement (other
than the life insurance contract) that is a part of the split-dollar
life insurance arrangement if the change is non-discretionary by the
parties and is made pursuant to a binding commitment (whether set forth
in the agreement or otherwise) in effect on or before September 17,
2003;
(G) A change solely in the owner of the life insurance contract as a
result of a transaction to which section 381(a) applies and in which
substantially all of the former owner's assets are transferred to the
new owner of the policy;
(H) A change to the policy solely if such change is required by a
court or a state insurance commissioner as a result of the insolvency of
the insurance company that issued the policy; or
(I) A change solely in the insurance company that administers the
policy as a result of an assumption reinsurance transaction between the
issuing insurance company and the new insurance company to which the
owner and the non-owner were not a party.
(iii) Delegation to Commissioner. The Commissioner, in revenue
rulings, notices, and other guidance published in the Internal Revenue
Bulletin, may provide additional guidance with respect to other
modifications that are not material for purposes of paragraph (j)(2)(i)
of this section. See Sec. 601.601(d)(2)(ii) of this chapter.
[T.D. 9092, 68 FR 54344, Sept. 17, 2003; 68 FR 63735, Nov. 10, 2003]
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
[[Page 91]]
(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)-(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]
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 following), 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
[[Page 92]]
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).
(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
[[Page 93]]
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 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
[[Page 94]]
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
$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.
[[Page 95]]
(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.
(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
[[Page 96]]
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 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,
[[Page 97]]
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 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) and (j), which grant the Commissioner the authority
to establish optional methods of substantiating certain expenses.
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 general applicability
under which a reimbursement or other expense allowance arrangement that
provides per
[[Page 98]]
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 which is treated as paid under a nonaccountable plan under
paragraph (c)(3)(ii) of this section is subject to
[[Page 99]]
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' Forms W-2 and must withhold and pay employment taxes on the
entire $200 when paid.
[[Page 100]]
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 B is $130.
However, Employer W does not require Employee B to return the remaining
[[Page 101]]
$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 (2 x (120% x $100) + 4 x (120% x $125)), and does not
require Employee C to return the excess portion ($140 excess portion =
(2 days x $20 ($120-$100) + 4 days x $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 102]]
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; T.D. 9064, 68 FR 39011, July 1, 2003]
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
[[Page 103]]
(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]
Sec. 1.66-1 Treatment of community income.
(a) In general. Married individuals domiciled in a community
property state who do not elect to file a joint individual Federal
income tax return under section 6013 generally must report half of the
total community income earned by the spouses during the taxable year
except at times when one of the following exceptions applies:
(1) The spouses live apart and meet the qualifications of Sec. 1.66-
2.
(2) The Secretary denies a spouse the Federal income tax benefits
resulting from community property law under Sec. 1.66-3, because that
spouse acted as if solely entitled to the income and failed to notify
his or her spouse of the nature and amount of the income prior to the
due date for the filing of his or her spouse's return.
(3) A requesting spouse qualifies for traditional relief from the
Federal income tax liability resulting from the operation of community
property law under Sec. 1.66-4(a).
(4) A requesting spouse qualifies for equitable relief from the
Federal income tax liability resulting from the operation of community
property law under Sec. 1.66-4(b).
(b) Applicability. (1) The rules of this section apply only to
community income, as defined by state law. The rules of this section do
not apply to income that is not community income. Thus, the rules of
this section do not apply to income from property that was formerly
community property, but in accordance with state law, has ceased to be
community property, becoming, e.g., separate property or property held
by joint tenancy or tenancy in common.
(2) When taxpayers report income under paragraph (a) of this
section, all community income for the calendar year is treated in
accordance with the rules provided by section 879(a). Unlike the other
provisions under section 66, section 66(a) does not permit inclusion on
an item-by-item basis.
(c) Transferee liability. The provisions of section 66 do not negate
liability that arises under the operation of other laws. Therefore, a
spouse who is not subject to Federal income tax on community income may
nevertheless remain liable for the unpaid tax (including additions to
tax, penalties, and interest) to the extent provided by Federal or state
transferee liability or property laws (other than community property
laws). For the rules regarding the liability of transferees, see
sections 6901 through 6904 and the regulations thereunder.
[T.D. 9074, 68 FR 41070, July 10, 2003]
Sec. 1.66-2 Treatment of community income where spouses live apart.
(a) Community income of spouses domiciled in a community property
state will be treated in accordance with the rules provided by section
879(a) if all of the following requirements are satisfied--
(1) The spouses are married to each other at any time during the
calendar year;
(2) The spouses live apart at all times during the calendar year;
(3) The spouses do not file a joint return with each other for a
taxable year beginning or ending in the calendar year;
(4) One or both spouses have earned income that is community income
for the calendar year; and
(5) No portion of such earned income is transferred (directly or
indirectly) between such spouses before the close of the calendar year.
(b) Living apart. For purposes of this section, living apart
requires that spouses maintain separate residences. Spouses who maintain
separate residences due to temporary absences are not considered to be
living apart. Spouses who are not members of the same household under
Sec. 1.6015-3(b) are considered to be living apart for purposes of this
section.
(c) Transferred income. For purposes of this section, transferred
income does not include a de minimis amount of earned income that is
transferred between the spouses. In addition, any amount of earned
income transferred
[[Page 104]]
for the benefit of the spouses' child will not be treated as an indirect
transfer to one spouse. Additionally, income transferred between spouses
is presumed to be a transfer of earned income. This presumption is
rebuttable.
(d) Examples. The following examples illustrate the rules of this
section:
Example 1 Living apart. H and W are married, domiciled in State A, a
community property state, and have lived apart the entire year of 2002.
W, who is in the Army, was stationed in Korea for the entire calendar
year. During their separation, W intended to return home to H, and H
intended to live with W upon W's return. H and W do not file a joint
return for taxable year 2002. H and W may not report their income under
this section because a temporary absence due to military service is not
living apart as contemplated under this section.
Example 2 Transfer of earned income--de minimis exception. H and W
are married, domiciled in State B, a community property state, and have
lived apart the entire year of 2002. H and W are estranged and intend to
live apart indefinitely. H and W do not file a joint return for taxable
year 2002. H occasionally visits W and their two children, who live with
W. When H visits, he often buys gifts for the children, takes the
children out to dinner, and occasionally buys groceries or gives W money
to buy the children new clothes for school. Both W and H have earned
income in the year 2002 that is community income under the laws of State
B. H and W may report their income on separate returns under this
section.
Example 3 Transfer of earned income--source of transfer. H and W are
married, domiciled in State C, a community property state, and have
lived apart the entire year of 2002. H and W are estranged and intend to
live apart indefinitely. H and W do not file a joint return for taxable
year 2002. W provides H $1,000 a month from March 2002 through August
2002 while H is working part-time and seeking full-time employment. W is
not legally obligated to make the $1,000 payments. W earns $75,000 in
2002 in wage income. W also receives $10,000 in capital gains income in
December 2002. H wants to report his income in accordance with this
section, alleging that the $6,000 that he received from W was not from
W's earned income, but from the capital gains income W received in 2002.
The facts and circumstances surrounding the periodic payments to H from
W do not indicate that W made the payments out of her capital gains. H
and W may not report their income in accordance with this section, as
the $6,000 W transferred to H is presumed to be from W's earned income,
and H has not presented any facts to rebut the presumption.
[T.D. 9074, 68 FR 41070, July 10, 2003]
Sec. 1.66-3 Denial of the Federal income tax benefits resulting from
the operation of community property law where spouse not notified.
(a) In general. The Secretary may deny the Federal income tax
benefits of community property law to any spouse with respect to any
item of community income if that spouse acted as if solely entitled to
the income and failed to notify his or her spouse of the nature and
amount of the income before the due date (including extensions) for the
filing of the return of his or her spouse for the taxable year in which
the item of income was derived. Whether a spouse has acted as if solely
entitled to the item of income is a facts and circumstances
determination. This determination focuses on whether the spouse used, or
made available, the item of income for the benefit of the marital
community.
(b) Effect. The item of community income will be included, in its
entirety, in the gross income of the spouse to whom the Secretary denied
the Federal income tax benefits resulting from community property law.
The tax liability arising from the inclusion of the item of community
income must be assessed in accordance with section 6212 against this
spouse.
(c) Examples. The following examples illustrate the rules of this
section:
Example 1 Acting as if solely entitled to income. (i) H and W are
married and are domiciled in State A, a community property state. W's
Form W-2 for taxable year 2000 showed wage income of $35,000. W also
received a Form 1099-INT, ``Interest Income,'' showing $1,000 W received
in taxable year 2000. W's wage income was directly deposited into H and
W's joint account, from which H and W paid bills and household expenses.
W did not inform H of her interest income or the Form 1099-INT, but W
gave H a copy of the W-2 when she received it in January 2001. W did not
use her interest income for bills or household expenses. Instead W gave
her interest income to her brother, who was unemployed. Neither the
separate return filed by H nor the separate return filed by W included
the interest income. In 2002, the IRS audits both H and W. The Internal
Revenue Service (IRS) may raise section 66(b) as to W's interest income,
denying W the Federal income
[[Page 105]]
tax benefit resulting from community property law as to this item of
income.
(ii) H and W are married and are domiciled in State B, a community
property state. For taxable year 2000, H receives $45,000 in wage income
that H places in a separate account. H and W maintain separate
residences. H's wage income is community income under the laws of State
B. That same year, W loses her job, and H pays W's mortgage and
household expenses for several months while W seeks employment. Neither
H nor W files a return for 2000, the taxable year for which the IRS
subsequently audits them. The IRS may not raise section 66(b) and deny H
the Federal income tax benefits resulting from the operation of
community property law as to H's wage income of $45,000, as H has not
treated this income as if H were solely entitled to it.
Example 2 Notification of nature and amount of the income. H and W
are married and domiciled in State C, a community property state. H and
W do not file a joint return for taxable year 2001. H's and W's earned
income for 2001 is community income under the laws of State C. H
receives $50,000 in wage income in 2001. In January 2002, H receives a
Form W-2 that erroneously states that H earned $45,000 in taxable year
2001. H provides W a copy of H's Form W-2 in February 2002. W files for
an extension prior to April 15, 2002. H receives a corrected Form W-2
reflecting wages of $50,000 in May 2002. H provides a copy of the
corrected Form W-2 to W in May 2002. W files a separate return in June
2002, but reports one half of $45,000 ($22,500) of wage income that H
earned. H files a separate return reporting half of $50,000 ($25,000) in
wage income. The IRS audits both H and W. Even if H had acted as if
solely entitled to the wage income, the IRS may not raise section 66(b)
as to this income because H notified W of the nature and amount of the
income prior to the due date of W's return (including extensions).
[T.D. 9074, 68 FR 41070, July 10, 2003]
Sec. 1.66-4 Request for relief from the Federal income tax liability
resulting from the operation of community property law.
(a) Traditional relief--(1) In general. A requesting spouse will
receive relief from the Federal income tax liability resulting from the
operation of community property law for an item of community income if--
(i) The requesting spouse did not file a joint Federal income tax
return for the taxable year for which he or she seeks relief;
(ii) The requesting spouse did not include in gross income for the
taxable year an item of community income properly includible therein,
which, under the rules contained in section 879(a), would be treated as
the income of the nonrequesting spouse;
(iii) The requesting spouse establishes that he or she did not know
of, and had no reason to know of, the item of community income; and
(iv) Taking into account all of the facts and circumstances, it is
inequitable to include the item of community income in the requesting
spouse's individual gross income.
(2) Knowledge or reason to know. (i) A requesting spouse had
knowledge or reason to know of an item of community income if he or she
either actually knew of the item of community income, or if a reasonable
person in similar circumstances would have known of the item of
community income. All of the facts and circumstances are considered in
determining whether a requesting spouse had reason to know of an item of
community income. The relevant facts and circumstances include, but are
not limited to, the nature of the item of community income, the amount
of the item of community income relative to other income items, the
couple's financial situation, the requesting spouse's educational
background and business experience, and whether the item of community
income was reflected on prior years' returns (e.g., investment income
omitted that was regularly reported on prior years' returns).
(ii) If the requesting spouse is aware of the source of community
income or the income-producing activity, but is unaware of the specific
amount of the nonrequesting spouse's community income, the requesting
spouse is considered to have knowledge or reason to know of the item of
community income. The requesting spouse's lack of knowledge of the
specific amount of community income does not provide a basis for relief
under this section.
(3) Inequitable. All of the facts and circumstances are considered
in determining whether it is inequitable to hold a requesting spouse
liable for a deficiency attributable to an item of community income. One
relevant factor for this purpose is whether the requesting spouse
benefitted, directly or indirectly, from the omitted item of
[[Page 106]]
community income. A benefit includes normal support, but does not
include de minimis amounts. Evidence of direct or indirect benefit may
consist of transfers of property or rights to property, including
transfers received several years after the filing of the return. Thus,
for example, if a requesting spouse receives from the nonrequesting
spouse property (including life insurance proceeds) that is traceable to
items of community income attributable to the nonrequesting spouse, the
requesting spouse will have benefitted from those items of community
income. Other factors may include, if the situation warrants, desertion,
divorce or separation. Factors relevant to whether it would be
inequitable to hold a requesting spouse liable, more specifically
described under the applicable administrative procedure issued under
section 66(c) (Revenue Procedure 2000-15 (2000-1 C.B. 447) (See
Sec. 601.601(d)(2) of this chapter), or other applicable guidance
published by the Secretary), are to be considered in making a
determination under this paragraph.
(b) Equitable relief. Equitable relief may be available when the
four requirements of paragraph (a)(1) of this section are not satisfied,
but it would be inequitable to hold the requesting spouse liable for the
unpaid tax or deficiency. Factors relevant to whether it would be
inequitable to hold a requesting spouse liable, more specifically
described under the applicable administrative procedure issued under
section 66(c) (Revenue Procedure 2000-15 (2000-1 C.B. 447), or other
applicable guidance published by the Secretary), are to be considered in
making a determination under this paragraph.
(c) Applicability. Traditional relief under paragraph (a) of this
section applies only to deficiencies arising out of items of omitted
income. Equitable relief under paragraph (b) of this section applies to
any deficiency or any unpaid tax (or any portion of either). Equitable
relief is available only for the portion of liabilities that were unpaid
as of July 22, 1998, and for liabilities that arise after July 22, 1998.
(d) Effect of relief. When the requesting spouse qualifies for
relief under paragraph (a) or (b) of this section, the IRS must assess
any deficiency of the nonrequesting spouse arising from the granting of
relief to the requesting spouse in accordance with section 6212.
(e) Examples. The following examples illustrate the rules of this
section:
Example 1 Item-by-item approach. H and W are married, living
together, and domiciled in State A (a community property state). H and W
file separate returns for taxable year 2002 on April 15, 2003. H earns
$56,000 in wages, and W earns $46,000 in wages, in 2002. H reports half
of his wage income as shown on his Form W-2, in the amount of $28,000,
and half of W's wage income as shown on her Form W-2, in the amount of
$23,000. W reports half of her wage income as shown on her W-2, in the
amount of $23,000, and half of H's wage income as shown on his Form W-2,
in the amount of $28,000. Neither H nor W reports W's income from her
sole proprietorship of $34,000 or W's investment income of $5,000 for
taxable year 2002. The Internal Revenue Service (IRS) proposes
deficiencies with respect to H's and W's taxable year 2002 returns due
to the omission of W's income from her sole proprietorship and
investments. H timely requests relief under section 66(c). Because the
IRS determines that H satisfies the four requirements of the traditional
relief provision of section 66(c) with respect to W's omitted investment
income, the IRS grants H's request for relief as to the omitted
investment income. The IRS determines that H does not satisfy the four
requirements of the traditional relief provision of section 66(c) as to
W's sole proprietorship income. The IRS further determines that, under
the equitable relief provision of section 66(c), it is not inequitable
to hold H liable for the sole proprietorship income. Relief is
applicable on an item-by-item basis. Thus, H is liable for the tax on
half of his wage income in the amount of $28,000, half of W's wage
income in the amount of $23,000, half of W's sole proprietorship income
in the amount of $17,000, but none of W's investment income, for which H
obtained relief under section 66(c). W is liable for the tax on half of
H's wage income in the amount of $28,000, half of W's wage income in the
amount of $23,000, half of W's sole proprietorship income in the amount
of $17,000, and all of W's investment income in the amount of $5,000,
because H obtained relief under section 66(c).
Example 2 Benefit. H and W are married, living together, and
domiciled in State B (a community property state). Neither H nor W files
a return for taxable year 2000. H earns $60,000 in 2000, which he
deposits in a joint account. H and W pay the mortgage payment, household
bills, and other family expenses out of the joint account. W earns
$20,000 in 2000. W uses a portion of the $20,000
[[Page 107]]
to make monthly loan payments on the family cars, but loses the
remainder at the local racetrack. In 2002, the IRS audits H and W. H
requests relief under section 66(c), stating that he did not know or
have reason to know of W's additional income, as H travels extensively
while W handles the family finances. Regardless of whether H had
knowledge or reason to know of the source of W's income, H is not
eligible for traditional relief under section 66(c) because H benefitted
from W's income. H's benefit, the portion of W's income used to make
monthly payments on the car loans, was more than a de minimis amount.
While this benefit was not in excess of normal support, it is enough to
preclude relief under the traditional relief provision of section 66(c).
H may still qualify for equitable relief under section 66(c), depending
on all of the facts and circumstances.
(f) Fraudulent scheme. If the Secretary establishes that a spouse
transferred assets to his or her spouse as part of a fraudulent scheme,
relief is not available under this section. For purposes of this
section, a fraudulent scheme includes a scheme to defraud the Secretary
or another third party, such as a creditor, ex-spouse, or business
partner.
(g) Definitions--(1) Requesting spouse. A requesting spouse is an
individual who does not file a joint Federal income tax return with the
nonrequesting spouse for the taxable year in question, and who requests
relief from the Federal income tax liability resulting from the
operation of community property law under this section for the portion
of the liability arising from his or her share of community income for
such taxable year.
(2) Nonrequesting spouse. A nonrequesting spouse is the individual
to whom the requesting spouse was married and whose income or deduction
gave rise to the tax liability from which the requesting spouse seeks
relief in whole or in part.
(h) Effect of prior closing agreement or offer in compromise. A
requesting spouse is not entitled to relief from the Federal income tax
liability resulting from the operation of community property law under
section 66 for any taxable year for which the requesting spouse has
entered into a closing agreement (other than an agreement pursuant to
section 6224(c) relating to partnership items) with the Secretary that
disposes of the same liability that is the subject of the request for
relief. In addition, a requesting spouse is not entitled to relief from
the Federal income tax liability resulting from the operation of
community property law under section 66 for any taxable year for which
the requesting spouse has entered into an offer in compromise with the
Secretary. For rules relating to the effect of closing agreements and
offers in compromise, see sections 7121 and 7122, and the regulations
thereunder.
(i) [Reserved]
(j) Time and manner for requesting relief--(1) Requesting relief. To
request relief from the Federal income tax liability resulting from the
operation of community property law under this section, a requesting
spouse must file, within the time period prescribed in paragraph (j)(2)
of this section, Form 8857, ``Request for Innocent Spouse Relief'' (or
other specified form), or other written request, signed under penalties
of perjury, stating why relief is appropriate. The requesting spouse
must include the nonrequesting spouse's name and taxpayer identification
number in the written request. The requesting spouse must also comply
with the Secretary's reasonable requests for information that will
assist the Secretary in identifying and locating the nonrequesting
spouse.
(2) Time period for filing a request for relief--(i) Traditional
relief. The earliest time for submitting a request for relief from the
Federal income tax liability resulting from the operation of community
property law under paragraph (a) of this section, for an amount
underreported on, or omitted from, the requesting spouse's separate
return, is the date the requesting spouse receives notification of an
audit or a letter or notice from the IRS stating that there may be an
outstanding liability with regard to that year (as described in
paragraph (j)(2)(iii) of this section). The latest time for requesting
relief under paragraph (a) of this section is 6 months before the
expiration of the period of limitations on assessment, including
extensions, against the nonrequesting spouse for the taxable year that
is the subject of the request for relief, unless the examination of the
requesting spouse's return commences
[[Page 108]]
during that 6-month period. If the examination of the requesting
spouse's return commences during that 6-month period, the latest time
for requesting relief under paragraph (a) of this section is 30 days
after the commencement of the examination.
(ii) Equitable relief. The earliest time for submitting a request
for relief from the Federal income tax liability resulting from the
operation of community property law under paragraph (b) of this section
is the date the requesting spouse receives notification of an audit or a
letter or notice from the IRS stating that there may be an outstanding
liability with regard to that year (as described in paragraph
(j)(2)(iii) of this section). A request for equitable relief from the
Federal income tax liability resulting from the operation of community
property law under paragraph (b) of this section for a liability that is
properly reported but unpaid is properly submitted with the requesting
spouse's individual Federal income tax return, or after the requesting
spouse's individual Federal income tax return is filed.
(iii) Premature requests for relief. The Secretary will not consider
a premature request for relief under this section. The notices or
letters referenced in this paragraph (j)(2) do not include notices
issued pursuant to section 6223 relating to TEFRA partnership
proceedings. These notices or letters include notices of computational
adjustment to a partner or partner's spouse (Notice of Income Tax
Examination Changes) that reflect a computation of the liability
attributable to partnership items of the partner or the partner's
spouse.
(k) Nonrequesting spouse's notice and opportunity to participate in
administrative proceedings--(1) In general. When the Secretary receives
a request for relief from the Federal income tax liability resulting
from the operation of community property law under this section, the
Secretary must send a notice to the nonrequesting spouse's last known
address that informs the nonrequesting spouse of the requesting spouse's
request for relief. The notice must provide the nonrequesting spouse
with an opportunity to submit any information for consideration in
determining whether to grant the requesting spouse relief from the
Federal income tax liability resulting from the operation of community
property law. The Secretary will share with each spouse the information
submitted by the other spouse, unless the Secretary determines that the
sharing of this information will impair tax administration.
(2) Information submitted. The Secretary will consider all of the
information (as relevant to the particular relief provision) that the
nonrequesting spouse submits in determining whether to grant relief from
the Federal income tax liability resulting from the operation of
community property law under this section.
[T.D. 9074, 68 FR 41070, July 10, 2003]
Sec. 1.66-5 Effective date.
Sections 1.66-1 through 1.66-4 are applicable on July 10, 2003. In
addition, Sec. 1.66-4 applies to any request for relief filed prior to
July 10, 2003, for which the Internal Revenue Service has not issued a
preliminary determination as of July 10, 2003.
[T.D. 9074, 68 FR 41070, July 10, 2003]
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
[[Page 109]]
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 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
[[Page 110]]
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 ($3,750 x 20%). The amount of A's miscellaneous
itemized deductions that are disallowed under section 67 is $2,000
($100,000 x 2%). 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 ($4,000 x $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 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
[[Page 111]]
(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 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
[[Page 112]]
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.
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
[[Page 113]]
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
(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
[[Page 114]]
(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) 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--
[[Page 115]]
(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 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
[[Page 116]]
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, 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
[[Page 117]]
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
(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
[[Page 118]]
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 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]
[[Page 119]]
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 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
[[Page 120]]
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]
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--
[[Page 121]]
(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 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-
[[Page 122]]
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
(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
[[Page 123]]
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 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.
[[Page 124]]
(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 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;
[[Page 125]]
(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 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
[[Page 126]]
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]
Sec. 1.67-4 Costs paid or incurred by estates or non-grantor trusts.
(a) In general. Section 67(e) provides an exception to the 2-percent
floor on miscellaneous itemized deductions for costs that are paid or
incurred in connection with the administration of an estate or a trust
not described in Sec. 1.67-2T(g)(1)(i) (a non-grantor trust) and that
would not have been incurred if the property were not held in such
estate or trust. A cost is subject to the 2-percent floor to the extent
that it is included in the definition of miscellaneous itemized
deductions under section 67(b), is incurred by an estate or non-grantor
trust, and commonly or customarily would be incurred by a hypothetical
individual holding the same property.
(b) ``Commonly'' or ``Customarily'' Incurred--(1) In general. In
analyzing a cost to determine whether it commonly or customarily would
be incurred by a hypothetical individual owning the same property, it is
the type of product or service rendered to the estate or non-grantor
trust in exchange for the cost, rather than the description of the cost
of that product or service, that is determinative. In addition to the
types of costs described as commonly or customarily incurred by
individuals in paragraphs (b)(2), (3), (4),
[[Page 127]]
and (5) of this section, costs that are incurred commonly or customarily
by individuals also include, for example, costs incurred in defense of a
claim against the estate, the decedent, or the non-grantor trust that
are unrelated to the existence, validity, or administration of the
estate or trust.
(2) Ownership costs. Ownership costs are costs that are chargeable
to or incurred by an owner of property simply by reason of being the
owner of the property. Thus, for purposes of section 67(e), ownership
costs are commonly or customarily incurred by a hypothetical individual
owner of such property. Such ownership costs include, but are not
limited to, partnership costs deemed to be passed through to and
reportable by a partner if these costs are defined as miscellaneous
itemized deductions pursuant to section 67(b), condominium fees,
insurance premiums, maintenance and lawn services, and automobile
registration and insurance costs. Other expenses incurred merely by
reason of the ownership of property may be fully deductible under other
provisions of the Code, such as sections 62(a)(4), 162, or 164(a), which
would not be miscellaneous itemized deductions subject to section 67(e).
(3) Tax preparation fees. Costs relating to all estate and
generation-skipping transfer tax returns, fiduciary income tax returns,
and the decedent's final individual income tax returns are not subject
to the 2-percent floor. The costs of preparing all other tax returns
(for example, gift tax returns) are costs commonly and customarily
incurred by individuals and thus are subject to the 2-percent floor.
(4) Investment advisory fees. Fees for investment advice (including
any related services that would be provided to any individual investor
as part of an investment advisory fee) are incurred commonly or
customarily by a hypothetical individual investor and therefore are
subject to the 2-percent floor. However, certain incremental costs of
investment advice beyond the amount that normally would be charged to an
individual investor are not subject to the 2-percent floor. For this
purpose, such an incremental cost is a special, additional charge that
is added solely because the investment advice is rendered to a trust or
estate rather than to an individual or attributable to an unusual
investment objective or the need for a specialized balancing of the
interests of various parties (beyond the usual balancing of the varying
interests of current beneficiaries and remaindermen) such that a
reasonable comparison with individual investors would be improper. The
portion of the investment advisory fees not subject to the 2-percent
floor by reason of the preceding sentence is limited to the amount of
those fees, if any, that exceeds the fees normally charged to an
individual investor.
(5) Appraisal fees. Appraisal fees incurred by an estate or a non-
grantor trust to determine the fair market value of assets as of the
decedent's date of death (or the alternate valuation date), to determine
value for purposes of making distributions, or as otherwise required to
properly prepare the estate's or trust's tax returns, or a generation-
skipping transfer tax return, are not incurred commonly or customarily
by an individual and thus are not subject to the 2-percent floor. The
cost of appraisals for other purposes (for example, insurance) is
commonly or customarily incurred by individuals and is subject to the 2-
percent floor.
(6) Certain fiduciary expenses. Certain other fiduciary expenses are
not commonly or customarily incurred by individuals, and thus are not
subject to the 2-percent floor. Such expenses include without limitation
the following: Probate court fees and costs; fiduciary bond premiums;
legal publication costs of notices to creditors or heirs; the cost of
certified copies of the decedent's death certificate; and costs related
to fiduciary accounts.
(c) Bundled fees--(1) In general. If an estate or a non-grantor
trust pays a single fee, commission, or other expense (such as a
fiduciary's commission, attorney's fee, or accountant's fee) for both
costs that are subject to the 2-percent floor and costs (in more than a
de minimis amount) that are not, then, except to the extent provided
otherwise by guidance published in the Internal Revenue Bulletin, the
single fee, commission, or other expense (bundled fee) must be
allocated, for purposes of computing the adjusted
[[Page 128]]
gross income of the estate or non-grantor trust in compliance with
section 67(e), between the costs that are subject to the 2-percent floor
and those that are not.
(2) Exception. If a bundled fee is not computed on an hourly basis,
only the portion of that fee that is attributable to investment advice
is subject to the 2-percent floor; the remaining portion is not subject
to that floor.
(3) Expenses not subject to allocation. Out-of-pocket expenses
billed to the estate or non-grantor trust are treated as separate from
the bundled fee. In addition, payments made from the bundled fee to
third parties that would have been subject to the 2-percent floor if
they had been paid directly by the estate or non-grantor trust are
subject to the 2-percent floor, as are any fees or expenses separately
assessed by the fiduciary or other payee of the bundled fee (in addition
to the usual or basic bundled fee) for services rendered to the estate
or non-grantor trust that are commonly or customarily incurred by an
individual.
(4) Reasonable method. Any reasonable method may be used to allocate
a bundled fee between those costs that are subject to the 2-percent
floor and those costs that are not, including without limitation the
allocation of a portion of a fiduciary commission that is a bundled fee
to investment advice. Facts that may be considered in determining
whether an allocation is reasonable include, but are not limited to, the
percentage of the value of the corpus subject to investment advice,
whether a third party advisor would have charged a comparable fee for
similar advisory services, and the amount of the fiduciary's attention
to the trust or estate that is devoted to investment advice as compared
to dealings with beneficiaries and distribution decisions and other
fiduciary functions. The reasonable method standard does not apply to
determine the portion of the bundled fee attributable to payments made
to third parties for expenses subject to the 2-percent floor or to any
other separately assessed expense commonly or customarily incurred by an
individual, because those payments and expenses are readily identifiable
without any discretion on the part of the fiduciary or return preparer.
(d) Effective/applicability date. This section applies to taxable
years beginning after December 31, 2014.
[T.D. 9664, 79 FR 26619, May 9, 2014, as amended at 79 FR 41636, July
17, 2014]
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
[[Page 129]]
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 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
[[Page 130]]
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 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
[[Page 131]]
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.
(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.
[[Page 132]]
(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
(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
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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?
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
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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 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
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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.
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?
[[Page 136]]
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 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
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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 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
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$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
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
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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 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
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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 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
[[Page 141]]
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 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
[[Page 142]]
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 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
[[Page 143]]
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 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
[[Page 144]]
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, 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.
[[Page 145]]
(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 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
[[Page 146]]
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 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
[[Page 147]]
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 ($1,200 x 79.1 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 (500 x 79.1 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 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
[[Page 148]]
(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 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
[[Page 149]]
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 ($600 x \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 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 (2 x
$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.
[[Page 150]]
(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
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
============
[[Page 151]]
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.
(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
[[Page 152]]
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 $100 x 12 months equals annual payment of $1,200
Multiple shown in Table I, male, age 66....................... 14.4
---------
Expected return (1,200 x 14.4).............................. 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:
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 0 -0.1 -0.2 -0.3 -0.4 -0.5
0.5 0.4 0.3 0.2 0.1
-----------------------------------------------------------------------------------------------
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 ($1,200 x 13.9 [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
[[Page 153]]
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 $60 x 12 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 ($720 x 4.8)..........................................
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 $60 x 12 months equals annual $720.00
payment 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 ($720 x 4.9)..........................
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 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 $90 x 12 months equals annual $1,080
payment 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 $90 x 12 months equals annual $1,080
payment 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 $150 x 12 months equals annual $1,800
payment of............................................
[[Page 154]]
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 $150 x 12 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..............................................
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 $100 x 12 months equals annual $1,200
payment of............................................
Multiple shown in Table II (male, age 70, female, age 19.7
67)...................................................
----------------
Expected return ($1,200 x 19.7)...................... $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 $100 x 12 months equals annual $1,200
payment of............................................
Multiple shown in Table VI (ages 70, 67)............... 22.0
----------------
Expected return ($1,200 x 22.0)...................... $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.
[[Page 155]]
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 ($600 x $4,560
7.6)..................................................
Portion of expected return, first annuitant ($1,200 x $14,520
12.1).................................................
----------------
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 ($600 x $3,600
6.0)..................................................
Plus: Portion of expected return, first annuitant $19,200
($1,200 x 16.0).....................................
----------------
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 ($1,200
x 7.6). An expected return of $7,260 ($600 x 12.1) 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
[[Page 156]]
be obtained from Table I as of the annuity starting date determined in
accordance with paragraph (b)(2)(i) of Sec. 1.72-4.
(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 ($900 x 19.7--sum per year $17,730
after first death)....................................
Plus: Portion of expected return ($300 x 9.3--amount $2,790
of 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 ($900 x 22.0--sum per year $19,800
after first death)....................................
Plus: Portion of expected return ($300 x 12.4--amount $3,720
of 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 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
[[Page 157]]
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 ((.39 x 100) + (.42 x 100)), 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 ((.39 x 75) +
(.42 x 75)), 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 x 6
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 x 2
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 x 8
----------------
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 x 6
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.
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
[[Page 158]]
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
(6 x 23.2). 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 (2 x 12.6 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 units x $2), and B will have an
additional allocation of the investment in the contract of $12 (6 units
x $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 x 4
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 x 6
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. x 10
----------------
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 x 4
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 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 x 4
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 x 6
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. x 10
----------------
[[Page 159]]
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 x 4
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 x 6
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. x 10
----------------
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 x 4
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 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
[[Page 160]]
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 received as an 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
[[Page 161]]
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]
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.
[[Page 162]]
(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:
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 ($1,000 x 14,500
14.5 [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
[[Page 163]]
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
(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.
[[Page 164]]
(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, 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.
[[Page 165]]
(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 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.
[[Page 166]]
(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 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.
[[Page 167]]
(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)..........................
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/$21,053 x $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/$21,053 x $1,200).....................
Number of years for which payment guaranteed ($11,053 17.54
$630).....................................................
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
[[Page 168]]
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:
[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.
[[Page 169]]
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.
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.
[[Page 170]]
(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
------------------------------------------------------------------------
(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 ($1,200 x 10).......................... $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
[[Page 171]]
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 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 ($1,350 x 15), 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
[[Page 172]]
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)...............................................
------------------
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......................................
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
[[Page 173]]
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 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
[[Page 174]]
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 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
[[Page 175]]
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, 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
[[Page 176]]
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
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
[[Page 177]]
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 178]]
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
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
[[Page 179]]
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
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
[[Page 180]]
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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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
[[Page 181]]
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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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
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[[Page 182]]
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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
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
[[Page 183]]
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
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
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------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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
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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
[[Page 184]]
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
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------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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
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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
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[[Page 185]]
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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
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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
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
[[Page 186]]
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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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
[[Page 187]]
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
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
[[Page 188]]
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
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
[[Page 189]]
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
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
[[Page 190]]
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
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
[[Page 191]]
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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 ....... ....... ....... ....... ....... .......
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
[[Page 192]]
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
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
[[Page 193]]
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
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
[[Page 194]]
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
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
[[Page 195]]
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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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
[[Page 196]]
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
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
[[Page 197]]
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
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
[[Page 198]]
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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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
[[Page 199]]
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
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
[[Page 200]]
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
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
[[Page 201]]
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
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
[[Page 202]]
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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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
[[Page 203]]
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
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
[[Page 204]]
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 ....... .......
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
[[Page 205]]
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 ....... ....... ....... ....... ....... .......
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
[[Page 206]]
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
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
[[Page 207]]
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
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
[[Page 208]]
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
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
[[Page 209]]
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
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
[[Page 210]]
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
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
[[Page 211]]
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
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
[[Page 212]]
106.................................... 111...................... 53 66 74
107.................................... 112...................... 35 53 71
108.................................... 113...................... 40 64 ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... .......
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
[[Page 213]]
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
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
[[Page 214]]
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
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
[[Page 215]]
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
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
[[Page 216]]
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
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
[[Page 217]]
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
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............................... 19.8 20.6 21.5 22.3 23.1 23.9 24.6 25.4 26.1 26.8
38............................................. 43............................... 19.7 20.5 21.4 22.2 23.0 23.7 24.5 25.2 25.9 26.6
39............................................. 44............................... 19.6 20.4 21.2 22.0 22.8 23.6 24.3 25.0 25.7 26.4
40............................................. 45............................... 19.5 20.3 21.1 21.9 22.6 23.4 24.1 24.8 25.5 26.1
41............................................. 46............................... 19.4 20.2 21.0 21.7 22.5 23.2 23.9 24.6 25.2 25.9
42............................................. 47............................... 19.3 20.1 20.8 21.6 22.3 23.0 23.7 24.3 25.0 25.6
43............................................. 48............................... 19.2 19.9 20.7 21.4 22.1 22.8 23.4 24.1 24.7 25.3
44............................................. 49............................... 19.0 19.8 20.5 21.2 21.9 22.6 23.2 23.8 24.4 25.0
45............................................. 50............................... 18.9 19.6 20.3 21.0 21.7 22.3 22.9 23.5 24.1 24.6
46............................................. 51............................... 18.7 19.4 20.1 20.8 21.5 22.1 22.7 23.2 23.8 24.3
47............................................. 52............................... 18.6 19.3 19.9 20.6 21.2 21.8 22.4 22.9 23.4 23.9
48............................................. 53............................... 18.4 19.1 19.7 20.4 21.0 21.5 22.1 22.6 23.1 23.5
49............................................. 54............................... 18.2 18.9 19.5 20.1 20.7 21.2 21.7 22.2 22.7 23.1
50............................................. 55............................... 18.0 18.7 19.3 19.8 20.4 20.9 21.4 21.9 22.3 22.7
51............................................. 56............................... 17.8 18.4 19.0 19.6 20.1 20.6 21.1 21.5 21.9 22.3
52............................................. 57............................... 17.6 18.2 18.7 19.3 19.8 20.2 20.7 21.1 21.5 21.8
53............................................. 58............................... 17.4 17.9 18.5 19.0 19.4 19.9 20.3 20.7 21.0 21.3
54............................................. 59............................... 17.1 17.7 18.2 18.7 19.1 19.5 19.9 20.2 20.6 20.8
55............................................. 60............................... 16.9 17.4 17.9 18.3 18.7 19.1 19.5 19.8 20.1 20.3
[[Page 218]]
56............................................. 61............................... 16.6 17.1 17.5 18.0 18.4 18.7 19.0 19.3 19.6 19.8
57............................................. 62............................... 16.3 16.8 17.2 17.6 18.0 18.3 18.6 18.9 19.1 19.3
58............................................. 63............................... 16.0 16.5 16.9 17.2 17.6 17.9 18.1 18.4 18.6 18.8
59............................................. 64............................... 15.7 16.1 16.5 16.8 17.1 17.4 17.7 17.9 18.1 18.2
60............................................. 65............................... 15.4 15.8 16.1 16.4 16.7 17.0 17.2 17.4 17.5 17.7
61............................................. 66............................... 15.1 15.4 15.7 16.0 16.3 16.5 16.7 16.9 17.0 17.1
62............................................. 67............................... 14.7 15.0 15.3 15.6 15.8 16.0 16.2 16.3 16.4 16.5
63............................................. 68............................... 14.4 14.6 14.9 15.1 15.3 15.5 15.7 15.8 15.9 16.0
64............................................. 69............................... 14.0 14.3 14.5 14.7 14.9 15.0 15.2 15.3 15.3 15.4
65............................................. 70............................... 13.6 13.8 14.1 14.2 14.4 14.5 14.6 14.7 14.8 14.9
66............................................. 71............................... 13.2 13.4 13.6 13.8 13.9 14.0 14.1 14.2 14.2 14.3
67............................................. 72............................... 12.8 13.0 13.2 13.3 13.4 13.5 13.6 13.7 13.7 13.7
68............................................. 73............................... 12.4 12.6 12.7 12.8 12.9 13.0 13.1 13.1 13.2 13.2
69............................................. 74............................... 12.0 12.1 12.3 12.4 12.4 12.5 12.6 12.6 12.6 12.6
70............................................. 75............................... 11.6 11.7 11.8 11.9 12.0 12.0 12.0 12.1 12.1 12.1
71............................................. 76............................... 11.2 11.3 11.3 11.4 11.5 11.5 11.5 11.6 11.6
72............................................. 77............................... 10.7 10.8 10.9 10.9 11.0 11.0 11.0 11.0
73............................................. 78............................... 10.3 10.4 10.4 10.5 10.5 10.5 10.5
74............................................. 79............................... 9.9 9.9 10.0 10.0 10.1 10.1
75............................................. 80............................... 9.5 9.5 9.6 9.6 9.6
76............................................. 81............................... 9.1 9.1 9.1 9.1
77............................................. 82............................... 8.6 8.7 8.7
78............................................. 83............................... 8.2 8.3
79............................................. 84............................... 7.8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Footnote to Table IV:
\1\ The multiples in this table are not applicable to annuities for a term certain; for such cases see paragraph (c) of Sec. 1.72-5.
[[Page 219]]
Table V--Ordinary Life Annuities One Life--Expected Return Multiples
------------------------------------------------------------------------
Age Multiple
------------------------------------------------------------------------
5...................................................... 76.6
6...................................................... 75.6
7...................................................... 74.7
8...................................................... 73.7
9...................................................... 72.7
10..................................................... 71.7
11..................................................... 70.7
12..................................................... 69.7
13..................................................... 68.8
14..................................................... 67.8
15..................................................... 66.8
16..................................................... 65.8
17..................................................... 64.8
18..................................................... 63.9
19..................................................... 62.9
20..................................................... 61.9
21..................................................... 60.9
22..................................................... 59.9
23..................................................... 59.0
24..................................................... 58.0
25..................................................... 57.0
26..................................................... 56.0
27..................................................... 55.1
28..................................................... 54.1
29..................................................... 53.1
30..................................................... 52.2
31..................................................... 51.2
32..................................................... 50.2
33..................................................... 49.3
34..................................................... 48.3
35..................................................... 47.3
36..................................................... 46.4
37..................................................... 45.4
38..................................................... 44.4
39..................................................... 43.5
40..................................................... 42.5
41..................................................... 41.5
42..................................................... 40.6
43..................................................... 39.6
44..................................................... 38.7
45..................................................... 37.7
46..................................................... 36.8
47..................................................... 35.9
48..................................................... 34.9
49..................................................... 34.0
50..................................................... 33.1
51..................................................... 32.2
52..................................................... 31.3
53..................................................... 30.4
54..................................................... 29.5
55..................................................... 28.6
56..................................................... 27.7
57..................................................... 26.8
58..................................................... 25.9
59..................................................... 25.0
60..................................................... 24.2
61..................................................... 23.3
62..................................................... 22.5
63..................................................... 21.6
64..................................................... 20.8
65..................................................... 20.0
66..................................................... 19.2
67..................................................... 18.4
68..................................................... 17.6
69..................................................... 16.8
70..................................................... 16.0
71..................................................... 15.3
72..................................................... 14.6
73..................................................... 13.9
74..................................................... 13.2
75..................................................... 12.5
76..................................................... 11.9
77..................................................... 11.2
78..................................................... 10.6
79..................................................... 10.0
80..................................................... 9.5
81..................................................... 8.9
82..................................................... 8.4
83..................................................... 7.9
84..................................................... 7.4
85..................................................... 6.9
86..................................................... 6.5
87..................................................... 6.1
88..................................................... 5.7
89..................................................... 5.3
90..................................................... 5.0
91..................................................... 4.7
92..................................................... 4.4
93..................................................... 4.1
94..................................................... 3.9
95..................................................... 3.7
96..................................................... 3.4
97..................................................... 3.2
98..................................................... 3.0
99..................................................... 2.8
100.................................................... 2.7
101.................................................... 2.5
102.................................................... 2.3
103.................................................... 2.1
104.................................................... 1.9
105.................................................... 1.8
106.................................................... 1.6
107.................................................... 1.4
108.................................................... 1.3
109.................................................... 1.1
110.................................................... 1.0
111.................................................... .9
112.................................................... .8
113.................................................... .7
114.................................................... .6
115.................................................... .5
------------------------------------------------------------------------
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 5 6 7 8 9 10 11 12 13 14
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................................... 83.8 83.3 82.8 82.4 82.0 81.6 81.2 80.9 80.6 80.3
6................................................... 83.3 82.8 82.3 81.8 81.4 81.0 80.6 80.3 79.9 79.6
7................................................... 82.8 82.3 81.8 81.3 80.9 80.4 80.0 79.6 79.3 78.9
8................................................... 82.4 81.8 81.3 80.8 80.3 79.9 79.4 79.0 78.6 78.3
9................................................... 82.0 81.4 80.9 80.3 79.8 79.3 78.9 78.4 78.0 77.6
10.................................................. 81.6 81.0 80.4 79.9 79.3 78.8 78.3 77.9 77.4 77.0
11.................................................. 81.2 80.6 80.0 79.4 78.9 78.3 77.8 77.3 76.9 76.4
12.................................................. 80.9 80.3 79.6 79.0 78.4 77.9 77.3 76.8 76.3 75.9
[[Page 220]]
13.................................................. 80.6 79.9 79.3 78.6 78.0 77.4 76.9 76.3 75.8 75.3
14.................................................. 80.3 79.6 78.9 78.3 77.6 77.0 76.4 75.9 75.3 74.8
15.................................................. 80.0 79.3 78.6 77.9 77.3 76.6 76.0 75.4 74.9 74.3
16.................................................. 79.8 79.0 78.3 77.6 76.9 76.3 75.6 75.0 74.4 73.9
17.................................................. 79.5 78.8 78.0 77.3 76.6 75.9 75.3 74.6 74.0 73.4
18.................................................. 79.3 78.5 77.8 77.0 76.3 75.6 74.9 74.3 73.6 73.0
19.................................................. 79.1 78.3 77.5 76.8 76.0 75.3 74.6 73.9 73.3 72.6
20.................................................. 78.9 78.1 77.3 76.5 75.8 75.0 74.3 73.6 72.9 72.3
21.................................................. 78.7 77.9 77.1 76.3 75.5 74.8 74.0 73.3 72.6 71.9
22.................................................. 78.6 77.7 76.9 76.1 75.3 74.5 73.8 73.0 72.3 71.6
23.................................................. 78.4 77.6 76.7 75.9 75.1 74.3 73.5 72.8 72.0 71.3
24.................................................. 78.3 77.4 76.6 75.7 74.9 74.1 73.3 72.6 71.8 71.1
25.................................................. 78.2 77.3 76.4 75.6 74.8 73.9 73.1 72.3 71.6 70.8
26.................................................. 78.0 77.2 76.3 75.4 74.6 73.8 72.9 72.1 71.3 70.6
27.................................................. 77.9 77.1 76.2 75.3 74.4 73.6 72.8 71.9 71.1 70.3
28.................................................. 77.8 76.9 76.1 75.2 74.3 73.4 72.6 71.8 70.9 70.1
29.................................................. 77.7 76.8 76.0 75.1 74.2 73.3 72.5 71.6 70.8 70.0
30.................................................. 77.7 76.8 75.9 75.0 74.1 73.2 72.3 71.5 70.6 69.8
31.................................................. 77.6 76.7 75.8 74.9 74.0 73.1 72.2 71.3 70.5 69.6
32.................................................. 77.5 76.6 75.7 74.8 73.9 73.0 72.1 71.2 70.3 69.5
33.................................................. 77.5 76.5 75.6 74.7 73.8 72.9 72.0 71.1 70.2 69.3
34.................................................. 77.4 76.5 75.5 74.6 73.7 72.8 71.9 71.0 70.1 69.2
35.................................................. 77.3 76.4 75.5 74.5 73.6 72.7 71.8 70.9 70.0 69.1
36.................................................. 77.3 76.3 75.4 74.5 73.5 72.6 71.7 70.8 69.9 69.0
37.................................................. 77.2 76.3 75.4 74.4 73.5 72.6 71.6 70.7 69.8 68.9
38.................................................. 77.2 76.2 75.3 74.4 73.4 72.5 71.6 70.6 69.7 68.8
39.................................................. 77.2 76.2 75.3 74.3 73.4 72.4 71.5 70.6 69.6 68.7
40.................................................. 77.1 76.2 75.2 74.3 73.3 72.4 71.4 70.5 69.6 68.6
41.................................................. 77.1 76.1 75.2 74.2 73.3 72.3 71.4 70.4 69.5 68.6
42.................................................. 77.0 76.1 75.1 74.2 73.2 72.3 71.3 70.4 69.4 68.5
43.................................................. 77.0 76.1 75.1 74.1 73.2 72.2 71.3 70.3 69.4 68.5
44.................................................. 77.0 76.0 75.1 74.1 73.1 72.2 71.2 70.3 69.3 68.4
45.................................................. 77.0 76.0 75.0 74.1 73.1 72.2 71.2 70.2 69.3 68.4
46.................................................. 76.9 76.0 75.0 74.0 73.1 72.1 71.2 70.2 69.3 68.3
47.................................................. 76.9 75.9 75.0 74.0 73.1 72.1 71.1 70.2 69.2 68.3
48.................................................. 76.9 75.9 75.0 74.0 73.0 72.1 71.1 70.1 69.2 68.2
49.................................................. 76.9 75.9 74.9 74.0 73.0 72.0 71.1 70.1 69.1 68.2
50.................................................. 76.9 75.9 74.9 73.9 73.0 72.0 71.0 70.1 69.1 68.2
51.................................................. 76.8 75.9 74.9 73.9 73.0 72.0 71.0 70.1 69.1 68.1
52.................................................. 76.8 75.9 74.9 73.9 72.9 72.0 71.0 70.0 69.1 68.1
53.................................................. 76.8 75.8 74.9 73.9 72.9 71.9 71.0 70.0 69.0 68.1
54.................................................. 76.8 75.8 74.8 73.9 72.9 71.9 71.0 70.0 69.0 68.1
55.................................................. 76.8 75.8 74.8 73.9 72.9 71.9 70.9 70.0 69.0 68.0
56.................................................. 76.8 75.8 74.8 73.8 72.9 71.9 70.9 69.9 69.0 68.0
57.................................................. 76.8 75.8 74.8 73.8 72.9 71.9 70.9 69.9 69.0 68.0
58.................................................. 76.8 75.8 74.8 73.8 72.8 71.9 70.9 69.9 68.9 68.0
59.................................................. 76.7 75.8 74.8 73.8 72.8 71.9 70.9 69.9 68.9 68.0
60.................................................. 76.7 75.8 74.8 73.8 72.8 71.8 70.9 69.9 68.9 67.9
61.................................................. 76.7 75.7 74.8 73.8 72.8 71.8 70.9 69.9 68.9 67.9
62.................................................. 76.7 75.7 74.8 73.8 72.8 71.8 70.8 69.9 68.9 67.9
63.................................................. 76.7 75.7 74.8 73.8 72.8 71.8 70.8 69.9 68.9 67.9
64.................................................. 76.7 75.7 74.7 73.8 72.8 71.8 70.8 69.8 68.9 67.9
65.................................................. 76.7 75.7 74.7 73.8 72.8 71.8 70.8 69.8 68.9 67.9
66.................................................. 76.7 75.7 74.7 73.7 72.8 71.8 70.8 69.8 68.9 67.9
67.................................................. 76.7 75.7 74.7 73.7 72.8 71.8 70.8 69.8 68.8 67.9
68.................................................. 76.7 75.7 74.7 73.7 72.8 71.8 70.8 69.8 68.8 67.9
69.................................................. 76.7 75.7 74.7 73.7 72.7 71.8 70.8 69.8 68.8 67.8
70.................................................. 76.7 75.7 74.7 73.7 72.7 71.8 70.8 69.8 68.8 67.8
71.................................................. 76.7 75.7 74.7 73.7 72.7 71.8 70.8 69.8 68.8 67.8
72.................................................. 76.7 75.7 74.7 73.7 72.7 71.8 70.8 69.8 68.8 67.8
73.................................................. 76.7 75.7 74.7 73.7 72.7 71.7 70.8 69.8 68.8 67.8
74.................................................. 76.7 75.7 74.7 73.7 72.7 71.7 70.8 69.8 68.8 67.8
75.................................................. 76.7 75.7 74.7 73.7 72.7 71.7 70.8 69.8 68.8 67.8
76.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.8 69.8 68.8 67.8
77.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.8 69.8 68.8 67.8
78.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
79.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
80.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
81.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
82.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
83.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
[[Page 221]]
84.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
85.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
86.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
87.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
88.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.8 68.8 67.8
89.................................................. 76.6 75.7 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
90.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
91.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
92.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
93.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
94.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
95.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
96.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
97.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
98.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
99.................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
100................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
101................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
102................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
103................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
104................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
105................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
106................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
107................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
108................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
109................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
110................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
111................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
112................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
113................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
114................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
115................................................. 76.6 75.6 74.7 73.7 72.7 71.7 70.7 69.7 68.8 67.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 15 16 17 18 19 20 21 22 23 24
--------------------------------------------------------------------------------------------------------------------------------------------------------
15.................................................. 73.8 73.3 72.9 72.4 72.0 71.6 71.3 70.9 70.6 70.3
16.................................................. 73.3 72.8 72.3 71.9 71.4 71.0 70.7 70.3 70.0 69.6
17.................................................. 72.9 72.3 71.8 71.3 70.9 70.5 70.0 69.7 69.3 69.0
18.................................................. 72.4 71.9 71.3 70.8 70.4 69.0 69.5 69.9 68.7 68.3
19.................................................. 72.0 71.4 70.9 70.4 69.8 69.4 68.9 68.5 68.1 67.7
20.................................................. 71.6 71.0 70.5 69.9 69.4 68.8 68.4 67.9 67.5 67.1
21.................................................. 71.3 70.7 70.0 69.5 68.9 68.4 67.9 67.4 66.9 66.5
22.................................................. 70.9 70.3 69.7 69.0 68.5 67.9 67.4 66.9 66.4 65.9
23.................................................. 70.6 70.0 69.3 68.7 68.1 67.5 66.9 66.4 65.9 65.4
24.................................................. 70.3 69.6 69.0 68.3 67.7 67.1 66.5 65.9 65.4 64.9
25.................................................. 70.1 69.3 68.6 68.0 67.3 66.7 66.1 65.5 64.9 64.4
26.................................................. 69.8 69.1 68.3 67.6 67.0 66.3 65.7 65.1 64.5 63.9
27.................................................. 69.6 68.8 68.1 67.3 66.7 66.0 65.3 64.7 64.1 63.5
28.................................................. 69.3 68.6 67.8 67.1 66.4 65.7 65.0 64.3 63.7 63.1
29.................................................. 69.1 68.4 67.6 66.8 66.1 65.4 64.7 64.0 63.3 62.7
30.................................................. 69.0 68.2 67.4 66.6 65.8 65.1 64.4 63.7 63.0 62.3
31.................................................. 68.8 68.0 67.2 66.4 65.6 64.8 64.1 63.4 62.7 62.0
32.................................................. 68.6 67.8 67.0 66.2 65.4 64.6 63.8 63.1 62.4 61.7
33.................................................. 68.5 67.6 66.8 66.0 65.2 64.4 63.6 62.8 62.1 61.4
34.................................................. 68.3 67.5 66.6 65.8 65.0 64.2 63.4 62.6 61.9 61.1
35.................................................. 68.2 67.4 66.5 65.6 64.8 64.0 63.2 62.4 61.6 60.9
36.................................................. 68.1 67.2 66.4 65.5 64.7 63.8 63.0 62.2 61.4 60.6
37.................................................. 68.0 67.1 66.2 65.4 64.5 63.7 62.8 62.0 61.2 60.4
38.................................................. 67.9 67.0 66.1 65.2 64.4 63.5 62.7 61.8 61.0 60.2
39.................................................. 67.8 66.9 66.0 65.1 64.2 63.4 62.5 61.7 60.8 60.0
40.................................................. 67.7 66.8 65.9 65.0 64.1 63.3 62.4 61.5 60.7 59.9
41.................................................. 67.7 66.7 65.8 64.9 64.0 63.1 62.3 61.4 60.5 59.7
42.................................................. 67.6 66.7 65.7 64.8 63.9 63.0 62.2 61.3 60.4 59.6
43.................................................. 67.5 66.6 65.7 64.8 63.8 62.9 62.1 61.2 60.3 59.4
44.................................................. 67.5 66.5 65.6 64.7 63.8 62.9 62.0 61.1 60.2 59.3
45.................................................. 67.4 66.5 65.5 64.6 63.7 62.8 61.9 61.0 60.1 59.2
46.................................................. 67.4 66.4 65.4 64.6 63.6 62.7 61.8 60.9 60.0 59.1
[[Page 222]]
47.................................................. 67.3 66.4 65.4 64.5 63.6 62.6 61.7 60.8 59.9 59.0
48.................................................. 67.3 66.3 65.4 64.4 63.5 62.6 61.6 60.7 59.8 58.9
49.................................................. 67.2 66.3 65.3 64.4 63.5 62.5 61.6 60.7 59.7 58.8
50.................................................. 67.2 66.2 65.3 64.3 63.4 62.5 61.5 60.6 59.7 58.8
51.................................................. 67.2 66.2 65.3 64.3 63.4 62.4 61.5 60.5 59.6 58.7
52.................................................. 67.1 66.2 65.2 64.3 63.3 62.4 61.4 60.5 59.6 58.6
53.................................................. 67.1 66.2 65.2 64.2 63.3 62.3 61.4 60.4 59.5 58.6
54.................................................. 67.1 66.1 65.2 64.2 63.2 62.3 61.3 60.4 59.5 58.5
55.................................................. 67.1 66.1 65.1 64.2 63.2 62.3 61.3 60.4 59.4 58.5
56.................................................. 67.0 66.1 65.1 64.1 63.2 62.2 61.3 60.3 59.4 58.4
57.................................................. 67.0 66.1 65.1 64.1 63.2 62.2 61.2 60.3 59.3 58.4
58.................................................. 67.0 66.0 65.1 64.1 63.1 62.2 61.2 60.3 59.3 58.4
59.................................................. 67.0 66.0 65.0 64.1 63.1 62.1 61.2 60.2 59.3 58.3
60.................................................. 67.0 66.0 65.0 64.1 63.1 62.1 61.2 60.2 59.2 58.3
61.................................................. 67.0 66.0 65.0 64.0 63.1 62.1 61.1 60.2 59.2 58.3
62.................................................. 66.9 66.0 65.0 64.0 63.1 62.1 61.1 60.2 59.2 58.2
63.................................................. 66.9 66.0 65.0 64.0 63.0 62.1 61.1 60.1 59.2 58.2
64.................................................. 66.9 65.9 65.0 64.0 63.0 62.1 61.1 60.1 59.2 58.2
65.................................................. 66.9 65.9 65.0 64.0 63.0 62.0 61.1 60.1 59.1 58.2
66.................................................. 66.9 65.9 64.9 64.0 63.0 62.0 61.1 60.1 59.1 58.2
67.................................................. 66.9 65.9 64.9 64.0 63.0 62.0 61.1 60.1 59.1 58.1
68.................................................. 66.9 65.9 64.9 64.0 63.0 62.0 61.0 60.1 59.1 58.1
69.................................................. 66.9 65.9 64.9 63.9 63.0 62.0 61.0 60.0 59.1 58.1
70.................................................. 66.9 65.9 64.9 63.9 63.0 62.0 61.0 60.0 59.1 58.1
71.................................................. 66.9 65.9 64.9 63.9 62.9 62.0 61.0 60.0 59.1 58.1
72.................................................. 66.9 65.9 64.9 63.9 62.9 62.0 61.0 60.0 59.0 58.1
73.................................................. 66.8 65.9 64.9 63.9 62.9 62.0 61.0 60.0 59.0 58.1
74.................................................. 66.8 65.9 64.9 63.9 62.9 62.0 61.0 60.0 59.0 58.1
75.................................................. 66.8 65.9 64.9 63.9 62.9 61.9 61.0 60.0 59.0 58.1
76.................................................. 66.8 65.9 64.9 63.9 62.9 61.9 61.0 60.0 59.0 58.0
76.................................................. 66.8 65.9 64.9 63.9 62.9 61.9 61.0 60.0 59.0 58.0
77.................................................. 66.8 65.9 64.9 63.9 63.9 62.9 61.0 60.0 59.0 58.0
78.................................................. 66.8 65.8 64.9 63.9 62.9 61.9 61.0 60.0 59.0 58.0
79.................................................. 66.8 65.8 64.9 63.9 62.9 61.9 61.0 60.0 59.0 58.0
80.................................................. 66.8 65.9 64.9 63.9 62.9 61.9 60.9 60.0 59.0 58.0
81.................................................. 66.8 65.8 64.9 63.9 62.9 61.9 60.9 60.0 59.0 58.0
82.................................................. 66.8 65.8 64.9 63.9 62.9 61.9 60.9 60.0 59.0 58.0
83.................................................. 66.8 65.8 64.9 63.9 62.9 61.9 60.9 60.0 59.0 58.0
84.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 60.0 59.0 58.0
85.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 60.0 59.0 58.0
86.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 60.0 59.0 58.0
87.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 60.0 59.0 58.0
88.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 60.0 59.0 58.0
89.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 60.0 59.0 58.0
90.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 60.0 59.0 58.0
91.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 60.0 59.0 58.0
92.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
93.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
94.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
95.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
96.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
97.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
98.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
99.................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
100................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
101................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
102................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
103................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
104................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
105................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
106................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
107................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
108................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
109................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
110................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
111................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
112................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
113................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
114................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
115................................................. 66.8 65.8 64.8 63.9 62.9 61.9 60.9 59.9 59.0 58.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 223]]
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 25 26 27 28 29 30 31 32 33 34
--------------------------------------------------------------------------------------------------------------------------------------------------------
25.................................................. 63.9 63.4 62.9 62.5 62.1 61.7 61.3 61.0 60.7 60.4
26.................................................. 63.4 62.9 62.4 61.9 61.5 61.1 60.7 60.4 60.0 59.7
27.................................................. 62.9 62.4 61.9 61.4 60.9 60.5 60.1 59.7 59.4 59.0
28.................................................. 62.5 61.9 61.4 60.9 60.4 60.0 59.5 59.1 58.7 58.4
29.................................................. 62.1 61.5 60.9 60.4 59.9 59.4 59.0 58.5 58.1 57.7
30.................................................. 61.7 61.1 60.5 60.0 59.4 58.9 58.4 58.0 57.5 57.1
31.................................................. 61.3 60.7 60.1 59.5 59.0 58.4 57.9 57.4 57.0 56.5
32.................................................. 61.0 60.4 59.7 59.1 58.5 58.0 57.4 56.9 56.4 56.0
33.................................................. 60.7 60.0 59.4 58.7 58.1 57.5 57.0 56.4 55.9 55.5
34.................................................. 60.4 59.7 59.0 58.4 57.7 57.1 56.5 56.0 55.5 54.9
35.................................................. 60.1 59.4 58.7 58.0 57.4 56.7 56.1 55.6 55.0 54.5
36.................................................. 59.9 59.1 58.4 57.7 57.0 56.4 55.8 55.1 54.6 54.0
37.................................................. 59.6 58.9 58.1 57.4 56.7 56.0 55.4 54.8 54.2 53.6
38.................................................. 59.4 58.6 57.9 57.9 56.4 55.7 55.1 54.4 53.8 53.2
39.................................................. 59.2 58.4 57.7 56.9 56.2 55.4 54.7 54.1 53.4 52.8
40.................................................. 59.0 58.2 57.4 56.7 55.9 55.2 54.5 53.8 53.1 52.4
41.................................................. 58.9 58.0 57.2 56.4 55.7 54.9 54.2 53.5 52.8 52.1
42.................................................. 58.7 57.9 57.1 56.2 55.5 54.7 53.9 53.2 52.5 51.8
43.................................................. 58.6 57.7 56.9 56.1 55.3 54.5 53.7 52.9 52.2 51.5
44.................................................. 58.4 57.6 56.7 55.9 55.1 54.3 53.5 52.7 52.0 51.2
45.................................................. 58.3 57.4 56.6 55.7 54.9 54.1 53.3 52.5 51.7 51.0
46.................................................. 58.2 57.3 56.5 55.6 54.8 53.9 53.1 52.3 51.5 50.7
47.................................................. 58.1 57.2 56.3 55.5 54.6 53.8 52.9 52.1 51.3 50.5
48.................................................. 58.0 57.1 56.2 55.3 54.5 53.6 52.8 51.9 51.1 50.3
49.................................................. 57.9 57.0 56.1 55.2 54.4 53.5 52.6 51.8 51.0 50.1
50.................................................. 57.8 56.9 56.0 55.1 54.2 53.4 52.5 51.7 50.8 50.0
51.................................................. 57.8 56.9 55.9 55.0 54.1 53.3 52.4 51.5 50.7 49.8
52.................................................. 57.7 56.8 55.9 55.0 54.1 53.2 52.3 51.4 50.5 49.7
53.................................................. 57.6 56.7 55.8 54.9 54.0 53.1 52.2 51.3 50.4 49.6
54.................................................. 57.6 56.7 55.7 54.8 53.9 53.0 52.1 51.2 50.3 49.4
55.................................................. 57.5 56.6 55.7 54.7 53.8 52.9 52.0 51.1 40.2 49.3
56.................................................. 57.5 56.5 55.6 54.7 53.8 52.8 51.9 51.0 50.1 49.2
57.................................................. 57.4 56.5 55.6 54.6 53.7 52.8 51.9 50.9 50.0 49.1
58.................................................. 57.4 56.5 55.5 54.6 53.6 52.7 51.8 50.9 50.0 49.1
59.................................................. 57.4 56.4 55.5 54.5 53.6 52.7 51.7 50.8 49.9 49.0
60.................................................. 57.3 56.4 55.4 54.5 53.6 52.6 51.7 50.8 49.8 48.9
61.................................................. 57.3 56.4 55.4 54.5 53.5 52.6 51.6 50.7 49.8 48.9
62.................................................. 57.3 56.3 55.4 54.4 53.5 52.5 51.6 50.7 49.7 48.8
63.................................................. 57.3 56.3 55.3 54.4 53.4 52.5 51.6 50.6 49.7 48.7
64.................................................. 57.2 56.3 55.3 54.4 53.4 52.5 51.5 50.6 49.6 48.7
65.................................................. 57.2 56.3 55.3 54.3 53.4 52.4 51.5 50.5 49.6 48.7
66.................................................. 57.2 56.2 55.3 54.3 53.4 52.4 51.5 50.5 49.6 48.6
67.................................................. 57.2 56.2 55.3 54.3 53.3 52.4 51.4 50.5 49.5 48.6
68.................................................. 57.2 56.2 55.2 54.3 53.3 52.4 51.4 50.4 49.5 48.6
69.................................................. 57.1 56.2 55.2 54.3 53.3 52.3 51.4 50.4 49.5 48.5
70.................................................. 57.1 56.2 55.2 54.2 53.3 52.3 51.4 50.4 49.4 48.5
71.................................................. 57.1 56.2 55.2 54.2 53.3 52.3 51.3 50.4 49.4 48.5
72.................................................. 57.1 56.1 55.2 54.2 53.2 52.3 51.3 50.4 49.4 48.5
73.................................................. 57.1 56.1 55.2 54.2 53.2 52.3 51.3 50.3 49.4 48.4
74.................................................. 57.1 56.1 55.2 54.2 53.2 52.3 51.3 50.3 49.4 48.4
75.................................................. 57.1 56.1 55.1 54.2 53.2 52.2 51.3 50.3 49.4 48.4
76.................................................. 57.1 56.1 55.1 54.2 53.2 52.2 51.3 50.3 49.3 48.4
77.................................................. 57.1 56.1 55.1 54.2 53.2 52.2 51.3 50.3 49.3 48.4
78.................................................. 57.1 56.1 55.1 54.2 53.2 52.2 51.3 50.3 49.3 48.4
79.................................................. 57.1 56.1 55.1 54.1 53.2 52.2 51.2 50.3 49.3 48.4
80.................................................. 57.1 56.1 55.1 54.1 53.2 52.2 51.2 50.3 49.3 48.3
81.................................................. 57.0 56.1 55.1 54.1 53.2 52.2 51.2 50.3 49.3 48.3
82.................................................. 57.0 56.1 55.1 54.1 53.2 52.2 51.2 50.3 49.3 48.3
83.................................................. 57.0 56.1 55.1 54.1 53.2 52.2 51.2 50.3 49.3 48.3
84.................................................. 57.0 56.1 55.1 54.1 53.2 52.2 51.2 50.3 49.3 48.3
85.................................................. 57.0 56.1 55.1 54.1 53.2 52.2 51.2 50.2 49.3 48.3
86.................................................. 57.0 56.1 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
87.................................................. 57.0 56.1 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
88.................................................. 57.0 56.1 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
89.................................................. 57.0 56.1 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
90.................................................. 57.0 56.1 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
91.................................................. 57.0 56.1 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
92.................................................. 57.0 56.1 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
93.................................................. 57.0 56.1 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
94.................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
95.................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
[[Page 224]]
96.................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
97.................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
98.................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
99.................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
100................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
101................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
102................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
103................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
104................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
105................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
106................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
107................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
108................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
109................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
110................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
111................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
112................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
113................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
114................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
115................................................. 57.0 56.0 55.1 54.1 53.1 52.2 51.2 50.2 49.3 48.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 35 36 37 38 39 40 41 42 43 44
--------------------------------------------------------------------------------------------------------------------------------------------------------
35.................................................. 54.0 53.5 53.0 52.6 52.2 51.8 51.4 51.1 50.8 50.5
36.................................................. 53.5 53.0 52.5 52.0 51.6 51.2 50.8 50.4 50.1 49.8
37.................................................. 53.0 52.5 52.0 51.5 51.0 50.6 50.2 49.8 49.5 49.1
38.................................................. 52.6 52.0 51.5 51.0 50.5 50.0 49.6 49.2 48.8 48.5
39.................................................. 52.2 51.6 51.0 50.5 50.0 49.5 49.1 48.6 48.2 47.8
40.................................................. 51.8 51.2 50.6 50.0 49.5 49.0 48.5 48.1 47.6 47.2
41.................................................. 51.4 50.8 50.2 49.6 49.1 48.5 48.0 47.5 47.1 46.7
42.................................................. 51.1 50.4 49.8 49.2 48.6 48.1 47.5 47.0 46.6 46.1
43.................................................. 50.8 50.1 49.5 48.8 48.2 47.6 47.1 46.6 46.0 45.6
44.................................................. 50.5 49.8 49.1 48.5 47.8 47.2 46.7 46.1 45.6 45.1
45.................................................. 50.2 49.5 48.8 48.1 47.5 46.9 46.3 45.7 45.1 44.6
46.................................................. 50.0 49.2 48.5 47.8 47.2 46.5 45.9 45.3 44.7 44.1
47.................................................. 49.7 49.0 48.3 47.5 46.8 46.2 45.5 44.9 44.3 43.7
48.................................................. 49.5 48.8 48.0 47.3 46.6 45.9 45.2 44.5 43.9 43.3
49.................................................. 49.3 48.5 47.8 47.0 46.3 45.6 44.9 44.2 43.6 42.9
50.................................................. 49.2 48.4 47.6 46.8 46.0 45.3 44.6 43.9 43.2 42.6
51.................................................. 49.0 48.2 47.4 46.6 45.8 45.1 44.3 43.6 42.9 44.2
52.................................................. 48.8 48.0 47.2 46.4 45.6 44.8 44.1 43.3 42.6 41.9
53.................................................. 48.7 47.9 47.0 46.2 45.4 44.6 43.9 43.1 42.4 41.7
54.................................................. 48.6 47.7 46.9 46.0 45.2 44.4 43.6 42.9 42.1 41.4
55.................................................. 48.5 47.6 46.7 45.9 45.1 44.2 43.4 42.7 41.9 41.2
56.................................................. 48.3 47.5 46.6 45.8 44.9 44.1 43.3 42.5 41.7 40.9
57.................................................. 48.3 47.4 46.5 45.6 44.8 43.9 43.1 42.3 41.5 40.7
58.................................................. 48.2 47.3 46.4 45.5 44.7 43.8 43.0 42.1 41.3 40.5
59.................................................. 48.1 47.2 46.3 45.4 44.5 43.7 42.8 42.0 41.2 40.4
60.................................................. 48.0 47.1 46.2 45.3 44.4 43.6 42.7 41.9 41.0 40.2
61.................................................. 47.9 47.0 46.1 45.2 44.3 43.5 42.6 41.7 40.9 40.0
62.................................................. 47.9 47.0 46.0 45.1 44.2 43.4 42.5 41.6 40.8 39.9
63.................................................. 47.8 46.9 46.0 45.1 44.2 43.3 42.4 41.5 40.6 39.8
64.................................................. 47.8 46.8 45.9 45.0 44.1 43.2 42.3 41.4 40.5 39.7
65.................................................. 47.7 46.8 45.9 44.9 44.0 43.1 42.2 41.3 40.4 39.6
66.................................................. 47.7 46.7 45.8 44.9 44.0 43.1 42.2 41.3 40.4 39.5
67.................................................. 47.6 46.7 45.8 44.8 43.9 43.0 42.1 41.2 40.3 39.4
68.................................................. 47.6 46.7 45.7 44.8 43.9 42.9 42.0 41.1 40.2 39.3
69.................................................. 47.6 46.6 45.7 44.8 43.8 42.9 42.0 41.1 40.2 39.3
70.................................................. 47.5 46.6 45.7 44.7 43.8 42.9 41.9 41.0 40.1 39.2
71.................................................. 47.5 46.6 45.6 44.7 43.8 42.8 41.9 41.0 40.1 39.1
72.................................................. 47.5 46.6 45.6 44.7 43.7 42.8 41.9 40.9 40.0 39.1
73.................................................. 47.5 46.5 45.6 44.6 43.7 42.8 41.8 40.9 40.0 39.0
74.................................................. 47.5 46.5 45.6 44.6 43.7 42.7 41.8 40.9 39.9 39.0
75.................................................. 47.4 46.5 45.5 44.6 43.6 42.7 41.8 40.8 39.9 39.0
76.................................................. 47.4 46.5 45.5 44.6 43.6 42.7 41.7 40.8 39.9 38.9
77.................................................. 47.4 46.5 45.5 44.6 43.6 42.7 41.7 40.8 39.8 38.9
78.................................................. 47.4 46.4 45.5 44.5 43.6 42.6 41.7 40.7 39.8 38.9
[[Page 225]]
79.................................................. 47.4 46.4 45.5 44.5 43.6 42.6 41.7 40.7 39.8 38.9
80.................................................. 47.4 46.4 45.5 44.5 43.6 42.6 41.7 40.7 39.8 38.8
81.................................................. 47.4 46.4 45.5 44.5 43.5 42.6 41.6 40.7 39.8 38.8
82.................................................. 47.4 46.4 45.4 44.5 43.5 42.6 41.6 40.7 39.7 38.8
83.................................................. 47.4 46.4 45.4 44.5 43.5 42.6 41.6 40.7 39.7 38.8
84.................................................. 47.4 46.4 45.4 44.5 43.5 42.6 41.6 40.7 39.7 38.8
85.................................................. 47.4 46.4 45.4 44.5 43.5 42.6 41.6 40.7 39.7 38.8
86.................................................. 47.3 46.4 45.4 44.5 43.5 42.5 41.6 40.6 39.7 38.8
87.................................................. 47.3 46.4 45.4 44.5 43.5 42.5 41.6 40.6 39.7 38.7
88.................................................. 47.3 46.4 45.4 44.5 43.5 42.5 41.6 40.6 39.7 38.7
89.................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.6 40.6 39.7 38.7
90.................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.6 40.6 39.7 38.7
91.................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.6 40.6 39.7 39.7
92.................................................. 47.3 46.4 45.4 44.4 44.4 43.5 42.5 41.6 40.6 38.7
93.................................................. 47.3 46.4 45.4 43.5 42.5 41.6 40.6 39.7 39.7 38.7
94.................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.6 40.6 39.7 38.7
95.................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.6 40.6 39.7 38.7
96.................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.6 40.6 39.7 38.7
97.................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.6 40.6 39.6 38.7
98.................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.6 40.6 39.6 38.7
99.................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
100................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
101................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
102................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
103................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
104................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
105................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
106................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
107................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
108................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
109................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
110................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
111................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
112................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
113................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
114................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
114................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
115................................................. 47.3 46.4 45.4 44.4 43.5 42.5 41.5 40.6 39.6 38.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 45 46 47 48 49 50 51 52 53 54
--------------------------------------------------------------------------------------------------------------------------------------------------------
45.................................................. 44.1 43.6 43.2 42.7 42.3 42.0 41.6 41.3 41.0 40.7
46.................................................. 43.6 43.1 42.6 42.2 41.8 41.4 41.0 40.6 40.3 40.0
47.................................................. 43.2 42.6 42.1 41.7 41.2 40.8 40.4 40.0 39.7 39.3
48.................................................. 42.7 42.2 41.7 41.2 40.7 40.2 39.8 39.4 39.0 38.7
49.................................................. 42.3 41.8 41.2 40.7 40.2 39.7 39.3 38.8 38.4 38.1
50.................................................. 42.0 41.4 40.8 40.2 39.7 39.2 38.7 38.3 37.9 37.5
51.................................................. 41.6 41.0 40.4 39.8 39.3 38.7 38.2 37.8 37.3 36.9
52.................................................. 41.3 40.6 40.0 39.4 38.8 38.3 37.8 37.3 36.8 36.4
53.................................................. 41.0 40.3 39.7 39.0 38.4 37.9 37.3 36.8 36.3 35.8
54.................................................. 40.7 40.0 39.3 38.7 38.1 37.5 36.9 36.4 35.8 35.3
55.................................................. 40.4 39.7 39.0 38.4 37.7 37.1 36.5 35.9 35.4 34.9
56.................................................. 40.2 39.5 38.7 38.1 37.4 36.8 36.1 35.6 35.0 34.4
57.................................................. 40.0 39.2 38.5 37.8 37.1 36.4 35.8 35.2 34.6 34.0
58.................................................. 39.7 39.0 38.2 37.5 36.8 36.1 35.5 34.8 34.2 33.6
59.................................................. 39.6 38.8 38.0 37.3 36.6 35.9 35.2 34.5 33.9 33.3
60.................................................. 39.4 38.6 37.8 37.1 36.3 35.6 34.9 34.2 33.6 32.9
61.................................................. 39.2 38.4 37.6 36.9 36.1 35.4 34.6 33.9 33.3 32.6
62.................................................. 39.1 38.3 37.5 36.7 35.9 35.1 34.4 33.7 33.0 32.3
63.................................................. 38.9 38.1 37.3 36.5 35.7 34.9 34.2 33.5 32.7 32.0
64.................................................. 38.8 38.0 37.2 36.3 35.5 34.8 34.0 33.2 32.5 31.8
65.................................................. 38.7 37.9 37.0 36.2 35.4 34.6 33.8 33.0 32.3 31.6
66.................................................. 38.6 37.8 36.9 36.1 35.2 34.4 33.6 32.9 32.1 31.4
67.................................................. 38.5 37.7 36.8 36.0 35.1 34.3 33.5 32.7 31.9 31.2
68.................................................. 38.4 37.6 36.7 35.8 35.0 34.2 33.4 32.5 31.8 31.0
69.................................................. 38.4 37.5 36.6 35.7 34.9 34.1 33.2 32.4 31.6 30.8
70.................................................. 38.3 37.4 36.5 35.7 34.8 34.0 33.1 32.3 31.5 30.7
[[Page 226]]
71.................................................. 38.2 37.3 36.5 35.6 34.7 33.9 33.0 32.2 31.4 30.5
72.................................................. 38.2 37.3 36.4 35.5 34.6 33.8 32.9 32.1 31.2 30.4
73.................................................. 38.1 37.2 36.3 35.4 34.6 33.7 32.8 32.0 31.1 30.3
74.................................................. 38.1 37.2 36.3 35.4 34.5 33.6 32.8 31.9 31.1 30.2
75.................................................. 38.1 37.1 36.2 35.3 34.5 33.6 32.7 31.8 31.0 30.1
76.................................................. 38.0 37.1 36.2 35.3 34.4 33.5 32.6 31.8 30.9 30.1
77.................................................. 38.0 37.1 36.2 35.3 34.4 33.5 32.6 31.7 30.8 30.0
78.................................................. 38.0 37.0 36.1 35.2 34.3 33.4 32.5 31.7 30.8 29.9
79.................................................. 37.9 37.0 36.1 35.2 34.3 33.4 32.5 31.6 30.7 29.9
80.................................................. 37.9 37.0 36.1 35.2 34.2 33.4 32.5 31.6 30.7 29.8
81.................................................. 37.9 37.0 36.0 35.1 34.2 33.3 32.4 31.5 30.7 29.8
82.................................................. 37.9 36.9 36.0 35.1 34.2 33.3 32.4 31.5 30.6 29.7
83.................................................. 37.9 36.9 36.0 35.1 34.2 33.3 32.4 31.5 30.6 29.7
84.................................................. 37.8 36.9 36.9 35.0 34.2 33.2 32.3 31.4 30.6 29.7
85.................................................. 37.8 36.9 36.0 35.1 34.1 33.2 32.3 31.4 30.5 29.6
86.................................................. 38.8 36.9 36.0 35.0 34.1 33.2 32.3 31.4 30.5 29.6
87.................................................. 37.8 36.9 35.9 35.0 34.1 33.2 32.3 31.4 30.5 29.6
88.................................................. 37.8 36.9 35.9 35.0 34.1 33.2 32.3 31.4 30.5 29.6
89.................................................. 37.8 36.9 35.9 35.0 34.1 33.2 32.3 31.4 30.5 29.6
90.................................................. 37.8 36.9 35.9 35.0 34.1 33.2 32.3 31.3 30.5 29.6
91.................................................. 37.8 36.8 35.9 35.0 34.1 33.2 32.2 31.3 30.4 29.5
92.................................................. 37.8 36.8 35.9 35.0 34.1 33.2 32.2 31.3 30.4 29.5
93.................................................. 37.8 36.8 35.9 35.0 34.1 33.1 32.2 31.3 30.4 29.5
94.................................................. 37.8 36.8 35.9 35.0 34.1 33.1 32.2 31.3 30.4 29.5
95.................................................. 37.8 36.8 35.9 35.0 34.0 33.1 32.2 31.3 30.4 29.5
96.................................................. 37.8 36.8 35.9 35.0 34.0 33.1 32.2 31.3 30.4 29.5
97.................................................. 37.8 36.8 35.9 35.0 34.0 33.1 32.2 31.3 30.4 29.5
98.................................................. 37.8 36.8 35.9 35.0 34.0 33.1 32.2 31.3 30.4 29.5
99.................................................. 37.8 36.8 35.9 35.0 34.0 33.1 32.2 31.3 30.4 29.5
101................................................. 37.8 36.8 35.9 35.0 34.0 33.1 32.2 31.3 30.4 29.5
102................................................. 37.8 36.8 35.9 35.0 34.0 33.1 32.2 31.3 30.4 29.5
103................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
104................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
105................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
106................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
107................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
108................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
109................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
110................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
111................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
112................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
113................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
114................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
115................................................. 37.7 36.8 35.9 34.9 34.0 33.1 32.2 31.3 30.4 29.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 55 56 57 58 59 60 61 62 63 64
--------------------------------------------------------------------------------------------------------------------------------------------------------
55.................................................. 34.4 33.9 33.5 33.1 32.7 32.3 32.0 31.7 31.4 31.1
56.................................................. 33.9 33.4 33.0 32.5 32.1 31.7 31.4 31.0 30.7 30.4
57.................................................. 33.5 33.0 32.5 32.0 31.6 31.2 30.8 30.4 30.1 29.8
58.................................................. 33.1 32.5 32.0 31.5 31.1 30.6 30.2 29.9 29.5 29.2
59.................................................. 32.7 32.1 31.6 31.1 30.6 30.1 29.7 29.3 28.9 28.6
60.................................................. 32.3 31.7 31.2 30.6 30.1 29.7 29.2 28.8 28.4 28.0
61.................................................. 32.0 31.4 30.8 30.2 29.7 29.2 28.7 28.3 27.8 27.4
62.................................................. 31.7 31.0 30.4 29.9 29.3 28.8 28.3 27.8 27.3 26.9
63.................................................. 31.4 30.7 30.1 29.5 28.9 28.4 27.8 27.3 26.9 26.4
64.................................................. 31.1 30.4 29.8 29.2 28.6 28.0 27.4 26.9 26.4 25.9
65.................................................. 30.9 30.2 29.5 28.9 28.2 27.6 27.1 26.5 26.0 25.5
66.................................................. 30.6 29.9 29.2 28.6 27.9 27.3 26.7 26.1 25.6 25.1
67.................................................. 30.4 29.7 29.0 28.3 27.6 27.0 26.4 25.8 25.2 24.7
68.................................................. 30.2 29.5 28.8 28.1 27.4 26.7 26.1 25.5 24.9 24.3
69.................................................. 30.1 29.3 28.6 27.8 27.1 26.5 25.8 25.2 24.6 24.0
70.................................................. 29.9 29.1 28.4 27.6 26.9 26.2 25.6 24.9 24.3 23.7
71.................................................. 29.7 29.0 28.2 27.5 26.7 26.0 25.3 24.7 24.0 23.4
72.................................................. 29.6 28.8 28.1 27.3 26.5 25.8 25.1 24.4 23.8 23.1
73.................................................. 29.5 28.7 27.9 27.1 26.4 25.6 24.9 24.2 23.5 22.9
74.................................................. 29.4 28.6 27.8 27.0 26.2 25.5 24.7 24.0 23.3 22.7
[[Page 227]]
75.................................................. 29.3 28.5 27.7 26.9 26.1 25.3 24.6 23.8 23.1 22.4
76.................................................. 29.2 28.4 27.6 26.8 26.0 25.2 24.4 23.7 23.0 22.3
77.................................................. 29.1 28.3 27.5 26.7 25.9 25.1 24.3 23.6 22.8 22.1
78.................................................. 29.1 28.2 27.4 26.6 25.8 25.0 24.2 23.4 22.7 21.9
79.................................................. 29.0 28.2 27.3 26.5 25.7 24.9 24.1 23.3 22.6 21.8
80.................................................. 29.0 28.1 27.3 26.4 25.6 24.8 24.0 23.2 22.4 21.7
81.................................................. 28.9 28.1 27.2 26.4 25.5 24.7 23.9 23.1 22.3 21.6
82.................................................. 28.9 28.0 27.2 26.3 25.5 24.6 23.8 23.0 22.3 21.5
83.................................................. 28.8 28.0 27.1 26.3 25.4 24.6 23.8 23.0 22.2 21.4
84.................................................. 28.8 27.9 27.1 26.2 25.4 24.5 23.7 22.9 22.1 21.3
85.................................................. 28.8 27.9 27.0 26.2 25.3 24.5 23.7 22.8 22.0 21.3
86.................................................. 28.7 27.9 27.0 26.1 25.3 24.5 23.6 22.8 22.0 21.2
87.................................................. 28.7 27.8 27.0 26.1 25.3 24.4 23.6 22.8 21.9 21.1
88.................................................. 28.7 27.8 27.0 26.1 25.2 24.4 23.5 22.7 21.9 21.1
89.................................................. 28.7 27.8 26.9 26.1 25.2 24.4 23.5 22.7 21.9 21.1
90.................................................. 28.7 27.8 26.9 26.1 25.2 24.3 23.5 22.7 21.8 21.0
91.................................................. 28.7 27.8 26.9 26.0 25.2 24.3 23.5 22.6 21.8 21.0
92.................................................. 28.6 27.8 26.9 26.0 25.2 24.3 23.5 22.6 21.8 21.0
93.................................................. 28.6 27.8 26.9 26.0 25.1 24.3 23.4 22.6 21.8 20.9
94.................................................. 28.6 27.7 26.9 26.0 25.1 24.3 23.4 22.6 21.7 20.9
95.................................................. 28.6 27.7 26.9 26.0 25.1 24.3 23.4 22.6 21.7 20.9
96.................................................. 28.6 27.7 26.9 26.0 25.1 24.2 23.4 22.6 21.7 20.9
97.................................................. 28.6 27.7 26.8 26.0 25.1 24.2 23.4 22.5 21.7 20.9
98.................................................. 28.6 27.7 26.8 26.0 25.1 24.2 23.4 22.5 21.7 20.9
99.................................................. 28.6 27.7 26.8 26.0 25.1 24.2 23.4 22.5 21.7 20.9
100................................................. 28.6 27.7 26.8 26.0 25.1 24.2 23.4 22.5 21.7 20.8
101................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.4 22.5 21.7 20.8
102................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.3 22.5 21.7 20.8
103................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.3 22.5 21.7 20.8
104................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.3 22.5 21.6 20.8
105................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.3 22.5 21.6 20.8
106................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.3 22.5 21.6 20.8
107................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.3 22.5 21.6 20.8
108................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.3 22.5 21.6 20.8
109................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.3 22.5 21.6 20.8
110................................................. 28.6 27.7 26.8 25.9 25.1 24.2 23.3 22.5 21.6 20.8
111................................................. 28.6 27.7 26.8 25.9 25.0 24.2 23.3 22.5 21.6 20.8
112................................................. 28.6 27.7 26.8 25.9 25.0 24.2 23.3 22.5 21.6 20.8
113................................................. 28.6 27.7 26.8 25.9 25.0 24.2 23.3 22.5 21.6 20.8
114................................................. 28.6 27.7 26.8 25.9 25.0 24.2 23.3 22.5 21.6 20.8
115................................................. 28.6 27.7 26.8 25.9 25.0 24.2 23.3 22.5 21.6 20.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 65 66 67 68 69 70 71 72 73 74
--------------------------------------------------------------------------------------------------------------------------------------------------------
65.................................................. 25.0 24.6 24.2 23.8 23.4 23.1 22.8 22.5 22.2 22.0
66.................................................. 24.6 24.1 23.7 23.3 22.9 22.5 22.2 21.9 21.6 21.4
67.................................................. 24.2 23.7 23.2 22.8 22.4 22.0 21.7 21.3 21.0 20.8
68.................................................. 23.8 23.3 22.8 22.3 21.9 21.5 21.2 20.8 20.5 20.2
69.................................................. 23.4 22.9 22.4 21.9 21.5 21.1 20.7 20.3 20.0 19.6
70.................................................. 23.1 22.5 22.0 21.5 21.1 20.6 20.2 19.8 19.4 19.1
71.................................................. 22.8 22.2 21.7 21.2 20.7 20.2 19.8 19.4 19.0 18.6
72.................................................. 22.5 21.9 21.3 20.8 20.3 19.8 19.4 18.9 18.5 18.2
73.................................................. 22.2 21.6 21.0 20.5 20.0 19.4 19.0 18.5 18.1 17.7
74.................................................. 22.0 21.4 20.8 20.2 19.6 19.1 18.6 18.2 17.7 17.3
75.................................................. 21.8 21.1 20.5 19.9 19.3 18.8 18.3 17.8 17.3 16.9
76.................................................. 21.6 20.9 20.3 19.7 19.1 18.5 18.0 17.5 17.0 16.5
77.................................................. 21.4 20.7 20.1 19.4 18.8 18.3 17.7 17.2 16.7 16.2
78.................................................. 21.2 20.5 19.9 19.2 18.6 18.0 17.5 16.9 16.4 15.9
79.................................................. 21.1 20.4 19.7 19.0 18.4 17.8 17.2 16.7 16.1 15.6
80.................................................. 21.0 20.2 19.5 18.9 18.2 17.6 17.0 16.4 15.9 15.4
81.................................................. 20.8 20.1 19.4 18.7 18.1 17.4 16.8 16.2 15.7 15.1
82.................................................. 20.7 20.0 19.3 18.6 17.9 17.3 16.6 16.0 15.5 14.9
83.................................................. 20.6 19.9 19.2 18.5 17.8 17.1 16.5 15.9 15.3 14.7
84.................................................. 20.5 19.8 19.1 18.4 17.7 17.0 16.3 15.7 15.1 14.5
85.................................................. 20.5 19.7 19.0 18.3 17.6 16.9 16.2 15.6 15.0 14.4
86.................................................. 20.4 19.6 18.9 18.2 17.5 16.8 16.1 15.5 14.8 14.2
87.................................................. 20.4 19.6 18.8 18.1 17.4 16.7 16.0 15.4 14.7 14.1
[[Page 228]]
88.................................................. 20.3 19.5 18.8 18.0 17.3 16.6 15.9 15.3 14.6 14.0
89.................................................. 20.3 19.5 18.7 18.0 17.2 16.5 15.8 15.2 14.5 13.9
90.................................................. 20.2 19.4 18.7 17.9 17.2 16.5 15.8 15.1 14.5 13.8
91.................................................. 20.2 19.4 18.6 17.9 17.1 16.4 15.7 15.0 14.4 13.7
92.................................................. 20.2 19.4 18.6 17.8 17.1 16.4 15.7 15.0 14.3 13.7
93.................................................. 20.1 19.3 18.6 17.8 17.1 16.3 15.6 14.9 14.3 13.6
94.................................................. 20.1 19.3 18.5 17.8 17.0 16.3 15.6 14.9 14.2 13.6
95.................................................. 20.1 19.3 18.5 17.8 17.0 16.3 15.6 14.9 14.2 13.5
96.................................................. 20.1 19.3 18.5 17.7 17.0 16.2 15.5 14.8 14.2 13.5
97.................................................. 20.1 19.3 18.5 17.7 17.0 16.2 15.5 14.8 14.1 13.5
98.................................................. 20.1 19.3 18.5 17.7 16.9 16.2 15.5 14.8 14.1 13.4
99.................................................. 20.0 19.2 18.5 17.7 16.9 16.2 15.5 14.7 14.1 13.4
100................................................. 20.0 19.2 18.4 17.7 16.9 16.2 15.4 14.7 14.0 13.4
101................................................. 20.0 19.2 18.4 17.7 16.9 16.1 15.4 14.7 14.0 13.3
102................................................. 20.0 19.2 18.4 17.6 16.9 16.1 15.4 14.7 14.0 13.3
103................................................. 20.0 19.2 18.4 17.6 16.9 16.1 15.4 14.7 14.0 13.3
104................................................. 20.0 19.2 18.4 17.6 16.9 16.1 15.4 14.7 14.0 13.3
105................................................. 20.0 19.2 18.4 17.6 16.8 16.1 15.4 14.6 13.9 13.3
106................................................. 20.0 19.2 18.4 17.6 16.8 16.1 15.3 14.6 13.9 13.3
107................................................. 20.0 19.2 18.4 17.6 16.8 16.1 15.3 14.6 13.9 13.2
108................................................. 20.0 19.2 18.4 17.6 16.8 16.1 15.3 14.6 13.9 13.2
109................................................. 20.0 19.2 18.4 17.6 16.8 16.1 15.3 14.6 13.9 13.2
110................................................. 20.0 19.2 18.4 17.6 16.8 16.1 15.3 14.6 13.9 13.2
111................................................. 20.0 19.2 18.4 17.6 16.8 16.0 15.3 14.6 13.9 13.2
112................................................. 20.0 19.2 18.4 17.6 16.8 16.0 15.3 14.6 13.9 13.2
113................................................. 20.0 19.2 18.4 17.6 16.8 16.0 15.3 14.6 13.9 13.2
114................................................. 20.0 19.2 18.4 17.6 16.8 16.0 15.3 14.6 13.9 13.2
115................................................. 20.0 19.2 18.4 17.6 16.8 16.0 15.3 14.6 13.9 13.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 75 76 77 78 79 80 81 82 83 84
--------------------------------------------------------------------------------------------------------------------------------------------------------
75.................................................. 16.5 16.1 15.8 15.4 15.1 14.9 14.6 14.4 14.2 14.0
76.................................................. 16.1 15.7 15.4 15.0 14.7 14.4 14.1 13.9 13.7 13.5
77.................................................. 15.8 15.4 15.0 14.6 14.3 14.0 13.7 13.4 13.2 13.0
78.................................................. 15.4 15.0 14.6 14.2 13.9 13.5 13.2 13.0 12.7 12.5
79.................................................. 15.1 14.7 14.3 13.9 13.5 13.2 12.8 12.5 12.3 12.0
80.................................................. 14.9 14.4 14.0 13.5 13.2 12.8 12.5 12.2 11.9 11.6
81.................................................. 14.6 14.1 13.7 13.2 12.8 12.5 12.1 11.8 11.5 11.2
82.................................................. 14.4 13.9 13.4 13.0 12.5 12.2 11.8 11.5 11.1 10.9
83.................................................. 14.2 13.7 13.2 12.7 12.3 11.9 11.5 11.1 10.8 10.5
84.................................................. 14.0 13.5 13.0 12.5 12.0 11.6 11.2 10.9 10.5 10.2
85.................................................. 13.8 13.3 12.8 12.3 11.8 11.4 11.0 10.6 10.2 9.9
86.................................................. 13.7 13.1 12.6 12.1 11.6 11.2 10.8 10.4 10.0 9.7
87.................................................. 13.5 13.0 12.4 11.9 11.4 11.0 10.6 10.1 9.8 9.4
88.................................................. 13.4 12.8 12.3 11.8 11.3 10.8 10.4 10.0 9.6 9.2
89.................................................. 13.3 12.7 12.2 11.6 11.1 10.7 10.2 9.8 9.4 9.0
90.................................................. 13.2 12.6 12.1 11.5 11.0 10.5 10.1 9.6 9.2 8.8
91.................................................. 13.1 12.5 12.0 11.4 10.9 10.4 9.9 9.5 9.1 8.7
92.................................................. 13.1 12.5 11.9 11.3 10.8 10.3 9.8 9.4 8.9 8.5
93.................................................. 13.0 12.4 11.8 11.3 10.7 10.2 9.7 9.3 8.8 8.4
94.................................................. 12.9 12.3 11.7 11.2 10.6 10.1 9.6 9.2 8.7 8.3
95.................................................. 12.9 12.3 11.7 11.1 10.6 10.1 9.6 9.1 8.6 8.2
96.................................................. 12.9 12.2 11.6 11.1 10.5 10.0 9.5 9.0 8.5 8.1
97.................................................. 12.8 12.2 11.6 11.0 10.5 9.9 9.4 8.9 8.5 8.0
98.................................................. 12.8 12.2 11.5 11.0 10.4 9.9 9.4 8.9 8.4 8.0
99.................................................. 12.7 12.1 11.5 10.9 10.4 9.8 9.3 8.8 8.3 7.9
100................................................. 12.7 12.1 11.5 10.9 10.3 9.8 9.2 8.7 8.3 7.8
101................................................. 12.7 12.1 11.4 10.8 10.3 9.7 9.2 8.7 8.2 7.8
102................................................. 12.7 12.0 11.4 10.8 10.2 9.7 9.2 8.7 8.2 7.7
103................................................. 12.6 12.0 11.4 10.8 10.2 9.7 9.1 8.6 8.1 7.7
104................................................. 12.6 12.0 11.4 10.8 10.2 9.6 9.1 8.6 8.1 7.6
105................................................. 12.6 12.0 11.3 10.7 10.2 9.6 9.1 8.5 8.0 7.6
106................................................. 12.6 11.9 11.3 10.7 10.1 9.6 9.0 8.5 8.0 7.5
107................................................. 12.6 11.9 11.3 10.7 10.1 9.6 9.0 8.5 8.0 7.5
108................................................. 12.6 11.9 11.3 10.7 10.1 9.5 9.0 8.5 8.0 7.5
109................................................. 12.6 11.9 11.3 10.7 10.1 9.5 9.0 8.4 7.9 7.5
110................................................. 12.6 11.9 11.3 10.7 10.1 9.5 9.0 8.4 7.9 7.4
[[Page 229]]
111................................................. 12.5 11.9 11.3 10.7 10.1 9.5 8.9 8.4 7.9 7.4
112................................................. 12.5 11.9 11.3 10.6 10.1 9.5 8.9 8.4 7.9 7.4
113................................................. 12.5 11.9 11.2 10.6 10.0 9.5 8.9 8.4 7.9 7.4
114................................................. 12.5 11.9 11.2 10.6 10.0 9.5 8.9 8.4 7.9 7.4
115................................................. 12.5 11.9 11.2 10.6 10.0 9.5 8.9 8.4 7.9 7.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 85 86 87 88 89 90 91 92 93 94
--------------------------------------------------------------------------------------------------------------------------------------------------------
85.................................................. 9.6 9.3 9.1 8.9 8.7 8.5 8.3 8.2 8.0 7.9
86.................................................. 9.3 9.1 8.8 8.6 8.3 8.2 8.0 7.8 7.7 7.6
87.................................................. 9.1 8.8 8.5 8.3 8.1 7.9 7.7 7.5 7.4 7.2
88.................................................. 8.9 8.6 8.3 8.0 7.8 7.6 7.4 7.2 7.1 6.9
89.................................................. 8.7 8.3 8.1 7.8 7.5 7.3 7.1 6.9 6.8 6.6
90.................................................. 8.5 8.2 7.9 7.6 7.3 7.1 6.9 6.7 6.5 6.4
91.................................................. 8.3 8.0 7.7 7.4 7.1 6.9 6.7 6.5 6.3 6.2
92.................................................. 8.2 7.8 7.5 7.2 6.9 6.7 6.5 6.3 6.1 5.9
93.................................................. 8.0 7.7 7.4 7.1 6.8 6.5 6.3 6.1 5.9 5.8
94.................................................. 7.9 7.6 7.2 6.9 6.6 6.4 6.2 5.9 5.8 5.6
95.................................................. 7.8 7.5 7.1 6.8 6.5 6.3 6.0 5.8 5.6 5.4
96.................................................. 7.7 7.3 7.0 6.7 6.4 6.1 5.9 5.7 5.5 5.3
97.................................................. 7.6 7.3 6.9 6.6 6.3 6.0 5.8 5.5 5.3 5.1
98.................................................. 7.6 7.2 6.8 6.5 6.2 5.9 5.6 5.4 5.2 5.0
99.................................................. 7.5 7.1 6.7 6.4 6.1 5.8 5.5 5.3 5.1 4.9
100................................................. 7.4 7.0 6.6 6.3 6.0 5.7 5.4 5.2 5.0 4.8
101................................................. 7.3 6.9 6.6 6.2 5.9 5.6 5.3 5.1 4.9 4.7
102................................................. 7.3 6.9 6.5 6.2 5.8 5.5 5.3 5.0 4.8 4.6
103................................................. 7.2 6.8 6.4 6.1 5.8 5.5 5.2 4.9 4.7 4.5
104................................................. 7.2 6.8 6.4 6.0 5.7 5.4 5.1 4.8 4.6 4.4
105................................................. 7.1 6.7 6.3 6.0 5.6 5.3 5.0 4.8 4.5 4.3
106................................................. 7.1 6.7 6.3 5.9 5.6 5.3 5.0 4.7 4.5 4.2
107................................................. 7.1 6.6 6.2 5.9 5.5 5.2 4.9 4.6 4.4 4.2
108................................................. 7.0 6.6 6.2 5.8 5.5 5.2 4.9 4.6 4.3 4.1
109................................................. 7.0 6.6 6.2 5.8 5.5 5.1 4.8 4.5 4.3 4.1
110................................................. 7.0 6.6 6.2 5.8 5.4 5.1 4.8 4.5 4.3 4.0
111................................................. 7.0 6.5 6.1 5.7 5.4 5.1 4.8 4.5 4.2 4.0
112................................................. 7.0 6.5 6.1 5.7 5.4 5.0 4.7 4.4 4.2 3.9
113................................................. 6.9 6.5 6.1 5.7 5.4 5.0 4.7 4.4 4.2 3.9
114................................................. 6.9 6.5 6.1 5.7 5.3 5.0 4.7 4.4 4.1 3.9
115................................................. 6.9 6.5 6.1 5.7 5.3 5.0 4.7 4.4 4.1 3.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 95 96 97 98 99 100 101 102 103 104
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95.................................................. 5.3 5.1 5.0 4.8 4.7 4.6 4.5 4.4 4.3 4.2
96.................................................. 5.1 5.0 4.8 4.7 4.5 4.4 4.3 4.2 4.1 4.0
97.................................................. 5.0 4.8 4.7 4.5 4.4 4.3 4.1 4.0 3.9 3.8
98.................................................. 4.8 4.7 4.5 4.4 4.2 4.1 4.0 3.9 3.8 3.7
99.................................................. 4.7 4.5 4.4 4.2 4.1 4.0 3.8 3.7 3.6 3.5
100................................................. 4.6 4.4 4.3 4.1 4.0 3.8 3.7 3.6 3.5 3.3
101................................................. 4.5 4.3 4.1 4.0 3.8 3.7 3.6 3.4 3.3 3.2
102................................................. 4.4 4.2 4.0 3.9 3.7 3.6 3.4 3.3 3.2 3.1
103................................................. 4.3 4.1 3.9 3.8 3.6 3.5 3.3 3.2 3.0 2.9
104................................................. 4.2 4.0 3.8 3.7 3.5 3.3 3.2 3.1 2.9 2.8
105................................................. 4.1 3.9 3.7 3.6 3.4 3.2 3.1 2.9 2.8 2.7
106................................................. 4.0 3.8 3.6 3.5 3.3 3.1 3.0 2.8 2.7 2.5
107................................................. 4.0 3.8 3.6 3.4 3.2 3.1 2.9 2.7 2.6 2.4
108................................................. 3.9 3.7 3.5 3.3 3.1 3.0 2.8 2.7 2.5 2.3
109................................................. 3.8 3.6 3.4 3.3 3.1 2.9 2.7 2.6 2.4 2.3
110................................................. 3.8 3.6 3.4 3.2 3.0 2.8 2.7 2.5 2.3 2.2
111................................................. 3.8 3.5 3.3 3.2 3.0 2.8 2.6 2.4 2.3 2.1
112................................................. 3.7 3.5 3.3 3.1 2.9 2.8 2.6 2.4 2.2 2.1
113................................................. 3.7 3.5 3.3 3.1 2.9 2.7 2.5 2.4 2.2 2.0
114................................................. 3.7 3.5 3.3 3.1 2.9 2.7 2.5 2.3 2.1 2.0
115................................................. 3.7 3.4 3.2 3.0 2.8 2.7 2.5 2.3 2.1 1.9
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[[Page 230]]
Table VI--Ordinary Joint Life and Last Survivor Annuities; Two Lives--Expected Return Multiples
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Ages 105 106 107 108 109 110 111 112 113 114 115
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105.................................................. 2.5 2.4 2.3 2.2 2.1 2.0 2.0 1.9 1.8 1.8 1.8
106.................................................. 2.4 2.3 2.2 2.1 2.0 1.9 1.8 1.7 1.7 1.6 1.6
107.................................................. 2.3 2.2 2.1 1.9 1.8 1.7 1.7 1.6 1.5 1.5 1.4
108.................................................. 2.2 2.1 1.9 1.8 1.7 1.6 1.5 1.5 1.4 1.3 1.3
109.................................................. 2.1 2.0 1.8 1.7 1.6 1.5 1.4 1.3 1.3 1.2 1.1
110.................................................. 2.0 1.9 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.1 1.0
111.................................................. 2.0 1.8 1.7 1.5 1.4 1.3 1.2 1.1 1.0 .9 .9
112.................................................. 1.9 1.7 1.6 1.5 1.3 1.2 1.1 1.0 .9 .8 .8
113.................................................. 1.8 1.7 1.5 1.4 1.3 1.1 1.0 .9 .8 .7 .7
114.................................................. 1.8 1.6 1.5 1.3 1.2 1.1 .9 .8 .7 .6 .6
115.................................................. 1.8 1.6 1.4 1.3 1.1 1.0 .9 .8 .7 .6 .5
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Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
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Ages 5 6 7 8 9 10 11 12 13 14
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5................................................... 69.5 69.0 68.4 67.9 67.3 66.7 66.1 65.5 64.8 64.1
6................................................... 69.0 68.5 68.0 67.5 66.9 66.4 65.8 65.1 64.5 63.8
7................................................... 68.4 68.0 67.5 67.0 66.5 66.0 65.4 64.8 64.2 63.5
8................................................... 67.9 67.5 67.0 66.6 66.1 65.5 65.0 64.4 63.8 63.2
9................................................... 67.3 66.9 66.5 66.1 65.6 65.1 64.6 64.0 63.4 62.8
10.................................................. 66.7 66.4 66.0 65.5 65.1 64.6 64.1 63.6 63.0 62.5
11.................................................. 66.1 65.8 65.4 65.0 64.6 64.1 63.6 63.1 62.6 62.1
12.................................................. 65.5 65.1 64.8 64.4 64.0 63.6 63.1 62.7 62.2 61.7
13.................................................. 64.8 64.5 64.2 63.8 63.4 63.0 62.6 62.2 61.7 61.2
14.................................................. 64.1 63.8 63.5 63.2 62.8 62.5 62.1 61.7 61.2 60.7
15.................................................. 63.4 63.1 62.9 62.6 62.2 61.9 61.5 61.1 60.7 60.2
16.................................................. 62.7 62.4 62.2 61.9 61.6 61.3 60.9 60.5 60.1 59.7
17.................................................. 61.9 61.7 61.5 61.2 60.9 60.6 60.3 59.9 59.6 59.2
18.................................................. 61.2 61.0 60.7 60.5 60.2 60.0 59.7 59.3 59.0 58.6
19.................................................. 60.4 60.2 60.0 59.8 59.5 59.3 59.0 58.7 58.4 58.0
20.................................................. 59.6 59.4 59.2 59.0 58.8 58.6 58.3 58.0 57.7 57.4
21.................................................. 58.8 58.7 58.5 58.3 58.1 57.8 57.6 57.3 57.1 56.8
22.................................................. 58.0 57.8 57.7 57.5 57.3 57.1 56.9 56.6 56.4 56.1
23.................................................. 57.2 57.0 56.9 56.7 56.5 56.4 56.1 55.9 55.7 55.4
24.................................................. 56.3 56.2 56.1 55.9 55.8 55.6 55.4 55.2 55.0 54.7
25.................................................. 55.5 55.4 55.2 55.1 55.0 54.8 54.6 54.4 54.2 54.0
26.................................................. 54.6 54.5 54.4 54.3 54.1 54.0 53.8 53.7 53.5 53.3
27.................................................. 53.8 53.7 53.6 53.4 53.3 53.2 53.0 52.9 52.7 52.5
28.................................................. 52.9 52.8 52.7 52.6 52.5 52.4 52.2 52.1 51.9 51.7
29.................................................. 52.0 51.9 51.8 51.7 51.6 51.5 51.4 51.3 51.1 51.0
30.................................................. 51.1 51.0 51.0 50.9 50.8 50.7 50.6 50.4 50.3 50.2
31.................................................. 50.2 50.2 50.1 50.0 49.9 49.8 49.7 49.6 49.5 49.3
32.................................................. 49.3 49.3 49.2 49.1 49.0 49.0 48.9 48.8 48.6 48.5
33.................................................. 48.4 48.4 48.3 48.2 48.2 48.1 48.0 47.9 47.8 47.7
34.................................................. 47.5 47.5 47.4 47.4 47.3 47.2 47.1 47.0 47.0 46.8
35.................................................. 46.6 46.6 46.5 46.5 46.4 46.3 46.3 46.2 46.1 46.0
36.................................................. 45.7 45.7 45.6 45.6 45.5 45.4 45.4 45.3 45.2 45.1
37.................................................. 44.8 44.7 44.7 44.6 44.6 44.5 44.5 44.4 44.3 44.3
38.................................................. 43.9 43.8 43.8 43.7 43.7 43.6 43.6 43.5 43.5 43.4
39.................................................. 42.9 42.9 42.9 42.8 42.8 42.7 42.7 42.6 42.6 42.5
40.................................................. 42.0 42.0 42.0 41.9 41.9 41.8 41.8 41.7 41.7 41.6
41.................................................. 41.1 41.1 41.0 41.0 41.0 40.9 40.9 40.8 40.8 40.7
42.................................................. 40.2 40.1 40.1 40.1 40.1 40.0 40.0 39.9 39.9 39.8
43.................................................. 39.2 39.2 39.2 39.2 39.1 39.1 39.1 39.0 39.0 39.0
44.................................................. 38.3 38.3 38.3 38.3 38.2 38.2 38.2 38.1 38.1 38.1
45.................................................. 37.4 37.4 37.4 37.3 37.3 37.3 37.3 37.2 37.2 37.2
46.................................................. 36.5 36.5 36.5 36.4 36.4 36.4 36.4 36.3 36.3 36.3
47.................................................. 35.6 35.6 35.5 35.5 35.5 35.5 35.5 35.4 35.4 35.4
48.................................................. 34.7 34.7 34.6 34.6 34.6 34.6 34.6 34.5 34.5 34.5
49.................................................. 33.8 33.8 33.7 33.7 33.7 33.7 33.7 33.7 33.6 33.6
50.................................................. 32.9 32.9 32.8 32.8 32.8 32.8 32.8 32.8 32.7 32.7
51.................................................. 32.0 32.0 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.8
52.................................................. 31.1 31.1 31.1 31.0 31.0 31.0 31.0 31.0 31.0 30.9
53.................................................. 30.2 30.2 30.2 30.2 30.1 30.1 30.1 30.1 30.1 30.1
54.................................................. 29.3 29.3 29.3 29.3 29.3 29.2 29.2 29.2 29.2 29.2
55.................................................. 28.4 28.4 28.4 28.4 28.4 28.4 28.4 28.3 28.3 28.3
56.................................................. 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5
57.................................................. 26.7 26.7 26.7 26.6 26.6 26.6 26.6 26.6 26.6 26.6
58.................................................. 25.8 25.8 25.8 25.8 25.8 25.8 25.8 25.7 25.7 25.7
[[Page 231]]
59.................................................. 24.9 24.9 24.9 24.9 24.9 24.9 24.9 24.9 24.9 24.9
60.................................................. 24.1 24.1 24.1 24.1 24.1 24.0 24.0 24.0 24.0 24.0
61.................................................. 23.2 23.2 23.2 23.2 23.2 23.2 23.2 23.2 23.2 23.2
62.................................................. 22.4 22.4 22.4 22.4 22.4 22.4 22.3 22.3 22.3 22.3
63.................................................. 21.5 21.5 21.5 21.5 21.5 21.5 21.5 21.5 21.5 21.5
64.................................................. 20.7 20.7 20.7 20.7 20.7 20.7 20.7 20.7 20.7 20.7
65.................................................. 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9
66.................................................. 19.1 19.1 19.1 19.1 19.1 19.1 19.1 19.1 19.1 19.1
67.................................................. 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3
68.................................................. 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5
69.................................................. 16.8 16.8 16.8 16.7 16.7 16.7 16.7 16.7 16.7 16.7
70.................................................. 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0
71.................................................. 15.3 15.3 15.3 15.3 15.3 15.3 15.3 15.3 15.3 15.2
72.................................................. 14.6 14.6 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5
73.................................................. 13.9 13.9 13.8 13.8 13.8 13.8 13.8 13.8 13.8 13.8
74.................................................. 13.2 13.2 13.2 13.2 13.2 13.2 13.2 13.2 13.2 13.2
75.................................................. 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5
76.................................................. 11.9 11.9 11.8 11.8 11.8 11.8 11.8 11.8 11.8 11.8
77.................................................. 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2
78.................................................. 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6
79.................................................. 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0
80.................................................. 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.4 9.4
81.................................................. 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9
82.................................................. 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4
83.................................................. 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9
84.................................................. 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4
85.................................................. 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9
86.................................................. 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5
87.................................................. 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1
88.................................................. 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7
89.................................................. 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3
90.................................................. 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
91.................................................. 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7
92.................................................. 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4
93.................................................. 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
94.................................................. 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
95.................................................. 3.7 3.7 3.7 3.7 3.7 3.7 3.6 3.6 3.6 3.6
96.................................................. 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4
97.................................................. 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
98.................................................. 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
99.................................................. 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
100................................................. 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7
101................................................. 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
102................................................. 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
103................................................. 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8
106................................................. 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
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Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 15 16 17 18 19 20 21 22 23 24
--------------------------------------------------------------------------------------------------------------------------------------------------------
15.................................................. 59.8 59.3 58.8 58.2 57.6 57.0 56.4 55.8 55.1 54.5
16.................................................. 59.3 58.8 58.3 57.8 57.2 56.7 56.1 55.5 54.8 54.2
17.................................................. 58.8 58.3 57.8 57.3 56.8 56.3 55.7 55.1 54.5 53.9
18.................................................. 58.2 57.8 57.3 56.9 56.4 55.9 55.3 54.7 54.2 53.5
19.................................................. 57.6 57.2 56.8 56.4 55.9 55.4 54.9 54.4 53.8 53.2
20.................................................. 57.0 56.7 56.3 55.9 55.4 54.9 54.5 53.9 53.4 52.8
21.................................................. 56.4 56.1 55.7 55.3 54.9 54.5 54.0 53.5 53.0 52.4
22.................................................. 55.8 55.5 55.1 54.7 54.4 53.9 53.5 53.0 52.5 52.0
[[Page 232]]
23.................................................. 55.1 54.8 54.5 54.2 53.8 53.4 53.0 52.5 52.1 51.6
24.................................................. 54.5 54.2 53.9 53.5 53.2 52.8 52.4 52.0 51.6 51.1
25.................................................. 53.8 53.5 53.2 52.9 52.6 52.2 51.9 51.5 51.1 50.6
26.................................................. 53.0 52.8 52.5 52.3 52.0 51.6 51.3 50.9 50.5 50.1
27.................................................. 52.3 52.1 51.8 51.6 51.3 51.0 50.7 50.3 50.0 49.6
28.................................................. 51.5 51.3 51.1 50.9 50.6 50.3 50.0 49.7 49.4 49.0
29.................................................. 50.8 50.6 50.4 50.2 49.9 49.7 49.4 49.1 48.8 48.4
30.................................................. 50.0 49.8 49.6 49.4 49.2 49.0 48.7 48.4 48.1 47.8
31.................................................. 49.2 49.0 48.9 48.7 48.5 48.3 48.0 47.8 47.5 47.2
32.................................................. 48.4 48.2 48.1 47.9 47.7 47.5 47.3 47.1 46.8 46.5
33.................................................. 47.6 47.4 47.3 47.1 47.0 46.8 46.6 46.3 46.1 45.9
34.................................................. 46.7 46.6 46.5 46.3 46.2 46.0 45.8 45.6 45.4 45.2
35.................................................. 45.9 45.8 45.7 45.5 45.4 45.2 45.1 44.9 44.7 44.4
36.................................................. 45.0 44.9 44.8 44.7 44.6 44.4 44.3 44.1 43.9 43.7
37.................................................. 44.2 44.1 44.0 43.9 43.8 43.6 43.5 43.3 43.2 43.0
38.................................................. 43.3 43.2 43.1 43.0 42.9 42.8 42.7 42.5 42.4 42.2
39.................................................. 42.4 42.4 42.3 42.2 42.1 42.0 41.9 41.7 41.6 41.4
40.................................................. 41.6 41.5 41.4 41.3 41.2 41.1 41.0 40.9 40.8 40.6
41.................................................. 40.7 40.6 40.5 40.5 40.4 40.3 40.2 40.1 40.0 39.8
42.................................................. 39.8 39.7 39.7 39.6 39.5 39.4 39.4 39.3 39.1 39.0
43.................................................. 38.9 38.9 38.8 38.7 38.7 38.6 38.5 38.4 38.3 38.2
44.................................................. 38.0 38.0 37.9 37.9 37.8 37.7 37.7 37.6 37.5 37.4
45.................................................. 37.1 37.1 37.0 37.0 36.9 36.9 36.8 36.7 36.6 36.5
46.................................................. 36.2 36.2 36.2 36.1 36.1 36.0 35.9 35.9 35.8 35.7
47.................................................. 35.3 35.3 35.3 35.2 35.2 35.1 35.1 35.0 34.9 34.9
48.................................................. 34.5 34.4 34.4 34.4 34.3 34.3 34.2 34.2 34.1 34.0
49.................................................. 33.6 33.5 33.5 33.5 33.4 33.4 33.4 33.3 33.2 33.2
50.................................................. 32.7 32.7 32.6 32.6 32.6 32.5 32.5 32.4 32.4 32.3
51.................................................. 31.8 31.8 31.8 31.7 31.7 31.7 31.6 31.6 31.5 31.5
52.................................................. 30.9 30.9 30.9 30.9 30.8 30.8 30.8 30.7 30.7 30.6
53.................................................. 30.0 30.0 30.0 30.0 30.0 29.9 29.9 29.9 29.8 29.8
54.................................................. 29.2 29.2 29.1 29.1 29.1 29.1 29.0 29.0 29.0 28.9
55.................................................. 28.3 28.3 28.3 28.3 28.2 28.2 28.2 28.2 28.1 28.1
56.................................................. 27.4 27.4 27.4 27.4 27.4 27.3 27.3 27.3 27.3 27.2
57.................................................. 26.6 26.6 26.5 26.5 26.5 26.5 26.5 26.5 26.4 26.4
58.................................................. 25.7 25.7 25.7 25.7 25.7 25.6 25.6 25.6 25.6 25.6
59.................................................. 24.9 24.8 24.8 24.8 24.8 24.8 24.8 24.8 24.7 24.7
60.................................................. 24.0 24.0 24.0 24.0 24.0 23.9 23.9 23.9 23.9 23.9
61.................................................. 23.2 23.2 23.1 23.1 23.1 23.1 23.1 23.1 23.1 23.0
62.................................................. 22.3 22.3 22.3 22.3 22.3 22.3 22.3 22.2 22.2 22.2
63.................................................. 21.5 21.5 21.5 21.5 21.5 21.4 21.4 21.4 21.4 21.4
64.................................................. 20.7 20.7 20.7 20.6 20.6 20.6 20.6 20.6 20.6 20.6
65.................................................. 19.9 19.8 19.8 19.8 19.8 19.8 19.8 19.8 19.8 19.8
66.................................................. 19.1 19.0 19.0 19.0 19.0 19.0 19.0 19.0 19.0 19.0
67.................................................. 18.3 18.3 18.3 18.3 18.2 18.2 18.2 18.2 18.2 18.2
68.................................................. 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.4 17.4
69.................................................. 16.7 16.7 16.7 16.7 16.7 16.7 16.7 16.7 16.7 16.7
70.................................................. 16.0 16.0 16.0 16.0 16.0 16.0 15.9 15.9 15.9 15.9
71.................................................. 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2
72.................................................. 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5
73.................................................. 13.8 13.8 13.8 13.8 13.8 13.8 13.8 13.8 13.8 13.8
74.................................................. 13.2 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1
75.................................................. 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5
76.................................................. 11.8 11.8 11.8 11.8 11.8 11.8 11.8 11.8 11.8 11.8
77.................................................. 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2
78.................................................. 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6
79.................................................. 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0
80.................................................. 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4
81.................................................. 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9
82.................................................. 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4
83.................................................. 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.8 7.8
84.................................................. 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4
85.................................................. 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9
86.................................................. 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5
87.................................................. 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1
88.................................................. 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7
89.................................................. 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3
90.................................................. 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
91.................................................. 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7
92.................................................. 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4
93.................................................. 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
[[Page 233]]
94.................................................. 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
95.................................................. 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6
96.................................................. 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4
97.................................................. 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
98.................................................. 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
99.................................................. 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
100................................................. 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7
101................................................. 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
102................................................. 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
103................................................. 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8
106................................................. 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 25 26 27 28 29 30 31 32 33 34
--------------------------------------------------------------------------------------------------------------------------------------------------------
25.................................................. 50.2 49.7 49.2 48.6 48.1 47.5 46.9 46.2 45.6 44.9
26.................................................. 49.7 49.2 48.7 48.2 47.7 47.1 46.5 45.9 45.3 44.6
27.................................................. 49.2 48.7 48.3 47.8 47.3 46.7 46.2 45.6 45.0 44.3
28.................................................. 48.6 48.2 47.8 47.3 46.8 46.3 45.8 45.2 44.6 44.0
29.................................................. 48.1 47.7 47.3 46.8 46.4 45.9 45.4 44.8 44.3 43.7
30.................................................. 47.5 47.1 46.7 46.3 45.9 45.4 44.9 44.4 43.9 43.3
31.................................................. 46.9 46.5 46.2 45.8 45.4 44.9 44.5 44.0 43.5 42.9
32.................................................. 46.2 45.9 45.6 45.2 44.8 44.4 44.0 43.5 43.0 42.5
33.................................................. 45.6 45.3 45.0 44.6 44.3 43.9 43.5 43.0 42.6 42.1
34.................................................. 44.9 44.6 44.3 44.0 43.7 43.3 42.9 42.5 42.1 41.6
35.................................................. 44.2 44.0 43.7 43.4 43.1 42.7 42.4 42.0 41.6 41.1
36.................................................. 43.5 43.3 43.0 42.7 42.4 42.1 41.8 41.4 41.0 40.6
37.................................................. 42.8 42.5 42.3 42.1 41.8 41.5 41.2 40.8 40.5 40.1
38.................................................. 42.0 41.8 41.6 41.4 41.1 40.8 40.6 40.2 39.9 39.5
39.................................................. 41.3 41.1 40.9 40.7 40.4 40.2 39.9 39.6 39.3 39.0
40.................................................. 40.5 40.3 40.1 39.9 39.7 39.5 39.2 39.0 38.7 38.4
41.................................................. 39.7 39.5 39.4 39.2 39.0 38.8 38.5 38.3 38.0 37.7
42.................................................. 38.9 38.8 38.6 38.4 38.3 38.1 37.8 37.6 37.4 37.1
43.................................................. 38.1 38.0 37.8 37.7 37.5 37.3 37.1 36.9 36.7 36.4
44.................................................. 37.3 37.2 37.0 36.9 36.7 36.6 36.4 36.2 36.0 35.8
45.................................................. 36.5 36.3 36.2 36.1 36.0 35.8 35.6 35.5 35.3 35.1
46.................................................. 35.6 35.5 35.4 35.3 35.2 35.0 34.9 34.7 34.5 34.4
47.................................................. 34.8 34.7 34.6 34.5 34.4 34.3 34.1 34.0 33.8 33.6
48.................................................. 34.0 33.9 33.8 33.7 33.6 33.5 33.4 33.2 33.1 32.9
49.................................................. 33.1 33.0 33.0 32.9 32.8 32.7 32.6 32.4 32.3 32.2
50.................................................. 32.3 32.2 32.1 32.1 32.0 31.9 31.8 31.7 31.5 31.4
51.................................................. 31.4 31.4 31.3 31.2 31.2 31.1 31.0 30.9 30.8 30.6
52.................................................. 30.6 30.5 30.5 30.4 30.3 30.3 30.2 30.1 30.0 29.9
53.................................................. 29.7 29.7 29.6 29.6 29.5 29.5 29.4 29.3 29.2 29.1
54.................................................. 28.9 28.9 28.8 28.8 28.7 28.6 28.6 28.5 28.4 28.3
55.................................................. 28.1 28.0 28.0 27.9 27.9 27.8 27.8 27.7 27.6 27.5
56.................................................. 27.2 27.2 27.1 27.1 27.0 27.0 26.9 26.9 26.8 26.7
57.................................................. 26.4 26.3 26.3 26.3 26.2 26.2 26.1 26.1 26.0 25.9
58.................................................. 25.5 25.5 25.5 25.4 25.4 25.4 25.3 25.3 25.2 25.1
59.................................................. 24.7 24.7 24.6 24.6 24.6 24.5 24.5 24.5 24.4 24.3
60.................................................. 23.9 23.8 23.8 23.8 23.8 23.7 23.7 23.6 23.6 23.5
61.................................................. 23.0 23.0 23.0 23.0 22.9 22.9 22.9 22.8 22.8 22.7
62.................................................. 22.2 22.2 22.2 22.1 22.1 22.1 22.1 22.0 22.0 21.9
63.................................................. 21.4 21.4 21.3 21.3 21.3 21.3 21.3 21.2 21.2 21.2
64.................................................. 20.6 20.6 20.5 20.5 20.5 20.5 20.5 20.4 20.4 20.4
65.................................................. 19.8 19.8 19.7 19.7 19.7 19.7 19.7 19.6 19.6 19.6
66.................................................. 19.0 19.0 19.0 18.9 18.9 18.9 18.9 18.9 18.8 18.8
67.................................................. 18.2 18.2 18.2 18.2 18.2 18.1 18.1 18.1 18.1 18.1
[[Page 234]]
68.................................................. 17.4 17.4 17.4 17.4 17.4 17.4 17.4 17.3 17.3 17.3
69.................................................. 16.7 16.7 16.7 16.6 16.6 16.6 16.6 16.6 16.6 16.6
70.................................................. 15.9 15.9 15.9 15.9 15.9 15.9 15.9 15.9 15.8 15.8
71.................................................. 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.1 15.1 15.1
72.................................................. 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.4 14.4 14.4
73.................................................. 13.8 13.8 13.8 13.8 13.8 13.8 13.8 13.8 13.7 13.7
74.................................................. 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1
75.................................................. 12.5 12.5 12.5 12.4 12.4 12.4 12.4 12.4 12.4 12.4
76.................................................. 11.8 11.8 11.8 11.8 11.8 11.8 11.8 11.8 11.8 11.8
77.................................................. 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.1
78.................................................. 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.5
79.................................................. 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0
80.................................................. 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4
81.................................................. 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9
82.................................................. 8.4 8.4 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3
83.................................................. 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8
84.................................................. 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4
85.................................................. 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9
86.................................................. 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5
87.................................................. 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1
88.................................................. 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7
89.................................................. 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3
90.................................................. 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
91.................................................. 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7
92.................................................. 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4
93.................................................. 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
94.................................................. 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
95.................................................. 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6
96.................................................. 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4
97.................................................. 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
98.................................................. 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
99.................................................. 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
100................................................. 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7
101................................................. 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
102................................................. 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
103................................................. 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8
106................................................. 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 35 36 37 38 39 40 41 42 43 44
--------------------------------------------------------------------------------------------------------------------------------------------------------
35.................................................. 40.7 40.2 39.7 39.2 38.6 38.0 37.4 36.8 36.2 35.5
36.................................................. 40.2 39.7 39.3 38.7 38.2 37.7 37.1 36.5 35.9 35.2
37.................................................. 39.7 39.3 38.8 38.3 37.8 37.3 36.7 36.2 35.6 34.9
38.................................................. 39.2 38.7 38.3 37.9 37.4 36.9 36.3 35.8 35.2 34.6
39.................................................. 38.6 38.2 37.8 37.4 36.9 36.4 35.9 35.4 34.9 34.3
40.................................................. 38.0 37.7 37.3 36.9 36.4 36.0 35.5 35.0 34.5 34.0
41.................................................. 37.4 37.1 36.7 36.3 35.9 35.5 35.1 34.6 34.1 33.6
42.................................................. 36.8 36.5 36.2 35.8 35.4 35.0 34.6 34.1 33.7 33.2
43.................................................. 36.2 35.9 35.6 35.2 34.9 34.5 34.1 33.7 33.2 32.8
44.................................................. 35.5 35.2 34.9 34.6 34.3 34.0 33.6 33.2 32.8 32.3
45.................................................. 34.8 34.6 34.3 34.0 33.7 33.4 33.0 32.7 32.3 31.8
46.................................................. 34.1 33.9 33.7 33.4 33.1 32.8 32.5 32.1 31.8 31.4
47.................................................. 33.4 33.2 33.0 32.8 32.5 32.2 31.9 31.6 31.2 30.8
48.................................................. 32.7 32.5 32.3 32.1 31.8 31.6 31.3 31.0 30.7 30.3
49.................................................. 32.0 31.8 31.6 31.4 31.2 30.9 30.7 30.4 30.1 29.8
50.................................................. 31.3 31.1 30.9 30.7 30.5 30.3 30.0 29.8 29.5 29.2
51.................................................. 30.5 30.4 30.2 30.0 29.8 29.6 29.4 29.2 28.9 28.6
[[Page 235]]
52.................................................. 29.7 29.6 29.5 29.3 29.1 28.9 28.7 28.5 28.3 28.0
53.................................................. 29.0 28.9 28.7 28.6 28.4 28.2 28.1 27.9 27.6 27.4
54.................................................. 28.2 28.1 28.0 27.8 27.7 27.5 27.4 27.2 27.0 26.8
55.................................................. 27.4 27.3 27.2 27.1 27.0 26.8 26.7 26.5 26.3 26.1
56.................................................. 26.7 26.6 26.5 26.3 26.2 26.1 26.0 25.8 25.6 25.4
57.................................................. 25.9 25.8 25.7 25.6 25.5 25.4 25.2 25.1 24.9 24.8
58.................................................. 25.1 25.0 24.9 24.8 24.7 24.6 24.5 24.4 24.2 24.1
59.................................................. 24.3 24.2 24.1 24.1 24.0 23.9 23.8 23.6 23.5 23.4
60.................................................. 23.5 23.4 23.4 23.3 23.2 23.1 23.0 22.9 22.8 22.7
61.................................................. 22.7 22.6 22.6 22.5 22.4 22.4 22.3 22.2 22.1 22.0
62.................................................. 21.9 21.9 21.8 21.7 21.7 21.6 21.5 21.4 21.3 21.2
63.................................................. 21.1 21.1 21.0 21.0 20.9 20.8 20.8 20.7 20.6 20.5
64.................................................. 20.3 20.3 20.2 20.2 20.1 20.1 20.0 20.0 19.9 19.8
65.................................................. 19.6 19.5 19.5 19.4 19.4 19.3 19.3 19.2 19.1 19.1
66.................................................. 18.8 18.8 18.7 18.7 18.6 18.6 18.5 18.5 18.4 18.4
67.................................................. 18.0 18.0 18.0 17.9 17.9 17.9 17.8 17.8 17.7 17.6
68.................................................. 17.3 17.3 17.2 17.2 17.2 17.1 17.1 17.0 17.0 16.9
69.................................................. 16.5 16.5 16.5 16.5 16.4 16.4 16.4 16.3 16.3 16.2
70.................................................. 15.8 15.8 15.8 15.7 15.7 15.7 15.6 15.6 15.6 15.5
71.................................................. 15.1 15.1 15.1 15.0 15.0 15.0 15.0 14.9 14.9 14.9
72.................................................. 14.4 14.4 14.4 14.3 14.3 14.3 14.3 14.2 14.2 14.2
73.................................................. 13.7 13.7 13.7 13.7 13.7 13.6 13.6 13.6 13.6 13.5
74.................................................. 13.1 13.0 13.0 13.0 13.0 13.0 13.0 12.9 12.9 12.9
75.................................................. 12.4 12.4 12.4 12.4 12.3 12.3 12.3 12.3 12.3 12.2
76.................................................. 11.8 11.8 11.7 11.7 11.7 11.7 11.7 11.7 11.6 11.6
77.................................................. 11.1 11.1 11.1 11.1 11.1 11.1 11.1 11.1 11.0 11.0
78.................................................. 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.4
79.................................................. 10.0 10.0 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9
80.................................................. 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.3 9.3 9.3
81.................................................. 8.9 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8
82.................................................. 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3
83.................................................. 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8
84.................................................. 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3
85.................................................. 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9
86.................................................. 6.5 6.5 6.5 6.5 6.4 6.4 6.4 6.4 6.4 6.4
87.................................................. 6.1 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0
88.................................................. 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.6 5.6 5.6
89.................................................. 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3
90.................................................. 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
91.................................................. 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.6 4.6
92.................................................. 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4
93.................................................. 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
94.................................................. 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
95.................................................. 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6
96.................................................. 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4
97.................................................. 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
98.................................................. 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
99.................................................. 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
100................................................. 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.6 2.6
101................................................. 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
102................................................. 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
103................................................. 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8
106................................................. 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 45 46 47 48 49 50 51 52 53 54
--------------------------------------------------------------------------------------------------------------------------------------------------------
45.................................................. 31.4 30.9 30.5 30.0 29.4 28.9 28.3 27.7 27.1 26.5
[[Page 236]]
46.................................................. 30.9 30.5 30.0 29.6 29.1 28.5 28.0 27.4 26.9 26.3
47.................................................. 30.5 30.0 29.6 29.2 28.7 28.2 27.7 27.1 26.6 26.0
48.................................................. 30.0 29.6 29.2 28.7 28.3 27.8 27.3 26.8 26.3 25.7
49.................................................. 29.4 29.1 28.7 28.3 27.9 27.4 26.9 26.5 25.9 25.4
50.................................................. 28.9 28.5 28.2 27.4 27.4 27.0 26.5 26.1 25.6 25.1
51.................................................. 28.3 28.0 27.7 27.3 26.9 26.5 26.1 25.7 25.2 24.7
52.................................................. 27.7 27.4 27.1 26.8 26.5 26.1 25.7 25.3 24.8 24.4
53.................................................. 27.1 26.9 26.6 26.3 25.9 25.6 25.2 24.8 24.4 24.0
54.................................................. 26.5 26.3 26.0 25.7 25.4 25.1 24.7 24.4 24.0 23.6
55.................................................. 25.9 25.7 25.4 25.1 24.9 24.6 24.2 23.9 23.5 23.2
56.................................................. 25.2 25.0 24.8 24.6 24.3 24.0 23.7 23.4 23.1 22.7
57.................................................. 24.6 24.4 24.2 24.0 23.7 23.5 23.2 22.9 22.6 22.2
58.................................................. 23.9 23.7 23.5 23.3 23.1 22.9 22.6 22.4 22.1 21.7
59.................................................. 23.2 23.1 22.9 22.7 22.5 22.3 22.1 21.8 21.5 21.2
60.................................................. 22.5 22.4 22.2 22.1 21.9 21.7 21.5 21.2 21.0 20.7
61.................................................. 21.8 21.7 21.6 21.4 21.2 21.1 20.9 20.6 20.4 20.2
62.................................................. 21.1 21.0 20.9 20.7 20.6 20.4 20.2 20.0 19.8 19.6
63.................................................. 20.4 20.3 20.2 20.1 19.9 19.8 19.6 19.4 19.2 19.0
64.................................................. 19.7 19.6 19.5 19.4 19.3 19.1 19.0 18.8 18.6 18.5
65.................................................. 19.0 18.9 18.8 18.7 18.6 18.5 18.3 18.2 18.0 17.9
66.................................................. 18.3 18.2 18.1 18.0 17.9 17.8 17.7 17.6 17.4 17.3
67.................................................. 17.6 17.5 17.4 17.3 17.3 17.2 17.1 16.9 16.8 16.7
68.................................................. 16.9 16.8 16.7 16.7 16.6 16.5 16.4 16.3 16.2 16.1
69.................................................. 16.2 16.1 16.1 16.0 15.9 15.8 15.8 15.7 15.6 15.4
70.................................................. 15.5 15.4 15.4 15.3 15.3 15.2 15.1 15.0 14.9 14.8
71.................................................. 14.8 14.8 14.7 14.7 14.6 14.5 14.5 14.4 14.3 14.2
72.................................................. 14.1 14.1 14.1 14.0 14.0 13.9 13.8 13.8 13.7 13.6
73.................................................. 13.5 13.5 13.4 13.4 13.3 13.3 13.2 13.2 13.1 13.0
74.................................................. 12.8 12.8 12.8 12.7 12.7 12.7 12.6 12.6 12.5 12.4
75.................................................. 12.2 12.2 12.2 12.1 12.1 12.1 12.0 12.0 11.9 11.9
76.................................................. 11.6 11.6 11.6 11.5 11.5 11.5 11.4 11.4 11.3 11.3
77.................................................. 11.0 11.0 11.0 10.9 10.9 10.9 10.8 10.8 10.8 10.7
78.................................................. 10.4 10.4 10.4 10.4 10.3 10.3 10.3 10.2 10.2 10.2
79.................................................. 9.9 9.8 9.8 9.8 9.8 9.8 9.7 9.7 9.7 9.6
80.................................................. 9.3 9.3 9.3 9.3 9.2 9.2 9.2 9.2 9.1 9.1
81.................................................. 8.8 8.8 8.7 8.7 8.7 8.7 8.7 8.7 8.6 8.6
82.................................................. 8.3 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.1 8.1
83.................................................. 7.8 7.8 7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.6
84.................................................. 7.3 7.3 7.3 7.3 7.3 7.2 7.2 7.2 7.2 7.2
85.................................................. 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.7
86.................................................. 6.4 6.4 6.4 6.4 6.4 6.4 6.4 6.4 6.3 6.3
87.................................................. 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 5.9
88.................................................. 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6
89.................................................. 5.3 5.3 5.3 5.3 5.3 5.3 5.2 5.2 5.2 5.2
90.................................................. 5.0 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9
91.................................................. 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6
92.................................................. 4.4 4.4 4.4 4.3 4.3 4.3 4.3 4.3 4.3 4.3
93.................................................. 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
94.................................................. 3.9 3.9 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8
95.................................................. 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6
96.................................................. 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4
97.................................................. 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
98.................................................. 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
99.................................................. 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
100................................................. 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6
101................................................. 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
102................................................. 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
103................................................. 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8
106................................................. 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
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[[Page 237]]
Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 55 56 57 58 59 60 61 62 63 64
--------------------------------------------------------------------------------------------------------------------------------------------------------
55.................................................. 22.7 22.3 21.9 21.4 20.9 20.4 19.9 19.4 18.8 18.3
56.................................................. 22.3 21.9 21.5 21.1 20.6 20.1 19.6 19.1 18.6 18.0
57.................................................. 21.9 21.5 21.1 20.7 20.3 19.8 19.3 18.8 18.3 17.8
58.................................................. 21.4 21.1 20.7 20.3 19.9 19.5 19.0 18.5 18.0 17.5
59.................................................. 20.9 20.6 20.3 19.9 19.5 19.1 18.7 18.2 17.7 17.3
60.................................................. 20.4 20.1 19.8 19.5 19.1 18.7 18.3 17.9 17.4 17.0
61.................................................. 29.9 19.6 19.3 19.0 18.7 18.3 17.9 17.5 17.1 16.7
62.................................................. 19.4 19.1 18.8 18.5 18.2 17.9 17.5 17.1 16.8 16.3
63.................................................. 18.8 18.6 18.3 18.0 17.7 17.4 17.1 16.8 16.4 16.0
64.................................................. 18.3 18.0 17.8 17.5 17.3 17.0 16.7 16.3 16.0 15.6
65.................................................. 17.7 17.5 17.3 17.0 16.8 16.5 16.2 15.9 15.6 15.3
66.................................................. 17.1 16.9 16.7 16.5 16.3 16.0 15.8 15.5 15.2 14.9
67.................................................. 16.5 16.3 16.2 16.0 15.8 15.5 15.3 15.0 14.7 14.5
68.................................................. 15.9 15.8 15.6 15.4 15.2 15.0 14.8 14.6 14.3 14.0
69.................................................. 15.3 15.2 15.0 14.9 14.7 14.5 14.3 14.1 13.9 13.6
70.................................................. 14.7 14.6 14.5 14.3 14.2 14.0 13.8 13.6 13.4 13.2
71.................................................. 14.1 14.0 13.9 13.8 13.6 13.5 13.3 13.1 12.9 12.7
72.................................................. 13.5 13.4 13.3 13.2 13.1 12.9 12.8 12.6 12.4 12.3
73.................................................. 13.0 12.9 12.8 12.7 12.5 12.4 12.3 12.1 12.0 11.8
74.................................................. 12.4 12.3 12.2 12.1 12.0 11.9 11.8 11.6 11.5 11.3
75.................................................. 11.8 11.7 11.7 11.6 11.5 11.4 11.3 11.1 11.0 10.9
76.................................................. 11.2 11.2 11.1 11.0 10.9 10.9 10.8 10.6 10.5 10.4
77.................................................. 10.7 10.6 10.6 10.5 10.4 10.3 10.3 10.2 10.0 9.9
78.................................................. 10.1 10.1 10.0 10.0 9.9 9.8 9.8 9.7 9.6 9.5
79.................................................. 9.6 9.6 9.5 9.5 9.4 9.3 9.3 9.2 9.1 9.0
80.................................................. 9.1 9.0 9.0 9.0 8.9 8.9 8.8 8.7 8.7 8.6
81.................................................. 8.6 8.5 8.5 8.5 8.4 8.4 8.3 8.3 8.2 8.1
82.................................................. 8.1 8.1 8.0 8.0 8.0 7.9 7.9 7.8 7.8 7.7
83.................................................. 7.6 7.6 7.6 7.5 7.5 7.5 7.4 7.4 7.3 7.3
84.................................................. 7.2 7.1 7.1 7.1 7.1 7.0 7.0 7.0 6.9 6.9
85.................................................. 6.7 6.7 6.7 6.7 6.6 6.6 6.6 6.5 6.5 6.5
86.................................................. 6.3 6.3 6.3 6.3 6.2 6.2 6.2 6.2 6.1 6.1
87.................................................. 5.9 5.9 5.9 5.9 5.9 5.8 5.8 5.8 5.8 5.7
88.................................................. 5.6 5.5 5.5 5.5 5.5 5.5 5.5 5.4 5.4 5.4
89.................................................. 5.2 5.2 5.2 5.2 5.2 5.1 5.1 5.1 5.1 5.1
90.................................................. 4.9 4.9 4.9 4.9 4.9 4.8 4.8 4.8 4.8 4.8
91.................................................. 4.6 4.6 4.6 4.6 4.6 4.5 4.5 4.5 4.5 4.5
92.................................................. 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.2 4.2 4.2
93.................................................. 4.1 4.1 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
94.................................................. 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.7
95.................................................. 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.5 3.5
96.................................................. 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.3 3.3 3.3
97.................................................. 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.1 3.1
98.................................................. 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
99.................................................. 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
100................................................. 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6
101................................................. 2.5 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
102................................................. 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.2
103................................................. 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.7 1.7 1.7 1.7
106................................................. 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 65 66 67 68 69 70 71 72 73 74
--------------------------------------------------------------------------------------------------------------------------------------------------------
65.................................................. 14.9 14.5 14.1 13.7 13.3 12.9 12.5 12.0 11.6 11.2
66.................................................. 14.5 14.2 13.8 13.4 13.1 12.6 12.2 11.8 11.4 11.0
67.................................................. 14.1 13.8 13.5 13.1 12.8 12.4 12.0 11.6 11.2 10.8
68.................................................. 13.7 13.4 13.1 12.8 12.5 12.1 11.7 11.4 11.0 10.6
69.................................................. 13.3 13.1 12.8 12.5 12.1 11.8 11.4 11.1 10.7 10.4
[[Page 238]]
70.................................................. 12.9 12.6 12.4 12.1 11.8 11.5 11.2 10.8 10.5 10.1
71.................................................. 12.5 12.2 12.0 11.7 11.4 11.2 10.9 10.5 10.2 9.9
72.................................................. 12.0 11.8 11.6 11.4 11.1 10.8 10.5 10.2 9.9 9.6
73.................................................. 11.6 11.4 11.2 11.0 10.7 10.5 10.2 9.9 9.7 9.4
74.................................................. 11.2 11.0 10.8 10.6 10.4 10.1 9.9 9.6 9.4 9.1
75.................................................. 10.7 10.5 10.4 10.2 10.0 9.8 9.5 9.3 9.1 8.8
76.................................................. 10.3 10.1 9.9 9.8 9.6 9.4 9.2 9.0 8.8 8.5
77.................................................. 9.8 9.7 9.5 9.4 9.2 9.0 8.8 8.6 8.4 8.2
78.................................................. 9.4 9.2 9.1 9.0 8.8 8.7 8.5 8.3 8.1 7.9
79.................................................. 8.9 8.8 8.7 8.6 8.4 8.3 8.1 8.0 7.8 7.6
80.................................................. 8.5 8.4 8.3 8.2 8.0 7.9 7.8 7.6 7.5 7.3
81.................................................. 8.0 8.0 7.9 7.9 7.7 7.5 7.4 7.3 7.1 7.0
82.................................................. 7.6 7.5 7.5 7.4 7.3 7.2 7.1 6.9 6.8 6.7
83.................................................. 7.2 7.1 7.1 7.0 6.9 6.8 6.7 6.6 6.5 6.4
84.................................................. 6.8 6.7 6.7 6.6 6.5 6.4 6.4 6.3 6.2 6.0
85.................................................. 6.4 6.4 6.3 6.2 6.2 6.1 6.0 5.9 5.8 5.7
86.................................................. 6.0 6.0 5.9 5.9 5.8 5.8 5.7 5.6 5.5 5.4
87.................................................. 5.7 5.6 5.6 5.6 5.5 5.4 5.4 5.3 5.2 5.2
88.................................................. 5.3 5.3 5.3 5.2 5.2 5.1 5.1 5.0 5.0 4.9
89.................................................. 5.0 5.0 5.0 4.9 4.9 4.8 4.8 4.7 4.7 4.6
90.................................................. 4.7 4.7 4.7 4.6 4.6 4.6 4.5 4.5 4.4 4.4
91.................................................. 4.5 4.4 4.4 4.4 4.3 4.3 4.3 4.2 4.2 4.1
92.................................................. 4.2 4.2 4.1 4.1 4.1 4.1 4.0 4.0 3.9 3.9
93.................................................. 3.9 3.9 3.9 3.9 3.9 3.8 3.8 3.8 3.7 3.7
94.................................................. 3.7 3.7 3.7 3.7 3.6 3.6 3.6 3.6 3.5 3.5
95.................................................. 3.5 3.5 3.5 3.5 3.4 3.4 3.4 3.4 3.3 3.3
96.................................................. 3.3 3.3 3.3 3.3 3.3 3.2 3.2 3.2 3.2 3.1
97.................................................. 3.1 3.1 3.1 3.1 3.1 3.1 3.0 3.0 3.0 3.0
98.................................................. 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.8 2.8
99.................................................. 2.8 2.8 2.8 2.7 2.7 2.7 2.7 2.7 2.7 2.6
100................................................. 2.6 2.6 2.6 2.6 2.6 2.5 2.5 2.5 2.5 2.5
101................................................. 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.3 2.3
102................................................. 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2
103................................................. 2.1 2.1 2.1 2.1 2.1 2.0 2.0 2.0 2.0 2.0
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 .19 1.9
105................................................. 1.7 1.7 1.7 1.7 .17 1.7 1.7 1.7 1.7 1.7
106................................................. 1.6 1.6 .16 1.6 1.6 1.6 1.6 1.6 1.5 1.5
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .6 .6 .6 .6 .6
114................................................. .6 .6 .6 .6 .6 .6 .5 .5 .5 .5
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 75 76 77 78 79 80 81 82 83 84
--------------------------------------------------------------------------------------------------------------------------------------------------------
75.................................................. 8.6 8.3 8.0 7.7 7.4 7.1 6.8 6.5 6.2 5.9
76.................................................. 8.3 8.0 7.8 7.5 7.2 6.9 6.7 6.4 6.1 5.8
77.................................................. 8.0 7.8 7.5 7.3 7.0 6.8 6.5 6.2 5.9 5.7
78.................................................. 7.7 7.5 7.3 7.0 6.8 6.6 6.3 6.0 5.8 5.5
79.................................................. 7.4 7.2 7.0 6.8 6.6 6.3 6.1 5.9 5.6 5.4
80.................................................. 7.1 6.9 6.8 6.6 6.3 6.1 5.9 5.7 5.5 5.2
81.................................................. 6.8 6.7 6.5 6.3 6.1 5.9 5.7 5.5 5.3 5.1
82.................................................. 6.5 6.4 6.2 6.0 5.9 5.7 5.5 5.3 5.1 4.9
83.................................................. 6.2 6.1 5.9 5.8 5.6 5.5 5.3 5.1 4.9 4.7
84.................................................. 5.9 5.8 5.7 5.5 5.4 5.2 5.1 4.9 4.7 4.6
85.................................................. 5.6 5.5 5.4 5.3 5.2 5.0 4.9 4.7 4.6 4.4
86.................................................. 5.4 5.3 5.1 5.0 4.9 4.8 4.7 4.5 4.4 4.2
87.................................................. 5.1 5.0 4.9 4.8 4.7 4.6 4.4 4.3 4.2 4.1
88.................................................. 4.8 4.7 4.6 4.5 4.4 4.3 4.2 4.1 4.0 3.9
89.................................................. 4.5 4.5 4.4 4.3 4.2 4.1 4.0 3.9 3.8 3.7
90.................................................. 4.3 4.2 4.2 4.1 4.0 3.9 3.8 3.8 3.7 3.5
91.................................................. 4.1 4.0 4.0 3.9 3.8 3.7 3.7 3.6 3.5 3.4
92.................................................. 3.9 3.8 3.7 3.7 3.6 3.6 3.5 3.4 3.3 3.2
93.................................................. 3.7 3.6 3.6 3.5 3.4 3.4 3.3 3.2 3.2 3.1
[[Page 239]]
94.................................................. 3.5 3.4 3.4 3.3 3.3 3.2 3.2 3.1 3.0 3.0
95.................................................. 3.3 3.2 3.2 3.2 3.1 3.1 3.0 3.0 2.9 2.8
96.................................................. 3.1 3.1 3.0 3.0 3.0 2.9 2.9 2.8 2.8 2.7
97.................................................. 2.9 2.9 2.9 2.9 2.8 2.8 2.7 2.7 2.6 2.6
98.................................................. 2.8 2.8 2.7 2.7 2.7 2.6 2.6 2.6 2.5 2.5
99.................................................. 2.6 2.6 2.6 2.6 2.5 2.5 2.5 2.4 2.4 2.3
100................................................. 2.5 2.5 2.4 2.4 2.4 2.4 2.3 2.3 2.3 2.2
101................................................. 2.3 2.3 2.3 2.3 2.2 2.2 2.2 2.2 2.1 2.1
102................................................. 2.2 2.1 2.1 2.1 2.1 2.1 2.0 2.0 2.0 2.0
103................................................. 2.0 2.0 2.0 2.0 1.9 1.9 1.9 1.9 1.9 1.8
104................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.7 1.7 1.7
105................................................. 1.7 1.7 1.7 1.7 1.6 1.6 1.6 1.6 1.6 1.6
106................................................. 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.4
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.3 1.3 1.3 1.3
108................................................. 1.3 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .8 .8
112................................................. .8 .8 .8 .7 .7 .7 .7 .7 .7 .7
113................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
114................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 85 86 87 88 89 90 91 92 93 94
--------------------------------------------------------------------------------------------------------------------------------------------------------
85.................................................. 4.2 4.1 3.9 3.8 3.6 3.4 3.3 3.2 3.0 2.9
86.................................................. 4.1 3.9 3.8 3.6 3.5 3.3 3.2 3.1 2.9 2.8
87.................................................. 3.9 3.8 3.6 3.5 3.4 3.2 3.1 3.0 2.8 2.7
88.................................................. 3.8 3.6 3.5 3.4 3.2 3.1 3.0 2.9 2.8 2.6
89.................................................. 3.6 3.5 3.4 3.2 3.1 3.0 2.9 2.8 2.7 2.6
90.................................................. 3.4 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5
91.................................................. 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4
92.................................................. 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3
93.................................................. 3.0 2.9 2.8 2.8 2.7 2.6 2.5 2.4 2.3 2.3
94.................................................. 2.9 2.8 2.7 2.6 2.6 2.5 2.4 2.3 2.3 2.2
95.................................................. 2.8 2.7 2.6 2.5 2.5 2.4 2.3 2.2 2.2 2.1
96.................................................. 2.6 2.6 2.5 2.4 2.4 2.3 2.2 2.2 2.1 2.0
97.................................................. 2.5 2.5 2.4 2.3 2.3 2.2 2.2 2.1 2.0 2.0
98.................................................. 2.4 2.4 2.3 2.2 2.2 2.1 2.1 2.0 2.0 1.9
99.................................................. 2.3 2.2 2.2 2.1 2.1 2.0 2.0 1.9 1.9 1.8
100................................................. 2.2 2.1 2.1 2.0 2.0 1.9 1.9 1.9 1.8 1.8
101................................................. 2.1 2.0 2.0 1.9 1.9 1.9 1.8 1.8 1.7 1.7
102................................................. 1.9 1.9 1.9 1.8 1.8 1.8 1.7 1.7 1.6 1.6
103................................................. 1.8 1.8 1.8 1.7 1.7 1.7 1.6 1.6 1.5 1.5
104................................................. 1.7 1.7 1.6 1.6 1.6 1.5 1.5 1.5 1.5 1.4
105................................................. 1.6 1.5 1.5 1.5 1.5 1.4 1.4 1.4 1.4 1.3
106................................................. 1.4 1.4 1.4 1.4 1.4 1.3 1.3 1.3 1.3 1.2
107................................................. 1.3 1.3 1.3 1.3 1.2 1.2 1.2 1.2 1.2 1.2
108................................................. 1.2 1.2 1.2 1.1 1.1 1.1 1.1 1.1 1.1 1.1
109................................................. 1.1 1.1 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
110................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
111................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
112................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
113................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
114................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 95 96 97 98 99 100 101 102 103 104
--------------------------------------------------------------------------------------------------------------------------------------------------------
95.................................................. 2.0 2.0 1.9 1.8 1.8 1.7 1.6 1.6 1.5 1.4
96.................................................. 2.0 1.9 1.9 1.8 1.7 1.7 1.6 1.5 1.5 1.4
97.................................................. 1.9 1.9 1.8 1.7 1.7 1.6 1.6 1.5 1.4 1.3
98.................................................. 1.8 1.8 1.7 1.7 1.6 1.6 1.5 1.5 1.4 1.3
99.................................................. 1.8 1.7 1.7 1.6 1.6 1.5 1.5 1.4 1.4 1.3
100................................................. 1.7 1.7 1.6 1.6 1.5 1.5 1.4 1.4 1.3 1.3
[[Page 240]]
101................................................. 1.6 1.6 1.6 1.5 1.5 1.4 1.4 1.3 1.3 1.2
102................................................. 1.6 1.5 1.5 1.5 1.4 1.4 1.3 1.3 1.2 1.2
103................................................. 1.5 1.5 1.4 1.4 1.4 1.3 1.3 1.2 1.2 1.1
104................................................. 1.4 1.4 1.3 1.3 1.3 1.3 1.2 1.2 1.1 1.1
105................................................. 1.3 1.3 1.3 1.2 1.2 1.2 1.2 1.1 1.1 1.0
106................................................. 1.2 1.2 1.2 1.2 1.1 1.1 1.1 1.1 1.0 1.0
107................................................. 1.1 1.1 1.1 1.1 1.1 1.0 1.0 1.0 1.0 9
108................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 .9 .9 .9
109................................................. 1.0 .9 .9 .9 .9 .9 .9 .9 .8 .8
110................................................. .9 .9 .8 .8 .8 .8 .8 .8 .8 .8
111................................................. .8 .8 .8 .8 .8 .7 .7 .7 .7 .7
112................................................. .7 .7 .7 .7 .7 .7 .7 .7 .6 .6
113................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
114................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIaa--Annuities for Joint Life Only; Two Lives--Expected Return Multiples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ages 105 106 107 108 109 110 111 112 113 114 115
--------------------------------------------------------------------------------------------------------------------------------------------------------
105....................................... 1.0 1.0 .9 .9 .8 .7 .7 .6 .6 .5 .5
106....................................... 1.0 .9 .9 .8 .8 .7 .7 .6 .6 .5 .5
107....................................... .9 .9 .8 .8 .7 .7 .7 .6 .6 .5 .5
108....................................... .9 .8 .8 .8 .7 .7 .6 .6 .5 .5 .5
109....................................... .8 .8 .7 .7 .7 .7 .6 .6 .5 .5 .5
110....................................... .7 .7 .7 .7 .7 .6 .6 .6 .5 .5 .5
111....................................... .7 .7 .7 .6 .6 .6 .6 .5 .5 .5 .5
112....................................... .6 .6 .6 .6 .6 .6 .5 .5 .5 .5 .5
113....................................... .6 .6 .6 .5 .5 .5 .5 .5 .5 .5 .5
114....................................... .5 .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
115....................................... .5 .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VII--Percent Value of Refund Feature; Duration of Guaranteed Amount
--------------------------------------------------------------------------------------------------------------------------------------------------------
Years--
Age ---------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9 10
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................................... 0 0 0 0 0 0 0 0 0 0
6................................................... 0 0 0 0 0 0 0 0 0 0
7................................................... 0 0 0 0 0 0 0 0 0 0
8................................................... 0 0 0 0 0 0 0 0 0 0
9................................................... 0 0 0 0 0 0 0 0 0 0
10.................................................. 0 0 0 0 0 0 0 0 0 0
11.................................................. 0 0 0 0 0 0 0 0 0 0
12.................................................. 0 0 0 0 0 0 0 0 0 0
13.................................................. 0 0 0 0 0 0 0 0 0 0
14.................................................. 0 0 0 0 0 0 0 0 0 0
15.................................................. 0 0 0 0 0 0 0 0 0 0
16.................................................. 0 0 0 0 0 0 0 0 0 0
17.................................................. 0 0 0 0 0 0 0 0 0 0
18.................................................. 0 0 0 0 0 0 0 0 0 0
19.................................................. 0 0 0 0 0 0 0 0 0 0
20.................................................. 0 0 0 0 0 0 0 0 0 0
21.................................................. 0 0 0 0 0 0 0 0 0 0
22.................................................. 0 0 0 0 0 0 0 0 0 0
23.................................................. 0 0 0 0 0 0 0 0 0 0
24.................................................. 0 0 0 0 0 0 0 0 0 0
25.................................................. 0 0 0 0 0 0 0 0 0 0
26.................................................. 0 0 0 0 0 0 0 0 0 0
27.................................................. 0 0 0 0 0 0 0 0 0 0
28.................................................. 0 0 0 0 0 0 0 0 0 0
29.................................................. 0 0 0 0 0 0 0 0 0 0
30.................................................. 0 0 0 0 0 0 0 0 0 0
31.................................................. 0 0 0 0 0 0 0 0 0 0
32.................................................. 0 0 0 0 0 0 0 0 0 0
33.................................................. 0 0 0 0 0 0 0 0 0 0
34.................................................. 0 0 0 0 0 0 0 0 0 0
35.................................................. 0 0 0 0 0 0 0 0 0 0
[[Page 241]]
36.................................................. 0 0 0 0 0 0 0 0 0 0
37.................................................. 0 0 0 0 0 0 0 0 0 1
38.................................................. 0 0 0 0 0 0 0 0 0 1
39.................................................. 0 0 0 0 0 0 0 0 1 1
40.................................................. 0 0 0 0 0 0 0 1 1 1
41.................................................. 0 0 0 0 0 0 0 1 1 1
42.................................................. 0 0 0 0 0 0 1 1 1 1
43.................................................. 0 0 0 0 0 0 1 1 1 1
44.................................................. 0 0 0 0 0 1 1 1 1 1
45.................................................. 0 0 0 0 0 1 1 1 1 1
46.................................................. 0 0 0 0 1 1 1 1 1 1
47.................................................. 0 0 0 0 1 1 1 1 1 1
48.................................................. 0 0 0 0 1 1 1 1 1 1
49.................................................. 0 0 0 1 1 1 1 1 1 2
50.................................................. 0 0 0 1 1 1 1 1 1 2
51.................................................. 0 0 0 1 1 1 1 1 2 2
52.................................................. 0 0 0 1 1 1 1 1 2 2
53.................................................. 0 0 1 1 1 1 1 2 2 2
54.................................................. 0 0 1 1 1 1 1 2 2 2
55.................................................. 0 0 1 1 1 1 2 2 2 2
56.................................................. 0 0 1 1 1 1 2 2 2 3
57.................................................. 0 0 1 1 1 2 2 2 3 3
58.................................................. 0 1 1 1 1 2 2 2 3 3
59.................................................. 0 1 1 1 1 2 2 3 3 4
60.................................................. 0 1 1 1 2 2 2 3 3 4
61.................................................. 0 1 1 1 2 2 3 3 4 4
62.................................................. 0 1 1 2 2 2 3 4 4 5
63.................................................. 0 1 1 2 2 3 3 4 5 5
64.................................................. 0 1 1 2 2 3 4 4 5 6
65.................................................. 0 1 2 2 3 3 4 5 6 6
66.................................................. 1 1 2 2 3 4 5 5 6 7
67.................................................. 1 1 2 3 3 4 5 6 7 8
68.................................................. 1 1 2 3 4 5 6 7 8 9
69.................................................. 1 1 2 3 4 5 6 7 8 10
70.................................................. 1 2 3 4 5 6 7 8 9 11
71.................................................. 1 2 3 4 5 6 8 9 10 12
72.................................................. 1 2 3 4 6 7 8 10 11 13
73.................................................. 1 2 4 5 6 8 9 11 13 14
74.................................................. 1 3 4 5 7 9 10 12 14 16
75.................................................. 1 3 4 6 8 9 11 13 15 17
76.................................................. 2 3 5 7 9 10 12 15 17 19
77.................................................. 2 4 5 7 9 12 14 16 18 21
78.................................................. 2 4 6 8 10 13 15 18 20 23
79.................................................. 2 4 7 9 11 14 17 19 22 25
80.................................................. 2 5 7 10 13 15 18 21 24 27
81.................................................. 3 5 8 11 14 17 20 23 26 29
82.................................................. 3 6 9 12 15 19 22 25 28 32
83.................................................. 3 7 10 13 17 20 24 27 31 34
84.................................................. 4 7 11 15 19 22 26 30 33 37
85.................................................. 4 8 12 16 20 24 28 32 36 40
86.................................................. 4 9 13 18 22 27 31 35 39 42
87.................................................. 5 10 15 20 24 29 33 37 41 45
88.................................................. 5 11 16 21 26 31 36 40 44 48
89.................................................. 6 12 18 23 28 33 38 43 47 50
90.................................................. 7 13 19 25 31 36 41 45 49 53
91.................................................. 7 14 21 27 33 38 43 48 52 55
92.................................................. 8 15 22 29 35 40 45 50 54 58
93.................................................. 9 17 24 31 37 43 48 52 56 60
94.................................................. 9 18 26 33 39 45 50 54 58 62
95.................................................. 10 19 27 35 41 47 52 57 60 64
96.................................................. 11 20 29 36 43 49 54 59 62 66
97.................................................. 11 21 30 38 45 51 56 61 64 68
98.................................................. 12 23 32 40 47 53 58 63 66 69
99.................................................. 13 24 34 42 49 55 60 65 68 71
100................................................. 14 26 36 44 52 58 63 67 70 73
101................................................. 14 27 38 47 54 60 65 69 72 75
102................................................. 15 29 40 49 56 62 67 71 74 77
103................................................. 17 31 42 52 59 65 69 73 76 78
104................................................. 18 33 45 55 62 67 72 75 78 80
[[Page 242]]
105................................................. 19 36 48 58 65 70 74 77 80 82
106................................................. 21 38 51 61 68 73 77 79 82 84
107................................................. 23 42 55 64 71 75 79 81 84 85
108................................................. 25 45 58 67 73 78 81 83 85 87
109................................................. 28 49 62 71 76 80 83 85 87 88
110................................................. 31 52 66 74 79 82 85 87 88 89
111................................................. 34 57 70 77 82 85 87 88 90 91
112................................................. 37 61 73 80 84 87 88 90 91 92
113................................................. 41 66 77 83 86 88 90 91 92 93
114................................................. 45 70 80 85 88 90 92 93 93 94
115................................................. 50 75 83 88 90 92 93 94 94 95
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VII--Percent Value of Refund Feature; Duration of Guaranteed Amount
--------------------------------------------------------------------------------------------------------------------------------------------------------
Years--
Age ---------------------------------------------------------------------------------------------------
11 12 13 14 15 16 17 18 19 20
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................................... 0 0 0 0 0 0 0 0 0 0
6................................................... 0 0 0 0 0 0 0 0 0 0
7................................................... 0 0 0 0 0 0 0 0 0 0
8................................................... 0 0 0 0 0 0 0 0 0 0
9................................................... 0 0 0 0 0 0 0 0 0 0
10.................................................. 0 0 0 0 0 0 0 0 0 0
11.................................................. 0 0 0 0 0 0 0 0 0 0
12.................................................. 0 0 0 0 0 0 0 0 0 0
13.................................................. 0 0 0 0 0 0 0 0 0 0
14.................................................. 0 0 0 0 0 0 0 0 0 0
15.................................................. 0 0 0 0 0 0 0 0 0 0
16.................................................. 0 0 0 0 0 0 0 0 0 0
17.................................................. 0 0 0 0 0 0 0 0 0 0
18.................................................. 0 0 0 0 0 0 0 0 0 0
19.................................................. 0 0 0 0 0 0 0 0 0 0
20.................................................. 0 0 0 0 0 0 0 0 0 1
21.................................................. 0 0 0 0 0 0 0 0 0 1
22.................................................. 0 0 0 0 0 0 0 0 1 1
23.................................................. 0 0 0 0 0 0 0 1 1 1
24.................................................. 0 0 0 0 0 0 0 1 1 1
25.................................................. 0 0 0 0 0 0 1 1 1 1
26.................................................. 0 0 0 0 0 0 1 1 1 1
27.................................................. 0 0 0 0 0 1 1 1 1 1
28.................................................. 0 0 0 0 1 1 1 1 1 1
29.................................................. 0 0 0 0 1 1 1 1 1 1
30.................................................. 0 0 0 1 1 1 1 1 1 1
31.................................................. 0 0 0 1 1 1 1 1 1 1
32.................................................. 0 0 1 1 1 1 1 1 1 1
33.................................................. 0 0 1 1 1 1 1 1 1 1
34.................................................. 0 1 1 1 1 1 1 1 1 1
35.................................................. 0 1 1 1 1 1 1 1 1 1
36.................................................. 1 1 1 1 1 1 1 1 1 1
37.................................................. 1 1 1 1 1 1 1 1 1 1
38.................................................. 1 1 1 1 1 1 1 1 1 2
39.................................................. 1 1 1 1 1 1 1 1 2 2
40.................................................. 1 1 1 1 1 1 1 2 2 2
41.................................................. 1 1 1 1 1 1 2 2 2 2
42.................................................. 1 1 1 1 1 2 2 2 2 2
43.................................................. 1 1 1 1 2 2 2 2 2 3
44.................................................. 1 1 1 2 2 2 2 2 3 3
45.................................................. 1 1 2 2 2 2 2 3 3 3
46.................................................. 1 2 2 2 2 2 3 3 3 3
47.................................................. 1 2 2 2 2 2 3 3 3 4
48.................................................. 2 2 2 2 2 3 3 3 4 4
49.................................................. 2 2 2 2 3 3 3 4 4 4
50.................................................. 2 2 2 3 3 3 3 4 4 5
51.................................................. 2 2 3 3 3 3 4 4 4 5
52.................................................. 2 2 3 3 3 4 4 5 5 5
53.................................................. 2 3 3 3 4 4 5 5 5 6
54.................................................. 3 3 3 4 4 4 5 5 6 7
55.................................................. 3 3 4 4 4 5 5 6 7 7
[[Page 243]]
56.................................................. 3 3 4 4 5 5 6 7 7 8
57.................................................. 3 4 4 5 5 6 6 7 8 9
58.................................................. 4 4 5 5 6 6 7 8 9 9
59.................................................. 4 5 5 6 6 7 8 9 9 10
60.................................................. 4 5 6 6 7 8 9 10 10 11
61.................................................. 5 6 6 7 8 9 10 10 11 13
62.................................................. 5 6 7 8 9 10 11 12 13 14
63.................................................. 6 7 8 9 10 11 12 13 14 15
64.................................................. 7 8 8 9 10 12 13 14 15 17
65.................................................. 7 8 9 10 12 13 14 15 17 18
66.................................................. 8 9 10 12 13 14 15 17 18 20
67.................................................. 9 10 11 13 14 15 17 18 20 22
68.................................................. 10 11 13 14 15 17 19 20 22 24
69.................................................. 11 12 14 15 17 19 20 22 24 26
70.................................................. 12 14 15 17 19 20 22 24 26 28
71.................................................. 13 15 17 18 20 22 24 26 28 30
72.................................................. 15 17 18 20 22 24 26 28 30 32
73.................................................. 16 18 20 22 24 26 28 31 33 35
74.................................................. 18 20 22 24 26 28 31 33 35 37
75.................................................. 19 22 24 26 28 31 33 35 38 40
76.................................................. 21 24 26 28 31 33 36 38 40 43
77.................................................. 23 26 28 31 33 36 38 41 43 45
78.................................................. 25 28 31 33 36 38 41 43 46 48
79.................................................. 28 30 33 36 38 41 44 46 48 51
80.................................................. 30 33 36 38 41 44 46 49 51 53
81.................................................. 32 35 38 41 44 47 49 51 54 56
82.................................................. 35 38 41 44 47 49 52 54 56 58
83.................................................. 38 41 44 47 49 52 54 57 59 61
84.................................................. 40 44 47 49 52 55 57 59 61 63
85.................................................. 43 46 49 52 55 57 59 62 63 65
86.................................................. 46 49 52 55 57 60 62 64 66 67
87.................................................. 48 52 55 57 60 62 64 66 68 69
88.................................................. 51 54 57 60 62 64 66 68 70 71
89.................................................. 54 57 60 62 65 67 68 70 72 73
90.................................................. 56 59 62 64 67 69 70 72 74 75
91.................................................. 59 62 64 67 69 71 72 74 75 76
92.................................................. 61 64 66 69 71 72 74 75 77 78
93.................................................. 63 66 68 70 72 74 75 77 78 79
94.................................................. 65 68 70 72 74 75 77 78 79 80
95.................................................. 67 69 72 74 75 77 78 79 81 82
96.................................................. 69 71 73 75 77 78 80 81 82 83
97.................................................. 70 73 75 77 78 80 81 82 83 84
98.................................................. 72 74 76 78 79 81 82 83 84 85
99.................................................. 74 76 78 79 81 82 83 84 85 86
100................................................. 75 78 79 81 82 83 84 85 86 86
101................................................. 77 79 81 82 83 84 85 86 87 87
102................................................. 79 81 82 83 84 85 86 87 88 88
103................................................. 80 82 83 85 86 87 87 88 89 89
104................................................. 82 84 85 86 87 88 88 89 90 90
105................................................. 84 85 86 87 88 89 89 90 90 91
106................................................. 85 86 87 88 89 90 90 91 91 92
107................................................. 87 88 89 89 90 91 91 92 92 93
108................................................. 88 89 90 90 91 92 92 93 93 93
109................................................. 89 90 91 92 92 93 93 93 94 94
110................................................. 90 91 92 92 93 93 94 94 94 95
111................................................. 92 92 93 93 94 94 95 95 95 95
112................................................. 93 93 94 94 95 95 95 96 96 96
113................................................. 94 94 95 95 95 96 96 96 96 97
114................................................. 95 95 95 96 96 96 97 97 97 97
115................................................. 95 96 96 96 97 97 97 97 97 98
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VII--Percent Value of Refund Feature; Duration of Guaranteed Amount
--------------------------------------------------------------------------------------------------------------------------------------------------------
Years--
Age ---------------------------------------------------------------------------------------------------
21 22 23 24 25 26 27 28 29 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................................... 0 0 0 0 0 0 0 0 0 0
6................................................... 0 0 0 0 0 0 0 0 0 0
[[Page 244]]
7................................................... 0 0 0 0 0 0 0 0 0 0
8................................................... 0 0 0 0 0 0 0 0 0 1
9................................................... 0 0 0 0 0 0 0 0 1 1
10.................................................. 0 0 0 0 0 0 0 1 1 1
11.................................................. 0 0 0 0 0 0 1 1 1 1
12.................................................. 0 0 0 0 0 0 1 1 1 1
13.................................................. 0 0 0 0 0 1 1 1 1 1
14.................................................. 0 0 0 0 1 1 1 1 1 1
15.................................................. 0 0 0 1 1 1 1 1 1 1
16.................................................. 0 0 1 1 1 1 1 1 1 1
17.................................................. 0 0 1 1 1 1 1 1 1 1
18.................................................. 0 1 1 1 1 1 1 1 1 1
19.................................................. 1 1 1 1 1 1 1 1 1 1
20.................................................. 1 1 1 1 1 1 1 1 1 1
21.................................................. 1 1 1 1 1 1 1 1 1 1
22.................................................. 1 1 1 1 1 1 1 1 1 1
23.................................................. 1 1 1 1 1 1 1 1 1 1
24.................................................. 1 1 1 1 1 1 1 1 1 1
25.................................................. 1 1 1 1 1 1 1 1 1 1
26.................................................. 1 1 1 1 1 1 1 1 1 1
27.................................................. 1 1 1 1 1 1 1 1 1 2
28.................................................. 1 1 1 1 1 1 1 1 2 2
29.................................................. 1 1 1 1 1 1 1 2 2 2
30.................................................. 1 1 1 1 1 1 2 2 2 2
31.................................................. 1 1 1 1 1 2 2 2 2 2
32.................................................. 1 1 1 1 2 2 2 2 2 2
33.................................................. 1 1 1 2 2 2 2 2 2 2
34.................................................. 1 1 2 2 2 2 2 2 2 3
35.................................................. 1 2 2 2 2 2 2 2 3 3
36.................................................. 2 2 2 2 2 2 2 3 3 3
37.................................................. 2 2 2 2 2 2 3 3 3 3
38.................................................. 2 2 2 2 2 3 3 3 3 4
39.................................................. 2 2 2 2 3 3 3 3 4 4
40.................................................. 2 2 3 3 3 3 3 4 4 4
41.................................................. 2 3 3 3 3 3 4 4 4 5
42.................................................. 3 3 3 3 3 4 4 4 5 5
43.................................................. 3 3 3 4 4 4 4 5 5 6
44.................................................. 3 3 4 4 4 4 5 5 6 6
45.................................................. 3 4 4 4 5 5 5 6 6 7
46.................................................. 4 4 4 5 5 5 6 6 7 7
47.................................................. 4 4 5 5 5 6 6 7 7 8
48.................................................. 4 5 5 5 6 6 7 7 8 9
49.................................................. 5 5 5 6 6 7 8 8 9 10
50.................................................. 5 5 6 6 7 8 8 9 10 10
51.................................................. 5 6 6 7 8 8 9 10 11 11
52.................................................. 6 7 7 8 8 9 10 11 11 12
53.................................................. 7 7 8 8 9 10 11 12 13 14
54.................................................. 7 8 8 9 10 11 12 13 14 15
55.................................................. 8 9 9 10 11 12 13 14 15 16
56.................................................. 9 9 10 11 12 13 14 15 16 18
57.................................................. 9 10 11 12 13 14 15 17 18 19
58.................................................. 10 11 12 13 14 16 17 18 19 21
59.................................................. 11 12 13 15 16 17 18 20 21 22
60.................................................. 12 14 15 16 17 19 20 21 23 24
61.................................................. 14 15 16 17 19 20 22 23 25 26
62.................................................. 15 16 18 19 20 22 23 25 27 28
63.................................................. 16 18 19 21 22 24 25 27 29 30
64.................................................. 18 19 21 23 24 26 28 29 31 33
65.................................................. 20 21 23 25 26 28 30 31 33 35
66.................................................. 21 23 25 27 28 30 32 34 35 37
67.................................................. 23 25 27 29 31 32 34 36 38 40
68.................................................. 25 27 29 31 33 35 37 38 40 42
69.................................................. 28 29 31 33 35 37 39 41 43 44
70.................................................. 30 32 34 36 38 40 42 43 45 47
71.................................................. 32 34 36 38 40 42 44 46 47 49
72.................................................. 35 37 39 41 43 45 46 48 50 51
73.................................................. 37 39 41 43 45 47 49 51 52 54
74.................................................. 40 42 44 46 48 50 51 53 54 56
75.................................................. 42 44 46 48 50 52 54 55 57 58
[[Page 245]]
76.................................................. 45 47 49 51 53 54 56 58 59 60
77.................................................. 47 50 51 53 55 57 58 60 61 62
78.................................................. 50 52 54 56 57 59 61 62 63 64
79.................................................. 53 55 56 58 60 61 63 64 65 66
80.................................................. 55 57 59 60 62 63 65 66 67 68
81.................................................. 58 59 61 63 64 66 67 68 69 70
82.................................................. 60 62 63 65 66 68 69 70 71 72
83.................................................. 62 64 66 67 68 70 71 72 73 74
84.................................................. 65 66 68 69 70 71 72 73 74 75
85.................................................. 67 68 70 71 72 73 74 75 76 77
86.................................................. 69 70 72 73 74 75 76 77 77 78
87.................................................. 71 72 73 75 76 76 77 78 79 80
88.................................................. 73 74 75 76 77 78 79 80 80 81
89.................................................. 74 76 77 78 79 79 80 81 81 82
90.................................................. 76 77 78 79 80 81 81 82 83 83
91.................................................. 78 79 79 80 81 82 83 83 84 84
92.................................................. 79 80 81 82 82 83 84 84 85 85
93.................................................. 80 81 82 83 83 84 85 85 86 86
94.................................................. 81 82 83 84 84 85 85 86 86 87
95.................................................. 82 83 84 85 85 86 86 87 87 88
96.................................................. 83 84 85 86 86 87 87 88 88 88
97.................................................. 84 85 86 86 87 87 88 88 89 89
98.................................................. 85 86 87 87 88 88 89 89 89 90
99.................................................. 86 87 87 88 88 89 89 90 90 90
100................................................. 87 88 88 89 89 90 90 90 91 91
101................................................. 88 89 89 90 90 90 91 91 91 92
102................................................. 89 89 90 90 91 91 91 92 92 92
103................................................. 90 90 91 91 91 92 92 92 93 93
104................................................. 91 91 91 92 92 92 93 93 93 93
105................................................. 91 92 92 92 93 93 93 94 94 94
106................................................. 92 93 93 93 93 94 94 94 94 95
107................................................. 93 93 94 94 94 94 95 95 95 95
108................................................. 94 94 94 94 95 95 95 95 95 96
109................................................. 94 95 95 95 95 95 96 96 96 96
110................................................. 95 95 95 96 96 96 96 96 96 96
111................................................. 96 96 96 96 96 96 97 97 97 97
112................................................. 96 96 96 97 97 97 97 97 97 97
113................................................. 97 97 97 97 97 97 97 98 98 98
114................................................. 97 97 97 98 98 98 98 98 98 98
115................................................. 98 98 98 98 98 98 98 98 98 98
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VII--Percent Value of Refund Feature; Duration of Guaranteed Amount
--------------------------------------------------------------------------------------------------------------------------------------------------------
Years--
Age ---------------------------------------------------------------------------------------------------
31 32 33 34 35 36 37 38 39 40
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................................... 0 1 1 1 1 1 1 1 1 1
6................................................... 0 1 1 1 1 1 1 1 1 1
7................................................... 1 1 1 1 1 1 1 1 1 1
8................................................... 1 1 1 1 1 1 1 1 1 1
9................................................... 1 1 1 1 1 1 1 1 1 1
10.................................................. 1 1 1 1 1 1 1 1 1 1
11.................................................. 1 1 1 1 1 1 1 1 1 1
12.................................................. 1 1 1 1 1 1 1 1 1 1
13.................................................. 1 1 1 1 1 1 1 1 1 1
14.................................................. 1 1 1 1 1 1 1 1 1 1
15.................................................. 1 1 1 1 1 1 1 1 1 1
16.................................................. 1 1 1 1 1 1 1 1 1 1
17.................................................. 1 1 1 1 1 1 1 1 1 1
18.................................................. 1 1 1 1 1 1 1 1 1 2
19.................................................. 1 1 1 1 1 1 1 1 2 2
20.................................................. 1 1 1 1 1 1 1 2 2 2
21.................................................. 1 1 1 1 1 1 2 2 2 2
22.................................................. 1 1 1 1 1 2 2 2 2 2
23.................................................. 1 1 1 2 2 2 2 2 2 2
24.................................................. 1 1 2 2 2 2 2 2 2 2
25.................................................. 1 2 2 2 2 2 2 2 2 3
26.................................................. 2 2 2 2 2 2 2 2 3 3
[[Page 246]]
27.................................................. 2 2 2 2 2 2 2 3 3 3
28.................................................. 2 2 2 2 2 2 3 3 3 3
29.................................................. 2 2 2 2 2 3 3 3 3 4
30.................................................. 2 2 2 3 3 3 3 3 4 4
31.................................................. 2 2 3 3 3 3 3 4 4 4
32.................................................. 2 3 3 3 3 3 4 4 4 5
33.................................................. 3 3 3 3 3 4 4 4 5 5
34.................................................. 3 3 3 3 4 4 4 5 5 5
35.................................................. 3 3 3 4 4 4 5 5 5 6
36.................................................. 3 4 4 4 4 5 5 5 6 6
37.................................................. 4 4 4 4 5 5 6 6 6 7
38.................................................. 4 4 5 5 5 6 6 7 7 8
39.................................................. 4 5 5 5 6 6 7 7 8 8
40.................................................. 5 5 5 6 6 7 7 8 8 9
41.................................................. 5 5 6 6 7 7 8 9 9 10
42.................................................. 6 6 6 7 7 8 9 9 10 11
43.................................................. 6 7 7 8 8 9 9 10 11 12
44.................................................. 7 7 8 8 9 10 10 11 12 13
45.................................................. 7 8 8 9 10 10 11 12 13 14
46.................................................. 8 9 9 10 11 11 12 13 14 15
47.................................................. 9 9 10 11 12 12 13 14 15 16
48.................................................. 9 10 11 12 13 14 15 16 17 18
49.................................................. 10 11 12 13 14 15 16 17 18 19
50.................................................. 11 12 13 14 15 16 17 18 20 21
51.................................................. 12 13 14 15 16 17 19 20 21 22
52.................................................. 13 14 15 17 18 19 20 21 23 24
53.................................................. 15 16 17 18 19 20 22 23 24 26
54.................................................. 16 17 18 19 21 22 23 25 26 28
55.................................................. 17 18 20 21 22 24 25 27 28 30
56.................................................. 19 20 21 23 24 26 27 29 30 32
57.................................................. 20 22 23 25 26 28 29 31 32 34
58.................................................. 22 24 25 27 28 30 31 33 34 36
59.................................................. 24 25 27 28 30 32 33 35 36 38
60.................................................. 26 27 29 31 32 34 35 37 38 40
61.................................................. 28 29 31 33 34 36 37 39 40 42
62.................................................. 30 32 33 35 36 38 40 41 42 44
63.................................................. 32 34 35 37 39 40 42 43 45 46
64.................................................. 34 36 38 39 41 42 44 45 47 48
65.................................................. 37 38 40 42 43 45 46 47 49 50
66.................................................. 39 41 42 44 45 47 48 50 51 52
67.................................................. 41 43 45 46 48 49 50 52 53 54
68.................................................. 44 45 47 48 50 51 52 54 55 56
69.................................................. 46 48 49 51 52 53 54 56 57 58
70.................................................. 48 50 51 53 54 55 57 58 59 60
71.................................................. 51 52 54 55 56 57 59 60 61 62
72.................................................. 53 54 56 57 58 59 60 62 62 63
73.................................................. 55 57 58 59 60 61 62 63 64 65
74.................................................. 57 59 60 61 62 63 64 65 66 67
75.................................................. 59 61 62 63 64 65 66 67 68 69
76.................................................. 62 63 64 65 66 67 68 69 69 70
77.................................................. 64 65 66 67 68 69 70 70 71 72
78.................................................. 66 67 68 69 70 70 71 72 73 73
79.................................................. 67 68 69 70 71 72 73 73 74 75
80.................................................. 69 70 71 72 73 74 74 75 76 76
81.................................................. 71 72 73 74 74 75 76 76 77 78
82.................................................. 73 74 74 75 76 77 77 78 78 79
83.................................................. 74 75 76 77 77 78 79 79 80 80
84.................................................. 76 77 77 78 79 79 80 80 81 81
85.................................................. 78 78 79 79 80 81 81 82 82 83
86.................................................. 79 80 80 81 81 82 82 83 83 84
87.................................................. 80 81 81 82 83 83 83 84 84 85
88.................................................. 82 82 83 83 84 84 85 85 85 86
89.................................................. 83 83 84 84 85 85 85 86 86 87
90.................................................. 84 84 85 85 86 86 86 87 87 87
91.................................................. 85 85 86 86 87 87 87 88 88 88
92.................................................. 86 86 87 87 87 88 88 88 89 89
93.................................................. 87 87 87 88 88 88 89 89 89 90
94.................................................. 87 88 88 88 89 89 89 90 90 90
95.................................................. 88 88 89 89 89 90 90 90 91 91
[[Page 247]]
96.................................................. 89 89 89 90 90 90 91 91 91 91
97.................................................. 89 90 90 90 91 91 91 91 92 92
98.................................................. 90 90 91 91 91 91 92 92 92 92
99.................................................. 91 91 91 92 92 92 92 92 93 93
100................................................. 91 92 92 92 92 92 93 93 93 93
101................................................. 92 92 92 93 93 93 93 93 94 94
102................................................. 92 93 93 93 93 94 94 94 94 94
103................................................. 93 93 93 94 94 94 94 94 94 95
104................................................. 94 94 94 94 94 95 95 95 95 95
105................................................. 94 94 95 95 95 95 95 95 95 95
106................................................. 95 95 95 95 95 95 96 96 96 96
107................................................. 95 95 96 96 96 96 96 96 96 96
108................................................. 96 96 96 96 96 96 96 96 97 97
109................................................. 96 96 96 97 97 97 97 97 97 97
110................................................. 97 97 97 97 97 97 97 97 97 97
111................................................. 97 97 97 97 97 97 98 98 98 98
112................................................. 97 97 98 98 98 98 98 98 98 98
113................................................. 98 98 98 98 98 98 98 98 98 98
114................................................. 98 98 98 98 98 98 98 98 98 99
115................................................. 98 98 98 99 99 99 99 99 99 99
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIII--Temporary Life Annuities; \1\ One Life--Expected Return Multiples
[See footnote at end of tables]
Temporary Period--Maximum Duration of Annuity
--------------------------------------------------------------------------------------------------------------------------------------------------------
Years--
Age ---------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9 10
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................................... 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
6................................................... 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
7................................................... 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
8................................................... 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
9................................................... 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
10.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
11.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
12.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
13.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
14.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
15.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
16.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
17.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
18.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
19.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
20.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
21.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
22.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
23.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
24.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
25.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
26.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
27.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
28.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
29.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
30.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
31.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
32.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
33.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
34.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
35.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
36.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
37.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 9.9
38.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 9.9
39.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 9.9
40.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 8.9 9.9
41.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 8.9 9.9
42.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 8.9 9.9
43.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 7.9 8.9 9.9
[[Page 248]]
44.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 7.9 8.9 9.9
45.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 7.9 8.9 9.9
46.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 6.9 7.9 8.9 9.9
47.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 6.9 7.9 8.9 9.9
48.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 6.9 7.9 8.9 9.9
49.................................................. 1.0 2.0 3.0 4.0 5.0 6.0 6.9 7.9 8.9 9.8
50.................................................. 1.0 2.0 3.0 4.0 5.0 5.9 6.9 7.9 8.9 9.8
51.................................................. 1.0 2.0 3.0 4.0 5.0 5.9 6.9 7.9 8.9 9.8
52.................................................. 1.0 2.0 3.0 4.0 5.0 5.9 6.9 7.9 8.8 9.8
53.................................................. 1.0 2.0 3.0 4.0 5.0 5.9 6.9 7.9 8.8 9.8
54.................................................. 1.0 2.0 3.0 4.0 4.9 5.9 6.9 7.9 8.8 9.8
55.................................................. 1.0 2.0 3.0 4.0 4.9 5.9 6.9 7.8 8.8 9.7
56.................................................. 1.0 2.0 3.0 4.0 4.9 5.9 6.9 7.8 8.8 9.7
57.................................................. 1.0 2.0 3.0 4.0 4.9 5.9 6.9 7.8 8.8 9.7
58.................................................. 1.0 2.0 3.0 4.0 4.9 5.9 6.9 7.8 8.7 9.7
59.................................................. 1.0 2.0 3.0 4.0 4.9 5.9 6.8 7.8 8.7 9.6
60.................................................. 1.0 2.0 3.0 3.9 4.9 5.9 6.8 7.8 8.7 9.6
61.................................................. 1.0 2.0 3.0 3.9 4.9 5.9 6.8 7.7 8.7 9.6
62.................................................. 1.0 2.0 3.0 3.9 4.9 5.8 6.8 7.7 8.6 9.5
63.................................................. 1.0 2.0 3.0 3.9 4.9 5.8 6.8 7.7 8.6 9.5
64.................................................. 1.0 2.0 3.0 3.9 4.9 5.8 6.7 7.6 8.5 9.4
65.................................................. 1.0 2.0 3.0 3.9 4.9 5.8 6.7 7.6 8.5 9.3
66.................................................. 1.0 2.0 2.9 3.9 4.8 5.8 6.7 7.6 8.4 9.3
67.................................................. 1.0 2.0 2.9 3.9 4.8 5.7 6.6 7.5 8.4 9.2
68.................................................. 1.0 2.0 2.9 3.9 4.8 5.7 6.6 7.5 8.3 9.1
69.................................................. 1.0 2.0 2.9 3.9 4.8 5.7 6.6 7.4 8.2 9.0
70.................................................. 1.0 2.0 2.9 3.9 4.8 5.6 6.5 7.3 8.1 8.9
71.................................................. 1.0 2.0 2.9 3.8 4.7 5.6 6.5 7.3 8.1 8.8
72.................................................. 1.0 2.0 2.9 3.8 4.7 5.6 6.4 7.2 8.0 8.7
73.................................................. 1.0 2.0 2.9 3.8 4.7 5.5 6.3 7.1 7.9 8.6
74.................................................. 1.0 1.9 2.9 3.8 4.6 5.5 6.3 7.0 7.7 8.4
75.................................................. 1.0 1.9 2.9 3.8 4.6 5.4 6.2 6.9 7.6 8.3
76.................................................. 1.0 1.9 2.8 3.7 4.6 5.4 6.1 6.8 7.5 8.1
77.................................................. 1.0 1.9 2.8 3.7 4.5 5.3 6.0 6.7 7.3 7.9
78.................................................. 1.0 1.9 2.8 3.7 4.5 5.2 5.9 6.6 7.2 7.7
79.................................................. 1.0 1.9 2.8 3.6 4.4 5.1 5.8 6.4 7.0 7.5
80.................................................. 1.0 1.9 2.8 3.6 4.4 5.1 5.7 6.3 6.8 7.3
81.................................................. 1.0 1.9 2.8 3.6 4.3 5.0 5.6 6.1 6.6 7.0
82.................................................. 1.0 1.9 2.7 3.5 4.2 4.9 5.4 6.0 6.4 6.8
83.................................................. 1.0 1.9 2.7 3.5 4.1 4.8 5.3 5.8 6.2 6.5
84.................................................. 1.0 1.8 2.7 3.4 4.1 4.6 5.2 5.6 6.0 6.3
85.................................................. 1.0 1.8 2.6 3.3 4.0 4.5 5.0 5.4 5.7 6.0
86.................................................. 1.0 1.8 2.6 3.3 3.9 4.4 4.8 5.2 5.5 5.7
87.................................................. .9 1.8 2.5 3.2 3.8 4.3 4.7 5.0 5.3 5.5
88.................................................. .9 1.8 2.5 3.1 3.7 4.1 4.5 4.8 5.0 5.2
89.................................................. .9 1.8 2.5 3.1 3.6 4.0 4.3 4.6 4.8 4.9
90.................................................. .9 1.7 2.4 3.0 3.4 3.8 4.1 4.4 4.5 4.7
91.................................................. .9 1.7 2.4 2.9 3.3 3.7 4.0 4.2 4.3 4.4
92.................................................. .9 1.7 2.3 2.8 3.2 3.5 3.8 4.0 4.1 4.2
93.................................................. .9 1.7 2.3 2.7 3.1 3.4 3.6 3.8 3.9 4.0
94.................................................. .9 1.6 2.2 2.7 3.0 3.3 3.5 3.6 3.7 3.8
95.................................................. .9 1.6 2.2 2.6 2.9 3.1 3.3 3.4 3.5 3.6
96.................................................. .9 1.6 2.1 2.5 2.8 3.0 3.2 3.3 3.3 3.4
97.................................................. .9 1.6 2.1 2.4 2.7 2.9 3.0 3.1 3.2 3.2
98.................................................. .9 1.5 2.0 2.4 2.6 2.8 2.9 3.0 3.0 3.0
99.................................................. .9 1.5 2.0 2.3 2.5 2.6 2.7 2.8 2.8 2.8
100................................................. .9 1.5 1.9 2.2 2.4 2.5 2.6 2.6 2.6 2.7
101................................................. .8 1.4 1.8 2.1 2.3 2.4 2.4 2.5 2.5 2.5
102................................................. .8 1.4 1.8 2.0 2.1 2.2 2.3 2.3 2.3 2.3
103................................................. .8 1.4 1.7 1.9 2.0 2.1 2.1 2.1 2.1 2.1
104................................................. .8 1.3 1.6 1.8 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. .8 1.3 1.5 1.7 1.7 1.8 1.8 1.8 1.8 1.8
106................................................. .8 1.2 1.4 1.5 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. .7 1.1 1.3 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. .7 1.1 1.2 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. .7 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. .7 .9 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .6 .8 .9 .9 .9 .9 .9 .9 .9 .9
[[Page 249]]
112................................................. .6 .7 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .6 .6 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .5 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIII--Temporary Life Annuities;\1\ One Life--Expected Return Multiples
[See footnote at end of tables]
Temporary Period--Maximum Duration of Annuity
--------------------------------------------------------------------------------------------------------------------------------------------------------
Years--
Age ---------------------------------------------------------------------------------------------------
11 12 13 14 15 16 17 18 19 20
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................................... 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 19.0 19.9
6................................................... 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 19.0 19.9
7................................................... 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 19.0 19.9
8................................................... 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 18.9 19.9
9................................................... 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 18.9 19.9
10.................................................. 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 18.9 19.9
11.................................................. 11.0 12.0 13.0 14.0 15.0 16.0 17.0 17.9 18.9 19.9
12.................................................. 11.0 12.0 13.0 14.0 15.0 16.0 17.0 17.9 18.9 19.9
13.................................................. 11.0 12.0 13.0 14.0 15.0 16.0 17.0 17.9 18.9 19.9
14.................................................. 11.0 12.0 13.0 14.0 15.0 16.0 16.9 17.9 18.9 19.9
15.................................................. 11.0 12.0 13.0 14.0 15.0 16.0 16.9 17.9 18.9 19.9
16.................................................. 11.0 12.0 13.0 14.0 15.0 16.0 16.9 17.9 18.9 19.9
17.................................................. 11.0 12.0 13.0 14.0 15.0 15.9 16.9 17.9 18.9 19.9
18.................................................. 11.0 12.0 13.0 14.0 15.0 15.9 16.9 17.9 18.9 19.9
19.................................................. 11.0 12.0 13.0 14.0 15.0 15.9 16.9 17.9 18.9 19.9
20.................................................. 11.0 12.0 13.0 14.0 14.9 15.9 16.9 17.9 18.9 19.9
21.................................................. 11.0 12.0 13.0 14.0 14.9 15.9 16.9 17.9 18.9 19.9
22.................................................. 11.0 12.0 13.0 14.0 14.9 15.9 16.9 17.9 18.9 19.9
23.................................................. 11.0 12.0 13.0 13.9 14.9 15.9 16.9 17.9 18.9 19.9
24.................................................. 11.0 12.0 13.0 13.9 14.9 15.9 16.9 17.9 18.9 19.9
25.................................................. 11.0 12.0 13.0 13.9 14.9 15.9 16.9 17.9 18.9 19.9
26.................................................. 11.0 12.0 12.9 13.9 14.9 15.9 16.9 17.9 18.9 19.9
27.................................................. 11.0 12.0 12.9 13.9 14.9 15.9 16.9 17.9 18.9 19.9
28.................................................. 11.0 12.0 12.9 13.9 14.9 15.9 16.9 17.9 18.9 19.8
29.................................................. 11.0 12.0 12.9 13.9 14.9 15.9 16.9 17.9 18.9 19.8
30.................................................. 11.0 11.9 12.9 13.9 14.9 15.9 16.9 17.9 18.8 19.8
31.................................................. 11.0 11.9 12.9 13.9 14.9 15.9 16.9 17.9 18.8 19.8
32.................................................. 11.0 11.9 12.9 13.9 14.9 15.9 16.9 17.8 18.8 19.8
33.................................................. 11.0 11.9 12.9 13.9 14.9 15.9 16.9 17.8 18.8 19.8
34.................................................. 10.9 11.9 12.9 13.9 14.9 15.9 16.8 17.8 18.8 19.8
35.................................................. 10.9 11.9 12.9 13.9 14.9 15.9 16.8 17.8 18.8 19.7
36.................................................. 10.9 11.9 12.9 13.9 14.9 15.8 16.8 17.8 18.8 19.7
37.................................................. 10.9 11.9 12.9 13.9 14.9 15.8 16.8 17.8 18.7 19.7
38.................................................. 10.9 11.9 12.9 13.9 14.8 15.8 16.8 17.8 18.7 19.7
39.................................................. 10.9 11.9 12.9 13.9 14.8 15.8 16.8 17.7 18.7 19.6
40.................................................. 10.9 11.9 12.9 13.8 14.8 15.8 16.7 17.7 18.7 19.6
41.................................................. 10.9 11.9 12.9 13.8 14.8 15.8 16.7 17.7 18.6 19.6
42.................................................. 10.9 11.9 12.8 13.8 14.8 15.7 16.7 17.6 18.6 19.5
43.................................................. 10.9 11.9 12.8 13.8 14.8 15.7 16.7 17.6 18.6 19.5
44.................................................. 10.9 11.8 12.8 13.8 14.7 15.7 16.6 17.6 18.5 19.4
45.................................................. 10.9 11.8 12.8 13.8 14.7 15.7 16.6 17.5 18.5 19.4
46.................................................. 10.9 11.8 12.8 13.7 14.7 15.6 16.6 17.5 18.4 19.3
47.................................................. 10.8 11.8 12.8 13.7 14.7 15.6 16.5 17.5 18.4 19.3
48.................................................. 10.8 11.8 12.7 13.7 14.6 15.6 16.5 17.4 18.3 19.2
49.................................................. 10.8 11.8 12.7 13.7 14.6 15.5 16.4 17.4 18.3 19.2
50.................................................. 10.8 11.7 12.7 13.6 14.6 15.5 16.4 17.3 18.2 19.1
51.................................................. 10.8 11.7 12.7 13.6 14.5 15.4 16.3 17.2 18.1 19.0
52.................................................. 10.8 11.7 12.6 13.6 14.5 15.4 16.3 17.2 18.0 18.9
53.................................................. 10.7 11.7 12.6 13.5 14.4 15.3 16.2 17.1 18.0 18.8
54.................................................. 10.7 11.6 12.6 13.5 14.4 15.3 16.2 17.0 17.9 18.7
55.................................................. 10.7 11.6 12.5 13.4 14.3 15.2 16.1 16.9 17.8 18.6
56.................................................. 10.7 11.6 12.5 13.4 14.3 15.1 16.0 16.8 17.6 18.4
57.................................................. 10.6 11.5 12.4 13.3 14.2 15.1 15.9 16.7 17.5 18.3
58.................................................. 10.6 11.5 12.4 13.3 14.1 15.0 15.8 16.6 17.4 18.1
[[Page 250]]
59.................................................. 10.6 11.4 12.3 13.2 14.0 14.9 15.7 16.4 17.2 17.9
60.................................................. 10.5 11.4 12.3 13.1 13.9 14.7 15.5 16.3 17.0 17.7
61.................................................. 10.5 11.3 12.2 13.0 13.8 14.6 15.4 16.1 16.8 17.5
62.................................................. 10.4 11.3 12.1 12.9 13.7 14.5 15.2 15.9 16.6 17.2
63.................................................. 10.3 11.2 12.0 12.8 13.6 14.3 15.0 15.7 16.3 17.0
64.................................................. 10.3 11.1 11.9 12.7 13.4 14.1 14.8 15.5 16.1 16.7
65.................................................. 10.2 11.0 11.8 12.5 13.2 13.9 14.6 15.2 15.8 16.3
66.................................................. 10.1 10.9 11.6 12.4 13.1 13.7 14.4 14.9 15.5 16.0
67.................................................. 10.0 10.8 11.5 12.2 12.9 13.5 14.1 14.7 15.2 15.6
68.................................................. 9.9 10.6 11.4 12.0 12.7 13.3 13.8 14.3 14.8 15.3
69.................................................. 9.8 10.5 11.2 11.8 12.4 13.0 13.5 14.0 14.4 14.8
70.................................................. 9.6 10.3 11.0 11.6 12.2 12.7 13.2 13.7 14.0 14.4
71.................................................. 9.5 10.2 10.8 11.4 11.9 12.4 12.9 13.3 13.6 13.9
72.................................................. 9.4 10.0 10.6 11.2 11.7 12.1 12.5 12.9 13.2 13.5
73.................................................. 9.2 9.8 10.4 10.9 11.4 11.8 12.1 12.5 12.7 13.0
74.................................................. 9.0 9.6 10.1 10.6 11.0 11.4 11.7 12.0 12.3 12.5
75.................................................. 8.8 9.4 9.9 10.3 10.7 11.0 11.3 11.6 11.8 12.0
76.................................................. 8.6 9.1 9.6 10.0 10.3 10.6 10.9 11.1 11.3 11.4
77.................................................. 8.4 8.9 9.3 9.7 10.0 10.2 10.5 10.6 10.8 10.9
78.................................................. 8.2 8.6 9.0 9.3 9.6 9.8 10.0 10.2 10.3 10.4
79.................................................. 7.9 8.3 8.7 9.0 9.2 9.4 9.5 9.7 9.8 9.8
80.................................................. 7.7 8.0 8.3 8.6 8.8 9.0 9.1 9.2 9.3 9.3
81.................................................. 7.4 7.7 8.0 8.2 8.4 8.5 8.6 8.7 8.8 8.8
82.................................................. 7.1 7.4 7.6 7.8 8.0 8.1 8.2 8.2 8.3 8.3
83.................................................. 6.8 7.1 7.3 7.4 7.5 7.6 7.7 7.8 7.8 7.8
84.................................................. 6.5 6.7 6.9 7.0 7.1 7.2 7.3 7.3 7.3 7.4
85.................................................. 6.2 6.4 6.6 6.7 6.7 6.8 6.8 6.9 6.9 6.9
86.................................................. 5.9 6.1 6.2 6.3 6.4 6.4 6.4 6.5 6.5 6.5
87.................................................. 5.6 5.8 5.9 5.9 6.0 6.0 6.0 6.1 6.1 6.1
88.................................................. 5.3 5.4 5.5 5.6 5.6 5.6 5.7 5.7 5.7 5.7
89.................................................. 5.1 5.1 5.2 5.3 5.3 5.3 5.3 5.3 5.3 5.3
90.................................................. 4.8 4.9 4.9 4.9 5.0 5.0 5.0 5.0 5.0 5.0
91.................................................. 4.5 4.6 4.6 4.6 4.7 4.7 4.7 4.7 4.7 4.7
92.................................................. 4.3 4.3 4.3 4.4 4.4 4.4 4.4 4.4 4.4 4.4
93.................................................. 4.0 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
94.................................................. 3.8 3.8 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
95.................................................. 3.6 3.6 3.6 3.6 3.7 3.7 3.7 3.7 3.7 3.7
96.................................................. 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4
97.................................................. 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
98.................................................. 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
99.................................................. 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
100................................................. 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7
101................................................. 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
102................................................. 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
103................................................. 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8
106................................................. 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIII--Temporary Life Annuities; \1\ One Life--Expected Return Multiples
[See footnote at end of tables]
Temporary Period--Maximum Duration of Annuity
--------------------------------------------------------------------------------------------------------------------------------------------------------
Years--
Age ---------------------------------------------------------------------------------------------------
21 22 23 24 25 26 27 28 29 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................................... 20.9 21.9 22.9 23.9 24.9 25.9 26.9 27.9 28.9 29.9
[[Page 251]]
6................................................... 20.9 21.9 22.9 23.9 24.9 25.9 26.9 27.9 28.9 29.9
7................................................... 20.9 21.9 22.9 23.9 24.9 25.9 26.9 27.9 28.9 29.9
8................................................... 20.9 21.9 22.9 23.9 24.9 25.9 26.9 27.9 28.9 29.8
9................................................... 20.9 21.9 22.9 23.9 24.9 25.9 26.9 27.9 28.9 29.8
10.................................................. 20.9 21.9 22.9 23.9 24.9 25.9 26.9 27.9 28.8 29.8
11.................................................. 20.9 21.9 22.9 23.9 24.9 25.9 26.9 27.9 28.8 29.8
12.................................................. 20.9 21.9 22.9 23.9 24.9 25.9 26.9 27.8 28.8 29.8
13.................................................. 20.9 21.9 22.9 23.9 24.9 25.9 26.9 27.8 28.8 29.8
14.................................................. 20.9 21.9 22.9 23.9 24.9 25.9 26.8 27.8 28.8 29.8
15.................................................. 20.9 21.9 22.9 23.9 24.9 25.9 26.8 27.8 28.8 29.8
16.................................................. 20.9 21.9 22.9 23.9 24.9 25.8 26.8 27.8 28.8 29.8
17.................................................. 20.9 21.9 22.9 23.9 24.9 25.8 26.8 27.8 28.8 29.8
18.................................................. 20.9 21.9 22.9 23.9 24.8 25.8 26.8 27.8 28.8 29.7
19.................................................. 20.9 21.9 22.9 23.9 24.8 25.8 26.8 27.8 28.8 29.7
20.................................................. 20.9 21.9 22.9 23.8 24.8 25.8 26.8 27.8 28.7 29.7
21.................................................. 20.9 21.9 22.9 23.8 24.8 25.8 26.8 27.8 28.7 29.7
22.................................................. 20.9 21.9 22.8 23.8 24.8 25.8 26.8 27.7 28.7 29.7
23.................................................. 20.9 21.9 22.8 23.8 24.8 25.8 26.7 27.7 28.7 29.7
24.................................................. 20.9 21.8 22.8 23.8 24.8 25.8 26.7 27.7 28.7 29.6
25.................................................. 20.9 21.8 22.8 23.8 24.8 25.7 26.7 27.7 28.6 29.6
26.................................................. 20.8 21.8 22.8 23.8 24.8 25.7 26.7 27.7 28.6 29.6
27.................................................. 20.8 21.8 22.8 23.8 24.7 25.7 26.7 27.6 28.6 29.5
28.................................................. 20.8 21.8 22.8 23.7 24.7 25.7 26.6 27.6 28.6 29.5
29.................................................. 20.8 21.8 22.8 23.7 24.7 25.7 26.6 27.6 28.5 29.5
30.................................................. 20.8 21.8 22.7 23.7 24.7 25.6 26.6 27.5 28.5 29.4
31.................................................. 20.8 21.8 22.7 23.7 24.6 25.6 26.6 27.5 28.4 29.4
32.................................................. 20.8 21.7 22.7 23.7 24.6 25.6 26.5 27.5 28.4 29.3
33.................................................. 20.8 21.7 22.7 23.6 24.6 25.5 26.5 27.4 28.4 29.3
34.................................................. 20.7 21.7 22.7 23.6 24.6 25.5 26.4 27.4 28.3 29.2
35.................................................. 20.7 21.7 22.6 23.6 24.5 25.5 26.4 27.3 28.2 29.2
36.................................................. 20.7 21.6 22.6 23.5 24.5 25.4 26.3 27.3 28.2 29.1
37.................................................. 20.7 21.6 22.6 23.5 24.4 25.4 26.3 27.2 28.1 29.0
38.................................................. 20.6 21.6 22.5 23.4 24.4 25.3 26.2 27.1 28.0 28.9
39.................................................. 20.6 21.5 22.5 23.4 24.3 25.2 26.1 27.0 27.9 28.8
40.................................................. 20.6 21.5 22.4 23.3 24.3 25.2 26.1 27.0 27.8 28.7
41.................................................. 20.5 21.4 22.4 23.3 24.2 25.1 26.0 26.9 27.7 28.6
42.................................................. 20.5 21.4 22.3 23.2 24.1 25.0 25.9 26.8 27.6 28.5
43.................................................. 20.4 21.3 22.2 23.2 24.0 24.9 25.8 26.6 27.5 28.3
44.................................................. 20.4 21.3 22.2 23.1 24.0 24.8 25.7 26.5 27.3 28.2
45.................................................. 20.3 21.2 22.1 23.0 23.9 24.7 25.6 26.4 27.2 28.0
46.................................................. 20.2 21.1 22.0 22.9 23.8 24.6 25.4 26.2 27.0 27.8
47.................................................. 20.2 21.1 21.9 22.8 23.6 24.5 25.3 26.1 26.8 27.6
48.................................................. 20.1 21.0 21.8 22.7 23.5 24.3 25.1 25.9 26.6 27.4
49.................................................. 20.0 20.9 21.7 22.6 23.4 24.2 25.0 25.7 26.4 27.1
50.................................................. 19.9 20.8 21.6 22.4 23.2 24.0 24.8 25.5 26.2 26.9
51.................................................. 19.8 20.7 21.5 22.3 23.1 23.8 24.6 25.3 25.9 26.6
52.................................................. 19.7 20.6 21.4 22.1 22.9 23.6 24.3 25.0 25.7 26.3
53.................................................. 19.6 20.4 21.2 22.0 22.7 23.4 24.1 24.7 25.3 25.9
54.................................................. 19.5 20.3 21.0 21.8 22.5 23.2 23.8 24.4 25.0 25.6
55.................................................. 19.3 20.1 20.8 21.6 22.2 22.9 23.5 24.1 24.6 25.2
56.................................................. 19.2 19.9 20.6 21.3 22.0 22.6 23.2 23.7 24.3 24.7
57.................................................. 19.0 19.7 20.4 21.1 21.7 22.3 22.8 23.4 23.8 24.3
58.................................................. 18.8 19.5 20.2 20.8 21.4 21.9 22.5 22.9 23.4 23.8
59.................................................. 18.6 19.3 19.9 20.5 21.1 21.6 22.0 22.5 22.9 23.2
60.................................................. 18.4 19.0 19.6 20.2 20.7 21.2 21.6 22.0 22.4 22.7
61.................................................. 18.1 18.7 19.3 19.8 20.3 20.7 21.1 21.5 21.8 22.1
62.................................................. 17.8 18.4 18.9 19.4 19.9 20.3 20.6 21.0 21.2 21.5
63.................................................. 17.5 18.1 18.5 19.0 19.4 19.8 20.1 20.4 20.6 20.8
64.................................................. 17.2 17.7 18.1 18.6 18.9 19.3 19.5 19.8 20.0 20.2
65.................................................. 16.8 17.3 17.7 18.1 18.4 18.7 18.9 19.2 19.3 19.5
66.................................................. 16.5 16.9 17.3 17.6 17.9 18.1 18.3 18.5 18.7 18.8
67.................................................. 16.1 16.4 16.8 17.1 17.3 17.5 17.7 17.9 18.0 18.1
68.................................................. 15.6 16.0 16.3 16.5 16.7 16.9 17.1 17.2 17.3 17.4
69.................................................. 15.2 15.5 15.7 16.0 16.1 16.3 16.4 16.5 16.6 16.7
70.................................................. 14.7 15.0 15.2 15.4 15.5 15.7 15.8 15.8 15.9 15.9
71.................................................. 14.2 14.4 14.6 14.8 14.9 15.0 15.1 15.2 15.2 15.2
72.................................................. 13.7 13.9 14.1 14.2 14.3 14.4 14.4 14.5 14.5 14.5
73.................................................. 13.2 13.3 13.5 13.6 13.7 13.7 13.8 13.8 13.8 13.9
[[Page 252]]
74.................................................. 12.6 12.8 12.9 13.0 13.0 13.1 13.1 13.1 13.2 13.2
75.................................................. 12.1 12.2 12.3 12.4 12.4 12.5 12.5 12.5 12.5 12.5
76.................................................. 11.5 11.6 11.7 11.8 11.8 11.8 11.8 11.9 11.9 11.9
77.................................................. 11.0 11.1 11.1 11.2 11.2 11.2 11.2 11.2 11.2 11.2
78.................................................. 10.4 10.5 10.5 10.6 10.6 10.6 10.6 10.6 10.6 10.6
79.................................................. 9.9 9.9 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0
80.................................................. 9.4 9.4 9.4 9.4 9.5 9.5 9.5 9.5 9.5 9.5
81.................................................. 8.8 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9
82.................................................. 8.3 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4
83.................................................. 7.8 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9
84.................................................. 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4
85.................................................. 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9
86.................................................. 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5
87.................................................. 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1
88.................................................. 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7
89.................................................. 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3
90.................................................. 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
91.................................................. 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7
92.................................................. 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4
93.................................................. 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
94.................................................. 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
95.................................................. 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7
96.................................................. 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4
97.................................................. 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
98.................................................. 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
99.................................................. 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
100................................................. 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7
101................................................. 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
102................................................. 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
103................................................. 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8
106................................................. 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VIII--Temporary Life Annuities;\1\ One Life--Expected Return Multiples
[See footnote at end of tables]
Temporary Period--Maximum Duration of Annuity
--------------------------------------------------------------------------------------------------------------------------------------------------------
Years--
Age ---------------------------------------------------------------------------------------------------
31 32 33 34 35 36 37 38 39 40
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................................... 30.8 31.8 32.8 33.8 34.8 35.8 36.8 37.7 38.7 39.7
6................................................... 30.8 31.8 32.8 33.8 34.8 35.8 36.8 37.7 38.7 39.7
7................................................... 30.8 31.8 32.8 33.8 34.8 35.8 36.7 37.7 38.7 39.7
8................................................... 30.8 31.8 32.8 33.8 34.8 35.7 36.7 37.7 38.7 39.7
9................................................... 30.8 31.8 32.8 33.8 34.8 35.7 36.7 37.7 38.7 39.6
10.................................................. 30.8 31.8 32.8 33.8 34.7 35.7 36.7 37.7 38.6 39.6
11.................................................. 30.8 31.8 32.8 33.8 34.7 35.7 36.7 37.7 38.6 39.6
12.................................................. 30.8 31.8 32.8 33.7 34.7 35.7 36.7 37.6 38.6 39.6
13.................................................. 30.8 31.8 32.7 33.7 34.7 35.7 36.6 37.6 38.6 39.5
14.................................................. 30.8 31.8 32.7 33.7 34.7 35.7 36.6 37.6 38.6 39.5
15.................................................. 30.8 31.7 32.7 33.7 34.7 35.6 36.6 37.6 38.5 39.5
16.................................................. 30.8 31.7 32.7 33.7 34.6 35.6 36.6 37.5 38.5 39.4
17.................................................. 30.7 31.7 32.7 33.7 34.6 35.6 36.5 37.5 38.5 39.4
18.................................................. 30.7 31.7 32.7 33.6 34.6 35.6 36.5 37.5 38.4 39.4
19.................................................. 30.7 31.7 32.6 33.6 34.6 35.5 36.5 37.4 38.4 39.3
20.................................................. 30.7 31.7 32.6 33.6 34.5 35.5 36.4 37.4 38.3 39.3
[[Page 253]]
21.................................................. 30.7 31.6 32.6 33.6 34.5 35.5 36.4 37.4 38.3 39.2
22.................................................. 30.6 31.6 32.6 33.5 34.5 35.4 36.4 37.3 38.2 39.2
23.................................................. 30.6 31.6 32.5 33.5 34.4 35.4 36.3 37.3 38.2 39.1
24.................................................. 30.6 31.5 32.5 33.5 34.4 35.3 36.3 37.2 38.1 39.0
25.................................................. 30.6 31.5 32.5 33.4 34.3 35.3 36.2 37.1 38.1 39.0
26.................................................. 30.5 31.5 32.4 33.4 34.3 35.2 36.2 37.1 38.0 38.9
27.................................................. 30.5 31.4 32.4 33.3 34.2 35.2 36.1 37.0 37.9 38.8
28.................................................. 30.5 31.4 32.3 33.3 34.2 35.1 36.0 36.9 37.8 38.7
29.................................................. 30.4 31.4 32.3 33.2 34.1 35.0 35.9 36.8 37.7 38.6
30.................................................. 30.4 31.3 32.2 33.1 34.1 35.0 35.8 36.7 37.6 38.5
31.................................................. 30.3 31.2 32.2 33.1 34.0 34.9 35.8 36.6 37.5 38.3
32.................................................. 30.3 31.2 32.1 33.0 33.9 34.8 35.6 36.5 37.4 38.2
33.................................................. 30.2 31.1 32.0 32.9 33.8 34.7 35.5 36.4 37.2 38.0
34.................................................. 30.1 31.0 31.9 32.8 33.7 34.6 35.4 36.2 37.1 37.9
35.................................................. 30.1 31.0 31.8 32.7 33.6 34.4 35.3 36.1 36.9 37.7
36.................................................. 30.0 30.9 31.7 32.6 33.5 34.3 35.1 35.9 36.7 37.4
37.................................................. 29.9 30.8 31.6 32.5 33.3 34.1 34.9 35.7 36.5 37.2
38.................................................. 29.8 30.7 31.5 32.3 33.2 34.0 34.7 35.5 36.2 37.0
39.................................................. 29.7 30.5 31.4 32.2 33.0 33.8 34.5 35.3 36.0 36.7
40.................................................. 29.6 30.4 31.2 32.0 32.8 33.6 34.3 35.0 35.7 36.4
41.................................................. 29.4 30.2 31.0 31.8 32.6 33.3 34.1 34.7 35.4 36.0
42.................................................. 29.3 30.1 30.9 31.6 32.4 33.1 33.8 34.4 35.1 35.7
43.................................................. 29.1 29.9 30.7 31.4 32.1 32.8 33.5 34.1 34.7 35.3
44.................................................. 28.9 29.7 30.5 31.2 31.9 32.5 33.2 33.8 34.3 34.9
45.................................................. 28.8 29.5 30.2 30.9 31.6 32.2 32.8 33.4 33.9 34.4
46.................................................. 28.5 29.3 30.0 30.6 31.3 31.9 32.4 33.0 33.5 33.9
47.................................................. 28.3 29.0 29.7 30.3 30.9 31.5 32.0 32.5 33.0 33.4
48.................................................. 28.1 28.7 29.4 30.0 30.6 31.1 31.6 32.1 32.5 32.9
49.................................................. 27.8 28.4 29.0 29.6 30.2 30.7 31.1 31.5 31.9 32.3
50.................................................. 27.5 28.1 28.7 29.2 29.7 30.2 30.6 31.0 31.4 31.7
51.................................................. 27.2 27.8 28.3 28.8 29.3 29.7 30.1 30.4 30.7 31.0
52.................................................. 26.8 27.4 27.9 28.4 28.8 29.2 29.5 29.8 30.1 30.3
53.................................................. 26.5 27.0 27.4 27.9 28.3 28.6 28.9 29.2 29.4 29.6
54.................................................. 26.1 26.5 27.0 27.4 27.7 28.0 28.3 28.5 28.7 28.9
55.................................................. 25.6 26.1 26.5 26.8 27.1 27.4 27.6 27.8 28.0 28.1
56.................................................. 25.2 25.6 25.9 26.2 26.5 26.7 26.9 27.1 27.2 27.3
57.................................................. 24.7 25.0 25.3 25.6 25.8 26.0 26.2 26.3 26.5 26.5
58.................................................. 24.1 24.4 24.7 25.0 25.2 25.3 25.5 25.6 25.7 25.7
59.................................................. 23.6 23.8 24.1 24.3 24.4 24.6 24.7 24.8 24.9 24.9
60.................................................. 23.0 23.2 23.4 23.6 23.7 23.8 23.9 24.0 24.0 24.1
61.................................................. 22.3 22.5 22.7 22.9 23.0 23.1 23.1 23.2 23.2 23.3
62.................................................. 21.7 21.9 22.0 22.1 22.2 22.3 22.3 22.4 22.4 22.4
63.................................................. 21.0 21.1 21.3 21.4 21.4 21.5 21.5 21.6 21.6 21.6
64.................................................. 20.3 20.4 20.5 20.6 20.6 20.7 20.7 20.7 20.8 20.8
65.................................................. 19.6 19.7 19.8 19.8 19.9 19.9 19.9 19.9 19.9 20.0
66.................................................. 18.9 19.0 19.0 19.1 19.1 19.1 19.1 19.1 19.1 19.1
67.................................................. 18.2 18.2 18.3 18.3 18.3 18.3 18.3 18.3 18.4 18.4
68.................................................. 17.4 17.5 17.5 17.5 17.5 17.6 17.6 17.6 17.6 17.6
69.................................................. 16.7 16.7 16.8 16.8 16.8 16.8 16.8 16.8 16.8 16.8
70.................................................. 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0
71.................................................. 15.3 15.3 15.3 15.3 15.3 15.3 15.3 15.3 15.3 15.3
72.................................................. 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6
73.................................................. 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9
74.................................................. 13.2 13.2 13.2 13.2 13.2 13.2 13.2 13.2 13.2 13.2
75.................................................. 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5
76.................................................. 11.9 11.9 11.9 11.9 11.9 11.9 11.9 11.9 11.9 11.9
77.................................................. 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2
78.................................................. 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6
79.................................................. 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0
80.................................................. 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5
81.................................................. 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9
82.................................................. 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4 8.4
83.................................................. 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9
84.................................................. 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4
85.................................................. 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9 6.9
86.................................................. 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5
87.................................................. 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1
88.................................................. 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7
[[Page 254]]
89.................................................. 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3
90.................................................. 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
91.................................................. 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7
92.................................................. 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4
93.................................................. 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
94.................................................. 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
95.................................................. 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7
96.................................................. 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4
97.................................................. 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
98.................................................. 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
99.................................................. 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
100................................................. 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7
101................................................. 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
102................................................. 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
103................................................. 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
104................................................. 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
105................................................. 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8
106................................................. 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
107................................................. 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
108................................................. 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
109................................................. 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
110................................................. 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
111................................................. .9 .9 .9 .9 .9 .9 .9 .9 .9 .9
112................................................. .8 .8 .8 .8 .8 .8 .8 .8 .8 .8
113................................................. .7 .7 .7 .7 .7 .7 .7 .7 .7 .7
114................................................. .6 .6 .6 .6 .6 .6 .6 .6 .6 .6
115................................................. .5 .5 .5 .5 .5 .5 .5 .5 .5 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The multiples in this table are not applicable to annuities for a term certain; for such cases see paragraph (c) of Sec. 1.72-5.
If (a) the terms of the contract involve a life or lives, and are such
that the above tables cannot be correctly applied, and (b) the amounts
received under the contract are at least partly ``amounts received as an
annuity'' under a contract to which section 72 applies, the taxpayer may
submit with his return an actuarial computation based upon the
applicable annuity table (described below) with ages set back one year,
showing the appropriate factors applied in his case, subject to the
approval of the Commissioner upon examination of such return. The
applicable annuity table is the 1937 Standard Annuity Table (if the
investment in the contract does not include a post-June 1986 investment
in the contract) or the gender-neutral version of the 1983 Basic Table
(if the investment in the contract includes a post-June 1986 investment
in the contract). 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 actuarial computation
shall be based on both tables in accordance with the principles of
Sec. 1.72-6(d). Computations involving factors to compensate for the
effects of contingencies other than mortality, such as marriage or
remarriage, re-employment, recovery from disability, or the like, will
not be approved.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960, as
amended by T.D. 8115, 51 FR 45706, Dec. 19, 1986; 60 FR 16381, Mar. 30,
1995]
Sec. 1.72-10 Effect of transfer of contracts on investment in the contract.
(a) If a contract to which section 72 applies, or any interest
therein, is transferred for a valuable consideration, by assignment or
otherwise, only the actual value of the consideration given for such
transfer and the amount of premiums or other consideration subsequently
paid by the transferee shall be included in the transferee's aggregate
of premiums or other consideration paid. In accordance with the
provisions of section 72(g)(3) and paragraph (b) of Sec. 1.72-4, an
annuity
[[Page 255]]
starting date shall be determined for the transferee without regard to
the annuity starting date, if any, of the transferor. In determining the
transferee's investment in the contract, the aggregate amount of
premiums or other consideration paid shall be reduced by all amounts
received by the transferee before the receipt of an amount as an annuity
or before the annuity starting date, whichever is the later, to the
extent that such amounts were excludable from his gross income under the
applicable income tax law at the time of receipt. For the treatment of
amounts received by the transferee subsequent to both the annuity
starting date and the date of receipt of a payment as an annuity, but
not received as annuity payments, see Sec. 1.72-11. For a limitation on
adjustments to the basis of annuity contracts sold, see section 1021.
(b) In the case of a transfer of such a contract without valuable
consideration, the annuity starting date and the expected return under
the contract shall be determined as though no such transfer had taken
place. See paragraph (b) of Sec. 1.72-4. The transferee shall include
the aggregate of premiums or other consideration paid or deemed to have
been paid by his transferor in the aggregate of premiums or other
consideration as though paid by him. In determining the transferee's
investment in the contract, the transferee's aggregate amount of
premiums or other consideration paid (as so found) shall be reduced by
all amounts either received or deemed to have been received by himself
or his transferor before the annuity starting date, or before the date
on which an amount is first received as an annuity, whichever is the
later, to the extent that such amounts were excludable from the gross
income of the actual recipient under the applicable income tax law at
the time of receipt. For treatment of amounts received subsequent to
both the above dates by such transferee, but not received as annuity
payments, see Sec. 1.72-11.
Sec. 1.72-11 Amounts not received as annuity payments.
(a) Introductory. (1) This section applies to amounts received under
a contract to which section 72 applies if either:
(i) Paragraph (b) of Sec. 1.72-2 is inapplicable to such amounts.
(ii) Paragraph (b) of Sec. 1.72-2 is applicable but the annuity
payments received differ either in amount, duration, or both, from those
originally provided under the contract, or
(iii) Paragraph (b) of Sec. 1.72 is applicable, but such annuity
payments are received by a beneficiary after the death of an annuitant
(or annuitants) in full discharge of the obligation under the contract
and solely because of a guarantee.
The payments referred to in subdivision (i) of this subparagraph include
all amounts other than ``amounts received as an annuity'' as that term
is defined in paragraphs (b) (2) and (3) of Sec. 1.72-2. If such amounts
are received as dividends or payments in the nature of dividends, or as
a return of premiums, see paragraph (b) of this section. If such amounts
are paid in full discharge of the obligation under the contract and are
in the nature of a refund of the consideration, see paragraph (c) of
this section. If such amounts are paid upon the surrender, redemption,
or maturity of the contract, see paragraph (d) of this section. The
payments referred to in subdivision (ii) of this subparagraph include
all annuity payments which are paid as the result of a modification or
an exchange of the annuity obligations originally provided under a
contract for different annuity obligations (whether or not such
modification or exchange is accompanied by the payment of an amount to
which subdivision (i) of this subparagraph applies). If the duration of
the new annuity obligations differs from the duration of the old annuity
obligations, paragraph (e) of this section applies to the new annuity
obligations and paragraph (d) of this section applies to any lump sum
payment received. If, however, the duration of the new annuity
obligations is the same as the duration of the old obligations,
paragraph (f) of this section applies to the new obligations and to any
lump sum received in connection therewith. The annuity payments referred
to in subdivision (iii) of this subparagraph are annuity payments which
are made to a beneficiary after
[[Page 256]]
the death of annuitant (or annuitants) in full discharge of the
obligations under a contract because of a provision in the contract
requiring the payment of a guaranteed amount or minimum number of
payments for a fixed period; see paragraph (c) of this section.
(2) The principles of this section apply, to the extent appropriate
thereto, to amounts paid which are taxable under section 72 (except, for
taxable years beginning before January 1, 1964, section 72(e)(3)) in
accordance with sections 402 and 403 and the regulations thereunder.
However, if contributions used to purchase the contract include amounts
for which a deduction was allowed under section 404 as contributions on
behalf of an owner-employee, the rules of this section are modified by
the rules of paragraph (b) of Sec. 1.72-17. Further, in applying the
provisions of this section, the aggregate premiums or other
consideration paid shall not include contributions on behalf of self-
employed individuals to the extent that deductions were allowed under
section 404 for such contributions. Nor, shall the aggregate of premiums
or other consideration paid include amounts used to purchase life,
accident, health, or other insurance protection for an owner-employee.
See paragraph (b)(4) of Sec. 1.72-16 and paragraph (c) of Sec. 1.72-17.
The principles of this section also apply to payments made in the manner
described in paragraph (b)(3)(i) of Sec. 1.72-2.
(b) Amounts received in the nature of dividends or similar
distributions. (1) If dividends (or payments in the nature of dividends
or a return of premiums or other consideration) are received under a
contract to which section 72 applies and such payments are received
before the annuity starting date or before the date on which an amount
is first received as an annuity, whichever is the later, such payments
are includible in the gross income of the recipient only to the extent
that they, taken together with all previous payments received under the
contract which were excludable from the gross income of the recipient
under the applicable income tax law, exceed the aggregate of premiums or
other consideration paid or deemed to have been paid by the recipient.
Such payments shall also be subtracted from the consideration paid (or
deemed paid) both for the purpose of determining an exclusion ratio to
be applied to subsequent amounts paid as an annuity and for the purpose
of determining the applicability of section 72(d) and Sec. 1.72-13,
relating to employee contributions recoverable in three years.
(2) If dividends or payments in the nature of dividends are paid
under a contract to which section 72 applies and such payments are
received on or after the annuity starting date or the date on which an
amount is first received as an annuity, whichever is later, such
payments shall be fully includible in the gross income of the recipient.
The receipt of such payments shall not affect the aggregate of premiums
or other consideration paid nor the amounts contributed or deemed to
have been contributed by an employee as otherwise calculated for
purposes of section 72. Since the investment in the contract and the
expected return are not affected by a payment which is fully includible
in the gross income of the recipient under this rule, the exclusion
ratio will not be affected by such payment and will continue to be
applied to amounts received as annuity payments in the future as though
such payment had not been made. This subparagraph shall apply to amounts
received under a contract described in paragraph (b)(3)(i) of Sec. 1.72-
2 to the extent that the amounts received exceed the portion of the
investment in the contract allocable to each taxable year in accordance
with paragraph (d)(3) of Sec. 1.72-4. Hence, such excess is fully
includible in the gross income of the recipient.
(c) Amounts received in the nature of a refund of the consideration
under a contract and in full discharge of the obligation thereof. (1)
Any amount received under a contract to which section 72 applies, if it
is at least in part a refund of the consideration paid, including
amounts payable to a beneficiary after the death of an annuitant by
reason of a provision in the contract for a life annuity with minimum
period of payments certain or with a minimum amount which must be paid
in any event, shall be considered an amount received in the nature of a
refund of
[[Page 257]]
the consideration paid for such contract. If such an amount is in full
discharge of an obligation to pay a fixed amount (whether in a lump sum
or otherwise) or to pay amounts for a fixed number of years (including
amounts described in paragraph (b)(3)(i) of Sec. 1.72-2), it shall be
included in the gross income of the recipient only to the extent that
it, when added to amounts previously received under the contract which
were excludable from gross income under the law applicable at the time
of receipt, exceeds the aggregate of premiums or other consideration
paid. See section 73(e)(2)(A). This paragraph shall not apply if the
total of the amounts to be paid in discharge of the obligation can in
any event exceed the total of the annuity payments which would otherwise
fully discharge the obligation. For rules to be applied in such a case,
see paragraph (e) of this section.
(2) The principles of subparagraph (1) of this paragraph may be
illustrated by the following examples:
Example 1. A, a male employee, retired on December 31, 1954, at the
age of 60. A life annuity of $75 per month was payable to him beginning
January 31, 1955. The annuity contract guaranteed that if A did not live
for at least ten years after his retirement his beneficiary, B, would
receive the monthly payments for any balance of such ten-year period
which remained at the date of A's death. Under section 72, A was deemed
to have paid $3,600 toward the cost of the annuity. A lived for five
years after his retirement receiving a total of $4,500 in annuity
payments. After A's death, B began receiving the monthly payments of $75
beginning with the January 31, 1960 payment. B will exclude such
payments from his gross income throughout 1960, 1961, and 1962, and will
exclude only $18 of the first payment in 1963 from his gross income for
that year. Thereafter, B will include the entire amount of all such
payments in his gross income for the taxable year of receipt. This
result is determined as follows:
A's investment in the contract (unadjusted).................... $3,600
Multiple from Table III of Sec. 1.72-9 for male, age 11
60, where duration of guaranteed amount is 10 years
(percent)............................................
Subtract value of the refund feature to the nearest dollar (11 396
percent of $3,600)............................................
--------
Investment in the contract adjusted for the present value of 3,204
the refund feature without discount for interest..............
--------
Aggregate of premiums or other consideration paid.............. 3,600
A's exclusion ratio ($3,204 $16,380 [$900 x 18.2]) 19.6
(percent)............................................
Subtract amount excludable during five years A received 882
payments (19.6 percent of $4,500 [$900 x 5])................
Remainder of aggregate of premiums or other consideration paid 2,718
excludable from gross income of B under section 72(e).........
As a result of the above computation, the number of payments to B which
will exhaust the remainder of consideration paid which is excludable
from gross income of the recipient is 36\6/25\ ($2,718 $75) and B will
exclude the payments from his gross income for three years, then exclude
only $18 of the first payment for the fourth year from his gross income,
and thereafter include the entire amount of all payments he receives in
his gross income.
Example 2. The facts are the same as in example (1), except that B,
the beneficiary, elects to receive $50 per month for his life in lieu of
the payments guaranteed under the original contractual obligation. Since
such amounts will be received as an annuity and may, because of the
length of time B may live, exceed the amount guaranteed, they are not
amounts to which this paragraph applies. See paragraph (e) of this
section.
Example 3. The facts are the same as in example (1), except that B,
the beneficiary, elects to receive the remaining guaranteed amount in
installments which are larger or smaller than the $75 per month provided
until, under the terms of the contract, the guaranteed amount is
exhausted. The rule of subparagraph (1) of this paragraph and the
computation illustrated in example (1) apply to such installments since
the total of such installments will not exceed the original amount
guaranteed to be paid at A's death in any event.
Example 4. C pays $12,000 for a contract providing that he is to be
paid an annuity of $1,000 per year for 15 years. His exclusion ratio is
therefore 80 percent ($12,000 $15,000). He directs that the annuity is
to be paid to D, his beneficiary, if he should die before the full 15-
year period has expired. C dies after 5 years and D is paid $1,000 in
1960. D will include $200 ($1,000-$800 [80 percent of $1,000]) in his
gross income for the taxable year in which he receives the $1,000 since
section 72(e) and this section do not apply to the annuity payments made
in accordance with the provisions and during the term of the contract. D
will continue with the same exclusion ratio used by C (80 percent).
Example 5. In 1954, E paid $50,000 into a fund and was promised an
annual income for life the amount of which would depend in part upon the
earnings realized from the investment of the fund in accordance with an
agreed formula. The contract also specified that if E should die before
ten years had elapsed, his beneficiary, F, would be paid the
[[Page 258]]
amounts determined annually under the formula until ten payments had
been received by E and F together. E died in 1960, having received five
payments totaling $30,000. Assuming that $22,000 of this amount was
properly excludable from E's gross income prior to his death, F will
exclude from his gross income the payments he receives until the taxable
year in which his total receipts from the fund exceed $28,000
($50,000-$22,000). F will include any excess over the $28,000 in his
gross income for that taxable year. Thereafter, F will include in his
gross income the entire amount of any payments made to him from the
fund.
Example 6. Assume the facts are the same as in example (1), except
that the total investment in the contract is made after June 30, 1986,
that A is to receive payments under the life annuity contract beginning
on January 31, 1987, and that B will begin to receive the monthly
payments on January 31, 1992. B will exclude the $75 monthly payments
from gross income throughout 1992, 1993, and 1994. B will exclude only
the first two monthly payments and $21 of the third monthly payment in
1995. This is determined as follows:
A's investment in the contract (unadjusted)................. $3,600
Multiple from Table VII, age 60, 10 years (percent)......... 4
Subtract value of the refund feature (4 percent of $144
$3,600...............................................
-----------
Investment in the contract adjusted for the present value of $3,456
the refund feature without discount for interest...........
Aggregate of premiums or other consideration paid........... $3,600.00
A's exclusion ratio ($3,456 $21,780 [$900 x 24.2]) 15.9
(percent)................................................
Subtract amount excludable during five years A received $715.50
payments (15.9 percent of $4,500 [$900 x 5])...........
-----------
Remainder of aggregate of premiums or other consideration $2,884.50
paid excludable from gross income of B under section
72(e)....................................................
As a result of the above computation, the number of payments to B which
will exhaust the remainder of consideration paid which is excludable
from gross income of the recipient is 38\23/50\ ($2,884.50 75) and B
will exclude the payments from gross income for three years, then
exclude only the first two monthly payments and $34.50 of the third.
Thereafter B shall include the entire amount of all payments received in
gross income.
(3) For the purpose of applying the rule contained in subparagraph
(1) of this paragraph, it is immaterial whether the recipient of the
amount received in full discharge of the obligation is the same person
as the recipient of amounts previously received under the contract which
were excludable from gross income, except in the case of a contract
transferred for a valuable consideration, with respect to which see
paragraph (a) of Sec. 1.72-10. For the limit on the tax, for taxable
years beginning before January 1, 1964, attributable to the receipt of a
lump sum to which this paragraph applies, see paragraph (g) of this
section.
(d) Amounts received upon the surrender, redemption, or maturity of
a contract. (1) Any amount received upon the surrender, redemption, or
maturity of a contract to which section 72 applies, which is not
received as an annuity under the regulations of paragraph (b) of
Sec. 1.72-2, shall be included in the gross income of the recipient to
the extent that it, when added to amounts previously received under the
contract and which were excludable from the gross income of the
recipient under the law applicable at the time of receipt, exceeds the
aggregate of premiums or other consideration paid. See section
72(e)(2)(B). If amounts are to be received as an annuity, whether in
lieu of or in addition to amounts described in the preceding sentence,
such amounts shall be included in the gross income of the recipient in
accordance with the provisions of paragraph (e) or (f) of this section,
whichever is applicable. The rule stated in the first sentence of this
paragraph shall not apply to payments received as an annuity or
otherwise after the date of the first receipt of an amount as an annuity
subsequent to the maturity, redemption, or surrender of the original
contract. If amounts are so received and are other than amounts received
as an annuity, they are includible in the gross income of the recipient.
See section 72(e)(1)(A) and paragraph (b)(2) of this section.
(2) For the purpose of applying the rule contained in subparagraph
(1) of this paragraph, it is immaterial whether the recipient of the
amount received upon the surrender, redemption, or maturity of the
contract is the same as the recipient of amounts previously received
under the contract which were excludable from gross income, except in
the case of a contract transferred for a valuable consideration, with
respect to which see paragraph (a) of Sec. 1.72-10. For the limit on the
amount of tax, for taxable years beginning before January 1, 1964,
attributable to the receipt of
[[Page 259]]
certain lump sums to which this paragraph applies, see paragraph (g) of
this section.
(e) Periodic payments received for a different term. If, after the
date on which an amount is first received as an annuity under a contract
to which section 72 applies, the terms of the contract are modified or
the annuity obligations are exchanged so that periodic payments are to
be received for a different term than originally provided under the
contract (whether or not accompanied by the receipt of a lump sum to
which paragraph (d) of this section applies), the rules of this
paragraph shall apply to such payments. Hence, the provisions of section
72(e) and paragraphs (b), (c), (d), and (f) of this section are
inapplicable for the purpose of determining the includibility of such
payments in gross income and the general principles of section 72 with
respect to the use of an exclusion ratio shall be applied to such
payments as if they were provided under a new contract received in
exchange for the contract providing the original annuity payments. If
such payments are received as the result of the surrender, redemption,
or discharge of a contract to which section 72 applies, they shall be
considered to be received as an annuity under a contract exchanged for
the contract whose redemption, surrender, or discharge was involved. For
the purpose of determining the extent to which the payments so received
are to be included in the gross income of the recipient, an exclusion
ratio shall be determined for such contract as of the later of January
1, 1954, or the first day of the first period for which an amount is
received as an annuity thereunder, whichever is the later. See paragraph
(b) of Sec. 1.72-4. In determining the investment in the contract for
this purpose, any lump sum amount received at the time of the exchange
shall not be considered an amount to which paragraph (a)(2) of
Sec. 1.72-6 applies. However, such lump sum shall be subtracted from the
aggregate of premiums or other consideration paid to the extent it is
excludable as an amount not received as an annuity under this section as
if it were an amount received before the annuity starting date of the
contract obtained in exchange.
(f) Periodic payments received for the same term after a lump sum
withdrawal. (1) If, after the date of the first receipt of a payment as
an annuity, the annuitant receives a lump sum and is thereafter to
receive annuity payments in a reduced amount under the contract for the
same term, life, or lives as originally specified in the contract, a
portion of the contract shall be considered to have been surrendered or
redeemed in consideration of the payment of such lump sum and the
exclusion ratio originally determined for the contract shall continue to
apply to the amounts received as an annuity without regard to the fact
that such amounts are less than the original amounts which were to be
paid periodically. The lump sum shall be includible in the gross income
of the recipient in accordance with the provisions of subparagraph (2)
of this paragraph. However, except in the case of amounts to which
sections 402 and 403 apply, the tax, for taxable years beginning before
January 1, 1964, attributable to the inclusion of all or part of the
lump sum in gross income shall not exceed the amount determined under
section 72(e)(3) and paragraph (g) of this section. For taxable years
beginning after December 31, 1963, such amounts may be taken into
account in computations under sections 1301 through 1305 (relating to
income averaging).
(2) There shall be excluded from gross income that portion of the
lump sum which bears the same ratio to the aggregate premiums or other
consideration paid for the contract, as reduced by all amounts
previously received under the contract and excludable from the gross
income of the recipient under the applicable income tax law, as:
(i) In the case of payments to be made in the manner described in
paragraph (b)(2) of Sec. 1.72-2, the amount of the reduction in the
annuity payments to be made thereafter bears to the annuity payments
originally provided under the contract, or
(ii) In the case of a contract providing for payments to be made in
the manner described in paragraph (b)(3)(i) of Sec. 1.72-2, the amount
of the reduction in the number of units per period to be
[[Page 260]]
paid thereafter bears to the number of units per period payable under
the contract immediately before the lump sum withdrawal.
(3) This paragraph may be illustrated by the following examples:
Example 1. Taxpayer A pays $20,000 for an annuity contract providing
for payments to him of $100 per month for his life. At the annuity
starting date he has a life expectancy of 20 years. His expected return
is therefore $24,000 and the exclusion ratio is five-sixths. He
continues to receive the original annuity payments for 5 years,
receiving a total of $6,000, and properly excludes a total of $5,000
from his gross income in his income tax returns for those years. At the
beginning of the next year, A agrees with the insurer to take a reduced
annuity of $75 per month and a lump sum payment of $4,000 in cash. Of
the lump sum he receives, he will include $250 and exclude $3,750 from
his gross income for his taxable year of receipt, determined as follows:
Aggregate of premiums or other consideration paid.......... $20,000
Less amounts received as an annuity to the extent they were $5,000
excludable from A's income................................
------------
Remainder of the consideration............................. $15,000
============
Ratio of the reduction in the amount of the annuity 25/$100 or
payments to the original annuity payments................. \1/4\
Lump sum received.......................................... $4,000
Less one-fourth of the remainder of the consideration (\1/ $3,750
4\ of $15,000)............................................
------------
Portion of the lump sum includible in gross income......... $250
For taxable years beginning before January 1, 1964, the limit on tax of
section 72(e)(3), as in effect before such date, applies to the portion
of the lump sum includible in gross income. For taxable years beginning
after December 31, 1963, such portion may be taken into account in
computations under sections 1301 through 1305 (relating to income
averaging). If, in this example, the annuity were a pension payable to A
as a retired employee, but the facts were otherwise the same (assuming
that, for instance, the $20,000 aggregate of premiums or other
consideration paid were A's contributions as determined under section
72(f) and Sec. 1.72-8) the result would be the same except that the tax
attributable to the inclusion of the $250 in A's gross income, for
taxable years beginning before January 1, 1964, would not be limited by
section 72(e)(3), as in effect before such date. If such a lump sum is
received in a taxable year beginning after December 31, 1963, the
portion of such sum includible in gross income may be taken into account
in computations under sections 1301 through 1305 (relating to income
averaging).
Example 2. Taxpayer B pays $30,000 for a contract providing for
monthly payments to be made to him for 15 years with respect to the
principal and earnings of 10 units of an investment fund. B receives
$12,000 during the first 5 years of participation and of this amount he
has properly excluded a total of $10,000 from his gross income in his
income returns for the taxable years, since $2,000 of $2,400 he received
in each such year represented his investment divided by the term of the
annuity ($30,000 15). At the beginning of the 6th year, B agrees to
take $11,000 in a lump sum and thereafter to accept the payments arising
with respect to five units for the remaining 10 years of payments in
full discharge of the original obligations of the contract. B shall
include $1,000 in his gross income for the 6th year as the result of the
lump sum he receives and allocates $1,000 of his original investment in
the contract to each of the remaining 10 years with respect to the
payments which will continue, determined as follows:
Aggregate of premiums or other consideration paid............. $30,000
Total amount received and excludable from gross income........ $10,000
---------
Remainder of the consideration................................ $20,000
=========
Ratio of units discontinued to the total units originally \5/10\
provided..................................................... or \1/2\
Lump sum received at the time of reduction in the number of $11,000
units to be paid.............................................
Less one-half of the remainder of the consideration (\1/2\ of $10,000
$20,000).....................................................
---------
Portion of the lump sum received and includible in gross $1,000
income.......................................................
=========
Remainder of the consideration less the portion of such $10,000
remainder attributable to the excludable portion of the lump
sum ($20,000-$10,000)........................................
Remainder of the consideration properly allocable to each $1,000
taxable year for the remaining 10 years ($10,000 10).......
For the taxable years beginning before January 1, 1964, the limit on tax
of section 72(e)(3), as in effect before such date, applies to the
portion of the lump sum received and includible in gross income. For
taxable years beginning after December 31, 1963, such portion may be
taken into account in computations under sections 1301 through 1305
(relating to income averaging).
(g) Limit on tax attributable to the receipt of a lump sum. (1) For
taxable years beginning before January 1, 1964, if the entire amount of
the proceeds received upon the redemption, maturity, surrender, or
discharge of a contract to which section 72 applies is received in a
lump sum and paragraph (c), (d), or (f) of this section is applicable in
determining the portion of such amount which is includible in gross
income, the
[[Page 261]]
tax attributable to such portion shall not exceed the tax which would
have been attributable thereto had such portion been received ratably in
the taxable year in which received and the 2 preceding taxable years.
The amount of tax attributable to the includible portion of the lump sum
received shall be the lesser of:
(i) The difference between the amount of tax for the taxable year of
receipt computed by including such portion in gross income and the
amount of tax for such taxable year computed by excluding such portion
from gross income; or
(ii) The difference between the total amount of tax for the taxable
year of receipt and the 2 preceding taxable years computed by including
one-third of such portion in gross income for each of the 3 taxable
years, and the total amount of the tax for the taxable year of receipt
and the 2 preceding taxable years computed by entirely excluding such
portion from the gross income of all 3 taxable years.
For the definition of ``taxable year'', see section 441(b). This
subparagraph shall not apply, for taxable years beginning before January
1, 1964, to payments excepted from the application of section 72(e)(3),
as in effect before such date, under the provisions of section 402 or
403. See paragraph (a) of Sec. 1.72-2 and paragraph (d) of Sec. 1.72-14.
(2) For taxable years beginning after December 31, 1963, any amount
includible in gross income to which this section relates may be taken
into account in computations under sections 1301 through 1305 (relating
to income averaging).
(h) Amounts deemed to be paid or received by a transferee. Amounts
deemed to have been paid or received by a transferee for the purposes of
Sec. 1.72-10 shall also be deemed to have been so paid or received by
such transferee for the purposes of this section. Thus, if a donee is
deemed to have paid the premiums or other consideration actually paid by
his transferor for the purposes of section 72(g) and paragraph (b) of
Sec. 1.72-10, such consideration shall be deemed premiums or other
consideration paid by the donee for the purposes of this section.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6885, 31 FR
7798, June 2, 1966; T.D. 8115, 51 FR 45734, Dec. 19, 1986]
Sec. 1.72-12 Effect of taking an annuity in lieu of a lump sum upon
the maturity of a contract.
If a contract to which section 72 applies provides for the payment
of a lump sum in full discharge of the obligation thereunder and the
obligee entitled thereto, prior to receiving any portion of such lump
sum and within 60 days after the date on which such lump sum first
becomes payable, exercises an option or irrevocably agrees with the
obligor to take, in lieu thereof, payments which will constitute
``amounts received as an annuity'', as that term is defined in paragraph
(b) of Sec. 1.72-2, no part of such lump sum shall be deemed to have
been received by the obligee at the time he was first entitled thereto
merely because he would have been entitled to such amount had he not
exercised the option or made such an agreement with the obligor.
Sec. 1.72-13 Special rule for employee contributions recoverable
in three years.
(a) Amounts received as an annuity. (1) Section 72(d) provides a
special rule for the treatment of amounts received as an annuity by an
employee (or by the beneficiary or beneficiaries of an employee) under a
contract to which section 72 applies. This special rule is applicable
only in the event that:
(i) At least part of the consideration paid for the contract is
contributed by the employer, and
(ii) The aggregate amount receivable as an annuity under such
contract by the employee (or by his beneficiary or beneficiaries if the
employee died before any amount was received as an annuity under the
contract) within the 3-year period beginning on the date (whether or not
before January 1, 1954) on which an amount is first received as an
annuity equals or exceeds the total consideration contributed (or deemed
contributed under section 72(f) and Sec. 1.72-8) by the employee as of
such date as reduced by all amounts previously received and excludable
from the gross
[[Page 262]]
income of the recipient under the applicable income tax law.
In such an event, section 72(d) provides that all amounts received as an
annuity under the contract during a taxable year to which the Code
applies shall be excluded from gross income until the total of the
amounts excluded under that section plus all amounts excluded under
prior income tax laws equals or exceeds the consideration contributed
(or deemed contributed) by the employee. The excess, if any, and all
amounts received by any recipient thereafter (whether or not received as
an annuity), shall be fully included in gross income. See paragraph (b)
of this section.
(2) If the aggregate amount receivable as an annuity under the
contract within three years from the date on which an amount is first
received as an annuity thereunder will not equal or exceed the
consideration contributed (or deemed contributed) by the employee in
accordance with the provisions of Sec. 1.72-8, computed as of such date,
the special rule of section 72(d) shall not apply to amounts received as
an annuity under the contract and the general rules of section 72 shall
apply thereto.
(3) The aggregate of the amounts receivable as an annuity within the
prescribed 3-year period shall be the total of all annuity payments
anticipatable by an employee (or a beneficiary or beneficiaries of an
employee, if the employee died before any amount was received as an
annuity) under the contract as a whole as defined in paragraph (a) of
Sec. 1.72-2. See paragraph (a)(3) of Sec. 1.72-2 for rules for
determining what constitutes ``the contract'' in the case of
distributions from an employees' trust or plan.
(4) If subparagraphs (1) and (3) of this paragraph apply to amounts
received as an annuity under a contract, the rule prescribed in
subparagraph (1) of this paragraph shall apply to all amounts so
received thereunder regardless of the fact that they may be payable (i)
to more than one beneficiary, (ii) for the same or different intervals,
(iii) in different sums, or (iv) for a different period certain, life,
or lives.
(5) For purposes of section 72(d), contributions which are made with
respect to a self-employed individual and which are allowed as a
deduction under section 404(a) are not considered contributions by the
employee, but such contributions are considered contributions by the
employer. A contribution which is deemed paid in a prior taxable year
under the provisions of section 404(a)(6) shall be considered made with
respect to a self-employed individual if the individual on whose behalf
the contribution is made was self-employed for the taxable year in which
the contribution is deemed paid, whether or not such individual is self-
employed at the time the contribution is actually paid. Contributions
with respect to a self-employed individual who is an owner-employee used
to purchase life, accident, health, or other insurance protection for
such owner-employee shall not be treated as consideration for the
contract contributed by the employee in computing the employee
contributions for purposes of section 72(d).
(b) Amounts not received as an annuity. If the rule of paragraph (a)
of this section applies to a contract and, after the date on which an
annuity payment is first received, amounts are received other than as an
annuity under such contract in a taxable year to which the Code applies,
they shall be included in the gross income of the recipient in
accordance with the provisions of Sec. 1.72-11. Thus, if such amounts
are received as a dividend or a similar distribution after the date on
which an amount is first received as an annuity under the contract, they
shall be included in the gross income of the recipient (in accordance
with section 72(e)(1)(A) and paragraph (b)(2) of Sec. 1.72-11. All other
amounts not received as an annuity shall be included in the gross income
of the recipient in accordance with the provisions of section
72(e)(1)(B) and paragraph (c), (d), or (f), whichever is applicable, of
Sec. 1.72-11. See section 72(e)(2).
(c) Amounts received after the exhaustion of employee contributions.
(1) Amounts received under a contract to which the rule of paragraph (a)
of this section applies (whether or not such amounts are received as an
annuity) shall be included in the gross income of
[[Page 263]]
the recipient if such amounts are received after the date on which the
aggregate of all amounts excluded from gross income by the recipients
under section 72(d) and prior income tax laws equalled or exceeded the
consideration contributed (or deemed contributed) by the employee.
(2) If the rule of paragraph (a) of this section applies to amounts
received by an employee (or his beneficiary or beneficiaries) under a
joint and survivor annuity contract, payments made to a prior annuitant
may entirely exhaust the amounts excludable from gross income. In such
case, amounts paid to the surviving annuitant (or annuitants) shall be
included in gross income by such recipients.
(d) Application of section 72(d) to a contract, trust, or plan
providing for payments in a manner described in paragraph (b)(3)(i) of
Sec. 1.72-2. For the purpose of applying section 72(d) and this section,
any amount received in the nature of a periodic payment under a
contract, trust, or plan which provides for the payment of amounts in a
manner described in paragraph (b)(3)(i) of Sec. 1.72-2 shall be
considered an amount received as an annuity notwithstanding the
provisions of any other section of the regulations under section 72. The
special exclusion rule of section 72(d) and paragraph (a) of this
section shall apply to all amounts so received if the first amount
received, when multiplied by the number of periodic payments to be made
within the three years beginning on the date of its receipt, results in
an amount in excess of the aggregate premiums or other consideration
contributed (or deemed contributed) by the employee as of that date. If
more than one series of periodic payments is to be paid under the same
contract, trust, or plan, all payments anticipatable, whether because
fixed in amount or determinable in the manner described in the preceding
sentence, shall be aggravated for the purpose of determining the
applicability of section 72 (d) to the contract, trust, or plan as a
whole.
(e) Inapplicability of section 72(d) and this section. Section 72(d)
and this section do not apply to:
(1) Amounts received as proceeds of a life insurance contract to
which section 101(a) applies, nor to
(2) Amounts paid to a surviving annuitant under a joint and survivor
annuity contract to which paragraph (b)(3) of Sec. 1.72-5 applies, nor
to
(3) Amounts paid to an annuitant under Chapter 73 of title 10 of the
United States Code with respect to which section 72(o) and Sec. 1.122-1
apply.
See also paragraph (d) of Sec. 1.72-14.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6497, 25 FR
10021, Oct. 20, 1960; T.D. 6676, 28 FR 10135, Sept. 17, 1963; T.D. 7043,
35 FR 8477, June 2, 1970]
Sec. 1.72-14 Exceptions from application of principles of section 72.
(a) Payments of interest. If any amount is received under an
agreement to pay interest on a sum or sums held by the obligor, such
amount shall not be excludable from the gross income of the recipient
under the provisions of section 72 to the extent that it is an actual
interest payment. See section 72(j). An amount shall be considered to be
held under an agreement to pay interest thereon if the amount payable
after the term of the annuity (whether for a term certain or for a life
or lives) is substantially equal to or larger than the aggregate amount
of premiums or other consideration paid therefor. For this purpose,
however, the aggregate amount of premiums or other consideration paid
shall include all contributions made by an employer and not merely those
to which section 72(f) applies.
(b) Alimony payments. To the extent that payments made to a wife are
includable in her gross income by reason of either or both section 71
and 682, they shall not be excluded from the wife's gross income under
the principles of section 72 although made under a contract to which
that section applies. However, section 72 shall apply in the case of
amounts received under such a contract if a husband and wife are
entitled to make and do make a single return jointly.
(c) Certain ``face-amount certificates.'' The principles of section
72 do not apply to ``face-amount certificates'' described in section
72(1) which were issued before January 1, 1955.
(d) Employer plans. The provisions of Secs. 1.72-1 to 1.72-13,
inclusive, shall be disregarded to the extent that they are
[[Page 264]]
inconsistent with the treatment of amounts received provided in section
402 (relating to the taxability of a beneficiary of an employees'
trust), section 403 (relating to the taxation of employee annuities), or
the regulations under either of such sections.
Sec. 1.72-15 Applicability of section 72 to accident or health plans.
(a) Applicability of section. This section provides the rules for
determining the taxation of amounts received from an employer-
established plan which provides for distributions that are taxable under
section 72 (or for distributions that are taxable under section 402
(a)(2) or (e), or section 403(a)(2), in the case of lump sum
distributions) and which also provides for distributions that may be
excludable from gross income under section 104 or 105 as accident or
health benefits. For example, this section will apply to a pension plan
described in section 401 and exempt under section 501 which provides for
the payment of pensions at retirement and the payment of an earlier
pension in the event of permanent disability. This section will also
apply to a profit-sharing plan described in section 401 and exempt under
section 501 which provides for periodic distribution of the amount
standing to the account of a participant during any period that the
participant is absent from work due to a personal injury or sickness and
for the distribution of any balance standing to the account of the
participant upon his separation from service. For purposes of this
section, the term ``contributions of the employee'' includes
contributions by the employer which were includible in the employee's
gross income. Paragraphs (d), (h), and (i) of this section apply for
taxable years beginning on or after January 1, 2015.
(b) General rule. Section 72 does not apply to any amount received
as an accident or health benefit, and the tax treatment of any such
amount shall be determined under sections 104 and 105. See paragraphs
(c) and (d) of this section, paragraph (d) of Sec. 1.104-1, and
Secs. 1.105-1 through 1.105-5. Section 72 (or, in the case of certain
total distributions, section 402(a)(2) or section 403(a)(2)) does apply
to any amount which is received under a plan to which this section
applies and which is not an accident or health benefit. See paragraph
(e) of this section.
(c) Accident or health benefits attributable to employee
contributions. (1) If a plan to which this section applies provides that
any portion of the accident or health benefits is attributable to the
contributions of the employee to such plan, then such portion of such
benefits is excludable from gross income under section 104(a)(3) and
paragraph (d) of Sec. 1.104-1. Neither section 72 nor section 105
applies to any accident or health benefits (whether paid before or after
retirement) attributable to contributions of the employee. Since such
portion is excludable under section 104(a)(3), such portion is not
subject to the dollar limitation of section 105(d) and if such portion
is payable after the retirement of the employee, it is excludable
without regard to the provisions of Sec. 1.105-4 and section 72.
(2) In determining the taxation of any amounts received as accident
or health benefits from a plan to which this section applies, the first
step is to determine the portion, if any, of the contributions of the
employee which is used to provide the accident or health benefits and
the portion of the accident or health benefits attributable to such
portion of the employee's contributions. If such a plan expressly
provides that the accident or health benefits are provided in whole or
in part by employee contributions and the portion of employee
contributions to be used for such purpose, the contributions so used
will be treated as used to provide accident or health benefits. However,
if the plan does not expressly provide that the accident or health
benefits are to be provided with employee contributions and the portion
of employee contributions to be used for such purpose, it will be
presumed that none of the employee contributions is used to provide such
benefits. Thus, in the case of a contributory pension plan, it will be
presumed that the disability pension is provided by employer
contributions, unless the plan expressly provides otherwise, or in the
case of a contributory profit-sharing plan providing that a portion of
the amount standing to the account of each participant will be
[[Page 265]]
used to purchase accident or health insurance, it will be presumed that
such insurance is purchased with employer contributions, unless the plan
expressly provides otherwise. Similarly, unless the plan expressly
provides otherwise, it will be presumed that if a contributory profit-
sharing plan provides for periodic distributions from the account of a
participant during any absence from work because of a personal injury or
sickness, all such distributions which do not exceed the contributions
of the employer plus earnings thereon are provided by employer
contributions.
(3) Any employee contributions that are treated under subparagraph
(2) of this paragraph as used to provide accident or health benefits
shall not be included for any purpose under section 72 as employee
contributions or as aggregate premiums or other consideration paid.
Thus, in the case of a pension plan, or in the case of a profit-sharing
plan providing that a portion of the amount standing to the account of
each participant will be used to purchase accident or health insurance,
any employee whose contributions are so used must make the adjustment
provided by this subparagraph irrespective of whether such employee
receives any accident or health benefits under such plan. However, in
the case of a profit-sharing plan providing for periodic distributions
from the account of a participant during any absence from work because
of a personal injury or sickness, an adjustment under this subparagraph
is required only when an employee receives distributions in excess of
the employer contributions and earnings thereon or receives
distributions consisting in whole or in part of his own contributions.
(4) If any of the employee contributions are treated under
subparagraph (2) of this paragraph as used to provide any of the
accident or health benefits, the portion of the benefits attributable to
employee contributions shall be determined in accordance with
Sec. 1.105-1. Any accident or health benefits that are excludable under
section 104(a)(3) shall not be included in the expected return for
purposes of section 72.
(d) Accident or health benefits attributable to employer
contributions. Any amounts received as accident or health benefits and
not attributable to contributions of the employee are includible in
gross income except to the extent that the amounts are excludable from
gross income under section 105(b) or (c) and the regulations under those
sections. See Sec. 1.402(a)-1(e) for rules relating to the use of a
qualified plan under section 401(a) to pay premiums for accident or
health insurance.
(e) Other benefits under the plan. The taxability of amounts that
are received under a plan to which this section applies and that are not
accident or health benefits is determined under section 72 (or, in the
case of certain total distributions, under section 402(a)(2) or section
403(a)(2)) without regard to any exclusion or inclusion of accident or
health benefits under sections 104 and 105. For example, the investment
in the contract or aggregate premiums paid is determined without regard
to the exclusion of any amount under section 104 or 105, and the annuity
starting date is determined without regard to the receipt of any
accident or health benefits. However, if any employee contributions are
used to provide any accident or health benefits, the investment in the
contract or aggregate premiums paid must be adjusted as provided in
paragraph (c)(3) of this section.
(f) [Reserved]
(g) Payments to or on behalf of a self-employed individual. A self-
employed individual is not considered an employee for purposes of
section 105, relating to amounts received by employees under accident
and health plans, nor for purposes of excluding under section 104(a)(3)
amounts received by him under an accident and health plan as referred to
in section 105(e). See section 105(g) and paragraph (a) of Sec. 1.105-1.
Therefore, the other paragraphs of this section are not applicable to
amounts received by or on behalf of a self-employed individual. Except
where accident or health benefits are provided through an insurance
contract or an arrangement having the effect of insurance, all amounts
received by or on behalf of a self-employed individual from a plan
described in section 401(a) and exempt under section 501(a) or a plan
described in section 403(a) shall be
[[Page 266]]
taxed as otherwise provided in section 72, 402, or 403. If the accident
or health benefits are paid under an insurance contract or under an
arrangement having the effect of insurance, section 104(a)(3) shall
apply. Section 72 shall not apply to any amounts received under such
circumstances. For the treatment of the amounts paid for such accident
or health benefits, see section 404(e)(3) and paragraph (f) of
Sec. 1.404(e)-1.
(h) Medical benefits for retired employees, etc. See Sec. 1.402(a)-
1(e)(2) for rules relating to the payment of medical benefits described
in section 401(h) under a qualified pension or annuity plan.
(i) Special rules--(1) In general. For purposes of section 72(b) and
(d) and this section, the taxpayer must maintain such records as are
necessary to substantiate the amount treated as an investment in the
taxpayer's annuity contract.
(2) Delegation to Commissioner. The Commissioner may prescribe a
form and instructions with respect to the taxpayer's past and current
treatment of amounts received under section 72 or 105, and the
taxpayer's computation, or recomputation, of the taxpayer's investment
in his or her annuity contract. This form may be required to be filed
with the taxpayer's returns for years in which the amounts are excluded
under section 72 or 105.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6676, 28 FR
10135, Sept. 17, 1963; T.D. 6722, 29 FR 5069, Apr. 14, 1964; T.D. 6770,
29 FR 15366, Nov. 17, 1964; T.D. 7352, 40 FR 16664, Apr. 14, 1975; T.D.
9665, 79 FR 26841, May 12, 2014]
Sec. 1.72-16 Life insurance contracts purchased under qualified employee plans.
(a) Applicability of section. This section provides rules for the
tax treatment of premiums paid under qualified pension, annuity, or
profit-sharing plans for the purchase of life insurance contracts and
rules for the tax treatment of the proceeds of such a life insurance
contract and of annuity contracts purchased under such plans. For
purposes of this section, the term ``life insurance contract'' means a
retirement income, an endowment, or other contract providing life
insurance protection. The rules of this section apply to plans covering
only common-law employees as well as to plans covering self-employed
individuals.
(b) Treatment of cost of life insurance protection. (1) The rules of
this paragraph are applicable to any life insurance contract--
(i) Purchased as a part of a plan described in section 403(a), or
(ii) Purchased by a trust described in section 401(a) which is
exempt from tax under section 501(a) if the proceeds of such contract
are payable directly or indirectly to a participant in such trust or to
a beneficiary of such participant.
The proceeds of a contract described in subdivision (ii) of this
subparagraph will be considered payable indirectly to a participant or
beneficiary of such participant where they are payable to the trustee
but under the terms of the plan the trustee is required to pay over all
of such proceeds to the beneficiary.
(2) If under a plan or trust described in subparagraph (1) of this
paragraph, amounts which were allowed as a deduction under section 404,
or earnings of the trust, are applied toward the purchase of a life
insurance contract described in subparagraph (1) of this paragraph, the
cost of the life insurance protection under such contract shall be
included in the gross income of the participant for the taxable year or
years in which such contributions or earnings are so applied.
(3) If the amount payable upon death at any time during the year
exceeds the cash value of the insurance policy at the end of the year,
the entire amount of such excess is considered current life insurance
protection. The cost of such insurance will be considered to be a
reasonable net premium cost, as determined by the Commissioner, for such
amount of insurance for the appropriate period.
(4) The amount includible in the gross income of the employee under
this paragraph shall be considered as premiums or other consideration
paid or contributed by the employee only with respect to any benefits
attributable to the contract (within the meaning of paragraph (a)(3) of
Sec. 1.72-2) providing the life insurance protection. However, if under
the rules of this
[[Page 267]]
paragraph an owner-employee is required to include any amounts in his
gross income, such amounts shall not in any case be treated as part of
his investment in the contract.
(5) The determination of the cost of life insurance protection may
be illustrated by the following example:
Example. An annual premium policy purchased by a qualified trust for
a common-law employee provides an annuity of $100 per month upon
retirement at age 65, with a minimum death benefit of $10,000. The
insurance payable if death occurred in the first year would be $10,000.
The cash value at the end of the first year is 0. The net insurance is
therefore $10,000 minus 0, or $10,000. Assuming that the Commissioner
has determined that a reasonable net premium cost for the employee's age
is $5.85 per $1,000, the premium for $10,000 of life insurance is
therefore $58.50, and this is the amount to be reported as income by the
employee for his taxable year in which the premium is paid. The balance
of the premium is the amount contributed for the annuity, which is not
taxable to the employee under a plan meeting the requirements of section
401(a), except as provided under section 402(a). Assuming that the cash
value at the end of the second year is $500, the net insurance would
then be $9,500 for the second year. With a net 1-year term rate of $6.30
for the employee's age in the second year, the amount to be reported as
income to the employee would be $59.85.
(6) This paragraph shall not apply if the trust has a right under
any circumstances to retain any part of the proceeds of the life
insurance contract. But see paragraph (c)(4) of this section relating to
the taxability of the distribution of such proceeds to a beneficiary.
(c) Treatment of proceeds of life insurance and annuity contracts.
(1) If under a qualified pension, annuity, or profit-sharing plan, there
is purchased either--
(i) A life insurance contract described in paragraph (b)(1) of this
section, and the employee either paid the cost of the insurance or was
taxable on the cost of the insurance under paragraph (b) of this
section, or
(ii) An annuity contract,
the amounts payable under any such contract by reason of the death of
the employee are taxable under the rules of subparagraph (2) of this
paragraph, except in the case of a joint and survivor annuity.
(2)(i) In the case of an annuity contract, the death benefit is the
accumulation of the premiums (plus earnings thereon) which is intended
to fund pension or other deferred benefits under a pension, annuity, or
profit-sharing plan. Such death benefits are not in the nature of life
insurance and are not excludable from gross income under section 101(a).
(ii) In the case of a life insurance contract under which there is a
reserve accumulation which is intended to fund pension or other deferred
benefits under a pension, annuity, or profit-sharing plan, such reserve
accumulation constitutes the source of the cash value of the contract
and approximates the amount of such cash value. The portion of the
proceeds paid upon the death of the insured employee which is equal to
the cash value immediately before death is not excludable from gross
income under section 101(a). The remaining portion, if any, of the
proceeds paid to the beneficiary by reason of the death of the insured
employee--that is, the amount in excess of the cash value--constitutes
current insurance protection and is excludable under section 101(a).
(iii) The death benefit under an annuity contract, or the portion of
the death proceeds under a life insurance contract which is equal to the
cash value of the contract immediately before death, constitutes a
distribution under the plan consisting in whole or in part of deferred
compensation and is taxable to the beneficiary in accordance with
section 72(m)(3) and the provisions of this paragraph, except to the
extent that the limited exclusion from income provided in section 101(b)
is applicable.
(iv) In the case of a life insurance contract under which the
benefits are paid at a date or dates later than the death of the
employee, section 101(d) is applicable only to the portion of the
benefits which is attributable to the amount excludable under section
101(a). The portion of such benefits which is attributable to the cash
value of the contract immediately before death is taxable under section
72, and in such case, any amount excludable
[[Page 268]]
under section 101(b) is treated as additional consideration paid by the
employee in accordance with section 101(b)(2)(D).
(3) The application of the rules under subparagraph (2) of this
paragraph with respect to the taxability of proceeds of a life insurance
contract paid by reason of the death of an insured common-law employee
who has paid no contributions under the plan is illustrated by the
following examples:
Example 1.
Total face amount of the contract payable in a lump sum at $25,000
time of death................................................
Cash value of the contract immediately before death........... 11,000
---------
Excess over cash value, excludable under section 101(a)....... 14,000
=========
Cash value subject to limited exclusion under section 101(b).. 11,000
Excludable under section 101(b) (assuming that there is no 5,000
other death benefit paid by or on behalf of any employer with
respect to the employee).....................................
---------
Balance taxable in accordance with section 402(a)(2) or 6,000
403(a)(2) (assuming a total distribution in one taxable year
of the distributee)..........................................
Portion of premiums taxed to employee under the provisions of 940
paragraph (b) of this section and considered as contributions
of the employee..............................................
---------
Balance taxable as long-term capital gain..................... 5,060
Example 2. The facts are the same as in example (1), except that the
contract provides that the beneficiary may elect within 60 days after
the death of the employee either to take the $25,000 or to receive 10
annual installments of $3,000 each, and the beneficiary elects to
receive the 10 installments. In addition, the employee's rights to the
cash value immediately before his death were forfeitable at least to the
extent of $5,000. Section 101(d) is applicable to the amount excludable
under section 101(a), that is, $14,000. The portion of each annual
installment of $3,000 which is attributable to this $14,000 is
determined by allocating each installment in accordance with the ratio
which this $14,000 bears to the total amount which was payable at death
($25,000). Accordingly, the portion of each annual installment which is
subject to section 101(d) is $1,680 (\14/25\ of $3,000), of which $1,400
(\1/10\ of $14,000) is excludable under section 101(a), and the
remaining $280 is includible in the gross income of the beneficiary.
However, if the beneficiary is a surviving spouse as defined in section
101(d)(3), the exclusion provided by section 101(d)(1)(B) is applicable
to such $280. The remaining portion of each annual $3,000 installment,
$1,320, is attributable to the cash value of the contract and is treated
under section 72, as follows:
Amount actually contributed by the employee................... 0
Amount considered contributed by employee by reason of section $5,000
101(b).......................................................
Portion of premiums taxed to employee under the provisions of $940
paragraph (b) of this section and considered as contributions
of the employee..............................................
---------
Investment in the contract.................................... $5,940
Expected return, 10 x $1,320................................ $13,200
Exclusion ratio, $5,940 $13,200............................. 0.45
Annual exclusion, 0.45 x $1,320............................. $594
Accordingly, $594 of the $1,320 portion of each annual installment is
excludable each year under section 72, and the remaining $726 is
includible. Thus, if the beneficiary is not a surviving spouse, a total
of $1,006 ($280 plus $726) of each annual $3,000 installment is
includible in income each year. If the beneficiary is a surviving
spouse, and can exclude all of the $280 under section 101(d)(1)(B), the
amount includible in gross income each year is $726 of each annual
$3,000 installment.
(4) If an employee neither paid the total cost of the life insurance
protection provided under a life insurance contract, nor was taxable
under paragraph (b) of this section with respect thereto, no part of the
proceeds of such a contract which are paid to the beneficiaries of the
employee as a death benefit is excludable under section 101(a). The
entire distribution is taxable to the beneficiaries under section 402(a)
or 403(a) except to the extent that a limited exclusion may be allowable
under section 101(b).
[T.D. 6676, 28 FR 10135, Sept. 17, 1963]
Sec. 1.72-17 Special rules applicable to owner-employees.
(a) In general. Under section 401(c) and section 403(a), certain
self-employed individuals may participate in qualified pension, annuity,
and profit-sharing plans, and the amounts received by such individuals
from such plans are taxable under section 72. Section 72(m) and this
section contain special rules for the taxation of amounts received from
qualified pension, profit-sharing, or annuity plans covering an owner-
employee. For purposes of section 72 and the regulations thereunder, the
term ``employee'' shall include the self-employed individual who is
treated as an employee by section 401(c)(1) (see paragraph (b) of
Sec. 1.401-10), and the term ``owner-employee'' has the meaning assigned
to it in section 401(c)(3) (see paragraph (d) of Sec. 1.401-10). See
also paragraph (a)(2) of Sec. 1.401-10 for the rule
[[Page 269]]
for determining when a plan covers an owner-employee. For purposes of
this section, a self-employed individual may not treat as consideration
for the contract contributed by the employee any contributions under the
plan for which deductions were allowed under section 404 and which,
consequently, are considered employer contributions.
(b) Certain amounts received before annuity starting date. (1) The
rules of this paragraph are applicable to amounts received from a
qualified pension, profit-sharing, or annuity plan by an employee (or
his beneficiary) who is or was an owner-employee with respect to such
plan when such amounts--
(i) Are received before the annuity starting date; and
(ii) Are not received as an annuity.
For the definition of annuity starting date, see paragraph (b) of
Sec. 1.72-4 and subparagraph (4) of this paragraph. As to what
constitutes amounts not received as an annuity, see paragraphs (c) and
(d) of Sec. 1.72-11.
(2) Amounts to which this paragraph applies shall be included in the
recipient's gross income for the taxable year in which received.
However, the sum of the amounts so included under this subparagraph in
all taxable years shall not exceed the aggregate deductions allowed
under section 404 for premiums or other consideration paid under the
plan on behalf of the employee while he was an owner-employee, including
any such deductions taken in the taxable year of receipt.
(3) Any amounts to which this paragraph applies and which are not
includible in gross income under the rules of subparagraph (2) of this
paragraph shall be subject to the provisions of section 72(e) and
Sec. 1.72-11. However, for taxable years beginning before January 1,
1964, section 72(e)(3), as in effect before such date, shall not apply
to such amounts. For taxable years beginning after December 31, 1963,
such amounts (other than amounts subject to a penalty under section
72(m)(5) and paragraph (e) of this section) may be taken into account in
computations under sections 1301 through 1305 (relating to income
averaging).
(4) Under section 401(d)(4), a qualified pension, profit-sharing, or
annuity plan may not provide for distributions to an owner-employee
before he reaches age 59\1/2\ years, except in the case of his earlier
disability. Therefore, in the case of a distribution from a qualified
plan to an individual for whom contributions have been made to the plan
as an owner-employee, the annuity starting date cannot be prior to the
time such individual attains the age 59\1/2\ years unless he is entitled
to benefits before reaching such age because of his disability. For
taxable years beginning after December 31, 1966, see section 72(m)(7)
and paragraph (f) of this section for the meaning of disabled. For
taxable years beginning before January 1, 1967, see section 213(g)(3)
for the meaning of disabled.
(5) The rules of this paragraph are not applicable to amounts
credited to an individual in his capacity as a policy-holder of an
annuity, endowment, or life insurance contract which are in the nature
of a dividend or refund of premium, and which are applied in accordance
with paragraph (a)(4) of Sec. 1.404(a)-8 towards the purchase of
benefits under the policy.
(6) The rules of this paragraph may be illustrated by the following
example:
Example. B, a self-employed individual, received $8,000 as a
distribution under a qualified pension plan before the annuity starting
date. At the time of such distribution, $10,000 had been contributed
(the whole amount being allowed as a deduction) under the plan on behalf
of such individual while he was a common-law employee and $5,000 had
been contributed under the plan on his behalf while he was an owner-
employee, of which $2,500 was allowed as a deduction. In addition, B had
contributed $1,000 on his own behalf as an employee under the plan. Of
the $8,000, $2,500 (the amount allowed as a deduction with respect to
contributions on behalf of the individual while he was an owner-
employee) is includable in gross income under subparagraph (2) of this
paragraph. With respect to the remaining $5,500, B has a basis of
$3,500, consisting of the $2,500 contributed on his behalf while he was
an owner-employee which was not allowed as a deduction and the $1,000
which B contributed as an employee. The difference between the $5,500
and B's basis of $3,500, or $2,000, is includable in gross income under
section 72(e).
(c) Amounts paid for life, accident, health, or other insurance.
Amounts used to purchase life, accident, health, or other insurance
protection for an
[[Page 270]]
owner-employee shall not be taken into account in computing the
following:
(1) The aggregate amount of premiums or other consideration paid for
the contract for purposes of determining the investment in the contract
under section 72(c)(1)(A) and Sec. 1.72-6;
(2) The consideration for the contract contributed by the employee
for purposes of section 72(d)(1) and Sec. 1.72-13, which provide the
method of taxing employees' annuities where the employee's contributions
will be recoverable within 3 years; and
(3) The aggregate premiums or other consideration paid for purposes
of section 72(e)(1)(B) and Sec. 1.72-11, which provide the rules for
taxing amounts not received as annuities prior to the annuity starting
date.
The cost of such insurance protection will be considered to be a
reasonable net premium cost, as determined by the Commissioner, for the
appropriate period.
(d) Amounts constructively received. (1) If during any taxable year
an owner-employee assigns or pledges (or agrees to assign or pledge) any
portion of his interest in a trust described in section 401(a) which is
exempt from tax under section 501(a), or any portion of the value of a
contract purchased as part of a plan described in section 403(a), such
portion shall be treated as having been received by such owner-employee
as a distribution from the trust or as an amount received under the
contract during such taxable year.
(2) If during any taxable year an owner-employee receives, either
directly or indirectly, any amount from any insurance company as a loan
under a contract purchased by a trust described in section 401(a) which
is exempt from tax under section 501(a) or purchased as part of a plan
described in section 403(a), and issued by such insurance company, such
amount shall be treated as an amount received under the contract during
such taxable year. An owner-employee will be considered to have received
an amount under a contract if a premium, which is otherwise in default,
is paid by the insurance company in the form of a loan against the cash
surrender value of the contract. Further, an owner-employee will be
considered to have received an amount to which this subparagraph applies
if an amount is received from the issuer of a face-amount certificate as
a loan under such a certificate purchased as part of a qualified trust
or plan.
(e) Penalties applicable to certain amounts received by owner-
employees. (1)(i) The rules of this paragraph are applicable to amounts,
to the extent includable in gross income, received from a trust
described in section 401(a) or under a plan described in section 403(a)
by or on behalf of an individual who is or has been an owner-employee
with respect to such plan or trust--
(a) Which are received before the owner-employee reaches the age
59\1/2\ years and which are attributable to contributions paid on behalf
of such owner-employee (whether or not paid by him) while he was an
owner-employee (see subdivision (ii) of this subparagraph),
(b) Which are in excess of the benefits provided for such owner-
employee under the plan formula (see subdivision (iii) of this
subparagraph), or
(c) Which are received by reason of a distribution of the owner-
employee's entire interest under the provisions of section 401(e)(2)(E),
relating to excess contributions on behalf of an owner-employee which
are willfully made.
(ii) The amounts referred to in subdivision (i)(a) of this
subparagraph do not include--
(a) Amounts received by reason of the owner-employee becoming
disabled, or
(b) Amounts received by the owner-employee in his capacity as a
policy-holder of an annuity, endowment, or life insurance contract which
are in the nature of a dividend or similar distribution.
Amounts attributable to contributions paid on behalf of an owner-
employee and which are paid to a person other than the owner-employee
before the owner-employee dies or reaches the age 59\1/2\ shall be
considered received by the owner-employee for purposes of this
paragraph. For taxable years beginning after December 31, 1966, see
section 72(m)(7) and paragraph (f) of this section for the meaning of
disabled. For taxable years beginning before January 1, 1967, see
section 213(g)(3) for the meaning of disabled. For taxable years
[[Page 271]]
beginning after December 31, 1968, if an amount is not included in the
amounts referred to in subdivision (i)(a) of this subparagraph solely by
reason of the owner-employee becoming disabled and if a penalty would
otherwise be applicable with respect to all or a portion of such amount,
then for the taxable year in which such amount is received, there must
be submitted with the owner-employee's income tax return a doctor's
statement as to the impairment, and a statement by the owner-employee
with respect to the effect of such impairment upon his substantial
gainful activity and the date such impairment occurred. For taxable
years which are subsequent to the first taxable year beginning after
December 31, 1968, with respect to which the statements referred to in
the preceding sentence are submitted, the owner-employee may, in lieu of
such statements, submit a statement declaring the continued existence
(without substantial diminution) of the impairment and its continued
effect upon his substantial gainful activity.
(iii) This paragraph applies to amounts described in subdivision
(i)(b) of this subparagraph (relating to excess benefits) even though a
portion of such amounts may be attributable to contributions made on
behalf of an individual while he was not an owner-employee and even
though the amounts are received by his successor. However, these amounts
do not include the portion of a distribution to which section 402(a)(2)
or 403(a)(2) (relating to certain total distributions in one taxable
year) applies.
(iv)(a) For purposes of subdivision (i)(a) of this subparagraph, the
portion of any distribution or payment attributable to contributions on
behalf of an employee-participant while he was an owner-employee
includes the contributions made on his behalf while he was an owner-
employee and the increments in value attributable to such contributions.
(b) The increments in value of an individual's account may be
allocated to contributions on his behalf while he was an owner-employee
either by maintaining a separate account, or an accounting, which
reflects the actual increment attributable to such contributions, or by
the method described in (c) of this subdivision.
(c) Where an individual is covered under the same plan both as an
owner-employee and as a nonowner-employee, the portion of the increment
in value of his interest attributable to contributions made on his
behalf while he was an owner-employee may be determined by multiplying
the total increment in value in his account by a fraction. The numerator
of the fraction is the total contributions made on behalf of the
individual as an owner-employee, weighted for the number of years that
each contribution was in the plan. The denominator is the total
contributions made on behalf of the individual, whether or not an owner-
employee, weighted for the number of years each contribution was in the
plan. The contributions are weighted for the number of years in the plan
by multiplying each contribution by the number of years it was in the
plan. For purposes of this computation, any forfeiture allocated to the
account of the individual is treated as a contribution to the account
made at the time so allocated.
(d) The method described in (c) of this subdivision may be
illustrated by the following example:
Example. B was a member of the XYZ Partnership and a participant in
the partnership's profit-sharing plan which was created in 1963. Until
the end of 1967, B's interest in the partnership was less than 10
percent. On January 1, 1968, B obtained an interest in excess of 10
percent in the partnership and continued to participate in the profit-
sharing plan until 1972. During 1972, prior to the time he attained the
age of 59\1/2\ years and during a time when he was not disabled, B
withdrew his entire interest in the profit-sharing plan. At that time
his interest was $15,000, $9,600 contributions and $5,400 increment
attributable to the contributions. The portion of the increment
attributable to contributions while B was an owner-employee is $667.80,
determined as follows:
------------------------------------------------------------------------
A B C
-----------------------------------------
Number of Contribution
years weighted for
Contribution contribution years in
was in trust (A x
trust-- B)
------------------------------------------------------------------------
1972.......................... $1,000 0 0
1971.......................... 800 1 800
1970.......................... 1,200 2 2,400
1969.......................... 600 3 1,800
[[Page 272]]
1968.......................... 200 4 800
1967.......................... 400 5 2,000
1966.......................... 2,000 6 12,000
1965.......................... 1,000 7 7,000
1964.......................... 1,500 8 12,000
1963.......................... 900 9 8,100
-----------------------------------------
Total....................... $9,600 46,900
------------------------------------------------------------------------
Total weighted contributions as owner-employee (1968-1972)--5,800.
Total weighted contributions--46,900.
$5,400 x (5,800 46,900) = $667.80
(2)(i) If the aggregate of the amounts to which this paragraph
applies received by any person in his taxable year equals or exceeds
$2,500 the tax with respect to such amount shall be the greater of--
(a) The increase in tax attributable to the inclusion of the amounts
so received in his gross income for the taxable year in which received,
or
(b) 110 percent of the aggregate increase in taxes, for such taxable
year and the four immediately preceding taxable years, which would have
resulted if such amounts had been included in such person's gross income
ratably over such taxable years. However, if deductions were allowed
under section 404 for contributions to the plan on behalf of the
individual as an owner-employee for less than four prior taxable years
(whether or not consecutive), the number of immediately preceding
taxable years taken into account shall be the number of prior taxable
years in which such deductions were allowed.
(ii) If the aggregate of the amounts to which this paragraph applies
received by any person in his taxable year is less than $2,500, the tax
with respect to such amounts shall be 110 percent of the increase in tax
which results from including such amounts in the person's gross income
for the taxable year in which received.
(3)(i) For purposes of making the ratable inclusion computations of
subparagraph (2)(i) of this paragraph, the taxable income of the
recipient for each taxable year involved (notwithstanding section 63,
relating to definition of taxable income) shall be treated as being not
less than the amount required to be treated as includible in the taxable
year pursuant to the ratable inclusion.
(ii) For purposes of subparagraph (2)(i)(a) and (ii) of this
paragraph, the recipient's taxable income (notwithstanding section 63,
relating to definition of taxable income) shall be treated as being not
less than the aggregate of the amounts to which this paragraph applies
reduced by the deductions allowed the recipient for such taxable year
under section 151 (relating to deductions for personal exemptions).
(iii) In any case in which the application of subdivision (i) or
(ii) of this subparagraph results in an increase in taxable income for
any taxable year, the resulting increase in taxes imposed by section 1
or 3 for such taxable year shall be reduced by the credits against tax
provided by section 31 (tax withheld on wages) and section 39 (certain
uses of gasoline and lubricating oil), but shall not be reduced by any
other credits against tax.
(4) The application of the rules of subparagraph (2)(i) and (3) of
this paragraph may be illustrated by the following example:
Example. B, a sole proprietor and a calendar-year basis taxpayer,
established a qualified pension trust to which he made annual
contributions for 10 years of 10 percent of his earned income. B
withdrew his entire interest in the trust during 1973 when he was 55
years old and not disabled and for which, without regard to the
distribution, he had a net operating loss and for which he is allowed
under section 151 a deduction for one personal exemption. The portion of
the distribution includible in B's gross income is $25,750. In addition,
B had a net operating loss for 1972. The other 3 taxable years involved
in the computation under subparagraph (2)(i) of this paragraph were
years of substantial income. For purposes of determining B's increase in
tax attributable to the receipt of the $25,750 (before the application
of the provisions of subparagraph (2)(i)(b) of this paragraph), B's
taxable income for the year he received the $25,750 is treated, under
subparagraph (3)(ii) of this paragraph, as being $25,000 ($25,750 minus
$750, the amount of the deduction allowed for each personal exemption
under section 151 for 1973). For purposes of determining whether 110
percent of the aggregate increase in taxes which would have resulted if
20 percent
[[Page 273]]
of the amount of the withdrawal had been included in B's gross income
for the year of receipt and for each of the 4 preceding taxable years is
greater (and thus is the amount of his increase in tax attributable to
the receipt of the $25,750), B's taxable income for the taxable year of
receipt, and for the immediately preceding taxable year, is treated,
under subparagraph (3)(i) of this paragraph, as being $5,150 ($25,750
divided by 5).
(f) Meaning of disabled. (1) For taxable years beginning after
December 31, 1966, section 72(m)(7) provides that an individual shall be
considered to be disabled if he is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration. In determining whether an
individual's impairment makes him unable to engage in any substantial
gainful activity, primary consideration shall be given to the nature and
severity of his impairment. Consideration shall also be given to other
factors such as the individual's education, training, and work
experience. The substantial gainful activity to which section 72(m)(7)
refers is the activity, or a comparable activity, in which the
individual customarily engaged prior to the arising of the disability
(or prior to retirement if the individual was retired at the time the
disability arose).
(2) Whether or not the impairment in a particular case constitutes a
disability is to be determined with reference to all the facts in the
case. The following are examples of impairments which would ordinarily
be considered as preventing substantial gainful activity:
(i) Loss of use of two limbs;
(ii) Certain progressive diseases which have resulted in the
physical loss or atrophy of a limb, such as diabetes, multiple
sclerosis, or Buerger's disease;
(iii) Diseases of the heart, lungs, or blood vessels which have
resulted in major loss of heart or lung reserve as evidenced by X-ray,
electrocardiogram, or other objective findings, so that despite medical
treatment breathlessness, pain, or fatigue is produced on slight
exertion, such as walking several blocks, using public transportation,
or doing small chores;
(iv) Cancer which is inoperable and progressive;
(v) Damage to the brain or brain abnormality which has resulted in
severe loss of judgment, intellect, orientation, or memory;
(vi) Mental diseases (e.g. psychosis or severe psychoneurosis)
requiring continued institutionalization or constant supervision of the
individual;
(vii) Loss or diminution of vision to the extent that the affected
individual has a central visual acuity of no better than 20/200 in the
better eye after best correction, or has a limitation in the fields of
vision such that the widest diameter of the visual fields subtends an
angle no greater than 20 degrees;
(viii) Permanent and total loss of speech;
(ix) Total deafness uncorrectible by a hearing aid.
The existence of one or more of the impairments described in this
subparagraph (or of an impairment of greater severity) will not,
however, in and of itself always permit a finding that an individual is
disabled as defined in section 72(m)(7). Any impairment, whether of
lesser or greater severity, must be evaluated in terms of whether it
does in fact prevent the individual from engaging in his customary or
any comparable substantial gainful activity.
(3) In order to meet the requirements of section 72(m)(7), an
impairment must be expected either to continue for a long and indefinite
period or to result in death. Ordinarily, a terminal illness because of
disease or injury would result in disability. Indefinite is used in the
sense that it cannot reasonably be anticipated that the impairment will,
in the foreseeable future, be so diminished as no longer to prevent
substantial gainful activity. For example, an individual who suffers a
bone fracture which prevents him from working for an extended period of
time will not be considered disabled, if his recovery can be expected in
the foreseeable future; if the fracture persistently fails to knit, the
individual would ordinarily be considered disabled.
(4) An impairment which is remediable does not constitute a
disability within the meaning of section 72(m)(7). An individual will
not be deemed disabled if, with reasonable effort and
[[Page 274]]
safety to himself, the impairment can be diminished to the extent that
the individual will not be prevented by the impairment from engaging in
his customary or any comparable substantial gainful activity.
(g) Years to which this section applies. This section applies to
taxable years ending before September 3, 1974. For taxable years ending
after September 2, 1974, see Sec. 1.72-17A.
[T.D. 6676, 28 FR 10136, Sept. 17, 1963, as amended by T.D. 6885, 31 FR
7800, June 2, 1966; T.D. 6985, 33 FR 19811, Dec. 27, 1968; T.D. 7114, 36
FR 9018, May 18, 1971; T.D. 7636, 44 FR 47049, Aug. 10, 1979]
Sec. 1.72-17A Special rules applicable to employee annuities and
distributions under deferred compensation plans to self-employed
individuals and owner-employees.
(a) In general. Section 72(m) and this section contain special rules
for the taxation of amounts received from qualified pension, profit-
sharing, or annuity plans covering an owner-employee. This section
applies to such amounts for taxable years of the recipient ending after
September 2, 1974, unless another date is specified. For purposes of
this section, the term ``employee'' shall include the self-employed
individual who is treated as an employee by section 401(c)(1), and the
term ``owner-employee'' has the meaning assigned to it in section
401(c)(3). Paragraph (b) of this section provides rules dealing with the
computation of consideration paid by self-employed individuals and
paragraph (c) of this section provides rules dealing with such
computation when insurance is purchased for owner-employees. Paragraph
(d) of this section provides rules for constructive receipt and, for
purposes of these rules, treats as an owner-employee an individual for
whose benefit an individual retirement account or annuity described in
section 408 (a) or (b) is maintained after December 31, 1974. Paragraph
(e) of this section provides rules for penalties provided by section
72(m)(5) with respect to certain distributions received by owner-
employees or their successors. Paragraph (f) of this section provides
rules for determining whether a person is disabled within the meaning of
section 72(m)(7). See Sec. 1.72-16, relating to life insurance contracts
purchased under qualified employee plans, for rules under section
72(m)(3).
(b) Computation of consideration paid by self-employed individuals.
Under section 72(m)(2), consideration paid or contributed for the
contract by any self-employed individual shall for purposes of section
72 be deemed not to include any contributions paid or contributed under
a plan described in paragraph (a), or any other plan of deferred
compensation described in section 404(a) (whether or not qualified), if
the contributions are--
(1) Paid under such plan with respect to a time during which the
employee was an employee only by reason of sections 401(c)(1) and
404(a)(8), and
(2) Deductible under section 404 by the employer, including an
employer within the meaning of sections 401(c)(4) and 404(a)(8), of such
self-employed individual at the time of such payment, or subsequent to
such time of payment.
For purposes of this paragraph the term ``consideration paid or
contributed for the contract'' has the same meaning as under
subparagraphs (1), (2), and (3) of paragraph (c) of this section.
(c) Amounts paid for life, accident, health, or other insurance.
Under section 72(m)(2), amounts used to purchase life, accident, health,
or other insurance protection for an owner-employee shall not be taken
into account in computing the following:
(1) The aggregate amount of premiums or other consideration paid for
the contract for purposes of determining the investment in the contract
under section 72(c)(1)(A) and Sec. 1.72-6;
(2) The consideration for the contract contributed by the employee
for purposes of section 72(d)(1) and Sec. 1.72-13, which provide the
method of taxing employee's annuities where the employee's contributions
will be recoverable within 3 years; and
(3) The aggregate premiums or other consideration paid for purposes
of section 72(e)(1)(B) and Sec. 1.72-11, which provide the rules for
taxing amounts not received as annuities prior to the annuity starting
date.
The cost of such insurance protection will be considered to be a
reasonable net premium cost, as determined by
[[Page 275]]
the Commissioner, for the appropriate period.
(d) Amounts constructively received. (1) The references in this
paragraph (d) to section 72(m)(4) are to that section as in effect on
August 13, 1982. Section 236(b)(1) of the Tax Equity and Fiscal
Responsibility Act of 1982 (96 Stat. 324) repealed section 72(m)(4),
generally effective for assignments, pledges and loans made after August
13, 1982, and added section 72(p). See section 72(p) and Sec. 1.72(p)-1
for rules governing the income tax treatment of certain assignments,
pledges and loans from qualified employer plans made after August 13,
1982.
(2) Under section 72(m)(4)(A), if during any taxable year an owner-
employee assigns or pledges (or agrees to assign or pledge) any portion
of his interest in a trust described in section 401(a) which is exempt
from tax under section 501(a), or any portion of the value of a contract
purchased as part of a plan described in section 403(a), such portion
shall be treated as having been received by such owner-employee as a
distribution from the trust or as an amount received under the contract
during such taxable year.
(3)(i) Under paragraphs (4)(A) and (6) of section 72(m), if after
December 31, 1974, during any taxable year an individual for whose
benefit an individual retirement account or annuity described in section
408 (a) or (b) is maintained assigns or pledges (or agrees to assign or
pledge) any portion of his interest in such account or annuity, such
portion shall be treated as having been received by such individual as a
distribution from such account or trust during such taxable year. See
subsections (d) and (f) of section 408 and the regulations thereunder
for the tax treatment of an amount treated as a distribution under this
subparagraph.
(ii) Notwithstanding subdivision (i) of this subparagraph, if an
individual retirement account or annuity, or portion thereof, is subject
to the additional tax imposed by section 408(f), that amount shall be
deemed not to be a distribution under section 72(m)(4)(A) and
subdivision (i) of this subparagraph.
(4) Under section 72(m)(4)(B), if during any taxable year an owner-
employee receives, either directly or indirectly, any amount from any
insurance company as a loan under a contract purchased by a trust
described in section 401(a) which is exempt from tax under section
501(a) or purchased as part of a plan described in section 403(a), and
issued by such insurance company, such amount shall be treated as an
amount received under the contract during such taxable year. An owner-
employee will be considered to have received an amount under a contract
if a premium, which is otherwise in default, is paid by the insurance
company in the form of a loan against the cash surrender value of the
contract. Further, an owner-employee will be considered to have received
an amount to which this subparagraph applies if an amount is received
from the issuer of a face-amount certificate as a loan under such a
certificate purchased as part of a qualified trust or plan.
(e) Penalties applicable to certain amounts received with respect to
owner-employees under section 72(m)(5). (1)(i) For taxable years of the
recipient beginning after December 31, 1975, if any person receives an
amount to which subparagraph (2) of this paragraph applies, his tax
under Chapter 1 for the taxable year in which such amount is received
shall be increased by an amount equal to 10 percent of the portion of
the amount so received which is includible in his gross income for such
taxable year.
(ii) For taxable years of the recipient beginning before January 1,
1976, see subparagraph (3) of this paragraph.
(2)(i) This subparagraph is applicable to amounts, to the extent
includible in gross income, received from a qualified trust described in
section 401(a) or under a plan described in section 403(a) by or on
behalf of an individual who is or has been an owner-employee with
respect to such trust or plan--
(A) Which are received before the owner-employee reaches the age of
59\1/2\ years, and which are attributable to contributions paid on
behalf of such owner-employee by his employer (that is employer
contributions within the meaning of section 401(c)(5)(A) and the
increments in value attributable to such employer contributions) and the
increments in value attributable to
[[Page 276]]
contributions made by him as an owner-employee while he was an owner-
employee (that is, the increments attributable to owner-employee
contributions within the meaning of section 401(c)(5)(B), but not such
contributions; see subdivision (ii) of this subparagraph).
(B) Which are in excess of the benefits provided for such owner-
employee under the plan formula (see subdivision (iii) of this
subparagraph), or
(C) Which are subject to the transitional rules with respect to
willful excess contributions made on behalf of an owner-employee in his
employer's taxable years which begin before January 1, 1976 (see
subdivision (v) of this subparagraph).
(ii) The amounts referred to in subdivision (i)(A) of this
subparagraph do not include--
(A) Amounts received by reason of the owner-employee becoming
disabled (see paragraph (f) of this section).
(B) Amounts received by the owner-employee in his capacity as a
policyholder of an annuity, endowment, or life insurance contract which
are in the nature of a dividend or similar distribution, or
(C) Amounts attributable to contributions (and increments in value
thereon) made for years for which the recipient was not an owner-
employee.
If an amount is not included in the amounts referred to in subdivision
(i)(A) of this subparagraph solely by reason of the owner-employee's
becoming disabled and if a penalty would otherwise be applicable with
respect to all or a portion of such amount, then for the owner-
employee's taxable year in which such amount is received, there must be
submitted with his income tax return a doctor's statement as to the
impairment, and a statement by the owner-employee with respect to the
effect of such impairment upon his substantial gainful activity and the
date such impairment occurred. For taxable years which are subsequent to
the first taxable year with respect to which the statements referred to
in the preceding sentence are submitted, the owner-employee may, in lieu
of such statements, submit a statement declaring the continued existence
(without substantial diminution) of the impairment and its continued
effect upon his substantial gainful activity.
(iii) This subparagraph applies to amounts described in subdivision
(i)(B) of this subparagraph (relating to benefits in excess of the plan
formula) even though a portion of such amounts may be attributable to
contributions made on behalf of an individual while he was not an owner-
employee and even if he is deceased and the amounts are received by his
successor.
(iv)(A) The rules described in subdivisions (i)(A) and (iii) of this
subparagraph, relating to the treatment under section 72(m)(5)(A)(i) of
certain premature distributions, may be illustrated by the following
example:
Example. (1) A was a member of the X partnership, consisting of
partners A through I, and a participant in the partnership's qualified
profit-sharing plan which was established on January 1, 1972. A's
taxable years, the X partnership's taxable years, the plan years, and
other relevant years are all calendar years at all relevant times. For
the three calendar years, 1972 through 1974, A was an owner-employee in
the X partnership. On January 1, 1975, new partners J and K became
partners in the X partnership, and as of that date, each of partners A
through K held a \1/11\ interest in the capital and profits of the X
partnership. On that date, A became a partner who was not an owner-
employee. A continued in this status for the 2 calendar years 1975 and
1976. On January 1, 1977, when A was 50 years old and not disabled, he
liquidated his interest in the X partnership and became an employee of
an unrelated employer. On that date, A received a distribution
representing his entire interest in the X partnership's plan of $54,000
cash in violation of the plan provision required by section
401(d)(4)(B). As of that date, the distribution was attributable to the
following sources and times, computed by the plan in a manner consistent
with the subparagraph:
----------------------------------------------------------------------------------------------------------------
A B C D
---------------------------------------------------------------------------
Increments in Increments in
Calendar years X contributions A's contributions value value
on behalf of A made as an attributable to attributable to
deductible under employee column A yearly column B yearly
sec. 404 contributions contributions
----------------------------------------------------------------------------------------------------------------
1977................................ 0 0 0 0
1976................................ $7,500 $2,500 $900 $300
[[Page 277]]
1975................................ 7,500 2,500 4,000 1,300
1974................................ 7,500 2,500 1,800 700
1973................................ 2,500 2,500 1,200 1,200
1972................................ 2,500 2,500 1,300 1,300
---------------------------------------------------------------------------
Totals........................ 27,500 12,500 9,200 4,800
----------------------------------------------------------------------------------------------------------------
(2) The amount of the $54,000 distribution to which subdivision
(i)(A) of this subparagraph applies is $20,000, computed as follows:
X contributions on behalf of A made in years A was an owner-
employee:
1974........................................................ $7,500
1973........................................................ 2,500
1972........................................................ 2,500
---------
Total..................................................... 12,500
=========
Increments in value attributable to such contributions:
1974........................................................ 1,800
1973........................................................ 1,200
1972........................................................ 1,300
---------
Total..................................................... 4,300
=========
Increments in value attributable to contributions made by A as
an employee for years in which he was an owner-employee:
1974........................................................ 700
1973........................................................ 1,200
1972........................................................ 1,300
---------
Total..................................................... 3,200
=========
Grand total............................................... 20,000
=========
In this example, the $20,000 amount computed above would be includible
in A's gross income for 1977 and would be subject to the 10 percent tax
described in subparagraph (1)(i) of this paragraph.
(3) Subdivision (i)(A) of this subparagraph does not apply to the
contributions made by X on behalf of A for 1976 and 1975 ($7,500 each
year, totaling $15,000) nor to the increments in value attributable to
those contributions ($900 for 1976 and $4,000 for 1975, totaling
$4,900), because A was not an owner-employee with respect to these two
years, 1976 and 1975, on account of which these employer contributions
were made. For the same reason, subdivision (i)(A) of this subparagraph
does not apply to the increments in value attributable to A's
contributions for 1976 and 1975 ($300 and $1,300, respectively, totaling
$1,600).
See section 4972(c) for the amount of employee contributions which is
permitted to be contributed by an owner-employee (as an employee)
without subjecting an owner-employee to the tax on excess contributions.
(4) Subdivision (i)(A) of this subparagraph does not apply to the
contributions made by A, as an employee during the years when he was an
owner-employee ($2,500 during each of the years 1972, 1973, and 1974,
totaling $7,500), because the distribution was received in a taxable
year of A ending after September 2, 1974; see subparagraph (3) of this
paragraph. Furthermore, because the distribution of the amount of A's
contributions ($12,500) constitutes consideration for the contract paid
by A for purposes of section 72, the $7,500 amount described in the
preceding sentence is not includible in his gross income, and that
amount is not subject to the rules of this subparagraph; see subdivision
(i) of this subparagraph, and paragraphs (b) and (c) of this section.
(B) The increments in value of an individual's account may be
allocated to contributions on his behalf, by his employer or by such
individual as an owner-employee, while he was an owner-employee either
by maintaining a separate account, or an accounting, which reflects the
actual increment attributable to such contributions, or by the method
described in (C) of this subdivision.
(C) Where an individual is covered under the same plan both as an
owner-employee and as a non-owner-employee, the portion of the increment
in value of his interest attributable to contributions made on his
behalf while he was an owner-employee may be determined by multiplying
the total increment in value in his account by a fraction. The numerator
of the fraction is the total contributions made on behalf of the
individual as an owner-employee, weighted for the number of years that
each contribution was in the plan. The denominator is the total
contributions made on behalf of the individual, whether or not as an
owner-employee, weighted for the number of years each contribution was
in the plan. The contributions are weighted
[[Page 278]]
for the number of years in the plan by multiplying each contribution by
the number of years it was in the plan. For purposes of this
computation, any forfeiture allocated to the account of the individual
is treated as a contribution to the account made at the time so
allocated. For purposes of this computation, where the individual has
received a prior distribution from such account, an appropriate
adjustment must be made to reflect such prior distribution.
(D) The method described in (C) of this subdivision may be
illustrated by the following example:
Example. B was a member of the XYZ Partnership and a participant in
the partnership's profit-sharing plan which was created in 1973. Until
the end of 1977, B's interest in the partnership was less than 10
percent. On January 1, 1978, B obtained an interest in excess of 10
percent in the partnership and continued to participate in the profit-
sharing plan until 1982. During 1982, prior to the time he attained the
age of 59\1/2\ years and during a time when he was not disabled, B, who
had not received any prior plan distributions, withdrew his entire
interest in the profit-sharing plan. At the time his interest was
$15,000, $9,600 contributions and $5,400 increment attributable to the
contributions. The portion of the increment attributable to
contributions while B was an owner-employee is $667.80, determined as
follows:
------------------------------------------------------------------------
A B C
-----------------------------------------
Contribution
Number of weighted for
Contribution years years in
contribution trust (A x
was in trust B)
------------------------------------------------------------------------
1982.......................... $1,000 0 0
1981.......................... 800 1 800
1980.......................... 1,200 2 2,400
1979.......................... 600 3 1,800
1978.......................... 200 4 800
1977.......................... 400 5 2,000
1976.......................... 2,000 6 12,000
1975.......................... 1,000 7 7,000
1974.......................... 1,500 8 12,000
1973.......................... 900 9 8,100
-----------------------------------------
Total................... 9,600 ............ 46,900
------------------------------------------------------------------------
Total weighted contributions as owner-employee (1978-1982) = $5,800.
Total weighted contributions = $46,900.
[GRAPHIC] [TIFF OMITTED] TC14NO91.169
(E)(1) The rules set forth in subdivision (iv)(E)(2) of this
subparagraph shall be used to determine the amounts to which subdivision
(i)(A) of this subparagraph applies in the case of a distribution of
less than the entire balance of the employee's account from a plan in
which he has been covered at different times as owner-employee or as an
employee other than an owner-employee.
(2) Distributions or payments from a plan for any employee taxable
year shall be deemed to be attributable to contributions to the plan,
and increments thereon, in the following order--
(i) Excess contributions, within the meaning of section 4972 (b),
designated as such by the trustee;
(ii) Employee contributions;
(iii) Employer contributions, other than those described in (i), and
the increments in value attributable to the employee's own contributions
and his employer's contributions on the basis of the taxable years of
his employer in succeeding order of time whether or not the employee was
an owner-employee for any such year.
For purposes of (iii) of this subdivision, the time of contributions
made on the basis of any employer taxable year shall take into account
the rule specified in section 404(a)(6), relating to time when
contributions deemed made.
(v) The amounts referred to in subdivision (i)(C) of this
subparagraph are amounts which are received by reason of a distribution
of the owner-employee's entire interest under the provisions of section
401(e)(2)(E), as in effect on September 1, 1974, relating to excess
contributions on behalf of an owner-employee which are willfully made.
Notwithstanding the preceding sentence, an owner-employee's entire
interest in all plans with respect to which he is an owner-employee
(within the meaning of subsections (d)(8)(C) and (e)(2)(E)(ii) of
section 401, as in effect on September 1, 1974) does not include any
distribution or payment attributable to his employer's contributions or
his own contributions made with respect to his employer's taxable years
beginning after December 31, 1975. However, his entire interest in all
plans does include all of the distribution or payment attributable to
his employer's contributions and his own contributions made with respect
to all of his employer's taxable years beginning before January 1, 1976,
if any portion thereof is attributable in whole or
[[Page 279]]
in part to such a willful excess contribution and such entire interest
is received because of a willful excess contribution pursuant to section
401(e)(2)(E)(ii). A distribution or payment is described in the
preceding sentence even though it is received in an owner-employee's
taxable year beginning after December 31, 1975. For purposes of
computing the increments in value attributable to employer taxable years
which begin before January 1, 1976, and such increments attributable to
such years beginning after December 31, 1975, the rules specified in
subdivision (iv)(B), (C), (D), and (E) of this subparagraph shall be
applied to the extent applicable. See Sec. 1.401(e)-4(c) for
transitional rules with respect to contributions described in this
subdivision.
(3)(i) For taxable years of the recipient beginning before January
1, 1976, the tax with respect to amounts to which subparagraph (2) of
this paragraph applies shall be computed under subparagraphs (B), (C),
(D), and (E) of section 72(m)(5) as such subparagraphs were in effect
prior to the amendments made by subsections (g)(1) and (2)(A) of section
2001 of the Employee Retirement Income Security Act of 1974 (88 Stat.
957) except as provided in subdivisions (ii) and (iii) of this
subparagraph (see paragraph (e) of Sec. 1.72-17). For purposes of the
preceding sentence, amounts to which subparagraph (2) of this paragraph
applies in the case of an amount described in section 72(m)(5)(A)(i)
shall be determined under subdivisions (i)(a) and (ii) of Sec. 1.72-
17(e)(1), except as provided in subdivision (ii) of this subparagraph.
For purposes of the first sentence of this subdivision, amounts to which
subparagraph (2) of this paragraph applies in the case of an amount
described in section 72(m)(5)(A)(ii) shall be determined under
subdivisions (i)(b) and (iii) of Sec. 1.72-17(e)(1), except as provided
in subdivision (iii) of this subparagraph.
(ii) For purposes of applying section 72(m)(5)(A)(i), after the
amendment made by section 2001(h)(3) of such Act, and subdivisions
(i)(a) and (ii) of Sec. 1.72-17(e)(1), to a distribution or payment
received in recipient taxable years ending after September 2, 1974, and
beginning before January 1, 1976, with respect to contributions made on
behalf of an owner-employee which were made by him as an owner-employee
(that is, employee contributions within the meaning of section
401(c)(5)(B)) the portion of any distribution or payment attributable to
such contributions shall not include such contributions but shall
include the increments in value attributable to such contributions.
(iii) For purposes of applying section 72(m)(5)(D) and subdivisions
(i)(b) and (iii) of Sec. 1.72-17(e)(1) to recipient taxable years
beginning after December 31, 1973, and beginning before January 1, 1976,
in the case of distributions or payments made after December 31, 1973,
the amounts to which section 402 (a)(2) or 403(a)(2) applies after the
amendments made by section 2005(b) (1) and (2) of such Act (88 Stat. 990
and 991) (which are amounts to which subdivision (i)(b) of Sec. 1.72-
17(e)(1) does not apply) shall be deemed to be the amount which is
treated as a gain from the sale or exchange of a capital asset held for
more than 6 months under either of such sections.
(f) Meaning of disabled. (1) Section 72(m)(7) provides that an
individual shall be considered to be disabled if he is unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or to be of long-continued and indefinite duration. In
determining whether an individual's impairment makes him unable to
engage in any substantial gainful activity, primary consideration shall
be given to the nature and severity of his impairment. Consideration
shall also be given to other factors such as the individual's education,
training, and work experience. The substantial gainful activity to which
section 72(m)(7) refers is the activity, or a comparable activity, in
which the individual customarily engaged prior to the arising of the
disability or prior to retirement if the individual was retired at the
time the disability arose.
(2) Whether or not the impairment in a particular case constitutes a
disability is to be determined with reference to all the facts in the
case. The following are examples of impairments which would ordinarily
be considered
[[Page 280]]
as preventing substantial gainful activity:
(i) Loss of use of two limbs;
(ii) Certain progressive diseases which have resulted in the
physical loss or atrophy of a limb, such as diabetes, multiple
sclerosis, or Buerger's disease;
(iii) Diseases of the heart, lungs, or blood vessels which have
resulted in major loss of heart or lung reserve as evidenced by X-ray,
electrocardiogram, or other objective findings, so that despite medical
treatment breathlessness, pain, or fatigue is produced on slight
exertion, such as walking several blocks, using public transportation,
or doing small chores;
(iv) Cancer which is inoperable and progressive;
(v) Damage to the brain or brain abnormality which has resulted in
severe loss of judgment, intellect, orientation, or memory;
(vi) Mental diseases (e.g. psychosis or severe psychoneurosis)
requiring continued institutionalization or constant supervision of the
individual;
(vii) Loss or diminution of vision to the extent that the affected
individual has a central visual acuity of no better than 20/200 in the
better eye after best correction, or has a limitation in the fields of
vision such that the widest diameter of the visual fields subtends an
angle no greater than 20 degrees;
(viii) Permanent and total loss of speech;
(ix) Total deafness uncorrectible by a hearing aid.
The existence of one or more of the impairments described in this
subparagraph (or of an impairment of greater severity) will not,
however, in and of itself always permit a finding that an individual is
disabled as defined in section 72(m)(7). Any impairment, whether of
lesser or greater severity, must be evaluated in terms of whether it
does in fact prevent the individual from engaging in his customary or
any comparable substantial gainful activity.
(3) In order to meet the requirements of section 72(m)(7), an
impairment must be expected either to continue for a long and indefinite
period or to result in death. Ordinarily, a terminal illness because of
disease or injury would result in disability. The term ``indefinite'' is
used in the sense that it cannot reasonably be anticipated that the
impairment will, in the foreseeable future, be so diminished as no
longer to prevent substantial gainful activity. For example, an
individual who suffers a bone fracture which prevents him from working
for an extended period of time will not be considered disabled, if his
recovery can be expected in the foreseeable future; if the fracture
persistently fails to knit, the individual would ordinarily be
considered disabled.
(4) An impairment which is remediable does not constitute a
disability within the meaning of section 72(m)(7). An individual will
not be deemed disabled if, with reasonable effort and safety to himself,
the impairment can be diminished to the extent that the individual will
not be prevented by the impairment from engaging in his customary or any
comparable substantial gainful activity.
[T.D. 7636, 44 FR 47049, Aug. 10, 1979, as amended by T.D. 8894, 65 FR
46591, July 31, 2000]
Sec. 1.72-18 Treatment of certain total distributions with respect
to self-employed individuals.
(a) In general. The Self-Employed Individuals Tax Retirement Act of
1962 permits self-employed individuals to be treated as employees for
purposes of participation in pension, profit-sharing, and annuity plans
described in sections 401(a) and 403(a). In general, amounts received by
a distributee or payee which are attributable to contributions made on
behalf of a participant while he was self-employed are taxed in the same
manner as amounts which are attributable to contributions made on behalf
of a common-law employee. However, such amounts which are paid in one
taxable year representing the total distributions payable to a
distributee or payee with respect to an employee are not eligible for
the capital gains treatment of section 402(a)(2) or 403(a)(2). This
section sets forth the treatment of such distributions, except where
such a distribution is subject to the penalties of section 72(m)(5) and
paragraph (e) of Sec. 1.72-17.
[[Page 281]]
(b) Distributions to which this section applies. (1)(i) Except as
provided in subparagraphs (2) and (3) of this paragraph, this section
applies to amounts distributed to a distributee in one taxable year of
the distributee in the case of an employees' trust described in section
401(a) which is exempt under section 501(a), or to amounts paid to a
payee in one taxable year of the payee in the case of an annuity plan
described in section 403(a), which constitute the total distributions
payable, or the total amounts payable, to the distributee or payee with
respect to an employee.
(ii) For the total distributions or amounts payable to a distributee
or payee to be considered paid within one taxable year of the
distributee or payee for purposes of this section, all amounts to the
credit of the employee-participant through the end of such taxable year
which are payable to the distributee or payee must be distributed or
paid within such taxable year. Thus, the provisions of this section are
not applicable to a distribution or payment to a distributee or payee if
the trust or plan retains any amounts after the close of such taxable
year which are payable to the same distributee or payee even though the
amounts retained may be attributable to contributions on behalf of the
employee-participant while he was a common-law employee in the business
with respect to which the plan was established.
(iii) For purposes of this section, the total amounts payable to a
distributee or the amounts to the credit of the employee do not include
United States Retirement Plan Bonds held by a trust to the credit of the
employee. Thus, a distribution to a distributee by a qualified trust may
constitute a distribution to which this section applies even though the
trust retains retirement plan bonds registered in the name of the
employee on whose behalf the distribution is made which are to be
distributed to the same distributee. Moreover, the proceeds of a
retirement bond received as part of a distribution which constitutes the
total distributions payable to the distributee are not entitled to the
special tax treatment of this section. See section 405(d) and paragraph
(a)(1) of Sec. 1.405-3.
(iv) If the amounts payable to a distributee from a qualified trust
with respect to an employee-participant includes an annuity contract,
such contract must be distributed along with all other amounts payable
to the distributee in order to have a distribution to which this section
applies. However, the proceeds of an annuity contract received in a
total distribution will not be entitled to the tax treatment of this
section unless the contract is surrendered in the taxable year of the
distributee in which the total distribution was received.
(v) In the case of a qualified annuity plan, the term ``total
amounts'' means all annuities payable to a payee. If more than one
annuity contract is received under the plan by a distributee, this
section shall not apply to an amount received on surrender of any such
contracts unless all contracts under the plan payable to the payee are
surrendered within one taxable year of the payee.
(vi)(a) The provisions of this section are applicable where the
total amounts payable to a distributee or payee are paid within one
taxable year of the distributee or payee whether or not a portion of the
employee-participant's interest which is payable to another distributee
or payee is paid within the same taxable year. However, a distributee or
payee who, in prior taxable years received amounts (except amounts
described in (b) of this subdivision) after the employee-participant
ceases to be eligible for additional contributions to be made on his
behalf, does not receive a distribution or payment to which this section
applies, even though the total amount remaining to be paid to such
distributee or payee with respect to such employee is paid within one
taxable year. On the other hand, a distribution to a distributee or
payee prior to the time that the employee-participant ceases to be
eligible for additional contributions on his behalf does not preclude
the application of this section to a later distribution to the same
distributee or payee.
(b) The receipt of an amount which constitutes--
[[Page 282]]
(1) A payment in the nature of a dividend or similar distribution to
an individual in his capacity as a policyholder of an annuity,
endowment, or life insurance contract, or
(2) A return of excess contributions which were not willfully made,
does not prevent the application of this section to a total distribution
even though the amount is received after the employee-participant ceases
to be eligible for additional contributions and in a taxable year other
than the taxable year in which the total amount is received.
(vii) For purposes of this section, the total amounts payable to a
distributee or payee, or the amounts to the credit of the employee, do
not include any amounts which have been placed in a separate account for
the funding of medical benefits described in section 401(h) as defined
in paragraph (a) of Sec. 1.401-14. Thus, a distribution by a qualified
trust or annuity plan may constitute a distribution to which this
section applies even though amounts attributable to the funding of
section 401(h) medical benefits as defined in paragraph (a) of
Sec. 1.401-14 are not so distributed.
(2) This section shall apply--
(i) Only if the distribution or payment is made--
(a) On account of the employee's death at any time,
(b) After the employee has attained the age 59\1/2\ years, or
(c) After the employee has become disabled; and
(ii) Only to so much of the distribution or payment as is
attributable to contributions made on behalf of an employee while he was
a self-employed individual in the business with respect to which the
plan was established. Any distribution or payment, or any portion
thereof, which is not so attributable shall be subject to the rules of
taxation which apply to any distribution or payment that is attributable
to contributions on behalf of common-law employees.
For taxable years beginning after December 31, 1966, see section
72(m)(7) and paragraph (f) of Sec. 1.72-17 for the meaning of disabled.
For taxable years beginning before January 1, 1967, see section
213(g)(3) for the meaning of disabled. For taxable years beginning after
December 31, 1968, if this section is applicable by reason of the
distribution or payment being made after the employee has become
disabled, then for the taxable year in which the amounts to which this
section applies are distributed or paid, there shall be submitted with
the recipient's income tax return a doctor's statement as to the nature
and effect of the employee's impairment.
(3) This section shall not apply to--
(i) Distributions or payments to which the penalty provisions of
section 72(m)(5) and paragraph (e) of Sec. 1.72-17 apply,
(ii) Distributions or payments from a trust or plan made to or on
behalf of an individual prior to the time such individual ceases to be
eligible for additional contributions (except the contribution
attributable to the last year of service) to be made to the trust or
plan on his behalf as a self-employed individual, and
(iii) Distributions or payments made to the employee from a plan or
trust unless contributions which were allowed as a deduction under
section 404 have been made on behalf of such employee as a self-employed
individual under such trust or plan for 5 or more taxable years (whether
or not consecutive) prior to the taxable year in which such
distributions or payments are made. Distributions or payments to which
this section does not apply by reason of this subdivision are taxed as
otherwise provided in section 72. However, for taxable years beginning
before January 1, 1964, section 72(e)(3), as in effect before such date,
is not applicable. For taxable years beginning after December 31, 1963,
such distributions or payments may be taken into account in computations
under sections 1301 through 1305 (relating to income averaging).
(4) The portion of any distribution or payment attributable to
contributions on behalf of an employee-participant while he was self-
employed includes the contributions made on his behalf while he was
self-employed and the increments in value attributable to such
contributions. Where the amounts to the credit of an employee-
participant
[[Page 283]]
include amounts attributable to contributions on his behalf while he was
a self-employed individual and amounts attributable to contributions on
his behalf while he was a common-law employee, the increment in value
attributable to the employee-participant's interest shall be allocated
to the contributions on his behalf while he was self-employed either by
maintaining a separate account, or an accounting, which reflects the
actual increment attributable to such contributions, or by the method
described in paragraph (e)(1)(iv)(c) of Sec. 1.72-17. However, if the
latter method is used, the numerator of the fraction is the total
contributions made on behalf of the individual as a self-employed
individual, weighted for the number of years that each contribution was
in the plan.
(c) Amounts includible in gross income. (1) Where a total
distribution or payment to which this section applies is made to one
distributee or payee and includes the total amount remaining to the
credit of the employee-participant on whose behalf the distribution or
payment was made, the distributee or payee shall include in gross income
an amount equal to the portion of the distribution or payment which
exceeds the employee-participant's investment in the contract. For
purposes of this paragraph, the investment in the contract shall be
reduced by any amounts previously received from the plan or trust by or
on behalf of the employee-participant which were excludable from gross
income as a return of the investment in the contract.
(2) In the case of a distribution to which this section applies and
which is made to more than one distributee or payee, each element of the
amounts to the credit of an employee-participant shall be allocated
among the several distributees or payees on the basis of the ratio of
the value of the distributee's or payee's distribution or payment to the
total amount to the credit of the employee-participant. The elements to
be so allocated include the investment in the contract, the increments
in value, and the portion of the amounts to the credit of the employee-
participant which is attributable to the contributions on behalf of the
employee-participant while he was a self-employed individual.
(d) Computation of tax. (1) The tax attributable to the amounts to
which this section applies for the taxable year in which such amounts
are received is the greater of--
(i) 5 times the increase in tax which would result from the
inclusion in gross income of the recipient of 20 percent of so much of
the amount so received as is includible in gross income, or
(ii) 5 times the increase which would result if the taxable income
of the recipient for such taxable year equaled 20 percent of the excess
of the aggregate of the amounts so received and includible in gross
income over the amount of the deductions allowed the recipient for such
taxable year under section 151 (relating to deduction for personal
exemptions).
In any case in which the application of subdivision (ii) of this
subparagraph results in an increase in taxable income for any taxable
year, the resulting increase in taxes imposed by section 1 or 3 for such
taxable year shall be reduced by the credit against tax provided by
section 31 (tax withheld on wages), but shall not be reduced by any
other credits against tax.
(2) The application of the rules of this paragraph may be
illustrated by the following example:
Example. B, a sole proprietor and a calendar-year basis taxpayer,
established a qualified pension trust to which he made annual
contributions for 10 years of 10 percent of his earned income. B
withdrew his entire interest in the trust during 1973, for which year,
without regard to the distribution, he had a net operating loss and is
allowed under section 151 a deduction for one personal exemption. At the
time of the withdrawal, B was 64 years old. The amount of the
distribution that is includible in his gross income is $25,750. Because
of B's net operating loss, the tax attributable to the distribution is
determined under the rule of subparagraph (1)(ii) of this paragraph. For
purposes of determining the tax attributable to the $25,750, B's taxable
income for 1973 is treated, under subparagraph (1)(ii) of this
paragraph, as being 20 percent of $25,000 ($25,750 minus $750, the
amount of the deduction allowed for each personal exemption under
section 151 for 1973). Thus, under subparagraph (1) of this paragraph,
the tax attributable to the $25,750 would be 5 times the increase which
would
[[Page 284]]
result if the taxable income of B for the taxable year he received such
amount equaled $5,000. B has had no amounts withheld from wages and thus
is not entitled to reduce the increase in taxes by the credit against
tax provided in section 31 and may not reduce the increase in taxes by
any other credits against tax.
[T.D. 6676, 28 FR 10138, Sept. 17, 1963, as amended by T.D. 6722, 29 FR
5070, Apr. 14, 1964, T.D. 6885, 31 FR 7800, June 2, 1966, T.D. 6985, 33
FR 19812, Dec. 27, 1968; T.D. 7114, 36 FR 9018, May 18, 1971]
Sec. 1.72(e)-1T Treatment of distributions where substantially all
contributions are employee contributions (temporary).
Q-1: How did the Tax Reform Act (TRA) of 1984 change the law with
regard to the treatment of non-annuity distributions (i.e., amounts
distributed prior to the annuity starting date and not received as
annuities) from a qualified plan that is treated as a single contract
under section 72 and under which substantially all of the contributions
are employee contributions?
A-1: (a) Prior to the amendment of section 72(e) by the TRA of 1984,
non-annuity distributions from such a qualified plan generally were
allocable, first, to nondeductible employee contributions and thus were
not includible in gross income. After distributions equaled the balance
of nondeductible employee contributions, further non-annuity
distributions generally were includible in gross income.
(b) Pursuant to section 72(e)(7), as added by the TRA of 1984, non-
annuity distributions from such a qualified plan that are allocable to
investment in the plan after August 13, 1982 (as determined in
accordance with section 72(e)(5)(B)), generally will be treated, first,
as allocable to income and, second, as allocable to nondeductible
employee contributions. Distributions allocable to income are includible
in gross income. Distributions allocable to nondeductible employee
contributions are not includible in gross income.
Q-2: To which qualified plans and contracts does section 72(e)(7)
apply?
A-2: Section 72(e)(7) applies to any plan or contract under which
substantially all of the contributions are employee contributions if--
(a) Such plan is described in section 401(a) and the related trust
or trusts are exempt from tax under section 501(a); or
(b) Such contract is--
(1) Purchased by a trust described in (a) above,
(2) Purchased as part of a plan described in section 403(a), or
(3) Described in section 403(b).
Q-3: What is the definition of a qualified plan or contract under
which substantially all of the contributions are employee contributions?
A-3: (a) A qualified plan or contract under which substantially all
of the contributions are employee contributions is a plan or contract
with respect to which 85 percent or more of the total contributions
during the ``representative period'' are employee contributions. The
``representative period'' means the five-plan-year period preceding the
plan year during which a distribution occurs. However, if less than 85
percent of the total contributions for all plan years during which the
plan or contract is in existence prior to the plan year of distribution
are employee contributions, then the plan or contract is not one with
respect to which substantially all of the contributions are employee
contributions.
(b) For purposes of the 85 percent test, contributions made to a
predecessor plan or contract are aggregated with contributions made to
the plan or contract to which the 85 percent test is being applied (the
successor plan or contract). For purposes of the preceding sentence, a
predecessor plan or contract is a plan or contract the terms of which
are substantially the same as the successor plan or contract.
Q-4: What is the definition of employee contributions for purposes
of section 72(e)(7)?
A-4: For purposes of section 72(e)(7), employee contributions are
those amounts contributed by the employee and those amounts considered
contributed by the employee under section 72(f). For example, amounts
contributed to a section 401(k) qualified cash or deferred arrangement,
pursuant to an employee's election to defer such amounts, are employer
contributions to the extent that such amounts are
[[Page 285]]
not currently includible in gross income. In addition, deductible
employee contributions under section 72(o) are disregarded in their
entirety (i.e., treated as neither employee contributions nor employer
contributions) in determining whether substantially all the
contributions are employee contributions.
Q-5: How is the 85 percent test of section 72(e)(7) applied to a
qualified plan or contract?
A-5: (a) Except as provided in paragraphs (b), (c), and (d), the 85
percent test is applied separately with respect to each contract under
section 72.
(b) If a single qualified plan described in section 401(a) or
section 403(a) comprises more than one contract under section 72,
regardless of whether such plan includes multiple trusts or combinations
of profit-sharing and pension features, these contracts are aggregated
for purposes of applying the 85 percent test. Thus, if substantially all
of the contributions under a qualified plan comprising two contracts
under section 72 are employee contributions, section 72(e)(5)(D) shall
not apply to non-annuity distributions under either of the contracts.
(c) With respect to the plans maintained by the Federal Government
or by instrumentalities of the Federal Government, the 85 percent test
shall be applied by aggregating all such plans. This aggregation rule
applies only to those plans that are actively administered by the
Federal Government or an instrumentality thereof. Thus, if a plan of the
Federal Government is administered by a commercial financial
institution, it would not be aggregated with other plans of the Federal
Government and its instrumentalities for purposes of applying the 85
percent test.
(d) In the case of a contract described in section 403(b), the 85
percent test is applied separately to each such contract.
Q-6: Is a loan from a qualified plan or contract described in
section 72(e)(7) treated as a distribution under section 72(e)(4)(A)?
A-6: Yes. Pursuant to section 72(e)(4)(A), if an employee receives,
either directly or indirectly, any amount as a loan from a qualified
plan or contract described in section 72(e)(7), such amount shall be
treated as a distribution from the plan or contract of an amount not
received as an annuity. Similarly, if an employee assigns or pledges, or
agrees to assign or pledge, any portion of the value of any qualified
plan or contract, such portion shall be treated as a distribution from
the plan or contract of an amount not received as an annuity.
Q-7: Does the five percent penalty for premature distributions from
annuity contracts, as described in section 72(q), apply to distributions
from a qualified plan or contract described in section 72(e)(7)?
A-7: No.
Q-8: When is section 72(e)(7) effective?
A-8: Section 72(e)(7) is effective for amounts received or loans
made on or after October 17, 1984. For purposes of this effective date
provision, loan amounts outstanding on October 16, 1984, which are
renegotiated, extended, renewed, or revised after that date generally
are treated as loans made on the date of the renegotiation, etc.
[T.D. 8073, 51 FR 4314, Feb. 4, 1986; 51 FR 7262, Mar. 3, 1986]
Sec. 1.72(p)-1 Loans treated as distributions.
The questions and answers in this section provide guidance under
section 72(p) pertaining to loans from qualified employer plans
(including government plans and tax-sheltered annuities and employer
plans that were formerly qualified). The examples included in the
questions and answers in this section are based on the assumption that a
bona fide loan is made to a participant from a qualified defined
contribution plan pursuant to an enforceable agreement (in accordance
with paragraph (b) of Q&A-3 of this section), with adequate security and
with an interest rate and repayment terms that are commercially
reasonable. (The particular interest rate used, which is solely for
illustration, is 8.75 percent compounded annually.) In addition, unless
the contrary is specified, it is assumed in the examples that the amount
of the loan does not exceed 50 percent of the participant's
nonforfeitable account balance, the participant
[[Page 286]]
has no other outstanding loan (and had no prior loan) from the plan or
any other plan maintained by the participant's employer or any other
person required to be aggregated with the employer under section 414(b),
(c) or (m), and the loan is not excluded from section 72(p) as a loan
made in the ordinary course of an investment program as described in
Q&A-18 of this section. The regulations and examples in this section do
not provide guidance on whether a loan from a plan would result in a
prohibited transaction under section 4975 of the Internal Revenue Code
or on whether a loan from a plan covered by title I of the Employee
Retirement Income Security Act of 1974 (88 Stat. 829) (ERISA) would be
consistent with the fiduciary standards of ERISA or would result in a
prohibited transaction under section 406 of ERISA. The questions and
answers are as follows:
Q-1: In general, what does section 72(p) provide with respect to
loans from a qualified employer plan?
A-1: (a) Loans. Under section 72(p), an amount received by a
participant or beneficiary as a loan from a qualified employer plan is
treated as having been received as a distribution from the plan (a
deemed distribution), unless the loan satisfies the requirements of Q&A-
3 of this section. For purposes of section 72(p) and this section, a
loan made from a contract that has been purchased under a qualified
employer plan (including a contract that has been distributed to the
participant or beneficiary) is considered a loan made under a qualified
employer plan.
(b) Pledges and assignments. Under section 72(p), if a participant
or beneficiary assigns or pledges (or agrees to assign or pledge) any
portion of his or her interest in a qualified employer plan as security
for a loan, the portion of the individual's interest assigned or pledged
(or subject to an agreement to assign or pledge) is treated as a loan
from the plan to the individual, with the result that such portion is
subject to the deemed distribution rule described in paragraph (a) of
this Q&A-1. For purposes of section 72(p) and this section, any
assignment or pledge of (or agreement to assign or to pledge) any
portion of a participant's or beneficiary's interest in a contract that
has been purchased under a qualified employer plan (including a contract
that has been distributed to the participant or beneficiary) is
considered an assignment or pledge of (or agreement to assign or pledge)
an interest in a qualified employer plan. However, if all or a portion
of a participant's or beneficiary's interest in a qualified employer
plan is pledged or assigned as security for a loan from the plan to the
participant or the beneficiary, only the amount of the loan received by
the participant or the beneficiary, not the amount pledged or assigned,
is treated as a loan.
Q-2: What is a qualified employer plan for purposes of section
72(p)?
A-2: For purposes of section 72(p) and this section, a qualified
employer plan means--
(a) A plan described in section 401(a) which includes a trust exempt
from tax under section 501(a);
(b) An annuity plan described in section 403(a);
(c) A plan under which amounts are contributed by an individual's
employer for an annuity contract described in section 403(b);
(d) Any plan, whether or not qualified, established and maintained
for its employees by the United States, by a State or political
subdivision thereof, or by an agency or instrumentality of the United
States, a State or a political subdivision of a State; or
(e) Any plan which was (or was determined to be) described in
paragraph (a), (b), (c), or (d) of this Q&A-2.
Q-3: What requirements must be satisfied in order for a loan to a
participant or beneficiary from a qualified employer plan not to be a
deemed distribution?
A-3: (a) In general. A loan to a participant or beneficiary from a
qualified employer plan will not be a deemed distribution to the
participant or beneficiary if the loan satisfies the repayment term
requirement of section 72(p)(2)(B), the level amortization requirement
of section 72(p)(2)(C), and the enforceable agreement requirement of
paragraph (b) of this Q&A-3, but only to the extent the loan satisfies
the amount limitations of section 72(p)(2)(A).
[[Page 287]]
(b) Enforceable agreement requirement. A loan does not satisfy the
requirements of this paragraph unless the loan is evidenced by a legally
enforceable agreement (which may include more than one document) and the
terms of the agreement demonstrate compliance with the requirements of
section 72(p)(2) and this section. Thus, the agreement must specify the
amount and date of the loan and the repayment schedule. The agreement
does not have to be signed if the agreement is enforceable under
applicable law without being signed. The agreement must be set forth
either--
(1) In a written paper document; or
(2) In a document that is delivered through an electronic medium
under an electronic system that satisfies the requirements of
Sec. 1.401(a)-21 of this chapter.
Q-4: If a loan from a qualified employer plan to a participant or
beneficiary fails to satisfy the requirements of Q&A-3 of this section,
when does a deemed distribution occur?
A-4: (a) Deemed distribution. For purposes of section 72, a deemed
distribution occurs at the first time that the requirements of Q&A-3 of
this section are not satisfied, in form or in operation. This may occur
at the time the loan is made or at a later date. If the terms of the
loan do not require repayments that satisfy the repayment term
requirement of section 72(p)(2)(B) or the level amortization requirement
of section 72(p)(2)(C), or the loan is not evidenced by an enforceable
agreement satisfying the requirements of paragraph (b) of Q&A-3 of this
section, the entire amount of the loan is a deemed distribution under
section 72(p) at the time the loan is made. If the loan satisfies the
requirements of Q&A-3 of this section except that the amount loaned
exceeds the limitations of section 72(p)(2)(A), the amount of the loan
in excess of the applicable limitation is a deemed distribution under
section 72(p) at the time the loan is made. If the loan initially
satisfies the requirements of section 72(p)(2)(A), (B) and (C) and the
enforceable agreement requirement of paragraph (b) of Q&A-3 of this
section, but payments are not made in accordance with the terms
applicable to the loan, a deemed distribution occurs as a result of the
failure to make such payments. See Q&A-10 of this section regarding when
such a deemed distribution occurs and the amount thereof and Q&A-11 of
this section regarding the tax treatment of a deemed distribution.
(b) Examples. The following examples illustrate the rules in
paragraph (a) of this Q&A-4 and are based upon the assumptions described
in the introductory text of this section:
Example 1. (i) A participant has a nonforfeitable account balance of
$200,000 and receives $70,000 as a loan repayable in level quarterly
installments over five years.
(ii) Under section 72(p), the participant has a deemed distribution
of $20,000 (the excess of $70,000 over $50,000) at the time of the loan,
because the loan exceeds the $50,000 limit in section 72(p)(2)(A)(i).
The remaining $50,000 is not a deemed distribution.
Example 2. (i) A participant with a nonforfeitable account balance
of $30,000 borrows $20,000 as a loan repayable in level monthly
installments over five years.
(ii) Because the amount of the loan is $5,000 more than 50% of the
participant's nonforfeitable account balance, the participant has a
deemed distribution of $5,000 at the time of the loan. The remaining
$15,000 is not a deemed distribution. (Note also that, if the loan is
secured solely by the participant's account balance, the loan may be a
prohibited transaction under section 4975 because the loan may not
satisfy 29 CFR 2550.408b-1(f)(2).)
Example 3. (i) The nonforfeitable account balance of a participant
is $100,000 and a $50,000 loan is made to the participant repayable in
level quarterly installments over seven years. The loan is not eligible
for the section 72(p)(2)(B)(ii) exception for loans used to acquire
certain dwelling units.
(ii) Because the repayment period exceeds the maximum five-year
period in section 72(p)(2)(B)(i), the participant has a deemed
distribution of $50,000 at the time the loan is made.
Example 4. (i) On August 1, 2002, a participant has a nonforfeitable
account balance of $45,000 and borrows $20,000 from a plan to be repaid
over five years in level monthly installments due at the end of each
month. After making monthly payments through July 2003, the participant
fails to make any of the payments due thereafter.
(ii) As a result of the failure to satisfy the requirement that the
loan be repaid in level monthly installments, the participant has a
deemed distribution. See paragraph (c) of Q&A-10 of this section
regarding when such a deemed distribution occurs and the amount thereof.
[[Page 288]]
Q-5: What is a principal residence for purposes of the exception in
section 72(p)(2)(B)(ii) from the requirement that a loan be repaid in
five years?
A-5: Section 72(p)(2)(B)(ii) provides that the requirement in
section 72(p)(2)(B)(i) that a plan loan be repaid within five years does
not apply to a loan used to acquire a dwelling unit which will within a
reasonable time be used as the principal residence of the participant (a
principal residence plan loan). For this purpose, a principal residence
has the same meaning as a principal residence under section 121.
Q-6: In order to satisfy the requirements for a principal residence
plan loan, is a loan required to be secured by the dwelling unit that
will within a reasonable time be used as the principal residence of the
participant?
A-6: A loan is not required to be secured by the dwelling unit that
will within a reasonable time be used as the participant's principal
residence in order to satisfy the requirements for a principal residence
plan loan.
Q-7: What tracing rules apply in determining whether a loan
qualifies as a principal residence plan loan?
A-7: The tracing rules established under section 163(h)(3)(B) apply
in determining whether a loan is treated as for the acquisition of a
principal residence in order to qualify as a principal residence plan
loan.
Q-8: Can a refinancing qualify as a principal residence plan loan?
A-8: (a) Refinancings. In general, no, a refinancing cannot qualify
as a principal residence plan loan. However, a loan from a qualified
employer plan used to repay a loan from a third party will qualify as a
principal residence plan loan if the plan loan qualifies as a principal
residence plan loan without regard to the loan from the third party.
(b) Example. The following example illustrates the rules in
paragraph (a) of this Q&A-8 and is based upon the assumptions described
in the introductory text of this section:
Example. (i) On July 1, 2003, a participant requests a $50,000 plan
loan to be repaid in level monthly installments over 15 years. On August
1, 2003, the participant acquires a principal residence and pays a
portion of the purchase price with a $50,000 bank loan. On September 1,
2003, the plan loans $50,000 to the participant, which the participant
uses to pay the bank loan.
(ii) Because the plan loan satisfies the requirements to qualify as
a principal residence plan loan (taking into account the tracing rules
of section 163(h)(3)(B)), the plan loan qualifies for the exception in
section 72(p)(2)(B)(ii).
Q-9: Does the level amortization requirement of section 72(p)(2)(C)
apply when a participant is on a leave of absence without pay?
A-9: (a) Leave of absence. The level amortization requirement of
section 72(p)(2)(C) does not apply for a period, not longer than one
year (or such longer period as may apply under section 414(u) and
paragraph (b) of this Q&A-9), that a participant is on a bona fide leave
of absence, either without pay from the employer or at a rate of pay
(after applicable employment tax withholdings) that is less than the
amount of the installment payments required under the terms of the loan.
However, the loan (including interest that accrues during the leave of
absence) must be repaid by the latest permissible term of the loan and
the amount of the installments due after the leave ends must not be less
than the amount required under the terms of the original loan.
(b) Military service. In accordance with section 414(u)(4), if a
plan suspends the obligation to repay a loan made to an employee from
the plan for any part of a period during which the employee is
performing service in the uniformed services (as defined in 38 U.S.C.
chapter 43), whether or not qualified military service, such suspension
shall not be taken into account for purposes of section 72(p) or this
section. Thus, if a plan suspends loan repayments for any part of a
period during which the employee is performing military service
described in the preceding sentence, such suspension shall not cause the
loan to be deemed distributed even if the suspension exceeds one year
and even if the term of the loan is extended. However, the loan will not
satisfy the repayment term requirement of section 72(p)(2)(B) and the
level amortization requirement of section 72(p)(2)(C) unless loan
repayments resume upon the completion of such period of military service
and the loan is
[[Page 289]]
repaid thereafter by amortization in substantially level installments
over a period that ends not later than the latest permissible term of
the loan.
(c) Latest permissible term of a loan. For purposes of this Q&A-9,
the latest permissible term of a loan is the latest date permitted under
section 72(p)(2)(B) (i.e., five years from the date of the loan,
assuming that the replacement loan does not qualify for the exception at
section 72(p)(2)(B)(ii) for principal residence plan loans) plus any
additional period of suspension permitted under paragraph (b) of this
Q&A-9.
(d) Examples. The following examples illustrate the rules of this
Q&A-9 and are based upon the assumptions described in the introductory
text of this section:
Example 1. (i) On July 1, 2003, a participant with a nonforfeitable
account balance of $80,000 borrows $40,000 to be repaid in level monthly
installments of $825 each over 5 years. The loan is not a principal
residence plan loan. The participant makes 9 monthly payments and
commences an unpaid leave of absence that lasts for 12 months. The
participant was not performing military service during this period.
Thereafter, the participant resumes active employment and resumes making
repayments on the loan until the loan is repaid. The amount of each
monthly installment is increased to $1,130 in order to repay the loan by
June 30, 2008.
(ii) Because the loan satisfies the requirements of section
72(p)(2), the participant does not have a deemed distribution.
Alternatively, section 72(p)(2) would be satisfied if the participant
continued the monthly installments of $825 after resuming active
employment and on June 30, 2008 repaid the full balance remaining due.
Example 2. (i) The facts are the same as in Example 1, except the
participant was on leave of absence performing service in the uniformed
services (as defined in chapter 43 of title 38, United States Code) for
two years and the rate of interest charged during this period of
military service is reduced to 6 percent compounded annually under 50
App. section 526 (relating to the Soldiers' and Sailors' Civil Relief
Act Amendments of 1942). After the military service ends on April 2,
2006, the participant resumes active employment on April 19, 2006,
continues the monthly installments of $825 thereafter, and on June 30,
2010, repays the full balance remaining due ($6,487).
(ii) Because the loan satisfies the requirements of section 72(p)(2)
and paragraph (b) of this Q&A-9, the participant does not have a deemed
distribution. Alternatively, section 72(p)(2) would also be satisfied if
the amount of each monthly installment after April 19, 2006, is
increased to $930 in order to repay the loan by June 30, 2010 (without
any balance remaining due then).
Q-10: If a participant fails to make the installment payments
required under the terms of a loan that satisfied the requirements of
Q&A-3 of this section when made, when does a deemed distribution occur
and what is the amount of the deemed distribution?
A-10: (a) Timing of deemed distribution. Failure to make any
installment payment when due in accordance with the terms of the loan
violates section 72(p)(2)(C) and, accordingly, results in a deemed
distribution at the time of such failure. However, the plan
administrator may allow a cure period and section 72(p)(2)(C) will not
be considered to have been violated if the installment payment is made
not later than the end of the cure period, which period cannot continue
beyond the last day of the calendar quarter following the calendar
quarter in which the required installment payment was due.
(b) Amount of deemed distribution. If a loan satisfies Q&A-3 of this
section when made, but there is a failure to pay the installment
payments required under the terms of the loan (taking into account any
cure period allowed under paragraph (a) of this Q&A-10), then the amount
of the deemed distribution equals the entire outstanding balance of the
loan (including accrued interest) at the time of such failure.
(c) Example. The following example illustrates the rules in
paragraphs (a) and (b) of this Q&A-10 and is based upon the assumptions
described in the introductory text of this section:
Example. (i) On August 1, 2002, a participant has a nonforfeitable
account balance of $45,000 and borrows $20,000 from a plan to be repaid
over 5 years in level monthly installments due at the end of each month.
After making all monthly payments due through July 31, 2003, the
participant fails to make the payment due on August 31, 2003 or any
other monthly payments due thereafter. The plan administrator allows a
three-month cure period.
(ii) As a result of the failure to satisfy the requirement that the
loan be repaid in level installments pursuant to section 72(p)(2)(C),
the participant has a deemed distribution on November 30, 2003, which is
the last day of the three-month cure period for the August 31, 2003
installment. The amount of the
[[Page 290]]
deemed distribution is $17,157, which is the outstanding balance on the
loan at November 30, 2003. Alternatively, if the plan administrator had
allowed a cure period through the end of the next calendar quarter,
there would be a deemed distribution on December 31, 2003 equal to
$17,282, which is the outstanding balance of the loan at December 31,
2003.
Q-11: Does section 72 apply to a deemed distribution as if it were
an actual distribution?
A-11: (a) Tax basis. If the employee's account includes after-tax
contributions or other investment in the contract under section 72(e),
section 72 applies to a deemed distribution as if it were an actual
distribution, with the result that all or a portion of the deemed
distribution may not be taxable.
(b) Section 72(t) and (m). Section 72(t) (which imposes a 10 percent
tax on certain early distributions) and section 72(m)(5) (which imposes
a separate 10 percent tax on certain amounts received by a 5-percent
owner) apply to a deemed distribution under section 72(p) in the same
manner as if the deemed distribution were an actual distribution.
Q-12: Is a deemed distribution under section 72(p) treated as an
actual distribution for purposes of the qualification requirements of
section 401, the distribution provisions of section 402, the
distribution restrictions of section 401(k)(2)(B) or 403(b)(11), or the
vesting requirements of Sec. 1.411(a)-7(d)(5) (which affects the
application of a graded vesting schedule in cases involving a prior
distribution)?
A-12: No; thus, for example, if a participant in a money purchase
plan who is an active employee has a deemed distribution under section
72(p), the plan will not be considered to have made an in-service
distribution to the participant in violation of the qualification
requirements applicable to money purchase plans. Similarly, the deemed
distribution is not eligible to be rolled over to an eligible retirement
plan and is not considered an impermissible distribution of an amount
attributable to elective contributions in a section 401(k) plan. See
also Sec. 1.402(c)-2, Q&A-4(d) and Sec. 1.401(k)-1(d)(5)(iii).
Q-13: How does a reduction (offset) of an account balance in order
to repay a plan loan differ from a deemed distribution?
A-13: (a) Difference between deemed distribution and plan loan
offset amount. (1) Loans to a participant from a qualified employer plan
can give rise to two types of taxable distributions--
(i) A deemed distribution pursuant to section 72(p); and
(ii) A distribution of an offset amount.
(2) As described in Q&A-4 of this section, a deemed distribution
occurs when the requirements of Q&A-3 of this section are not satisfied,
either when the loan is made or at a later time. A deemed distribution
is treated as a distribution to the participant or beneficiary only for
certain tax purposes and is not a distribution of the accrued benefit. A
distribution of a plan loan offset amount (as defined in Sec. 1.402(c)-
2, Q&A-9(b)) occurs when, under the terms governing a plan loan, the
accrued benefit of the participant or beneficiary is reduced (offset) in
order to repay the loan (including the enforcement of the plan's
security interest in the accrued benefit). A distribution of a plan loan
offset amount could occur in a variety of circumstances, such as where
the terms governing the plan loan require that, in the event of the
participant's request for a distribution, a loan be repaid immediately
or treated as in default.
(b) Plan loan offset. In the event of a plan loan offset, the amount
of the account balance that is offset against the loan is an actual
distribution for purposes of the Internal Revenue Code, not a deemed
distribution under section 72(p). Accordingly, a plan may be prohibited
from making such an offset under the provisions of section 401(a),
401(k)(2)(B) or 403(b)(11) prohibiting or limiting distributions to an
active employee. See Sec. 1.402(c)-2, Q&A-9(c), Example 6. See also Q&A-
19 of this section for rules regarding the treatment of a loan after a
deemed distribution.
Q-14: How is the amount includible in income as a result of a deemed
distribution under section 72(p) required to be reported?
A-14: The amount includible in income as a result of a deemed
distribution under section 72(p) is required to
[[Page 291]]
be reported on Form 1099-R (or any other form prescribed by the
Commissioner).
Q-15: What withholding rules apply to plan loans?
A-15: To the extent that a loan, when made, is a deemed distribution
or an account balance is reduced (offset) to repay a loan, the amount
includible in income is subject to withholding. If a deemed distribution
of a loan or a loan repayment by benefit offset results in income at a
date after the date the loan is made, withholding is required only if a
transfer of cash or property (excluding employer securities) is made to
the participant or beneficiary from the plan at the same time. See
Secs. 35.3405-1, f-4, and 31.3405(c)-1, Q&A-9 and Q&A-11, of this
chapter for further guidance on withholding rules.
Q-16: If a loan fails to satisfy the requirements of Q&A-3 of this
section and is a prohibited transaction under section 4975, is the
deemed distribution of the loan under section 72(p) a correction of the
prohibited transaction?
A-16: No, a deemed distribution is not a correction of a prohibited
transaction under section 4975. See Secs. 141.4975-13 and 53.4941(e)-
1(c)(1) of this chapter for guidance concerning correction of a
prohibited transaction.
Q-17: What are the income tax consequences if an amount is
transferred from a qualified employer plan to a participant or
beneficiary as a loan, but there is an express or tacit understanding
that the loan will not be repaid?
A-17: If there is an express or tacit understanding that the loan
will not be repaid or, for any reason, the transaction does not create a
debtor-creditor relationship or is otherwise not a bona fide loan, then
the amount transferred is treated as an actual distribution from the
plan for purposes of the Internal Revenue Code, and is not treated as a
loan or as a deemed distribution under section 72(p).
Q-18: If a qualified employer plan maintains a program to invest in
residential mortgages, are loans made pursuant to the investment program
subject to section 72(p)?
A-18: (a) Residential mortgage loans made by a plan in the ordinary
course of an investment program are not subject to section 72(p) if the
property acquired with the loans is the primary security for such loans
and the amount loaned does not exceed the fair market value of the
property. An investment program exists only if the plan has established,
in advance of a specific investment under the program, that a certain
percentage or amount of plan assets will be invested in residential
mortgages available to persons purchasing the property who satisfy
commercially customary financial criteria. A loan will not be considered
as made under an investment program if--
(1) Any of the loans made under the program matures upon a
participant's termination from employment;
(2) Any of the loans made under the program is an earmarked asset of
a participant's or beneficiary's individual account in the plan; or
(3) The loans made under the program are made available only to
participants or beneficiaries in the plan.
(b) Paragraph (a)(3) of this Q&A-18 shall not apply to a plan which,
on December 20, 1995, and at all times thereafter, has had in effect a
loan program under which, but for paragraph (a)(3) of this Q&A-18, the
loans comply with the conditions of paragraph (a) of this Q&A-18 to
constitute residential mortgage loans in the ordinary course of an
investment program.
(c) No loan that benefits an officer, director, or owner of the
employer maintaining the plan, or their beneficiaries, will be treated
as made under an investment program.
(d) This section does not provide guidance on whether a residential
mortgage loan made under a plan's investment program would result in a
prohibited transaction under section 4975, or on whether such a loan
made by a plan covered by title I of ERISA would be consistent with the
fiduciary standards of ERISA or would result in a prohibited transaction
under section 406 of ERISA. See 29 CFR 2550.408b-1.
Q-19: If there is a deemed distribution under section 72(p), is the
interest that accrues thereafter on the amount of the deemed
distribution an indirect loan for income tax purposes and what effect
does the deemed distribution have on subsequent loans?
[[Page 292]]
A-19: (a) General rule. Except as provided in paragraph (b) of this
Q&A-19, a deemed distribution of a loan is treated as a distribution for
purposes of section 72. Therefore, a loan that is deemed to be
distributed under section 72(p) ceases to be an outstanding loan for
purposes of section 72, and the interest that accrues thereafter under
the plan on the amount deemed distributed is disregarded for purposes of
applying section 72 to the participant or the beneficiary. Even though
interest continues to accrue on the outstanding loan (and is taken into
account for purposes of determining the tax treatment of any subsequent
loan in accordance with paragraph (b) of this Q&A-19), this additional
interest is not treated as an additional loan (and thus, does not result
in an additional deemed distribution) for purposes of section 72(p).
However, a loan that is deemed distributed under section 72(p) is not
considered distributed for all purposes of the Internal Revenue Code.
See Q&A-11 through Q&A-16 of this section.
(b) Effect on subsequent loans--(1) Application of section
72(p)(2)(A). A loan that is deemed distributed under section 72(p)
(including interest accruing thereafter) and that has not been repaid
(such as by a plan loan offset) is considered outstanding for purposes
of applying section 72(p)(2)(A) to determine the maximum amount of any
subsequent loan to the participant or beneficiary.
(2) Additional security for subsequent loans. If a loan is deemed
distributed to a participant or beneficiary under section 72(p) and has
not been repaid (such as by a plan loan offset), then no payment made
thereafter to the participant or beneficiary is treated as a loan for
purposes of section 72(p)(2) unless the loan otherwise satisfies section
72(p)(2) and this section and either of the following conditions is
satisfied:
(i) There is an arrangement among the plan, the participant or
beneficiary, and the employer, enforceable under applicable law, under
which repayments will be made by payroll withholding. For this purpose,
an arrangement will not fail to be enforceable merely because a party
has the right to revoke the arrangement prospectively.
(ii) The plan receives adequate security from the participant or
beneficiary that is in addition to the participant's or beneficiary's
accrued benefit under the plan.
(3) Condition no longer satisfied. If, following a deemed
distribution that has not been repaid, a payment is made to a
participant or beneficiary that satisfies the conditions in paragraph
(b)(2) of this Q&A-19 for treatment as a plan loan and, subsequently,
before repayment of the second loan, the conditions in paragraph (b)(2)
of this Q&A-19 are no longer satisfied with respect to the second loan
(for example, if the loan recipient revokes consent to payroll
withholding), the amount then outstanding on the second loan is treated
as a deemed distribution under section 72(p).
Q-20: May a participant refinance an outstanding loan or have more
than one loan outstanding from a plan?
A-20: (a) Refinancings and multiple loans--(1) General rule. A
participant who has an outstanding loan that satisfies section 72(p)(2)
and this section may refinance that loan or borrow additional amounts
if, under the facts and circumstances, the loans collectively satisfy
the amount limitations of section 72(p)(2)(A) and the prior loan and the
additional loan each satisfy the requirements of section 72(p)(2)(B) and
(C) and this section. For this purpose, a refinancing includes any
situation in which one loan replaces another loan.
(2) Loans that repay a prior loan and have a later repayment date.
For purposes of section 72(p)(2) and this section (including the amount
limitations of section 72(p)(2)(A)), if a loan that satisfies section
72(p)(2) is replaced by a loan (a replacement loan) and the term of the
replacement loan ends after the latest permissible term of the loan it
replaces (the replaced loan), then the replacement loan and the replaced
loan are both treated as outstanding on the date of the transaction. For
purposes of the preceding sentence, the latest permissible term of the
replaced loan is the latest date permitted under section 72(p)(2)(C)
(i.e., five years from the original date of the
[[Page 293]]
replaced loan, assuming that the replaced loan does not qualify for the
exception at section 72(p)(2)(B)(ii) for principal residence plan loans
and that no additional period of suspension applied to the replaced loan
under Q&A-9 (b) of this section). Thus, for example, if the term of the
replacement loan ends after the latest permissible term of the replaced
loan and the sum of the amount of the replacement loan plus the
outstanding balance of all other loans on the date of the transaction,
including the replaced loan, fails to satisfy the amount limitations of
section 72(p)(2)(A), then the replacement loan results in a deemed
distribution. This paragraph (a)(2) does not apply to a replacement loan
if the terms of the replacement loan would satisfy section 72(p)(2) and
this section determined as if the replacement loan consisted of two
separate loans, the replaced loan (amortized in substantially level
payments over a period ending not later than the last day of the latest
permissible term of the replaced loan) and, to the extent the amount of
the replacement loan exceeds the amount of the replaced loan, a new loan
that is also amortized in substantially level payments over a period
ending not later than the last day of the latest permissible term of the
replacement loan.
(b) Examples. The following examples illustrate the rules of this
Q&A-20 and are based on the assumptions described in the introductory
text of this section:
Example 1. (i) A participant with a vested account balance that
exceeds $100,000 borrows $40,000 from a plan on January 1, 2005, to be
repaid in 20 quarterly installments of $2,491 each. Thus, the term of
the loan ends on December 31, 2009. On January 1, 2006, when the
outstanding balance on the loan is $33,322, the loan is refinanced and
is replaced by a new $40,000 loan from the plan to be repaid in 20
quarterly installments. Under the terms of the refinanced loan, the loan
is to be repaid in level quarterly installments (of $2,491 each) over
the next 20 quarters. Thus, the term of the new loan ends on December
31, 2010.
(ii) Under section 72(p)(2)(A), the amount of the new loan, when
added to the outstanding balance of all other loans from the plan, must
not exceed $50,000 reduced by the excess of the highest outstanding
balance of loans from the plan during the 1-year period ending on
December 31, 2005, over the outstanding balance of loans from the plan
on January 1, 2006, with such outstanding balance to be determined
immediately prior to the new $40,000 loan. Because the term of the new
loan ends later than the term of the loan it replaces, under paragraph
(a)(2) of this Q&A-20, both the new loan and the loan it replaces must
be taken into account for purposes of applying section 72(p)(2),
including the amount limitations in section 72(p)(2)(A). The amount of
the new loan is $40,000, the outstanding balance on January 1, 2006, of
the loan it replaces is $33,322, and the highest outstanding balance of
loans from the plan during 2005 was $40,000. Accordingly, under section
72(p)(2)(A), the sum of the new loan and the outstanding balance on
January 1, 2006, of the loan it replaces must not exceed $50,000 reduced
by $6,678 (the excess of the $40,000 maximum outstanding loan balance
during 2005 over the $33,322 outstanding balance on January 1, 2006,
determined immediately prior to the new loan) and, thus, must not exceed
$43,322. The sum of the new loan ($40,000) and the outstanding balance
on January 1, 2006, of the loan it replaces ($33,322) is $73,322. Since
$73,322 exceeds the $43,322 limit under section 72(p)(2)(A) by $30,000,
there is a deemed distribution of $30,000 on January 1, 2006.
(iii) However, no deemed distribution would occur if, under the
terms of the refinanced loan, the amount of the first 16 installments on
the refinanced loan were equal to $2,907, which is the sum of the $2,491
originally scheduled quarterly installment payment amount under the
first loan, plus $416 (which is the amount required to repay, in level
quarterly installments over 5 years beginning on January 1, 2006, the
excess of the refinanced loan over the January 1, 2006, balance of the
first loan ($40,000 minus $33,322 equals $6,678)), and the amount of the
4 remaining installments was equal to $416. The refinancing would not be
subject to paragraph (a)(2) of this Q&A-20 because the terms of the new
loan would satisfy section 72(p)(2) and this section (including the
substantially level amortization requirements of section 72(p)(2)(B) and
(C)) determined as if the new loan consisted of 2 loans, one of which is
in the amount of the first loan ($33,322) and is amortized in
substantially level payments over a period ending December 31, 2009 (the
last day of the term of the first loan) and the other of which is in the
additional amount ($6,678) borrowed under the new loan. Similarly, the
transaction also would not result in a deemed distribution (and would
not be subject to paragraph (a)(2) of this Q&A-20) if the terms of the
refinanced loan provided for repayments to be made in level quarterly
installments (of $2,990 each) over the next 16 quarters.
Example 2. (i) The facts are the same as in Example 1(i), except
that the applicable interest rate used by the plan when the loan is
[[Page 294]]
refinanced is significantly lower due to a reduction in market rates of
interest and, under the terms of the refinanced loan, the amount of the
first 16 installments on the refinanced loan is equal to $2,848 and the
amount of the next 4 installments on the refinanced loan is equal to
$406. The $2,848 amount is the sum of $2,442 to repay the first loan by
December 31, 2009 (the term of the first loan), plus $406 (which is the
amount to repay, in level quarterly installments over 5 years beginning
on January 1, 2006, the $6,678 excess of the refinanced loan over the
January 1, 2006, balance of the first loan).
(ii) The transaction does not result in a deemed distribution (and
is not subject to paragraph (a)(2) of this Q&A-20) because the terms of
the new loan would satisfy section 72(p)(2) and this section (including
the substantially level amortization requirements of section 72(p)(2)(B)
and (C)) determined as if the new loan consisted of 2 loans, one of
which is in the amount of the first loan ($33,322) and is amortized in
substantially level payments over a period ending December 31, 2009 (the
last day of the term of the first loan), and the other of which is in
the additional amount ($6,678) borrowed under the new loan. The
transaction would also not result in a deemed distribution (and not be
subject to paragraph (a)(2) of this Q&A-20) if the terms of the new loan
provided for repayments to be made in level quarterly installments (of
$2,931 each) over the next 16 quarters.
Q-21: Is a participant's tax basis under the plan increased if the
participant repays the loan after a deemed distribution?
A-21: (a) Repayments after deemed distribution. Yes, if the
participant or beneficiary repays the loan after a deemed distribution
of the loan under section 72(p), then, for purposes of section 72(e),
the participant's or beneficiary's investment in the contract (tax
basis) under the plan increases by the amount of the cash repayments
that the participant or beneficiary makes on the loan after the deemed
distribution. However, loan repayments are not treated as after-tax
contributions for other purposes, including sections 401(m) and
415(c)(2)(B).
(b) Example. The following example illustrates the rules in
paragraph (a) of this Q&A-21 and is based on the assumptions described
in the introductory text of this section:
Example. (i) A participant receives a $20,000 loan on January 1,
2003, to be repaid in 20 quarterly installments of $1,245 each. On
December 31, 2003, the outstanding loan balance ($19,179) is deemed
distributed as a result of a failure to make quarterly installment
payments that were due on September 30, 2003 and December 31, 2003. On
June 30, 2004, the participant repays $5,147 (which is the sum of the
three installment payments that were due on September 30, 2003, December
31, 2003, and March 31, 2004, with interest thereon to June 30, 2004,
plus the installment payment due on June 30, 2004). Thereafter, the
participant resumes making the installment payments of $1,245 from
September 30, 2004 through December 31, 2007. The loan repayments made
after December 31, 2003 through December 31, 2007 total $22,577.
(ii) Because the participant repaid $22,577 after the deemed
distribution that occurred on December 31, 2003, the participant has
investment in the contract (tax basis) equal to $22,577 (14 payments of
$1,245 each plus a single payment of $5,147) as of December 31, 2007.
Q-22: When is the effective date of section 72(p) and the
regulations in this section?
A-22: (a) Statutory effective date. Section 72(p) generally applies
to assignments, pledges, and loans made after August 13, 1982.
(b) Regulatory effective date. This section applies to assignments,
pledges, and loans made on or after January 1, 2002.
(c) Loans made before the regulatory effective date--(1) General
rule. A plan is permitted to apply Q&A-19 and Q&A-21 of this section to
a loan made before the regulatory effective date in paragraph (b) of
this Q&A-22 (and after the statutory effective date in paragraph (a) of
this Q&A-22) if there has not been any deemed distribution of the loan
before the transition date or if the conditions of paragraph (c)(2) of
this Q&A-22 are satisfied with respect to the loan.
(2) Consistency transition rule for certain loans deemed distributed
before the regulatory effective date. (i) The rules in this paragraph
(c)(2) of this Q&A-22 apply to a loan made before the regulatory
effective date in paragraph (b) of this Q&A-22 (and after the statutory
effective date in paragraph (a) of this Q&A-22) if there has been any
deemed distribution of the loan before the transition date.
(ii) The plan is permitted to apply Q&A-19 and Q&A-21 of this
section to the loan beginning on any January 1, but only if the plan
reported, in Box 1
[[Page 295]]
of Form 1099-R, for a taxable year no later than the latest taxable year
that would be permitted under this section (if this section had been in
effect for all loans made after the statutory effective date in
paragraph (a) of this Q&A-22), a gross distribution of an amount at
least equal to the initial default amount. For purposes of this section,
the initial default amount is the amount that would be reported as a
gross distribution under Q&A-4 and Q&A-10 of this section and the
transition date is the January 1 on which a plan begins applying Q&A-19
and Q&A-21 of this section to a loan.
(iii) If a plan applies Q&A-19 and Q&A-21 of this section to such a
loan, then the plan, in its reporting and withholding on or after the
transition date, must not attribute investment in the contract (tax
basis) to the participant or beneficiary based upon the initial default
amount.
(iv) This paragraph (c)(2)(iv) of this Q&A-22 applies if--
(A) The plan attributed investment in the contract (tax basis) to
the participant or beneficiary based on the deemed distribution of the
loan;
(B) The plan subsequently made an actual distribution to the
participant or beneficiary before the transition date; and
(C) Immediately before the transition date, the initial default
amount (or, if less, the amount of the investment in the contract so
attributed) exceeds the participant's or beneficiary's investment in the
contract (tax basis). If this paragraph (c)(2)(iv) of this Q&A-22
applies, the plan must treat the excess (the loan transition amount) as
a loan amount that remains outstanding and must include the excess in
the participant's or beneficiary's income at the time of the first
actual distribution made on or after the transition date.
(3) Examples. The rules in paragraph (c)(2) of this Q&A-22 are
illustrated by the following examples, which are based on the
assumptions described in the introductory text of this section (and,
except as specifically provided in the examples, also assume that no
distributions are made to the participant and that the participant has
no investment in the contract with respect to the plan). Example 1,
Example 2, and Example 4 of this paragraph (c)(3) of this Q&A-22
illustrate the application of the rules in paragraph (c)(2) of this Q&A-
22 to a plan that, before the transition date, did not treat interest
accruing after the initial deemed distribution as resulting in
additional deemed distributions under section 72(p). Example 3 of this
paragraph (c)(3) of this Q&A-22 illustrates the application of the rules
in paragraph (c)(2) of this Q&A-22 to a plan that, before the transition
date, treated interest accruing after the initial deemed distribution as
resulting in additional deemed distributions under section 72(p). The
examples are as follows:
Example 1. (i) In 1998, when a participant's account balance under a
plan is $50,000, the participant receives a loan from the plan. The
participant makes the required repayments until 1999 when there is a
deemed distribution of $20,000 as a result of a failure to repay the
loan. For 1999, as a result of the deemed distribution, the plan
reports, in Box 1 of Form 1099-R, a gross distribution of $20,000 (which
is the initial default amount in accordance with paragraph (c)(2)(ii) of
this Q&A-22) and, in Box 2 of Form 1099-R, a taxable amount of $20,000.
The plan then records an increase in the participant's tax basis for the
same amount ($20,000). Thereafter, the plan disregards, for purposes of
section 72, the interest that accrues on the loan after the 1999 deemed
distribution. Thus, as of December 31, 2001, the total taxable amount
reported by the plan as a result of the deemed distribution is $20,000
and the plan's records show that the participant's tax basis is the same
amount ($20,000). As of January 1, 2002, the plan decides to apply Q&A-
19 of this section to the loan. Accordingly, it reduces the
participant's tax basis by the initial default amount of $20,000, so
that the participant's remaining tax basis in the plan is zero.
Thereafter, the amount of the outstanding loan is not treated as part of
the account balance for purposes of section 72. The participant attains
age 59\1/2\ in the year 2003 and receives a distribution of the full
account balance under the plan consisting of $60,000 in cash and the
loan receivable. At that time, the plan's records reflect an offset of
the loan amount against the loan receivable in the participant's account
and a distribution of $60,000 in cash.
(ii) For the year 2003, the plan must report a gross distribution of
$60,000 in Box 1 of Form 1099-R and a taxable amount of $60,000 in Box 2
of Form 1099-R.
Example 2. (i) The facts are the same as in Example 1, except that
in 1999, immediately prior to the deemed distribution, the participant's
account balance under the plan totals
[[Page 296]]
$50,000 and the participant's tax basis is $10,000. For 1999, the plan
reports, in Box 1 of Form 1099-R, a gross distribution of $20,000 (which
is the initial default amount in accordance with paragraph (c)(2)(ii) of
this Q&A-22) and reports, in Box 2 of Form 1099-R, a taxable amount of
$16,000 (the $20,000 deemed distribution minus $4,000 of tax basis
($10,000 times ($20,000/$50,000)) allocated to the deemed distribution).
The plan then records an increase in tax basis equal to the $20,000
deemed distribution, so that the participant's remaining tax basis as of
December 31, 1999, totals $26,000 ($10,000 minus $4,000 plus $20,000).
Thereafter, the plan disregards, for purposes of section 72, the
interest that accrues on the loan after the 1999 deemed distribution.
Thus, as of December 31, 2001, the total taxable amount reported by the
plan as a result of the deemed distribution is $16,000 and the plan's
records show that the participant's tax basis is $26,000. As of January
1, 2002, the plan decides to apply Q&A-19 of this section to the loan.
Accordingly, it reduces the participant's tax basis by the initial
default amount of $20,000, so that the participant's remaining tax basis
in the plan is $6,000. Thereafter, the amount of the outstanding loan is
not treated as part of the account balance for purposes of section 72.
The participant attains age 59\1/2\ in the year 2003 and receives a
distribution of the full account balance under the plan consisting of
$60,000 in cash and the loan receivable. At that time, the plan's
records reflect an offset of the loan amount against the loan receivable
in the participant's account and a distribution of $60,000 in cash.
(ii) For the year 2003, the plan must report a gross distribution of
$60,000 in Box 1 of Form 1099-R and a taxable amount of $54,000 in Box 2
of Form 1099-R.
Example 3. (i) In 1993, when a participant's account balance in a
plan is $100,000, the participant receives a loan of $50,000 from the
plan. The participant makes the required loan repayments until 1995 when
there is a deemed distribution of $28,919 as a result of a failure to
repay the loan. For 1995, as a result of the deemed distribution, the
plan reports, in Box 1 of Form 1099-R, a gross distribution of $28,919
(which is the initial default amount in accordance with paragraph
(c)(2)(ii) of this Q&A-22) and, in Box 2 of Form 1099-R, a taxable
amount of $28,919. For 1995, the plan also records an increase in the
participant's tax basis for the same amount ($28,919). Each year
thereafter through 2001, the plan reports a gross distribution equal to
the interest accruing that year on the loan balance, reports a taxable
amount equal to the interest accruing that year on the loan balance
reduced by the participant's tax basis allocated to the gross
distribution, and records a net increase in the participant's tax basis
equal to that taxable amount. As of December 31, 2001, the taxable
amount reported by the plan as a result of the loan totals $44,329 and
the plan's records for purposes of section 72 show that the
participant's tax basis totals the same amount ($44,329). As of January
1, 2002, the plan decides to apply Q&A-19 of this section. Accordingly,
it reduces the participant's tax basis by the initial default amount of
$28,919, so that the participant's remaining tax basis in the plan is
$15,410 ($44,329 minus $28,919). Thereafter, the amount of the
outstanding loan is not treated as part of the account balance for
purposes of section 72. The participant attains age 59\1/2\ in the year
2003 and receives a distribution of the full account balance under the
plan consisting of $180,000 in cash and the loan receivable equal to the
$28,919 outstanding loan amount in 1995 plus interest accrued thereafter
to the payment date in 2003. At that time, the plan's records reflect an
offset of the loan amount against the loan receivable in the
participant's account and a distribution of $180,000 in cash.
(ii) For the year 2003, the plan must report a gross distribution of
$180,000 in Box 1 of Form 1099-R and a taxable amount of $164,590 in Box
2 of Form 1099-R ($180,000 minus the remaining tax basis of $15,410).
Example 4. (i) The facts are the same as in Example 1, except that
in 2000, after the deemed distribution, the participant receives a
$10,000 hardship distribution. At the time of the hardship distribution,
the participant's account balance under the plan totals $50,000. For
2000, the plan reports, in Box 1 of Form 1099-R, a gross distribution of
$10,000 and, in Box 2 of Form 1099-R, a taxable amount of $6,000 (the
$10,000 actual distribution minus $4,000 of tax basis ($10,000 times
($20,000/$50,000)) allocated to this actual distribution). The plan then
records a decrease in tax basis equal to $4,000, so that the
participant's remaining tax basis as of December 31, 2000, totals
$16,000 ($20,000 minus $4,000). After 1999, the plan disregards, for
purposes of section 72, the interest that accrues on the loan after the
1999 deemed distribution. Thus, as of December 31, 2001, the total
taxable amount reported by the plan as a result of the deemed
distribution plus the 2000 actual distribution is $26,000 and the plan's
records show that the participant's tax basis is $16,000. As of January
1, 2002, the plan decides to apply Q&A-19 of this section to the loan.
Accordingly, it reduces the participant's tax basis by the initial
default amount of $20,000, so that the participant's remaining tax basis
in the plan is reduced from $16,000 to zero. However, because the
$20,000 initial default amount exceeds $16,000, the plan records a loan
transition amount of $4,000 ($20,000 minus $16,000). Thereafter, the
amount of the outstanding loan, other than the $4,000 loan transition
amount, is not treated as part of the account balance for purposes of
section 72. The participant attains age 59\1/2\ in the year 2003 and
receives a
[[Page 297]]
distribution of the full account balance under the plan consisting of
$60,000 in cash and the loan receivable. At that time, the plan's
records reflect an offset of the loan amount against the loan receivable
in the participant's account and a distribution of $60,000 in cash.
(ii) In accordance with paragraph (c)(2)(iv) of this Q&A-22, the
plan must report in Box 1 of Form 1099-R a gross distribution of $64,000
and in Box 2 of Form 1099-R a taxable amount for the participant for the
year 2003 equal to $64,000 (the sum of the $60,000 paid in the year 2003
plus $4,000 as the loan transition amount).
(d) Effective date for Q&A-19(b)(2) and Q&A-20. Q&A-19(b)(2) and
Q&A-20 of this section apply to assignments, pledges, and loans made on
or after January 1, 2004.
[T.D. 8894, 65 FR 46591, July 31, 2000, as amended by T.D. 9021, 67 FR
71824, Dec. 3, 2002; 68 FR 9532, 9535, Feb. 28, 2003; T.D. 9169, 69 FR
78153, Dec. 29, 2004; T.D. 9294, 71 FR 61883, Oct. 20, 2006]
Sec. 1.73-1 Services of child.
(a) Compensation for personal services of a child shall, regardless
of the provisions of State law relating to who is entitled to the
earnings of the child, and regardless of whether the income is in fact
received by the child, be deemed to be the gross income of the child and
not the gross income of the parent of the child. Such compensation,
therefore, shall be included in the gross income of the child and shall
be reflected in the return rendered by or for such child. The income of
a minor child is not required to be included in the gross income of the
parent for income tax purposes. For requirements for making the return
by such child, or for such child by his guardian, or other person
charged with the care of his person or property, see section 6012.
(b) In the determination of taxable income or adjusted gross income,
as the case may be, all expenditures made by the parent or the child
attributable to amounts which are includible in the gross income of the
child and not of the parent solely by reason of section 73 are deemed to
have been paid or incurred by the child. In such determination, the
child is entitled to take deductions not only for expenditures made on
his behalf by his parent which would be commonly considered as business
expenses, but also for other expenditures such as charitable
contributions made by the parent in the name of the child and out of the
child's earnings.
(c) For purposes of section 73, the term ``parent'' includes any
individual who is entitled to the services of the child by reason of
having parental rights and duties in respect of the child. See section
6201(c) and the regulations in Part 301 of this chapter (Procedure and
Administration) for assessment of tax against the parent in certain
cases.
Sec. 1.74-1 Prizes and awards.
(a) Inclusion in gross income. (1) Section 74(a) requires the
inclusion in gross income of all amounts received as prizes and awards,
unless such prizes or awards qualify as an exclusion from gross income
under subsection (b), or unless such prize or award is a scholarship or
fellowship grant excluded from gross income by section 117. Prizes and
awards which are includible in gross income include (but are not limited
to) amounts received from radio and television giveaway shows, door
prizes, and awards in contests of all types, as well as any prizes and
awards from an employer to an employee in recognition of some
achievement in connection with his employment.
(2) If the prize or award is not made in money but is made in goods
or services, the fair market value of the goods or services is the
amount to be included in income.
(b) Exclusion from gross income. Section 74(b) provides an exclusion
from gross income of any amount received as a prize or award, if (1)
such prize or award was made primarily in recognition of past
achievements of the recipient in religious, charitable, scientific,
educational, artistic, literary, or civic fields; (2) the recipient was
selected without any action on his part to enter the contest or
proceedings; and (3) the recipient is not required to render substantial
future services as a condition to receiving the prize or award. Thus,
such awards as the Nobel prize and the Pulitzer prize would qualify for
the exclusion. Section 74(b) does not exclude prizes or awards from an
employer to an employee in recognition of some
[[Page 298]]
achievement in connection with his employment.
(c) Scholarships and fellowship grants. See section 117 and the
regulations thereunder for provisions relating to scholarships and
fellowship grants.
Sec. 1.75-1 Treatment of bond premiums in case of dealers in
tax-exempt securities.
(a) In general. (1) Section 75 requires certain adjustments to be
made by dealers in securities with respect to premiums paid on municipal
bonds which are held for sale to customers in the ordinary course of the
trade or business. The adjustments depend upon the method of accounting
used by the taxpayer in computing the gross income from the trade or
business. See paragraphs (b) and (c) of this section.
(2) The term ``municipal bond'' under section 75 means any
obligation issued by a government or political subdivision thereof if
the interest on the obligation is excludable from gross income under
section 103. However, such term does not include an obligation--
(i) If the earliest maturity or call date of the obligation is more
than 5 years from the date of acquisition by the taxpayer or the
obligation is sold or otherwise disposed of by the taxpayer within 30
days after the date of acquisition by him, and
(ii) If, in case of an obligation acquired after December 31, 1957,
the amount realized upon its sale (or, in the case of any other
disposition, its fair market value at the time of disposition) is higher
than its adjusted basis.
For purposes of this subparagraph, the amount realized on the sale of
the obligation, or the fair market value of the obligation, shall not
include any amount attributable to interest, and the adjusted basis
shall be computed without regard to any adjustment for amortization of
bond premium required under section 75 and section 1016(a)(6). For
purposes of determining whether the obligation is sold or otherwise
disposed of by the taxpayer within 30 days after the date of its
acquisition by him, it is immaterial whether or not such 30-day period
is entirely within one taxable year.
(3) The term ``cost of securities sold'' means the amount
ascertained by subtracting the inventory value of the closing inventory
of a taxable year from the sum of the inventory value of the opening
inventory for such year and the cost of securities and other property
purchased during such year which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year.
(b) Inventories not valued at cost. (1) In the case of a dealer in
securities who computes gross income from his trade or business by the
use of inventories and values such inventories on any basis other than
cost, the adjustment required by section 75 is, except as provided in
subparagraph (2) of this paragraph, the reduction of ``cost of
securities sold'' by the amount equal to the amortizable bond premium
which would be disallowed as a deduction under section 171(a)(2) with
respect to the municipal bond if the dealer were an ordinary investor
holding such bond. Such amortizable bond premium is computed under
section 171(b) by reference to the cost or other original basis of the
bond on the date of acquisition (determined without regard to section
1013, relating to inventory value on a subsequent date).
(2) With respect to an obligation acquired after December 31, 1957,
which has as its earliest maturity or call date a date more than five
years from the date on which it was acquired by the taxpayer, the
following rules shall apply:
(i) If the taxpayer holds the obligation at the end of the taxable
year, he is not required by section 75 to reduce the ``cost of
securities sold'' for such year with respect to the obligation.
(ii) If the taxpayer sells or otherwise disposes of the obligation
during the taxable year, he shall reduce the ``cost of securities sold''
for the taxable year of the sale or disposition unless he sold the
obligation for more than its adjusted basis or otherwise disposed of it
when its fair market value was more than its adjusted basis. For
purposes of determining whether or not the taxpayer sold the obligation
for more than its adjusted basis, or otherwise disposed of it when its
fair market value was more than its adjusted basis, the
[[Page 299]]
amount realized on the sale of the obligation, or the fair market value
of the obligation, shall not include any amount attributable to
interest, and the adjusted basis shall be computed without regard to any
adjustment for amortization of bond premium required under sections 75
and 1016(a)(6). The amount of the reduction referred to in the first
sentence of this subdivision is the total amount by which the adjusted
basis of the obligation would be required to be reduced under section
1016(a)(5) were the obligation subject to the amortizable bond premium
provisions of section 171; that is, the amount of the amortizable bond
premium attributable to the period during which the obligation was held
which would be disallowed as a deduction under section 171(a)(2) if the
taxpayer were an ordinary investor.
(3) This paragraph may be illustrated by the following examples:
Example 1. X, a dealer in securities who values his inventories on a
basis other than cost, makes his income tax returns on the calendar year
basis. On July 1, 1954, he bought, for $1,060 each, three municipal
bonds (A, B, an C) having a face obligation of $1,000, and maturing on
July 1, 1959. Bond A is sold on December 31, 1954, bond B is sold on
December 31, 1955, and bond C is sold on June 30, 1956. For each bond
the amortizable bond premium to maturity is $60, the period from date of
acquisition to maturity is 60 months, and the amortizable bond premium
per month is $1. The adjustment for each of the years 1954, 1955, and
1956 is as follows:
----------------------------------------------------------------------------------------------------------------
Adjustment to ``cost of
securities sold'' for--
Bond Date acquired Date sold -----------------------------
1954 1955 1956
----------------------------------------------------------------------------------------------------------------
A.................................. July 1, 1954.......... Dec. 31, 1954........ $6
B.................................. July 1, 1954.......... Dec. 31, 1955........ 6 $12
C.................................. July 1, 1954.......... Jun. 30, 1956........ 6 12 $6
-----------------------------
Total....................................................................... 18 24 6
----------------------------------------------------------------------------------------------------------------
Example 2. Y is a dealer in securities who values his inventories on
a basis other than cost. He makes his income tax returns on the calendar
year basis. On January 1, 1958, Y bought five bonds (D, E, F, G, and H)
issued by various municipalities. Each bond has a face obligation of
$1,000 and was purchased for $1,060. The interest on each is excludable
from gross income under section 103. Bonds D, E, and F mature on
December 31, 1962, and bonds G and H mature on December 31, 1967. The
amortizable bond premium per month is $1 with respect to bonds D, E, and
F, and is $.50 with respect to bonds G and H. The following table
indicates the reduction in ``cost of securities sold'' which Y should
make for the years shown, assuming that he sells the bonds on the dates
and for the prices set forth:
----------------------------------------------------------------------------------------------------------------
Adjustment to ``cost of
Sale securities sold'' for--
Bond Date sold price -----------------------------
1958 1959 1960
----------------------------------------------------------------------------------------------------------------
D......................................... Feb. 1, 1959................ $1,090 $12 $1
E......................................... Jan. 30, 1958............... 1,100 None
F......................................... Jan. 30, 1958............... 1,000 1
G......................................... Dec. 31, 1960............... 1,065 None None None
H......................................... Dec. 31, 1960............... 1,050 None None $18
-----------------------------
Total............................................................... ........ 13 1 18
----------------------------------------------------------------------------------------------------------------
An adjustment to ``cost of securities sold'' must be made with respect
to bond D (even though it was ultimately sold at a gain) because the
bond neither had an earliest maturity or call date of more than 5 years
from the date on which Y acquired it, nor was it disposed of within 30
days after such date. An adjustment must be made for the years 1958 and
1959 since section 75(a)(1) requires that an adjustment be made with
respect to such a bond at the close of each taxable year in which it is
held. On the other hand, since bonds E, F, G, and H either were disposed
of within 30 days after the date of such acquisition or had an earliest
maturity or call date more than 5 years from the date of acquisition,
and were acquired after December 31, 1957, it is necessary to determine
whether Y
[[Page 300]]
disposed of them at a loss so as to require an adjustment under section
75. No adjustment is necessary with respect to bonds E and G because
they were sold at a gain. An adjustment to ``cost of securities sold''
is required with respect to bonds F and H because they were sold at a
loss. As in the case of bond D, an adjustment with respect to bond F is
made in 1958 in accordance with section 75(a)(1); however, the
adjustment with respect to bond H is made entirely in 1960, the taxable
year in which Y sold that bond, in accordance with the last sentence of
section 75(a). If Y had acquired bonds before January 1, 1958, it would
be unnecessary to determine whether they were disposed of at a loss
since that factor is significant only with respect to bonds acquired on
or after that date.
(c) Inventories not used or inventories valued at cost. (1) In the
case of a dealer in securities who computes gross income from his trade
or business without the use of inventories or by use of inventories
valued at cost, the adjustment required by section 75 is a reduction of
the adjusted basis of each municipal bond sold or otherwise disposed of
during the taxable year. The amount of such reduction is the total
amount by which the adjusted basis of the bond would be required to be
reduced under section 1016(a)(5) were the bond subject to the
amortizable bond premium provisions of section 171; that is, the amount
of the amortizable bond premium attributable to the period during which
the bond was held which would be disallowed as a deduction under section
171(a)(2) if the taxpayer were an ordinary investor.
(2) Subparagraph (1) of this paragraph may be illustrated by the
following example:
Example. Z, a dealer in securities who values his inventories on the
basis of cost, makes his income tax returns on the calendar year basis.
On January 1, 1954, he buys, for $1,060 each, three municipal bonds (I,
J, and K) having a face obligation of $1,000, and maturing on January 1,
1959. Bond I is sold on December 31, 1954, bond J is sold on June 30,
1955, and bond K is sold on December 31, 1956. For each bond, the
amortizable bond premium to maturity is $60, the period from the date of
acquisition to maturity is 60 months, and the amortizable bond premium
per month is $1.
----------------------------------------------------------------------------------------------------------------
Adjustment for--
Bond Date acquired Date sold -----------------------------
1954 1955 1956
----------------------------------------------------------------------------------------------------------------
I.................................. Jan. 1, 1954 ........ Dec. 31,1954......... $12
J.................................. Jan. 1,1954 ......... June 30,1955......... None $18
K.................................. Jan. 1,1954 ......... Dec. 31,1956......... None None $36
----------------------------------------------------------------------------------------------------------------
(d) Bonds acquired before July 1, 1950. Under section 203(c) of the
Revenue Act of 1950, adjustment is required for a municipal bond
acquired before July 1, 1950, only with respect to taxable years
beginning on or after that date. Accordingly, if the municipal bond was
acquired before July 1, 1950, then for purposes of section 75 the
amortizable bond premium under section 171 must be computed after
adjusting the bond premium to the extent proper to reflect unamortized
bond premium for so much of the holding period (as determined under
section 1223) as precedes the taxable year of the dealer beginning on or
after July 1, 1950. Thus, in example (1) of paragraph (b) and in the
example in paragraph (c) of this section, the first taxable year
beginning on or after July 1, 1950, is, for each dealer, the taxable
year beginning January 1, 1951. If each dealer had purchased for $1,060
on April 1, 1950, a municipal bond having a face obligation of $1,000
and maturing April 1, 1955, and had sold such bond on February 28, 1955,
the adjustment under section 75 would be computed as follows:
------------------------------------------------------------------------
Dealer X Dealer Z
------------------------------------------------------------------------
Bond premium........................................ $60 $60
Adjustment for holding period prior to Jan. 1, 1951. 9 9
-------------------
Amortizable bond premium to maturity, as adjusted... 51 51
Amortizable bond premium per month.................. 1 1
Total adjustments under sec. (o), 1939 Code, for 36 None
years 1951-53......................................
Adjustment under sec. 75 for 1954................... 12 None
Adjustment under sec. 75 for 1955................... 2 50
------------------------------------------------------------------------
[T.D. 6647, 28 FR 3519, Apr. 11, 1963]
[[Page 301]]
Sec. 1.77-1 Election to consider Commodity Credit Corporation loans
as income.
A taxpayer who receives a loan from the Commodity Credit Corporation
may, at his election, include the amount of such loan in his gross
income for the taxable year in which the loan is received. If a taxpayer
makes such an election (or has made such an election under section 123
of the Internal Revenue Code of 1939 or under section 223(d) of the
Revenue Act of 1939 (53 Stat. 897)), then for subsequent taxable years
he shall include in his gross income all amounts received during those
years as loans from the Commodity Credit Corporation, unless he secures
the permission of the Commissioner to change to a different method of
accounting. Application for permission to change such method of
accounting and the basis upon which the return is made shall be filed
with the Commission of Internal Revenue, Washington, D.C. 20224, within
90 days after the beginning of the taxable year to be covered by the
return.
Sec. 1.77-2 Effect of election to consider commodity credit loans
as income.
(a) If a taxpayer elects or has elected under section 77, section
123 of the Internal Revenue Code of 1939, or section 223(d) of the
Revenue Act of 1939 (53 Stat. 897), as amended, to include in his gross
income the amount of a loan from the Commodity Credit Corporation for
the taxable year in which it is received, then--
(1) No part of the amount realized by the Commodity Credit
Corporation upon the sale or other disposition of the commodity pledged
for such loan shall be recognized as income to the taxpayer, unless the
taxpayer receives an amount in addition to that advanced to him as the
loan, in which event such additional amount shall be included in the
gross income of the taxpayer for the taxable year in which it is
received, and
(2) No deductible loss to the taxpayer shall be recognized on
account of any deficiency realized by the Commodity Credit Corporation
on such loan if the taxpayer was relieved from liability for such
deficiency.
(b) The application of paragraph (a) of this section may be
illustrated by the following example:
Example. A, a taxpayer who elected for his taxable year 1952 to
include in gross income amounts received as loans from the Commodity
Credit Corporation, received as loans $500 in 1952, $700 in 1953, and
$900 in 1954. In 1956 all the pledged commodity was sold by the
Commodity Credit Corporation for an amount $100 and $200 less than the
loans with respect to the commodity pledged in 1952 and 1953,
respectively, and for an amount $150 greater than the loan with respect
to the commodity pledged in 1954. A, in making his return for 1956,
shall include in gross income the sum of $150 if it is received during
that year, but will not be allowed a deduction for the deficiencies of
$100 and $200 unless he is required to satisfy such deficiencies and
does satisfy them during that year.
Sec. 1.78-1 Dividends received from certain foreign corporations by
certain domestic corporations choosing the foreign tax credit.
(a) Taxes deemed paid by certain domestic corporations treated as a
section 78 dividend. Any reduction under section 907(a) of the foreign
income taxes deemed to be paid with respect to foreign oil and gas
extraction income does not affect the amount treated as a section 78
dividend. If a domestic corporation chooses to have the benefits of the
foreign tax credit under section 901 for any taxable year, an amount
which is equal to the foreign income taxes deemed to be paid by such
corporation for such year under section 902(a) in accordance with
Secs. 1.902-1 and 1.902-2 and Sec. 1.902(b)(2), or under section
960(a)(1) in accordance with Sec. 1.960-7, shall, to the extent provided
by this section, be treated as a dividend (hereinafter referred to as a
section 78 dividend) received by such domestic corporation from the
foreign corporation described in section 902(a) in accordance with
Secs. 1.902-1 and 1.902-2 or section 960(c)(1) in accordance with
Sec. 1.960-7, as the case may be. A section 78 dividend shall be treated
as a dividend for all purposes of the Code, except that it shall not be
treated as a dividend under section 245, relating to dividends received
from certain foreign corporations, or increase the earnings and profits
of the domestic corporation. For purposes of determining the source of a
section 78 dividend in computing the limitation on
[[Page 302]]
the foreign tax credit under section 904, see Sec. 1.902(h)(1) and the
regulations under section 960. For special rules relating to the
determination of the foreign tax credit under section 902 with respect
to certain minimum distributions received from controlled foreign
corporations and the effect of such rules upon the gross-up under
section 78, see paragraph (c) of Sec. 1.963-4. For rules respecting the
reduction of foreign income taxes under section 6038(b) in applying
section 902(a) in accordance with Secs. 1.902-1 and 1.902-2 or section
960(c)(1) in accordance with Sec. 1.960-7, where there has been a
failure to furnish certain information and for an illustration of the
effect of such reduction upon the amount of a section 78 dividend, see
paragraph (l) of Sec. 1.6038-2.
(b) Certain taxes not treated as a section 78 dividend. Foreign
income taxes deemed paid by a domestic corporation under section 902(a)
in accordance with Secs. 1.902-1 and 1.902-2 or section 960(c)(1) in
accordance with Sec. 1.960-7, shall not, to the extent provided by
paragraph (b) of Sec. 1.960-3, be treated as a section 78 dividend where
such taxes are imposed on certain distributions from the earnings and
profits of a controlled foreign corporation attributable to an amount
which is, or has been, included in gross income of the domestic
corporation under section 951.
(c) United Kingdom income tax included in gross income under treaty.
Any amount of United Kingdom income tax appropriate to a dividend paid
by a corporation which is a resident of the United Kingdom shall not be
treated as a section 78 dividend by a domestic corporation to the extent
that such tax is included in the gross income of such domestic
corporation in accordance with Article XIII (1) of the income tax
convention between the United States and the United Kingdom, as amended
by Article II of the supplementary protocol between such Governments
signed on August 19, 1957 (9 UST 1331). See Sec. 507.117 of this
chapter, relating to credit against United States tax liability for
income tax paid or deemed to have been paid to the United Kingdom.
(d) Taxable year in which section 78 dividend is received. A section
78 dividend shall be considered received in the taxable year of a
domestic corporation in which--
(1) The corporation receives the dividend by reason of which there
are deemed paid under section 902(a) in accordance with Secs. 1.902-1
and 1.902-2 the foreign income taxes which give rise to such section 78
dividend, or
(2) The corporation includes in gross income under section 951(a)
the amounts by reason of which there are deemed paid under section
960(a)(1) in accordance with Sec. 1.960-7 the foreign income taxes which
give rise to such section 78 dividend, notwithstanding that such foreign
income taxes may be carried back or carried over to another taxable year
under section 904(d) and are deemed to be paid or accrued in such other
taxable year.
(e) Effective dates for the application of section 78--(1) In
general. This section shall apply to amounts of foreign income taxes
deemed paid under section 902(a) in accordance with Secs. 1.902-1 and
1.902-2, or under section 960(a)(1) in accordance with Sec. 1.960-7, by
reason of a distribution received by a domestic corporation--
(i) After December 31, 1964, or
(ii) Before January 1, 1965, in a taxable year of such domestic
corporation beginning after December 31, 1962, but only to the extent
that such distribution is made out of the accumulated profits of a
foreign corporation for a taxable year of such foreign corporation
beginning after December 31, 1962.
For special rules relating to determination of accumulated profits for
such purposes, see the regulation under section 902.
(2) Amounts under section 951 treated as distributions. For purposes
of this paragraph, any amount attributable to the earnings and profits
for the taxable year of a first-tier corporation (as defined in
paragraph (b)(1) of Sec. 1.960-1) which is included in the gross income
of a domestic corporation under section 951(a) shall be treated as a
distribution received by such domestic corporation on the last day in
such taxable year on which such first-tier corporation is a controlled
foreign corporation.
(f) Illustrations. The application of this section may be
illustrated by the
[[Page 303]]
examples provided in Sec. 1.902-1, Sec. 1.904-5, Sec. 1.960-3,
Sec. 1.960-4, and Sec. 1.963-4.
[T.D. 6805, 30 FR 3208, Mar. 9, 1965, as amended by T.D. 7120, 36 FR
10859, June 4, 1971; 36 FR 11924, June 23, 1971; T.D. 7481, 42 FR 20130,
Apr. 18, 1977; T.D. 7490; 42 FR 30497, June 15, 1977; 42 FR 32536, June
27, 1977; T.D. 7649, 44 FR 60086, Oct. 18, 1979; T.D. 7961, 49 FR 26225,
June 27, 1984]
Sec. 1.79-0 Group-term life insurance--definitions of certain terms.
The following definitions apply for purposes of section 79, this
section, and Secs. 1.79-1, 1.79-2, and 1.79-3.
Carried directly or indirectly. A policy of life insurance is
``carried directly or indirectly'' by an employer if--
(a) The employer pays any part of the cost of the life insurance
directly or through another person; or
(b) The employer or two or more employers arrange for payment of the
cost of the life insurance by their employees and charge at least one
employee less than the cost of his or her insurance, as determined under
Table I of Sec. 1.79-3(d)(2), and at least one other employee more than
the cost of his or her insurance, determined in the same way.
Employee. An ``employee'' is--
(a) A person who performs services if his or her relationship to the
person for whom services are performed is the legal relationship of
employer and employee described in Sec. 31.3401(c)-1; or
(b) A full-time life insurance salesperson described in section
7701(a)(20); or
(c) A person who formerly performed services as an employee.
A person who formerly performed services as an employee and currently
performs services for the same employer as an independent contractor is
considered an employee only with respect to insurance provided because
of the person's former services as an employee.
Group of employees. A ``group of employees'' is all employees of an
employer, or less than all employees if membership in the group is
determined solely on the basis of age, marital status, or factors
related to employment. Examples of factors related to employment are
membership in a union some or all of whose members are employed by the
employer, duties performed, compensation received, and length of
service. Ordinarily the purchase of something other than group-term life
insurance is not a factor related to employment. For example, if an
employer provides credit life insurance to all employees who purchase
automobiles, these employees are not a ``group of employees'' because
membership is not determined solely on the basis of age, marital status,
or factors related to employment. On the other hand, participation in an
employer's pension, profit-sharing or accident and health plan is
considered a factor related to employment even if employees are required
to contribute to the cost of the plan. Ownership of stock in the
employer corporation is not a factor related to employment. However,
participation in an employer's stock bonus plan may be a factor related
to employment and a ``group of employees'' may include employees who own
stock in the employer corporation.
Permanent benefit. A ``permanent benefit'' is an economic value
extending beyond one policy year (for example, a paid-up or cash
surrender value) that is provided under a life insurance policy.
However, the following features are not permanent benefits:
(a) A right to convert (or continue) life insurance after group life
insurance coverage terminates;
(b) Any other feature that provides no economic benefit (other than
current insurance protection) to the employee; or
(c) A feature under which term life insurance is provided at a level
premium for a period of five years or less.
Policy. The term ``policy'' includes two or more obligations of an
insurer (or its affiliates) that are sold in conjunction. Obligations
that are offered or available to members of a group of employees are
sold in conjunction if they are offered or available because of the
employment relationship. The actuarial sufficiency of the premium
charged for each obligation is not taken into account in determining
whether the obligations are sold in conjunction. In addition,
obligations may be sold in conjunction even if the obligations are
contained in separate documents, each document is filed with and
approved by the applicable state
[[Page 304]]
insurance commission, or each obligation is independent of any other
obligation. Thus, a group of individual contracts under which life
insurance is provided to a group of employees may be a policy.
Similarly, two benefits provided to a group of employees, one term life
insurance and the other a permanent benefit, may be a policy, even if
one of the benefits is provided only to employees who decline the other
benefit. However, an employer may elect to treat two or more obligations
each of which provides no permanent benefits as separate policies if the
premiums are properly allocated among such policies. An employer also
may elect to treat an obligation which provides permanent benefits as a
separate policy if--
(a) The insurer sells the obligation directly to the employee who
pays the full cost thereof;
(b) The participation of the employer with respect to sales of the
obligation to employees is limited to selection of the insurer and the
type of coverage and to sales assistance activities such as providing
employee lists to the insurer, permitting the insurer to use the
employer's premises for solicitation, and collecting premiums through
payroll deduction;
(c) The insurer sells the obligation on the same terms and in
substantial amounts to individuals who do not purchase (and whose
employers do not purchase) any other obligation from the insurer; and
(d) No employer-provided benefit is conditioned on purchase of the
obligation.
[T.D. 7623, 44 FR 28797, May 17, 1979, as amended by T.D. 7917, 48 FR
45762, Oct. 7, 1983]
Sec. 1.79-1 Group-term life insurance--general rules.
(a) What is group-term life insurance? Life insurance is not group-
term life insurance for purposes of section 79 unless it meets the
following conditions:
(1) It provides a general death benefit that is excludable from
gross income under section 101(a).
(2) It is provided to a group of employees.
(3) It is provided under a policy carried directly or indirectly by
the employer.
(4) The amount of insurance provided to each employee is computed
under a formula that precludes individual selection. This formula must
be based on factors such as age, years of service, compensation, or
position. This condition may be satisfied even if the amount of
insurance provided is determined under a limited number of alternative
schedules that are based on the amount each employee elects to
contribute. However, the amount of insurance provided under each
schedule must be computed under a formula that precludes individual
selection.
(b) May group-term life insurance be combined with other benefits?
No part of the life insurance provided under a policy that provides a
permanent benefit is group-term life insurance unless--
(1) The policy or the employer designates in writing the part of the
death benefit provided to each employee that is group-term life
insurance; and
(2) The part of the death benefit that is provided to an employee
and designated as the group-term life insurance benefit for any policy
year is not less than the difference between the total death benefit
provided under the policy and the employee's deemed death benefit (DDB)
at the end of the policy year determined under paragraph (d)(3) of this
section.
(c) May a group include fewer than 10 employees? (1) As a general
rule, life insurance provided to a group of employees cannot qualify as
group-term life insurance for purposes of section 79 unless, at some
time during the calendar year, it is provided to at least 10 full-time
employees who are members of the group of employees. For purposes of
this rule, all life insurance provided under policies carried directly
or indirectly by the employer is taken into account in determining the
number of employees to whom life insurance is provided.
(2) The general rule of paragraph (c)(1) of this section does not
apply if the following conditions are met:
(i) The insurance is provided to all full-time employees of the
employer or, if evidence of insurability affects eligibility, to all
full-time employees who
[[Page 305]]
provide evidence of insurability satisfactory to the insurer.
(ii) The amount of insurance provided is computed either as a
uniform percentage of compensation or on the basis of coverage brackets
established by the insurer. However, the amount computed under either
method may be reduced in the case of employees who do not provide
evidence of insurability satisfactory to the insurer. In general, no
bracket may exceed 2\1/2\ times the next lower bracket and the lowest
bracket must be at least 10 percent of the highest bracket. However, the
insurer may establish a separate schedule of coverage brackets for
employees who are over age 65, but no bracket in the over-65 schedule
may exceed 2\1/2\ times the next lower bracket and the lowest bracket in
the over-65 schedule must be at least 10 percent of the highest bracket
in the basic schedule.
(iii) Evidence of insurability affecting employee's eligibility for
insurance or the amount of insurance provided to that employee is
limited to a medical questionnaire completed by the employee that does
not require a physical examination.
(3) The general rule of paragraph (c)(1) of this section does not
apply if the following conditions are met:
(i) The insurance is provided under a common plan to the employees
of two or more unrelated employers.
(ii) The insurance is restricted to, but mandatory for, all
employees of the employer who belong to or are represented by an
organization (such as a union) that carries on substantial activities in
addition to obtaining insurance.
(iii) Evidence of insurability does not affect an employee's
eligibility for insurance or the amount of insurance provided to that
employee.
(4) For purposes of paragraph (c) (2) and (3) of this section,
employees are not taken into account if they are denied insurance for
the following reasons:
(i) They are not eligible for insurance under the terms of the
policy because they have not been employed for a waiting period,
specified in the policy, which does not exceed six months.
(ii) They are part-time employees. Employees whose customary
employment is for not more than 20 hours in any week, or 5 months in any
calendar year, are presumed to be part-time employees.
(iii) They have reached the age of 65.
(5) For purposes of paragraph (c) (1) and (2) of this section,
insurance is considered to be provided to an employee who elects not to
receive insurance unless, in order to receive the insurance, the
employee is required to contribute to the cost of benefits other than
term life insurance. Thus, if an employee could receive term life
insurance by contributing to its cost, the employee is taken into
account in determining whether the insurance is provided to 10 or more
employees even if such employee elects not to receive the insurance.
However, an employee who must contribute to the cost of permanent
benefits to obtain term life insurance is not taken into account in
determining whether the term life insurance is provided to 10 or more
employees unless the term life insurance is actually provided to such
employee.
(d) How much must an employee receiving permanent benefits include
in income?--(1) In general. If an insurance policy that meets the
requirements of this section provides permanent benefits to an employee,
the cost of the permanent benefits reduced by the amount paid for
permanent benefits by the employee is included in the employee's income.
The cost of the permanent benefits is determined under the formula in
paragraph (d)(2) of this section.
(2) Formula for determining cost of the permanent benefits. In each
policy year the cost of the permanent benefits for any particular
employee must be no less than:
X(DDB2-DDB1)
where
DDB2 is the employee's deemed death benefit at the end of the
policy year:
DDB1 is the employee's deemed death benefit at the end of the
preceding policy year; and
X is the net single premium for insurance (the premium for one dollar of
paid-up whole-life insurance) at the employee's attained age
at the beginning of the policy year.
(3) Formula for determining deemed death benefit. The deemed death
benefit
[[Page 306]]
(DDB) at the end of any policy year for any particular employee is equal
to--
R/Y
Where--
R is the net level premium reserve at the end of that policy year for
all benefits provided to the employee by the policy or, if
greater, the fair market value of the policy at the end of
that policy year; and
Y is the net single premium for insurance (the premium for one dollar of
paid-up, whole life insurance) at the employee's age at the
end of that policy year.
(4) Mortality tables and interest rates used. For purposes of
paragraph (d) (2) and (3) of this section, the net level premium reserve
(R) and the net single premium (X or Y) shall be based on the 1958 CSO
Mortality Table and 4 percent interest.
(5) Dividends. If an insurance policy that meets the requirements of
this section provides permanent benefits, part or all of the dividends
under the policy may be includible in the employee's income. If the
employee pays nothing for the permanent benefits, all dividends under
the policy that are actually or constructively received by the employee
are includible in the employee's income. In all other cases, the amount
of dividends included in the employee's income is equal to:
(D + C)-(PI + DI + AP)
where
D is the total amount of dividends actually or constructively received
under the policy by the employee in the current and all
preceding taxable years of the employee;
C is the total cost of the permanent benefits for the current and all
preceding taxable years of the employee determined under the
formulas in paragraph (d) (2) and (6) of this section:
PI is the total amount of premium included in the employee's income
under paragraph (d)(1) of this section for the current and all
preceding taxable years of the employee;
DI is the total amount of dividends included in the employee's income
under this paragraph (d)(5) in all preceding taxable years of
the employee; and
AP is the total amount paid for permanent benefits by the employee in
the current and all preceding taxable years of the employee.
(6) Different policy and taxable years. (i) If a policy year begins
in one employee taxable year and ends in another employee taxable year,
the cost of the permanent benefits, determined under the formula in
paragraph (d)(2) of this section, is allocated between the employee
taxable years.
(ii) The cost of permanent benefits for a policy year is allocated
first to the employee taxable year in which the policy year begins. The
cost of permanent benefits allocated to that policy year is equal to:
F x C
where
F is the fraction of the premium for that policy year that is paid on or
before the last day of the employee taxable year; and
C is the cost of permanent benefits for the policy year determined under
the formula in paragraph (d)(2) of this section.
(iii) Any part of the cost of permanent benefits that is not
allocated to the employee taxable year in which the policy year begins
is allocated to the subsequent employee taxable year.
(iv) The cost of permanent benefits for an employee taxable year is
the sum of the costs of permanent benefits allocated to that year under
paragraph (d)(6) (ii) and (iii) of this section.
(7) Example. The provisions of this paragraph may be illustrated by
the following example:
Example. An employer provides insurance to employee A under a policy
that meets the requirements of this section. Under the policy, A, who is
47 years old, received $70,000 of group-term life insurance and elects
to receive a permanent benefit under the policy. A pays $2 for each
$1,000 of group-term life insurance through payroll deductions and the
employer pays the remainder of the premium for the group-term life
insurance. The employer also pays one half of the premium specified in
the policy for the permanent benefit. A pays the other half of the
premium for the permanent benefit through payroll deductions. The policy
specifies that the annual premium paid for the permanent benefit is
$300. However, the amount of premium allocated to the permanent benefit
by the formula in paragraph (d)(2) of this section is $350. A is a
calendar year taxpayer; the policy year begins January 1. In year 2000,
$200 is includible in A's income because of insurance provided by the
employer. This amount is computed as follows:
(1) Cost of permanent benefits................................ $350
(2) Amounts considered paid by A for permanent benefits (\1/2\ 150
x $300)....................................................
(3) Line (1) minus line (2)................................... 200
[[Page 307]]
(4) Cost of $70,000 of group-term life insurance under Table I 126
of Sec. 1.79-3..............................................
(5) Cost of $50,000 of group-term life insurance under Table I 90
of Sec. 1.79-3..............................................
(6) Cost of group-term insurance in excess of $50,000 (line 36
(4) minus line(5))...........................................
(7) Amount considered paid by A for group-term life insurance 140
(70 x $2)..................................................
(8) Line (6) minus line (7) (but not less than 0)............. 0
(9) Amount includible in income (line (3) plus line (8))...... 200
(e) What is the effect of State law limits? Section 79 does not
apply to life insurance in excess of the limits under applicable state
law on the amount of life insurance that can be provided to an employee
under a single contract of group-term life insurance.
(f) Cross references. (1) See section 79(b) and Sec. 1.79-2 for
rules relating to group-term life insurance provided to certain retired
individuals.
(2) See section 61(a) and the regulations thereunder for rules
relating to life insurance not meeting the requirements of section 79,
this section, or Sec. 1.79-2, such as insurance provided on the life of
a non-employee (for example, an employee's spouse), insurance not
provided as compensation for personal services performed as an employee,
insurance not provided under a policy carried directly or indirectly by
the employer, or permanent benefits.
(3) See sections 106 and Sec. 1.106-1 for rules relating to certain
insurance that does not provide general death benefits, such as travel
insurance or accident and health insurance (including amounts payable
under a double indemnity clause or rider).
(g) [Reserved]
(h) Effective date. Section 1.79-0 applies to insurance provided in
employee taxable years beginning on or after January 1, 1977 (except as
provided in 26 CFR 1.79-1(g) (revised as of April 1, 1983) with respect
to insurance provided in employee taxable years beginning in 1977).
Sections 1.79-1 through 1.79-3 apply to insurance provided in employee
taxable years beginning after December 31, 1982. See 26 CFR 1.79-1
through 1.79-3 (revised as of April 1, 1983) for rules applicable to
insurance provided in employee taxable years beginning before January 1,
1983.
(Secs. 79(c) and 7805 of the Internal Revenue Code of 1954 (78 Stat. 36,
26 U.S.C. 79(c); 68A Stat. 917, 26 U.S.C. 7805))
[T.D. 7623, 44 FR 28797, May 17, 1979, as amended by T.D. 7917, 48 FR
45762, Oct. 7, 1983; T.D. 7924, 48 FR 54595, Dec. 6, 1983; T.D. 8821, 64
FR 29790, June 3, 1999; T.D. 9223, 70 FR 50971, Aug. 29, 2005]
Sec. 1.79-2 Exceptions to the rule of inclusion.
(a) In general. (1) Section 79(b) provides exceptions for the cost
of group-term life insurance provided under certain policies otherwise
described in section 79(a). The policy or policies of group-term life
insurance which are described in section 79(a) but which qualify for one
of the exceptions set forth in section 79(b) are described in paragraphs
(b) through (d) of this section. Paragraph (b) of this section discusses
the exception provided in section 79(b) (1); paragraph (c) of this
section discusses the exception provided in section 79(b)(2); and
paragraph (d) of this section discusses the exception provided in
section 79(b)(3).
(2)(i) If a policy of group-term life insurance qualifies for an
exception provided by section 79(b), then the amount equal to the cost
of such insurance is excluded from the application of the provisions of
section 79(a).
(ii) If a policy, or portion of a policy of group-term life
insurance qualifies for an exception provided by section 79(b), the
amount (if any) paid by the employee toward the purchase of such
insurance is not to be taken into account as an amount referred to in
section 79 (a)(2). In the case of a policy or policies of group-term
life insurance which qualify for an exception provided by section 79(b)
(1) or (3), the amount paid by the employee which is not to be taken
into account as an amount referred to in section 79(a) (2) is the amount
paid by the employee for the particular policy or policies of group-term
life insurance which qualify for an exception provided under such
section. If the exception provided in section 79(b)(2) is applicable
only to a portion of the group-term life insurance
[[Page 308]]
on the employee's life, the amount considered to be paid by the employee
toward the purchase of such portion is the amount equal to the excess of
the cost of such portion of the insurance over the amount otherwise
includible in the employee's gross income with respect to the group-term
life insurance on his life carried directly or indirectly by such
employer.
(iii) The rules of this subparagraph may be illustrated by the
following example:
Example. A is an employee of X Corporation and is also an employee
of Y Corporation, a subsidiary of X Corporation. A is provided, under a
separate plan arranged by each of his employers, group-term life
insurance on his life. During his taxable year, under the group-term
life insurance plan of X Corporation, A is provided $60,000 of group-
term life insurance on his life, and A pays $360.00 toward the purchase
of such insurance. Under the group-term life insurance plan of Y
Corporation, A is provided $65,000 of group-term life insurance on his
life, but does not pay any part of the cost of such insurance. At the
beginning of his taxable year, A terminates his employment with the X
Corporation after he has reached the retirement age with respect to such
employer, and the policy carried by the X Corporation qualifies for the
exception provided by section 79(b)(1). For that taxable year, the cost
of the group-term life insurance on A's life which is provided under the
plan of X Corporation is not taken into account in determining the
amount includible in A's gross income under section 79(a), and A may not
take into account as an amount described in section 79(a)(2) the $360.00
he pays toward the purchase of such insurance.
(b) Retired and disabled employees--(1) In general. Section 79(b)(1)
provides an exception for the cost of group-term life insurance on the
life of an individual which is provided under a policy or policies
otherwise described in section 79(a) if the individual has terminated
his employment (as defined in subparagraph (2) of this paragraph) with
such employer and either has reached the retirement age with respect to
such employer (as defined in subparagraph (3) of this paragraph), or has
become disabled (as defined in subparagraph (4)(i) of this paragraph).
If an individual who has terminated his employment attains retirement
age or has become disabled during his taxable year, or if an employee
who has attained retirement age or has become disabled terminates his
employment during the taxable year, the exception provided by section
79(b)(1) applies only to the portion of the cost of group-term life
insurance which is provided subsequent to the happening of the last
event which qualifies the policy of insurance on the employee's life for
the exception provided in such section.
(2) Termination of employment. For purposes of section 79(b)(1), an
individual has terminated his employment with an employer providing such
individual group-term life insurance when such individual no longer
renders services to that employer as an employee of such employer.
(3) Retirement age. For purposes of section 79(b)(1) and this
section, the meaning of the term ``retirement age'' is determined in
accordance with the following rules--
(i)(a) If the employee is covered under a written pension or annuity
plan of the employer providing such individual group-term life insurance
on his life (whether or not such plan is qualified under section 401(a)
or 403(a)), then his retirement age shall be considered to be the
earlier of--
(1) The earliest age indicated by such plan at which an active
employee has the right (or an inactive individual would have the right
had he continued in employment) to retire without disability and without
the consent of his employer and receive immediate retirement benefits
computed at either the full rate or a rate proportionate to completed
service as set forth in the normal retirement formula of the plan, i.e.,
without actuarial or similar reduction because of retirement before some
later specified age, or
(2) The age at which it has been the practice of the employer to
terminate, due to age, the services of the class of employees to which
he last belonged.
(b) For purposes of (a) of this subdivision, if an employee is
covered under more than one pension or annuity plan of the employer, his
retirement age shall be determined with regard to that
[[Page 309]]
plan which covers that class of employees of the employer to which the
employee last belonged. If the class of employees to which the employee
last belonged is covered under more than one pension or annuity plan,
then the employee's retirement age shall be determined with regard to
that plan which covers the greatest number of the employer's employees.
(ii) In the absence of a written employee's pension or annuity plan
described in subdivision (i) of this subparagraph, retirement age is the
age, if any, at which it has been the practice of the employer to
terminate, due to age, the services of the class of employees to which
the particular employee last belonged, provided such age is reasonable
in view of all the pertinent facts and circumstances.
(iii) If neither subdivision (i) or (ii) of this subparagraph
applies, the retirement age is considered to be age 65.
(4) Disabled. (i) For taxable years beginning after December 31,
1966, an individual is considered disabled for purposes of section
79(b)(1) and subparagraph (1) of this paragraph if he is disabled within
the meaning of section 72(m)(7) and paragraph (f) of Sec. 1.72-17. For
taxable years beginning before January 1, 1967, an individual is
considered disabled for purposes of section 79(b)(1) and subparagraph
(1) of this paragraph if he is disabled within the meaning of section
213(g)(3), relating to the meaning of disabled, but the determination of
the individual's status shall be made without regard to the provisions
of section 213(g)(4), relating to the determination of status.
(ii)(a) In any taxable year in which an individual seeks to apply
the exception set forth in section 79(b)(1) by reason of his being
disabled within the meaning of subdivision (i) of this subparagraph, and
in which the aggregate amount of insurance on the individual's life
subject to the rule of inclusion set forth in section 79(a), but
determined without regard to the amount of any insurance subject to any
exception set forth in section 79(b), is greater than $50,000 of such
insurance, the substantiation required by (b) or (c) of this subdivision
must be submitted with the individual's tax return.
(b) For the first taxable year for which the individual seeks to
apply the exception set forth in section 79(b)(1) by reason of his being
disabled within the meaning of subdivision (i) of this subparagraph,
there must be submitted with his income tax return a doctor's statement
as to his impairment. There must also be submitted with the return a
statement by the individual with respect to the effect of the impairment
upon his substantial gainful activity, and the date such impairment
occurred. For subsequent taxable years, the taxpayer may, in lieu of
such statements, submit a statement declaring the continued existence
(without substantial diminution) of the impairment and its continued
effect upon his substantial gainful activity.
(c) In lieu of the substantiation required to be submitted by (b) of
this subdivision for the taxable year, the individual may submit a
signed statement issued to him by the insurer to the effect that the
individual is disabled within the meaning of subdivision (i) of this
paragraph. Such statement must set forth the basis for the insurer's
determination that the individual was so disabled, and, for the first
taxable year in which the individual is so disabled, the date such
disability occurred.
(c) Employer or charity a beneficiary--(1) General rule. Section
79(b)(2) provides an exception with respect to the amounts referred to
in section 79 (a) for the cost of any portion of the group-term life
insurance on the life of an employee provided during part or all of the
taxable year of the employee under which the employer is directly or
indirectly the beneficiary, or under which a person described in section
170(c) (relating to definition of charitable contributions) is the sole
beneficiary, for the entire period during such taxable year for which
the employee receives such insurance.
(2) Employer is a beneficiary. For purposes of section 79(b)(2) and
subparagraph (1) of this paragraph, the determination of whether the
employer is directly or indirectly the beneficiary under a policy or
policies of group-term life insurance depends upon the facts and
circumstances of the particular case. Such determination is not
[[Page 310]]
made solely with regard to whether the employer possesses all the
incidents of ownership in the policy. Thus, for example, if the employer
is the nominal beneficiary under a policy of group-term life insurance
on the life of his employee but there is an arrangement whereby the
employer is required to pay over all (or a portion) of the proceeds of
such policy to the employee's estate or his beneficiary, the employer is
not considered a beneficiary under such policy (or such portion of the
policy).
(3) Charity a beneficiary. (i) For purposes of section 79(b)(2) and
subparagraph (1) of this paragraph, a person described in section 170(c)
is a beneficiary under a policy providing group-term life insurance if
such person is designated the beneficiary under the policy by any
assignment or designation of beneficiary under the policy which, under
the law of the jurisdiction which is applicable to the policy, has the
effect of making such person the beneficiary under such policy (whether
or not such designation is revocable during the taxable year). Such a
designation may be made by the employee with respect to any portion of
the group-term life insurance on his life. However, no deduction is
allowed under section 170, relating to charitable, etc., contributions
and gifts, with respect to any such assignment or designation.
(ii) A person described in section 170(c) must be designated the
sole beneficiary under the policy or portion of the policy. Such
requirement is satisfied if the person described in section 170(c) is
the beneficiary under such policy or portion of the policy, and there is
no contingent or similar beneficiary under such policy or such portion
other than a person described in section 170(c). A general ``preference
beneficiary clause'' in a policy governing payment where there is no
designated beneficiary in existence at the death of the employee will
not of itself be considered to create a contingent or similar
beneficiary. A person described in section 170(c) may be designated the
beneficiary under a portion of the policy if such person is designated
the sole beneficiary under a beneficiary designation which is expressed,
for example, as a fraction of the amount of insurance on the insured's
life.
(iii) If a person described in section 170(c) is designated, before
May 1, 1964, the beneficiary under the policy (or portion thereof) and
such person remains the beneficiary for the period beginning May 1,
1964, and ending with the close of the first taxable year of the
employee ending after April 30, 1964, such person shall be treated as
the beneficiary under the policy (or the portion thereof) for the period
beginning January 1, 1964, and ending April 30, 1964.
(d) Insurance contracts purchased under qualified employee plans.
(1) Section 79(b)(3) provides an exception with respect to the cost of
any group-term life insurance which is provided under a life insurance
contract purchased as a part of a plan described in section 403(a), or
purchased by a trust described in section 401(a) which is exempt from
tax under section 501(a) if the proceeds of such contract are payable
directly or indirectly to a participant in such trust or to a
beneficiary of such participant. The provisions of section 72(m)(3) and
Sec. 1.72-16 apply to the cost of such group-term life insurance, and,
therefore, no part of such cost is excluded from the gross income of the
employee by reason of the provisions of section 79.
(2) Whether the life insurance protection on an employee's life is
provided under a qualified employee plan referred to in subparagraph (1)
of this paragraph depends upon the provisions of such plan. In
determining whether a pension, profit-sharing, stock bonus, or annuity
plan satisfies the requirements for qualification set forth in sections
401(a) or 403(a), only group-term life insurance which is provided under
such plan is taken into account.
[T.D. 6888, 31 FR 9201, July 6, 1966, as amended by T.D. 6919, 32 FR
7390, May 18, 1967; T.D. 6985, 33 FR 19812, Dec. 27, 1968; T.D. 7623, 44
FR 28800, May 17, 1979]
Sec. 1.79-3 Determination of amount equal to cost of group-term
life insurance.
(a) In general. This section prescribes the rules for determining
the amount equal to the cost of group-term life insurance on an
employee's life which is
[[Page 311]]
to be included in his gross income pursuant to the rule of inclusion set
forth in section 79(a). Such amount is determined by--
(1) Computing the cost of the portion of the group-term life
insurance on the employee's life to be taken into account (determined in
accordance with the rules set forth in paragraph (b) of this section)
for each ``period of coverage'' (as defined in paragraph (c) of this
section) and aggregating the costs so determined, then
(2) Reducing the amount determined under subparagraph (1) of this
paragraph by the amount determined in accordance with the rules set
forth in paragraph (e) of this section, relating to the amount paid by
the employee toward the purchase of group-term life insurance.
(b) Determination of the portion of the group-term life insurance on
the employee's life to be taken into account. (1) For each ``period of
coverage'' (as defined in paragraph (c) of this section), the portion of
the group-term life insurance to be taken into account in computing the
amount includible in an employee's gross income for purposes of
paragraph (a)(1) of this section is the sum of the proceeds payable upon
the death of the employee under each policy, or portion of a policy, of
group-term life insurance on such employee's life to which the rule of
inclusion set forth in section 79(a) applies, less $50,000 of such
insurance. Thus, the amount of any proceeds payable under a policy, or
portion of a policy, which qualifies for one of the exceptions to the
rule of inclusion provided by section 79(b) is not taken into account.
For the regulations relating to such exceptions to the rule of
inclusion, see Sec. 1.79-2.
(2) For purposes of making the computation required by subparagraph
(1) of this paragraph in any case in which the amount payable under the
policy, or portion thereof, varies during the period of coverage, the
amount payable under such policy during such period is considered to be
the average of the amount payable under such policy at the beginning and
the end of such period.
(3)(i) For purposes of making the computation required by
subparagraph (1) of this paragraph in any case in which the amount
payable under the policy is not payable as a specific amount upon the
death of the employee in full discharge of the liability of the insurer,
and such form of payment is not one of alternative methods of payment,
the amount payable under such policy is the present value of the
agreement by the insurer under the policy to make the payments to the
beneficiary or beneficiaries entitled to such amounts upon the
employee's death. For each period of coverage, such present value is to
be determined as if the first and last day of such period is the date of
death of the employee.
(ii) The present value of the agreement by the insurer under the
policy to make payments shall be determined by the use of the mortality
tables and interest rate employed by the insurer with respect to such a
policy in calculating the amount held by the insurer (as defined in
section 101(d)(2)), unless the Commissioner otherwise determines that a
particular mortality table and interest rate, representative of the
mortality table and interest rate used by commercial insurance companies
with respect to such policies, shall be used to determine the present
value of the policy for purposes of this subdivision.
(iii) For purposes of making the computation required by subdivision
(i) of this subparagraph in any case in which it is necessary to
determine the age of an employee's beneficiary and such beneficiary
remains the same (under the policy, or the portion of the policy, with
respect to which the determination of the present value of the agreement
of the insurer to pay benefits is being made) for the entire period
during the employee's taxable year for which such policy is in effect,
the age of such beneficiary is such beneficiary's age at his nearest
birthday on June 30th of the calendar year.
(iv) If the policy of group-term life insurance on the employee's
life is such that the present value of the agreement by the insurer
under the policy to pay benefits cannot be determined by the rules
prescribed in this subparagraph, the taxpayer may submit with his return
a computation of such
[[Page 312]]
present value, consistent with the actuarial and other assumptions set
forth in this subparagraph, showing the appropriate factors applied in
his case. Such computation shall be subject to the approval of the
Commissioner upon examination of such return.
(c) Period of coverage. For purposes of this section, the phrase
``period of coverage'' means any one calendar month period, or part
thereof, during the employee's taxable year during which the employee is
provided group-term life insurance on his life to which the rule of
inclusion set forth in section 79(a) applies. The phrase ``part
thereof'' as used in the preceding sentence means any continuous period
which is less than the one calendar month period referred to in the
preceding sentence for which premiums are charged by the insurer.
(d) The cost of the portion of the group-term life insurance on an
employee's life. (1) This paragraph sets forth the rules for determining
the cost, for each period of coverage, of the portion of the group-term
life insurance on the employee's life to be taken into account in
computing the amount includible in the employee's gross income for
purposes of paragraph (a)(1) of this section. The portion of the group-
term life insurance on the employee's life to be taken into account is
determined in accordance with the provisions of paragraph (b) of this
section. Table I, which is set forth in subparagraph (2) of this
paragraph, determines the cost for each $1,000 of such portion of the
group-term life insurance on the employee's life for each one-month
period. The cost of the portion of the group-term life insurance on the
employee's life for each period of coverage of one month is obtained by
multiplying the number of thousand dollars of such insurance computed to
the nearest tenth which is provided during such period by the
appropriate amount set forth in Table I. In any case in which group-term
life insurance is provided for a period of coverage of less than one
month, the amount set forth in Table I is prorated over such period of
coverage.
(2) For the cost of group-term life insurance provided after June
30, 1999, the following table sets forth the cost of $1,000 of group-
term life insurance provided for one month, computed on the basis of 5-
year age brackets. See 26 CFR 1.79-3(d)(2) in effect prior to July 1,
1999, and contained in the 26 CFR part 1 edition revised as of April 1,
1999, for a table setting forth the cost of group-term life insurance
provided before July 1, 1999. For purposes of Table I, the age of the
employee is the employee's attained age on the last day of the
employee's taxable year.
Table I--Uniform Premiums for $1,000 of Group-Term Life Insurance
Protection
------------------------------------------------------------------------
Cost per
$1,000 of
5-year age bracket protection
for one
month
------------------------------------------------------------------------
Under 25.................................................. $0.05
25 to 29.................................................. .06
30 to 34.................................................. .08
35 to 39.................................................. .09
40 to 44.................................................. .10
45 to 49.................................................. .15
50 to 54.................................................. .23
55 to 59.................................................. .43
60 to 64.................................................. .66
65 to 69.................................................. 1.27
70 and above.............................................. 2.06
------------------------------------------------------------------------
(3) The net premium cost of group-term life insurance as provided in
Table I of subparagraph (2) of this paragraph applies only to the cost
of group-term life insurance subject to the rule of inclusion set forth
in section 79(a). Therefore, such net premium cost is not applicable to
the determination of the cost of group-term life insurance provided
under a policy which is not subject to such rule of inclusion.
(e) Effective date--(1) General effective date for table. Except as
provided in paragraph (e)(2) of this section, the table in paragraph
(d)(2) of this section is applicable July 1, 1999. Until January 1,
2000, an employer may calculate imputed income for all its employees
under age 30 using the 5-year age bracket for ages 25 to 29.
(2) Effective date for table for purposes of Sec. 1.79-0. For a
policy of life insurance issued under a plan in existence on June 30,
1999, which would not be treated as carried directly or indirectly by an
employer under Sec. 1.79-0 (taking into account the Table I in effect on
that date), until January 1, 2003, an employer may use either the table
in paragraph (d)(2) of this section or the table in effect prior to July
1, 1999 (as
[[Page 313]]
described in paragraph (d)(2) of this section) for determining if the
policy is carried directly or indirectly by the employer.
(f) Amount paid by the employee toward the purchase of group-term
life insurance. (1) Except as otherwise provided in subparagraph (2) of
this paragraph, if an employee pays any amount toward the purchase of
group-term life insurance provided for a taxable year which is subject
to the rule of inclusion set forth in paragraph (a)(2) of Sec. 1.79-1,
the sum of all such amounts is the amount referred to in section
79(a)(2) and paragraph (a)(2) of this section. The rule of the preceding
sentence applies even though the payments made by the employee are made
with respect to a period of coverage during which no portion of the
group-term life insurance on his life is taken into account under
paragraph (b)(1) of this section.
(2) In determining the amount paid by the employee for purposes of
section 79(a)(2) and paragraph (a)(2) of this section, there is not
taken into account any amounts paid by the employee for group-term life
insurance provided (or to be provided) for a different taxable year
(other than amounts applicable to regular pay periods extending into the
next taxable year). Thus, for example, if part of an employee's payment
during a taxable year represents a prepayment for insurance to be
provided after his retirement, such part does not reduce the amount
includible in his gross income for the current taxable year.
Furthermore, in determining such amount, there is not taken into account
any amount paid by an employee toward the purchase of group-term life
insurance which qualifies for one of the exceptions described in section
79(b). The amount paid by an employee toward the purchase of group-term
life insurance which qualifies for one of the exceptions described in
section 79(b) is determined under the rules of paragraph (a)(2) of
Sec. 1.79-2.
(3) If payments are made by the employer and his employees to
provide group-term life insurance which is subject to the rule of
inclusion set forth in section 79(a) as well as to provide other
benefits for the employees, and if the amount paid by the employee
toward the purchase of such insurance cannot be determined by the
provisions of the policy or plan under which such benefits are provided,
then the determination of the portion of the cost of group-term life
insurance (computed in accordance with the provisions of this section)
which is attributable to the contributions of the employee shall be made
in accordance with the provisions of this subparagraph. The amount paid
by the employee toward the purchase of all the group-term life insurance
on his life for his taxable year (or for the portion of his taxable year
if such portion is the basis of the computation) under such group policy
shall be an amount determined first by ascertaining the total amount
paid by all employees who are covered for multiple benefits which is
allocable toward the purchase of group-term life insurance on their
lives for the year, and then by ascertaining the pro rata portion of
such total amount attributable to the individual employee. The total
amount paid by all employees who are covered for multiple benefits which
is allocable toward the purchase of group-term life insurance on their
lives with respect to such year shall be an amount which bears the same
ratio to the total amount paid by all employees for multiple benefits
with respect to such year as the aggregate premiums paid to the insurer
for group-term life insurance on such employees' lives with respect to
such year bears to the aggregate premiums paid to the insurer for such
multiple benefits with respect to such year. The pro rata portion of
such total amount attributable to the individual employee for the cost
of group-term life insurance on his life shall be an amount which bears
the same ratio to the total amount paid by all employees which is
allocable toward the purchase of group-term insurance on their lives
with respect to such year as the amount of group-term life insurance on
the life of the employee at a specified time during the year, as
determined by the employer, bears to the total amount of group-term life
insurance on the lives of all employees insured for such multiple
benefits at such time.
[[Page 314]]
(g) Effect of provision of other benefits--(1) In general. This
paragraph discusses the effect of the provision of certain benefits
other than group-term life insurance on the life of the employee if the
provision of such benefits is contingent upon the underwriting of group-
term life insurance on the employee's life to which the rule of
inclusion set forth in section 79(a) applies.
(2) Dependent coverage. An amount equal to the cost of group-term
life insurance on the life of the spouse or other family member of the
employee which is provided under a policy of group-term life insurance
carried directly or indirectly by his employer is not subject to the
provisions of section 79 since it is not on the life of the employee.
See paragraph (d)(2)(ii)(b) of Sec. 1.61-2 for rules regarding the tax
treatment of such insurance.
(3) Disability provisions. Payments made for disability benefits
provided under a group-term life insurance contract are considered to
constitute payments made for accident and health insurance. Thus,
employer contributions to provide such benefits are excluded from gross
income by reason of the provisions of section 106.
(4) Cost of other benefits. If a benefit described in this paragraph
is provided under a policy under which both the employer and his
employees contribute, then, except as otherwise provided in this
subparagraph, the employer and the employees will be treated as
contributing toward the payment of such benefit at the same rate as they
contribute toward the cost of group-term life insurance on the
employees' lives. A separate allocation of employer and employee
contributions for such benefits is permissible only if--
(i) Such separate allocation is set forth in the group policy and is
applicable to all the employees covered under such policy;
(ii) Such separate allocation is followed in transactions between
the insurer and the group-policyholder; and
(iii) The allocation set forth in the policy satisfies the
requirements of the law of the jurisdiction which is applicable to the
contract regarding any minimum or maximum contribution rate by the
employer or the employees.
(Secs. 79(c) and 7805 of the Internal Revenue Code of 1954 (78 Stat. 36,
26 U.S.C. 79(c); 68A Stat. 917, 28 U.S.C. 7805))
[T.D. 6888, 31 FR 9203, July 6, 1966, as amended by T.D. 7623, 44 FR
28800, May 17, 1979; T.D. 7924, 48 FR 54595, Dec. 6, 1983; T.D. 8273, 54
FR 47979, Nov. 20, 1989; T.D. 8424, 57 FR 33635, July 30, 1992; T.D.
8821, 64 FR 29790, June 3, 1999]
Sec. 1.79-4T Questions and answers relating to the nondiscrimination
requirements for group-term life insurance (temporary).
Q-1: When does section 79, as amended by the Tax Reform Act of 1984,
become effective?
A-1: (a) Generally, section 79, as amended, applies to taxable years
(of the employee receiving insurance coverage) beginning after December
31, 1983. There are, however, several exceptions to this effective date
where there is coverage under a group-term life insurance plan of the
employer that was in existence on January 1, 1984, or a comparable
successor to such a plan maintained by the employer or a successor
employer.
(b) First, the new rules of section 79 (b) and (e), that require the
inclusion in income of a retired employee of amounts attributable to the
cost of group-term life insurance in excess of $50,000 and that include
former employees within the definition of the term ``employee,'' will
not apply to any employee who retired from employment on or before
January 1, 1984.
(c) Second, in the case of an individual who retires after January
1, 1984, and before January 1, 1987, the new rules of section 79 (b) and
(e) do not apply if (1) the individual attained age 55 on or before
January 1, 1984, and (2) the plan was maintained by the same employer
who employed the individual during 1983, or by a successor employer.
(d) Third, in the case of an individual who retires after December
31, 1986, the new rules of section 79 (b) and (e) do not apply if (1)
the individual attained age 55 on or before January 1, 1984, (2) the
plan was maintained by the same employer who employed the individual
[[Page 315]]
during 1983, or by a successor employer, and (3) the plan is not, after
December 31, 1986, a discriminatory group-term life insurance plan (not
taking into account any group-term life insurance coverage provided to
employees who retired before January 1, 1987).
(e) For purposes of determining whether a plan is, after December
31, 1986, a discriminatory group-term life insurance plan, there shall
be ignored any insurance coverage provided pursuant to a state law
requirement that an insurer continue to provide insurance coverage for a
period of time not in excess of two months following the termination of
a policy.
Q-2: What is meant by a ``group-term life insurance plan of the
employer that was in existence on January 1, 1984''?
A-2: A group-term life insurance plan of the employer was in
existence on January 1, 1984, only if the group policy or policies
providing group-term life insurance benefits under the plan were
executed on or before January 1, 1984, and were not terminated prior to
such date. The applicability of section 79, as amended, to an employee
will not be affected by the transfer of the employee between employers
treated as a single employer under section 79(d)(7) if the employee
continues, after the transfer, to be provided with group-term life
insurance benefits under a plan that is comparable (determined under the
principles set forth in Q&A 3) to the plan provided by the former
employer.
Q-3: When is a plan of group-term life insurance a ``comparable
successor'' to another such plan?
A-3: A plan of group-term life insurance will be a comparable
successor to another plan of group-term life insurance (the first plan)
only if the plan does not differ from the first plan in any significant
aspect with respect to individuals who are potentially eligible for
benefits provided under the grandfather provisions in Q&A 1. These
individuals consist of those persons who are covered under a plan of
group-term life insurance of the employer that was in existence on
January 1, 1984, or a comparable successor to such a plan maintained by
the employer or a successor employer, and who either retired on or
before January 1, 1984, or who both attained age 55 on or before January
1, 1984, and were employed by the employer maintaining the plan (or a
predecessor of that employer) during the year 1983. Accordingly, if
significant additional or reduced benefits are provided only to
individuals who are not described in the preceding sentence, the plan
will be considered a comparable successor plan. A plan will not fail to
be a comparable successor plan merely because the employer purchases a
policy or policies identical to the employer's first plan from a
different insurance company. If the new plan provides significant
additional or reduced benefits (either as to the type or amount
available) to employees, or provides benefits to a category of employees
that was formerly excluded from participating in the plan, the plan is
generally not a comparable successor to the first plan. However, a plan
will not be considered as providing significant additional or reduced
benefits merely because a participant's coverage is based on a
percentage of compensation and the participant's compensation for the
taxable year has been increased or decreased. Furthermore, a plan will
not be considered a non-comparable successor plan merely because it is
amended, either to decrease benefits provided to key employees or to
increase benefits provided to non-key employees, solely in order to
comply with the nondiscrimination requirements of section 79(d).
Finally, a plan will not be considered a non-comparable successor plan
merely because a policy that is part of a discriminatory plan is
terminated in order to end discriminatory coverage.
Q-4: For purposes of determining the effective date of section 79,
as amended by the Tax Reform Act of 1984, what is a ``successor
employer''?
A-4: A successor employer is an employer who employs a group of
individuals formerly employed by another employer as a result of a
business merger, acquisition or division.
Q-5: Under what circumstances will separate policies of group-term
life insurance of an employer be considered to be a single plan in
determining
[[Page 316]]
whether the employer's plan of group-term life insurance is
discriminatory?
A-5: All policies providing group-term life insurance to a common
key employee or key employees (as defined in this Q&A) carried directly
or indirectly by an employer (or by a group of employers described in
section 79(d)(7)) will be considered as a single plan for purposes of
determining whether an employer's group-term life insurance plan is
discriminatory. For example, if a key employee receives $50,000 of
group-term life insurance coverage under one policy and the same key
employee receives an additional $250,000 of coverage under a separate
group-term life insurance policy, the two policies will be treated as a
single plan in determining whether the group-term life insurance
provided by the employer is discriminatory. If it is discriminatory, the
key employees covered by either policy will not receive the benefit of
section 79(a)(1) or section 79(c) for either policy. The result is the
same even if each policy, considered alone, would be nondiscriminatory.
A policy that provides group-term life insurance to a key employee and a
policy under which the same key employee is eligible to receive group-
term life insurance upon separation from service will be considered to
provide group-term life insurance to a common key employee. In addition,
an employer may treat two or more policies that do not provide group-
term life insurance to a common key employee as constituting a single
plan for purposes of satisfying the nondiscrimination provisions of
section 79(d). For example, if the employer provides group-term life
insurance coverage for non-key employees under one policy and provides
group-term life insurance coverage for key employees under a second
policy, the two policies may be considered together in determining
whether the requirements of section 79(d) are satisfied with regard to
the second policy. For purposes of this section, the term ``key
employee'' has the meaning given to such term by paragraph (1) of
section 416(i), except that subparagraph (A)(iv) of such paragraph shall
be applied by not taking into account employees described in section
79(d)(3)(B) who are not participants in the plan. For purposes of this
section, all references to ``plan year'' or ``plan years'' in section
416(g)(4)(C) and section 416(i) shall be deleted and replaced with
``taxable year of the employer'' or ``taxable years of the employer,''
respectively.
Q-6: In the case of a discriminatory group-term life insurance plan,
what amounts should be included in the gross income of a key employee?
A-6: (a) In the case of a discriminatory group-term life insurance
plan, each key employee must include in gross income for the taxable
year the cost of his or her insurance benefit for that year provided by
the employer under the plan.
(b) The cost of group-term life insurance coverage provided by an
employer for a key employee during the employee's taxable year is
determined by apportioning the net premium (group premium less policy
dividends, premium refunds or experience rating credits) allocable to
the group-term life insurance coverage during the key employee's taxable
year, less the actual cost allocated to other key employees pursuant to
the method described in the subparagraph (d) of this answer, if
applicable, among the covered employees. In the event that the employer
has other forms and types of coverage with the same insurer, the
employer must make a reasonable allocation of the total premiums paid to
the insurer. For example, where an employer has both health insurance
coverage and a plan of group-term life insurance with the same insurer,
and there is no volume discount, the net premium for the plan of group-
term life insurance must include the excess, if any, of the payments the
employer makes for the health insurance coverage over the payments the
employer would make for such coverage if the plan of group-term life
insurance for which this calculation is being made did not exist.
(c) In general, the portion of the net premium for group-term life
insurance that should be apportioned to a key employee, other than a key
employee to whom the method in subparagraph (d) of this answer is
applicable, is determined by: (1) Calculating a ``tabular'' premium for
the entire group
[[Page 317]]
(with the exception of all key employees to whom the method in
subparagraph (d) of this answer is applicable), in the manner described
below, (2) determining the ratio of the total actual net premium (less
the actual cost allocated to key employees pursuant to the method in the
subparagraph (d) of this answer) to the total tabular premium and (3)
multiplying the tabular premium for the key employee at his or her
attained age by such ratio. Thus, if the total actual net premium is 125
percent of the total tabular premium for all covered employees and the
tabular premium at the key employee's attained age is $2.00 per thousand
per month, the cost for such employee would be $2.50 per thousand per
month ($2.00 times 125 percent). For these purposes the table used to
calculate tabular premiums will be determined as follows:
(i) If the group policy contains a reasonable table (based on
recognized mortality assumptions) of premium rates on an attained age
basis (which table may use age brackets not exceeding five years) with
reference to which the group premium is determined, such table will be
used;
(ii) If such table is not available, the 1960 Basic Group Table
published by the Society of Actuaries will be used.
(d) In cases where the mortality charge for group-term life
insurance coverage provided to a key employee is calculated separately
by the insurer (for example, where the charge for the coverage provided
to a key employee is based on a medical examination) and the amount of
such mortality charge plus a proportionate share of the loading charge
for the coverage provided to the group is higher than the amount that
would be allocable to such employee under the allocation method in
subparagraph (c) the cost of group-term life insurance coverage for that
employee shall be that higher amount.
Q-7: Must all active and former employees be considered in applying
the coverage tests in section 79(d)(3) to determine whether or not a
plan of group-term life insurance is discriminatory with respect to
coverage?
A-7: No. Generally, a plan of group-term life insurance which covers
both active and former employees will not satisfy the nondiscrimination
requirements of section 79(d) unless the coverage tests in section
79(d)(3) are satisfied with respect to both the active and the former
employees of the employer, except to the extent they are excluded from
tests for discrimination by application of the grandfather provisions
set forth in Q&A 1. However, for purposes of determining whether a plan
is discriminatory with respect to coverage, the coverage tests must be
applied separately to active and former employees. In addition, if the
plan limits participation by former employees to employees who retired
from employment with the employer, then only retired employees must be
considered in applying the coverage tests to former employees. Also, in
applying the coverage tests in section 79(d)(3), the employer may make
reasonable mortality assumptions regarding former employees who are not
covered under the plan but must be considered in applying the coverage
tests. Furthermore, only those former employees who terminated
employment on or after the earliest date of termination from employment
for any former employee covered by the plan must be considered. Finally,
for purposes of determining whether a plan of group-term life insurance
of the employer (or a successor employer) that was in existence on
January 1, 1984 (or a comparable successor to such a plan) is
discriminatory, after December 31, 1986, with respect to group-term life
insurance coverage for former employees, coverage provided to employees
who retired on or before December 31, 1986, shall not be taken into
account.
Q-8: Will a group-term life insurance plan be considered
discriminatory if active employees receive greater benefits as a
percentage of compensation than former employees, or vice versa?
A-8: No. For purposes of determining whether a plan is
discriminatory with respect to the type and amount of benefits
available, insurance coverage for former employees must be tested
separately from insurance coverage for active employees. For example, a
group-term life insurance plan that provides group-term life insurance
benefits equal to 200 percent of compensation for all active employees
and 100 percent
[[Page 318]]
of final compensation (based on the average annual compensation for the
final five years) for all former employees would satisfy the
nondiscrimination requirements of section 79(d). However, a group-term
life insurance plan that provides group-term life insurance benefits
equal to 200 percent of compensation for all active employees and 100
percent of final compensation (based on the average annual compensation
for the final five years) only for key employees who are no longer
employed by the employer (or a successor employer) would not satisfy the
nondiscrimination requirement of section 79(d)(2)(A).
Q-9: Under what circumstances will the amount of benefits available
under a plan of group-term life insurance be considered not to
discriminate in favor of participants who are key employees?
A-9: A plan of group-term life insurance will be considered not to
discriminate in favor of participants who are key employees, as to the
amount of benefits available, if the plan provides a fixed amount of
insurance which is the same for all covered employees. In other
circumstances, the determination of whether a plan is nondiscriminatory
will be based on all of the facts and circumstances. Such plans will be
considered not to discriminate in favor of participants who are key
employees, as to the amount of benefits available, if the plan contains
no group of employees described in the following sentence that, if
tested separately, would fail to satisfy the requirements of section
79(d)(2)(A). The group subject to separate testing under the preceding
sentence consists of a key employee and all other participants
(including other key employees) who receive, under the plan, an amount
of insurance (as a multiple of compensation (either total compensation
or the basic or regular rate of compensation)) that is equal to or
greater than the amount of insurance received by such key employee. As
described in Q&As 7&8, active and former employees are tested separately
under section 79(d)(2)(A).
Example: Assume that a plan of group-term life insurance has 500
participants, 10 of whom are key employees. Under the plan, 400 of the
non-key employees receive an amount of insurance equal to 100 percent of
compensation, while all of the key employees and 90 of the non-key
employees receive an amount of insurance equal to 200 percent of
compensation. The plan will be considered not to discriminate in favor
of the participants who are key employees because, tested separately,
the group of participants receiving an amount of insurance equal to or
greater than 200 percent of compensation would satisfy the requirements
of section 79(d)(2)(A) (by reason of section 79(d)(3)(A)(ii)). If one of
the key employees received an amount of insurance equal to 300 percent
of compensation, the plan would be considered to discriminate in favor
of participants who are key employees, because, tested separately, the
group consisting of the single key employee receiving an amount of
insurance equal to or greater than 300 percent of compensation would
fail to satisfy the requirements of section 79(d)(2)(A).
In determining the groups of employees that are tested separately
for this purpose, allowance shall be made for reasonable differences in
amount of insurance (as a multiple of compensation) due to rounding, the
use of compensation brackets or other similar factors. Thus, if a plan
bases group-term life insurance coverage on ``compensation brackets,''
it is not intended that any participants will be treated as receiving an
amount of insurance (as a multiple of compensation) that is greater (or
less) than that of any other participant merely because the first
participant's compensation is at the lower (or higher) end of a
compensation bracket while the second participant's compensation is at
the higher (or lower) end of a compensation bracket. However, any
compensation brackets utilized by a plan will be examined to determine
if the brackets, or compensation groupings, result in discrimination in
favor of key employees. In addition, a plan does not meet the
requirements for nondiscrimination as to the type and amount of benefits
available under the plan unless all types of benefits (including
permanent benefits) and all terms and conditions with respect to such
benefits which are available to any participant who is a key employee
are also available on a nondiscriminatory basis to non-key employee
participants.
Q-10: How is additional coverage purchased by employees under a plan
of group-term life insurance treated for purposes of determining whether
a plan
[[Page 319]]
of group-term life insurance is discriminatory?
A-10: (a) The extent to which employees purchase additional coverage
under a plan of group-term life insurance is not taken into account for
purposes of determining whether a plan of group-term life insurance is
discriminatory. For example, a plan providing insurance to all employees
of 1 times annual compensation, which gives all employees the option to
purchase additional insurance of 1 times annual compensation at their
own expense, would not be considered discriminatory as to the type and
amount of benefits available, even if the group (or groups) of
participants who purchase additional insurance, if tested separately,
would not satisfy the requirements of section 79(d)(2)(A). Solely for
this purpose, the choice of an amount of group-term life insurance as a
benefit under a cafeteria plan will be treated as the purchase of group-
term life insurance by an employee. If additional insurance coverage is
available to any key employee that is not available, on a
nondiscriminatory basis, to non-key employees, the plan will be
considered discriminatory, even if the full cost of such additional
insurance coverage is paid by the employee(s) electing such benefits.
(b) If the employer bears a part of the expense of any additional
coverage that is purchased by an employee under a plan of group-term
life insurance, the additional insurance shall be treated, in part, as
an amount of insurance provided by the employer under the plan and, in
part, as an amount of insurance purchased by the employee. Except to the
extent provided in subparagraph (a) above, the portion of insurance
treated as an amount of insurance purchased by the employee is not taken
into account for purposes of determining whether the plan is
discriminatory. Whether such insurance (together with any other
insurance provided by the employer under the plan) will cause the plan
to be considered to discriminate in favor of participants who are key
employees is determined under the rules of Q&A 9.
Q-11: What effect do the provisions of section 79(d)(1) have if a
plan of group-term life insurance is discriminatory for only part of a
year?
A-11: If a plan of group-term life insurance is discriminatory at
any time during the key employee's taxable year, then it is a
discriminatory group-term life insurance plan for that taxable year and
the provisions of section 79(d)(1) will be applicable with respect to
all group-term life insurance costs allocable to that employee for that
year.
Q-12: Are the section 79(d) provisions independent from the
requirements contained in Treas. Reg. Sec. 1.79-1?
A-12: Yes. Treasury regulation Sec. 1.79-1(c)(1) provides that life
insurance provided to a group of employees cannot qualify as group-term
life insurance if it is provided to less than ten full-time employees
unless certain requirements are satisfied. The satisfaction of these
requirements does not guarantee that the plan will be nondiscriminatory,
and vice versa. Treasury regulation Sec. 1.79-1(a)(4) provides that life
insurance is not group-term life insurance unless the amount of
insurance provided to each employee is computed under a formula that
precludes individual selection. The mere fact that a life insurance
policy is nondiscriminatory is not determinative as to whether the
policy precludes individual selection, and vice versa.
[T.D. 8073, 51 FR 4315, Feb. 4, 1986; 51 FR 7262, Mar. 3, 1986]
Sec. 1.82-1 Payments for or reimbursements of expenses of moving
from one residence to another residence attributable to employment
or self-employment.
(a) Reimbursements in gross income--(1) In general. Any amount
received or accrued, directly or indirectly, by an individual as a
payment for or reimbursement of expenses of moving from one residence to
another residence attributable to employment or self-employment is
includible in gross income under section 82 as compensation for services
in the taxable year received or accrued. For rules relating to the year
a deduction may be allowed for expenses of moving from one residence to
another residence, see section 217 and the regulations thereunder.
(2) Amounts received or accrued as reimbursement or payment. For
purposes of this section, amounts are considered as
[[Page 320]]
being received or accrued by an individual as reimbursement or payment
whether received in the form of money, property, or services. A cash
basis taxpayer will include amounts in gross income under section 82
when they are received or treated as received by him. Thus, for example,
if an employer moves an employee's household goods and personal effects
from the employee's old resident to his new residence using the
employer's facilities, the employee is considered as having received a
payment in the amount of the fair market value of the services furnished
at the time the services are furnished by the employer. If the employer
pays a mover for moving the employee's household goods and personal
effects, the employee is considered as having received the payment at
the time the employer pays the mover, rather than at the time the mover
moves the employee's household goods and personal effects. Where an
employee receives a loan or advance from an employer to enable him to
pay his moving expenses, the employee will not be deemed to have
received a reimbursement of moving expenses until such time as he
accounts to his employer if he is not required to repay such loan or
advance and if he makes such accounting within a reasonable time. Such
loan or advance will be deemed to be a reimbursement of moving expenses
at the time of such accounting to the extent used by the employee for
such moving expenses.
(3) Direct or indirect payments or reimbursements. For purposes of
this section amounts are considered as being received or accrued whether
received directly (paid or provided to an individual by an employer, a
client, a customer, or similar person) or indirectly (paid to a third
party on behalf of an individual by an employer, a client, a customer,
or similar person). Thus, if an employer pays a mover for the expenses
of moving an employee's household goods and personal effects from one
residence to another residence, the employee has indirectly received a
payment which is includible in his gross income under section 82.
(4) Expenses of moving from one residence to another residence. An
expense of moving from one residence to another residence is any
expenditure, cost, loss, or similar item paid or incurred in connection
with a move from one residence to another residence. Moving expenses
include (but are not limited to) any expenditure, cost, loss, or similar
item directly or indirectly resulting from the acquisition, sale, or
exchange of property, the transportation of goods or property, or travel
(by the taxpayer or any other person) in connection with a change in
residence. Such expenses include items described in section 217(b)
(relating to the definition of moving expenses), irrespective of the
dollar limitations contained in section 217(b)(3) and the conditions
contained in section 217(c), as well as items not described in section
217 (b), such as a loss sustained on the sale or exchange of personal
property, storage charges, taxes, or expenses of refitting rugs or
draperies.
(5) Attributable to employment or self-employment. Any amount
received or accrued from an employer, a client, a customer, or similar
person in connection with the performance of services for such employer,
client, customer, or similar person, is attributable to employment or
self-employment. Thus, for example, if an employer reimburses an
employee for a loss incurred on the sale of the employee's house,
reimbursement is attributable to the performance of services if made
because of the employer-employee relationship. Similarly, if an employer
in order to prevent an employee's sustaining a loss on a sale of a house
acquires the property from the employee at a price in excess of fair
market value, the employee is considered to have received a payment
attributable to employment to the extent that such payment exceeds the
fair market value of the property.
(b) Effective date--(1) In general. Except as provided in
subparagraph (2) of this paragraph, paragraph (a) of this section is
applicable only to amounts received or accrued in taxable years
beginning after December 31, 1969.
(2) Election with respect to payments or reimbursements for expenses
paid or incurred before January 1, 1971. Paragraph (a) of this section
does not apply with
[[Page 321]]
respect to moving expenses paid or incurred before January 1, 1971, in
connection with the commencement of work by an employee at a new
principal place of work where such employee had been notified by his
employer on or before December 19, 1969, of such move and the employee
makes an election under paragraph (h) of Sec. 1.217-2.
[T.D. 7195, 37 FR 13533, July 11, 1972, as amended by T.D. 7578, 43 FR
59355, Dec. 20, 1978]
Sec. 1.83-1 Property transferred in connection with the performance
of services.
(a) Inclusion in gross income--(1) General rule. Section 83 provides
rules for the taxation of property transferred to an employee or
independent contractor (or beneficiary thereof) in connection with the
performance of services by such employee or independent contractor. In
general, such property is not taxable under section 83(a) until it has
been transferred (as defined in Sec. 1.83-3(a)) to such person and
become substantially vested (as defined in Sec. 1.83-3(b)) in such
person. In that case, the excess of--
(i) The fair market value of such property (determined without
regard to any lapse restriction, as defined in Sec. 1.83-3(i)) at the
time that the property becomes substantially vested, over
(ii) The amount (if any) paid for such property,
shall be included as compensation in the gross income of such employee
or independent contractor for the taxable year in which the property
becomes substantially vested. Until such property becomes substantially
vested, the transferor shall be regarded as the owner of such property,
and any income from such property received by the employee or
independent contractor (or beneficiary thereof) or the right to the use
of such property by the employee or independent contractor constitutes
additional compensation and shall be included in the gross income of
such employee or independent contractor for the taxable year in which
such income is received or such use is made available. This paragraph
applies to a transfer of property in connection with the performance of
services even though the transferor is not the person for whom such
services are performed.
(2) Life insurance. The cost of life insurance protection under a
life insurance contract, retirement income contract, endowment contract,
or other contract providing life insurance protection is taxable
generally under section 61 and the regulations thereunder during the
period such contract remains substantially nonvested (as defined in
Sec. 1.83-3(b)). For the taxation of life insurance protection under a
split-dollar life insurance arrangement (as defined in Sec. 1.61-
22(b)(1) or (2)), see Sec. 1.61-22.
(3) Cross references. For rules concerning the treatment of
employers and other transferors of property in connection with the
performance of services, see section 83(h) and Sec. 1.83-6. For rules
concerning the taxation of beneficiaries of an employees' trust that is
not exempt under section 501(a), see section 402(b) and the regulations
thereunder.
(b) Subsequent sale, forfeiture, or other disposition of nonvested
property. (1) If substantially nonvested property (that has been
transferred in connection with the performance of services) is
subsequently sold or otherwise disposed of to a third party in an arm's
length transaction while still substantially nonvested, the person who
performed such services shall realize compensation in an amount equal to
the excess of--
(i) The amount realized on such sale or other disposition, over
(ii) The amount (if any) paid for such property.
Such amount of compensation is includible in his gross income in
accordance with his method of accounting. Two preceding sentences also
apply when the person disposing of the property has received it in a
non-arm's length transaction described in paragraph (c) of this section.
In addition, section 83(a) and paragraph (a) of this section shall
thereafter cease to apply with respect to such property.
(2) If substantially nonvested property that has been transferred in
connection with the performance of services to the person performing
such
[[Page 322]]
services is forfeited while still substantially nonvested and held by
such person, the difference between the amount paid (if any) and the
amount received upon forfeiture (if any) shall be treated as an ordinary
gain or loss. This paragraph (b)(2) does not apply to property to which
Sec. 1.83-2(a) applies.
(3) This paragraph (b) shall not apply to, and no gain shall be
recognized on, any sale, forfeiture, or other disposition described in
this paragraph to the extent that any property received in exchange
therefor is substantially nonvested. Instead, section 83 and this
section shall apply with respect to such property received (as if it
were substituted for the property disposed of).
(c) Dispositions of nonvested property not at arm's length. If
substantially nonvested property (that has been transferred in
connection with the performance of services) is disposed of in a
transaction which is not at arm's length and the property remains
substantially nonvested, the person who performed such services realizes
compensation equal in amount to the sum of any money and the fair market
value of any substantially vested property received in such disposition.
Such amount of compensation is includible in his gross income in
accordance with his method of accounting. However, such amount of
compensation shall not exceed the fair market value of the property
disposed of at the time of disposition (determined without regard to any
lapse restriction), reduced by the amount paid for such property. In
addition, section 83 and these regulations shall continue to apply with
respect to such property, except that any amount previously includible
in gross income under this paragraph (c) shall thereafter be treated as
an amount paid for such property. For example, if in 1971 an employee
pays $50 for a share of stock which has a fair market value of $100 and
is substantially monvested at that time and later in 1971 (at a time
when the property still has a fair market value of $100 and is still
substantially nonvested) the employee disposes of, in a transaction not
at arm's length, the share of stock to his wife for $10, the employee
realizes compensation of $10 in 1971. If in 1972, when the share of
stock has a fair market value of $120, it becomes substantially vested,
the employee realizes additional compensation in 1972 in the amount of
$60 (the $120 fair market value of the stock less both the $50 price
paid for the stock and the $10 taxed as compensation in 1971). For
purposes of this paragraph, if substantially nonvested property has been
transferred to a person other than the person who performed the
services, and the transferee dies holding the property while the
property is still substantially nonvested and while the person who
performed the services is alive, the transfer which results by reason of
the death of such transferee is a transfer not at arm's length.
(d) Certain transfers upon death. If substantially nonvested
property has been transferred in connection with the performance of
services and the person who performed such services dies while the
property is still substantially nonvested, any income realized on or
after such death with respect to such property under this section is
income in respect of a decedent to which the rules of section 691 apply.
In such a case the income in respect of such property shall be taxable
under section 691 (except to the extent not includible under section
101(b)) to the estate or beneficiary of the person who performed the
services, in accordance with section 83 and the regulations thereunder.
However, if an item of income is realized upon such death before July
21, 1978, because the property became substantially vested upon death,
the person responsible for filing decedent's income tax return for
decedent's last taxable year may elect to treat such item as includible
in gross income for decedent's last taxable year by including such item
in gross income on the return or amended return filed for decedent's
last taxable year.
(e) Forfeiture after substantial vesting. If a person is taxable
under section 83(a) when the property transferred becomes substantially
vested and thereafter the person's beneficial interest in such property
is nevertheless forfeited pursuant to a lapse restriction, any loss
incurred by such person (but not by a beneficiary of such person) upon
such forfeiture shall be an ordinary loss to the extent the basis in
such
[[Page 323]]
property has been increased as a result of the recognition of income by
such person under section 83(a) with respect to such property.
(f) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. On November 1, 1978, X corporation sells to E, an
employee, 100 shares of X corporation stock at $10 per share. At the
time of such sale the fair market value of the X corporation stock is
$100 per share. Under the terms of the sale each share of stock is
subject to a substantial risk of forfeiture which will not lapse until
November 1, 1988. Evidence of this restriction is stamped on the face of
E's stock certificates, which are therefore nontransferable (within the
meaning of Sec. 1.83-3(d)). Since in 1978 E's stock is substantially
nonvested, E does not include any of such amount in his gross income as
compensation in 1978. On November 1, 1988, the fair market value of the
X corporation stock is $250 per share. Since the X corporation stock
becomes substantially vested in 1988, E must include $24,000 (100 shares
of X corporation stock x $250 fair market value per share less $10
price paid by E for each share) as compensation for 1988. Dividends paid
by X to E on E's stock after it was transferred to E on November 1,
1973, are taxable to E as additional compensation during the period E's
stock is substantially nonvested and are deductible as such by X.
Example 2. Assume the facts are the same as in example (1), except
that on November 1, 1985, each share of stock of X corporation in E's
hands could as a matter of law be transferred to a bona fide purchaser
who would not be required to forfeit the stock if the risk of forfeiture
materialized. In the event, however, that the risk materializes, E would
be liable in damages to X. On November 1, 1985, the fair market value of
the X corporation stock is $230 per share. Since E's stock is
transferable within the meaning of Sec. 1.83-3(d) in 1985, the stock is
substantially vested and E must include $22,000 (100 shares of X
corporation stock x $230 fair market value per share less $10 price
paid by E for each share) as compensation for 1985.
Example 3. Assume the facts are the same as in example (1) except
that, in 1984 E sells his 100 shares of X corporation stock in an arm's
length sale to I, an investment company, for $120 per share. At the time
of this sale each share of X corporation's stock has a fair market value
of $200. Under paragraph (b) of this section, E must include $11,000
(100 shares of X corporation stock x $120 amount realized per share
less $10 price paid by E per share) as compensation for 1984
notwithstanding that the stock remains nontransferable and is still
subject to a substantial risk of forfeiture at the time of such sale.
Under Sec. 1.83-4(b)(2), I's basis in the X corporation stock is $120
per share.
[T.D. 7554, 43 FR 31913, July 24, 1978, as amended by T.D. 9092, 68 FR
54351, Sept. 17, 2003]
Sec. 1.83-2 Election to include in gross income in year of transfer.
(a) In general. If property is transferred (within the meaning of
Sec. 1.83-3(a)) in connection with the performance of services, the
person performing such services may elect to include in gross income
under section 83(b) the excess (if any) of the fair market value of the
property at the time of transfer (determined without regard to any lapse
restriction, as defined in Sec. 1.83-3(i)) over the amount (if any) paid
for such property, as compensation for services. The fact that the
transferee has paid full value for the property transferred, realizing
no bargain element in the transaction, does not preclude the use of the
election as provided for in this section. If this election is made, the
substantial vesting rules of section 83(a) and the regulations
thereunder do not apply with respect to such property, and except as
otherwise provided in section 83(d)(2) and the regulations thereunder
(relating to the cancellation of a nonlapse restriction), any subsequent
appreciation in the value of the property is not taxable as compensation
to the person who performed the services. Thus, property with respect to
which this election is made shall be includible in gross income as of
the time of transfer, even though such property is substantially
nonvested (as defined in Sec. 1.83-3(b)) at the time of transfer, and no
compensation will be includible in gross income when such property
becomes substantially vested (as defined in Sec. 1.83-3(b)). In
computing the gain or loss from the subsequent sale or exchange of such
property, its basis shall be the amount paid for the property increased
by the amount included in gross income under section 83(b). If property
for which a section 83(b) election is in effect is forfeited while
substantially nonvested, such forfeiture shall be treated as a sale or
exchange upon which there is realized a loss equal to the excess (if
any) of--
[[Page 324]]
(1) The amount paid (if any) for such property, over,
(2) The amount realized (if any) upon such forfeiture.
If such property is a capital asset in the hands of the taxpayer, such
loss shall be a capital loss. A sale or other disposition of the
property that is in substance a forfeiture, or is made in contemplation
of a forfeiture, shall be treated as a forfeiture under the two
immediately preceding sentences.
(b) Time for making election. Except as provided in the following
sentence, the election referred to in paragraph (a) of this section
shall be filed not later than 30 days after the date the property was
transferred (or, if later, January 29, 1970) and may be filed prior to
the date of transfer. Any statement filed before February 15, 1970,
which was amended not later than February 16, 1970, in order to make it
conform to the requirements of paragraph (e) of this section, shall be
deemed a proper election under section 83(b).
(c) Manner of making election. The election referred to in paragraph
(a) of this section is made by filing one copy of a written statement
with the internal revenue office with which the person who performed the
services files his return.
(d) Additional copies. The person who performed the services shall
also submit a copy of the statement referred to in paragraph (c) of this
section to the person for whom the services are performed. In addition,
if the person who performs the services and the transferee of such
property are not the same person, the person who performs the services
shall submit a copy of such statement to the transferee of the property.
(e) Content of statement. The statement shall be signed by the
person making the election and shall indicate that it is being made
under section 83(b) of the Code, and shall contain the following
information:
(1) The name, address and taxpayer identification number of the
taxpayer;
(2) A description of each property with respect to which the
election is being made;
(3) The date or dates on which the property is tansferred and the
taxable year (for example, ``calendar year 1970'' or ``fiscal year
ending May 31, 1970'') for which such election was made;
(4) The nature of the restriction or restrictions to which the
property is subject;
(5) The fair market value at the time of transfer (determined
without regard to any lapse restriction, as defined in Sec. 1.83-3(i))
of each property with respect to which the election is being made;
(6) The amount (if any) paid for such property; and
(7) With respect to elections made after July 21, 1978, a statement
to the effect that copies have been furnished to other persons as
provided in paragraph (d) of this section.
(f) Revocability of election. An election under section 83(b) may
not be revoked except with the consent of the Commissioner. Consent will
be granted only in the case where the transferee is under a mistake of
fact as to the underlying transaction and must be requested within 60
days of the date on which the mistake of fact first became known to the
person who made the election. In any event, a mistake as to the value,
or decline in the value, of the property with respect to which an
election under section 83(b) has been made or a failure to perform an
act contemplated at the time of transfer of such property does not
constitute a mistake of fact.
(g) Effective/applicability date. Paragraph (c) of this section
applies to property transferred on or after January 1, 2016.
[T.D. 7554, 43 FR 31915, July 24, 1978, as amended by T.D. 9779, 81 FR
48708, July 26, 2016]
Sec. 1.83-3 Meaning and use of certain terms.
(a) Transfer--(1) In general. For purposes of section 83 and the
regulations thereunder, a transfer of property occurs when a person
acquires a beneficial ownership interest in such property (disregarding
any lapse restriction, as defined in Sec. 1.83-3(i)). For special rules
applying to the transfer of a life insurance contract (or an undivided
interest therein) that is part of a split-dollar life insurance
arrangement (as defined in Sec. 1.61-22(b)(1) or (2)), see Sec. 1.61-
22(g).
(2) Option. The grant of an option to purchase certain property does
not
[[Page 325]]
constitute a transfer of such property. However, see Sec. 1.83-7 for the
extent to which the grant of the option itself is subject to section 83.
In addition, if the amount paid for the transfer of property is an
indebtedness secured by the transferred property, on which there is no
personal liability to pay all or a substantial part of such
indebtedness, such transaction may be in substance the same as the grant
of an option. The determination of the substance of the transaction
shall be based upon all the facts and circumstances. The factors to be
taken into account include the type of property involved, the extent to
which the risk that the property will decline in value has been
transferred, and the likelihood that the purchase price will, in fact,
be paid. See also Sec. 1.83-4(c) for the treatment of forgiveness of
indebtedness that has constituted an amount paid.
(3) Requirement that property be returned. Similarly, no transfer
may have occurred where property is transferred under conditions that
require its return upon the happening of an event that is certain to
occur, such as the termination of employment. In such a case, whether
there is, in fact, a transfer depends upon all the facts and
circumstances. Factors which indicate that no transfer has occurred are
described in paragraph (a) (4), (5), and (6) of this section.
(4) Similarity to option. An indication that no transfer has
occurred is the extent to which the conditions relating to a transfer
are similar to an option.
(5) Relationship to fair market value. An indication that no
transfer has occurred is the extent to which the consideration to be
paid the transferee upon surrendering the property does not approach the
fair market value of the property at the time of surrender. For purposes
of paragraph (a) (5) and (6) of this section, fair market value includes
fair market value determined under the rules of Sec. 1.83-5(a)(1),
relating to the valuation of property subject to nonlapse restrictions.
Therefore, the existence of a nonlapse restriction referred to in
Sec. 1.83-5(a)(1) is not a factor indicating no transfer has occurred.
(6) Risk of loss. An indication that no transfer has occurred is the
extent to which the transferee does not incur the risk of a beneficial
owner that the value of the property at the time of transfer will
decline substantially. Therefore, for purposes of this (6), risk of
decline in property value is not limited to the risk that any amount
paid for the property may be lost.
(7) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. On January 3, 1971, X corporation sells for $500 to S, a
salesman of X, 10 shares of stock in X corporation with a fair market
value of $1,000. The stock is nontransferable and subject to return to
the corporation (for $500) if S's sales do not reach a certain level by
December 31, 1971. Disregarding the restriction concerning S's sales
(since the restrictions is a lapse restriction), S's interest in the
stock is that of a beneficial owner and therefore a transfer occurs on
January 3, 1971.
Example 2. On November 17, 1972, W sells to E 100 shares of stock in
W corporation with a fair market value of $10,000 in exchange for a
$10,000 note without personal liability. The note requires E to make
yearly payments of $2,000 commencing in 1973. E collects the dividends,
votes the stock and pays the interest on the note. However, he makes no
payments toward the face amount of the note. Because E has no personal
liability on the note, and since E is making no payments towards the
face amount of the note, the likelihood of E paying the full purchase
price is in substantial doubt. As a result E has not incurred the risks
of a beneficial owner that the value of the stock will decline.
Therefore, no transfer of the stock has occurred on November 17, 1972,
but an option to purchase the stock has been granted to E.
Example 3. On January 3, 1971, X corporation purports to transfer to
E, an employee, 100 shares of stock in X corporation. The X stock is
subject to the sole restriction that E must sell such stock to X on
termination of employment for any reason for an amount which is equal to
the excess (if any) of the book value of the X stock at termination of
employment over book value on January 3, 1971. The stock is not
transferable by E and the restrictions on transfer are stamped on the
certificate. Under these facts and circumstances, there is no transfer
of the X stock within the meeting of section 83.
Example 4. Assume the same facts as in example (3) except that E
paid $3,000 for the stock and that the restriction required E upon
termination of employment to sell the stock to M for the total amount of
dividends that have been declared on the stock since September 2, 1971,
or $3,000 whichever is higher. Again, under the facts and circumstances,
no transfer of the X stock has occurred.
[[Page 326]]
Example 5. On July 4, 1971, X corporation purports to transfer to G,
an employee, 100 shares of X stock. The stock is subject to the sole
restriction that upon termination of employment G must sell the stock to
X for the greater of its fair market value at such time or $100, the
amount G paid for the stock. On July 4, 1971 the X stock has a fair
market value of $100. Therefore, G does not incur the risk of a
beneficial owner that the value of the stock at the time of transfer
($100) will decline substantially. Under these facts and circumstances,
no transfer has occurred.
(b) Substantially vested and substantially nonvested property. For
purposes of section 83 and the regulations thereunder, property is
substantially nonvested when it is subject to a substantial risk of
forfeiture, within the meaning of paragraph (c) of this section, and is
nontransferable, within the meaning of paragraph (d) of this section.
Property is substantially vested for such purposes when it is either
transferable or not subject to a substantial risk of forfeiture.
(c) Substantial risk of forfeiture--(1) In general. For purposes of
section 83 and these regulations, whether a risk of forfeiture is
substantial or not depends upon the facts and circumstances. Except as
set forth in paragraphs (j) and (k) of this section, a substantial risk
of forfeiture exists only if rights in property that are transferred are
conditioned, directly or indirectly, upon the future performance (or
refraining from performance) of substantial services by any person, or
upon the occurrence of a condition related to a purpose of the transfer
if the possibility of forfeiture is substantial. Property is not
transferred subject to a substantial risk of forfeiture if at the time
of transfer the facts and circumstances demonstrate that the forfeiture
condition is unlikely to be enforced. Further, property is not
transferred subject to a substantial risk of forfeiture to the extent
that the employer is required to pay the fair market value of a portion
of such property to the employee upon the return of such property. The
risk that the value of property will decline during a certain period of
time does not constitute a substantial risk of forfeiture. A nonlapse
restriction, standing by itself, will not result in a substantial risk
of forfeiture. A restriction on the transfer of property, whether
contractual or by operation of applicable law, will result in a
substantial risk of forfeiture only if and to the extent that the
restriction is described in paragraph (j) or (k) of this section. For
this purpose, transfer restrictions that will not result in a
substantial risk of forfeiture include, but are not limited to,
restrictions that if violated, whether by transfer or attempted transfer
of the property, would result in the forfeiture of some or all of the
property, or liability by the employee for any damages, penalties, fees,
or other amount.
(2) Illustrations of substantial risks of forfeiture. The regularity
of the performance of services and the time spent in performing such
services tend to indicate whether services required by a condition are
substantial. The fact that the person performing services has the right
to decline to perform such services without forfeiture may tend to
establish that services are insubstantial. Where stock is transferred to
an underwriter prior to a public offering and the full enjoyment of such
stock is expressly or impliedly conditioned upon the successful
completion of the underwriting, the stock is subject to a substantial
risk of forfeiture. Where an employee receives property from an employer
subject to a requirement that it be returned if the total earnings of
the employer do not increase, such property is subject to a substantial
risk of forfeiture. On the other hand, requirements that the property be
returned to the employer if the employee is discharged for cause or for
committing a crime will not be considered to result in a substantial
risk of forfeiture. An enforceable requirement that the property be
returned to the employer if the employee accepts a job with a competing
firm will not ordinarily be considered to result in a substantial risk
of forfeiture unless the particular facts and circumstances indicate to
the contrary. Factors which may be taken into account in determining
whether a convenant not to compete constitutes a substantial risk of
forfeiture are the age of the employee, the availability of alternative
employment opportunities, the likelihood of the employee's obtaining
such other employment, the degree of skill
[[Page 327]]
possessed by the employee, the employee's health, and the practice (if
any) of the employer to enforce such covenants. Similarly, rights in
property transferred to a retiring employee subject to the sole
requirement that it be returned unless he renders consulting services
upon the request of his former employer will not be considered subject
to a substantial risk of forfeiture unless he is in fact expected to
perform substantial services.
(3) Enforcement of forfeiture condition. In determining whether the
possibility of forfeiture is substantial in the case of rights in
property transferred to an employee of a corporation who owns a
significant amount of the total combined voting power or value of all
classes of stock of the employer corporation or of its parent
corporation, there will be taken into account (i) the employee's
relationship to other stockholders and the extent of their control,
potential control and possible loss of control of the corporation, (ii)
the position of the employee in the corporation and the extent to which
he is subordinate to other employees, (iii) the employee's relationship
to the officers and directors of the corporation, (iv) the person or
persons who must approve the employee's discharge, and (v) past actions
of the employer in enforcing the provisions of the restrictions. For
example, if an employee would be considered as having received rights in
property subject to a substantial risk of forfeiture, but for the fact
that the employee owns 20 percent of the single class of stock in the
transferor corporation, and if the remaining 80 percent of the class of
stock is owned by an unrelated individual (or members of such an
individual's family) so that the possibility of the corporation
enforcing a restriction on such rights is substantial, then such rights
are subject to a substantial risk of forfeiture. On the other hand, if 4
percent of the voting power of all the stock of a corporation is owned
by the president of such corporation and the remaining stock is so
diversely held by the public that the president, in effect, controls the
corporation, then the possibility of the corporation enforcing a
restriction on rights in property transferred to the president is not
substantial, and such rights are not subject to a substantial risk of
forfeiture.
(4) Examples. The rules contained in paragraph (c)(1) of this
section may be illustrated by the following examples. In each example it
is assumed that, if the conditions on transfer are not satisfied, the
forfeiture provision will be enforced.
Example 1. On November 1, 1971, corporation X transfers in
connection with the performance of services to E, an employee, 100
shares of corporation X stock for $90 per share. Under the terms of the
transfer, E will be subject to a binding commitment to resell the stock
to corporation X at $90 per share if he leaves the employment of
corporation X for any reason prior to the expiration of a 2-year period
from the date of such transfer. Since E must perform substantial
services for corporation X and will not be paid more than $90 for the
stock, regardless of its value, if he fails to perform such services
during such 2-year period, E's rights in the stock are subject to a
substantial risk of forfeiture during such period.
Example 2. On November 10, 1971, corporation X transfers in
connection with the performance of services to a trust for the benefit
of employees, $100x. Under the terms of the trust any child of an
employee who is an enrolled full-time student at an accredited
educational institution as a candidate for a degree will receive an
annual grant of cash for each academic year the student completes as a
student in good standing, up to a maximum of four years. E, an employee,
has a child who is enrolled as a full-time student at an accredited
college as a candidate for a degree. Therefore, E has a beneficial
interest in the assets of the trust equalling the value of four cash
grants. Since E's child must complete one year of college in order to
receive a cash grant, E's interest in the trust assets are subject to a
substantial risk of forfeiture to the extent E's child has not become
entitled to any grants.
Example 3. On November 25, 1971, corporation X gives to E, an
employee, in connection with his performance of services to corporation
X, a bonus of 100 shares of corporation X stock. Under the terms of the
bonus arrangement E is obligated to return the corporation X stock to
corporation X if he terminates his employment for any reason. However,
for each year occurring after November 25, 1971, during which E remains
employed with corporation X, E ceases to be obligated to return 10
shares of the corporation X stock. Since in each year occurring after
November 25, 1971, for which E remains employed he is not required to
return 10 shares of corporation X's stock, E's rights in 10
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shares each year for 10 years cease to be subject to a substantial risk
of forfeiture for each year he remains so employed.
Example 4. (a) Assume the same facts as in example (3) except that
for each year occurring after November 25, 1971, for which E remains
employed with corporation X, X agrees to pay, in redemption of the bonus
shares given to E if he terminates employment for any reason, 10 percent
of the fair market value of each share of stock on the date of such
termination of employment. Since corporation X will pay E 10 percent of
the value of his bonus stock for each of the 10 years after November 25,
1971, in which he remains employed by X, and the risk of a decline in
value is not a substantial risk of forfeiture, E's interest in 10
percent of such bonus stock becomes substantially vested in each of
those years.
(b) The following chart illustrates the fair market value of the
bonus stock and the fair market value of the portion of bonus stock that
becomes substantially vested on November 25, for the following years:
------------------------------------------------------------------------
Fair market value of
-----------------------
Portion of
Year stock that
All stock becomes
vested
------------------------------------------------------------------------
1972............................................ $200 $20
1973............................................ 300 30
1974............................................ 150 15
1975............................................ 150 15
1976............................................ 100 10
------------------------------------------------------------------------
If E terminates his employment on July 1, 1977, when the fair market
value of the bonus stock is $100, E must return the bonus stock to X,
and X must pay, in redemption of the bonus stock, $50 (50 percent of the
value of the bonus stock on the date of termination of employment). E
has recognized income under section 83(a) and Sec. 1.83-1(a) with
respect to 50 percent of the bonus stock, and E's basis in that portion
of the stock equals the amount of income recognized, $90. Under
Sec. 1.83-1(e), the $40 loss E incurred upon forfeiture ($90 basis less
$50 redemption payment) is an ordinary loss.
Example 5. On January 7, 1971, corporation X, a computer service
company, transfers to E, 100 shares of corporation X stock for $50. E is
a highly compensated salesman who sold X's products in a three-state
area since 1960. At the time of transfer each share of X stock has a
fair market value of $100. The stock is transferred to E in connection
with his termination of employment with X. Each share of X stock is
subject to the sole condition that E can keep such share only if he does
not engage in competition with X for a 5-year period in the three-state
area where E had previously sold X's products. E, who is 45 years old,
has no intention of retiring from the work force. In order to earn a
salary comparable to his current compensation, while preventing the risk
of forfeiture from arising, E will have to expend a substantial amount
of time and effort in another industry or market to establish the
necessary business contacts. Thus, under these facts and circumstances
E's rights in the stock are subject to a substantial risk of forfeiture.
Example 6. On April 3, 2013, Y corporation grants to Q, an officer
of Y, a nonstatutory option to purchase Y common stock. Although the
option is immediately exercisable, it has no readily ascertainable fair
market value when it is granted. Under the option, Q has the right to
purchase 100 shares of Y common stock for $10 per share, which is the
fair market value of a Y share on the date of grant of the option. On
August 1, 2013, Y sells its common stock in an initial public offering.
Pursuant to an underwriting agreement entered into in connection with
the initial public offering, Q agrees not to sell, otherwise dispose of,
or hedge any Y common stock from August 1 through February 1 of 2014
(``the lock-up period''). Q exercises the option and Y shares are
transferred to Q on November 15, 2013, during the lock-up period. The
underwriting agreement does not impose a substantial risk of forfeiture
on the Y shares acquired by Q because the provisions of the agreement do
not condition Q's rights in the shares upon anyone's future performance
(or refraining from performance) of substantial services or on the
occurrence of a condition related to the purpose of the transfer of
shares to Q. Accordingly, neither section 83(c)(3) nor the imposition of
the lock-up period by the underwriting agreement precludes taxation
under section 83 when the shares resulting from exercise of the option
are transferred to Q.
Example 7. Assume the same facts as in Example 6, except that on
August 1, 2013, Y also adopts an insider trading compliance program,
under which, as applied to 2013, insiders (such as Q) may trade Y shares
only during a limited number of days following each quarterly earnings
release (``a trading window''). Under the program, if Q trades Y shares
outside a trading window without Y's permission, Y has the right to
terminate Q's employment. However, the exercise of the nonstatutory
options outside a trading window for Y shares is not prohibited under
the insider trading compliance program. Q fully exercises the option,
and Y shares are transferred to Q, on November 15, 2013. The exercise of
the option occurs outside a trading window, and, on the date of
exercise, Q is in possession of material nonpublic information
concerning Y that would subject him to liability under Rule 10b-5 under
the Securities Exchange Act of 1934 if Q sold the Y shares while in
possession of such information. Neither the insider trading compliance
program nor the potential liability under Rule 10b-5 impose a
substantial risk of forfeiture on the
[[Page 329]]
Y shares acquired by Q because the provisions of the program and Rule
10b-5 do not condition Q's rights in the shares upon anyone's future
performance (or refraining from performance) of substantial services or
on the occurrence of a condition related to the purpose of the transfer
of shares to Q. Accordingly, none of section 83(c)(3), the imposition of
the trading windows by the insider trading compliance program, and the
potential liability under Rule 10b-5 preclude taxation under section 83
when the shares resulting from exercise of the option are transferred to
Q.
(d) Transferability of property. For purposes of section 83 and the
regulations thereunder, the rights of a person in property are
transferable if such person can transfer any interest in the property to
any person other than the transferor of the property, but only if the
rights in such property of such transferee are not subject to a
substantial risk of forfeiture. Accordingly, property is transferable if
the person performing the services or receiving the property can sell,
assign, or pledge (as collateral for a loan, or as security for the
performance of an obligation, or for any other purpose) his interest in
the property to any person other than the transferor of such property
and if the transferee is not required to give up the property or its
value in the event the substantial risk of forfeiture materializes. On
the other hand, property is not considered to be transferable merely
because the person performing the services or receiving the property may
designate a beneficiary to receive the property in the event of his
death.
(e) Property. For purposes of section 83 and the regulations
thereunder, the term ``property'' includes real and personal property
other than either money or an unfunded and unsecured promise to pay
money or property in the future. The term also includes a beneficial
interest in assets (including money) which are transferred or set aside
from the claims of creditors of the transferor, for example, in a trust
or escrow account. See, however, Sec. 1.83-8(a) with respect to employee
trusts and annuity plans subject to section 402(b) and section 403(c).
In the case of a transfer of a life insurance contract, retirement
income contract, endowment contract, or other contract providing life
insurance protection, or any undivided interest therein, the policy cash
value and all other rights under such contract (including any
supplemental agreements thereto and whether or not guaranteed), other
than current life insurance protection, are treated as property for
purposes of this section. However, in the case of the transfer of a life
insurance contract, retirement income contract, endowment contract, or
other contract providing life insurance protection, which was part of a
split-dollar arrangement (as defined in Sec. 1.61-22(b)) entered into
(as defined in Sec. 1.61-22(j)) on or before September 17, 2003, and
which is not materially modified (as defined in Sec. 1.61-22(j)(2))
after September 17, 2003, only the cash surrender value of the contract
is considered to be property. Where rights in a contract providing life
insurance protection are substantially nonvested, see Sec. 1.83-1(a)(2)
for rules relating to taxation of the cost of life insurance protection.
(f) Property transferred in connection with the performance of
services. Property transferred to an employee or an independent
contractor (or beneficiary thereof) in recognition of the performance
of, or the refraining from performance of, services is considered
transferred in connection with the performance of services within the
meaning of section 83. The existence of other persons entitled to buy
stock on the same terms and conditions as an employee, whether pursuant
to a public or private offering may, however, indicate that in such
circumstances a transfer to the employee is not in recognition of the
performance of, or the refraining from performance of, services. The
transfer of property is subject to section 83 whether such transfer is
in respect of past, present, or future services.
(g) Amount paid. For purposes of section 83 and the regulations
thereunder, the term ``amount paid'' refers to the value of any money or
property paid for the transfer of property to which section 83 applies,
and does not refer to any amount paid for the right to use such property
or to receive the income therefrom. Such value does not include
[[Page 330]]
any stated or unstated interest payments. For rules regarding the
calculation of the amount of unstated interest payments, see Sec. 1.483-
1(c). When section 83 applies to the transfer of property pursuant to
the exercise of an option, the term ``amount paid'' refers to any amount
paid for the grant of the option plus any amount paid as the exercise
price of the option. For rules regarding the forgiveness of indebtedness
treated as an amount paid, see Sec. 1.83-4(c).
(h) Nonlapse restriction. For purposes of section 83 and the
regulations thereunder, a restriction which by its terms will never
lapse (also referred to as a ``nonlapse restriction'') is a permanent
limitation on the transferability of property--
(1) Which will require the transferee of the property to sell, or
offer to sell, such property at a price determined under a formula, and
(2) Which will continue to apply to and be enforced against the
transferee or any subsequent holder (other than the transferor).
A limitation subjecting the property to a permanent right of first
refusal in a particular person at a price determined under a formula is
a permanent nonlapse restriction. Limitations imposed by registration
requirements of State or Federal security laws or similar laws imposed
with respect to sales or other dispositions of stock or securities are
not nonlapse restrictions. An obligation to resell or to offer to sell
property transferred in connection with the performance of services to a
specific person or persons at its fair market value at the time of such
sale is not a nonlapse restriction. See Sec. 1.83-5(c) for examples of
nonlapse restrictions.
(i) Lapse restriction. For purposes of section 83 and the
regulations thereunder, the term ``lapse restriction'' means a
restriction other than a nonlapse restriction as defined in paragraph
(h) of this section, and includes (but is not limited to) a restriction
that carries a substantial risk of forfeiture.
(j) Sales which may give rise to suit under section 16(b) of the
Securities Exchange Act of 1934--(1) In general. For purposes of section
83 and the regulations thereunder if the sale of property at a profit
within six months after the purchase of the property could subject a
person to suit under section 16(b) of the Securities Exchange Act of
1934, the person's rights in the property are treated as subject to a
substantial risk of forfeiture and as not transferable until the earlier
of (i) the expiration of such six-month period, or (ii) the first day on
which the sale of such property at a profit will not subject the person
to suit under section 16(b) of the Securities Exchange Act of 1934.
However, whether an option is ``transferable by the optionee'' for
purposes of Sec. 1.83-7(b)(2)(i) is determined without regard to section
83(c)(3) and this paragraph (j).
(2) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. On January 1, 1983, X corporation sells to P, a
beneficial owner of 12% of X corporation stock, in connection with P's
performance of services, 100 shares of X corporation stock at $10 per
share. At the time of the sale the fair market value of the X
corporation stock is $100 per share. P, as a beneficial owner of more
10% of X corporation stock, is liable to suit under section 16(b) of the
Securities Exchange Act of 1934 for recovery of any profit from any sale
and purchase or purchase and sale of X corporation stock within a six-
month period, but no other restrictions apply to the stock. Because the
section 16(b) restriction is applicable to P, P's rights in the 100
shares of stock purchased on January 1, 1983, are treated as subject to
a substantial risk of forfeiture and as not transferable through June
29, 1983. P chooses not to make an election under section 83 (b) and
therefore does not include any amount with respect to the stock purchase
in gross income as compensation on the date of purchase. On June 30,
1983, the fair market value of X corporation stock is $250 per share. P
must include $24,000 (100 shares of X corporation stock x $240 ($250
fair market value per share less $10 price paid by P for each share)) in
gross income as compensation on June 30, 1983. If, in this example,
restrictions other than section 16(b) applied to the stock, such other
restrictions (but not section 16(b)) would be taken into account in
determining whether the stock is subject to a substantial risk of
foreiture and is nontransferable for periods after June 29, 1983.
Example 2. Assume the same facts as in example (1) except that P is
not an insider on or after May 1, 1983, and the section 16(b)
restriction does not apply beginning on that date. On May 1, 1983, P
must include in gross
[[Page 331]]
income as compensation the difference between the fair market value of
the stock on that date and the amount paid for the stock.
Example 3. Assume the same facts as in example (1) except that on
June 1, 1983, X corporation sells to P an additional 100 shares of X
corporation stock at $20 per share. At the time of the sale the fair
market value of the X corporation stock is $150 per share. On June 30,
1983, P must include $24,000 in gross income as compensation with
respect to the January 1, 1983 purchase. On November 30, 1983, the fair
market value of X corporation stock is $200 per share. Accordingly, on
that date P must include $18,000 (100 shares of X corporation stock x
$180 ($200 fair market value per share less $20 price paid by P for each
share)) in gross income as compensation with respect to the June 1, 1983
purchase.
Example 4. (i) On June 3, 2013, Y corporation grants to Q, an
officer of Y, a nonstatutory option to purchase Y common stock. Y stock
is traded on an established securities market. Although the option is
immediately exercisable, it has no readily ascertainable fair market
value when it is granted. Under the option, Q has the right to purchase
100 shares of Y common stock for $10 per share, which is the fair market
value of a Y share on the date of grant of the option. The grant of the
option is not one that satisfies the requirements for a transaction that
is exempt from section 16(b) of the Securities Exchange Act of 1934. On
December 15, 2013, Y stock is trading at more than $10 per share. On
that date, Q fully exercises the option, paying the exercise price in
cash, and receives 100 Y shares. Q's rights in the shares received as a
result of the exercise are not conditioned upon the future performance
of substantial services. Because no exemption from section 16(b) was
available for the June 3, 2013 grant of the option, the section 16(b)
liability period expires on December 1, 2013. Accordingly, the section
16(b) liability period expires before the date that Q exercises the
option and the Y common stock is transferred to Q. Thus, the shares
acquired by Q pursuant to the exercise of the option are not subject to
a substantial risk of forfeiture under section 83(c)(3) as a result of
section 16(b). As a result, section 83(c)(3) does not preclude taxation
under section 83 when the shares acquired pursuant to the December 15,
2013 exercise of the option are transferred to Q.
(ii) Assume the same facts as in paragraph (i) of this Example 4
except that Q exercises the nonstatutory option on October 30, 2013 when
Y stock is trading at more than $10 per share. The shares acquired are
subject to a substantial risk of forfeiture under section 83(c)(3) as a
result of section 16(b) through December 1, 2013.
(iii) Assume the same facts as in paragraph (i) of this Example 4
except that on November 5, 2013, Q also purchases 100 shares of Y common
stock on the public market. The purchase of the shares is not a
transaction exempt from section 16(b) of the Securities Exchange Act of
1934. Because no exemption from section 16(b) was available for the
November 5, 2013 purchase of shares, the section 16(b) liability period
with respect to such shares will last for a period of six months after
the November 5, 2013 purchase of shares. Notwithstanding the non-exempt
purchase of Y common stock on November 5, 2013, the shares acquired by Q
pursuant to the December 15, 2013 exercise of the option are not subject
to a substantial risk of forfeiture under section 83(c)(3) as a result
of section 16(b). As a result, section 83(c)(3) does not preclude
taxation under section 83 when the shares acquired pursuant to the
December 15, 2013 exercise of the option are transferred to Q.
(k) For purposes of section 83 and the regulations thereunder,
property is subject to substantial risk of forfeiture and is not
transferable so long as the property is subject to a restriction on
transfer to comply with the ``Pooling-of-Interests Accounting'' rules
set forth in Accounting Series Release Numbered 130 ((10/5/72) 37 FR
20937; 17 CFR 211.130) and Accounting Series Release Numbered 135 ((1/
18/73) 38 FR 1734; 17 CFR 211.135).
(l) Effective/applicability date. This section applies to property
transferred on or after January 1, 2013. For rules relating to property
transferred before that date, see Sec. 1.83-3 as contained in 26 CFR
part 1 (as of April 1, 2012).
[T.D. 7554, 43 FR 31916, July 24, 1978, as amended by T.D. 8042, 50 FR
31713, Aug. 6, 1985; 50 FR 39664, Sept. 30, 1985; T.D. 9092, 68 FR
54351, Sept. 17, 2003; T.D. 9223, 70 FR 50971, Aug. 29, 2005; T.D. 9659,
79 FR 10664, Feb. 26, 2014]
Sec. 1.83-4 Special rules.
(a) Holding period. Under section 83(f), the holding period of
transferred property to which section 83(a) applies shall begin just
after such property is substantially vested. However, if the person who
has performed the services in connection with which property is
transferred has made an election under section 83(b), the holding period
of such property shall begin just after the date such property is
transferred. If property to which section 83 and the regulations
thereunder apply is transferred at arm's length, the holding period of
such property in the hands of the
[[Page 332]]
transferee shall be determined in accordance with the rules provided in
section 1223.
(b) Basis. (1) Except as provided in paragraph (b)(2) of this
section, if property to which section 83 and the regulations thereunder
apply is acquired by any person (including a person who acquires such
property in a subsequent transfer which is not at arm's length), while
such property is still substantially nonvested, such person's basis for
the property shall reflect any amount paid for such property and any
amount includible in the gross income of the person who performed the
services (including any amount so includible as a result of a
disposition by the person who acquired such property.) Such basis shall
also reflect any adjustments to basis provided under sections 1015,
1016, and 1022.
(2) If property to which Sec. 1.83-1 applies is transferred at arm's
length, the basis of the property in the hands of the transferee shall
be determined under section 1012 and the regulations thereunder.
(c) Forgiveness of indebtedness treated as an amount paid. If an
indebtedness that has been treated as an amount paid under Sec. 1.83-
1(a)(1)(ii) is subsequently cancelled, forgiven or satisfied for an
amount less than the amount of such indebtedness, the amount that is
not, in fact, paid shall be includible in the gross income of the
service provider in the taxable year in which such cancellation,
forgiveness or satisfaction occurs.
(d) Effective/applicability date. The provisions in this section are
applicable for taxable years beginning on or after July 21, 1978. The
provisions of paragraph (b)(1) of this section relating to section 1022
are effective on and after January 19, 2017.
[T.D. 7554, 43 FR 31918, July 24, 1978, as amended by T.D. 9811, 82 FR
6236, Jan. 19, 2017]
Sec. 1.83-5 Restrictions that will never lapse.
(a) Valuation. For purposes of section 83 and the regulations
thereunder, in the case of property subject to a nonlapse restriction
(as defined in Sec. 1.83-3(h)), the price determined under the formula
price will be considered to be the fair market value of the property
unless established to the contrary by the Commissioner, and the burden
of proof shall be on the commissioner with respect to such value. If
stock in a corporation is subject to a nonlapse restriction which
requires the transferee to sell such stock only at a formula price based
on book value, a reasonable multiple of earnings or a reasonable
combination thereof, the price so determined will ordinarily be regarded
as determinative of the fair market value of such property for purposes
of section 83. However, in certain circumstances the formula price will
not be considered to be the fair market value of property subject to
such a formula price restriction, even though the formula price
restriction is a substantial factor in determining such value. For
example, where the formula price is the current book value of stock, the
book value of the stock at some time in the future may be a more
accurate measure of the value of the stock than the current book value
of the stock for purposes of determining the fair market value of the
stock at the time the stock becomes substantially vested.
(b) Cancellation--(1) In general. Under section 83(d)(2), if a
nonlapse restriction imposed on property that is subject to section 83
is cancelled, then, unless the taxpayer establishes--
(i) That such cancellation was not compensatory, and
(ii) That the person who would be allowed a deduction, if any, if
the cancellation were treated as compensatory, will treat the
transaction as not compensatory, as provided in paragraph (c)(2) of this
section, the excess of the fair market value of such property (computed
without regard to such restriction) at the time of cancellation, over
the sum of--
(iii) The fair market value of such property (computed by taking the
restriction into account) immediately before the cancellation, and
(iv) The amount, if any, paid for the cancellation, shall be treated
as compensation for the taxable year in which such cancellation occurs.
Whether there has been a noncompensatory cancellation of a nonlapse
restriction under section 83(d)(2) depends upon the
[[Page 333]]
particular facts and circumstances. Ordinarily the fact that the
employee or independent contractor is required to perform additional
services or that the salary or payment of such a person is adjusted to
take the cancellation into account indicates that such cancellation has
a compensatory purpose. On the other hand, the fact that the original
purpose of a restriction no longer exists may indicate that the purpose
of such cancellation is noncompensatory. Thus, for example, if a so-
called ``buy-sell'' restriction was imposed on a corporation's stock to
limit ownership of such stock and is being cancelled in connection with
a public offering of the stock, such cancellation will generally be
regarded as noncompensatory. However, the mere fact that the employer is
willing to forego a deduction under section 83(h) is insufficient
evidence to establish a noncompensatory cancellation of a nonlapse
restriction. The refusal by a corporation or shareholder to repurchase
stock of the corporation which is subject to a permanent right of first
refusal will generally be treated as a cancellation of a nonlapse
restriction. The preceding sentence shall not apply where there is no
nonlapse restriction, for example, where the price to be paid for the
stock subject to the right of first refusal is the fair market value of
the stock. Section 83(d)(2) and this (1) do not apply where immediately
after the cancellation of a nonlapse restriction the property is still
substantially nonvested and no section 83(b) election has been made with
respect to such property. In such a case the rules of section 83(a) and
Sec. 1.83-1 shall apply to such property.
(2) Evidence of noncompensatory cancellation. In addition to the
information necessary to establish the factors described in paragraph
(b)(1) of this section, the taxpayer shall request the employer to
furnish the taxpayer with a written statement indicating that the
employer will not treat the cancellation of the nonlapse restriction as
a compensatory event, and that no deduction will be taken with respect
to such cancellation. The taxpayer shall file such written statement
with his income tax return for the taxable year in which or with which
such cancellation occurs.
(c) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. On November 1, 1971, X corporation whose shares are
closely held and not regularly traded, transfers to E, an employee, 100
shares of X corporation stock subject to the condition that, if he
desires to dispose of such stock during the period of his employment, he
must resell the stock to his employer at its then existing book value.
In addition, E or E's estate is obligated to offer to sell the stock at
his retirement or death to his employer at its then existing book value.
Under these facts and circumstances, the restriction to which the shares
of X corporation stock are subject is a nonlapse restriction.
Consequently, the fair market value of the X stock is includible in E's
gross income as compensation for taxable year 1971. However, in
determining the fair market value of the X stock, the book value formula
price will ordinarily be regarded as being determinative of such value.
Example 2. Assume the facts are the same as in example (1), except
that the X stock is subject to the condition that if E desires to
dispose of the stock during the period of his employment he must resell
the stock to his employer at a multiple of earnings per share that is in
this case a reasonable approximation of value at the time of transfer to
E. In addition, E or E's estate is obligated to offer to sell the stock
at his retirement or death to his employer at the same multiple of
earnings. Under these facts and circumstances, the restriction to which
the X corporation stock is subject is a nonlapse restriction.
Consequently, the fair market value of the X stock is includible in E's
gross income for taxable year 1971. However, in determining the fair
market value of the X stock, the multiple-of-earnings formula price will
ordinarily be regarded as determinative of such value.
Example 3. On January 4, 1971, X corporation transfers to E, an
employee, 100 shares of stock in X corporation. Each such share of stock
is subject to an agreement between X and E whereby E agrees that such
shares are to be held solely for investment purposes and not for resale
(a so-called investment letter restriction). E's rights in such stock
are substantially vested upon transfer, causing the fair market value of
each share of X corporation stock to be includible in E's gross income
as compensation for taxable year 1971. Since such an investment letter
restriction does not constitute a nonlapse restriction, in determining
the fair market value of each share, the investment letter restriction
is disregarded.
Example 4. On September 1, 1971, X corporation transfers to B, an
independent contractor, 500 shares of common stock in X corporation in
exchange for B's agreement to
[[Page 334]]
provide services in the construction of an office building on property
owned by X corporation. X corporation has 100 shares of preferred stock
outstanding and an additional 500 shares of common stock outstanding.
The preferred stock has a liquidation value of $1,000x, which is equal
to the value of all assets owned by X. Therefore, the book value of the
common stock in X corporation is $0. Under the terms of the transfer, if
B wishes to dispose of the stock, B must offer to sell the stock to X
for 150 percent of the then existing book value of B's common stock. The
stock is also subject to a substantial risk of forfeiture until B
performs the agreed-upon services. B makes a timely election under
section 83(b) to include the value of the stock in gross income in 1971.
Under these facts and circumstances, the restriction to which the shares
of X corporation common stock are subject is a nonlapse restriction. In
determining the fair market value of the X common stock at the time of
transfer, the book value formula price would ordinarily be regarded as
determinative of such value. However, the fair market value of X common
stock at the time of transfer, subject to the book value restriction, is
greater than $0 since B was willing to agree to provide valuable
personal services in exchange for the stock. In determining the fair
market value of the stock, the expected book value after construction of
the office building would be given great weight. The likelihood of
completion of construction would be a factor in determining the expected
book value after completion of construction.
[T.D. 7554, 43 FR 31918, July 24, 1978]
Sec. 1.83-6 Deduction by employer.
(a) Allowance of deduction--(1) General rule. In the case of a
transfer of property in connection with the performance of services, or
a compensatory cancellation of a nonlapse restriction described in
section 83(d) and Sec. 1.83-5, a deduction is allowable under section
162 or 212 to the person for whom the services were performed. The
amount of the deduction is equal to the amount included as compensation
in the gross income of the service provider under section 83 (a), (b),
or (d)(2), but only to the extent the amount meets the requirements of
section 162 or 212 and the regulations thereunder. The deduction is
allowed only for the taxable year of that person in which or with which
ends the taxable year of the service provider in which the amount is
included as compensation. For purposes of this paragraph, any amount
excluded from gross income under section 79 or section 101(b) or
subchapter N is considered to have been included in gross income.
(2) Special Rule. For purposes of paragraph (a)(1) of this section,
the service provider is deemed to have included the amount as
compensation in gross income if the person for whom the services were
performed satisfies in a timely manner all requirements of section 6041
or section 6041A, and the regulations thereunder, with respect to that
amount of compensation. For purposes of the preceding sentence, whether
a person for whom services were performed satisfies all requirements of
section 6041 or section 6041A, and the regulations thereunder, is
determined without regard to Sec. 1.6041-3(c) (exception for payments to
corporations). In the case of a disqualifying disposition of stock
described in section 421(b), an employer that otherwise satisfies all
requirements of section 6041 and the regulations thereunder will be
considered to have done so timely for purposes of this paragraph (a)(2)
if Form W-2 or Form W-2c, as appropriate, is furnished to the employee
or former employee, and is filed with the federal government, on or
before the date on which the employer files the tax return claiming the
deduction relating to the disqualifying disposition.
(3) Exceptions. Where property is substantially vested upon
transfer, the deduction shall be allowed to such person in accordance
with his method of accounting (in conformity with sections 446 and 461).
In the case of a transfer to an employee benefit plan described in
Sec. 1.162-10(a) or a transfer to an employees' trust or annuity plan
described in section 404(a)(5) and the regulations thereunder, section
83(h) and this section do not apply.
(4) Capital expenditure, etc. No deduction is allowed under section
83(h) to the extent that the transfer of property constitutes a capital
expenditure, an item of deferred expense, or an amount properly
includible in the value of inventory items. In the case of a capital
expenditure, for example, the basis of the property to which such
capital expenditure relates shall be increased at the same time and to
the same extent as any amount includible in the employee's gross income
in respect of
[[Page 335]]
such transfer. Thus, for example, no deduction is allowed to a
corporation in respect of a transfer of its stock to a promoter upon its
organization, notwithstanding that such promoter must include the value
of such stock in his gross income in accordance with the rules under
section 83.
(5) Transfer of life insurance contract (or an undivided interest
therein)--(i) General rule. In the case of a transfer of a life
insurance contract (or an undivided interest therein) described in
Sec. 1.61-22(c)(3) in connection with the performance of services, a
deduction is allowable under paragraph (a)(1) of this section to the
person for whom the services were performed. The amount of the
deduction, if allowable, is equal to the sum of the amount included as
compensation in the gross income of the service provider under
Sec. 1.61-22(g)(1) and the amount determined under Sec. 1.61-
22(g)(1)(ii).
(ii) Effective date--(A) General rule. Paragraph (a)(5)(i) of this
section applies to any split-dollar life insurance arrangement (as
defined in Sec. 1.61-22(b)(1) or (2)) entered into after September 17,
2003. For purposes of this paragraph (a)(5), an arrangement is entered
into as determined under Sec. 1.61-22(j)(1)(ii).
(B) Modified arrangements treated as new arrangements. If an
arrangement entered into on or before September 17, 2003 is materially
modified (within the meaning of Sec. 1.61-22(j)(2)) after September 17,
2003, the arrangement is treated as a new arrangement entered into on
the date of the modification.
(6) Effective date. Paragraphs (a)(1) and (2) of this section apply
to deductions for taxable years beginning on or after January 1, 1995.
However, taxpayers may also apply paragraphs (a)(1) and (2) of this
section when claiming deductions for taxable years beginning before that
date if the claims are not barred by the statute of limitations.
Paragraphs (a) (3) and (4) of this section are effective as set forth in
Sec. 1.83-8(b).
(b) Recognition of gain or loss. Except as provided in section 1032,
at the time of a transfer of property in connection with the performance
of services the transferor recognizes gain to the extent that the
transferor receives an amount that exceeds the transferor's basis in the
property. In addition, at the time a deduction is allowed under section
83(h) and paragraph (a) of this section, gain or loss is recognized to
the extent of the difference between (1) the sum of the amount paid plus
the amount allowed as a deduction under section 83(h), and (2) the sum
of the taxpayer's basis in the property plus any amount recognized
pursuant to the previous sentence.
(c) Forfeitures. If, under section 83(h) and paragraph (a) of this
section, a deduction, an increase in basis, or a reduction of gross
income was allowable (disregarding the reasonableness of the amount of
compensation) in respect of a transfer of property and such property is
subsequently forfeited, the amount of such deduction, increase in basis
or reduction of gross income shall be includible in the gross income of
the person to whom it was allowable for the taxable year of forfeiture.
The basis of such property in the hands of the person to whom it is
forfeited shall include any such amount includible in the gross income
of such person, as well as any amount such person pays upon forfeiture.
(d) Special rules for transfers by shareholders--(1) Transfers. If a
shareholder of a corporation transfers property to an employee of such
corporation or to an independent contractor (or to a beneficiary
thereof), in consideration of services performed for the corporation,
the transaction shall be considered to be a contribution of such
property to the capital of such corporation by the shareholder, and
immediately thereafter a transfer of such property by the corporation to
the employee or independent contractor under paragraphs (a) and (b) of
this section. For purposes of this (1), such a transfer will be
considered to be in consideration for services performed for the
corporation if either the property transferred is substantially
nonvested at the time of transfer or an amount is includible in the
gross income of the employee or independent contractor at the time of
transfer under Sec. 1.83-1(a)(1) or Sec. 1.83-2(a). In the case of such
a transfer, any money or other property paid to the shareholder for such
stock shall be considered to be paid to the corporation
[[Page 336]]
and transferred immediately thereafter by the corporation to the
shareholder as a distribution to which section 302 applies. For special
rules that may applyto a corporation's transfer of its own stock to any
person in consideration of services performed for another corporation or
partnership, see Sec. 1.1032-3. The preceding sentence applies to
transfers of stock and amounts paid for such stock occurring on or after
May 16, 2000.
(2) Forfeiture. If, following a transaction described in paragraph
(d)(1) of this section, the transferred property is forfeited to the
shareholder, paragraph (c) of this section shall apply both with respect
to the shareholder and with respect to the corporation. In addition, the
corporation shall in the taxable year of forfeiture be allowed a loss
(or realize a gain) to offset any gain (or loss) realized under
paragraph (b) of this section. For example, if a shareholder transfers
property to an employee of the corporation as compensation, and as a
result the shareholder's basis of $200x in such property is allocated to
his stock in such corporation and such corporation recognizes a short-
term capital gain of $800x, and is allowed a deduction of $1,000x on
such transfer, upon a subsequent forfeiture of the property to the
shareholder, the shareholder shall take $200x into gross income, and the
corporation shall take $1,000x into gross income and be allowed a short-
term capital loss of $800x.
(e) Options. [Reserved]
(f) Reporting requirements. [Reserved]
[T.D. 7554, 43 FR 31919, July 24, 1978, as amended by T.D. 8599, July
19, 1995; T.D. 8883, 65 FR 31076, May 16, 2000; T.D. 9092, 68 FR 54352,
Sept. 17, 2003]
Sec. 1.83-7 Taxation of nonqualified stock options.
(a) In general. If there is granted to an employee or independent
contractor (or beneficiary thereof) in connection with the performance
of services, an option to which section 421 (relating generally to
certain qualified and other options) does not apply, section 83(a) shall
apply to such grant if the option has a readily ascertainable fair
market value (determined in accordance with paragraph (b) of this
section) at the time the option is granted. The person who performed
such services realizes compensation upon such grant at the time and in
the amount determined under section 83(a). If section 83(a) does not
apply to the grant of such an option because the option does not have a
readily ascertainable fair market value at the time of grant, sections
83(a) and 83(b) shall apply at the time the option is exercised or
otherwise disposed of, even though the fair market value of such option
may have become readily ascertainable before such time. If the option is
exercised, sections 83(a) and 83(b) apply to the transfer of property
pursuant to such exercise, and the employee or independent contractor
realizes compensation upon such transfer at the time and in the amount
determined under section 83(a) or 83(b). If the option is sold or
otherwise disposed of in an arm's length transaction, sections 83(a) and
83(b) apply to the transfer of money or other property received in the
same manner as sections 83(a) and 83(b) would have applied to the
transfer of property pursuant to an exercise of the option. The
preceding sentence does not apply to a sale or other disposition of the
option to a person related to the service provider that occurs on or
after July 2, 2003. For this purpose, a person is related to the service
provider if--
(1) The person and the service provider bear a relationship to each
other that is specified in section 267(b) or 707(b)(1), subject to the
modifications that the language ``20 percent'' is used instead of ``50
percent'' each place it appears in sections 267(b) and 707(b)(1), and
section 267(c)(4) is applied as if the family of an individual includes
the spouse of any member of the family; or
(2) The person and the service provider are engaged in trades or
businesses under common control (within the meaning of section 52(a) and
(b)); provided that a person is not related to the service provider if
the person is the service recipient with respect to the option or the
grantor of the option.
(b) Readily ascertainable defined--(1) Actively traded on an
established market. Options have a value at the time they are granted,
but that value is ordinarily not readily ascertainable unless
[[Page 337]]
the option is actively traded on an established market. If an option is
actively traded on an established market, the fair market value of such
option is readily ascertainable for purposes of this section by applying
the rules of valuation set forth in Sec. 20.2031-2.
(2) Not actively traded on an established market. When an option is
not actively traded on an established market, it does not have a readily
ascertainable fair market value unless its fair market value can
otherwise be measured with reasonable accuracy. For purposes of this
section, if an option is not actively traded on an established market,
the option does not have a readily ascertainable fair market value when
granted unless the taxpayer can show that all of the following
conditions exist:
(i) The option is transferable by the optionee;
(ii) The option is exerciseable immediately in full by the optionee;
(iii) The option or the property subject to the option is not
subject to any restriction or condition (other than a lien or other
condition to secure the payment of the purchase price) which has a
significant effect upon the fair market value of the option; and
(iv) The fair market value of the option privilege is readily
ascertainable in accordance with paragraph (b)(3) of this section.
(3) Option privilege. The option privilege in the case of an option
to buy is the opportunity to benefit during the option's exercise period
from any increase in the value of property subject to the option during
such period, without risking any capital. Similarly, the option
privilege in the case of an option to sell is the opportunity to benefit
during the exercise period from a decrease in the value of property
subject to the option. For example, if at some time during the exercise
period of an option to buy, the fair market value of the property
subject to the option is greater than the option's exercise price, a
profit may be realized by exercising the option and immediately selling
the property so acquired for its higher fair market value. Irrespective
of whether any such gain may be realized immediately at the time an
option is granted, the fair market value of an option to buy includes
the value of the right to benefit from any future increase in the value
of the property subject to the option (relative to the option exercise
price), without risking any capital. Therefore, the fair market value of
an option is not merely the difference that may exist at a particular
time between the option's exercise price and the value of the property
subject to the option, but also includes the value of the option
privilege for the remainder of the exercise period. Accordingly, for
purposes of this section, in determining whether the fair market value
of an option is readily ascertainable, it is necessary to consider
whether the value of the entire option privilege can be measured with
reasonable accuracy. In determining whether the value of the option
privilege is readily ascertainable, and in determining the amount of
such value when such value is readily ascertainable, it is necessary to
consider--
(i) Whether the value of the property subject to the option can be
ascertained;
(ii) The probability of any ascertainable value of such property
increasing or decreasing; and
(iii) The length of the period during which the option can be
exercised.
(c) Reporting requirements. [Reserved]
(d) This section applies on and after July 2, 2003. For transactions
prior to that date, see Sec. 1.83-7 as published in 26 CFR part 1
(revised as of April 1, 2003).
[T.D. 7554, 43 FR 31920, July 24, 1978, as amended by T.D. 9067, 68 FR
39454, July 2, 2003; T.D. 9148, 69 FR 48392, Aug. 10, 2004]
Sec. 1.83-8 Applicability of section and transitional rules.
(a) Scope of section 83. Section 83 is not applicable to--
(1) A transaction concerning an option to which section 421 applies;
(2) A transfer to or from a trust described in section 401(a) for
the benefit of employees or their beneficiaries, or a transfer under an
annuity plan that meets the requirements of section 404(a)(2) for the
benefit of employees or their beneficiaries;
(3) The transfer of an option without a readily ascertainable fair
market value (as defined in Sec. 1.83-7(b)(1)); or
[[Page 338]]
(4) The transfer of property pursuant to the exercise of an option
with a readily ascertainable fair market value at the date of grant.
Section 83 applies to a transfer to or from a trust or under an annuity
plan for the benefit of employees, independent contractors, or their
beneficiaries (except as provided in paragraph (a)(2) of this section),
but to the extent a transfer is subject to section 402(b) or 403(c),
section 83 applies to such a transfer only as provided for in section
402(b) or 403(c).
(b) Transitional rules--(1) In general. Except as otherwise provided
in this paragraph, section 83 and the regulations thereunder shall apply
to property transferred after June 30, 1969.
(2) Binding written contracts. Section 83 and the regulations
thereunder shall not apply to property transferred pursuant to a binding
written contract entered into before April 22, 1969. For purposes of
this paragraph, a binding written contract means only a written contract
under which the employee or independent contractor has an enforceable
right to compel the transfer of property or to obtain damages upon the
breach of such contract. A contract which provides that a person's right
to such property is contingent upon the happening of an event (including
the passage of time) may satisfy the requirements of this paragraph.
However, if the event itself, or the determination of whether the event
has occurred, rests with the board of directors or any other individual
or group acting on behalf of the employer (other than an arbitrator),
the contract will not be treated as giving the person an enforceable
right for purposes of this paragraph.
The fact that the board of directors has the power (either expressly or
impliedly) to terminate employment of an officer pursuant to a contract
that contemplates the completion of services over a fixed or
ascertainable period does not negate the existence of a binding written
contract. Nor will the binding nature of the contract be negated by a
provision in such contract which allows the employee or independent
contractor to terminate the contract for any year and receive cash
instead of property if such election would cause a substantial penalty,
such as a forfeiture of part or all of the property received in
connection with the performance of services in an earlier year.
(3) Options granted before April 22, 1969. Section 83 shall not
apply to property received upon the exercise of an option granted before
April 22, 1969.
(4) Certain written plans. Section 83 shall not apply to property
transferred (whether or not by the exercise of an option) before May 1,
1970, pursuant to a written plan adopted and approved before July 1,
1969. A plan is to be considered as having been adopted and approved
before July 1, 1969, only if prior to such date the transferor of the
property undertook an ascertainable course of conduct which under
applicable State law does not require further approval by the board of
directors or the stockholders of any corporation. For example, if a
corporation transfers property to an employee in connection with the
performance of services pursuant to a plan adopted and approved before
July 1, 1969, by the board of directors of such corporation, it is not
necessary that the stockholders have adopted or approved such plan if
State law does not require such approval. However, such approval is
necessary if required by the articles of incorporation or the bylaws or
if, by its terms, such plan will not become effective without such
approval.
(5) Certain options granted pursuant to a binding written contract.
Section 83 shall not apply to property transferred before January 1,
1973, upon the exercise of an option granted pursuant to a binding
written contract (as defined in paragraph (b)(2) of this section)
entered into before April 22, 1969, between a corporation and the
transferor of such property requiring the transferor to grant options to
employees of such corporation (or a subsidiary of such corporation) to
purchase a determinable number of shares of stock of such corporation,
but only if the transferee was an employee of such corporation (or a
subsidiary of such corporation) on or before April 22, 1969.
(6) Certain tax free exchanges. Section 83 shall not apply to
property transferred in exchange for (or pursuant to the exercise of a
conversion privilege
[[Page 339]]
contained in) property transferred before July 1, 1969, or in exchange
for property to which section 83 does not apply (by reason of paragraphs
(1), (2), (3), or (4) of section 83(i)), if section 354, 355, 356, or
1036 (or so much of section 1031 as relates to section 1036) applies, or
if gain or loss is not otherwise required to be recognized upon the
exercise of such conversion privilege, and if the property received in
such exchange is subject to restrictions and conditions substantially
similar to those to which the property given in such exchange was
subject.
[T.D. 7554, 43 FR 31921, July 24, 1978]
Sec. 1.84-1 Transfer of appreciated property to political organizations.
(a) Transfer defined. A transfer after May 7, 1974, of property to a
political organization (as defined in section 527(e)(1), and including a
newsletter fund to the extent provided under section 527(g)) is treated
as a sale of the property to the political organization if the fair
market value of the property exceeds its adjusted basis. The transferor
is treated as having realized an amount equal to the fair market value
of the property on the date of the transfer. For purposes of this
section, a transfer is any assignment, conveyance, or delivery of
property other than a bona fide sale for an adequate and full
consideration in money or money's worth, whether the transfer is in
trust or otherwise, whether the transfer is direct or indirect and
whether the property is real or personal, tangible or intangible. Thus,
for example, a sale at less than fair market value (other than an
ordinary trade discount), or a receipt of property by a political
organization under an agency agreement entitling the organization to
sell the property and retain all or a portion of the proceeds of the
sale, is a transfer within the meaning, of this section. The term
``transfer'' also includes an illegal contribution of property.
(b) Amount realized. A transferor to whom this section applies
realizes an amount equal to the fair market value of the property on the
date of the transfer. For purposes of this section, the definition of
fair market value set forth in Sec. 1.170A-1(c) (2) and (3) is
incorporated by reference.
(c) Amount recognized. A transferor to whom this section applies is
treated as having sold the property to the political organization on the
date of the transfer. Therefore, the rules of chapter 1 of subtitle A
(relating to income tax) apply to the gain realized under this section
as if this gain were an amount realized upon the sale of the property.
These rules include those of section 55 and section 56 (relating to
minimum tax for tax preference), section 306 (relating to disposition of
certain stock), section 1201 (relating to the alternative tax on certain
capital gains), section 1245 (relating to gain from dispositions of
certain depreciable property), and section 1250 (relating to gain from
dispositions of certain depreciable realty).
(d) Holding period. The holding period of property transferred to a
political organization to which this section applies begins on the day
after the date of acquisition of the property by the political
organization.
[T.D. 7671, 45 FR 8003, Feb. 6, 1980]
Sec. 1.85-1 Unemployment compensation.
(a) Introduction. Section 85 prescribes rules relating to the
inclusion in gross income of unemployment compensation (as defined in
paragraph (b)(1) of this section) paid in taxable years beginning after
December 31, 1978, pursuant to governmental programs. In general, these
rules provide that unemployment compensation paid pursuant to
governmental programs is includible in the gross income of a taxpayer if
the taxpayer's modified adjusted gross income (as defined in paragraph
(b)(2) of this section) exceeds a statutory base amount (as defined in
paragraph (b)(3) of this section). If there is such an excess, however,
the amount included in gross income is limited under paragraph (c)(1) of
this section to the lesser of one-half of such excess or the amount of
the unemployment compensation. If such taxpayer's modified adjusted
gross income does not exceed the applicable statutory base amount, none
of the unemployment compensation is included in the taxpayer's gross
income.
[[Page 340]]
(b) Definitions--(1) Unemployment compensation--(i) General rule.
Except as provided in paragraph (b)(1)(iii) of this section, the term
``unemployment compensation'' means any amount received under a law of
the United States, or of a State, which is in the nature of unemployment
compensation. Thus, section 85 applies only to unemployment compensation
paid pursuant to governmental programs and does not apply to amounts
paid pursuant to private nongovernmental unemployment compensation plans
(which are includible in income without regard to section 85).
Generally, unemployment compensation programs are those designed to
protect taxpayers against the loss of income caused by involuntary
layoff. Ordinarily, unemployment compensation is paid in cash and on a
periodic basis. The amount of the payments is usually computed in
accordance with formula based on the taxpayer's length of prior
employment and wages. Such payments, however, may be made in a lump sum
or other than in cash or on some other basis.
(ii) Disability and worker's compensation payments. Amounts in the
nature of unemployment compensation also include cash disability
payments made pursuant to a governmental program as a substitute for
case unemployment payments to an unemployed taxpayer who is ineligible
for such payments solely because of the disability. Usually these
disability payments are paid in the same weekly amount and for the same
period as the unemployment compensation benefits to which the unemployed
taxpayer otherwise would have been entitled. Amounts received under
workmen's compensation acts as compensation for personal injuries or
sickness are not amounts in the nature of unemployment compensation. See
section 104(a)(1) relating to the exclusion from gross income of such
amounts.
(iii) Employee contributions to a governmental plan. If a
governmental unemployment compensation program is funded in part by an
employee's contribution which is not deductible by the employee, an
amount paid to such employee under the program is not to be considered
unemployment compensation until an amount equal to the total
nondeductible contributions paid by the employee to such program has
been paid to such employee.
(iv) Examples of governmental unemployment compensation programs.
Governmental unemployment compensation programs include (but are not
limited to) programs established under:
(A) A State law approved by the Secretary of Labor pursuant to
section 3304 of the Internal Revenue Code of 1954.
(B) Chapter 85 of title 5, United States Code, relating to
unemployment compensation for Federal employees generally and for ex-
servicemen.
(C) Trade Act of 1974, sections 231 and 232 (19 U.S.C. 2291 and
2292).
(D) Disaster Relief Act of 1974, section 407 (42 U.S.C. 5177).
(E) The Airline Deregulation Act of 1978 (49 U.S.C. 1552(b)).
(F) The Railroad Unemployment Insurance Act, section 2 (45 U.S.C.
352).
(2) Modified adjusted gross income. The term ``modified adjusted
gross income'' means the sum of the following amounts:
(i) Adjusted gross income (as defined in section 62);
(ii) All disability payments of the type that are eligible for
exclusion from gross income under section 105(d); and
(iii) All amounts of unemployment compensation (as defined in
paragraph (b)(1) of this section).
(3) Base amount. The term ``base amount'' means--
(i) $25,000 in the case of a joint return under section 6013.
(ii) Zero in the case of a taxpayer who--
(A) Is married (within the meaning of section 143) at the close of
the taxable year,
(B) Does not file a joint return for such taxable year, and
(C) Does not live apart (as defined in paragraph (b)(4) of this
section) from his or her spouse at all times during the taxable year.
(iii) $20,000 in the case of all other taxpayers.
(4) Living apart. A taxpayer does not ``live apart'' from his or her
spouse at all times during a taxable year if for any period during the
taxable year the taxpayer is a member of the same
[[Page 341]]
household as such taxpayer's spouse. A taxpayer is a member of a
household for any period, including temporary absences due to special
circumstances, during which the household is the taxpayer's place of
abode. A temporary absence due to special circumstances includes a
nonpermanent absence caused by illness, education, business, vacation,
or military service.
(c) Limitations--(1) General rule. If for a taxable year, a
taxpayer's modified adjusted gross income does not exceed the applicable
statutory base amount, no amount of unemployment compensation is
included in gross income for the taxable year. If there is such an
excess, the taxpayer includes in gross income for the taxable year the
lesser of the following:
(i) One-half of the excess of the taxpayer's modified adjusted gross
income over such taxpayer's base amount, or
(ii) The amount of unemployment compensation.
(2) Exception for fraudulently received unemployment compensation.
If a taxpayer fraudulently receives unemployment compensation under any
governmental unemployment compensation program, then the entire amount
of such fraudulently received unemployment compensation must be included
in the taxpayer's gross income for the taxable year in which the
benefits were received. Thus, the limitation in section 85 and in
paragraph (c)(1) of this section, does not apply to such amounts.
(3) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. H and W are married taxpayers who for calendar year 1979
file a joint income tax return. During 1979 H receives $4,500 of
disability income that is eligible for an exclusion under section
105(d). W works for part of 1979 and receives $20,000 as compensation
and also receives $5,000 of unemployment compensation in 1979. Assume
that H and W's adjusted gross income is $20,000. The modified adjusted
gross income of H and W is $29,500 ($4,500 + $20,000 + $5,000). Since
their modified adjusted gross income ($29,500) is greater than their
base amount ($25,000), some of the unemployment compensation received by
W must be included in their gross income on their 1979 joint income tax
return. Under paragraph (c)(1) of this section, of the $5,000 which is
unemployment compensation, the lesser of $2,250 (($29,500--$25,000) 2)
or $5,000 must be included in their gross income. Thus, $2,250 of the
$5,000 received by W in 1979 is included in the gross income of H and W
on their joint income tax return for 1979.
Example 2. Assume the same facts in example (1) except H received
$5,000 of disability income that is eligible for an exclusion under
section 105(d) and W receives $28,000 as compensation, and $4,000 which
is unemployment compensation. Assume that H and W's adjusted gross
income is $28,000. The modified adjusted gross income of H and W is
$37,000 ($4,000 + $28,000 + $5,000). Since their modified adjusted gross
income ($37,000) is greater than their base amount ($25,000), all of the
unemployment compensation received by W must be included in their gross
income on their 1979 joint income tax return. Under paragraph (c)(1) of
this section, of the $4,000 which is unemployment compensation, the
lesser of $6,000 (($37,000--$25,000) 2) or $4,000 must be included in
their gross income. Thus, all of the $4,000 unemployment compensation
received by W is included in the gross income of H and W on their joint
income tax return for 1979.
(d) Cross reference. See section 6050B, relating to the requirement
that every person who makes payments of unemployment compensation
aggregating $10 or more to any individual during any calendar year file
an information return with the Internal Revenue Service.
[T.D. 7705, 45 FR 46069, July 9, 1980]
Sec. 1.88-1 Nuclear decommissioning costs.
(a) In general. Section 88 provides that the amount of nuclear
decommissioning costs directly or indirectly charged to the customers of
a taxpayer that is engaged in the furnishing or sale of electric energy
generated by a nuclear power plant must be included in the gross income
of such taxpayer in the same manner as amounts charged for electric
energy. For this purpose, decommissioning costs directly or indirectly
charged to the customers of a taxpayer include all decommissioning costs
that consumers are liable to pay by reason of electric energy furnished
by the taxpayer during the taxable year, whether payable to the
taxpayer, a trust, State government, or other entity, and even though
the taxpayer may not control the investment or current expenditure of
the amount and the
[[Page 342]]
amount may not be paid to the taxpayer at the time decommissioning costs
are incurred. However, decommissioning costs payable to a taxpayer
holding a qualified leasehold interest (as described in paragraph
(b)(2)(ii) of Sec. 1.468A-1) are included in the gross income of such
taxpayer, and not in the gross income of the lessor.
(b) Examples. The following examples illustrate the application of
the principles of paragraph (a) of this section:
Example 1. X corporation, an accrual method taxpayer engaged in the
sale of electric energy generated by a nuclear power plant owned by X,
is authorized by the public utility commission of State A to collect
nuclear decommissioning costs from ratepayers residing in State A. With
respect to the sale of electric energy, X includes in income amounts
that have been billed to customers as well as estimated unbilled amounts
that relate to energy provided by X after the previous billing but
before the end of the taxable year (``accrued unbilled amounts''). The
decommissioning costs are included in the monthly bills provided by X to
its ratepayers and the entire amount billed is remitted directly to X.
Under paragraph (a) of this section, the decommissioning costs must be
included in the gross income of X in the same manner as amounts charged
for electric energy (i.e., by including in income decommissioning costs
that relate to amounts billed as well as decommissioning costs that
relate to accrued unbilled amounts). The same rule would apply if the
decommissioning costs charged to ratepayers were separately billed and
the amounts billed were remitted to State A to be held in trust for the
purpose of decommissioning the nuclear power plant owned by X. In that
case, X must include in gross income decommissioning costs that relate
to amounts billed as well as decommissioning costs that relate to
accrued unbilled amounts.
Example 2. Assume the same facts as in Example (1), except that X
and M, a municipality located in State A, have entered into a life-of-
unit contract pursuant to which (i) M is entitled to 20 percent of the
electric energy generated by the nuclear power plant owned by X, and
(ii) M is obligated to pay 20 percent of the plant operating costs,
including decommissioning costs, incurred by X. Under paragraph (a) of
this section, the decommissioning costs that relate to electric energy
consumed or distributed by M during any taxable year must be included in
the gross income of X for such taxable year. The result contained in
this example would be the same if M was a State or an agency or
instrumentality of a State or a political subdivision thereof.
(c) Cross reference. For special rules relating to the deduction for
amounts paid to a nuclear decommissioning fund, see Sec. 1.468A-1
through Sec. 1.468A-5, 1.468A-7, 1.468A-8.
(d) Effective date. (1) Section 88 and this section apply to nuclear
decommissioning costs directly or indirectly charged to the customers of
a taxpayer on or after July 18, 1984, and with respect to taxable years
ending on or after such date.
(2) If the amount of nuclear decommissioning costs directly or
indirectly charged to the customers of a taxpayer before July 18, 1984,
was includible in gross income in a different manner than amounts
charged for electric energy, such amount must be included in gross
income for the taxable year in which includible in gross income under
the method of accounting of the taxpayer that was in effect when such
amount was charged to customers.
[T.D. 8184, 53 FR 6804, Mar. 3, 1988]
Items Specifically Excluded From Gross Income
Sec. 1.101-1 Exclusion from gross income of proceeds of life
insurance contracts payable by reason of death.
(a)(1) In general. Section 101(a)(1) states the general rule that
the proceeds of life insurance policies, if paid by reason of the death
of the insured, are excluded from the gross income of the recipient.
Death benefit payments having the characteristics of life insurance
proceeds payable by reason of death under contracts, such as workmen's
compensation insurance contracts, endowment contracts, or accident and
health insurance contracts, are covered by this provision. For
provisions relating to death benefits paid by or on behalf of employers,
see section 101(b) and Sec. 1.101-2. The exclusion from gross income
allowed by section 101(a) applies whether payment is made to the estate
of the insured or to any beneficiary (individual, corporation, or
partnership) and whether it is made directly or in trust. The extent to
which this exclusion applies in cases where life insurance policies have
been transferred for a valuable consideration is stated in section
101(a)(2) and in paragraph (b) of this section. In cases where
[[Page 343]]
the proceeds of a life insurance policy, payable by reason of the death
of the insured, are paid other than in a single sum at the time of such
death, the amounts to be excluded from gross income may be affected by
the provisions of section 101 (c) (relating to amounts held under
agreements to pay interest) or section 101(d) (relating to amounts
payable at a date later than death). See Secs. 1.101-3 and 1.101-4.
However, neither section 101(c) nor section 101(d) applies to a single
sum payment which does not exceed the amount payable at the time of
death even though such amount is actually paid at a date later than
death.
(2) Cross references. For rules governing the taxability of
insurance proceeds constituting benefits payable on the death of an
employee--
(i) Under pension, profit-sharing, or stock bonus plans described in
section 401(a) and exempt from tax under section 501(a), or under
annuity plans described in section 403(a), see section 72 (m)(3) and
paragraph (c) of Sec. 1.72-16;
(ii) Under annuity contracts to which Sec. 1.403(b)-3 applies, see
Sec. 1.403(b)-7; or
(iii) Under eligible State deferred compensation plans described in
section 457(b), see paragraph (c) of Sec. 1.457-1.
For the definition of a life insurance company, see section 801.
(b) Transfers of life insurance policies. (1) In the case of a
transfer, by assignment or otherwise, of a life insurance policy or any
interest therein for a valuable consideration, the amount of the
proceeds attributable to such policy or interest which is excludable
from the transferee's gross income is generally limited to the sum of
(i) the actual value of the consideration for such transfer, and (ii)
the premiums and other amounts subsequently paid by the transferee (see
section 101(a)(2) and example (1) of subparagraph (5) of this
paragraph). However, this limitation on the amount excludable from the
transferee's gross income does not apply (except in certain special
cases involving a series of transfers), where the basis of the policy or
interest transferred, for the purpose of determining gain or loss with
respect to the transferee, is determinable, in whole or in part, by
reference to the basis of such policy or interest in the hands of the
transferor (see section 101(a)(2)(A) and examples (2) and (4) of
subparagraph (5) of this paragraph). Neither does the limitation apply
where the policy or interest therein is transferred to the insured, to a
partner of the insured, to a partnership in which the insured is a
partner, or to a corporation in which the insured is a shareholder or
officer (see section 101(a)(2)(B)). For rules relating to gratuitous
transfers, see subparagraph (2) of this paragraph. For special rules
with respect to certain cases where a series of transfers is involved,
see subparagraph (3) of this paragraph.
(2) In the case of a gratuitous transfer, by assignment or
otherwise, of a life insurance policy or any interest therein, as a
general rule the amount of the proceeds attributable to such policy or
interest which is excludable from the transferee's gross income under
section 101(a) is limited to the sum of (i) the amount which would have
been excludable by the transferor (in accordance with this section) if
no such transfer had taken place, and (ii) any premiums and other
amounts subsequently paid by the transferee. See example (6) of
subparagraph (5) of this paragraph. However, where the gratuitous
transfer in question is made by or to the insured, a partner of the
insured, a partnership in which the insured is a partner, or a
corporation in which the insured is a shareholder or officer, the entire
amount of the proceeds attributable to the policy or interest
transferred shall be excludable from the transferee's gross income (see
section 101(a)(2)(B) and example (7) of subparagraph (5) of this
paragraph).
(3) In the case of a series of transfers, if the last transfer of a
life insurance policy or an interest therein is for a valuable
consideration--
(i) The general rule is that the final transferee shall exclude from
gross income, with respect to the proceeds of such policy or interest
therein, only the sum of--
(a) The actual value of the consideration paid by him, and
(b) The premiums and other amounts subsequently paid by him;
(ii) If the final transfer is to the insured, to a partner of the
insured, to a
[[Page 344]]
partnership in which the insured is a partner, or to a corporation in
which the insured is a shareholder or officer, the final transferee
shall exclude the entire amount of the proceeds from gross income;
(iii) Except where subdivision (ii) of this subparagraph applies, if
the basis of the policy or interest transferred, for the purpose of
determining gain or loss with respect to the final transferee, is
determinable, in whole or in part, by reference to the basis of such
policy or interest therein in the hands of the transferor, the amount of
the proceeds which is excludable by the final transferee is limited to
the sum of--
(a) The amount which would have been excludable by his transferor if
no such transfer had taken place, and
(b) Any premiums and other amounts subsequently paid by the final
transferee himself.
(4) For the purposes of section 101(a)(2) and subparagraphs (1) and
(3) of this paragraph, a ``transfer for a valuable consideration'' is
any absolute transfer for value of a right to receive all or a part of
the proceeds of a life insurance policy. Thus, the creation, for value,
of an enforceable contractual right to receive all or a part of the
proceeds of a policy may constitute a transfer for a valuable
consideration of the policy or an interest therein. On the other hand,
the pledging or assignment of a policy as collateral security is not a
transfer for a valuable consideration of such policy or an interest
therein, and section 101 is inapplicable to any amounts received by the
pledgee or assignee.
(5) The application of this paragraph may be illustrated by the
following examples:
Example 1. A pays premiums of $500 for an insurance policy in the
face amount of $1,000 upon the life of B, and subsequently transfers the
policy to C for $600. C receives the proceeds of $1,000 upon the death
of B. The amount which C can exclude from his gross income is limited to
$600 plus any premiums paid by C subsequent to the transfer.
Example 2. The X Corporation purchases for a single premium of $500
an insurance policy in the face amount of $1,000 upon the life of A, one
of its employees, naming the X Corporation as beneficiary. The X
Corporation transfers the policy to the Y Corporation in a tax-free
reorganization (the policy having a basis for determining gain or loss
in the hands of the Y Corporation determined by reference to its basis
in the hands of the X Corporation). The Y Corporation receives the
proceeds of $1,000 upon the death of A. The entire $1,000 is to be
excluded from the gross income of the Y Corporation.
Example 3. The facts are the same as in example (2) except that,
prior to the death of A, the Y Corporation transfers the policy to the Z
Corporation for $600. The Z Corporation receives the proceeds of $1,000
upon the death of A. The amount which the Z Corporation can exclude from
its gross income is limited to $600 plus any premiums paid by the Z
Corporation subsequent to the transfer of the policy to it.
Example 4. The facts are the same as in example (3) except that,
prior to the death of A, the Z Corporation transfers the policy to the M
Corporation in a tax-free reorganization (the policy having a basis for
determining gain or loss in the hands of the M Corporation determined by
reference to its basis in the hands of the Z Corporation). The M
Corporation receives the proceeds of $1,000 upon the death of A. The
amount which the M Corporation can exclude from its gross income is
limited to $600 plus any premiums paid by the Z Corporation and the M
Corporation subsequent to the transfer of the policy to the Z
Corporation.
Example 5. The facts are the same as in example (3) except that,
prior to the death of A, the Z Corporation transfers the policy to the N
Corporation, in which A is a shareholder. The N Corporation receives the
proceeds of $1,000 upon the death of A. The entire $1,000 is to be
excluded from the gross income of the N Corporation.
Example 6. A pays premiums of $500 for an insurance policy in the
face amount of $1,000 upon his own life, and subsequently transfers the
policy to his wife B for $600. B later transfers the policy without
consideration to C, who is the son of A and B. C receives the proceeds
of $1,000 upon the death of A. The amount which C can exclude from his
gross income is limited to $600 plus any premiums paid by B and C
subsequent to the transfer of the policy to B.
Example 7. The facts are the same as in example (6) except that,
prior to the death of A, C transfers the policy without consideration to
A, the insured. A's estate receives the proceeds of $1,000 upon the
death of A. The entire $1,000 is to be excluded from the gross income of
A's estate.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6783, 29 FR
18356, Dec. 24, 1964; T.D. 7836, 47 FR 42337, Sept. 27, 1982; T.D. 9340,
72 FR 41159, July 26, 2007]
[[Page 345]]
Sec. 1.101-2 Employees' death benefits.
(a) In general. (1) Section 101(b) states the general rule that
amounts up to $5,000 which are paid to the beneficiaries or the estate
of an employee, or former employee, by or on behalf of an employer and
by reason of the death of the employee shall be excluded from the gross
income of the recipient. This exclusion from gross income applies
whether payment is made to the estate of the employee or to any
beneficiary (individual, corporation, or partnership), whether it is
made directly or in trust, and whether or not it is made pursuant to a
contractual obligation of the employer. The exclusion applies whether
payment is made in a single sum or otherwise, subject to the provisions
of section 101 (c), relating to amounts held under an agreement to pay
interest thereon (see Sec. 1.101-3). The exclusion from gross income
also applies to any amount not actually paid which is otherwise taxable
to a beneficiary of an employee because it was made available as a
distribution from an employee's trust.
(2) The exclusion does not apply to amounts constituting income
payable to the employee during his life as compensation for his
services, such as bonuses or payments for unused leave or uncollected
salary, nor to certain other amounts with respect to which the deceased
employee possessed, immediately before his death, a nonforfeitable right
to receive the amounts while living (see section 101(b)(2)(B) and
paragraph (d) of this section). Further, the exclusion does not apply to
amounts received as an annuity under a joint and survivor annuity
obligation where the employee was the primary annuitant and the annuity
starting date occurred before the death of the employee (see section 101
(b)(2)(C) and paragraph (e)(1)(ii) of this section). In the case of
amounts received by a beneficiary as an annuity (but not as a survivor
under a joint and survivor annuity with respect to which the employee
was the primary annuitant), the exclusion is applied indirectly by means
of the provisions of section 72 and the regulations thereunder (see
section 101(b)(2)(D) and paragraph (e)(1) (iii) and (iv) of this
section). Thus, for example, the exclusion applies to amounts which are
received by a survivor of an employee retired on disability under the
provisions of the Civil Service retirement law (5 U.S.C. 8301 or any
former corresponding provisions of law) or the Retired Serviceman's
Family Protection Plan or Survivor Benefit Plan (10 U.S.C. 1431 et
seq.), provided such employee dies before attaining mandatory retirement
age (as defined in Sec. 1.105-4 (a)(3)(i)(B)).
(3) The total amount excludable with respect to any employee may not
exceed $5,000, regardless of the number of employers or the number of
beneficiaries. For allocation of the exclusion among beneficiaries, see
paragraph (c) of this section. For rules governing the taxability of
benefits payable on the death of an employee under pension,
profitsharing, or stock bonus plans described in section 401(a) and
exempt under section 501(a), under annuity plans described in section
403(a), or under annuity contracts to which paragraph (a) or (b) of
Sec. 1.403(b)-1 applies, see sections 72(m)(3), 402(a), and 403 and the
regulations thereunder.
(b) Payments under certain employee benefit plans--(1) In general.
Where a payment is made by reason of the death of an employee by an
employer-provided welfare fund or a trust, including a stock bonus,
pension, or profitsharing trust described in section 401 (a), or by an
insurance company (if such payment does not constitute ``life
insurance'' within the purview of section 101(a), the payment shall be
considered to have been made by or on behalf of the employer to the
extent that it exceeds amounts contributed by, or deemed contributed by,
the deceased employee.
(2) Cross references. For provisions governing the taxability of
distributions payable on the death of an employee participant--
(i) Under a trust described in section 401(a) and exempt from tax
under section 501(a), see paragraph (c) of Sec. 1.72-16 and paragraph
(a)(5) of Sec. 1.402 (a)-1;
(ii) Under an annuity plan described in section 403(a), see
paragraph (c) of Sec. 1.72-16 and paragraph (c) of Sec. 1.403 (a)-1;
(iii) Under annuity contracts to which paragraph (a) or (b) of
Sec. 1.403 (b)-
[[Page 346]]
1 applies, see paragraph (c) (2) and (3) of Sec. 1.403(b)-1;
(iv) Under eligible State deferred compensation plans described in
section 457 (b), see paragraph (c) of Sec. 1.457-1.
(c) Allocation of the exclusion. (1) Where the aggregate payments by
or on behalf of an employer or employers as death benefits to the
beneficiaries or the estate of a deceased employee exceed $5,000, the
$5,000 exclusion shall be apportioned among them in the same proportion
as the amount received by or the present value of the amount payable to
each bears to the total death benefits paid or payable by or on behalf
of the employer or employers.
(2) The application of the rule in subparagraph (1) of this
paragraph may be illustrated by the following example:
Example. The M Corporation, the employer of A, a deceased employee
who died November 30, 1954, makes payments in 1955 to the beneficiaries
of A as follows: $5,000 to W, A's widow, $2,000 to B, the son of A, and
$3,000 to C, the daughter of A. No other amounts are paid by any other
employer of A to his estate or beneficiaries. By application of the
apportionment rule stated above, W, the widow, will exclude $2,500
($5,000/$10,000, or one-half, of $5,000); B, the son, will exclude
$1,000 ($2,000/$10,000, or one-fifth, of $5,000); and C, the daughter,
will exclude $1,500 ($3,000/$10,000, or three-tenths, of $5,000).
(d) Nonforfeitable rights. (1) Except as provided in subparagraphs
(3) and (4) of this paragraph, the exclusion provided by section 101(b)
does not apply to amounts with respect to which the deceased employee
possessed, immediately before his death, a nonforfeitable right to
receive the amounts while living. Section 101(b)(2)(B). For the purpose
of section 101(b) and this paragraph, an employee shall be considered to
have had a nonforfeitable right with respect to--
(i) Any amount to which he would have been entitled--
(a) If he had made an appropriate election or demand, or
(b) Upon termination of his employment (see examples (5) and (6) of
subparagraph (2) of this paragraph); or
(ii) The present value (immediately before his death) of--
(a) Amounts payable as an annuity (as defined in paragraph (b) of
Sec. 1.72-2, whether immediate or deferred) by or on behalf of the
employer (see example (1) of subparagraph (2) of this paragraph), or
(b) Amounts which would have been so payable if the employee had
terminated his employment and continued to live;
or
(iii) Any amount to the extent it is paid in lieu of amounts
described in either subdivision (i) or (ii) of this subparagraph. See
examples (2), (3), and (4) of subparagraph (2) of this paragraph.
For purposes of subdivision (iii) of this subparagraph, any amount paid
in discharge of an obligation which arose solely because of the
existence of a particular fact or circumstance subsequent to the
employee's death shall not be considered an amount paid in lieu of
amounts described in subdivision (i) or (ii) of this subparagraph.
Subdivision (iii) of this subparagraph shall apply, however, to the
extent indicated therein, to amounts payable without regard to any such
contingency (to the extent that such amounts are equal to or less than
those described in subdivision (i) and (ii) of this subparagraph which
are not paid). See paragraph (e)(1)(iii)(b) of this section for rules
with respect to finding the present value of an annuity immediately
before the employee's death.
(2) The application of paragraph (d)(1) of this section may be
illustrated by the following examples, in which it is assumed that the
plans are not ``qualified plans'' and that no employer is an
organization referred to in section 170(b)(1)(A) (ii) or (vi) or a
religious organization (other than a trust) which is exempt from tax
under section 501(a):
Example 1. A, who was a participant under the X Company pension
plan, retired on December 31, 1953. He had made no contributions to the
plan. Upon his retirement, he became entitled to monthly payments of
$100 payable for life, or 120 months certain. A died on October 31,
1954, having received 10 monthly payments of $100 each. After his death,
the monthly payments became payable to his estate for the remaining 110
months certain. No exclusion from gross income is allowed to A's estate
(or any beneficiary who receives the right to such payments from the
estate), since the employee's right to the monthly payments was
nonforfeitable at the date of his death. It will be
[[Page 347]]
noted that in this example it is unnecessary to consider the present
value of the annuity to A just before his death since the payments to be
made include only those certain to be made in any event under the plan
whether or not A continued to live.
Example 2. C, a participant under the Y Company pension plan, died
on December 15, 1954, while actively in the employment of the company,
survived by a widow and minor children. Because of his years of service,
he would have been entitled to an annuity for life, his own
contributions to the plan and interest thereon being guaranteed, if he
had retired or terminated his employment at a time immediately before
his death. The plan further provides that--(a) if, but only if, an
employee is survived by a widow and minor children, his widow is to
receive an annuity for her life without regard to whether or not the
employee had begun his annuity; (b) any payments made with respect to
his widow's annuity are to reduce the guaranteed amount to an equal
extent; and (c) if the employee is not so survived, the guaranteed
amount is payable to his beneficiary or estate, but no amount is payable
to anyone with respect to what would have been the widow's annuity. In
view of these provisions, that portion of the present value of the
annuity payable to C's widow which exceeds the guaranteed amount shall
be considered paid neither as an amount, nor in lieu of an amount, which
C had a nonforfeitable right to receive while living. The reason for
this result is that the payment of such excess is contingent upon C's
being survived by a widow and minor children, a circumstance existing
subsequent to his death. Conversely, to the extent that the present
value of the annuity payable to C's widow does not exceed the guaranteed
amount, annuity payments attributable to such present value shall be
considered paid in lieu of an amount which C had a nonforfeitable right
to receive while living.
Example 3. D, a participant under the Y Company pension plan, died
on January 1, 1955, while actively in the employment of the company. The
Y Company plan provides that where an employee dies in service, the
present value of the accumulated credits which he could have obtained at
that time if he had instead separated from the service shall be paid in
a single sum to his surviving spouse or to his estate if no widow
survives him. The present value of D's accumulated credits, at the time
of his death, was $10,000. However, the plan also provides that a
surviving spouse may elect to take, in lieu of a single sum, an annuity
the present value of which exceeds such sum by $2,500. D's widow elects
to receive an annuity (the present value of which is $12,500).
Therefore, $2,500 is an amount to which the exclusion of section 101(b)
and this section shall apply.
Example 4. A, an employee of the X Company, continues to work after
reaching the normal retirement age of 60 years, although he could have
retired at that age and obtained an annuity of $3,000 per year for his
life. A is not entitled to any part of the annuity while he is employed
and receiving compensation. A dies at the age of 67 while still in
active employment. Since he had passed normal retirement age, his
additional years of service did not entitle him to a larger annuity at
age 67 than that which he could have obtained at age 60. However, the
plan of the X Company provides that in the event of an employee's death
prior to separation from the service, his widow is to be paid an annuity
for her life in the same amount per year as that which the employee
could have obtained if he had instead retired; but if no widow survives
him, the present value of the annuity which the employee could have
obtained at a time just before his death is to be paid to a named
beneficiary or the estate of the employee. Assuming that the present
value of the annuity to A's widow, whose age is 61, is $36,000 and the
present value of the annuity which would have been payable to A at age
67 if he had then retired is $23,500, the present value of the widow's
annuity, to the extent of $23,500, is an amount which is payable in lieu
of amounts which the employee had a nonforfeitable right to receive
while living because it does not exceed the value of his nonforfeitable
rights and is not otherwise paid. On the other hand, the $12,500 excess
of the value of the widow's annuity ($36,000) over the value of the
employee's annuity ($23,500) is an amount to which section 101(b)
applies since the employee had no right to any part of it. If no other
death benefits are payable, a $5,000 exclusion is available (see section
101(b)(2)(D) and paragraph (e) of this section).
Example 5. The trustee of the X Corporation noncontributory profit-
sharing plan is required under the provisions of the plan to pay to the
beneficiary of B, an employee of the X Corporation who died on July 1,
1955, the benefit due on account of the death of B. The provisions of
the profit-sharing plan give each participating employee in case of
termination of employment a 10-percent vested interest in the amount
accumulated in his account for each year of participation in the plan.
In case of death, the entire credit in the participant's account is to
be paid to his beneficiary. At the time of B's death, he had been a
participant for three years and the accumulation in his account was
$8,000. After his death this amount is paid to his beneficiary. At the
time of B's death, the amount distributable to him on account of
termination of employment would have been $2,400 (30 percent of $8,000).
The difference of $5,600 ($8,000 minus $2,400), payable to the
beneficiary of B, is an amount payable solely by reason of B's death.
Accordingly, $5,000 of
[[Page 348]]
the $5,600 may be excluded from the gross income of the beneficiary
receiving such payment (assuming no other death benefits are involved).
However, if it is assumed that the facts are the same as above, except
that at the time of his death B has been a participant for 6 years, the
amount distributable to him on account of termination of employment
would have been $4,800 (60 percent of $8,000). The difference of $3,200
($8,000 minus $4,800), payable to B's beneficiary, is an amount payable
solely by reason of B's death. Accordingly, only $3,200 may be excluded
from the gross income of the beneficiary receiving such payment
(assuming no other death benefits are involved).
Example 6. The X Corporation instituted a trust, forming part of a
pension plan, for its employees, the cost thereof being borne entirely
by the corporation. The plan provides, in part, that after 10 or more
years of service and attaining the age of 55, an employee can elect to
retire and receive benefits before the normal retirement date contingent
upon the employer's approval. If he retires without the employer's
consent, or voluntarily leaves the company, no benefits are or will be
payable. The plan further provides that if the employee is involuntarily
separated or dies before retirement, he or his beneficiary,
respectively, will receive a percentage of the reserve provided for the
employee in the trust fund on the following basis: 10 to 15 years of
service, 25 percent; 15 to 20 years of service, 50 percent; 20 to 25
years of service, 75 percent; 25 or more years of service, 100 percent.
A, an employee of the X Corporation for 17 years, died at the age of 56
while in the employ of the corporation. At the time of his death,
$15,000 was the reserve provided for him in the trust. His beneficiary
receives $7,500, an amount equal to 50 percent of the reserve provided
for A's retirement; accordingly, $5,000 of the $7,500 may be excluded
from the gross income of the beneficiary receiving such payment
(assuming no other death benefits are involved) since A, prior to his
death, had only a forfeitable right to receive $7,500.
(3)(i) Notwithstanding the rule stated in subparagraph (1) of this
paragraph and illustrated in subparagraph (2) of this paragraph, the
exclusion from gross income provided by section 101(b) applies to the
receipt of certain amounts, paid under ``qualified'' plans, with respect
to which the deceased employee possessed, immediately before his death,
a nonforfeitable right to receive the amounts while living (see section
101(b)(2)(B) (i) and (ii)). The payments to which this exclusion applies
are--
(a) ``Total distributions payable'' by a stock bonus, pension, or
profit-sharing trust described in section 401(a) which is exempt from
tax under section 501(a), and
(b) ``Total amounts'' paid under an annuity contract under a plan
described in section 403(a), provided such distributions or amounts are
paid in full within one taxable year of the distributee (see example (3)
of subdivision (ii) of this subparagraph). For the purposes of applying
section 101(b), ``Total distributions payable'' means the balance to the
credit of an employee which becomes payable to a distributee on account
of the employee's death, either before or after separation from the
service (see section 402(a)(3)(C), the regulations thereunder, and
examples (2) and (4) of subdivision (ii) of this subparagraph); and
``total amounts'' means the balance to the credit of an employee which
becomes payable to the payee by reason of the employee's death, either
before or after separation from the service (see section 403(a)(2)(B),
the regulations thereunder, and example (1) of subdivision (ii) of this
subparagraph). See subparagraph (4) of this paragraph relating to the
exclusion of amounts which are received under annuity contracts
purchased by certain exempt organizations and with respect to which the
deceased employee possessed, immediately before his death, a
nonforfeitable right to receive the amounts while living.
(ii) The application of the provisions of subdivision (i) of this
subparagraph may be illustrated by the following examples:
Example 1. The widow of an employee elects, under a noncontributory
``qualified'' plan, to receive in a lump sum the present value of the
annuity which C, the deceased employee, could have obtained at a time
just before his death if he had retired at that time. Such present value
is $6,000. Of this amount, $5,000 is excludable from the widow's gross
income despite the fact that C had a nonforfeitable right to the amount
in lieu of which the payment is made, since such payment is an amount to
which subdivision (i) of this subparagraph applies (assuming no other
death benefits are involved).
Example 2. The trustee of the X Corporation noncontributory,
``qualified'', profit- sharing plan is required under the provisions of
the plan to pay to the beneficiary of B, an employee of the X
Corporation who died on
[[Page 349]]
July 1, 1955, the benefit due on account of the death of B. The
provisions of the profit-sharing plan give each participating employee,
in case of termination of employment, a 10 percent vested interest in
the amount accumulated in his account for each year of participation in
the plan, but, in case of death, the entire credit to the participant's
account is to be paid to his beneficiary. At the time of B's death, he
had been a participant for five years. The accumulation in his account
was $8,000, and the amount which would have been distributable to him in
the event of termination of employment was $4,000 (50 percent of
$8,000). After his death, $8,000 is paid to his beneficiary in a lump
sum. (It may be noted that these are the same facts as in example (5) of
subparagraph (2) of this paragraph except that the employee has been a
participant for five years instead of three and the plan is a
``qualified'' plan.) It is immaterial that the employee had a
nonforfeitable right to $4,000, because the payment of the $8,000 to the
beneficiary is the payment of the ``total distributions payable'' within
one taxable year of the distributee to which subdivision (i) of this
subparagraph applies. Assuming no other death benefits are involved, the
beneficiary may exclude $5,000 of the $8,000 payment from gross income.
Example 3. The facts are the same as in example (2) except that the
beneficiary is entitled to receive only the $4,000 to which the employee
had a nonforfeitable right and elects, 30 days after B's death, to
receive it over a period of ten years. Since the ``total distributions
payable'' are not paid within one taxable year of the distributee, no
exclusion from gross income is allowable with respect to the $4,000.
Example 4. The X Corporation instituted a trust, forming part of a
``qualified'' profit-sharing plan for its employees, the cost thereof
being borne entirely by the corporation. The plan provides, in part,
that if, after 10 or more years of service, an employee leaves the
employ of the corporation, either voluntarily or involuntarily, before
retirement, a percentage of the reserve provided for the employee in the
trust fund will be paid to the employee as follows: 10 to 15 years of
service, 25 percent; 15 to 20 years of service, 50 percent; 20 to 25
years of service, 75 percent; 25 or more years of service, 100 percent.
The plan further provides that if an employee dies before reaching
retirement age, his beneficiary will receive a percentage of the reserve
provided for the employee in the trust fund, on the same basis as shown
in the preceding sentence. A, an employee of the X Corporation for 17
years, died before attaining retirement age while in the employ of the
corporation. At the time of his death, $15,000 was the reserve provided
for him in the trust fund. His beneficiary receives $7,500 in a lump
sum, an amount equal to 50 percent of the reserve provided for A's
retirement. The beneficiary may exclude from gross income (assuming no
other death benefits are involved) $5,000 of the $7,500, since the
latter amount constitutes ``total distributions payable'' paid within
one taxable year of the distributee, to which subdivision (i) of this
subparagraph applies.
(4)(i) Notwithstanding the rule stated in subparagraph (1) of this
paragraph and illustrated in subparagraph (2) of this paragraph, the
exclusion from gross income under section 101(b) also applies (but only
to the extent provided in the next sentence) to amounts with respect to
which the deceased employee possessed, immediately before his death, a
nonforfeitable right to receive the amounts while living--
(a) If such amounts are paid under an annuity contract purchased by
an employer which is an organization referred to in section 170(b)(1)(A)
(ii) or (vi) or which is a religious organization (other than a trust)
and which is exempt from tax under section 501(a).
(b) If such amounts are paid as part of a ``total payment'' with
respect to the deceased employee; and
(c) If such ``total payment'' is paid in full within one taxable
year of the payee beginning after December 31, 1957.
However, the amount that is excludable under section 101(b) by reason of
this subparagraph shall not exceed an amount which bears the same ratio
to the amount which would be includible in the payee's gross income if
it were not for the second sentence of section 101(b)(2)(B) and this
subparagraph, as the amount contributed by the employer for the annuity
contract that was excludable from the deceased employee's gross income
under paragraph (b) of Sec. 1.403(b)-1 bears to the total amount
contributed by the employer for the annuity contract. See section
101(b)(2)(B)(iii). For purposes of this subparagraph, a ``total
payment'' means a payment of the balance to the credit of an employee
with respect to all ``section 403(b) annuities'' purchased by the
employer which becomes payable to the payee by reason of the employee's
death, either before or after separation from the service. An annuity
contract will be regarded as a ``section 403(b) annuity'' if any amount
contributed (or considered as contributed
[[Page 350]]
under paragraph (b)(2) of Sec. 1.403(b)-1) by the employer for such
contract was excludable from the employee's gross income under paragraph
(b) of Sec. 1.403(b)-1. Under this definition, therefore, an annuity
contract may be regarded as a ``section 403(b) annuity'' even though
some of the employer's contributions for the contract were not
excludable from the employee's gross income under paragraph (b) of
Sec. 1.403(b)-1 because, for example, the employer was not an exempt
organization when such contributions were paid. For purposes of
computing the ratio described in this subdivision in such a case, the
total amount contributed by the employer for the contract includes the
amounts contributed by the employer when it was not an exempt
organization.
(ii) This subparagraph does not relate to any amounts with respect
to which the deceased employee did not possess, immediately before his
death, a nonforfeitable right to receive the amounts while living. Such
amounts are excludable under the provisions of section 101(b) without
regard to section 101(b)(2)(B) and this subparagraph. Thus, if a ``total
payment'' received by a beneficiary of a deceased employee under an
annuity contract purchased by an organization described in subdivision
(i)(a) of this subparagraph consists both of amounts with respect to
which the deceased employee possessed, immediately before his death, a
nonforfeitable right to receive the amounts while living and of amounts
with respect to which the deceased employee did not possess such a
nonforfeitable right, only those amounts with respect to which the
deceased employee possessed such a nonforfeitable right are amounts to
which this subparagraph applies. Therefore, for purposes of computing
the ratio described in subdivision (i) of this subparagraph in such a
case, there shall be taken into account only the employer contributions
attributable to those amounts with respect to which the deceased
employee possessed, immediately before his death, a nonforfeitable right
to receive the amounts while living. See example (3) of subdivision (v)
of this subparagraph. In no event, however, may the total amount
excludable under section 101(b) with respect to any employee exceed
$5,000 (See paragraph (a)(3) of this section).
(iii)(a) In any case when the deceased employee's interest in the
employer's contributions for an annuity contract was forfeitable at the
time the contributions were made but, at a subsequent date prior to his
death, such interest changed to a nonforfeitable interest, then, for
purposes of computing the ratio described in subdivision (i) of this
subparagraph, the cash surrender value of the contract on the date of
the change (except to the extent attributable to employee contributions)
shall be considered as the amount contributed by the employer for the
contract. In such a case, if only part of the deceased employee's
interest in the annuity changed from a forfeitable to a nonforfeitable
interest, then only the corresponding part of the cash surrender value
of the contract on the date of the change shall be considered as the
amount contributed by the employer for the contract. Similarly, if part
of the deceased employee's interest in the annuity contract changed from
a forfeitable to a nonforfeitable interest on a particular date and
another part of his interest so changed on a subsequent date, it is
necessary, in order to compute the amount contributed by the employer
for the contract, to first determine (under the rules in the preceding
sentence) the amount that is considered as the amount contributed by the
employer with respect to each change, and then to add these amounts
together. For purposes of computing the ratio described in subdivision
(i) of this subparagraph in all of the above cases, the amount
contributed by the employer that was excludable from the employee's
gross income under paragraph (b) of Sec. 1.403(b)-1 is that amount
which, under paragraph (b)(2) of such section, was considered as
employer contributions and which, under such paragraph (b) of
Sec. 1.403(b)-1, was excludable from the deceased employee's gross
income for the taxable year in which the change occurred.
(b) This subdivision (iii) may be illustrated by the following
examples:
Example 1. X Organization contributed $4,000 toward the purchase of
an annuity contract for A, an employee who died in 1970. At
[[Page 351]]
the time they were made, A's interest in such contributions was
forfeitable. A made no contributions toward the purchase of the annuity
contract. On January 1, 1960, A's entire interest in the annuity
contract changed to a nonforfeitable interest. At the time of such
change, the cash surrender value of the contract was $5,000. For
purposes of the ratio described in subdivision (i) of this subparagraph,
the total amount contributed by X Organization for the annuity contract
is $5,000. If any part of such $5,000 was excludable under paragraph (b)
of Sec. 1.403(b)-1 from A's gross income for his taxable year in which
the change occurred, the amount so excludable shall be considered as the
amount contributed for the contract by the employer that was excludable
from the employee's gross income under paragraph (b) of Sec. 1.403(b)-1.
Example 2. Assume the same facts as in example (1) except that only
one-half of A's interest in the annuity contract changed to a
nonforfeitable interest on January 1, 1960, and that no other part of
his interest so changed during his lifetime. For purposes of the ratio
described in subdivision (i) of this subparagraph, the total amount
contributed by X Organization for the annuity contract is $2,500 (\1/2\
of the cash surrender value of the annuity contract on the date of the
change). To the extent such $2,500 was, under paragraph (b) of
Sec. 1.403(b)-1, excludable from A's gross income for the taxable year
of the change, it is considered as the amount contributed by the
employer that was excludable under paragraph (b) of Sec. 1.403(b)-1.
Example 3. Assume the same facts as in example (1) except that one-
half of A's interest in the annuity contract changed to a nonforfeitable
interest on January 1, 1960, and the other half of his interest changed
to a nonforfeitable interest on January 1, 1965. On January 1, 1965, the
cash surrender value of the annuity contract was $6,000. For purposes of
the ratio described in subdivision (i) of this subparagraph, the total
amount contributed by X organization for the annuity contract is $5,500
(i.e., \1/2\ x $5,000 plus \1/2\ x $6,000). The amount contributed
by the employer that was excludable from A's gross income under
paragraph (b) of Sec. 1.403(b)-1 is an amount equal to the sum of the
amount that was, under such paragraph, excludable from A's gross income
for the taxable year during which the first change occurred and the
amount that was, under such paragraph, excludable from A's gross income
for the taxable year in which the second change occurred.
(iv) For purposes of this subparagraph, an annuity contract will be
considered to have been purchased by an employer which is an
organization referred to in section 170(b)(1)(A) (ii) or (vi) or which
is a religious organization (other than a trust) and which is exempt
from tax under section 501(a), if any of the contributions paid toward
the purchase price of such contract by the employer were paid at a time
when the employer was such an organization. Thus an annuity contract may
be regarded as purchased by such an organization even though part of the
organization's contributions for such annuity contract were paid at a
time when the organization was not such an exempt organization.
(v) The application of this subparagraph may be illustrated by the
following examples:
Example 1. The widow of A, a deceased employee, elects, under an
annuity contract purchased for A by X Organization, to receive in a lump
sum the present value of such annuity contract as of the date of A's
death. Such present value is $6,000 and is received by the widow in a
taxable year beginning after December 31, 1957. X Organization
contributed $3,000 toward the purchase of the annuity contract and A
contributed $2,000 toward such purchase. A's interest in X
Organization's contributions was nonforfeitable at the time such
contributions were made. Thus, just before his death, A's entire
interest in the annuity contract was a nonforfeitable interest and, if
he had retired at that time, he could have received the present value of
$6,000. The whole amount of the $3,000 contributed by X Organization for
the annuity contract was excludable from A's gross income under
paragraph (b) of Sec. 1.403(b)-1. This annuity contract was the only
annuity contract purchased by X Organization for A and was not purchased
as part of a qualified plan. However, all the contributions paid by X
Organization were paid at a time when X Organization was an organization
referred to in section 170(b)(1)(A)(ii) and exempt from tax under
section 501(a). The amount that A's widow may exclude from gross income
(assuming no other death benefits) is computed in the following manner:
(a) Amount includible in gross income without regard to second $4,000
sentence of section 101(b)(2)(B) ($6,000 minus $2,000
contributed for contract by A)...............................
(b) Total employer contributions for the contract............. $3,000
(c) Amount of employer contributions for the contract that was $3,000
excludable under paragraph (b) of Sec. 1.403(b)-1...........
(d) Percent of total employer contributions for the contract 100%
that were excludable under paragraph (b) of Sec. 1.403(b)-1
((c) (b))..................................................
(e) Amount to which section 101(b) exclusion applies ((d) x $4,000
(a)).........................................................
[[Page 352]]
Example 2. The facts are the same as in example (1) except that only
$2,000 of X Organization's contributions for the annuity contract was
excludable from A's gross income under paragraph (b) of Sec. 1.403(b)-1
and that the remaining $1,000 was includible in A's gross income for the
taxable years during which such amounts were contributed by X
Organization. The amount that A's widow may exclude from gross income
(assuming no other death benefits) is computed in the following manner:
(a) Amount includible in gross income without regard to second $3,000
sentence of section 101(b)(2)(B) ($6,000 minus $2,000
contributed for contract by A and $1,000 of X Organization's
contributions includible in A's gross income)................
(b) Total employer contributions for the contract............. $3,000
(c) Amount of employer contributions for the contract that was $2,000
excludable under paragraph (b) of Sec. 1.403(b)-1...........
(d) Percent of total employer contributions for the contract 67%
that were excludable under paragraph (b) of Sec. 1.403(b)-1
((c) (b))..................................................
(e) Amount to which section 101(b) exclusion applies ((d) x $2,000
(a)).........................................................
Example 3. The widow of B, a deceased employee, elects, under an
annuity contract purchased for B by Y Organization, to receive in a lump
sum the present value of such annuity contract as of the date of B's
death. Such present value is $6,000 and is received by the widow in a
taxable year beginning after December 31, 1957. Y Organization
contributed $4,000 toward the purchase of the contract; whereas B made
no contributions toward the purchase of the contract. This annuity
contract was the only annuity contract purchased by Y Organization for B
and was not purchased as part of a ``qualified'' plan. However, all the
contributions paid by Y Organization were paid at a time when it was an
organization referred to in section 170(b)(1)(A)(ii) and exempt from tax
under section 501(a). B's interest in Y Organization's contributions
was, at the time they were paid, forfeitable. However, prior to his
death, one-half of B's interest in the annuity contract changed from a
forfeitable to a nonforfeitable interest. Therefore, just before his
death, B could have obtained $3,000 under the annuity contract if he had
retired at that time. On the date of the change, the cash surrender
value of the annuity contract was $5,000. As a result of the change,
$1,500 was, under paragraph (b) of Sec. 1.403(b)-1, excludable from B's
gross income, and $600 was includible in his gross income for the
taxable year in which the change occurred. Part of the value of the
annuity contract on the date of the change was attributable to
contributions made by Y Organization prior to January 1, 1958, and,
consequently, was neither excludable from B's gross income under
paragraph (b) of Sec. 1.403(b)-1 nor includible in B's gross income (see
paragraph (b) of Sec. 1.403(d)-1). The amount that B's widow may exclude
from gross income (assuming no other death benefits) is computed in the
following manner:
(a) Amount of ``total payment'' with respect to which A had a $3,000
forfeitable right at time of death. (\1/2\ x $6,000).......
(b) Amount includible in gross income without regard to second $2,400
sentence of section 101(b)(2)(B) (\1/2\ x $6,000 less $600
includible in B's gross income for year when his rights
changed to nonforfeitable rights)............................
(c) Total employer contributions for the contract (\1/2\ of $2,500
cash surrender value of contract on date B's rights changed
to nonforfeitable rights)....................................
(d) Amount of employer contributions for the contract that was $1,500
excludable under paragraph (b) of Sec. 1.403(b)-1...........
(e) Percent of total employer contributions for the contract 60%
that were excludable under paragraph (b) of Sec. 1.403(b)-1
((d) (c))..................................................
(f) Amount to which section 101(b) exclusion applies by reason $1,440
of the second sentence of section 101(b)(2)(B) ((e) x (b)).
(g) Total amount to which section 101(b) exclusion applies $4,440
((a) + (f))..................................................
(e) Annuity payments. (1) Where death benefits are paid in the form
of annuity payments, the following rules shall govern for purposes of
the exclusion provided in section 101(b):
(i) The exclusion from gross income provided by section 101(b) does
not apply to amounts, paid as an annuity, with respect to which the
employee possessed, immediately before his death, a nonforfeitable right
to receive the amounts while living, or to amounts paid as an annuity in
lieu thereof. See paragraph (d) of this section.
(ii) Under section 101(b)(2)(C), no exclusion is allowable for
amounts received by a surviving annuitant under a joint and survivor's
annuity contract if the annuity starting date (as defined in section
72(c)(4) and paragraph (b) of Sec. 1.72-4) occurs before the death of
the employee. If the annuity starting date occurs after the death of the
employee, the joint and survivor's annuity contract shall be treated as
an annuity to which section 101(b)(2)(D) applies. See subdivision (iii)
of this subparagraph.
(iii)(a) Subject to the other limitations stated in section 101(b)
and in this section (see section 101(b)(2)(D)), the amount to which the
exclusion of section 101(b) shall apply, with respect to ``amounts
received as an annuity'' (as defined in paragraph (b) of Sec. 1.72-2)
shall be the amount by which the present value of the annuity to be paid
to the beneficiary, computed as of the date of the employee's death,
exceeds
[[Page 353]]
the value (if any) of whichever of the following is the larger:
(1) Amounts contributed by the employee (determined in accordance
with the provisions of section 72 and the regulations thereunder), or
(2) Amounts with respect to which the employee possessed,
immediately before his death, a nonforfeitable right to receive the
amounts while living, or amounts paid in lieu thereof (see paragraph (d)
of this section).
(b) The present value of an annuity (immediately before the death of
the employee), to the employee, or (immediately after the death of the
employee), to his estate or beneficiary, shall be determined as follows:
(1) In the case of an annuity paid by an insurance company or by an
organization (other than an insurance company) regularly engaged in
issuing annuity contracts with an insurance company as the coinsurer or
reinsurer of the obligations under the contract, by use of the discount
interest rates and mortality tables used by the insurance company
involved to determine the installment benefits; and
(2) In the case of an annuity issued after November 23, 1984, to
which paragraph (e)(1)(iii)(b)(1) of this section is not applicable, by
use of the appropriate tables in Sec. 20.2031-7 of this chapter (Estate
Tax Regulations).
(iv) Any amount subject to section 101(b)(2)(D) which is excludable
under section 101(b) (see subdivision (iii) of this subparagraph) shall,
for purposes of section 72, be treated as additional consideration paid
by the employee. See paragraph (b) of Sec. 1.72-8.
(v) Where more than one beneficiary, or more than one death benefit,
is involved, the exclusion provided by section 101(b) shall be
apportioned to the various beneficiaries and benefits in accordance with
the proportion that the present value of each benefit bears to the total
present value of all the benefits.
(2) The application of the principles of this paragraph may be
illustrated by the following examples:
Example 1. (i) A died on January 1, 1969. Under the plan of the X
Corporation, W, who is the widow of employee A, and who is 55 years old
at the time of A's death, is entitled to an immediate annuity of $2,000
per year during her life and C, the minor child of A, is entitled to
receive $1,000 per year for 15 years. A made no contributions under the
plan and died while still employed by the X Corporation. At the time of
A's death, the amount in his account is $18,000. Under the terms of the
plan, this amount would have been distributable to him on account of
voluntary termination of employment, but would not have been payable
after his death except in the form of the annuities just described. This
amount, accordingly, constitutes a nonforfeitable interest in lieu of
which the annuities are paid. The exclusion does not apply, except to
the extent that the present value of the annuities exceeds $18,000,
whether or not the plan is ``qualified'', since the total of the amount
in A's account will not be paid within one taxable year of the
distributees. See subparagraph (1)(i) of this paragraph.
(ii) The computation of the exclusion applicable to the interests of
W and C (assuming that the payments will not be made by an insurance
company or some other organization regularly engaged in issuing annuity
contracts) is, by application of the tables in Sec. 20.2031-7 of this
chapter (Estate Tax Regulations), as follows: The present value of W's
interest is $26,243.60, determined by multiplying the annual payment of
$2,000 by 13.1218 (the factor in Table I for a person aged 55); the
present value of C's interest is $11,517.40, determined by multiplying
the yearly payment of $1,000 by 11.5174 (the factor in Table II for
payments for a term certain of 15 years). The present value of both
annuities is $37,761 and (assuming no other death benefits are
involved), the total amount excludable is $5,000, because the total
present value of the annuities exceeds the employee's nonforfeitable
interest by more than $5,000 ($37,761 minus $18,000 equal $19,761). The
exclusion allocable to W's interest is $26,243.60/$37,761 times $5,000,
or $3,474.96; the exclusion allocable to C's interest is $11,517.40/
$37,761 times $5,000, or $1,525.04. That portion of the death benefit
exclusion as so determined for each beneficiary is to be treated as
consideration paid by the employee for purposes of section 72.
Example 2. The facts are the same as in example (1), except that the
nonforfeitable interest of A, at the time of his death, amounted to
$33,761. Since the present value of both annuities ($37,761) exceeds the
value of such nonforfeitable interest by only $4,000, the latter amount
is the total amount excludable from the gross income of the
beneficiaries. This $4,000 exclusion is to be divided in the same
proportions as those indicated in example (1). Thus, the exclusion
allocable to W's interest is $26,243.60/$37,761 times $4,000, or
$2,779.97; and the exclusion allocable to the interest of C is
$11,517.40/$37,761 times $4,000, or $1,220.03. That portion
[[Page 354]]
of the death benefit exclusion as so determined for each beneficiary is
to be treated as consideration paid by the employee for purposes of
section 72.
(f) Distributions on behalf of a self- employed individual. (1)
Under sections 401(c)(1) and 403(a)(3), certain self-employed
individuals may be covered by a pension or profit-sharing plan described
in section 401(a) and exempt under section 501(a) or under an annuity
plan described in section 403(a). However, a payment pursuant to the
provisions of any such plan by reason of the death of an individual who
participated in such a plan as a self-employed individual immediately
before his retirement or death to the beneficiary or estate of such
individual does not qualify for the exclusion provided by section
101(b).
(2) The application of this paragraph may be illustrated by the
following examples:
Example 1. From 1950 to 1965, A was an employee of B, a sole
proprietor. In 1963, B established a qualified pension plan covering A
and all other persons who had been employed by B for more than 3 years.
In 1965, A acquired from B a 40-percent interest in the capital and
profits of the business. A continued to participate in the pension plan
as a self-employed individual. In 1970, A died and his widow, in
compliance with one of the provisions of the pension plan, elected to
receive all of the benefits accrued to A prior to his death in a lump-
sum distribution. As A participated in the plan as a self-employed
individual immediately prior to his death, A's widow may not exclude any
portion of such distribution from her gross income under section 101(b).
Example 2. A, an attorney, is employed by the X Company in their
legal department. He is covered by the pension plan that X has
established for its employees. Under the terms of A's contract of
employment with X, A is permitted to carry on the private practice of
law in his off-duty hours. A establishes his own pension plan with
respect to his earnings from his private practice. On A's death, his
widow elected to receive a lump-sum distribution with respect to any
benefits accrued to A under both X's pension plan and A's own pension
plan. To the extent that such payment otherwise complies with the
requirements of section 101(b), up to $5,000 of the amount paid by X may
be excluded from her gross income. No part of the distribution from A's
own pension plan may be excluded from her gross income under section
101(b) because A participated in the plan as a self-employed individual
immediately before his death.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6722, 29 FR
5070, Apr. 14, 1964; T.D. 6783, 29 FR 18357, Dec. 24, 1964; T.D. 7352,
40 FR 16666, Apr. 14, 1975; T.D. 7428, 41 FR 34619, Aug. 16, 1976; T.D.
7836, 47 FR 42337, Sept. 27, 1982; T.D. 7955, 49 FR 19975, May 11, 1984;
T.D. 8540, 59 FR 30102, 30103, June 10, 1994]
Sec. 1.101-3 Interest payments.
(a) Applicability of section 101(c). Section 101(c) provides that if
any amount excluded from gross income by section 101(a) (relating to
life insurance proceeds) or section 101(b) (relating to employees' death
benefits) is held under an agreement to pay interest thereon, the
interest payments shall be included in gross income. This provision
applies to payments made (either by an insurer or by or on behalf of an
employer) of interest earned on any amount so excluded from gross income
which is held without substantial diminution of the principal amount
during the period when such interest payments are being made or credited
to the beneficiaries or estate of the insured or the employee. For
example, if a monthly payment is $100, of which $99 represents interests
and $1 represents diminution of the principal amount, the principal
amount shall be considered held under an agreement to pay interest
thereon and the interest payment shall be included in the gross income
of the recipient. Section 101(c) applies whether the election to have an
amount held under an agreement to pay interest thereon is made by the
insured or employee or by his beneficiaries or estate, and whether or
not an interest rate is explicitly stated in the agreement. Section
101(d), relating to the payment of life insurance proceeds at a date
later than death, shall not apply to any amount to which section 101(c)
applies. See section 101(d)(4). However, both section 101(c) and section
101(d) may apply to payments received under a single life insurance
contract. For provisions relating to the application of this rule to
payments received under a permanent life insurance policy with a family
income rider attached, see paragraph (h) of Sec. 1.101-4.
[[Page 355]]
(b) Determination of ``present value''. For the purpose of
determining whether section 101(c) or section 101(d) applies, the
present value (at the time of the insured's death) of any amount which
is to be paid at a date later than death shall be determined by the use
of the interest rate and mortality tables used by the insurer in
determining the size of the payments to be made.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6577, 26 FR
10127, Oct. 28, 1961]
Sec. 1.101-4 Payment of life insurance proceeds at a date later than death.
(a) In general. (1)(i) Section 101(d) states the provisions
governing the exclusion from gross income of amounts (other than those
to which section 101(c) applies) received under a life insurance
contract and paid by reason of the death of the insured which are paid
to a beneficiary on a date or dates later than the death of the insured.
However, if the amounts payable as proceeds of life insurance to which
section 101(a)(1) applies cannot in any event exceed the amount payable
at the time of the insured's death, such amounts are fully excludable
from the gross income of the recipient (or recipients) without regard to
the actual time of payment and no further determination need be made
under this section. Section 101(d)(1)(A) provides an exclusion from
gross income of any amount determined by a proration, under applicable
regulations, of ``an amount held by an insurer with respect to any
beneficiary''. The quoted phrase is defined in section 101(d)(2). For
the regulations governing the method of computation of this proration,
see paragraphs (c) through (f) of this section. The prorated amounts are
to be excluded from the gross income of the beneficiary regardless of
the taxable year in which they are actually received (see example (2) of
subparagraph (2) of this paragraph).
(ii) Section 101(d)(1)(B) provides an additional exclusion where
life insurance proceeds are paid to the surviving spouse of an insured.
For purposes of this exclusion, the term ``surviving spouse'' means the
spouse of the insured as of the date of death, including a spouse
legally separated, but not under a decree of absolute divorce (section
101(d)(3)). To the extent that the total payments, under one or more
agreements, made in excess of the amounts determined by proration under
section 101(d)(1)(A) do not exceed $1,000 in the taxable year of
receipt, they shall be excluded from the gross income of the surviving
spouse (whether or not payment of any part of such amounts is guaranteed
by the insurer). Amounts excludable under section 101(d)(1)(B) are not
``prorated'' amounts.
(2) The principles of this paragraph may be illustrated by the
following examples:
Example 1. A surviving spouse elects to receive all of the life
insurance proceeds with respect to one insured, amounting to $150,000,
in ten annual installments of $16,500 each, based on a certain
guaranteed interest rate. The prorated amount is $15,000 ($150,000
10). As the second payment, the insurer pays $17,850, which exceeds the
guaranteed payment by $1,350 as the result of earnings of the insurer in
excess of those required to pay the guaranteed installments. The
surviving spouse shall include $1,850 in gross income and exclude
$16,000--determined in the following manner:
Fixed payment (including guaranteed interest)................. $16,500
Excess interest............................................... 1,350
---------
Total payment............................................. 17,850
Prorated amount............................................... 15,000
---------
Excess over prorated amount............................... 2,850
Annual excess over prorated amount excludable under section 1,000
101(d)(1)(B).................................................
---------
Amount includible in gross income......................... 1,850
Example 2. Assume the same facts as in example (1), except that the
third and fourth annual installments, totalling $33,000 (2 x $16,500),
are received in a single subsequent taxable year of the surviving
spouse. The prorated amount of $15,000 of each annual installment,
totalling $30,000, shall be excluded even though the spouse receives
more than one annual installment in the single subsequent taxable year.
However, the surviving spouse is entitled to only one exclusion of
$1,000 under section 101(d)(1)(B) for each taxable year of receipt. The
surviving spouse shall include $2,000 in her gross income for the
taxable year with respect to the above installment payments ($33,000
less the sum of $30,000 plus $1,000).
Example 3. Assume the same facts as in example (1), except that the
surviving spouse dies before receiving all ten annual installments and
the remaining installments are paid to her estate or beneficiary. In
such a case, $15,000 of each installment would continue to be excludable
from the gross income
[[Page 356]]
of the recipient, but any amounts received in excess thereof would be
fully includible.
(b) Amount held by an insurer. (1) For the purpose of the proration
referred to in section 101(d)(1), an ``amount held by an insurer with
respect to any beneficiary'' means an amount equal to the present value
to such beneficiary (as of the date of death of the insured) of an
agreement by the insurer under a life insurance policy (whether as an
option or otherwise) to pay such beneficiary an amount or amounts at a
date or dates later than the death of the insured (section 101(d)(2)).
The present value of such agreement is to be computed as if the
agreement under the life insurance policy had been entered into on the
date of death of the insured, except that such value shall be determined
by the use of the mortality table and interest rate used by the insurer
in calculating payments to be made to the beneficiary under such
agreement. Where an insurance policy provides an option for the payment
of a specific amount upon the death of the insured in full discharge of
the contract, such lump sum is the amount held by the insurer with
respect to all beneficiaries (or their beneficiaries) under the
contract. See, however, paragraph (e) of this section.
(2) In the case of two or more beneficiaries, the ``amount held by
the insurer'' with respect to each beneficiary depends on the
relationship of the different benefits payable to such beneficiaries.
Where the amounts payable to two or more beneficiaries are independent
of each other, the ``amount held by the insurer with respect to each
beneficiary'' shall be determined and prorated over the periods involved
independently. Thus, if a certain amount per month is to be paid to A
for his life, and, concurrently, another amount per month is to be paid
to B for his life, the ``amount held by the insurer'' shall be
determined and prorated for both A and B independently, but the
aggregate shall not exceed the total present value of such payments to
both. On the other hand, if the obligation to pay B was contingent on
his surviving A, the ``amount held by the insurer'' shall be considered
an amount held with respect to both beneficiaries simultaneously.
Furthermore, it is immaterial whether B is a named beneficiary or merely
the ultimate recipient of payments for a term of years. For the special
rules governing the computation of the proration of the ``amount held by
an insurer'' in determining amounts excludable under the provisions of
section 101(d), see paragraphs (c) to (f), inclusive, of this section.
(3) Notwithstanding any other provision of this section, if the
policy was transferred for a valuable consideration, the total ``amount
held by an insurer'' cannot exceed the sum of the consideration paid
plus any premiums or other consideration paid subsequent to the transfer
if the provisions of section 101(a)(2) and paragraph (b) of Sec. 1.101-1
limit the excludability of the proceeds to such total.
(c) Treatment of payments for life to a sole beneficiary. If the
contract provides for the payment of a specified lump sum, but, pursuant
to an agreement between the beneficiary and the insurer, payments are to
be made during the life of the beneficiary in lieu of such lump sum, the
lump sum shall be divided by the life expectancy of the beneficiary
determined in accordance with the mortality table used by the insurer in
determining the benefits to be paid. However, if payments are to be made
to the estate or beneficiary of the primary beneficiary in the event
that the primary beneficiary dies before receiving a certain number of
payments or a specified total amount, such lump sum shall be reduced by
the present value (at the time of the insured's death) of amounts which
may be paid by reason of the guarantee, in accordance with the
provisions of paragraph (e) of this section, before making this
calculation. To the extent that payments received in each taxable year
do not exceed the amount found from the above calculation, they are
``prorated amounts'' of the ``amount held by an insurer'' and are
excludable from the gross income of the beneficiary without regard to
whether he lives beyond the life expectancy used in making the
calculation. If the contract in question does not provide for the
payment of a specific lump sum upon the death of the insured as one of
the alternative methods of payment, the present value
[[Page 357]]
(at the time of the death of the insured) of the payments to be made the
beneficiary, determined in accordance with the interest rate and
mortality table used by the insurer in determining the benefits to be
paid, shall be used in the above calculation in lieu of a lump sum.
(d) Treatment of payments to two or more beneficiaries--(1)
Unrelated payments. If payments are to be made to two or more
beneficiaries, but the payments to be made to each are to be made
without regard to whether or not payments are made or continue to be
made to the other beneficiaries, the present value (at the time of the
insured's death) of such payments to each beneficiary shall be
determined independently for each such beneficiary. The present value so
determined shall then be divided by the term for which the payments are
to be made. If the payments are to be made for the life of the
beneficiary, the divisor shall be the life expectancy of the
beneficiary. To the extent that payments received by a beneficiary do
not exceed the amount found from the above calculation, they are
``prorated amounts'' of the ``amount held by an insurer'' with respect
to such beneficiary and are excludable from the gross income of the
beneficiary without regard to whether he lives beyond any life
expectancy used in making the calculation. For the purpose of the
calculation described above, both the ``present value'' of the payments
to be made periodically and the ``life expectancy'' of the beneficiary
shall be determined in accordance with the interest rate and mortality
table used by the insurer in determining the benefits to be paid. If
payments are to be made to the estate or beneficiary of a primary
beneficiary in the event that such beneficiary dies before receiving a
certain number of payments or a specified total amount, the ``present
value'' of payments to such beneficiary shall not include the present
value (at the time of the insured's death) of amounts which may be paid
by reason of such a guarantee. See paragraph (e) of this section.
(2) Related payments. If payments to be made to two or more
beneficiaries are in the nature of a joint and survivor annuity (as
described in paragraph (b) of Sec. 1.72-5), the present value (at the
time of the insured's death) of the payments to be made to all such
beneficiaries shall be divided by the life expectancy of such
beneficiaries as a group. To the extent that the payments received by a
beneficiary do not exceed the amount found from the above calculation,
they are ``prorated amounts'' of the ``amount held by an insurer'' with
respect to such beneficiary and are excludable from the gross income of
the beneficiary without regard to whether all the beneficiaries involved
live beyond the life expectancy used in making the calculation. For the
purpose of the calculation described above, both the ``present value''
of the payments to be made periodically and the ``life expectancy'' of
all the beneficiaries as a group shall be determined in accordance with
the interest rate and mortality table used by the insurer in determining
the benefits to be paid. If the contract provides that certain payments
are to be made in the event that all the beneficiaries of the group die
before a specified number of payments or a specified total amount is
received by them, the present value of payments to be made to the group
shall not include the present value (at the time of the insured's death)
of amounts which may be paid by reason of such a guarantee. See
paragraph (e) of this section.
(3) Payments to secondary beneficiaries. Payments made by reason of
the death of a beneficiary (or beneficiaries) under a contract providing
that such payments shall be made in the event that the beneficiary (or
beneficiaries) die before receiving a specified number of payments or a
specified total amount shall be excluded from the gross income of the
recipient to the extent that such payments are made solely by reason of
such guarantee.
(e) Treatment of present value of guaranteed payments. In the case
of payments which are to be made for a life or lives under a contract
providing that further amounts shall be paid upon the death of the
primary beneficiary (or beneficiaries) in the event that such
beneficiary (or beneficiaries) die before receiving a specified number
of payments or a specified total
[[Page 358]]
amount, the present value (at the time of the insured's death) of all
payments to be made under the contract shall not include, for purposes
of prorating the amount held by the insurer, the present value of the
payments which may be made to the estate or beneficiary of the primary
beneficiary. In such a case, any lump sum amount used to measure the
value of the amount held by an insurer with respect to the primary
beneficiary must be reduced by the value at the time of the insured's
death of any amounts which may be paid by reason of the guarantee
provided for a secondary beneficiary or the estate of the primary
beneficiary before prorating such lump sum over the life or lives of the
primary beneficiaries. Such present value (of the guaranteed payment)
shall be determined by the use of the interest rate and mortality tables
used by the insurer in determining the benefits to be paid.
(f) Treatment of payments not paid periodically. Payments made to
beneficiaries other than periodically shall be included in the gross
income of the recipients, but only to the extent that they exceed
amounts payable at the time of the death of the insured to each such
beneficiary or, where no such amounts are specified, the present value
of such payments at that time.
(g) Examples. The principles of this section may be illustrated by
the following examples:
Example 1. A life insurance policy provides for the payment of
$20,000 in a lump sum to the beneficiary at the death of the insured.
Upon the death of the insured, the beneficiary elects an option to leave
the proceeds with the company for five years and then receive payment of
$24,000, having no claim of right to any part of such sum before the
entire five years have passed. Upon the payment of the larger sum,
$24,000, the beneficiary shall include $4,000 in gross income and
exclude $20,000 therefrom. If it is assumed that the same insurer has
determined the benefits to be paid, the same result would obtain if no
lump sum amount were provided for at the death of the insured and the
beneficiary were to be paid $24,000 five years later. In neither of
these cases would the surviving spouse be able to exclude any additional
amount from gross income since both cases involve an amount held by an
insurer under an agreement to pay interest thereon to which section
101(c) applies, rather than an amount to be paid periodically after the
death of the insured to which section 101(d) applies.
Example 2. A life insurance policy provides that $1,200 per year
shall be paid the sole beneficiary (other than a surviving spouse) until
a fund of $20,000 and interest which accrues on the remaining balance is
exhausted. A guaranteed rate of interest is specified, but excess
interest may be credited according to the earnings of the insurer.
Assuming that the fund will be exhausted in 20 years if only the
guaranteed interest is actually credited, the beneficiary shall exclude
$1,000 of each installment received ($20,000 divided by 20) and any
installments received, whether by the beneficiary or his estate or
beneficiary, in excess of 20 shall be fully included in the gross income
of the recipient. If, instead, the excess interest were to be paid each
year, any portion of each installment representing an excess over $1,000
would be fully includible in the recipient's gross income. Thus, if an
installment of $1,350 were received, $350 of it would be included in
gross income.
Example 3. Assume that the sole life insurance policy of a decedent
provides only for the payment of $5,000 per year for the life of his
surviving spouse, beginning with the insured's death. If the present
value of the proceeds, determined by reference to the interest rate and
the mortality table used by the insurance company, is $60,000, and such
beneficiary's life expectancy is 20 years, $3,000 of each $5,000 payment
($60,000 divided by 20) is excludable as the prorated portion of the
``amount held by an insurer''. For each taxable year in which a payment
is made, an additional $1,000 is excludable from the gross income of the
surviving spouse. Hence, if she receives only one $5,000 payment in her
taxable year, only $1,000 is includible in her gross income in that year
with respect to such payment ($5,000 less the total amount excludable,
$4,000). Assuming that the policy also provides for payments of $2,000
per year for 10 years to the daughter of the insured, the present value
of the payments to the daughter is to be computed separately for the
purpose of determining the excludable portion of each payment to her.
Assuming that such present value is $15,000, $1,500 of each payment of
$2,000 received by the daughter is excludable from her gross income
($15,000 divided by 10). The remaining $500 shall be included in the
gross income of the daughter.
Example 4. Beneficiaries A and B, neither of whom is the surviving
spouse of the insured, are each to receive annual payments of $1,800 for
each of their respective lives upon the death of the insured. The
contract does not provide for payments to be made in any other manner.
Assuming that the present value of the payments to be made to A,
[[Page 359]]
whose life expectancy according to the insurer's mortality table is 30
years, is $36,000, A shall exclude $1,200 of each payment received
($36,000 divided by 30). Assuming that the present value of the payments
to be made to B, whose life expectancy according to the insurer's
mortality table is 20 years, is $27,000, B shall exclude $1,350 of each
payment received ($27,000 divided by 20).
Example 5. A life insurance policy provides for the payment of
$76,500 in a lump sum to the beneficiary, A, at the death of the
insured. Upon the insured's death, however, A selects an option for the
payment of $2,000 per year for her life and for the same amount to be
paid after her death to B, her daughter, for her life. Assuming that
since A is 51 years of age and her daughter is 28 years of age, the
insurer determined the amount of the payments by reference to a
mortality table under which the life expectancy for the lives of both A
and B, joint and survivor, is 51 years, $1,500 of each $2,000 payment to
either A or B ($76,500 divided by 51, or $1,500) shall be excluded from
the gross income of the recipient. However, if A is the surviving spouse
of the insured and no other contracts of insurance whose proceeds are to
be paid to her at a date later than death are involved, A shall exclude
the entire payment of $2,000 in any taxable year in which she receives
but one such payment because of the additional exclusion under section
101(d)(1)(B).
Example 6. Beneficiaries A and B, neither of whom is the surviving
spouse of the insured, are each to receive annual payments of $1,800 for
each of their respective lives upon the death of the insured, but after
the death of either, the survivor is to receive the payments formerly
made to the deceased beneficiary until the survivor dies. Assuming that
the life expectancy, joint and survivor, of A and B in accordance with
the mortality table used by the insurer is 32 years and assuming that
the total present value of the benefits to both (determined in
accordance with the interest rate used by the insurer) is $80,000, A and
B shall each exclude $1,250 of each installment of $1,800 ($80,000
divided by the life expectancy, 32, multiplied by the fraction of the
annual payment payable to each, one-half) until the death of either.
Thereafter, the survivor shall exclude $2,500 of each installment of
$3,600 ($80,000 divided by 32).
Example 7. A life insurance policy provides for the payment of
$75,000 in a lump sum to the beneficiary, A, at the death of the
insured. A, upon the insured's death, however, selects an option for the
payment of $4,000 per year for life, with a guarantee that any part of
the $75,000 lump sum not paid to A before his death shall be paid to B
(or his estate). A's beneficiary. Assuming that, under the criteria used
by the insurer in determining the benefits to be paid, the present value
of the guaranteed amount to B is $13,500 and that A's life expectancy is
25 years, the lump sum shall be reduced by the present value of the
guarantee to B ($75,000 less $13,500, or $61,500) and divided by A's
life expectancy ($61,500 divided by 25, or $2,460). Hence, $2,460 of
each $4,000 payment is excludable from A's gross income. If A is the
surviving spouse of the insured and no other contracts of insurance
whose proceeds are to be paid to her at a date later than death are
involved, A shall exclude $3,460 of each $4,000 payment from gross
income in any taxable year in which but one such payment is received.
Under these facts, if any amount is paid to B by reason of the fact that
A dies before receiving a total of $75,000, the residue of the lump sum
paid to B shall be excluded from B's gross income since it is wholly in
lieu of the present value of such guarantee plus the present value of
the payments to be made to the first beneficiary, and is therefore
entirely an ``amount held by an insurer'' paid at a date later than
death (see paragraph (d)(3) of this section).
Example 8. Assume that an insurance policy does not provide for the
payment of a lump sum, but provides for the payment of $1,200 per year
for a beneficiary's life upon the death of the insured, and also
provides that if ten payments are not made to the beneficiary before
death a secondary beneficiary (whether named by the insured or by the
first beneficiary) shall receive the remainder of the ten payments in
similar installments. If, according to the criteria used by the
insurance company in determining the benefits, the present value of the
payments to the first beneficiary is $12,000 and the life expectancy of
such beneficiary is 15 years, $800 of each payment received by the first
beneficiary is excludable from gross income. Assuming that the same
figures obtain even though the payments are to be made at the rate of
$100 per month, the yearly exclusion remains the same unless more or
less than twelve months' installments are received by the beneficiary in
a particular taxable year. In such a case two-thirds of the total
received in the particular taxable year with respect to such beneficiary
shall be excluded from gross income. Under either of the above
alternatives, any amount received by the second beneficiary by reason of
the guarantee of ten payments is fully excludable from the beneficiary's
gross income since it is wholly in lieu of the present value of such
guarantee plus the present value of the payments to be made to the first
beneficiary and is therefore entirely an ``amount held by an insurer''
paid at a date later than death (see paragraph (d)(3) of this section).
(h) Applicability of both section 101(c) and 101(d) to payments
under a single life insurance contract--(1) In general. Section 101(d)
shall not apply to interest payments on any amount held by an
[[Page 360]]
insurer under an agreement to pay interest thereon (see sections 101(c)
and 101(d)(4) and Sec. 1.101-3). On the other hand, both section 101(c)
and section 101(d) may be applicable to payments received under a single
life insurance contract, if such payments consist both of interest on an
amount held by an insurer under an agreement to pay interest thereon and
of amounts held by the insurer and paid on a date or dates later than
the death of the insured. One instance when both section 101(c) and
section 101(d) may be applicable to payments received under a single
life insurance contract is in the case of a permanent life insurance
policy with a family income rider attached. A typical family income
rider is one which provides additional term insurance coverage for a
specified number of years from the register date of the basic policy.
Under the policy with such a rider, if the insured dies at any time
during the term period, the beneficiary is entitled to receive (i)
monthly payments of a specified amount commencing as of the date of
death and continuing for the balance of the term period, and (ii) a lump
sum payment of the proceeds under the basic policy to be paid at the end
of the term period. If the insured dies after the expiration of the term
period, the beneficiary receives only the proceeds under the basic
policy. If the insured dies before the expiration of the term period,
part of each monthly payment received by the beneficiary during the term
period consists of interest on the proceeds of the basic policy (such
proceeds being retained by the insurer until the end of the term
period). The remaining part consists of an installment (principal plus
interest) of the proceeds of the terms insurance purchased under the
family income rider. The amount of term insurance which is provided
under the family income rider is, therefore, that amount which, at the
date of the insured's death, will provide proceeds sufficient to fund
such remaining part of each monthly payment. Since the proceeds under
the basic policy are held by the insurer until the end of the term
period, that portion of each monthly payment which consists of interest
on such proceeds is interest on an amount held by an insurer under an
agreement to pay interest thereon and is includible in gross income
under section 101(c). On the other hand, since the remaining portion of
each monthly payment consists of an installment payment (principal plus
interest) of the proceeds of the term insurance, it is a payment of an
amount held by the insurer and paid on a date later than the death of
the insured to which section 101(d) and this section applies (including
the $1,000 exclusion allowed the surviving spouse under section
101(d)(1)(B)). The proceeds of the basic policy, when received in a lump
sum at the end of the term period, are excludable from gross income
under section 101(a).
(2) Example of tax treatment of amounts received under a family
income rider. The following example illustrates the application of the
principles contained in subparagraph (1) of this paragraph to payments
received under a permanent life insurance policy with a family income
rider attached:
Example. The sole life insurance policy of the insured provides for
the payment of $100,000 to the beneficiary (the insured's spouse) on his
death. In addition, there is attached to the policy a family income
rider which provides that, if the insured dies before the 20th
anniversary of the basic policy, the beneficiary shall receive (i)
monthly payments of $1,000 commencing on the date of the insured's death
and ending with the payment prior to the 20th anniversary of the basic
policy, and (ii) a single payment of $100,000 payable on the 20th
anniversary of the basic policy. On the date of the insured's death, the
beneficiary (surviving spouse of the insured) is entitled to 36 monthly
payments of $1,000 and to the single payment of $100,000 on the 20th
anniversary of the basic policy. The value of the proceeds of the term
insurance at the date of the insured's death is $28,409.00 (the present
value of the portion of the monthly payments to which section 101(d)
applies computed on the basis that the interest rate used by the insurer
in determining the benefits to be paid under the contract is 2\1/4\
percent). The amount of each monthly payment of $1,000 which is
includible in the beneficiary's gross income is determined in the
following manner:
(a) Total amount of monthly payment......................... $1,000.00
(b) Amount includible in gross income under section 101(c) 185.00
as interest on the $100,000 proceeds under the basic policy
held by the insurer until 20th anniversary of the basic
policy (computed on the basis that the interest rate used
by the insurer in determining the benefits to be paid under
the contract is 2\1/4\ percent)............................
[[Page 361]]
(c) Amount to which section 101(d) applies ((a) minus (b)).. 815.00
(d) Amount excludable from gross income under section 101(d) 789.14
($28,409 36).............................................
(e) Amount includible in gross income under section 101(d) 25.86
without taking into account the $1,000 exclusion allowed
the beneficiary as the surviving spouse ((c) minus (d))....
The beneficiary, as the surviving spouse of the insured, is entitled to
exclude the amounts otherwise includible in gross income under section
101(d) (item (e)) to the extent such amounts do not exceed $1,000 in the
taxable year of receipt. This exclusion is not applicable, however, with
respect to the amount of each payment which is includible in gross
income under section 101(c) (item (b)). In this example, therefore, the
beneficiary must include $185 of each monthly payment in gross income
(amount includible under section 101(c)), but may exclude the $25.86
which is otherwise includible under section 101(d). The payment of
$100,000 which is payable to the beneficiary on the 20th anniversary of
the basic policy will be entirely excludable from gross income under
section 101(a).
(3) Limitation on amount considered to be an ``amount held by an
insurer''. See paragraph (b)(3) of this section for a limitation on the
amount which shall be considered an ``amount held by an insurer'' in the
case of proceeds of life insurance which are paid subsequent to the
transfer of the policy for a valuable consideration.
(4) Effective date. The provisions of this paragraph are applicable
only with respect to amounts received during taxable years beginning
after October 28, 1961, irrespective of the date of the death of the
insured.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6577, 26 FR
10127, Oct. 28, 1961; 26 FR 10275, Nov. 2, 1961]
Sec. 1.101-5 Alimony, etc., payments.
Proceeds of life insurance policies paid by reason of the death of
the insured to his separated wife, or payment excludable as death
benefits under section 101(b) paid to a deceased employee's separated
wife, if paid to discharge legal obligations imposed by a decree of
divorce or separate maintenance, by a written separation agreement
executed after August 16, 1954, or by a decree of support entered after
March 1, 1954, shall be included in the gross income of the separated
wife if section 71 or 682 is applicable to the payments made. For
definition of ``wife'', see section 7701(a)(17) and the regulations
thereunder.
Sec. 1.101-6 Effective date.
(a) Except as otherwise provided in paragraph (h)(4) of Sec. 1.101-
4, the provisions of section 101 of the Internal Revenue Code of 1954
and Secs. 1.101-1, 1.101-2, 1.101-3, 1.101-4, and 1.101-5 are applicable
only with respect to amounts received by reason of the death of an
insured or an employee occurring after August 16, 1954. In the case of
such amounts, these sections are applicable even though the receipt of
such amounts occurred in a taxable year beginning before January 1,
1954, to which the Internal Revenue Code of 1939 applies.
(b) Section 22(b)(1) of the Internal Revenue Code of 1939 and the
regulations pertaining thereto shall apply to amounts received by reason
of the death of an insured or an employee occurring before August 17,
1954, regardless of the date of receipt.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6577, 26 FR
10128, Oct. 28, 1961]
Sec. 1.101-7 Mortality table used to determine exclusion for deferred
payments of life insurance proceeds.
(a) Mortality table. Notwithstanding any provision of Sec. 1.101-4
that otherwise would permit the use of a mortality table not described
in this section, the mortality table set forth in Sec. 1.72-7(c)(1) must
be used to determine--
(1) The amount held by an insurer with respect to a beneficiary for
purposes of section 101(d)(2) and Sec. 1.101-4; and
(2) The period or periods with respect to which payments are to be
made for purposes of section 101(d)(1) and Sec. 1.101-4.
(b) Examples. The principles of this section may be illustrated by
the following examples:
Example 1. A life insurance policy provides only for the payment of
$5,000 per year for the life of the beneficiary, A, beginning with the
insured's death. If A is 59 years of age at the time of the insured's
death, the period with respect to which the payments are to be made is
25 years. This period is determined by using the mortality table set
forth in Sec. 1.72-7(c)(1), and is shown in Table V of Sec. 1.72-
[[Page 362]]
9 (which contains life expectancy tables determined using this mortality
table). If the present value of the proceeds, determined by reference to
the interest rate used by the insurance company and the mortality table
set forth in Sec. 1.72-7(c)(1), is $75,000, $3,000 of each $5,000
payment ($75,000 divided by 25) is excluded from the gross income of A.
Example 2. A life insurance policy provides for the payment of
$82,500 in a lump sum to the beneficiary, A, at the death of the
insured. Upon the insured's death, however, A selects an option for the
payment of $2,000 per year for life and for the same amount to be paid
after A's death to B for B's life. If A is 51 years of age and B is 28
years of age at the death of the insured, the period with respect to
which the payments are to be made is 55 years. This period is determined
by using the mortality table set forth in Sec. 1.72-7(c)(1), and is
shown in Table VI of Sec. 1.72-9 (which contains life expectancy tables
determined using this mortality table). Accordingly $1,500 of each
$2,000 payment ($82,500 divided by 55) is excluded from the gross income
of the recipient.
(c) Effective date. This section applies to amounts received with
respect to deaths occurring after October 22, 1986, in taxable years
ending after October 22, 1986.
[T.D. 8161, 52 FR 35415, Sept. 21, 1987. Redesignated and amended by
T.D. 8272, 54 FR 47980, Nov. 20, 1989]
Sec. 1.102-1 Gifts and inheritances.
(a) General rule. Property received as a gift, or received under a
will or under statutes of descent and distribution, is not includible in
gross income, although the income from such property is includible in
gross income. An amount of principal paid under a marriage settlement is
a gift. However, see section 71 and the regulations thereunder for rules
relating to alimony or allowances paid upon divorce or separation.
Section 102 does not apply to prizes and awards (see section 74 and
Sec. 1.74-1) nor to scholarships and fellowship grants (see section 117
and the regulations thereunder).
(b) Income from gifts and inheritances. The income from any property
received as a gift, or under a will or statute of descent and
distribution shall not be excluded from gross income under paragraph (a)
of this section.
(c) Gifts and inheritances of income. If the gift, bequest, devise,
or inheritance is of income from property, it shall not be excluded from
gross income under paragraph (a) of this section. Section 102 provides a
special rule for the treatment of certain gifts, bequests, devises, or
inheritances which by their terms are to be paid, credited, or
distributed at intervals. Except as provided in section 663(a)(1) and
paragraph (d) of this section, to the extent any such gift, bequest,
devise, or inheritance is paid, credited, or to be distributed out of
income from property, it shall be considered a gift, bequest, devise, or
inheritance of income from property. Section 102 provides the same
treatment for amounts of income from property which is paid, credited,
or to be distributed under a gift or bequest whether the gift or bequest
is in terms of a right to payments at intervals (regardless of income)
or is in terms of a right to income. To the extent the amounts in either
case are paid, credited, or to be distributed at intervals out of
income, they are not to be excluded under section 102 from the
taxpayer's gross income.
(d) Effect of Subchapter J. Any amount required to be included in
the gross income of a beneficiary under sections 652, 662, or 668 shall
be treated for purposes of this section as a gift, bequest, devise, or
inheritance of income from property. On the other hand, any amount
excluded from the gross income of a beneficiary under section 663(a)(1)
shall be treated for purposes of this section as property acquired by
gift, bequest, devise, or inheritance.
(e) Income taxed to grantor or assignor. Section 102 is not intended
to tax a donee upon the same income which is taxed to the grantor of a
trust or assignor of income under section 61 or sections 671 through
677, inclusive.
Sec. 1.103-1 Interest upon obligations of a State, territory, etc.
(a) Interest upon obligations of a State, territory, a possession of
the United States, the District of Columbia, or any political
subdivision thereof (hereinafter collectively or individually referred
to as ``State or local governmental unit'') is not includable in gross
income, except as provided under section 103 (c) and (d) and the
regulations thereunder.
[[Page 363]]
(b) Obligations issued by or on behalf of any State or local
governmental unit by constituted authorities empowered to issue such
obligations are the obligations of such a unit. However, section
103(a)(1) and this section do not apply to industrial development bonds
except as otherwise provided in section 103(c). See section 103(c) and
Secs. 1.103-7 through 1.103-12 for the rules concerning interest paid on
industrial development bonds. See section 103(d) for rules concerning
interest paid on arbitrage bonds. Certificates issued by a political
subdivision for public improvements (such as sewers, sidewalks, streets,
etc.) which are evidence of special assessments against specific
property, which assessments become a lien against such property and
which the political subdivision is required to enforce, are, for
purposes of this section, obligations of the political subdivision even
though the obligations are to be satisfied out of special funds and not
out of general funds or taxes. The term ``political subdivision'', for
purposes of this section denotes any division of any State or local
governmental unit which is a municipal corporation or which has been
delegated the right to exercise part of the sovereign power of the unit.
As thus defined, a political subdivision of any State or local
governmental unit may or may not, for purposes of this section, include
special assessment districts so created, such as road, water, sewer,
gas, light, reclamation, drainage, irrigation, levee, school, harbor,
port improvement, and similar districts and divisions of any such unit.
[T.D. 7199, 37 FR 15486, Aug. 3, 1972]
Sec. 1.103-2 Dividends from shares and stock of Federal agencies
or instrumentalities.
(a) Issued before March 28, 1942. (1) Section 26 of the Federal Farm
Loan Act of July 17, 1916 (12 U.S.C. 931), provides that Federal land
banks and Federal land bank associations, including the capital and
reserve or surplus therein and the income derived therefrom, shall be
exempt from taxation, except taxes upon real estate. Section 7 of the
Federal Reserve Act of December 23, 1913 (12 U.S.C. 531), provides that
Federal reserve banks, including the capital stock and surplus therein
and the income derived therefrom, shall be exempt from taxation, except
taxes upon real estate. Section 13 of the Federal Home Loan Bank Act (12
U.S.C. 1433) provides that the Federal Home Loan Bank including its
franchise, its capital, reserves, and surplus, its advances, and its
income shall be exempt from all taxation, except taxes upon real estate.
Section 5(h) of the Home Owners' Loan Act of 1933 (12 U.S.C. 1464(h))
provides that shares of Federal savings and loan associations shall,
both as to their value and the income therefrom, be exempt from all
taxation (except surtaxes, estate, inheritance, and gift taxes) imposed
by the United States. Under the above-mentioned provisions, income
consisting of dividends on stock of Federal land banks, Federal land
bank associations, Federal home loan banks, and Federal reserve banks is
not, in the case of stock issued before March 28, 1942, includable in
gross income. Income consisting of dividends on share accounts of
Federal savings and loan associations is includable in gross income but,
in the case of shares issued before March 28, 1942, is not subject to
the normal tax on income. For taxability of such income in the case of
such stock or shares issued on or after March 28, 1942, see section 6 of
the Public Debt Act of 1942 (31 U.S.C. 742a) and paragraph (b) of this
section. For the time at which a stock or share is issued within the
meaning of this section, see paragraph (b) of this section.
(2) Regardless of the exemption from income tax of dividends paid on
the stock of Federal reserve banks, dividends paid by member banks are
treated like dividends of ordinary corporations.
(3) Dividends on the stock of the central bank for cooperatives, the
production credit corporations, production credit associations, and
banks for cooperatives, organized under the provisions of the Farm
Credit Act of 1933 (12 U.S.C. 1138), constitute income to the
recipients, subject to both the normal tax and surtax (see section 63 of
the Farm Credit Act of 1933 (12 U.S.C. 1138c)).
(b) Issued on or after March 28, 1942. (1) By virtue of the
provisions of section 6 of the Public Debt Act of 1942 (31 U.S.C.
[[Page 364]]
742a), the tax exemption provisions set forth in paragraph (a) of this
section with respect to income consisting of dividends on stock of the
Federal land banks, Federal land bank associations, and Federal reserve
banks, or on share accounts of Federal savings and loan associations,
are not applicable in the case of dividends on such stock or shares
issued on or after March 28, 1942.
(2) For the purposes of this section, a stock or share is deemed to
be issued at the time and to the extent that payment therefor is made to
the agency or instrumentality. The date of issuance of the certificate
or other evidence of ownership of such stock or share is not
determinative if payment is made at an earlier or later date. Where old
stock is retired in exchange for new stock of a different character or
preference, the new stock shall be deemed to have been issued at the
time of the exchange rather than when the old stock was paid for. These
rules may be illustrated by the following examples:
Example 1. A, the owner of an investment share account, consisting
of 10 shares, in a Federal savings and loan association, has a single
certificate issued before March 28, 1942, evidencing such ownership. In
order that A may dispose of half of such shares, the association at his
request issues, after March 27, 1942, two 5-share certificates in
substitution for the 10-share certificate. The shares evidenced by the
two new certificates are deemed to have been issued before March 28,
1942, the shares having been paid for before such date.
Example 2. The X Bank, a member of a Federal reserve bank, owns 50
shares of Federal reserve bank stock, evidenced by a single stock
certificate issued before March 28, 1942. On December 31, 1942, the X
Bank reduces the amount of its capital stock, as a result of which it is
required to reduce the amount of its Federal reserve bank stock to 40
shares. It surrenders the 50-share certificate to the Federal reserve
bank and receives a new 40-share certificate. The 40 shares evidenced by
such certificate are deemed to have been issued before March 28, 1942.
On December 31, 1943, the X Bank increases the amount of its capital
stock, as a result of which it is required to purchase 10 additional
shares of the Federal reserve bank stock. The Federal reserve bank
issues a 10-share certificate evidencing ownership of the new shares. Of
the 50 shares then owned by the X Bank, 40 were issued prior to March
28, 1942, and 10 were issued after March 27, 1942.
Example 3. A, the owner of a savings share account in the amount of
$100 in a Federal savings and loan association, has a passbook
containing a certificate issued prior to March 28, 1942, evidencing such
ownership. Subsequent to March 27, 1942, A deposits $10,000 in the
account. With respect to the $10,000 deposit, the share is deemed to
have been issued after March 27, 1942.
Sec. 1.103-3 Interest upon notes secured by mortgages executed to
Federal agencies or instrumentalities.
Section 26 of the Federal Farm Loan Act (12 U.S.C. 931), and section
210 of such act, as added by section 2 of the act of March 4, 1923 (12
U.S.C. 1111), provide that first mortgages executed to Federal land
banks, joint-stock land banks, or Federal intermediate credit banks, and
the income derived therefrom, shall be exempt from taxation.
Accordingly, income consisting of interest on promissory notes held by
such banks and secured by such first mortgages is not subject to the
income tax.
Sec. 1.103-4 Interest upon United States obligations.
(a) Issued before March 1, 1941. (1) Interest upon obligations of
the United States issued on or before September 1, 1917, is exempt from
tax. In the case of obligations issued by the United States after
September 1, 1917, and in the case of obligations of a corporation
organized under act of Congress, if such corporation is an
instrumentality of the United States, the interest is exempt from tax
only if and to the extent provided in the acts authorizing the issue
thereof, as amended and supplemented.
(2) Interest on Treasury bonds issued before March 1, 1941, is
exempt from Federal income taxes except surtaxes imposed upon the income
or profits of individuals, associations, or corporations. However,
interest on an aggregate of not exceeding $5,000 principal amount of
such bonds is also exempt from surtaxes. Interest in excess of the
interest on an aggregate of not exceeding $5,000 principal amount of
such bonds is subject to surtax and must be included in gross income.
(3) Interest credited to postal savings accounts upon moneys
deposited before March 1, 1941, in postal savings banks is wholly exempt
from income tax.
[[Page 365]]
(b) Issued on or after March 1, 1941. (1) Under the provisions of
sections 4 and 5 of the Public Debt Act of 1941 (31 U.S.C. 742a),
interest upon obligations issued on or after March 1, 1941, by the
United States, or any agency or instrumentality thereof, shall not have
any exemption, as such, from Federal income tax except in respect of any
such obligations which the Federal Maritime Board and Maritime
Administration (formerly United States Maritime Commission) or the
Federal Housing Administration has, before March 1, 1941, contracted to
issue at a future date. The interest on such obligations so contracted
to be issued shall bear such tax-exemption privileges as were at the
time of such contract provided in the law authorizing their issuance.
For the purposes hereof, under section 4(a) of the Public Debt Act of
1941, a Territory and a possession of the United States (or any
political subdivisions thereof), and the District of Columbia, and any
agency or instrumentality of any one or more of the foregoing, shall not
be considered as an agency or instrumentality of the United States.
(2) In the case of obligations issued as the result of a refunding
operation, as, for example, where a corporation exchanges bonds for
previously issued bonds, the refunding obligations are deemed, for the
purposes of this section, to have been issued at the time of the
exchange rather than at the time the original bonds were issued.
Sec. 1.103-5 Treasury bond exemption in the case of trusts or
partnerships.
(a) When the income of a trust is taxable to beneficiaries, as in
the case of a trust the income of which is to be distributed to the
beneficiaries currently, each beneficiary is entitled to exemption as if
he owned directly a proportionate part of the Treasury bonds held in
trust. When, on the other hand, income is taxable to the trustee, as in
the case of a trust the income of which is accumulated for the benefit
of unborn or unascertained persons, the trust, as the owner of the bonds
held in trust, is entitled to the exemption on account of such
ownership. In general, see sections 652(b) and 662(b) and the
regulations thereunder.
(b) As the income of a partnership is taxable to the individual
partners, each partner is entitled to exemption as if he owned directly
a proportionate part of the bonds held by the partnership. For rules
relating to partially tax-exempt interest see section 702(a)(7) and the
regulations thereunder.
Sec. 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.
By virtue of section 4 of the Victory Liberty Loan Act of March 3,
1919 (31 U.S.C. 750), amending section 3 of the Fourth Liberty Bond Act
of July 9, 1918 (31 U.S.C. 750), the interest received on and after
March 3, 1919, on bonds, notes, and certificates of indebtedness of the
United States while beneficially owned by a nonresident alien
individual, or a foreign corporation, partnership, or association, if
such individual, corporation, partnership, or association is not engaged
in business in the United States, is exempt from income taxes. Such
exemption applies only to such bonds, notes, or certificates as have
been issued before March 1, 1941. Interest derived by a nonresident
alien individual, or by a foreign corporation, partnership, or
association on such bonds, notes, or certificates issued on or after
March 1, 1941, is subject to tax as in the case of taxpayers generally
as provided in paragraph (b) of Sec. 1.103-4.
Sec. 1.103-7 Industrial development bonds.
(a) In general. Under section 103(c)(1) and this section, an
industrial development bond issued after April 30, 1968, shall be
treated as an obligation not described in section 103(a)(1) and
Sec. 1.103-1. Accordingly, interest paid on such a bond is includable in
gross income unless the bond was issued by a State, or local
governmental unit to finance certain exempt facilities (see section
103(c)(4) and Sec. 1.103-8), to finance an industrial park (see section
103(c)(5) and Sec. 1.103-9), or as part of an exempt small issue (see
section 103(c)(6) and Sec. 1.103-10). For applicable rules when an
industrial development bond is held by a substantial user (or a person
related to a substantial user) of such an exempt
[[Page 366]]
facility, or an industrial park, or a facility financed with the
proceeds of such an exempt small issue, see section 103(c)(7) and
Sec. 1.103-11. See also Sec. 1.103-12 for the transitional provisions
concerning the interest paid on certain industrial development bonds
issued before January 1, 1969, and certain other industrial development
bonds. Even if section 103(c) does not prevent a bond from being treated
as an obligation described in section 103(a)(1) and Sec. 1.103-1, such
bond shall nevertheless be treated as an obligation which is not
described in section 103(a)(1) and Sec. 1.103-1 if under section 103(d)
it is an arbitrage bond. For purposes of section 103(c), the term
``issue'' includes a single obligation such as a single note issued in
connection with a bank loan as well as a series of notes or bonds.
(b) Industrial development bonds--(1) Definition. For purposes of
this section, the term ``industrial development bond'' means any
obligation--
(i) Which is issued as part of an issue all or a major portion of
the proceeds of which are to be used directly or indirectly in any trade
or business carried on by any person who is not an exempt person (as
defined in subparagraph (2) of this paragraph), and
(ii) The payment of the principal or interest on which, under the
terms of such obligation or any underlying arrangement (as described in
subparagraph (4) of this paragraph), is in whole or in major part (i.e.,
major portion)--
(a) Secured by any interest in property used or to be used in a
trade or business,
(b) Secured by any interest in payments in respect of property used
or to be used in a trade or business, or
(c) To be derived from payments in respect of property, or borrowed
money, used or to be used in a trade or business.
See subparagraphs (3) and (4) of this paragraph for the trade or
business test and the security interest test respectively. See
Sec. 1.103-8(a)(6) to determine the amount of proceeds of an issue for
which the amount payable during each annual period over the term of the
issue is less than the amount of interest accruing thereon in such
period, e.g., in the case of an issue sold by the issuer for less than
its face amount.
(2) Exempt person. The term ``exempt person'' means a governmental
unit as defined in this subparagraph, or an organization which is
described in section 501(c)(3) and this subparagraph and is exempt from
taxation under section 501(a). For purposes of this subparagraph, the
term ``governmental unit'' means a State or local governmental unit (as
defined in Sec. 1.103-1). For purposes of this subparagraph, the term
``governmental unit'' also includes the United States of America (or an
agency or instrumentality of the United States of America), but only in
the case of obligations (i) issued on or before August 3, 1972, or (ii)
issued after August 3, 1972, with respect to which a bond resolution or
any other official action was taken and in reliance on such action
either (a) construction of such facility to be financed with such
obligations commenced or (b) a binding contract was entered into, or an
irrevocable bid was submitted, prior to August 3, 1972, or (iii) issued
after August 3, 1972, with respect to a program approved by Congress
prior to such date but only if (a) a portion of such program has been
financed by obligations issued prior to such date, to which section
103(a) applied pursuant to a ruling issued by the Commissioner or his
delegate prior to such date and (b) construction of one or more
facilities comprising a part of such program commenced prior to such
date. For purposes of this subparagraph, a tax-exempt organization is an
exempt person only with respect to a trade or business it carries on
which is not an unrelated trade or business. Whether a particular trade
or business carried on by a tax-exempt organization is an unrelated
trade or business is determined by applying the rules of section 513(a)
(relating to general rule for unrelated trade or business) and the
regulations thereunder to the tax-exempt organization without regard to
whether the organization is an organization subject to the tax imposed
by section 511 (relating to imposition of tax on unrelated business
income of charitable, etc., organizations).
(3) Trade or business test. (i) The trade or business test relates
to the use of the proceeds of a bond issue. The test is
[[Page 367]]
met if all or a major portion of the proceeds of a bond issue is used in
a trade or business carried on by a nonexempt person. For example, if
all or a major portion of the proceeds of a bond issue is to be loaned
to one or more private business users, or is to be used to acquire,
construct, or reconstruct facilities to be leased or sold to such
private business users, and such proceeds or facilities are to be used
in trades or businesses carried on by them, such proceeds are to be used
in a trade or business carried on by persons who are not exempt persons,
and the debt obligations comprising the bond issue satisfy the trade or
business test. If, however, less than a major portion of the proceeds of
an issue is to be loaned to nonexempt persons or is to be used to
acquire or construct facilities which will be used in a trade or
business carried on by a nonexempt person, the debt obligations will not
be industrial development bonds. Also, when publicly-owned facilities
which are intended for general public use, such as toll roads or
bridges, are constructed with the proceeds of a bond issue and used by
nonexempt persons in their trades or businesses on the same basis as
other members of the public, such use does not constitute a use in the
trade or business of a nonexempt person for purposes of the trade or
business test.
(ii) In determining whether a debt obligation meets the trade or
business test, the indirect, as well as the direct, use of the proceeds
is to be taken into account. For example, the debt obligations
comprising a bond issue do not fail to satisfy the trade or business
test merely because the State or local governmental unit uses the
proceeds to engage in a series of financing transactions for property to
be used by private business users in trades or businesses carried on by
them. Similarly, if such proceeds are to be used to construct facilities
to be leased or sold to any nonexempt person for use in a trade or
business it carries on, such proceeds are to be used in a trade or
business carried on by a nonexempt person and the debt obligations
comprising such issue satisfy the trade or business test. If such
proceeds are to be used to construct facilities to be leased or sold to
an exempt person who will, in turn, lease or sell the facilities to a
nonexempt person for use in a trade or business, such proceeds are to be
used in a trade or business carried on by a nonexempt person and the
debt obligations comprising such issue satisfy the trade or business
test. In addition, proceeds will be treated as being used in the trade
or business of a nonexempt person in situations involving other
arrangements, whether in a single transaction or in a series of
transactions, whereby a nonexempt person uses property acquired with the
proceeds of a bond issue in its trade or business.
(iii) The use of more than 25 percent of the proceeds of an issue of
obligations in the trades or businesses of nonexempt persons will
constitute the use of a major portion of such proceeds in such manner.
In the case of the direct or indirect use of the proceeds of an issue of
obligations or the direct or indirect use of a facility constructed,
reconstructed, or acquired with such proceeds, the use by all nonexempt
persons in their trades or businesses must be aggregated to determine
whether the trade or business test is satisfied. If more than 25 percent
of the proceeds of a bond issue is used in the trades or businesses of
nonexempt persons, the trade or business test is satisfied. For special
rules with respect to the acquisition of the output of facilities, see
subparagraph (5) of this paragraph.
(4) Security interest test. The security interest test relates to
the nature of the security for, and the source of, the payment of either
the principal or interest on a bond issue. The nature of the security
for, and the source of, the payment may be determined from the terms of
the bond indenture or on the basis of an underlying arrangement. An
underlying arrangement to provide security for, or the source of, the
payment of the principal or interest on an obligation may result from
separate agreements between the parties or may be determined on the
basis of all the facts and circumstances surrounding the issuance of the
bonds. The property which is the security for, or the source of, the
payment of either the principal or interest on a debt obligation need
not be property acquired with bond proceeds. The security interest test
is
[[Page 368]]
satisfied if, for example, a debt obligation is secured by unimproved
land or investment securities used, directly or indirectly, in any trade
or business carried on by any private business user. A pledge of the
full faith and credit of a State or local governmental unit will not
prevent a debt obligation from otherwise satisfying the security
interest test. For example, if the payment of either the principal or
interest on a bond issue is secured by both a pledge of the full faith
and credit of a State or local governmental unit and any interest in
property used or to be used in a trade or business, the bond issue
satisfies the security interest test. For rules with respect to the
acquisition of the output of facilities see subparagraph (5) of this
paragraph.
(5) Trade or business test and security interest test with respect
to certain output contracts. (i) The use by one or more nonexempt
persons of a major portion of the subparagraph (5) output of facilities
such as electric energy, gas, or water facilities constructed,
reconstructed, or acquired with the proceeds of an issue satisfies the
trade or business test and the security interest test if such use has
the effect of transferring to nonexempt persons the benefits of
ownership of such facilities, and the burdens of paying the debt service
on governmental obligations used directly or indirectly to finance such
facilities, so as to constitute the indirect use by them of a major
portion of such proceeds. Such benefits and burdens are transferred and
a major portion of the proceeds of an issue is used indirectly by the
users of the subparagraph (5) output of such a facility which is owned
and operated by an exempt person where--
(a)(1) One nonexempt person agrees pursuant to a contract to take,
or to take or pay for, a major portion (more than 25 percent) of the
subparagraph (5) output (within the meaning of subdivision (ii) of this
subparagraph) of such a facility (whether or not conditional upon the
production of such output) or (2) two or more nonexempt persons, each of
which pays annually a guaranteed minimum payment exceeding 3 percent of
the average annual debt service with respect to the obligations in
question, agree, pursuant to contracts, to take, or to take or pay for,
a major portion (more than 25 percent) of the subparagraph (5) output of
such a facility (whether or not conditioned upon the production of such
output), and
(b) Payment made or to be made with respect to such contract or
contracts by such nonexempt person or persons exceeds a major part (more
than 25 percent) of the total debt service with respect to such issue of
obligations.
(ii) For purposes of this subparagraph--
(a) Where a contract described in subdivision (i) of this
subparagraph may be extended by the issuer of obligations described
therein, the term of the contract shall be considered to include the
period for which such contract may be so extended.
(b) The subparagraph (5) output of a facility shall be determined by
multiplying the number of units produced or to be produced by the
facility in 1 year by the number of years in the contract term of the
issue of obligations issued to provide such facility. The number of
units produced or to be produced by a facility in 1 year shall be
determined by reference to its nameplate capacity (or where there is no
nameplate capacity, its maximum capacity) without any reduction for
reserves or other unutilized capacity. The contract term of an issue
begins on the date the output of a facility is first taken, pursuant to
a take or a take or pay contract, by a nonexempt person and ends on the
latest maturity date of any obligation of the issue (determined without
regard to any optional redemption dates). If, however, on or before the
date of issue of a prior issue of governmental obligations issued to
provide a facility, the issuer makes a commitment in the bond indenture
or related document to refinance such prior issue with one or more
subsequent issues of governmental obligations, then the contract term of
the issue shall be determined with regard to the latest redemption date
of any obligation of the last such refinancing issue with respect to
such facility (determined without regard to any optional redemption
dates). Where it appears that the term of an issue (or the terms of two
or more issues) is extended for purposes of extending the
[[Page 369]]
contract term of an issue and thereby increasing the subparagraph (5)
output of the facility provided by such issue, the subparagraph (5)
output of such facility shall be determined by the Commissioner without
regard to the provisions of this subdivision (b).
(c) The total debt service with respect to an issue of obligations
shall be the total dollar amount (excluding any penalties) payable with
respect to such issue over its entire term. The entire term of an issue
begins on its date of issue and ends on the latest maturity date of any
obligation of the issue (determined without regard to any optional
redemption dates). If, however, on or before the date of issue of a
prior issue of governmental obligations the issuer makes a commitment in
the bond indenture or related document to refinance such prior issue
with one or more subsequent issues of governmental obligations, the
entire term of the issue shall be determined with regard to the latest
redemption date of any obligation of the last such refinancing issue
(determined without regard to any optional redemption dates).
(d) Two or more nonexempt persons who are related persons (within
the meaning of section 103(c)(6)(C)) shall be treated as one nonexempt
person.
(c) Examples. The application of the rules contained in section
103(c) (2) and (3) and paragraph (b) of this section are illustrated by
the following examples:
Example 1. State A and corporation X enter into an arrangement under
which A is to provide a factory which X will lease for 20 years. The
arrangement provides (1) that A will issue $10 million of bonds, (2)
that the proceeds of the bond issue will be used to purchase land and to
construct and equip a factory in accordance with X's specifications, (3)
that X will rent the facility (land, factory, and equipment) for 20
years at an annual rental equal to the amount necessary to amortize the
principal and pay the interest on the outstanding bonds, and (4) that
such payments by X and the facility itself will be the security for the
bonds. The bonds are industrial development bonds since they are part of
an issue of obligations (1) all of the proceeds of which are to be used
(by purchasing land and constructing and equipping the factory) in a
trade or business by a nonexempt person, and (2) the payment of the
principal and interest on which is secured by the facility and payments
to be made with respect thereto.
Example 2. The facts are the same as in example (1) except that (1)
X will purchase the facility, and (2) annual payments equal to the
amount necessary to amortize the principal and pay the interest on the
outstanding bonds will be made by X. The bonds are industrial
development bonds for the reasons set forth in example (1).
Example 3. State B and corporation X enter into an arrangement under
which B is to loan $10 million to X. The arrangement provides (1) that B
will issue $10 million of bonds, (2) that the proceeds of the bond issue
will be loaned to X to provide additional working capital and to finance
the acquisition of certain new machinery, (3) that X will repay the loan
in annual installments equal to the amount necessary to amortize the
principal and pay the interest on the outstanding bonds, and (4) that
the payments on the loan and the machinery will be the security for only
the payment of the principal on the bonds. The bonds are industrial
development bonds since they are part of an issue of obligations (1) all
of the proceeds of which are to be used in a trade or business by a
nonexempt person, and (2) the payment of the principal on which is
secured by payments to be made in respect of property to be used in a
trade or business. The result would be the same if only the payment of
the interest on the bonds were secured by payments on the loan and
machinery.
Example 4. The facts are the same as in example (1), (2), or (3)
except that the annual payments required to be made by corporation X
exceed the amount necessary to amortize the principal and pay the
interest on the outstanding bonds. The bonds are industrial development
bonds for the reasons set forth in such examples. The fact that
corporation X is required to pay an amount in excess of the amount
necessary to pay the principal and interest on the bonds does not affect
their status as industrial development bonds. Similarly, if the annual
payments required to be made by corporation X were sufficient to pay
only a major portion of either the principal or the interest on the
outstanding bonds, the bonds would be industrial development bonds for
the reasons set forth in such examples.
Example 5. The facts are the same as in example (1), (2), (3), or
(4) except that the issuer is a political subdivision which has taxing
power and the bonds are general obligation bonds. Since both the trade
or business and the security interest tests are met, the bonds are
industrial development bonds notwithstanding the fact that they
constitute an unconditional obligation of the issuer payable from its
general revenues.
Example 6. (a) State C issues its general obligation bonds to
purchase land and construct a hotel for use by the general public
[[Page 370]]
(i.e., tourists, visitors, travelers on business, etc.). The bond
indenture provides (1) that C will own and operate the project for the
period required to redeem the bonds, and (2) that the project itself and
the revenues derived therefrom are the security for the bonds. The bonds
are not industrial development bonds since (1) the proceeds are to be
used by an exempt person in a trade or business carried on by such
person, and (2) a major portion of such proceeds is not to be used,
directly or indirectly, in a trade or business carried on by a nonexempt
person. Use of the hotel by hotel guests who are travelling in
connection with trades or businesses of nonexempt persons is not an
indirect use of the hotel by such nonexempt persons for purposes of
section 103(c).
(b) The facts are the same as in paragraph (a) of this example
except that corporation Y enters into a long-term agreement with C that
Y will rent more than one-fourth of the rooms on an annual basis for a
period approximately equal to one half of the term of the bonds. The
bonds are industrial development bonds because (1) a major portion of
the proceeds used to construct the hotel is to be used in the trade or
business of corporation Y (a nonexempt person) and (2) a major portion
of the principal and interest on such issue will be derived from
payments in respect of the property used in the trade or business of Y.
Example 7. (a) State D and corporation Y enter into an agreement
under which Y will lease for 20 years three floors of a 12- story office
building to be constructed by D on land which it will acquire. D will
occupy the grade floor and the remaining eight floors of the building.
The portion of the costs of acquiring the land and constructing the
building which are allocated to the space to be leased by Y is not in
excess of 25 percent of the total costs of acquiring the land and
constructing the building. Such costs, whether attributable to the
acquisition of land or the construction of the building, were allocated
to leased space in the same proportion that the reasonable rental value
of such leased space bears to the reasonable rental value of the entire
building. From the facts and circumstances presented, it is determined
that such allocation was reasonable. The arrangement between D and Y
provides that D will issue $10 million of bonds, that the proceeds of
the bond issue will be used to purchase land and construct an office
building, that Y will lease the designated floor space for 20 years at
its reasonable rental value, and that such rental payments and the
building itself shall be security for the bonds. The bonds are not
industrial development bonds since a major portion of the proceeds is
not to be used, directly or indirectly, in the trade or business of a
nonexempt person.
(b) The facts are the same as in paragraph (a) of this example
except that corporation Y will lease four floors, and the costs
allocated to these floors are in excess of 25 percent of D's investment
in the land and building. The bonds are industrial development bonds
because (1) a major portion of the building is to be used in the trade
or business of a nonexempt person, and (2) a major portion of the
principal and interest on such issue is secured by the rental payments
on the building.
Example 8. The facts are the same as in paragraph (b) of example (7)
except that, instead of leasing any space to corporation Y, State D will
lease the four floors to numerous unrelated private business users to be
used in their trades or businesses. No lease will have a term exceeding
2 years. A major portion of the principal and interest will be paid from
the revenues that D will derive from such leases. The fact that the
activities of D, an exempt person, may amount to a trade or business of
leasing property is not material, and the bonds are industrial
development bonds for the reasons set forth in paragraph (b) of example
(7). The result would be the same in the case of long-term leases.
Example 9. State E issues its obligations to finance the
construction of dormitories for educational institution Z which is an
organization described in section 501(c)(3) and exempt from tax under
section 501(a). The dormitories are to be owned and operated by Z and
their operation does not constitute an unrelated trade or business. The
bonds are not industrial development bonds since the proceeds are to be
used by an exempt person in a trade or business carried on by such
person which is not an unrelated trade or business, as determined by
applying section 513(a) to Z.
Example 10. State F issues its obligations to finance the
construction of a toll road and the cost of erecting related facilities
such as gasoline service stations and restaurants. Such related
facilities represent less than 25 percent of the total cost of the
project and are to be leased or sold to nonexempt persons. The toll road
is to be owned and operated by F. The revenues from the toll road and
from the rental of related facilities are the security for the bonds.
The bonds are not industrial development bonds since a major portion of
the proceeds is not to be used, directly or indirectly, in the trades or
businesses of nonexempt persons. The fact that vehicles owned by
nonexempt persons engaged in their trades or businesses may use the road
in common with, or as a part of, the general public is not material.
Example 11. City G issues its obligations to finance the
construction of a municipal auditorium which it will own and operate.
The use of the auditorium will be open to anyone who wishes to use it
for a short period of time on a rate-scale basis. The rights of such a
user are only those of a transient occupant
[[Page 371]]
rather than the full legal possessory interests of a lessee. It is
anticipated that the auditorium will be used by schools, church groups,
and fraternities, and numerous commercial organizations. The revenues
from the rentals of the auditorium and the auditorium building itself
will be the security for the bonds. The bonds are not industrial
development bonds because such use is not a use in the trade or business
of a nonexempt person.
Example 12. The facts are the same as in example (11) except that
one nonexempt person will have a 20-year rental agreement providing for
exclusive use of the entire auditorium for more than 3 months of each
year at a rental comparable to that charged short-term users. The bonds
are industrial development bonds since such use is a use in the trade or
business of a nonexempt person and, therefore, a major portion of the
proceeds of the issue will be used in the trade or business of a
nonexempt person and a major portion of the principal or interest on
such issue will be secured by a facility used in such trade or business
and by payments with respect to such facility.
Example 13. In order to construct an electric generating facility of
a size sufficient to take advantage of the economies of scale: (1) City
H will issue $50 million of its 25-year bonds and Z (a privately owned
electric utility) will use $100 million of its funds for construction of
a facility they will jointly own as tenants in common. (2) Each of the
participants will share in the ownership, output, and operating expenses
of the facility in proportion to its contribution to the cost of the
facility, that is, one-third by H and two-thirds by Z. (3) H's bonds
will be secured by H's ownership in the facility and by revenues to be
derived from the sale of H's share of the annual output of the facility.
(4) Because H will need only 50 percent of its share of the annual
output of the facility, it agrees to sell to Z 25 percent of its share
of such annual output for a period of 20 years pursuant to a contract
under which Z agrees to take or pay for such power in all events. The
facility will begin operation, and Z will begin to receive power, 4
years after the City H obligations are issued. The contract term of the
issue will, therefore, be 21 years. (5) H also agrees to sell the
remaining 25 percent of its share of the annual output to numerous other
private utilities under a prevailing rate schedule including demand
charges. (6) No contracts will be executed obligating any person other
than Z to purchase any specified amount of the power for any specified
period of time and no one such person (other than Z) will pay a demand
charge or other minimum payment under conditions which, under paragraph
(b)(5) of this section, result in a transfer of the benefits of
ownership and the burdens of paying the debt service on obligations used
directly or indirectly to provide such facilities. The bonds are not
industrial development bonds because H's one-third interest in the
facility (financed with bond proceeds) shall be treated as a separate
property interest and, although 25 percent of H's interest in the annual
output of the facility will be used directly or indirectly in the trade
or business of Z, a nonexempt person, under the rule of paragraph (b)(5)
of this section, such portion constitutes less than a major portion of
the subparagraph (5) output of the facility. If more than 25 percent of
the subparagraph (5) output of the facility were to be sold to Z
pursuant to the take or pay contract, the bonds would be industrial
development bonds since they would be secured by H's ownership in the
facility and revenues therefrom, and under the rules of paragraph (b)(5)
of this section a major portion of the proceeds of the bond issue would
be used in the trade or business of Z, a nonexempt person.
Example 14. J, a political subdivision of a State, will issue
several series of bonds from time to time and will use the proceeds to
rehabilitate urban areas. More than 25 percent of the proceeds of each
issue will be used for the rehabilitation and construction of buildings
which will be leased or sold to nonexempt persons for use in their
trades or businesses. There is no limitation either on the number of
issues or the aggregate amount of bonds which may be outstanding. No
group of bondholders has any legal claim prior to any other bondholders
or creditors with respect to specific revenues of J, and there is no
arrangement whereby revenues from a particular project are paid into a
trust or constructive trust, or sinking fund, or are otherwise
segregated or restricted for the benefit of any group of bondholders.
There is, however, an unconditional obligation by J to pay the principal
and interest on each issue of bonds. Further, it is apparent that J
requires the revenues from the lease or sale of buildings to nonexempt
persons in order to pay in full the principal and interest on the bonds
in question. The bonds are industrial development bonds because a major
portion of the proceeds will be used in the trades or businesses of
nonexempt persons and, pursuant to an underlying arrangement, payment of
the principal and interest is, in major part, to be derived from
payments in respect of property or borrowed money used in the trades or
businesses of nonexempt persons.
Example 15. Power Authority K, a political subdivision created by
the legislature in State X to own and operate certain power generating
facilities, sells all of the power from its existing facilities to four
private utility systems under contracts executed in 1970, whereby such
four systems are required to take or pay for specified portions of the
total power output until the year 2000. Currently, existing facilities
supply all of the
[[Page 372]]
present needs of the four utility systems but their future power
requirements are expected to increase substantially. K issues 20-year
general obligation bonds to construct a large nuclear generating
facility. A fifth private utility system contracts with K to take or pay
for 30 percent of the subparagraph (5) output of the new facility. The
balance of the power output of the new facility will be available for
sale as required, but initially it is not anticipated there will be any
need for such power. The revenues from the contract with the fifth
private utility system will be sufficient to pay less than 25 percent of
the principal or interest on the bonds. The balance, which will exceed
25 percent of the principal or interest on such bonds, will be paid from
revenues from the contracts with the four systems from sale of power
produced by the old facilities. The bonds will be industrial development
bonds because a major portion of the proceeds will be used in the trade
or business of a nonexempt person, and payment of the principal and
interest, pursuant to an underlying arrangement, will be derived in
major part from payments in respect of property used in the trades or
businesses of nonexempt persons.
(d) Certain refunding issues--(1) General rule. In the case of an
issue of obligations issued to refund the outstanding face amount of an
issue of obligations, the proceeds of the refunding issue will be
considered to be used for the purpose for which the proceeds of the
issue to be refunded were used. The rules of this subparagraph shall
apply regardless of the date of issuance of the issue to be refunded and
shall apply to refunding issues to be issued to refund prior refunding
issues.
(2) Obligations issued prior to effective date. In the case of an
issue of obligations issued to refund the outstanding face amount of an
issue of obligations issued on or before April 30, 1968 (or before
January 1, 1969, if the transitional rules of Sec. 1.103-12 are
applicable) which would have been industrial development bonds within
the meaning of section 103(c)(2) had they been issued after such date,
the refunding issue shall not be considered to be an issue of industrial
development bonds if it does not make funds available for any purpose
other than the debt service on the obligations. For rules as to
arbitrage bonds, see section 103(d).
(3) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. In 1969, State A issued $20 million of 20-year revenue
bonds the proceeds of which were used to contruct a sports facility
which qualifies as an exempt facility described in section 103(c)(4)(B)
and paragraph (c) of Sec. 1.103-8. The sports facility will be owned and
operated by X, a nonexempt person, for the use of the general public. In
1975, A issues $15 million of revenue bonds in order to refund the
outstanding face amount of the 1969 issue. Since the proceeds of the
1969 issue were used for an exempt facility, the proceeds of the 1975
refunding issue will be considered to be used for the same purposes and
section 103(c)(1) shall not apply to the 1975 refunding issue. The
result would have been the same if the original issue had been issued in
1965. For rules as to a refunding obligation held by substantial users
of facilities constructed with the proceeds of the issue refunded, see
section 103(c)(7) and Sec. 1.103-11.
Example 2. In 1967, prior to the effective date of section 103(c),
city B issued $10 million of revenue bonds the proceeds of which were
used to construct a manufacturing facility for corporation Y, a
nonexempt person. Lease payments by Y were security for the bonds. In
1975, B issue $7 million of revenue bonds in order to retire the
outstanding face amount of the 1967 issue. The interest rate of the 1975
issue is one and one-half percentage points lower than the interest rate
on the 1967 issue. Both issues sold at par. All of the terms of the 1975
issue are the same as the terms of the 1967 issue with the exception of
the interest rate. The 1975 refunding issue will not be considered to be
an issue of industrial development bonds since the refunding issue will
not make funds available for any purpose other than the debt service on
the outstanding obligations.
Example 3. The facts are the same as in example (2) except that the
interest rate on the refunding issue is the same as the interest rate on
the issue to be refunded. Assume further that city B issued the 1975
refunding issue in order to extend the term of the obligations issued in
1967 as the result of its inability to pay such obligations due to
insufficient revenues. The results will be the same as in example (2)
for the reasons stated therein.
[T.D. 7199, 37 FR 15486, Aug. 3, 1972; 37 FR 16177, Aug. 11, 1972, as
amended by T.D. 7869, 48 FR 1708, Jan. 14, 1983]
Sec. 1.103-8 Interest on bonds to finance certain exempt facilities.
(a) In general--(1) General rule. (i) Under section 103(b)(4),
interest paid on an issue of obligations issued by a State or local
governmental unit (as defined in Sec. 1.103-1) is not includable in
gross income if substantially all of the
[[Page 373]]
proceeds of such issue is to be used to provide one or more of the
exempt facilities listed in subparagraphs (A) through (J) of section
103(b)(4) and in this section. However, interest on an obligation of
such issue is includable in gross income if the obligation is held by a
substantial user or a related person (as described in section 103(b)(13)
and Sec. 1.103-11). If substantially all of the proceeds of a bond issue
is to be used to provide such exempt facilities, the debt obligations
are treated as obligations described in section 103(a)(1) and
Sec. 1.103-1 even though such obligations are industrial development
bonds as defined in section 103(b)(2) and Sec. 1.103-7. Substantially
all of the proceeds of an issue of governmental obligations are used to
provide an exempt facility if 90 percent or more of such proceeds are so
used. For purposes of this ``substantially all'' test, two rules apply.
First, proceeds are reduced by amounts properly allocable on a pro rata
basis between providing the exempt facility and other uses of the
proceeds. Second, amounts used to provide an exempt facility include
amounts paid or incurred which are chargeable to the facility's capital
account or would be so chargeable either with a proper election by a
taxpayer (for example, under section 266) or but for a proper election
by a taxpayer to deduct such amounts. In the event the amount payable
with respect to an issue during each annual period over its term is less
than the amount of interest accruing thereon in such period, e.g., in
the case of an issue sold by the issuer for less than its face amount,
see paragraph (a)(6) of this section to determine the amount of proceeds
of the issue.
(ii) The provisions of subdivision (i) of this subparagraph shall
also apply to an issue of obligations substantially all of the proceeds
of which is to be used to provide exempt facilities described in this
section and for either or both of the following purposes: (a) To acquire
or develop land as the site for an industrial park described in section
103(b)(5) and Sec. 1.103-9, (b) to provide facilities to be used by an
exempt person.
(iii) Section 103(b)(4) only becomes applicable where the bond issue
meets both the trade or business and the security interest tests so that
obligations are industrial development bonds within the meaning of
section 103(b)(2). For rules as to exempt facilities including property
functionally related and subordinate to such facilities, see
subparagraph (3) of this paragraph. For rules with respect to the
ultimate use of proceeds of obligations, see subparagraph (4) of this
paragraph. For rules which limit the application of the provisions of
this section see subparagraph (5) of this paragraph. For the
interrelationship of the rules provided in this section and the
exemption for certain small issues provided in section 103(b)(6), see
Sec. 1.103-10.
(2) Public use requirement. To qualify under section 103(b)(4) and
this section as an exempt facility, a facility must serve or be
available on a regular basis for general public use, or be a part of a
facility so used, as contrasted with similar types of facilities which
are constructed for the exclusive use of a limited number of nonexempt
persons in their trades or businesses. For example, a private dock or
wharf owned by or leased to, and serving only a single manufacturing
plant would not qualify as a facility for general public use, but a
hangar or repair facility at a municipal airport, or a dock or a wharf,
would qualify even if it is owned by, or leased or permanently assigned
to, a nonexempt person provided that such nonexempt person directly
serves the general public, such as a common passenger carrier or freight
carrier. Similarly, an airport owned or operated by a nonexempt person
for general public use is a facility for public use, as is a dock or
wharf which is a part of a public port. However, a landing strip which,
by reason of a formal or informal agreement or by reason of geographic
location, will not be available for general public use does not satisfy
the public use requirement. Sewage or solid waste disposal facilities
and air or water pollution control facilities, described in sections
103(b)(4) (E) and (F) and paragraphs (f) and (g) of this section, will
be treated in all events as serving a general public use although they
may be part of a nonpublic facility such as a manufacturing facility
used in the trade or business of a nonexempt user.
[[Page 374]]
(3) Functionally related and subordinate. An exempt facility
includes any land, building, or other property functionally related and
subordinate to such facility. Property is not functionally related and
subordinate to a facility if it is not of a character and size
commensurate with the character and size of such facility. Since
substantially all of the proceeds of a bond issue must be used for the
exempt facility (or for any combination of exempt facilities, industrial
parks, and facilities to be used by exempt persons), including property
functionally related and subordinate thereto, an insubstantial amount of
the proceeds of a bond issue may be used for facilities which are
neither exempt facilities (or a combination of exempt facilities,
industrial parks and facilities to be used by exempt persons) nor
functionally related and subordinate to exempt facilities. Thus, for
example, where substantially all of the proceeds of an urban
redevelopment bond issue are to be used by a State urban redevelopment
agency for residential real property for family units within the meaning
of section 103(b)(4)(A) and paragraph (b) of this section, an
insubstantial amount may be used for an industrial or commercial project
or for any other purpose that is not functionally related and
subordinate to the residential real property for family units.
(4) Ultimate use of proceeds. The question whether substantially all
of the proceeds of an issue of obligations are to be used to provide one
or more of the exempt facilities listed in subparagraphs (A) through (J)
of section 103(b)(4) and in this section is to be resolved by reference
to the ultimate use of such proceeds. For example, such proceeds will be
treated as used to provide residential rental property whether the State
or local governmental unit (i) constructs such property and leases or
sells it to any person who is not an exempt person for use in such
person's trade or business of leasing such property; (ii) lends the
proceeds to any such person for such purpose; or (iii) lends the
proceeds to banks or other financial institutions in order to increase
the supply of funds for mortgage lending under conditions requiring such
banks or other financial institutions to use such proceeds only for
further lending for residential rental property.
(5) Limitation. (i) A facility qualifies under this section only to
the extent that there is a valid reimbursement allocation under
Sec. 1.150-2 with respect to expenditures that are incurred before the
issue date of the bonds to provide the facility and that are to be paid
with the proceeds of the issue. In addition, if the original use of the
facility begins before the issue date of the bonds, the facility does
not qualify under this section if any person that was a substantial user
of the facility at any time during the 5-year period before the issue
date or any related person to that user receives (directly or
indirectly) 5 percent or more of the proceeds of the issue for the
user's interest in the facility and is a substantial user of the
facility at any time during the 5-year period after the issue date,
unless--
(A) An official intent for the facility is adopted under Sec. 1.150-
2 within 60 days after the date on which acquisition, construction, or
reconstruction of that facility commenced; and
(B) For an acquisition, no person that is a substantial user or
related person after the acquisition date was also a substantial user
more than 60 days before the date on which the official intent was
adopted.
(ii) A facility, the original use of which commences (or the
acquisition of which occurs) on or after the issue date of bonds to
provide that facility, qualifies under this section only to the extent
that an official intent for the facility is adopted under Sec. 1.150-2
by the issuer of the bonds within 60 days after the commencement of the
construction, reconstruction, or acquisition of that facility. Temporary
construction or other financing of a facility prior to the issuance of
the bonds to provide that facility will not cause that facility to be
one that does not qualify under this paragraph (a)(5)(ii).
(iii) For purposes of paragraph (a)(5)(i) of this section,
substantial user has the meaning used in section 147(a)(1), related
person has the meaning used in section 144(a)(3), and a user that is a
governmental unit within the meaning of Sec. 1.103-1 is disregarded.
[[Page 375]]
(iv) Except to the extent provided in Secs. 1.142-4(d), 1.148-
11A(i), and 1.150-2(j), this paragraph (a)(5) applies to bonds issued
after June 30, 1993, and sold before July 8, 1997. See Sec. 1.142-4(d)
for rules relating to bonds sold on or after July 8, 1997.
(6) Deep discount obligations. (i) Except as otherwise provided in
paragraph (a)(7) of this section, the proceeds of any issue of
obligations sold by the issuer after June 4, 1982, shall include any
imputed proceeds of the issue. The imputed proceeds of an issue equal
the sum of the amounts of imputed proceeds for each annual period
(hereinafter, bond year) over the term of the issue.
(ii) The amount of imputed proceeds for a bond year equals--
(a) The sum of the amounts of interest that will accrue with respect
to each obligation that is part of the issue in such year, reduced (but
not below zero) by
(b) The sum of the amounts of principal and interest that become
payable with respect to the issue in that bond year.
(iii) Interest will be deemed to accrue with respect to an
obligation on an amount that, as of the commencement of that year, is
equal to the sum of--
(a) The purchase price (as defined in Sec. 1.103-13(d)(2)) allocable
to the obligation and
(b) The aggregate of the amounts of interest accruing in each prior
bond year with respect to the obligation, reduced by all amounts that
became payable with respect to the obligation in prior bond years. Any
amount that becomes payable during the 30 day period following any bond
year will be deemed to have become payable in such bond year. Thus, to
the extent interest on an obligation accruing during a bond year does
not become payable within 30 days from the end of such year, it is
treated as reinvested under the same terms as the obligation. For
purposes of this subparagraph (6), the rate at which such interest
accrues is equal to the yield of the obligation. Yield is computed in
the same manner as set forth in Sec. 1.103-13(c)(1)(ii) for computing
yield on governmental obligations (assuming annual compounding of
interest). Such computations shall be made without regard to optional
call dates.
(7) Deep discount obligations; special rules. (i) There are no
imputed proceeds with respect to an obligation if--
(a) The obligation does not have a stated interest rate
(determinable at the date of issue) that increases over the term of the
obligation, and
(b) The purchase price of the obligation is at least 95 percent of
its face amount.
At the option of the issuer, any obligation described in the preceding
sentence may be disregarded in computing the imputed proceeds of the
issue. Payments with respect to such obligations are also disregarded in
determining the amount payable with respect to the issue in that bond
year. If each obligation which is part of an issue is described in this
subdivision (i), there are no imputed proceeds with respect to the
issue.
(ii) If the actual rate at which interest is to accrue over the term
of an obligation is indeterminable at the date of issue then, in
computing the yield of the obligation for purposes of this paragraph,
such rate shall be determined as if the conditions as of the date of
issue will not change over the term of the obligation. Thus, for
example, if interest on an obligation is to be paid semiannually at a
rate equal to 80 percent of the yield on six month Treasury bills at the
most recent public sale immediately prior to the corresponding interest
payment date and the yield on six month Treasury bills sold immediately
preceding the issue date is 10 percent, then the six month Treasury bill
rate is deemed to be a constant 10 percent for purposes of determining
the amount of imputed proceeds of the issue. Therefore, all interest
payments on the obligation would be deemed to be made at a rate of 8
percent.
(8) Examples. The principles of this paragraph may be illustrated by
the following examples:
Example 1. State A issues its bonds and plans to use substantially
all of the proceeds from such bond issue to purchase land and build a
facility which will be used for one of the purposes described in section
103(b)(4) and this section. The arrangement provides that (1) A will
issue bonds with a face
[[Page 376]]
amount of $21 million and with all accrued interest payable annually,
the proceeds of which (after deducting bond election costs, costs of
publishing notices, attorneys' fees, printing costs, trustees' fees for
fiscal agents, and similar expenses) will be $20 million; (2) $18
million of the proceeds of the bond issue will be used to purchase land
and to construct such facility; (3) $2 million of the proceeds will be
used for an unrelated facility which will be used by X, a nonexempt
person, in a separate trade or business and for a purpose not described
in section 103(b) (4) or (5); (4) X will rent both facilities for 20
years at an annual rental equal to the amount necessary to amortize the
principal and pay the interest annually on the outstanding bonds; and
(5) such payments by X and the facilities will be the security for the
bonds. On these facts, substantially all of the proceeds will be used in
connection with an exempt facility described in section 103(b)(4) and
this section. Accordingly, section 103(b)(1) does not apply to the bonds
unless such bonds are thereafter held by a person who is a substantial
user of the facilities or a related person within the meaning of section
103(b)(13) and Sec. 1.103-11.
Example 2. On July 1, 1982, State B sells an issue of its
obligations to an underwriter in anticipation of a public offering. The
initial offering price is $18,627,639.69 of which $17,000,000 is to be
used to construct a pollution control facility described in section
103(b)(4)(F). X Corporation, a nonexempt person, is to use the facility
and, in exchange, is obligated to pay an amount equal to the face amount
of the issue when it becomes due. The obligations are issued on August
1, 1982. The face amount of the issue is $30,000,000. The issue is a
term issue with all obligations maturing on August 1, 1987. The issue
bears no stated rate of interest; there are no interest coupons on the
obligations. The bonds are industrial development bonds with a yield
(based upon annual compounding) of ten percent. Based on these facts,
the amount of imputed proceeds with respect to the issue is determined
as follows:
----------------------------------------------------------------------------------------------------------------
Purchase price
plus Imputed
Date accumulated Interest proceeds
interest
----------------------------------------------------------------------------------------------------------------
Aug. 1, 1983................................................... $18,627,639.69 $1,862,763.97 $1,862,763.97
Aug. 1, 1984................................................... 20,490,403.68 2,049,040.37 2,049,040.37
Aug. 1, 1985................................................... 22,539,444.03 2,253,944.40 2,253,944.40
Aug. 1, 1986................................................... 24,793,388.43 2,479,338.84 2,479,338.84
Aug. 1, 1987................................................... 27,272,727.27 2,727,272.73 0
------------------------------------------------
Total imputed proceeds....................................... ............... .............. 8,645,087.58
----------------------------------------------------------------------------------------------------------------
Therefore, proceeds of the issue equal $27,272,727.27 less issuance
costs. Substantially all of the bond proceeds are not used to provide an
exempt facility, and section 103(b)(1) applies to the issue.
Example 3. The facts are the same as example (2) except that the
issue has a face amount and purchase price of $18,500,000. The issue
also provides for one payment in addition to the redemption payment, in
the amount of $10,267,668 payable on or after August 1, 1986, one year
before maturity. Section 103(b)(1) applies to the issue.
Example 4. On July 1, 1982, City E sells an issue of industrial
development bonds to provide for a convention facility, as described in
section 103(b)(4)(C). Assume that the bonds are issued on that date as
well. The issue has a face amount of $15,240,000 and a purchase price of
$11,929,382.53. The estimated cost of the facility is $11,000,000. The
bonds are ``zero coupon'' bonds, i.e., there are no interest coupons.
Each series is initially offered for less than 95 percent of its face
amount. The issue matures serially over a five year period, with each
series being allocated a part of the purchase price of the issue. The
following chart indicates the purchase price and yield for each series
and debt service for the issue:
[[Page 377]]
[Amount allocable to each series]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1984 series 1985 series 1986 series 1987 series Interest
Date 1983 series at 8.5 at 8.75 at 9.25 at 9.75 accruing on Amount due Imputed
at 8 percent percent percent percent percent issue* proceeds
--------------------------------------------------------------------------------------------------------------------------------------------------------
July 1, 1983................................ 2,939,814.82 2,697,020.54 2,468,629.60 2,228.732.51 1,595,185.06 ............ ............ 0
235,185.18 229,246.75 216,005.09 206,157.76 155,530.54 1,042,125.32 3,175,000
July 1, 1984................................ ............ 2,926,267.29 2,684,634.69 2,434,890.27 1,750,715.60 ............ ............ 0
............ 248,732.71 234,905.54 225,227.35 170,694.77 879,560.37 3,175,000
July 1, 1985................................ ............ ............ 2,919,540.23 2,660,117.62 1,921,410.37 ............ ............ 0
............ ............ 255,459.77 246,060.88 187,337.51 688,858.16 3,175,000
July 1, 1986................................ ............ ............ ............ 2,906,178.50 2,108,747.88 ............ ............ 0
............ ............ ............ 268,821.50 205,602.92 474,424.42 3,175,000
July 1, 1987................................ ............ ............ ............ ............ 2,314,350.80 ............ ............ 0
............ ............ ............ ............ 225,649.20 225,649.20 2,540,000
-----------------------------------------------------------------------------------------------------------
Total..................................... ............ ............ ............ ............ ............ ............ 15,240,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
*This column (interest accruing on the issue) contains the sums of the interest that accrues on each series in each bond year. The amount of interest
accruing on the issue is computed by adding the amount of interest accruing on each series outstanding for that bond year (the bottom number in the
line for each bond year). The amount of interest annually accruing on each series also is added to the purchase price of the series to determine the
amount of interest accruing in subsequent years, inasmuch as there are no payments with respect to the outstanding series prior to maturity. Thus, the
``principal'' amount, of the top of the two numbers given in such line for each bond year, is the purchase price allocable to that series plus the
amount of interest that accrued on that series in prior years.
[[Page 378]]
There are no imputed proceeds because the amount payable on the
issue in each bond year exceeds the total amount of interest accruing on
the issue during such bond year. Section 103(b)(1) does not apply to the
bonds unless such bonds are held by a person who is a substantial user
of the facility or a related person within the meaning of section
103(b)(13) and Sec. 1.103-11.
Example 5. On July 1, 1982, City C issues industrial development
bonds in the face amount of $30 million to construct a sports facility
described in section 103(b)(4)(B) to be leased to D, a nonexempt person,
with payments on the bonds secured by the lease. C receives $30 million
in exchange for the bonds which will be used to provide the facility.
The bonds mature on July 1, 2002. Each bond provides for an annual
interest payment equal to ten percent of the face amount of the bond,
with the last payment thereon (on July 1, 2002) including a return of
the principal amount of the bond. The proceeds of the issue are $30
million. Section 103(b)(1) does not apply to the bonds unless such bonds
are held by a person who is a substantial user of the facility or a
related person within the meaning of section 103(b)(13) and Sec. 1.103-
11.
Example 6. The facts are the same as example (5) except that each
bond provides for an annual interest payment equal to nine percent of
its face amount and is sold with the option to tender the bond to D for
purchase at par 5 years after the sale date of July 1, 1982 (i.e., the
bonds are sold with a ``put'' option). Such bonds also provide a put
option annually thereafter. There are no imputed proceeds (without
regard to Sec. 1.103-8(a)(7)), and the result is the same as example
(5).
Example 7. On July 1, 1982, City F sells an issue of industrial
development bonds in the face amount of $20 million to acquire a parking
facility as described in section 103(b)(4)(D). The estimated cost of the
facility is $17,800,000. The issue is issued on the same date and will
mature serially over the following ten years. Each bond that is part of
the issue bears annual interest coupons, each of which is in an amount
equal to ten percent of the face amount of the bond. Each maturity has a
face amount of $2,000,000. The issue is initially offered to the public
for $19,700,000, allocable to each maturity as follows:
------------------------------------------------------------------------
Purchase
Maturity price
------------------------------------------------------------------------
July 1, 1983............................................... $1,990,000
July 1, 1984............................................... $1,980,000
July 1, 1985............................................... $1,980,000
July 1, 1986............................................... $1,970,000
July 1, 1987............................................... $1,970,000
July 1, 1988............................................... $1,970,000
July 1, 1989............................................... $1,960,000
July 1, 1990............................................... $1,960,000
July 1, 1991............................................... $1,960,000
July 1, 1992............................................... $1,960,000
------------------------------------------------------------------------
Based on the foregoing issue proceeds equal $19,700,000 less issuance
costs. There are no imputed proceeds with respect to this issue inasmuch
as each bond pays interest at a constant rate in each bond year and the
purchase price of each bond is at least 95 percent of its face amount.
Substantially all of the proceeds are to be used to provide the exempt
facility. Accordingly, section 103(b)(1) does not apply to the bonds
unless such bonds are thereafter held by a person who is a substantial
user of the facility or a related person within the meaning of section
103(b)(13) and Sec. 1.103-11.
(b) Residential rental property--(1) General rule for obligations
issued after April 24, 1979. Section 103(b)(1) shall not apply to any
obligation which is issued after April 24, 1979, and is part of an issue
substantially all of the proceeds of which are to be used to provide a
residential rental project in which 20 percent or more of the units are
to be occupied by individuals or families of low or moderate income (as
defined in paragraph (b)(8)(v) of this section). In the case of a
targeted area project, the minimum percentage of units which are to be
occupied by individuals of low or moderate income is 15 percent. See
generally Sec. 1.103-7 for rules relating to refunding issues.
(2) Registration requirement. Any obligation (including any
refunding obligation) issued after December 31, 1981, to provide a
residential rental project must be issued as part of an issue, each
obligation of which is in registered form (as defined in paragraph
(b)(8)(ii) of this section).
(3) Transitional rule. For purposes of this section, obligations
issued after April 24, 1979, may be treated as issued before April 25,
1979, if the transitional requirements of section 1104 of the Mortgage
Subsidy Bond Tax Act of 1980 (94 Stat. 2670) are satisfied.
(4) Residential rental project. (i) In general. A residential rental
project is a building or structure, together with any functionally
related and subordinate facilities, containing one or more similarly
constructed units--
(a) Which are used on other than a transient basis, and
[[Page 379]]
(b) Which satisfy the requirements of paragraph (b)(5)(i) of this
section and are available to members of the general public in accordance
with the requirement of paragraph (a)(2) of this section.
Substantially all of each project must contain such units and
functionally related and subordinate facilities. Hotels, motels,
dormitories, fraternity and sorority houses, rooming houses, hospitals,
nursing homes, sanitariums, rest homes, and trailer parks and courts for
use on a transient basis are not residential rental projects.
(ii) Multiple buildings. (a) Proximate buildings or structures
(hereinafter ``buildings'') which have similarly constructed units are
treated as part of the same project if they are owned for Federal tax
purposes by the same person and if the buildings are financed pursuant
to a common plan.
(b) Buildings are proximate if they are located on a single tract of
land. The term ``tract'' means any parcel or parcels of land which are
contiguous except for the interposition of a road, street, stream or
similar property. Otherwise, parcels are contiguous if their boundaries
meet at one or more points.
(c) A common plan of financing exists if, for example, all such
buildings are provided by the same issue or several issues subject to a
common indenture.
(iii) Functionally related and subordinate facilities. Under
paragraph (a)(3) of this section, facilities that are functionally
related and subordinate to residential rental projects include
facilities for use by the tenants, for example, swimming pools, other
recreational facilities, parking areas, and other facilities which are
reasonably required for the project, for example, heating and cooling
equipment, trash disposal equipment or units for resident managers or
maintenance personnel.
(iv) Owner-occupied residences. For purposes of section 103
(b)(4)(A) and this paragraph (b), the term ``residential rental
project'' does not include any building or structure which contains
fewer than five units, one unit of which is occupied by an owner of the
units.
(5) Requirement must be continuously satisfied--(i) Rental
requirement. Once available for occupancy, each unit (as defined in
paragraph (b)(8)(i) of this section) in a residential rental project
must be rented or available for rental on a continuous basis during the
longer of--
(a) The remaining term of the obligation, or
(b) The qualified project period (as defined in paragraph (b)(7) of
this section).
(ii) Low or moderate income occupancy requirement. Individuals or
families of low or moderate income must occupy that percentage of
completed units in such project applicable to the project under
paragraph (b)(1) of this section continuously during the qualified
project period. For this purpose, a unit occupied by an individual or
family who at the commencement of the occupancy is of low or moderate
income is treated as occupied by such an individual or family during
their tenancy in such unit, even though they subsequently cease to be of
low or moderate income. Moreover, such unit is treated as occupied by an
individual or family of low or moderate income until reoccupied, other
than for a temporary period, at which time the character of the unit
shall be redetermined. In no event shall such temporary period exceed 31
days.
(6) Effect of post-issuance noncompliance--(i) In general. Unless
corrected within a reasonable period, noncompliance with the
requirements of this paragraph (b) shall cause the project to be treated
as other than a project described in section 103 (b)(4)(A) and this
paragraph (b) as of the date of issue. After an issue to provide such
project ceases to qualify, subsequent conformity with the requirements
will not alter the taxable status of such issue.
(ii) Correction of noncompliance. If the issuer corrects any
noncompliance arising from events occurring after the issuance of the
obligation within a reasonable period, such noncompliance (e.g., an
unauthorized sublease) shall not cause the project to be a project not
described in this paragraph (b). A reasonable period is at least 60 days
after such error is first discovered or would have been discovered by
the exercise of reasonable diligence.
[[Page 380]]
(iii) Involuntary loss. (a) The requirements of paragraph (b) shall
cease to apply to a project in the event of involuntary noncompliance
caused by fire, seizure, requisition, foreclosure, transfer of title by
deed in lieu of foreclosure, change in a Federal law or an action of a
Federal agency after the date of issue which prevents an issuer from
enforcing the requirements of this paragraph, or condemnation or similar
event but only if, within a reasonable period, either the obligation
used to provide such project is retired or amounts received as a
consequence of such event are used to provide a project which meets the
requirement of section 103 (b)(4)(A) and this paragraph (b).
(b) The provisions of paragraph (b)(6)(iii)(a) of this section shall
cease to apply to a project subject to foreclosure, transfer of title by
deed in lieu of foreclosure or similar event if, at anytime during that
part of the qualified project period subsequent to such event, the
obligor on the acquired purpose obligation (as defined in Sec. 1.103-
13(b)(4)(iv)(a)) or a related person (as defined in Sec. 1.103-10(e))
obtains an ownership interest in such project for tax purposes.
(7) Qualified project period. The term ``qualified project period''
means--
(i) For obligations issued after April 24, 1979, and prior to
September 4, 1982, a period of 20 years commencing on the later of the
date that the project becomes available for occupancy or the date of
issue of the obligations. The requirement of paragraph (b)(5)(ii) of
this section shall be deemed met if the owner of the project contracts
with a Federal or state agency to maintain at least 20 percent (or 15
percent in the case of targeted areas) of the units for low or moderate
income individuals or families (as defined in paragraph (b)(8)(v) of
this section) for 20 years in consideration for rent subsidies for such
individuals or families for such period.
(ii) For obligations issued after September 3, 1982, a period
beginning on the later of the first day on which at least 10 percent of
the units in the project are first occupied or the date of issue of an
obligation described in section 103(b)(4)(A) and this paragraph and
ending on the later of the date--
(a) Which is 10 years after the date on which at least 50 percent of
the units in the project are first occupied,
(b) Which is a qualified number of days after the date on which any
of the units in the project is first occupied, or
(c) On which any assistance provided with respect to the project
under section 8 of the United States Housing Act of 1937 terminates.
For purposes of this paragraph (b)(7)(ii), the term ``qualified number
of days'' means 50 percent of the total number of days comprising the
term of the obligation with the longest maturity in the issue used to
provide the project. In the case of a refunding of such an issue, the
longest maturity is equal to the sum of the period the prior issue was
outstanding and the longest term of any refunding obligations.
(8) Other definitions. For purposes of this paragraph--
(i) Unit. The term ``unit'' means any accommodation containing
separate and complete facilities for living, sleeping, eating, cooking,
and sanitation. Such accommodations may be served by centrally located
equipment, such as air conditioning or heating. Thus, for example, an
apartment containing a living area, a sleeping area, bathing and
sanitation facilities, and cooking facilities equipped with a cooking
range, refrigerator, and sink, all of which are separate and distinct
from other apartments, would constitute a unit.
(ii) In registered form. The term ``in registered form'' has the
same meaning as in section 6049. With respect to obligations issued
after December 31, 1982, such term shall have the same meaning as
prescribed in section 103(j) (including the regulations thereunder).
(iii) Targeted area project. The term ``targeted area project''
means a project located in a qualified census tract (as defined in
Sec. 6a.103A-2(b)(4)) or an area of chronic economic distress (as
defined in Sec. 6a.103A-2(b)(5)).
(iv) Building or structure. The term ``building or structure''
generally means a discrete edifice or other man-made construction
consisting of an independent foundation, outer walls, and roof. A single
unit which is not an
[[Page 381]]
entire building but is merely a part of a building is not a building or
structure within the meaning of this section. As such, while single
townhouses are not buildings if their foundation, outer walls, and roof
are not independent, detached houses and rowhouses are buildings.
(v) Low or moderate income. Individuals and families of low or
moderate income shall be determined in a manner consistent with
determinations of lower income families under section 8 of the United
States Housing Act of 1937, as amended, except that the percentage of
median gross income which qualifies as low or moderate income shall be
80 percent. Therefore, occupants of a unit are considered individuals or
families of low or moderate income only if their adjusted income
(computed in the manner prescribed with Sec. 1.167(k)-3(b)(3)) does not
exceed 80 percent of the median gross income for the area.
Notwithstanding the foregoing, the occupants of a unit shall not be
considered to be of low or moderate income if all the occupants are
students (as defined in section 151(e)(4)), no one of whom is entitled
to file a joint return under section 6013. The method of determining low
or moderate income in effect on the date of issue will be determinative
for such issue, even if such method is subsequently changed. In the
event programs under section 8(f) of the Housing Act of 1937, as
amended, are terminated prior to the date of issue, the applicable
method shall be that in effect immediately prior to the date of such
termination.
(9) Examples. The following examples illustrate the application of
this paragraph (b).
Example 1. In August 1982, City X issues $10 million of registered
bonds with a term of 20 years to be used to finance the construction of
an apartment building to be available to members of the general public.
X loans the proceeds of the bonds to Corporation M, the tax owner of the
project. The loan is secured by a promissory note from M and a mortgage
on the project. The mortgage requires annual payments sufficient to
amortize the principal and interest on the bonds. Corporation M
maintains 20 percent of the units in the project for low or moderate
income individuals and meets all of the requirements of this section
until 2002, at which time M converts the project to offices. The bonds
are industrial development bonds, but because the proceeds are used for
construction of residential rental property, which is an exempt facility
under section 103(b)(4)(A) and paragraph (b) of this section, section
103(b)(1) does not apply.
Example 2. The facts are the same as in example (1), except that the
building is constructed adjacent to a factory, and the factory employees
are to be given preference in selecting tenants. The bonds are
industrial development bonds and the facility is not an exempt facility
under section 103(b)(4)(A) and paragraph (b) of this section because it
is not a facility constructed for use by the general public.
Example 3. The facts are the same as in example (1), except that the
proceeds of the obligation are provided to N, a cooperative housing
corporation, to finance the construction of a cooperative housing
project. N sells stock in such cooperative to shareholders, some of whom
occupy the units in the cooperative and some of whom rent the units to
other persons. Such project is not a residential rental project within
the meaning of section 103(b)(4)(A) and Sec. 1.103-8(b) because less
than all of the units in the building are used for rental. Further, the
bonds are mortgage subsidy bonds under section 103A because more than a
significant portion of the proceeds are used to provide financing for
residences, some of which are owner-occupied and some of which are used
in the trade or business of rental.
Example 4. On February 1, 1984, County Z issues registered
obligations with a term of 3 years and loans the proceeds to Corporation
V to construct a garden apartment project for tenants who are 65 years
or older. The mortgage on the project secures the loan. At the end of 3
years, V obtains permanent financing for the project from a commercial
lender. The project is not a targeted area project. V has not contracted
with any Federal or State agency to provide rental assistance under
section 8 of the United States Housing Act of 1937. As a condition for
providing financing for construction, Z requires that the deed to the
project contain a covenant that requires the project be used for elderly
tenants and restricts occupancy of 20 percent of the units in the
project to individuals or families of low or moderate income. Further,
the deed provides that ``Such covenant shall run with and bind the land,
from the date that ten percent of the units in the project are first
occupied until ten years after the date that at least half the units are
first occupied. The right to enforce these restrictions is vested in
County Z.'' In 1990, however, less than 20 percent of the units are
occupied by families or individuals of low or moderate incomes, and
three months after learning of this condition County Z had not
[[Page 382]]
commenced enforcement of the covenant. Although on the date of issue the
proceeds of the obligation were used to provide a residential rental
project, the obligation will not be treated as providing a residential
rental project within the meaning of section 103(b)(4)(A) as of February
1, 1984, because the project did not meet the requirements of this
paragraph for at least 10 years after at least 50 percent of the units
are first occupied.
Example 5. On January 15, 1983, State X issues registered
obligations with a term of 15 years, the proceeds of which are loaned to
Corporation P to construct an apartment building. The project will be a
``targeted area project'', within the meaning of Sec. 1.103-
8(b)(8)(iii). Corporation P intends to rent all the units to individuals
for their residences, maintaining 15 percent of the units in the project
for individuals having low or moderate incomes, for 15 years. In 1988,
however, Corporation P converts 80 percent of the units to condominiums.
Corporation P repays the loan to State X which, in turn, redeems the
obligations. The obligations are not used to provide a residential
rental project within the meaning of section 103(b)(4)(A), and all the
interest paid or to be paid on such obligations will be includable in
gross income.
Example 6. On January 15, 1984, State Z issues registered
obligations with a term of 15 years the proceeds of which will be used
to acquire and renovate a residential apartment building. Z sells the
project to Corporation U and receives a 30-year mortgage. On June 1,
1985, the first occupants of the project commence their tenancies. At
least 50 percent of the units in the project are occupied on July 1,
1985. On January 15, 1988, Z issues 35-year refunding bonds the proceeds
of which are used to retire the obligations issued in 1984. The prior
issue will be discharged by March 15, 1988. In order to meet the
requirement of Sec. 1.103-8(b)(5)(ii), at least 20 percent of such units
must be occupied by individuals of low or moderate income until January
1, 2005.
Example 7. The facts are the same as in example (6) except that in
1987, the apartment building is substantially destroyed by fire. The
building was insured at its fair market value. U does not intend to
reconstruct the building but uses a portion of the insurance proceeds to
repay the unpaid balance of the mortgage. Z uses this amount to redeem
the outstanding bonds at the first available call date. Since the
project was substantially destroyed by fire and the outstanding bonds
are retired at the first available call date, the requirements of
section 103(b)(4)(A) and this paragraph (b) are satisfied with respect
to the obligations.
Example 8. The facts are the same as in example (6) except that in
1987 U defaults on the mortgage, and Z obtains title to the project
without instituting foreclosure proceedings. Z sells the project to S
and uses the proceeds to retire the outstanding bonds. Since S did not
obtain the project with obligations described in section 103(b)(4), S is
not required to meet the requirements of section 103(b)(4)(A) and this
paragraph. Further, the 1984 obligations are obligations described in
section 103(b)(4)(A).
Example 9. In September 1983, State W issues $10 million of
registered bonds with a term of 3 years, the proceeds of which are to be
loaned to Corporation V to finance the construction of an apartment
building in a rural community. At the end of 3 years, V obtains
permanent financing from Federal Agency T. Agency T will not allow the
deed to contain any restrictive covenant relating to the use of the
project. Under Federal law, however, T requires that V maintain all of
the units in the project for rental to low-income farmworkers for the
term of the mortgage, which is 20 years. Further, the mortgage between T
and V provides that if T determines that low-income housing is no longer
required in the community in which the project is constructed then the
repayment of the mortgage may be accelerated. T determines as of the
date of issue that low-income housing will be needed in the community
for at least 20 years. In 1987, the project fails to meet the
requirements of section 1.103-8(b)(5)(ii), relating to occupancy by
individuals or families of low or moderate income. Further, T does not
require V to correct the failure. Based on the foregoing, the bonds
issued by W will be treated as described in section 103(b)(4)(A).
Example 10. The facts are the same as in example (9) except that in
1987, the Federal law is amended to provide that Agency T may not
enforce its low-income occupancy requirement. The result is the same.
Example 11. The facts are the same as in example (9) except that in
1987 Agency T determines that due to a change in circumstances in the
community in which the project is located low-income rental housing is
no longer required. As such, T requires V to repay the mortgage. Since
the obligations have been repaid, W has no legal right to enforce the
requirements of paragraph (b) with respect to the project. Subsequent
nonconformity of the project with the requirements of Sec. 1.103-8(b)
under these circumstances will not cause the obligations issued by W to
be industrial development bonds within the meaning of section 103(b)(1).
(10) Obligations issued before April 25, 1979--(i) General rules.
Section 103(b)(1) shall not apply to obligations issued before April 25,
1979, which are part of an issue substantially all of the proceeds of
which are to be used to provide residential real property for family
units. In order to qualify under this
[[Page 383]]
paragraph (b) as an exempt facility, the facility must satisfy the
public use requirement of paragraph (a)(2) of this section by being
available for use by members of the general public.
(ii) Family units defined. For purposes of this paragraph (b) the
term ``family unit'' means a building or any portion thereof which
contains complete living facilities which are to be used on other than a
transient basis by one or more persons, and facilities functionally
related and subordinate thereto. Thus, an apartment which is to be used
on other than a transient basis as a residence by a single person or by
a family and which contains complete facilities for living, sleeping,
eating, cooking, and sanitation, constitutes a family unit. Such a unit
may be served by centrally located machinery and equipment as in a
typical apartment building. To qualify as a family unit, the living
facilities must be a separate, self-contained building or constitute one
unit in a building substantially all of which consists of similar units,
together with functionally related and subordinate facilities and areas.
Hotels, motels, dormitories, fraternity and sorority houses, rooming
houses, hospitals, sanitariums, rest homes, and trailer parks and courts
for use on a transient basis do not constitute residential real property
for family units.
(iii) Functionally related and subordinate facilities. Under
paragraph (a)(3) of this section, facilities which are functionally
related and subordinate to residential real property actually used for
family units include, for example, facilities for use by the occupants
such as a swimming pool, a parking area, and recreational facilities.
(c) Sports facilities--(1) General rule. Section 103(b)(4)(B)
provides that section 103(b)(1) shall not apply to obligations issued by
a State or local governmental unit which are part of an issue
substantially all of the proceeds of which are to be used to provide
sports facilities. In order to qualify as an exempt facility under
section 103(b)(4)(B) and this paragraph, the facility must satisfy the
public use requirement of paragraph (a)(2) of this section by being
available for use by members of the general public either as
participants or as spectators.
(2) Sports facility defined. (i) For purposes of section
103(b)(4)(B) and this paragraph, the term ``sports facilities'' includes
both outdoor and indoor facilities. The facility may be designed either
as a spectator or as a participation facility. For example, the term
includes both indoor and outdoor stadiums for baseball, football, ice
hockey, or other sports events, as well as facilities for the
participation of the general public in sports activities, such as golf
courses, ski slopes, swimming pools, tennis courts, and gymnasiums. The
term does not include, however, facilities such as a golf course,
swimming pool, or tennis court, which are constructed for use by members
of a private club or as integral or subordinate parts of a hotel or
motel, or the use of which will be restricted to a special class or
group or to guests of a particular hotel or motel, since they are not
facilities for the use of the general public as required by paragraph
(a)(2) of this section.
(ii) Under paragraph (a)(3) of this section, facilities which are
functionally related and subordinate to a sports facility, such as a
parking lot, clubhouse, ski slope warming house, bath house, or ski tow,
are considered to be part of a sports facility. A ski lodge which
consists primarily of overnight accommodations is not functionally
related and subordinate to a sports facility.
(d) Convention or trade show facilities--(1) General rule. Section
103(b)(4)(C) provides that section 103(b)(1) shall not apply to
obligations issued by a State or local governmental unit which are a
part of an issue substantially all of the proceeds of which are to be
used to provide convention or trade show facilities. In order to qualify
under section 103(b)(4)(C) and this paragraph as an exempt facility, the
facility must satisfy the public use requirement of paragraph (a)(2) of
this section by being available for an appropriate charge or rental, on
a rate scale basis, for use by members of the general public. The public
use requirement is not satisfied if the use of a convention or trade
show facility is limited by long-term leases to a single user or group
of users.
(2) Convention or trade show facilities defined. For purposes of
section 103(b)(4)(C) and this paragraph, the
[[Page 384]]
term ``convention or trade show facilities'' means special-purpose
buildings or structures, such as meeting halls and display areas, which
are generally used to house a convention or trade show, including, under
paragraph (a)(3) of this section, facilities functionally related and
subordinate to such facilities such as parking lots or railroad sidings.
A hotel or motel which is available to the general public, whether or
not it is intended primarily to house persons attending or participating
in a convention or trade show, is neither a convention or trade show
facility nor functionally related and subordinate thereto.
(e) Certain transportation facilities--(1) General rule. Section
103(b)(4)(D) provides that section 103(b)(1) shall not apply to
obligations issued by a State or local governmental unit which are part
of an issue substantially all of the proceeds of which are to be used to
provide (i) airports, docks, wharves, mass commuting facilities, or
public parking facilities, or (ii) storage or training facilities
directly related to any such facility. In order to qualify under section
103(b)(4)(D) and this paragraph as an exempt facility, the facility must
satisfy the public use requirement of paragraph (a)(2) of this section
by being available for use by members of the general public or for use
by common carriers or charter carriers which serve members of the
general public. A dock or wharf which is part of a public port (or a
public port to be constructed in accordance with a plan which has been
finally adopted on the date the obligations in question are issued)
satisfies the public use test. A parking lot will be available for use
by the general public unless more than an insubstantial portion thereof
will be used exclusively by or for the benefit of a nonexempt person by
reason of a formal or informal agreement or by reason of the remote
geographic location of the facility.
(2) Definitions. For purposes of section 103(b)(4)(D) and this
paragraph--
(i) With respect to bonds sold at or before 5:00 p.m. EST on
December 29, 1978, an airport includes service accommodations for the
public such as terminals, retail stores in such terminals, runways,
hangars, loading facilities, repair shops, parking areas, and facilities
which, under paragraph (a)(3) of this section, are functionally related
and subordinate to the airport, such as facilities for the preparation
of in-flight meals, restaurants, and accommodations for temporary or
overnight use by passengers, and other facilities functionally related
to the needs or convenience of passengers, shipping companies, and
airlines. The term ``airport'' does not include a landing strip which,
by reason of a formal or informal agreement, or by reason of geographic
location, will not be available for general public use.
(ii) With respect to bonds sold after 5:00 p.m. EST on December 29,
1978--
(a) An airport includes facilities which are directly related and
essential to--
(1) Servicing aircraft or enabling aircraft to take off and land, or
(2) Transferring passengers or cargo to or from aircraft.
A facility does not satisfy either of the foregoing requirements if the
facility need not be located at, or in close proximity to, the take-off
and landing area in order to perform its function. Examples of
facilities which satisfy those requirements are terminals, runways,
hangars, loading facilities, repair shops, and land-based navigation
aids such as radar installation.
(b) Under paragraph (a)(3) of this section, an airport includes
facilities other than those described in paragraph (e)(2)(ii)(a) only if
they are functionally related and subordinate to an airport (as defined
in paragraph (e)(2)(ii)(a)). A facility (or part thereof) is not
functionally related and subordinate to an airport if the facility (or
part thereof)--
(1) Is not of a character and size commensurate with the character
and size of the airport at or adjacent to which the facility is located,
or
(2) Is not located at or adjacent to that airport.
A facility may satisfy the character and size requirement although it
provides minimal benefits to other airports. For example, a facility for
the preparation of in-flight meals which has capacity sufficient to
prepare all in-flight meals for aircraft departing the airport where the
facility is located
[[Page 385]]
qualifies although some meals may be consumed in transit between other
airports. Other examples of facilities functionally related and
subordinate to an airport are restaurants and retail stores located in
terminals, ground transportation parking areas, and accommodations for
temporary or overnight use by passengers. Unimproved land (including
agricultural land) that is adjacent to an airport and that is impaired
by a significant level of airport noise is functionally related and
subordinate to the airport if after its acquisition that land will not
be converted to a use that is incompatible with the level of airport
noise. Adjacent land with existing improvements also may be functionally
related and subordinate to an airport by reason of impairment by a
significant level of airport noise but only if the use of such land
before its acquisition is incompatible with the airport noise level, its
use after acquisition is to be compatible, and the post-acquisition use
will be essentially different from the pre-acquisition use.
Notwithstanding the foregoing, an interest in such improved land
acquired solely to mitigate damages attributable to airport noise is
treated as functionally related and subordinate to the airport. Thus,
for example, amounts allocated to imposing a servitude on improved land
adjacent to an airport restricting its future use to uses compatible
with airport noise are treated as amounts allocated to property
functionally related and subordinate to an airport. For the purpose of
determining whether land is impaired by a significant level of airport
noise, any generally accepted noise estimating methodology may be used.
For example, a Noise Exposure Forecast (NEF), a method for composite
noise rating recommended by the Federal Aviation Administration to
measure the impact of airport noise, may be used for this purpose.
Compatibility may be determined by reference to regulations or general
guidelines published by the Federal Aviation Administration under
section 102 of the Aviation Safety and Noise Abatement Act of 1979 (49
U.S.C. 2102), or sections 11(3)(C) and 18(a)(4) of the Airport and
Airway Development Act of 1970, as amended (49 U.S.C. 1711(3)(C) and
1718(a)(4)), concerning uses of land impaired by a significant level of
airport noise, or, where available, by reference to the airport
compatibility plan specifically addressing what constitutes a compatible
use of that land.
(c) As an illustration of the rules of this paragraph (e)(2)(ii), an
office building (or office space within a building) or a computer
facility, either of which serves a system-wide or regional function of
an airline, is not considered part of an airport since that facility is
not described in either paragraph (e)(2)(ii)(a) or (b). However, a
maintenance or overhaul facility which services aircraft is considered
part of an airport under paragraph (e)(2)(ii)(a) since that facility is
directly related and essential to servicing aircraft and must be located
where aircraft take off and land in order to perform its function.
(d) A hotel located at or adjacent to an airport satisfies the
requirements of paragraph (e)(2)(ii)(b), that is, it is of a character
and size commensurate with the character and size of the airport at or
adjacent to which it is located, if the number of guest rooms in the
hotel is reasonable for the size of the airport, taking into account the
current and projected passenger usage of the terminal facility. If the
hotel contains meeting rooms, the number and size of these rooms must be
in reasonable proportion to the number of guest rooms in the hotel.
Limited recreational facilities will not prevent the hotel from being of
a character and size commensurate with the character and size of the
airport.
(iii) A dock or wharf includes property which, under paragraph
(a)(3) of this section, is functionally related and subordinate to a
dock or wharf such as the structure alongside which a vessel docks, the
equipment needed to receive and to discharge cargo and passengers from
the vessel, such as cranes and conveyors, related storage, handling,
office, and passenger areas, and similar facilities.
(iv) A mass commuting facility includes real property together with
improvements and personal property used therein, such as machinery,
equipment, and furniture, serving the general public commuting on a day-
to-day basis by
[[Page 386]]
bus, subway, rail, ferry, or other conveyance which moves over
prescribed routes. Such property also includes terminals and facilities
which, under paragraph (a)(3) of this section, are functionally related
and subordinate to the mass commuting facility, such as parking garages,
car barns, and repair shops. Use of mass commuting facilities by
noncommuters in common with commuters is immaterial. Thus, a terminal
leased to a common carrier bus line which serves both commuters and long
distance travelers would qualify as an exempt facility.
(3) Related storage or training facility. Section 103 (b)(4)(D)
includes only those storage and training facilities which are both (i)
directly related to a facility to which subparagraph (1)(i) or (ii) of
this paragraph applies and (ii) physically located on or adjacent to
such a facility. For example, a storage facility would include a grain
elevator, silo, warehouse, or oil and gas storage tank used in
connection with a dock or wharf and located on or adjacent to such dock
or wharf. Similarly, a training facility would include a building
located at or adjacent to an airport for the training of flight
personnel or a paved area immediately adjoining a bus garage used to
train bus drivers.
(4) Examples. The principles of this paragraph may be illustrated by
the following examples:
Example 1. B Airport Authority, a political subdivision of State A,
owns and operates B Airport. B Airport Authority adds several runways.
In view of the expanded area impaired by significant levels of airport
noise, the Authority proposes to issue bonds the proceeds of which are
to be used to acquire a hospital located adjacent to the airport. The
noise level on the acquired property is 40 NEF. By reference to a noise
exposure map setting forth noncompatible land uses and by reference to
guidelines published by the Federal Aviation Administration, it is
established that continued use of the land for a hospital is not
compatible with the noise level. Prior to issuing the bonds, B contracts
to lease the property to Corporation C to be used for warehouse space.
Within 18 months of the bonds' issuance C will remodel the hospital
(previously owned by D, who is unrelated to C) with its own funds and
rent the facility as a warehouse. Use as a warehouse is determined to be
compatible with the level of airport noise impairing the land. The
improved land and prospective revenues from the facility's rental are
security for the proposed issuance. Based on the foregoing, the acquired
land satisfies the public use test. Furthermore, it is functionally
related and subordinate to the airport because the improvements are to
be used in an essentially different manner than prior to the land's
acquisition. The bonds are industrial development bonds. However,
section 103(b)(1) does not apply unless the provisions of section
103(b)(13) and Sec. 1.103-11 apply.
Example 2. The facts are the same as in Example (1) except that a
substantial portion of the proceeds of the bond issue is allocated to
the acquisition of a limited interest in an additional tract of land
(also impaired by airport noise measured at 40 NEF) on which an office
building stands. The limited interest holds B harmless for damages
caused by airport noise and restricts uses of the tract after the
building is retired to those compatible with noise levels caused by the
airport. Based on the foregoing, such interest satisfies the public use
test. Furthermore, the interest is functionally related and subordinate
to the airport because it is solely to mitigate damage attributable to
airport noise, in part by restricting future land uses. The bonds are
industrial development bonds. However, section 103(b)(1) does not apply
unless the provisions of section 103(b)(13) or Sec. 1.103-11 apply.
Example 3. On June 1, 1982, M Airport Authority, a political
subdivision of State O, issues obligations, the proceeds of which are
loaned to X Corporation, a nonexempt person. X uses the proceeds to
construct a hotel adjacent to the main terminal building at M Airport. X
will be unconditionally liable for repayment of the proposed
obligations. The hotel will be used to provide temporary and overnight
accommodations for airline passengers using M Airport. The number of
rooms in the hotel is reasonable for an airport of M's size, taking into
account the current and projected passenger usage of the terminal
facility. In addition to guest rooms, the hotel will contain a
restaurant, small retail stores (such as a gift shop and newstand), and
limited recreation facilities (such as a swimming pool). The hotel will
also contain several multipurpose rooms suitable for use as meeting
rooms. The number and size of these rooms will be in reasonable
proportion to the number and size of the guest rooms in the hotel. Use
of the guest rooms, restaurant and stores, recreational facilities, and
meeting rooms by air passengers arriving at or departing from M Airport
will be incidental to the use of the hotel by air passengers for
temporary and overnight accommodations. The hotel is of a character and
size commensurate with the character and size of M Airport.
Consequently, applying the provisions of Sec. 1.103-8(e)(2), the hotel
is functionally related and subordinate to M Airport. The obligations
are industrial development bonds. Section
[[Page 387]]
103(b)(1) does not apply to the obligations, however, unless the
provisions of section 103(b)(10) and Sec. 1.103-11 apply.
Example 4. On June 1, 1982, N Airport Authority, a political
subdivision of State P, issues obligations the proceeds of which are
loaned to Y Corporation, a nonexempt person. Y uses the proceeds to
construct a hotel adjacent to the main terminal building at N Airport. Y
Corporation will be unconditionally liable for repayment of the proposed
obligations. The hotel will contain extensive recreational facilities,
including a large roof-top swimming pool, tennis courts, and a health
club. In addition, facilities for conferences consisting of a ballroom-
sized meeting room capable of being partitioned by movable panels and
several smaller meeting rooms will be constructed. The number of rooms
in the hotel will substantially exceed the number which is reasonably
based on the current and projected passenger usage of the terminal
facility. Because of the presence of extensive recreational and
conference facilities, as well as the presence of on excessive number of
rooms at the hotel, the hotel fails to be of a character and size
commensurate with the character and size of N Airport. The result would
be the same if the hotel did not have extensive recreational facilities.
Consequently, the hotel is not functionally related and subordinate to N
Airport under Sec. 1.103-8(e)(2). The obligations are industrial
development bonds and interest thereon is not excluded from gross income
by reason of subsection (a)(1) or (b)(4) of section 103.
(f) Certain public utility facilities--(1) General rule. (i) Section
103(b)(4)(E) provides that section 103(b)(1) shall not apply to
obligations issued by a State or local governmental unit which are part
of an issue substantially all of the proceeds of which are to be used to
provide sewage disposal facilities, solid waste disposal facilities, or
facilities for the local furnishing of electric energy or gas. In order
to qualify under section 103(b)(4)(E) as an exempt facility, the
facility must satisfy the public use requirement of paragraph (a)(2) of
this section. A public utility facility described in this subparagraph
(with the exception of sewage and solid waste disposal facilities which
will be treated in all events as serving the general public) will
satisfy the public use requirement only if such facility, or the output
thereof, is available for use by members of the general public.
(ii) A facility for the local furnishing of electric energy or gas
is, for purposes of applying the public use test in paragraph (a)(2) of
this section, available for use by members of the general public if (a)
the owner or operator of the facility is obligated, by a legislative
enactment, local ordinance, regulation, or the equivalent thereof, to
furnish electric energy or gas to all persons who desire such services
and who are within the service area of the owner or operator of such
facility, and (b) it is reasonably expected that such facility will
serve or be available to a large segment of the general public in such
service area. For rules with respect to facilities for the furnishing of
water, see paragraph (h) of this section.
(2) Definitions. For purposes of section 103(b)(4)(E) and this
paragraph--
(i) The term ``sewage disposal facilities'' means any property used
for the collection, storage, treatment, utilization, processing, or
final disposal of sewage.
(ii) The term ``facilities for the local furnishing of electric
energy or gas'' means property which--
(a) Is either property of a character subject to the allowance for
depreciation provided in section 167 or land,
(b) Is used to produce, collect, generate, transmit, store,
distribute, or convey electric energy or gas.
(c) Is used in the trade or business of furnishing electric energy
or gas, and
(d) Is a part of a system providing service to the general populace
of one or more communities or municipalities, but in no event more than
2 contiguous counties (or a political equivalent) whether or not such
counties are located in one State.
For purposes of this subdivision, a city which is not within, or does
not consist of, one or more counties (or a political equivalent) shall
be treated as a county (or a political equivalent). A facility for the
generation of electric energy otherwise qualifying under this
subdivision will not be disqualified because it is connected to a system
for interconnection with other public utility systems for the emergency
transfer of electric energy. The facilities need not be located in the
area served by them. Also, the term ``facilities for the local
furnishing of electric energy or gas'' does not include coal, oil, gas,
nuclear cores, or other materials performing a similar function.
[[Page 388]]
(g) Air or water pollution control facilities--(1) General rule.
Section 103(b)(4)(F) provides that section 103(b)(1) shall not apply to
obligations issued by a State or local governmental unit which are part
of an issue substantially all of the proceeds of which are to be used to
provide air or water pollution control facilities. Such facilities are
in all events treated as serving the general public and, thus, satisfy
the public use requirement of paragraph (a)(2) of this section.
(2) Definitions. (i) For purposes of section 103(b)(4)(F) and this
paragraph, property is a pollution control facility to the extent that
the test of either subdivision (iii) or (iv) of this subparagraph is
satisfied, but only if--
(a) It is property which is described in subdivision (ii) of this
subparagraph and is either of a character subject to the allowance for
depreciation provided in section 167 or land, and
(b) Either (1) a Federal, State, or local agency exercising
jurisdiction has certified that the facility, as designed, is in
furtherance of the purpose of abating or controlling atmospheric
pollutants or contaminants, or water pollution, as the case may be, or
(2) the facility is designed to meet or exceed applicable Federal,
State, and local requirements for the control of atmospheric pollutants
or contaminants, or water pollution, as the case may be, in effect at
the time the obligations, the proceeds of which are to be used to
provide such facilities, are issued.
(ii) Property is described in this subdivision if it is property to
be used, in whole or in part, to abate or control water or atmospheric
pollution or contamination by removing, altering, disposing, or storing
pollutants, contaminants, wastes, or heat. In the case of property to be
used to control water pollution, such property includes the necessary
intercepting sewers, pumping, power, and other equipment, and their
appurtenances. For rules relating to facilities which remove pollutants
from fuel or certain other items, see subdivision (vi) of this
subparagraph.
(iii) In the case of an expenditure for property which is designed
for no significant purpose other than the control of pollution, the
total expenditure for such property satisfies the test of this
subdivision. Thus, where property which is to serve no function other
than the control of pollution is to be added to an existing
manufacturing or production facility, the total expenditure for such
property satisfies the test of this subdivision. Also, if an expenditure
for property would not be made but for the purpose of controlling
pollution, and if the expenditure has no significant purpose other than
the purpose of pollution control, the total expenditure for such
property satisfies the test of this subdivision even though such
property serves one or more functions in addition to its function as a
pollution control facility.
(iv) In the case of property to be placed in service for the purpose
of controlling pollution and for a significant purpose other than
controlling pollution, only the incremental cost of such facility
satisfies the test of this subdivision. The ``incremental cost'' of
property is the excess of its total cost over that portion of its cost
expended for a purpose other than the control of pollution.
(v) An expenditure has a significant purpose other than the control
of pollution if it results in an increase in production or capacity, or
in a material extension of the useful life of a manufacturing or
production facility or a part thereof.
(h) Water facilities--(1) General rule. Section 103(b)(4)(G)
provides that section 103(b)(1) shall not apply to obligations issued by
a State or local governmental unit which are part of an issue
substantially all of the proceeds of which are to be used to provide
facilities for the furnishing of water which are available, on
reasonable demand, to members of the general public. A water facility
will satisfy the public use test of paragraph (a)(2) of this section if
it will provide water, on reasonable demand, to any member of the
general public within the service area of the water system of which such
facility is a part.
(2) Definition. For purposes of section 103(b)(4)(G) and this
paragraph, the ``water facilities'' include artesian wells, reservoirs,
dams, related equipment and pipelines, and other facilities used to
furnish water for domestic, industrial, irrigation, or other purposes.
[[Page 389]]
(3) Effective date. The provisions of this paragraph apply in the
case of facilities provided by obligations issued after January 1, 1969.
In the case of facilities provided by obligations issued on or before
such date to which section 103(b) is applicable, the provisions of
paragraph (f) of this section shall apply. For such purposes, wherever
the term ``local furnishing of electric energy or gas'' appears in
paragraph (f) of this section, such term shall be deemed to read ``local
furnishing of electric energy, gas, or water.''
(i) Examples. The application of section 103(b)(4) and this section
are illustrated by the following examples:
Example 1. City B plans to issue $10 million of bonds to be used to
construct a sports stadium. The revenues from the facility and the
facility itself will be the security for the bonds. A professional
football team rents the facility on a long-term leasee for part of the
year and a professional baseball team rents the sports facility for the
remainder of the year. Tickets are sold by the teams to the general
public. The bonds are industrial development bonds, but since the
proceeds are used for a spectator facility for general public use, which
is an exempt facility under section 103(b)(4)(B) and paragraph (c) of
this section, section 103(b)(1) does not apply unless the provisions of
section 103(b)(13) and Sec. 1.103-11 apply.
Example 2. City C plans to issue $10 million of bonds to be used to
construct a convention hall which it will own. City C plans to lease the
convention hall for 25 years to corporation Y, a nonexempt person, which
will operate and maintain it. The terms of the lease obligate Y to make
the convention hall generally available for civic, business, and
recreational shows, meetings, performances, and similar activities
serving or benefiting the community. Lease payments from Y and the
facility will be security for the bonds. The bonds are industrial
development bonds, but since the proceeds are to be used for a facility
for general public use, which is an exempt facility under section
103(b)(4)(C) and paragraph (d) of this section, section 103(b)(1) does
not apply unless the provisions of section 103(b)(13) and Sec. 1.103-11
apply.
Example 3. City D issues $100 million of its bonds and uses the
proceeds to finance construction of an airport for the use of the
general public. D will own and operate the airport. A major portion of
the rentable space in the terminal building is leased on a long-term
basis to common carrier and non-scheduled airlines. The bonds will be
secured by the airport landing and runway charges and by payments with
respect to such long-term leases from such commercial airlines. Such
commercial airline payments are expected to constitute more than 50
percent of the total revenues from the airport. The bonds are industrial
development bonds, but since the proceeds are to be used for an airport
for use by the general public and by carriers serving the general
public, which is an exempt facility under section 103(b)(4)(D) and
paragraph (e) of this section, section 103(b)(1) does not apply unless
the provisions of section 103(b)(13) and Sec. 1.103-11 apply. The result
would be the same if D hired an airport management firm to operate the
airport.
Example 4. City E issues $6 million of its bonds and uses the
proceeds to finance construction of a landing strip for airplanes to be
located adjacent to the factories of corporations Y and Z. The landing
strip will be used in the trades or businesses of Y and Z and by any
member of the general public wishing to use it. However, due to its
location, general public use will be negligible. The lease payments by Y
and Z for the use of the facility are the security for the bonds. The
bonds are industrial development bonds and the facility is not an exempt
facility under section 103(b)(4)(D) and paragraph (c) of this section
because it is not a facility constructed for general public use.
Example 5. State F and corporation Z enter into an arrangement which
provides that F will issue $10 million of its bonds and use the proceeds
to construct a facility for Z the only purpose of which is to control
air and water pollution at Z's plant. The principal and interest on the
bonds will be secured by the charges which F will impose on Z. The bonds
are industrial development bonds, but since the proceeds are to be used
for air and water pollution facilities designed to abate pollution by
private persons, such facilities are for the benefit of the general
public and are exempt facilities under section 103(b)(4)(F) and
paragraph (g) of this section. Accordingly, section 103(b)(1) does not
apply unless the provisions of section 103(b)(13) and Sec. 1.103-11
apply.
Example 6. City G issues $20 million of its bonds and will use $6
million to finance residential rental property which qualifies as an
exempt facility under section 103(b)(4)(A) and paragraph (b) of this
section, $9 million to finance construction of a stadium which qualifies
as an exempt facility under section 103(b)(4)(B) and paragraph (c) of
this section, and $5 million for convention facilities which qualify as
exempt facilities under section 103(b)(4)(C) and paragraph (d) of this
section. The facilities will be used in the trades or businesses of
nonexempt persons and rental payments with respect to such facilities
and the facilities themselves will be the security for the bonds. The
bonds are industrial development bonds, but since all the proceeds are
to be used for facilities which are exempt facilities under section
103(b)(4), section 103(b)(1) does not apply unless the provisions
[[Page 390]]
of section 103(b)(10) and Sec. 1.103-11 apply. The result would be the
same, if; instead of using $9 million to finance construction of a
stadium, the $9 million were used to finance construction of a capitol
building. [Reg. Sec. 1.103-8].
[T.D. 7199, 37 FR 15490, Aug. 3, 1972]
Editorial Note: For Federal Register citations affecting Sec. 1.103-
8, see the List of CFR Sections Affected, which appears in the Finding
Aids section of the printed volume and at www.fdsys.gov.
Sec. 1.103-9 Interest on bonds to finance industrial parks.
(a) General rule. (1) Under section 103(c)(5), interest paid on an
issue of obligations issued by a State or local governmental unit (as
defined in Sec. 1.103-1) is not includable in gross income if
substantially all of the proceeds of such issue is to be used to finance
the acquisition or development of land as the site for an industrial
park (referred to in this section as ``industrial park bonds'').
However, interest on an obligation of such an issue is includable in
gross income if the obligation is held by a substantial user or a
related person (as described in section 103(c)(7) and Sec. 1.103-11). If
substantially all of the proceeds of a bond issue is to be so used to
finance an industrial park, the debt obligations are treated as
obligations described in section 103(a)(1) and Sec. 1.103-1 even though
such obligations are industrial development bonds within the meaning of
section 103(c)(2) and Sec. 1.103-7. Whether substantially all of the
proceeds of an issue of governmental obligations are used to finance an
industrial park is determined consistently with the rules for exempt
facilities in Sec. 1.103-8(a)(1)(i).
(2) The provisions of subparagraph (1) of this paragraph shall also
apply to an issue of obligations substantially all of the proceeds of
which is to be used to acquire or develop land as the site for an
industrial park described in section 103(c)(5) and this section and for
either or both of the following purposes: (i) To finance exempt
facilities described in section 103(c)(4) and Sec. 1.103-8, (ii) to
finance facilities to be used by an exempt person.
(3) Section 103(c)(5) only becomes applicable where the bond issue
meets both the trade or business and the security interest tests so that
the obligations are industrial development bonds within the meaning of
section 103(c)(2). For the interrelationship of the rules provided in
this section and the exemption for certain small issues provided in
section 103(c)(6), see Sec. 1.103-10.
(b) Definition of an industrial park. For purposes of section
103(c)(5) and this section, the term ``industrial park'' means a tract
of land, other than a tract of land intended for use by a single
enterprise, suitable primarily for use as building sites by a group of
enterprises engaged in industrial, distribution, or wholesale businesses
if either--
(1) The control and administration of the tract is vested in an
exempt person (within the meaning of paragraph (b)(2) of Sec. 1.103-7),
or
(2) The uses of the tract are normally (i) regulated by protective
minimum restrictions, ordinarily including the size of individual sites,
parking and loading regulations, and building setback lines, and (ii)
designed to be compatible, under a comprehensive plan, with the
community in which the industrial park is located and with the uses of
the surrounding land.
(c) Development of land defined. For purposes of section 103(c)(5)
and this section, the term ``development of land'' includes the
provision of certain improvements to an industrial park site if such
improvements are incidental to the use of the land as an industrial
park. Such incidental improvements include the building or installation
of incidental water, sewer, sewage and waste disposal, drainage, or
similar facilities (whether surface, subsurface, or both). Such
incidental improvements include the provision of incidental
transportation facilities, such as hard-surface roads (including curbs
and gutters) and railroad spurs and sidings; power distribution
facilities, such as gas and electric lines; and communication
facilities. The provision of structures or buildings of any kind is not
included within the meaning of the term ``development of land,'' except
for those structures or buildings which are necessary in connection with
the incidental improvements encompassed by the term, such as, for
example, a water pumphouse and storage tank needed in
[[Page 391]]
connection with the incidental provision of water facilities in an
industrial park.
(d) Examples. The application of the rules contained in section
103(c)(5) and this section are illustrated by the following examples:
Example 1. City A and corporations X, Y, and Z (unrelated companies)
enter into an arrangement under which A is to acquire a tract of land
suitable for use as an industrial park. The arrangement provides that:
(1) A will issue $10 million of bonds to be used for the acquisition and
development of a suitable tract of land; (2) the tract will be
controlled and administered by A, pursuant to a comprehensive zoning
plan, for the use of a group of enterprises; (3) A will install
necessary water, sewer, and drainage facilities on the tract; (4) A will
sell substantial portions of the developed tract to X for use as a
factory site and to Y for use as a warehouse site; (5) A will lease a
sizeable portion of the tract to Z for 20 years as a distribution center
site; and (6) the developed tract and the proceeds from the sale or
lease of parts of the tract will be the security for the bonds. The
bonds are industrial development bonds. Since, however, the proceeds of
the issue are to be used for the acquisition and development of a tract
of land as the site for an industrial park under section 103(c)(5),
section 103(c)(1) does not apply unless the provisions of section
103(c)(7) and Sec. 1.103-11 apply.
Example 2. The facts are the same as in example (1) except that $1
million of the proceeds of the $10 million issue are to be used for the
construction of a factory by corporation W or X. The bonds are
industrial development bonds. Under these circumstances, substantially
all of the proceeds are treated as used or to be used for the
acquisition and development of a tract of land as the site for an
industrial park described in section 103(c)(5). Accordingly, section
103(c)(1) does not apply unless the provisions of section 103(c)(7) and
Sec. 1.103-11 apply.
[T.D. 7199, 37 FR 15494, Aug. 3, 1972, as amended by T.D. 7511, 42 FR
54285, Oct. 5, 1977]
Sec. 1.103-10 Exemption for certain small issues of industrial
development bonds.
(a) In general. Section 103(b)(6) applies to certain industrial
development bond issues (referred to in this section as ``exempt small
issues'') and bonds issued to refund certain issues (referred to in this
section as ``exempt small refunding issues''). If an issue is an exempt
small issue or an exempt small refunding issue, then under the
requirements of section 103(b)(6) and this section the interest paid on
the debt obligations is not includable in gross income, and the
obligations are treated as obligations described in section 103(a)(1)
and Sec. 1.103-1, even though such obligations are industrial
development bonds as defined in section 103(b)(2) and Sec. 1.103-7.
However, interest on an obligation of such an issue is includable in
gross income if the obligation is held by a substantial user of the
financed facilities or a related person (as described in section
103(b)(7) and Sec. 1.103-11). Section 103(b)(6) only becomes applicable
where the bond issue meets both the trade or business and the security
interest tests so that the obligations are industrial development bonds
within the meaning of section 103(b)(2). For bonds issued before January
1, 1979, in taxable years ending before such date, and for capital
expenditures made before January 1, 1979, with respect to such bonds,
paragraphs (b), (c), and (d) of this section shall be applied by
substituting $5 million for $10 million.
(b) Small issue exemption--(1) $1 million or less. Section
103(b)(6)(A) provides that section 103(b)(1) shall not apply to any debt
obligation issued by a State or local governmental unit as part of an
issue where--
(i) The aggregate authorized face amount of such issue (determined
by aggregating the outstanding face amount of any prior exempt small
issues described in paragraph (d) of this section and the face amount of
the issue of obligations in question) is $1 million or less; and
(ii) Substantially all of the proceeds of such issue is to be used
for the acquisition, construction, reconstruction, or improvement of
land or property of a character subject to the allowance for
depreciation under section 167. Proceeds which are loaned to a borrower
for use as working capital or to finance inventory are not used in the
manner described in the preceding sentence. Whether substantially all of
the proceeds of an issue of governmental obligations are used in such
manner is determined consistently with the rules for exempt facilities
in Sec. 1.103-8(a)(1)(i). Any obligation which is an industrial
development bond within the meaning of section 103(b)(2) and which
satisfies the $1 million small issue exemption
[[Page 392]]
requirements is an exempt small issue. See paragraph (c)(1) of this
section for the treatment of refunding issues of $1 million or less.
(2) $10 million or less. (i) Under section 103(b)(6)(D), the issuing
State or local governmental unit may elect to have an aggregate
authorized face amount of $10 million or less, in lieu of the $1 million
exemption otherwise provided for in section 103(b)(6)(A), with respect
to issues of obligations that are industrial development bonds (within
the meaning of section 103(b)(2)) issued after October 24, 1968. If the
election is made in a timely manner, the bonds will be treated as
obligations of a State or local governmental unit described in section
103(a)(1) and Sec. 1.103-1 if the sum of--
(a) The aggregate face amount of the issue including the aggregate
outstanding face amount of any prior $1 million or $10 million exempt
small issues taken into account under section 103(b)(6)(B) and paragraph
(d) of this section, and
(b) The aggregate amount of ``section 103(b)(6)(D) capital
expenditures'' (within the meaning of paragraph (b)(2)(ii) of this
section),
is $10 million or less. In the case of an issue of obligations that
qualified for exemption under section 103(b)(6)(A) and this paragraph,
if a section 103(b)(6)(D) capital expenditure made after the date of
issue has the effect of making taxable the interest on the issue, under
section 103(b)(6)(G) the loss of tax exemption for the interest shall
begin only with the date on which the expenditure that caused the issue
to cease to qualify under the $10 million limit was paid or incurred.
See paragraph (b)(2)(vi) of this section for the time and manner in
which the issuer may elect the $10 million exemption. See section
103(b)(6)(H) and paragraph (c)(2) of this section for the treatment of
certain refinancing issues of $10 million of less.
(ii) The term ``section 103(b)(6)(D) capital expenditure'' is
defined in this subdivision. Special rules for applying such definition
in the case of certain expenditures paid or incurred by a State or local
governmental unit are prescribed in subdivision (iii) of this
subparagraph. Except as excluded by subdivision (iv) or (v) of this
subparagraph, an expenditure (regardless of how paid, whether in cash,
notes, or stock in a taxable or nontaxable transaction) is a section
103(b)(6)(D) capital expenditure if--
(a) The capital expenditure was financed other than out of the
proceeds of issues to the extent such issues are taken into account
under paragraph (b)(2)(i)(a) of this section.
(b) The capital expenditures were paid or incurred during the 6-year
period which begins 3 years before the date of issuance of the issue in
question and ends 3 years after such date,
(c) The principal user of the facility in connection with which the
property resulting from the capital expenditures is used and the
principal user of the facility financed by the proceeds of the issue in
question is the same person or are two or more related persons (as
defined in section 103(b)(6)(C) and paragraph (e) of this section),
(d) Both facilities referred to in (c) of this subdivision were
(during the period described in (b) of this subdivision or a part
thereof) located in the same incorporated municipality or in the same
county outside of the incorporated municipalities in such county), and
(e) The capital expenditures were properly chargeable to the capital
account of any person or State or local governmental unit (whether or
not such person is the principal user of the facility or a related
person) determined, for this purpose, without regard to any rule of the
Code which permits expenditures properly chargeable to capital account
to be treated as current expenses. With respect to obligations issued on
or after August 8, 1972, determinations under the preceding sentence
shall be made by including any expenditure which may, under any rule or
election under the Code, be treated as a capital expenditure (whether or
not such expenditure is so treated). With respect to obligations issued
on or after August 8, 1972, for purposes of this subparagraph, capital
expenditures made with respect to a contiguous or integrated facility
which
[[Page 393]]
is located on both sides of a border between two or more political
jurisdictions are made with respect to a facility located in all such
jurisdictions and, therefore, shall be treated as if they were made in
each such political jurisdiction.
(iii) Amounts properly chargeable to capital account under
subdivision (ii) (e) of this subparagraph include capital expenditures
made by a State or local governmental unit with respect to an exempt
facility or an industrial park, within the 6-year period described in
subdivision (ii)(b) of this subparagraph, out of the proceeds of bond
issues to which section 103(b)(1) did not apply by reason of section
103(b) (4) or (5) (relating to certain exempt activities and industrial
parks). Thus, for example, the cost to the lessor of a leased plantsite
financed out of the proceeds of an issue for an exempt air pollution
control facility under section 103(b)(4)(F) and paragraph (g) of
Sec. 1.103-8 would constitute a section 103(b)(6)(D) capital
expenditure. However, in the case of an industrial park, only the land
costs allocated on an area basis to the plantsite and the actual cost of
any improvements made on the plantsite, or to be used principally in
connection with the actual plantsite occupied by a principal user or a
related person, shall be taken into account as capital expenditures.
Where the actual amount of capital expenditures made with respect to a
facility by a person (including a State or local governmental unit)
other than the user of such facility (or a related person) cannot be
ascertained, the fair market value of the property with respect to which
the capital expenditures were made, at the time of such capital
expenditures, shall be deemed to be the amount of such capital
expenditures. In the case of a transaction which is not in form a
purchase but which is treated as a purchase for Federal income tax
purposes, the purchase price for Federal income tax purposes shall
constitute a capital expenditure.
(iv) A section 103(b)(6)(D) capital expenditure shall not include
any ``excluded expenditure'' described in (a) through (e) of this
subdivision (iv).
(a) A capital expenditure is an excluded expenditure if either it is
made by a public utility company which is not the principal user of the
facility financed by the proceeds of the issue in question (or a related
person) with respect to property of such company, or it is made by a
State or local governmental unit with respect to property of such unit,
and if in either case it meets all of the following three conditions:
Such property of such company or unit (as the case may be) must be used
to provide gas, water, sewage disposal services, electric energy, or
telephone service. Such property must be installed in, or connected to,
the facility but must not consist of property which is such an integral
part of the facility that the cost of such property is ordinarily
included as part of the acquisition, construction, or reconstruction
cost of such facility. Such property must be of a type normally paid for
by the user (or a related person) in the form of periodic fees based
upon time or use.
(b) A capital expenditure is an excluded expenditure if it is made
by a person other than the user, a related person, or a State or local
governmental unit and if it is made with respect to tangible personal
property (within the meaning of paragraph (c) of Sec. 1.48-1), or
intangible personal property, leased to the user (or a related person)
of a facility. However, the preceding sentence shall apply only if such
personal property is leased by the manufacturer of such tangible or
intangible personal property, or by a person in the trade or business of
leasing property the same as, or similar to, such personal property, and
only if, pursuant to general business practice, property of such type is
ordinarily the subject of a lease.
(c) A capital expenditure is an excluded expenditure if it is made
to replace property damaged or destroyed by fire, storm, or other
casualty, to the extent that these expenditures do not exceed in dollar
amount the fair market value (determined immediately before the
casualty) of the property replaced.
(d) A capital expenditure is an excluded expenditure if it is
required by a change made after the date of issue in a Federal or State
law, or a local ordinance which has general application, or
[[Page 394]]
if it is required by a change made after such date in rules and
regulations of general application issued under such law or ordinance.
(e) A capital expenditure is an excluded expenditure if it is
required by or arises out of circumstances which could not reasonably be
foreseen on the date of issue or which arise out of a mistake of law or
fact. However, the aggregate dollar amount taken into account under this
subdivision (e) with respect to any issue may not exceed $1 million.
With respect to expenditures incurred prior to December 11, 1971, the
dollar amount specified in the preceding sentence shall be $250,000.
(v)(a) If the assets of a corporation are acquired by another
corporation in a transaction to which section 381(a) (relating to
carryovers in certain corporate acquisitions) applies, the exchange of
consideration by the acquiring corporation for such assets is not a
section 103(b)(6)(D) capital expenditure by such acquiring corporation.
(b) However, if an exchange referred to in (a) of this subdivision
occurs during the 6-year period beginning 3 years before the date of
issuance of an issue of obligations and ending 3 years after such date,
the transferor and transferee shall be treated as having been related
persons for the portion of such 6-year period preceding the date of the
exchange for purposes of determining whether section 103(b)(6)(D)
capital expenditures have been made. For purposes of this subdivision
(b), the date of an exchange to which section 381 applies shall be the
date of distribution or transfer within the meaning of paragraph (b) of
Sec. 1.381(b)-1.
(c) If section 351(a) applies to a transfer of property to a
corporation solely in exchange for its stock or securities, the issuance
of such stock or securities in such exchange is not a section
103(b)(6)(D) capital expenditure by such corporation.
(d) However, if such a transfer referred to in (c) of this
subdivision occurs during the 6-year period beginning 3 years before the
date of issuance of an issue of obligations and ending 3 years after
such date, and if, with respect to the property transferred,
expenditures made within such period would have been section
103(b)(6)(D) capital expenditures if the transferor and transferee had
been related persons for such period, then such expenditures shall be
considered to be section 103(b)(6)(D) capital expenditures made by the
transferee. In addition, if a transferor and transferee are related
persons immediately following such transfer, such transferor and
transferee shall also be treated as having been related persons for the
portion of such 6-year period preceding the date of such transfer.
(e) For purposes of this subdivision (v), the term ``issue of
obligations'' means an issue being tested for purposes of qualifying or
continuing to qualify under an election pursuant to section 103(b)(6)(D)
as to which an amount which would be a section 103(b)(6)(D) capital
expenditure solely by reason of (b) or (d) of this subdivision must be
taken into account.
(f) If with respect to an issue of obligations an expenditure would
not have been a section 103(b)(6)(D) capital expenditure but for the
application of (b) or (d) of this subdivision, and if such section
103(b)(6)(D) capital expenditure has the effect of making taxable the
interest on an issue of obligations which qualified for exemption under
section 103(b)(6)(A) and this paragraph, the loss of tax exemption for
such interest shall begin not earlier than the date of such exchange or
transfer referred to in this subdivision (v).
(vi) The issuer may make the election provided by section
103(b)(6)(D) and this paragraph (b)(2) (assuming that the bonds
otherwise qualify under section 103(b)(6) by noting the election
affirmatively at or before the time of issuance of the issue in question
on its books or records with respect to the issue. The term ``books or
records'' includes the bond resolution or other similar legislation for
the issue in question as well as the bond transcript or other
compilation of bond and bond-related documents. If the issuer fails to
make an election at the time and in the manner prescribed in this
paragraph (b)(2), the issue will not be treated as described in section
103(b)(6)(D), and interest thereon will be includible in gross income.
(c) Refunding or refinancing issue exemption--(1) $1 million or less
refunding
[[Page 395]]
issue. Section 103(b)(6)(A) also provides that section 103(b)(1) shall
not apply to any debt obligation issued by a State or local governmental
unit as part of an issue the aggregate authorized face amount of which
is $1 million or less, if substantially all of the proceeds of such
issue are to be used--
(i) To redeem part of all of a prior issue substantially all of the
proceeds of which were used to acquire, construct, reconstruct, or
improve land or property of a character subject to the allowance for
depreciation, or
(ii) To redeem part or all of a prior exempt small refunding issue.
(2) 10 million or less refinancing issue. Section 103(b)(6)(H)
provides that section 103(b)(1) shall not apply to any debt obligation
issued by a governmental unit as part of an issue which is $10 million
or less if the condition of section 103(b)(6)(H) is met and if
substantially all of the proceeds are to be used--
(i) To redeem part or all of one or more prior exempt small issues,
or
(ii) To redeem part or all of one or more prior exempt small
refunding issues.
The condition of section 103(b)(6)(H) is that an election by the issuer
of the $10 million exemption in lieu of the $1 million limit for a
refunding issue may be made only if each prior issue being redeemed is
an issue which qualified either for the $1 million exemption or, by
reason of an election under section 103(b)(6)(D), for the $10 million
exemption. In addition, in applying the capital expenditures test under
section 103(b)(6)(D)(ii) and paragraph (b)(2)(i)(b) of this section to
refinancing issues, section 103(b)(6)(D) capital expenditures are taken
into account only for purposes of determining whether prior issues which
were made under the section 103(b)(6)(D) election qualified under
section 103(b)(6)(A) and would have continued to qualify under that
section but for the redemption.
(d) Certain prior issues taken into account--(1) In general. Section
103(b)(6)(B) provides, in effect, that if (i) a prior issue specified in
subparagraph (2) of this paragraph is an exempt small issue (including
for this purpose an exempt small refunding issue) under section
103(b)(6)(A) and this section, and (ii) such prior issue is outstanding
at the time of issuance of a subsequent issue, then in determining the
aggregate face amount of such subsequent issue (for purposes of
determining whether such issue is a $1 million or $10 million exempt
small issue under section 103(b)(6)(A) and this section) there shall be
taken into account the outstanding face amount of such prior exempt
small issue. For purposes of this paragraph, the outstanding face amount
of a prior exempt small issue does not include the face amount of any
obligation which is to be redeemed from the proceeds of such subsequent
issue.
(2) Prior issues specified. The face amount of an outstanding prior
exempt small issue is taken into account under subparagraph (1) of this
paragraph if--
(i) The proceeds of both the prior exempt small issue and of the
subsequent issue (whether or not the State or local governmental unit
issuing such obligation is the same unit for each such issue) are or
will be used primarily with respect to facilities located or to be
located in the same incorporated municipality or located or to be
located in the same county outside of an incorporated municipality in
such county (and, for purposes of this subdivision, on or after August
8, 1972, a contiguous or integrated facility which is located on both
sides of a border between two or more political jurisdictions shall be
treated as if it is entirely within each such political jurisdiction),
and
(ii) The principal user of the financed facilities referred to in
subdivision (i) of this subparagraph is or will be the same person or
two or more related persons (as defined in section 103(b)(6)(C) and
paragraph (e) of this section).
(3) Rules of application. The rules of this paragraph shall apply--
(i) Only in the case of outstanding prior exempt small issues which
are industrial development bonds to which section 103(b)(1) would have
applied but for the provisions of section 103(b)(6). Thus, for example,
the provisions of this paragraph do not apply in respect of a prior
issue of obligations issued on or before April 30, 1968. In addition,
the provisions of this paragraph do not
[[Page 396]]
apply in respect of a prior issue for an exempt facility under section
103(b)(4) and Sec. 1.103-8, or for an industrial park under section
103(b)(5) and Sec. 1.103-9, whether or not the issue might also have
qualified as an exempt small issue under section 103(b)(6)(A) and this
section.
(ii) To all prior exempt small issues which meet the requirements of
this paragraph. Thus, for example, in determining the aggregate face
amount of an issue under section 103(b)(6)(A), the outstanding face
amount of prior $1 million or $10 million exempt small issues which meet
the requirements of this paragraph shall be taken into account in
determining the aggregate face amount of a subsequent issue being tested
for the $1 million small issue exemption. Similarly, in determining the
aggregate face amount of an issue under section 103(b)(6)(A) and (D),
the outstanding face amount of prior $1 million or $10 million exempt
small issues which meet the requirements of this paragraph shall be
taken into account in determining the aggregate face amount of a
subsequent issue being tested for the $10 million small issue exemption.
(e) Related persons. For purposes of section 103(b) and Secs. 1.103-
7 through 1.103-11, the term ``related person'' means a person who is
related to another person if, on the date of issue of an issue of
obligations--
(1) The relationship between such persons would result in a
disallowance of losses under section 267 (relating to disallowance of
losses, etc., between related taxpayers) and section 707(b) (relating to
losses disallowed, etc., between partners and controlled partnerships)
and the regulations thereunder, or
(2) Such persons are members of the same controlled group of
corporations, as defined in section 1563(a), relating to definition of
controlled group of corporations (except that ``more than 50 percent''
shall be substituted for ``at least 80 percent'' each place it appears
in section 1563(a)) and the regulations thereunder.
(f) Disqualification of certain small issues. (1) Section 103(b)(6)
shall not apply to any obligation issued after April 24, 1979, which is
part of an issue, a significant portion of the proceeds of which are to
be used directly or indirectly to provide residential real property for
family units. For purposes of the preceding sentence, the term
``residential real property for family units'' means residential rental
projects (within the meaning of Sec. 1.103-8(b)) and owner-occupied
residences (within the meaning of section 103A).
(2) For purposes of paragraph (f)(1), a significant portion of the
proceeds of an issue are used to provide residential real property for
family units if 5 percent or more of the proceeds are so used.
(g) Examples. The application of the rules contained in section
103(b)(6) and this section are illustrated by the following examples:
Example 1. County A and corporation X enter into an arrangement
under which the county will provide a factory which X will lease for 25
years. The arrangement provides (1) that A will issue $1 million of
bonds on March 1, 1970, (2) that the proceeds of the bond issue will be
used to acquire land in County A (but not in an incorporated
municipality) and to construct and equip a factory on such land in
accordance with X's specifications, (3) that X will rent the facility
for 25 years at an annual rental equal to the amount necessary to
amortize the principal and pay the interest on the outstanding bonds,
and (4) that such payments by X and the facility itself shall be the
security for the bonds. Although the bonds issued are industrial
development bonds, the bonds are an exempt small issue under section
103(b)(6)(A) and this section since the aggregate authorized face amount
of the bond issue is $1 million or less and all of the proceeds of the
bond issue are to be used to acquire and improve land and acquire and
construct depreciable property. The result would be the same if the
arrangement provided that X would purchase the facility from A.
Example 2. The facts are the same as in example (1) except that,
instead of acquiring land and constructing a new factory, the
arrangement provides that A will acquire a vacant existing factory
building and rebuild and equip the building in accordance with X's
specifications. The bonds are an exempt small issue for the same reasons
as in example (1).
Example 3. The facts are the same as in example (1) or (2) except
that the financed facilities are additions to facilities which were
financed by an issue of bonds to which section 103(b)(1) does not apply
because such bonds were issued prior to May 1, 1968, or were subject to
the transitional provisions of Sec. 1.103-12. The bonds are an exempt
small
[[Page 397]]
issue since neither of the prior bond issues are taken into account
under section 103(b)(6)(B) and this section in determining the status of
industrial development bonds which are issued after April 30, 1968, and
which are not subject to the transitional provisions of Sec. 1.103-12.
Example 4. The facts are the same as in example (1) except that,
subsequently, corporation X proposes to County A that A build a $400,000
warehouse located in Town M (an unincorporated town located in County A)
for X under terms similar to the factory arrangement described in
example (1). On the proposed issue date of the subsequent bond issue,
$600,000 of the first exempt small issue will be outstanding. If A
issues $400,000 of bonds for such purposes, the bonds will be an exempt
small issue under section 103(b)(6) and this section since, under the
rules of section 103(b)(6)(B) and paragraph (d) of this section, if the
aggregate authorized face amount of the new issue and the outstanding
prior exempt small issue will be $1 million or less, the new issue will
be an exempt small issue. If, however, the aggregate authorized face
amount of the prior issue outstanding on the date of the subsequent
issue were in excess of $600,000, the subsequent issue would not qualify
as an exempt small issue because (1) the combined aggregate face amount
of the outstanding prior issue and the new issue would be in excess of
$1 million, (2) the facilities financed by both issues are to be located
in unincorporated areas in the same county, (3) the same taxpayer will
be the principal user of both facilities, and (4) but for the rules of
section 103(b)(6)(B) and paragraph (d) of this section the prior issue
would be an exempt small issue.
Example 5. The facts are the same as in example (1) except that
subsequently corporation X proposes to City P and City R (incorporated
municipalities located in County A) that P and R each issue bonds and
each build $1 million facilities to be located in Cities P and R for the
use of X under terms similar to the arrangement in example (1). Each of
the $1 million issues will be an exempt small issue because each
proposed facility is located within a different incorporated
municipality and the proceeds of the prior outstanding exempt small
issue were used to construct facilities outside of an incorporated area.
Example 6. The facts are the same as in example (1) except that
$95,000 of the $1 million will be used by the corporation as working
capital. The bonds are an exempt small issue for the same reason as in
example (1) since substantially all of the proceeds will be used for the
acquisition of land and the construction of depreciable property.
Example 7. The facts are the same as in example (1) except that on
November 1, 1969, County A issued $10 million of industrial development
bonds, all of the proceeds of which were issued for the acquisition of
land as the site for an industrial park within the meaning of section
103(b)(5) and Sec. 1.103-9. The proceeds of the $1 million of bonds
issued in 1970 will be used to construct a factory for corporation X to
be located in the industrial park. The bonds issued in 1970 are
industrial development bonds within the meaning of section 103(b)(2) and
Sec. 1.103-7. Since, however, the prior 1969 issue is not an issue to
which section 103(b)(6)(A) applied (see paragraph (d)(3)(i) of this
section), the bonds issued in 1970 are an exempt small issue for the
reasons stated in example (1).
Example 8. County B enters into three separate arrangements with
three unrelated corporations whereby the county will provide separate
storage facilities for each corporation. The arrangement provides (1)
that the county will issue bonds and loan to each corporation $250,000
of the proceeds which will be used to acquire land in the county and to
construct the facilities, (2) that the rental payments by the
corporations will be equal to the amount necessary to amortize the
principal and pay the interest on any outstanding bonds issued by the
county, and (3) that the payments by the corporations and the facilities
themselves shall be the security for the industrial development bonds.
For convenience, the county issues one series of bonds in the face
amount of $750,000 rather than three separate series of bonds of
$250,000 each. The issue is an exempt small issue under section
103(b)(6)(A) and paragraph (b)(1) of this section since the aggregate
authorized face amount of the bond issue is $1 million or less, and all
of the proceeds of the bond issue are to be used to acquire and improve
land and acquire and construct depreciable property.
Example 9. City C and corporation Y enter into an arrangement under
which C will provide a factory which Y will lease for 25 years. The
arrangement provides (1) that C will issue $4 million of bonds on March
1, 1969, after making the election under section 103(b)(6)(D) and
paragraph (b)(2) of this section, (2) that the proceeds of the bond
issue will be used to acquire land in the city and to construct and
equip a factory on such land in accordance with Y's specifications, (3)
that Y will rent the facilities for 25 years at an annual rental equal
to the amount necessary to amortize the principal and pay the interest
on the outstanding bonds, (4) that such payments by Y and the facility
itself shall be the security for the bonds, and (5) that, if corporation
Y pays or incurs capital expenditures in excess of $1 million within 3
years from the date of issue which disqualify the bonds as an exempt
small issue under section 103(b)(6)(D), it will either furnish funds to
C to redeem such bonds at par or at a premium, or increase the rental
payments to C in an amount sufficient to pay a premium interest rate.
Although the bonds
[[Page 398]]
issued are industrial development bonds, they are an exempt small issue
under section 103(b)(6)(A) by reason of the election under section
103(b)(6)(D) and paragraph (b)(2) of this section, since the aggregate
authorized face amount of the bond issue is $5 million or less and all
of the proceeds of the bond issue are to be used to acquire and improve
land and acquire and construct depreciable property. The provisions for
redemption of the bonds or an increase in rental if the bonds are
disqualified as an exempt small issue under section 103(b)(6)(A) will
not disqualify an otherwise valid election under section 103(b)(6)(D)
and paragraph (b)(2) of this section.
Example 10. The facts are the same as in example (9) except that
corporation Y subsequently proposed to the city that it build a $1
million warehouse next to the plant for the use of Y under terms similar
to the factory arrangement. Assume further that the factory building was
completed by March 1, 1970, and that on January 15, 1972, the proposed
issue date of the subsequent bond issue, $2 million of the first exempt
small issue will be outstanding. In determining the aggregate authorized
face amount of the new issue, the original face amount of a prior
outstanding issue must be reduced by that portion which is to be
redeemed before it is added to the face amount of the new issue.
Therefore, if the city issues $3 million of bonds to redeem the
remaining $2 million of bonds and to construct the warehouse the bonds
will be an exempt small issue under section 103(b)(6)(A) if an election
is made under section 103(b)(6)(D) and paragraph (b)(2) of this section
since (1) the face amount of the new issue ($3 million), plus (2) the
face amount of the prior outstanding exempt small issue minus the amount
of such issue to be refunded ($2 million minus $2 million), plus (3)
capital expenditures during the preceding 3 years financed other than
out of the proceeds of outstanding issues to which section 103(b)(6)(A)
and paragraph (b) of this section applied ($2 million), do not exceed $5
million. If, however, the amount of the January 15, 1972, issue were
$3\1/2\ million, the issue would not qualify as an exempt small issue
under section 103(b)(6)(A) and paragraph (b)(2) of this section.
Example 11. The facts are the same as in example (9), except that on
June 15, 1971, Y purchases from an unrelated motor carrier business a
warehouse terminal in the same city at a cost of $250,000 and tractor-
trailers and other automotive equipment based at the terminal at a cost
of $1 million. This subsequent expenditure by Y has the effect of making
the interest on the city C bonds includable in the gross income of the
holders of such bonds as of June 15, 1971, because the face amount of
the March 1, 1969, issue ($4 million) plus the subsequent capital
expenditures within 3 years of the date of issue ($1,250,000) exceed $5
million. (See section 103(b)(6)(D) and paragraph (b)(2)(i) of this
section.)
Example 12. The facts are the same as in example (9), except that in
March, 1970, Y will move $3 million of additional used machinery and
equipment into the factory from its factory in another city. The
expenditures for such machinery and equipment were incurred by Y more
than 3 years prior to the date of issue of the bonds. The transfer of
such used equipment into city C does not constitute a section
103(b)(6)(D) capital expenditure within the meaning of paragraph
(b)(2)(ii) of this section since the expenditures with respect to such
property were incurred more than 3 years prior to the date of issue of
the bonds. Had the capital expenditures with respect to such property
been incurred during the 6-year period beginning 3 years before the date
of issue of the bonds and in the 3 years after such date, they would
constitute section 103(b)(6)(D) capital expenditures.
Example 13. The facts are the same as in example (9), except that in
March 1970, corporation Y enters into an arrangement with respect to
machinery and equipment to be used in the facility. The arrangement is
labeled by the parties as a lease but is treated as a sale for Federal
income tax purposes. The amount treated as the purchase price of the
machinery and equipment is a section 103(b)(6)(D) capital expenditure.
Example 14. On February 1, 1970, city D issues $5 million of its
bonds to finance construction of an addition to the manufacturing plant
of corporation Z. The bonds will be secured by the facility and lease
payments to be made by Z which will be sufficient to pay the principal
and interest on such bonds. Assume that the bonds qualify as an exempt
small issue under section 103(b)(6)(A) pursuant to an election under
section 103(b)(6)(D) and paragraph (b)(2) of this section. On February
1, 1971, D plans to issue $1 million of its bonds to construct a
pollution control facility to be leased to Z for use at its
manufacturing plant. The rental payments from the lease will be
sufficient to pay the principal and interest on the bonds. The bonds
will be secured by such facility and the lease payments. Capital
expenditures for the pollution control facility will be paid or incurred
beginning before February 1, 1973. Although the pollution control
facility is an exempt facility under section 103(b)(4)(F) and paragraph
(g) of Sec. 1.103-8, amounts used for the pollution control facility
shall be considered to be a section 103(b)(6)(D) capital expenditure and
the interest on the February 1, 1970, issue will become taxable as of
the date such capital expenditure began to be paid or incurred. See
section 103(b)(6)(G) and paragraph (b)(2)(i) of this section.
[[Page 399]]
Example 15. On February 1, 1970, City E issues $500,000 of its bonds
to acquire and develop an industrial park within the meaning of section
103(b)(5) and paragraph (b) of Sec. 1.103-9. The park consists of 100
acres and is divided into one 50 acre plantsite and 4 smaller sites. The
aggregate acquisition cost of the undeveloped land is $150,000 or an
average per acre cost of $1,500. Roads, sidewalks, sewers, utilities,
sewage, and waste disposal facilities serving the entire industrial park
cost $300,000. On September 1, 1970, E leases to corporation Y for 30
years the 50 acre plantsite (with an allocated cost of $75,000) and a
railroad spur track from the railroad right of way to Y's plantsite for
Y's exclusive use. The spur track was constructed using $50,000 of the
proceeds of the industrial park bond issue. E also proposes to issue on
September 1, 1970, $4,875,000 of its bonds to construct and equip a
building on the leased plantsite to be leased to Y at an additional
rental sufficient to pay the principal and interest on this issue of
bonds. The September 1, 1970, issue will be an exempt small issue under
section 103(b)(6)(A) pursuant to an election under section 103(b)(6)(D)
and paragraph (b)(2) of this section since the sum of the amount of the
second issue ($4,875,000) and the capital expenditures allocated to the
plantsite ($75,000 for 50 acres of land plus $50,000 for the railroad
spur tract, totaling $125,000) does not exceed $5 million. The sum of
$300,000 which was spent in development of the industrial park provided
facilities which will serve or benefit the users generally and hence
under paragraph (b)(2)(iii) of this section is not considered to have
provided facilities as to which Y will be the principal user.
Example 16. On June 1, 1970, corporation Z simultaneously enters
into separate arrangements with City F and City G under which each city
will issue a $5 million exempt small issue of bonds the proceeds of
which will be used by Z to construct separate facilities in each city.
By June 1, 1971, the facilities have been completed in the respective
cities. On January 1, 1972, Cities F and G, through a valid legal
proceeding, merge into a new City FG. Since in this case F and G were
separate cities on June 1, 1970 (the date of the bond issues), the
factories are not considered to be located in the same incorporated
municipality. Accordingly, each $5 million issue by City F and G will
continue to qualify as an exempt small issue.
Example 17. On June 1, 1973, City H issues an exempt small issue of
$4.75 million to finance a facility of corporation S to be located in
City H. On October 1, 1974, S and corporation T, previously unrelated to
S, consummated a statutory merger which
qualifies as a reorganization described in section 368(a)(1)(A) and thus
as a transaction described in section 381(a). In the transaction, T
transferred to S assets with a fair market value of $1.5 million in
exchange for stock of S, $300,000 of securities of S, and $100,000 cash.
On March 23, 1971, T made $400,000 of capital expenditures for an
addition to its factory located in City H. For purposes of testing the H
issue of June 1, 1973, such expenditures would have been section
103(b)(6)(D) capital expenditures if T and S had been related persons.
Under the provisions of paragraph (b)(2)(v)(a) of this section, the
exchange of $1.5 million of stock, securities, and cash by S does not
constitute a section 103(b)(6)(D) capital expenditure. Since, however, S
and T are treated as related persons starting 3 years prior to the date
of issue of the obligations, the $400,000 of expenditures by T
constitute section 103(b)(6)(D) capital expenditures. Thus, the interest
on the June 1, 1973, issue of obligations would become taxable (since
the $5 million limit would be exceeded) on the date of the merger.
Example 18. In 1965 City I issues $10 million of industrial
development bonds to construct and equip a factory for corporation Z. In
1975 the remaining principal amount of the bonds outstanding is $4.1
million. If I issues $4.5 million of bonds to redeem the balance of the
prior issue, and for other purposes, such issue cannot qualify as an
exempt small issue under section 103(b)(6)(D) and paragraph (b)(2) of
this section even though at the time of issue the interest on the 1965
bonds was tax-exempt since the prior issue must be one which qualified
under section 103(b)(6)(A) and this section. Further, the 1975 issue
will be an issue of industrial development bonds notwithstanding the
provisions of paragraph (d)(2) of Sec. 1.103-7 which provides that
certain bonds issued to refund an issue of obligations issued on or
before April 30, 1968 (or January 1, 1969, in certain cases) will not be
so treated. Paragraph (d)(2) of Sec. 1.103-7 is not applicable because
the 1975 issue makes funds available for a purpose other than the debt
service obligation on the 1965 bonds.
Example 19. In 1969 City J issues $4 million of industrial
development bonds which qualify as an exempt small issue under section
103(b)(6)(A) pursuant to an election under section 103(b)(6)(D) and
paragraph (b)(2) of this section. In 1971, by reason of a $2 million
addition to the factory built with the proceeds of the issue, the 1969
exempt small issue loses its tax-exempt status. In 1972, the city issues
a $5 million issue to redeem the prior 1969 issue. The redemption issue
will not qualify as an exempt small issue since
[[Page 400]]
the prior 1969 issue did not continue to qualify under section
103(b)(6)(A) and this section.
[T.D. 7199, 37 FR 15494, Aug. 3, 1972; 37 FR 16177, Aug. 11, 1972; 37 FR
17826, Sept. 1, 1972, as amended by T.D. 7511, 42 FR 54285, Oct. 5,
1977; T.D. 7840, 47 FR 46084, Oct. 15, 1982; 51 FR 16299, May 2, 1986]
Sec. 1.103-11 Bonds held by substantial users.
(a) In general. Section 103(c) (4), (5), or (6) (relating
respectively to interest on bonds to finance certain exempt facilities,
interest on bonds to finance industrial parks, and the exemption for
certain small issues of industrial development bonds) does not apply, as
provided in section 103(c)(7), with respect to any obligation for any
period during which such obligation is held either by a person who is a
substantial user of the facilities with respect to which the proceeds of
such obligation were used or by a related person (within the meaning of
section 103(c)(6)(C) and paragraph (e) of Sec. 1.103-10). Therefore, in
such a case, interest paid on such an obligation is includable in the
gross income of a substantial user (or related person) for any period
during which such obligation is held by such user (or related person).
(b) Substantial user. In general, a substantial user of a facility
includes any nonexempt person who regularly uses a part of such facility
in his trade or business. However, unless a facility, or a part thereof,
is constructed, reconstructed, or acquired specifically for a nonexempt
person or persons, such a nonexempt person shall be considered to be a
substantial user of a facility only if (1) the gross revenue derived by
such user with respect to such facility is more than 5 percent of the
total revenue derived by all users of such facility or (2) the amount of
area of the facility occupied by such user is more than 5 percent of the
entire usable area of the facility. Under certain facts and
circumstances, where a nonexempt person has a contractual or preemptive
right to the exclusive use of property or a portion of property, such
person may be a substantial user of such property. A substantial user
may also be a lessee or sublessee of all or any portion of the facility.
A licensee or similar person may also be a substantial user where his
use is regular and is not merely a casual, infrequent, or sporadic use
of the facility. Absent special circumstances, individuals who are
physically present on or in the facility as employees of a substantial
user shall not be deemed to be substantial users.
(c) Examples. The application of section 103(c)(7) and this section
are illustrated by the following examples:
Example 1. Pursuant to an arrangement with corporation X, County A
issues $4 million of its bonds (an exempt small issue under section
103(c)(6)(A) pursuant to an election under section 103(c)(6)(D) and
paragraph (b)(2) of Sec. 1.103-10) and will use the proceeds to finance
construction of a manufacturing facility which is to be leased to X for
an annual rental of $500,000. X subleases space to a restaurant operator
at an annual rental of $25,000 for the operation of a canteen and lunch
counter for the convenience of X's employees. The canteen is required to
be open at least 5 days each week (except holidays) from 8:30 a.m. to 5
p.m., and the lunch counter must be in operation during the noon hour.
The canteen regularly sells cigarettes, candy, and soft drinks, and uses
advertising displays and dispensers with product names. The space
physically occupied and the amount of revenue derived by the restaurant
operator are more than 5 percent of the respective amounts with respect
to the entire facility. Both X and the restaurant operator are
substantial users. However, absent special circumstances none of X's
employees, the employees of the restaurant operator, or the customers or
salesmen who regularly visit the premises to do business either with X
or the restaurant operator are substantial users. Similarly, the
manufacturers, distributors, and dealers of products sold in the canteen
ordinarily are not substantial users.
Example 2. The facts are the same as in example (1) except that X
rents food and beverage vending machines from a local dealer. The
machines are regularly serviced by the local dealer under a contract
with X. Title to and ownership of the machines are retained by the
dealer. The local dealer is not deemed to be a substantial user if the
revenue derived by such dealer from, and the space occupied by, such
machines do not exceed 5 percent of the respective amounts with respect
to the entire facility.
Example 3. City B proposes to issue $2 million of bonds which
qualify as an exempt small issue under section 103(c)(6)(A) pursuant to
an election under section 103(c)(6)(D) and paragraph (b)(2) of
Sec. 1.103-10 in order to construct a medical building for certain
physicians and dentists. The facility will contain 30 offices to be
leased on equal terms
[[Page 401]]
and for the same rental rates to each physician or dentist for use in
his trade or business. Each physician or dentist will be a substantial
user of the facility since the facility is being constructed
specifically for such physicians and dentists. The result would be the
same in the case of an office building for general commercial use.
Example 4. City C proposes to expand the airport it owns and
operates with the proceeds of its bonds which qualify as bonds issued
for an exempt facility under section 103(c)(4)(D) and paragraph (e) of
Sec. 1.103-8 and which are secured by a pledge of airport revenues. The
airport is serviced by several commercial airlines which have long-term
agreements with C for the use of runways, terminal space, and hangar and
storage facilities. Each of the airlines either occupies more than 5
percent of the usable space of, or derives more than 5 percent of the
revenue derived with respect to, the airport. C also leases counter and
vehicle servicing and parking areas to car rental companies, space for
restaurants, kiosks for the sale of newspapers and magazines, and space
for the operations of a charter plane company. The latter operates its
own planes, offers flying lessons and services, and stores private
planes for local businesses and individuals. An airport limousine
company has an exclusive franchise for passenger pickup at the terminal.
Other taxi, transfer, freight, and express companies regularly deliver
passengers and freight to the terminal but do not have space regularly
assigned to them, nor do they have operating agreements with C. Various
business concerns have advertising product displays in the terminal
building. In addition to regular telephone service, coin-operated
telephones, provided by the telephone company, are located throughout
the terminal, at locations specified by C. None of the above exceed the
5-percent limitations of paragraph (b) of this section and the bond
proceeds will not be specifically used for any of them. Only the
commercial airlines, which violate the 5-percent limitations, are
substantial users of the airport.
Example 5. City D issues $25 million of its revenue bonds and will
use $10 million of the proceeds to finance construction of a sports
facility which qualifies as an exempt facility under section
103(c)(4)(B) and paragraph (c) of Sec. 1.103-8, $8 million to acquire
and develop land as the site for an industrial park within the meaning
of section 103(c)(5) and Sec. 1.103-9, and $7 million to finance the
construction of an office building to be used exclusively by the city,
an exempt person. The revenues from the sports facility and the
industrial park and all the facilities themselves will be the security
for the bonds. The sports facility and the industrial park sites will be
used in the trades of businesses of nonexempt persons. The bonds are
industrial development bonds, but under the provisions of paragraph
(a)(1) of Sec. 1.103-8 and paragraph (a) of Sec. 1.103-9, the interest
on the $25 million issue will not be includable in gross income.
However, the interest on bonds held shall be includable in the gross
income of a substantial user of either the sports facility or the
industrial park if such substantial user holds any of the obligations of
the $25 million issue. The 5-percent limitations of paragraph (b) of
this section are applied separately with respect to each facility.
Example 6. Authority E issues $4 million of bonds which qualify as
an exempt small issue under section 103(c)(6)(A) pursuant to an election
under section 103(c)(6)(D) and paragraph (b)(2) of Sec. 1.103-10 in
order to construct a bank building on the grounds of an airport. In
addition, E issues $40 million to expand the airport. The bank will not
derive revenue in excess of 5 percent of the revenue derived with
respect to the airport nor will it occupy more than 5 percent of the
usable area of such airport. The bank will be a substantial user of the
bank building constructed with the proceeds of the $4 million issue
since the facility was constructed specifically for the bank. However,
the bank will not be a substantial user with respect to the airport
because it does not exceed the 5-percent limitations of paragraph (b) of
this section. Had E issued one issue of $44 million in order to expand
the airport and construct a bank building, the bank would be a
substantial user of the entire facility since the $44 million issue was
being used to construct a facility a portion of which was specifically
for the bank.
[T.D. 7199, 37 FR 15499, Aug. 3, 1972; 37 FR 16177, Aug. 11, 1972]
Sec. 1.103-16 Obligations of certain volunteer fire departments.
(a) General rule. An obligation of a volunteer fire department
issued after December 31, 1980, shall be treated as an obligation of a
political subdivision of a State for purposes of section 103(a)(1) if--
(1) The volunteer fire department is a qualified volunteer fire
department within the meaning of paragraph (b) of this section, and
(2) Substantially all of the proceeds of the issue of which the
obligation is a part are to be used for the acquisition, construction,
reconstruction, or improvement of a fire house or fire truck used or to
be used by the qualified volunteer fire department.
An obligation of a volunteer fire department shall not be treated as an
obligation of a political subdivision of a State for purposes of section
103(a)(1) unless both conditions set forth in this paragraph (a) are
satisfied.
[[Page 402]]
Thus, for example, if an obligation is issued by an ambulance and rescue
squad that is a qualified volunteer fire department as required by
paragraph (a)(1) of this section, but substantially all of the proceeds
of the issue of which the obligation is a part are to be used for the
furnishing of emergency medical services, rather than for the purposes
specified in paragraph (a)(2) of this section, the obligation shall not
be treated as an obligation of a political subdivision of a State for
purposes of section 103(a)(1).
(b) Definition of qualified volunteer fire department. For purposes
of this section, the term ``qualified volunteer fire department'' means
an organization--
(1) That is organized and operated to provide firefighting services
or emergency medical services in an area within the jurisdiction of a
political subdivision, and
(2) That is required to furnish firefighting services by written
agreement with the political subdivision, and
(3) That serves persons in an area within the jurisdiction of the
political subdivision that is not provided with any other firefighting
services.
The requirement of paragraph (b)(2) of this section that a qualified
volunteer fire department be required to furnish firefighting services
by written agreement with the political subdivision may be satisfied by
an ordinance or statute of the political subdivision that establishes,
regulates, or funds the volunteer fire department. A volunteer fire
department does not fail to satisfy the requirement of pargraph (b)(3)
of this section by furnishing or receiving firefighting services on an
emergency basis, or by cooperative agreement with other fire
departments, to or from areas outside of the area that the volunteer
fire department is organized and operated to serve. The fact that tax
revenues of a political subdivision served by a volunteer fire
department contribute toward the support of the volunteer fire
department in the form of salary, purchase of equipment, or other
defrayment of expenses will not prevent the volunteer fire department
from being a ``qualified volunteer fire department'' within the meaning
of this paragraph (b). Moreover, an obligation of a volunteer fire
department receiving such support may qualify as an obligation of a
political subdivision within the meaning of section 103(a)(1)
independently of section 103(i) and this section if the requirements of
section 103(a)(1) are satisfied. See Sec. 1.103-1(b) for rules relating
to qualification under section 103(a)(1).
(c) ``Substantially all'' test. Substantially all of the proceeds of
an issue are used for the purposes specified in paragraph (a)(2) of this
section if 90 percent or more of the proceeds are so used. Thus, for
example, if more than 10 percent of the proceeds of an obligation issued
by a qualified volunteer fire department are used for the purchase of an
ambulance or for rescue equipment not to be used in providing fire
fighting services, interest on the obligation is not exempt from tax
under section 103(i) and this section. In computing this percentage--
(1) Costs are allocated between providing a firehouse or firetruck
and other uses of the proceeds on a pro rata basis; and
(2) The rules set forth in Sec. 1.103-8(a)(1)(i), relating to
amounts allocable to exempt and nonexempt uses and amounts chargeable to
capital account, apply.
(d) Refunding issues. An obligation which is part of an issue issued
by a qualified volunteer fire department after December 31, 1980, part
or all of the proceeds of which issue are used directly or indirectly to
pay principal, interest, call premium, or reasonable incidental costs of
refunding a prior issue qualifies as an obligation of a political
subdivision under section 103(i) and this section only if--
(1) The prior issue was issued by a qualified volunteer fire
department;
(2) Substantially all of the proceeds of the prior issue were used
for the purposes described in paragraph (a)(2) of this section;
(3) The prior issue was issued after December 31, 1980; and
(4) The refunding issue is issued not more than 180 days before the
date on which the last obligation of the prior issue is discharged
(within the meaning of Sec. 1.103-13)(b)(11)).
(e) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. The County M Volunteer Fire and Rescue Association
provides firefighting, ambulance, and emergency medical services
[[Page 403]]
in County M. The board of county commissioners of County M contracts
with the County M Volunteer Fire and Rescue Association for these
services, and County M is not served by any other firefighting
association. On August 1, 1981, the Association issues an obligation for
funds to purchase a new fire truck, a new ambulance, and rescue
equipment not to be used for fighting fires. Funds to be used for the
purchase of the ambulance and rescue equipment constitute more than 10
percent of the proceeds of the obligation. Thus, substantially all of
the proceeds of the obligations are not used for one of the purposes
described in paragraph (a)(2) of this section. Although the County M
Volunteer Fire and Rescue Association is a qualified volunteer fire
department under paragraph (b) of this section because it provides
firefighting and emergency medical services in an area within County M
which is not provided with any other firefighting services and is
required to provide these services by written agreement with County M,
the August 1, 1981, obligation of County M Volunteer Fire and Rescue
Association will not be treated as an obligation of a political
subdivision of a State under section 103(i) and paragraph (a) of this
section because substantially all of the proceeds of the obligation are
not to be used for a purpose described in section 103(i)(l)(B) and
paragraph (a)(2) of this section. Accordingly, interest on the August 1,
1981, obligation of County M Volunteer Fire and Rescue Association is
not exempt from gross income under section 103(a)(1).
Example 2. County N Volunteer Fire Department provides firefighting
services in County N by contract with the county, which is not served by
any other firefighting association. On June 15, 1982, County N Volunteer
Fire Department issues its obligation for funds to construct an addition
to its firehouse to house a rescue squad, the rescue squad's vehicle,
and rescue equipment not to be used in firefighting. Although the County
N Volunteer Fire Department is a qualified volunteer fire department
under paragraph (b) of this section, interest on its June 15, 1982,
obligation will not be exempt from tax under section 103(i) and this
section because the proceeds of this obligation will not be used for the
purposes described in paragraph (a) of this section.
Example 3. The County O Volunteer Fire and Rescue Association
provides firefighting, ambulance, and emergency medical services in
County O. The board of county commissioners of County O contracts with
the County O Volunteer Fire and Rescue Association for these services,
and County O is not served by any other firefighting association. On
September 1, 1983, the Association issues its obligations for funds to
construct a new building to house its firefighting, ambulance, and
rescue functions. Although the ambulance and rescue equipment will
occupy space in the projected facility, the cost allocable on a pro rata
basis to providing housing for the ambulance and rescue equipment
represents less than 10 percent of the proceeds of the obligations.
Thus, substantially all of the proceeds of the obligations are used for
one of the purposes described in paragraph (a)(2) of this section. The
County O Volunteer Fire and Rescue Association is a qualified volunteer
fire department under paragraph (b) of this section because it provides
firefighting and emergency medical services in an area within County O
which is not provided with any other firefighting services and is
required to provide these services by written agreement with County O.
The obligations of County O Volunteer Fire and Rescue Association will
be treated as obligations of a political subdivision of a State under
section 103(i) and paragraph (a) of this section because the obligations
are those of a qualified volunteer fire department and because
substantially all of the proceeds of the obligations are to be used for
a purpose described in section 103(i)(1)(B) and paragraph (a)(2) of this
section. Accordingly, interest on the September 1, 1983, issue of
obligations of County O Volunteer Fire and Rescue Association is exempt
from gross income under section 103(a)(1).
[T.D. 7901, 48 FR 32981, July 20, 1983]
Sec. 1.103(n)-1T Limitation on aggregrate amount of private activity
bonds (temporary).
Q-1: What does section 103(n) provide?
A-1: Interest on an issue of private activity bonds will not be tax
exempt unless the aggregrate amount of bonds issued pursuant to that
issue, when added to (i) the aggregate amount of private activity bonds
previously issued by the issuing authority during the calendar year and
(ii) the portion of that year's private activity bond limit that the
issuing authority has elected to carry forward to a future year, does
not exceed the issuing authority's private activity bond limit for that
calendar year. See A-4 of Sec. 1.103(n)-4T with respect to private
activity bonds issued under a carryforward election.
Q-2: What is the effective date of section 103(n)?
A-2: In general, section 103(n) applies to private activity bonds
issued after December 31, 1983. Section 103(n) does not apply to any
issue of obligations, however, if there was an inducement
[[Page 404]]
resolution (or other comparable preliminary approval) for the project
before June 19, 1984, and the issue for such project is issued before
January 1, 1985. An issue of obligations will be considered to be issued
for the project pursuant to the inducement resolution in existence
before June 19, 1984, to the extent that the nature, character, and
purpose of the facility has not changed in any material way, and to the
extent that the capacity of the facility has not increased materially;
in addition, the issue of obligations must be for the same or a related
initial owner, manager, or operator. See Sec. 1.103-10(e) for the
definition of related persons. See A-16 of Sec. 1.103(n)-3T with respect
to certain projects preliminarily approved before October 19, 1983. The
transitional rules provided by section 631(c) of the Tax Reform Act of
1984 do not apply to section 103(n). See Sec. 1.103-13(b)(6) for the
rules relating to the date of issue of obligations.
Q-3: If an issue of private activity bonds causes the issuer's
private activity bond limit to be exceeded, what is the effect on that
issue?
A-3: If an issue of private activity bonds causes the issuing
authority's private activity bond limit to be exceeded, no portion of
that issue will be treated as obligations described in section 103(a),
and interest paid on the issue will be subject to Federal income
taxation.
Q-4: If an issue of private activity bonds causes the issuer's
private activity bond limit to be exceeded, what is the effect on
previous issues of private activity bonds that met the requirements of
section 103(n) when issued?
A-4: Private activity bonds issued as part of an issue that met the
private activity bond limit when issued continue to meet the
requirements of section 103(n) even though a subsequent issue causes the
aggregate amount of private activity bonds issued by an issuing
authority to exceed the authority's private activity bond limit for the
calendar year.
Example. The following example illustrates the provisions of A-3 and
A-4 of this Sec. 1.103(n)-1T:
Example. The State ceiling for State Z for 1986 is $200 million.
City M, within the State, and State Z itself are authorized to issue
private activity bonds. Under the allocation formula provided by the
Governor of State Z, City M has a private activity bond limit of $50
million; the balance of the State ceiling is allocated to State Z. On
June 1, 1986, City M issues a $75 activity bonds. On September 1, 1986,
State Z issues a $150 million issue of private activity bonds. Based on
these facts, the obligations of City M do not meet the requirements of
section 103(n) since the aggregate amount of private activity bonds
issued by City M in 1986 exceeded its private activity bond limit for
such year; thus, such obligations are not described in section 103(a).
That the State Z issue caused the aggregate amount of private activity
bonds issued in the State during 1986 to exceed the State ceiling does
not cause such obligations to fail to meet the requirements of section
103(n).
Q-5: What is the aggregate amount of private activity bonds issued
as part of an issue?
A-5: The aggregate amount of private activity bonds issued as part
of an issue is the face amount of the issue.
(Secs. 103(n) and 7805 of the Internal Revenue Code of 1954 (98 Stat.
916, 26 U.S.C. 103(n); 68A Stat. 917, 26 U.S.C. 7805))
[T.D. 7981, 49 FR 39316, Oct. 5, 1984]
Sec. 1.103(n)-2T Private activity bond defined (temporary).
Q-1: What is the definition of the term ``private activity bond''?
A-1: In general, for purposes of Secs. 1.103(n)-1T through 1.103(n)-
6T, the term ``private activity bond'' means any industrial development
bond or student loan bond the interest on which is exempt from tax under
section 103(a) (without application of section 103(n)). See Sec. 1.103-
7(b) for the definition of the term ``industrial development bond.'' See
A-17 of this Sec. 1.103(n)-2T for the definition of the term ``student
loan bond.'' There are five exceptions to the general definition of the
term ``private activity bond''; the exceptions include the exception for
the Texas Veterans' Bond Program, the residential rental property
exception, the exception for certain facilities described in section
103(b)(4) (C) or (D), and the refunding obligation exception. These
exceptions are described in A-2 through A-16 of this Sec. 1.103(n)-2T.
In addition, the term ``private activity bond'' does not include any
issue of obligations if there was an inducement resolution (or
[[Page 405]]
other comparable preliminary approval) for the project before June 19,
1984, and the issue for that project is issued before January 1, 1985.
See A-2 of Sec. 1.103(n)-1T.
Q-2: To which obligations does the exception for the Texas Veterans'
Bond Program apply?
A-2: The term ``private activity bond'' does not include general
obligation bonds issued under the Texas Veterans' Bond Program if the
proceeds of the issue, other than an amount that is not a major portion
of the proceeds, are used to make loans of up to $20,000 for the
purchase of land for purposes authorized by such program as in effect on
June 19, 1984. The use of the proceeds may be established by the
affidavit of the veteran receiving the loan. For purposes of this
exception to the definition of the term ``private activity bond,'' the
use of more than 25 percent of the proceeds of an issue of obligations
will constitute the use of a major portion of such proceeds.
Q-3: To which obligations does the residential rental property
exception apply?
A-3: The term ``private activity bond'' does not include any
obligation issued to provide projects for residential rental property
(including property functionally related and subordinate to any such
facility), as described in section 103(b)(4)(A) and Sec. 1.103-8(b). In
addition, the term ``private activity bond'' does not include any
housing program obligation under section 11(b) of the United States
Housing Act of 1937.
Q-4: To which obligations does the exception for certain facilities
described in section 103(b)(4) (C) or (D) apply?
A-4: Section 103(n)(7)(C) provides that the term ``private activity
bond'' does not include any obligation issued as part of an issue to
provide convention or trade show facilities, as described in section
103(b)(4)(C) and Sec. 1.103-8(d) (including property functionally
related and subordinate to any such facilities), if the property so
described is owned by, or on behalf of, a governmental unit. In
addition, the term ``private activity bond'' does not include any
obligation issued as part of an issue to provide airports, docks,
wharfs, mass commuting facilities, or storage or training facilities
directly related to any of the foregoing facilities, as described in
section 103(b)(4)(D) and Sec. 1.103-8(e) (including property
functionally related and subordinate to any such facilities), if the
property so described is owned by, or on behalf of, a governmental unit.
See Sec. 1.103-8(a)(3), in general, for the definition of the term
``functionally related and subordinate.'' For purposes of this exception
to the definition of the term ``private activity bond,'' the term ``mass
commuting facilities'' includes ``qualified mass commuting vehicles,''
as defined in section 103(b)(9), that are associated with a mass
commuting facility described in Sec. 1.103-8(e)(2)(iv). Obligations
issued as part of an issue to provide parking facilities, as described
in section 103(b)(4)(D), are not excepted from the definition of the
term ``private activity bond;'' however, parking facilities may be
functionally related and subordinate to another facility described in
section 103(b)(4) (C) or (D).
Q-5: When is property described in section 103(b)(4) (C) or (D)
owned by, or on behalf of, a governmental unit?
A-5: In general, property described in section 103(b)(4) (C) or (D)
will be considered to be owned by a governmental unit if a governmental
unit is the owner of the property for Federal income tax purposes
generally. See A-5 of Sec. 1.103(n)-3T for the definition of the term
``governmental unit''. In general, property described in section
103(b)(4) (C) or (D) will be considered to be owned on behalf of a
governmental unit if a constituted authority empowered to issue
obligations on behalf of a governmental unit is the owner of the
property for Federal income tax purposes generally. Whether the property
is owned by, or on behalf of, a governmental unit will be determined on
the basis of the facts and circumstances of each particular case. The
fact that the governmental unit's or constituted authority's obligation
to pay principal and interest on an obligation is limited to revenues
from fees collected from users of the property provided with the
proceeds of such obligation will not, in itself, cause such property to
be treated as not owned by, or on behalf of, the governmental unit. In
order to qualify for the exception described in section
[[Page 406]]
103(n)(7)(C), the property must be owned by, or on behalf of, the
governmental unit throughout the term of the issue. See A-10 of this
Sec. 1.103(n)-2T with respect to the consequences of a transfer of
ownership.
Q-6: Will property described in section 103(b)(4) (C) or (D) that is
leased to a non-governmental entity be treated as owned by, or on behalf
of, a governmental unit if the lessee is the owner of the property for
Federal income tax purposes generally solely by reason of the length of
the lease?
A-6: If property, or any portion thereof, is leased to a non-
governmental entity and if, for Federal income tax purposes generally,
the lessee is the owner of the property solely by reason of the length
of the lease, then, for purposes of Secs. 1.103(n)-1T through 1.103(n)-
6T (but not for other Federal income tax purposes, such as whether
payments under the lease constitute deductible rental payments), the
governmental unit will be treated as the owner of the property if the
lessee elects not to claim depreciation or an investment credit with
respect to such property. See A-7 of this Sec. 1.103(n)-2T for the rules
describing the method of making this election. For purposes of
Secs. 1.103(n)-1T through 1.103(n)-6T, the term ``non-governmental
entity'' means a person other than a governmental unit or a constituted
authority empowered to issue obligations on behalf of a governmental
unit. The fact that a non-governmental entity lessee elects not to claim
depreciation or an investment credit with respect to property does not,
however, ensure that the property will be treated as owned by, or on
behalf of a governmental unit for purposes of Secs. 1.103(n)-1T through
1.103(n)-6T. Thus, for example, if the lessee is the owner of the
property for Federal income tax purposes generally other than solely
because of the length of the lease, the obligations issued as part of
the issue are private activity bonds notwithstanding that the lessee
elected not to claim depreciation or an investment credit with respect
to the property.
Similarly, even if a governmental unit is the owner of property for
Federal income tax purposes generally, the property will not be treated
as owned by, or on behalf of, a governmental unit for purposes of
Secs. 1.103(n)-1T through 1.103(n)-6T if the lease under which such
property is leased to a non-governmental entity provides for significant
front end loading of rental accruals or payments. See A-12 of this
Sec. 1.103(n)-2T with respect to significant front end loading of rental
accruals or payments.
Q-7: What must a lessee do in order to elect not to take
depreciation or an investment credit with respect to property described
in section 103(b)(4) (C) or (D)?
A-7: The lessee must make the election at the time the lease is
executed. The election must include a description of the property with
respect to which the election is being made; the name, address, and TIN
of the issuing authority; the name, address, and TIN of the lessee; and
the date and face amount of the issue the proceeds of which are to be
used to provide the property. The election must be signed by the lessee,
if a natural person, or by a duly authorized official of the lessee. The
issuing authority must be provided with a copy of the election. The
issuing authority and the lessee must retain copies of the election in
their respective records for the entire term of the lease. In addition,
the lease, and any publicly recorded document recorded in lieu of such
lease, must state that neither the lessee nor any successor in interest
under the lease may claim depreciation or an investment credit with
respect to such property. This election may be made with respect to
property whether or not such property otherwise would be eligible for
depreciation or an investment tax credit. See section 7701(a)(41) for
the definition of the term ``TIN''.
Q-8: Is the election not to claim depreciation or an investment
credit revocable?
A-8: No, the election is irrevocable. In addition, the election is
binding on all successors in interest under the lease regardless of
whether the obligations remain outstanding. If a successor in interest
claims depreciation or an investment credit with respect to property for
which such an election has
[[Page 407]]
been made, such property will be considered transferred to a non-
governmental entity. See A-10 of this Sec. 1.103(n)-2T with respect to
the consequences of such a transfer.
Q-9: Where obligations are issued to provide all or any portion of a
facility described in section 103(b)(4) (C) or (D), must all of the
property described in section 103(b)(4) (C) or (D) that is part of such
facility be owned by, or on behalf of, a governmental unit in order for
such obligations to qualify for the exception to the definition of the
term ``private activity bond'' provided in section 103(n)(7)(C)?
A-9: Generally, yes. If obligations are issued to provide all or any
portion of a facility described in section 103(b)(4) (C) or (D), the
obligations comprising such issue will not qualify for the exception to
the definition of the term ``private activity bond'' provided in section
103(n)(7)(C) unless all of the property described in section 103(b)(4)
(C) or (D) that is part of (or functionally related and subordinate to)
the facility being financed is owned by, or on behalf of, a governmental
unit throughout the term of the issue. For this purpose, the facility
being financed will be construed to include the entire airport, dock,
etc., under consideration and not merely the part of the facility being
provided with the proceeds of the issue. For example, the term facility,
when used in reference to an airport, will be considered to include all
property that is part of, or included in, that airport under Sec. 1.103-
8(e)(2)(ii)(a), including all property functionally related and
subordinate thereto under Sec. 1.103-8 (a)(3) and (e)(2)(ii)(b). Thus,
if the proceeds of an issue are used to provide a hangar at an airport
described in section 103(b)(4)(D), that airport is considered as being
financed with such issue, and if any portion of that airport, including
property functionally related and subordinate thereto, is treated as
owned by a non-governmental entity, that issue does not qualify for the
exception of the definition of the term ``private activity bond''
provided in section 103(n)(7)(C).
There are three exceptions to this rule, however. First, if any
property otherwise would be considered part of the facility financed and
such property was not provided with proceeds of any obligation described
in section 103(a), such property will not be considered part of the
facility being financed.
Second, if any property otherwise would be considered part of the
facility being financed and such property was part of such facility on
or before October 5, 1984, such property will not be considered part of
the facility being financed. For this purpose, property will be
considered part of the facility on or before October 5, 1984, if any
person was under a binding contract to acquire or construct such
property to be a part of such facility on October 5, 1984.
Third, property will not be considered part of the facility being
financed if such property (i) is land, a building, a structural
component of a building, or other structure (other than tangible
personal property (other than an air conditioning or heating unit)) and
such property is not physically supported by, does not physically
support, and is not physically connected to any property provided with
the proceeds of obligations that qualify for the exception to the
definition of the term ``private activity bond'' provided in section
103(n)(7)(C), or (ii) is tangible personal property (other than an air
conditioning or heating unit). For this purpose, contiguous parcels of
land will not be considered to support, to be supported by, or to be
physically connected to each other, and insignificant physical
connections (such as a connection by a sidewalk) will be disregarded.
For purposes of this A-9, the term ``tangible personal property'' shall
have the meaning given to it under section 48(a)(1)(A) and Sec. 1.48-
1(c). Examples. The following examples illustrate the provisions of A-9
of this Sec. 1.103(n)-2T:
Example 1. On January 1, 1986, Governmental Unit M issues industrial
development bonds to provide an airport, as described in section
103(b)(4)(D), which will consist of land, runways, a terminal and a
functionally related and subordinate hotel. The hotel will be leased to
N, a non-governmental entity. The lease does not call for significant
front end loading of rental accruals or payments. For Federal income tax
purposes generally, M will own the entire airport except that N
[[Page 408]]
will be the owner of the hotel solely by reason of the length of the
lease. N properly elects not to claim depreciation of an investment
credit with respect to the hotel. The industrial development bonds are
not private activity bonds.
Example 2. The facts are the same as in Example (1) except that N
does not make the election and claims depreciation with respect to the
hotel. The entire issue of industrial development bonds is treated as an
issue of private activity bonds.
Example 3. The facts are the same as in Example (2) except that the
hotel is provided other than with the proceeds of an obligation
described in section 103(a). The issue for the remainder of the airport
qualifies for the exception to the definition of the term ``private
activity bond'' provided in section 103(n)(7)(C).
Example 4. The facts are the same as in Example (2) except that the
hotel, including the hotel parking lot, the hotel grounds, and the
parcel of land on which they rest, are provided with a separate issue of
industrial development bonds. There are no significant connections
between the hotel and the airport. The issue for the hotel is an issue
of private activity bonds. The issue for the remainder of the airport
qualifies for the exception to the definition of the term ``private
activity bonds'' provided in section 103(n)(7)(C).
Example 5. The facts are the same as Example (4) except that the
hotel is constructed upon land provided with the proceeds of the issue
used to provide the remainder of the airport. Both issues are treated as
issues of private activity bonds.
Example 6. On June 30, 1983, construction began on the City NN
airport, which consists of land, runways, a terminal, and hangars.
Corporation XX (a non-governmental entity) owns for Federal income tax
purposes generally several of the hangars, which it financed with
obligations described in section 103(a) issued on June 30, 1983. On
March 1, 1985, at a time when XX still owns the hangars, City NN issues
an issue of obligations described in section 103(b)(4)(D) to enlarge the
terminal at the City NN airport. City NN will own the addition to the
terminal for Federal income tax purposes generally. The obligations
comprising the March 1, 1985, issue will not be private activity bonds.
Q-10: What are the consequences if a governmental unit ceases to be
treated as owning property described in section 103(b)(4) (C) or (D)
where the property was provided by obligations that were not private
activity bonds on the date of issue due to the exception provided in
section 103(n)(7)(C)?
A-10: The obligations outstanding on the date such ownership ceases
are private activity bonds and are treated as if they are the last
private activity bonds issued by the issuer in the calendar year in
which the transfer of ownership occurs. Thus, if the aggregate amount of
bonds issued pursuant to such issue, when added to the aggregate amount
of the other private activity bonds actually issued or treated as issued
under this A-10 by the issuer during such year and the amount of any
carryforward elections made during the year, exceeds the issuer's
private activity bond limit for such year, the obligations are not
described in section 103(a) as of the date on which transfer of
ownership occurs; if such obligations do not comply with the
requirements of section 103(n), the obligations will be treated as not
described in section 103(a) as of the date such ownership ceases.
However, if on the date of issue the issuer intended to transfer
ownership of such property to a non-governmental entity during the term
of the issue, then the obligations are treated as the last private
activity bonds actually issued or treated as issued under this A-10 by
the issuer during the year in which such obligations were actually
issued; if such obligations do not comply with the requirements of
section 103(n), the obligations will be treated as not described in
section 103(a) as of the date of issue. The exception to the definition
of the term ``private activity bond'' for facilities described in
section 103(b)(4) (C) and (D) only applies if the property is owned by,
or on behalf of, a governmental unit while all or any part of the issue
or any refunding issue remains outstanding.
If all or a portion of the property is sold to a non-governmental
entity for its fair market value and all of the proceeds from the sale
(except for a de minimis amount less than $5,000) are used within six
months to redeem outstanding obligations, the obligations will not be
treated as private entity bonds.
Q-11: What are the consequences if private activity bonds are issued
to provide additions to a facility that was provided with obligations
that were not private activity bonds when issued by virtue of the
exception provided in section 103(n)(7)(C) and such additions
[[Page 409]]
are not treated as owned by a governmental unit?
A-11: In order to qualify for the exception to the definition of the
term ``private activity bond'' for obligations described in section
103(b)(4) (C) or (D), all of the property described in section 103(b)(4)
(C) or (D) that is part of the facility provided with the proceeds
generally must be owned by, or on behalf of, a governmental unit. See A-
9 of this Sec. 1.103 (n)-2T. However, if the proceeds of an issue of
private activity bonds are used to make additions to a facility (other
than additions that are not considered to be part of the facility under
A-9 of this Sec. 1.103(n)-2T) that was provided with another issue of
industrial development bonds that were not private activity bonds when
issued by virtue of the exception provided in section 103(n)(7)(C), then
the prior issue will not cease to qualify for that exception.
Nevertheless, for purposes of determining the aggregate amount of
private activity bonds issued during the year that the issue to provide
the addition to the previously financed facility is issued, the portion
of the prior issue outstanding on the date of issue of the issue to
provide the addition will be treated as part of the issue to provide the
addition.
Example. The following example illustrates the provisions of A-11 of
this Sec. 1.103 (n)-2T:
Example. On March 1, 1986, City P issues a $100 million issue of
industrial development bonds to provide an airport, as described in
section 103(b)(4)(D). City P uses substantially all of the proceeds to
acquire land and to construct runways and a terminal on that land. No
other property is constructed on the land. City P is the owner of the
land and the terminal for Federal income tax purposes generally. Thus,
the obligations comprising the March 1, 1986, issue are not private
activity bonds when issued. On September 1, 1988, City P leases a
portion of the land adjacent to the terminal to Corporation V (a non-
governmental entity) under a true lease for Federal income tax purposes.
City P's private activity bond limit for 1988 is $100 million, and as of
September 30, 1988, City P has not issued any private activity bond
during 1988. On September 30, 1988, City P issues a $20 million issue of
industrial development bonds, the proceeds of which are to be used to
construct a hotel that is functionally related and subordinate to the
airport. The hotel is to be constructed on the land that P leased to
Corporation V. The hotel will be owned by Corporation V for Federal
income tax purposes generally. On September 30, 1988, the outstanding
face amount of the March 1, 1986, issue is $100 million. Although the
obligations comprising the March 1, 1986, issue will not become private
activity bonds as a result of the subsequent issue, on September 30,
1988, City P is treated as issuing a $120 million issue of private
activity bonds. Since that amount exceeds City P's private activity bond
limit, the $20 million issue of private activity bonds issued on
September 30, 1988, does not meet the requirements of section 103(n). In
addition, any subsequent issuance of private activity bonds by City P
during 1988 will fail to meet the requirements of section 103(n). The
March 1, 1986, issue continues to be described in section 103(a).
Q-12: Section 103(n)(7)(C)(iv) provides that the exception for
certain facilities described in section 103(b)(4) (C) or (D) shall not
apply in any case where the facility is leased under a lease that has
significant front end loading of rental accruals or payments. What does
``significant front end loading of rental accruals or payments'' mean?
A-12: Where a lease requires rental payments that are significantly
higher in the early years of the lease than in later years, the lease
calls for significant front end loading of rental accruals or payments.
A lease that provides for flat rental payments during the entire lease
term does not violate the prohibition against significant front end
loading of rent. In addition, a lease may provide for adjustments in
rent for inflation or deflation, provided that such adjustments are to
be made on the basis of a generally recognized price index. In addition,
a lease may provide that rental payments are to be determined, in whole
or part, based on a percentage of income, production, etc., provided
that the percentage rate is kept constant (or increases) over the term
of the lease and that the threshold, if any, above which the percentage
applies is kept constant (or decreases) over the term of the lease.
Thus, for example, a lease that requires rental payments throughout the
term of the lease of $100,000 per year plus 5 percent of the gross
income from the facility in excess of $500,000 does not violate the
prohibition against significant front end loading of rent.
[[Page 410]]
Examples. The following examples illustrate the provisions of A-4
through A-12 of this Sec. 1.103(n)-2T:
Example 1. On February 1, 1985, County Z issues obligations with a
term of 30 years. Substantially all of the proceeds of the obligations
are to be used to provide a trade show facility as described in section
103(b)(4)(C). Z leases the entire facility to Corporation S. For Federal
income tax purposes generally, S is treated as the owner of the facility
solely by reason of the length of the lease. The lease provides that the
lessee will elect not to claim depreciation or an investment credit with
respect to the facility and that S will provide Z with a copy of the
election. S makes the election, retains it in its records, and provides
County Z with a copy. The lease provides that neither the lessee nor any
successor in interest will claim a deduction for depreciation or an
investment credit with respect to such facility. The obligations are not
private activity bonds on the date of issue, provided that the lease
does not call for significant front end loading of rental accruals or
payments.
Example 2. The facts are the same as in Example (1) except that on
February 1, 1986, S assigns the lease to Corporation T. For its taxable
year ending March 31, 1986, Corporation T claims depreciation with
respect to the trade show facility. The obligations outstanding on the
date Corporation T claims depreciation on its Federal income tax return
are treated as the last private activity bonds actually issued or
treated as issued by County Z during 1986, and such obligations must
comply with the requirements of section 103(n). In addition, Corporation
T is not entitled to claim depreciation or an investment credit with
respect to the trade show facility during the balance of the term of the
lease and will be subject to the applicable penalties for so claiming
depreciation.
Example 3. The facts are the same as in Example (1) except that the
obligations are redeemed on January 31, 1998; on January 31, 1999, S
assigns the lease to Corporation X; and on its Federal income tax return
for calendar year 1999, Corporation X claims depreciation with respect
to the facility. The obligations are not private activity bonds provided
that the lease does not call for significant front end loading of rental
accruals or payments. However, X is not entitled to claim depreciation
or an investment credit with respect to the trade show facility during
the balance of the term of the lease and will be subject to the
applicable penalties for so claiming those items.
Q-13: To which obligations does the refunding obligation exception
apply?
A-13: The term ``private activity bond'' does not include any
refunding obligation to the extent specified in this A-13. The term
``refunding obligation'' means an obligation that is part of an issue of
obligations the proceeds of which are used to pay any principal or
interest on any other issue of obligations described in section 103(a)
(referred to as the prior issue). The term ``refunding obligation'' does
not include any obligations issued more than 180 days before the prior
issue is discharged (``advance refundings''). The exception for
refunding obligations only applies to the extent that the aggregate
amount of the refunding issue does not exceed the outstanding face
amount of the prior issue, or portion thereof, being refunded. Thus, for
example, in the case of an obligation part of the proceeds of which are
to be used to refund a prior issue of private activity bonds and part of
the proceeds of which are to be used to provide a pollution control
facility under section 103(b)(4)(F), those proceeds to be used to refund
all or any part of the principal amount of the prior issue are not the
proceeds of a private activity bond; the balance of the proceeds are the
proceeds of a private activity bond. The refunding obligation exception
does not apply to obligations to the extent that amounts are used to pay
the costs of issuing refunding obligations. If an issue of obligations
consists of both obligations that qualify for the refunding obligation
exception and private activity bonds that do not meet the requirements
of section 103(n), the entire issue is treated as consisting of
obligations not described in section 103(a).
Q-14: Does the refunding obligation exception apply to obligations
issued to refund a prior issue of student loan bonds?
A-14: In the case of any student loan bond, the refunding obligation
exception applies only if, in addition to the requirements stated in A-
13 of this Sec. 1.103(n)-2T, the maturity date of the funding obligation
is not later than the later of (i) the maturity date of the obligation
to be refunded, or (ii) the date 17 years after the date on which the
refunded obligation was issued (or, in the case of a series of
refundings, the date on which the original obligation was issued).
Q-15: What is the ``maturity date'' of an obligation?
[[Page 411]]
A-15: For purposes of section 103(n), the ``maturity date'' of an
obligation is the date on which interest ceases to accrue and the
obligation may either be paid or redeemed without penalty. The date is
determined without regard to optional redemption dates (including those
at the option of holders). If the issuer is required by the obligations
or the indenture to redeem portions of obligations or to make payments
of principal with respect to obligations in specified amounts and at
specified times, such mandatory redemptions or payments shall be treated
as separate obligations.
Q-16: Where private activity bonds are refunded with other
obligations described in section 103(a), does the refunding obligation
exception apply to the extent that the aggregate amount of the refunding
obligations exceeds the outstanding principal amount of the prior issue
due to the use of a portion of the proceeds of the refunding issue to
fund a reasonably required reserve or replacement fund?
A-16: Whether the prior issue was issued prior to January 1, 1984,
or thereafter, the refunding obligation exception to the definition of
the term ``private activity bond'' only applies to the extent that the
aggregate amount of the refunding obligation does not exceed the
outstanding principal amount of the prior issue. Thus, the additional
obligations issued to provide for a reasonably required reserve or
replacement fund are private activity bonds.
Q-17: What is a ``student loan bond''?
A-17: The term ``student loan bond'' means an obligation that is
issued as part of an issue all or a major portion of the proceeds of
which are to be used directly or indirectly to finance loans to
individuals for educational expenses. For purposes of this A-17, the use
of more than 25 percent of the proceeds of an issue of obligations to
finance loans to individuals for educational expenses will constitute
the use of a major portion of such proceeds in such manner.
(Secs. 103(n) and 7805 of the Internal Revenue Code of 1954 (98 Stat.
916, 26 U.S.C.103(n); 68A Stat. 917, 26 U.S.C. 7805))
[T.D. 7981, 49 FR 39316, Oct. 5, 1984]
Sec. 1.103(n)-3T Private activity bond limit (temporary).
Q-1: What is the ``State ceiling''?
A-1: In general, the State ceiling applicable to each State and the
District of Columbia for any calendar year prior to 1987 shall be the
greater of $200 million or an amount equal to $150 multiplied by the
State's (or the District of Columbia's) population. In the case of any
territory or possession of the United States, the State ceiling for any
calendar year prior to 1987 shall be an amount equal to $150 multiplied
by the population of such territory or possession. In the case of
calendar years after 1986, the two preceding sentences shall be applied
by substituting ``$100'' for ``$150.'' In the case of any State that had
an excess bond amount for 1983, the State ceiling for calendar year 1984
shall be the sum of the State ceiling determined under the general rule
plus 50 percent of the excess bond amount for 1983. The excess bond
amount for 1983 is the excess (if any) of (i) the aggregate amount of
private activity bonds issued by issuing authorities in such State
during the first 9 months of calendar year 1983 multiplied by \4/3\,
over (ii) the State ceiling determined under the general rule for 1984.
For purposes of determining the State ceiling amount applicable to any
any State for calendar year 1984, an issuer may rely upon the State
ceiling amount published by the Treasury Department for such calendar
year. However, an issuer may compute a different excess bond amount for
1983 where the issuer or the State in which the issuer is located has
made a more accurate determination of the amount of private activity
bonds issued by issuing authorities in the issuer's State during 1983.
See A-7 of this Sec. 1.103(n)-3T for rules regarding a State containing
constitutional home rule cities.
Q-2: What is the private activity bond limit for a State agency?
A-2: Under section 103(n)(2) the private activity bond limit for any
agency of the State authorized to issue private activity bonds for any
calendar year shall be 50 percent of the State ceiling for such year
unless the State provides for a different allocation. For this purpose,
the State is considered an agency. See, however, A-17 of this
Sec. 1.103(n)-
[[Page 412]]
3T with respect to the penalty for failure to comply with the
requirements of section 631(a)(3) of the Tax Reform Act of 1984.
Q-3: How is private activity bond limit determined where a State has
more than one agency?
A-3: If any State has more than one agency (including the State)
authorized to issue private activity bonds, all such agencies shall be
treated as a single agency for purposes of determining the aggregate
private activity bond limit available for all such agencies. Each of the
State agencies is treated as having jurisdiction over the entire State.
Therefore, under A-8 of this Sec. 1.103(n)-3T the aggregate private
activity bond limit for all the State agencies is allocated to the State
since it possesses the broadest sovereign powers of any of the State
agencies. Each other State agency's private activity bond limit is zero
until it is assigned part of the private activity bond limit of another
governmental unit pursuant to these regulations.
Q-4: What is a State agency?
A-4: A State agency is an agency authorized by a State to issue
private activity bonds on behalf of the State. In addition, a special
purpose governmental unit that derives its sovereign powers from the
State and may exercise its sovereign powers throughout the State is a
State agency. See A-5 of this Sec. 1.103(n)-3T for the definition of the
term ``special purpose governmental unit.'' The term ``State agency''
does not include issuing authorities empowered by a State at the request
of another governmental unit within the State to issue private activity
bonds to provide facilities within the jurisdiction of such other
governmental unit. For example, if County O requests the legislature of
State P to create an issuing authority empowered to issue obligations to
provide pollution control facilities in County O, the authority is not a
State agency.
Examples. The following examples illustrate the provisions of A-3
and A-4 of this Sec. 1.103(n)-3T:
Example 1. For 1987 State Q has a State ceiling of $200 million.
Neither the Governor nor the legislature of State Q has provided a
formula for allocating the State ceiling different from that provided by
section 103(n) (2) and (3). State Q has authorized the following State
agencies to issue private activity bonds on its behalf: Authority M,
Authority N, and Authority O. The aggregate private activity bond limit
available for State agencies of State Q is $100 million. As of January
1, 1987, none of this aggregate private activity bond limit has been
assigned to any of Authorities M, N, or O. On January 1, 1987, Authority
M issues $25 million of private activity bonds. During 1987, the duly
authorized official designated by State Q to allocate the aggregate
private activity bond limit among the three authorities does not
allocate any of the State's private activity bond limit to Authority M.
The January 1, 1987, issue does not meet the requirements of section
103(n) since Authority M has no private activity bond limit for 1987.
Example 2. Under the laws of State U, only the State legislature can
create constituted authorities empowered to issue private activity bonds
on behalf of governmental units within State U. Authority R was created
by the State U legislature at the request of County X. Authority R is a
constituted authority empowered to issue private activity bonds on
behalf of County X to provide facilities located in County X. Authority
S was created by the legislature to issue private activity bonds to
provide pollution control facilities throughout the State. Authority S
is a State agency as defined in A-4 of this Sec. 1.103(n)-3T. Authority
R it is not a State agency.
Q-5: What is a governmental unit?
A-5: The term ``governmental unit'' has the meaning given such term
by Sec. 1.103-1. For purposes of Secs. 1.103(n)-1T through 1.103(n)-6T,
a governmental unit is either a general purpose governmental unit or a
special purpose governmental unit. The term ``general purpose
governmental unit'' means a State, territory, possession of the United
States, the District of Columbia, or any general purpose political
subdivision thereof. The term ``general purpose political subdivision''
denotes any division of government that possesses the right to exercise
police powers, the power to tax, and the power of eminent domain and
that is governed, at least in part, by popularly elected officials
(e.g., county, city, town, township, parish, village). The term
``special purpose governmental unit'' means any governmental unit as
defined in Sec. 1.103-1 other than a general purpose governmental unit.
For example, a sewer authority with the power of eminent domain but
without police powers is a special purpose governmental unit.
[[Page 413]]
A constituted authority empowered to issue private activity bonds on
behalf of a governmental unit is not a governmental unit.
Q-6: What is the private activity bond limit for a general purpose
governmental unit other than a State, the District of Columbia, a
territory, or a possession?
A-6: The private activity bond limit for any such general purpose
governmental unit for any calendar year is an amount equal to the
general purpose governmental unit's proportionate share of 50 percent of
the State ceiling amount for such calendar year. See A-10 of this
Sec. 1.103(n)-3T with respect to the rules for providing a different
allocation. The proportionate share of a general purpose governmental
unit is an amount that bears the same ratio to 50 percent of the State
ceiling for such year as the population of the jurisdiction of such
general purpose governmental unit bears to the population of the entire
State, District of Columbia, territory, or possession in which its
jurisdiction falls. See, however, A-17 of this Sec. 1.103(n)-3T with
respect to the penalty for failure to comply with the requirements of
section 631(a)(3) of the Tax Reform Act of 1984. See A-9 of this
Sec. 1.103(n)-3T with respect to the private activity bond limit of
issuing authorities other than general purpose governmental units.
Q-7: What is the private activity bond limit for a general purpose
governmental unit in a State with one or more constitutional homes rule
cities?
A-7: The private activity bond limit for a constitutional home rule
city for any calendar year is an amount equal to the constitutional home
rule city's proportionate share of 100 percent of the State ceiling
amount for the calendar year. The proportionate share of a
constitutional home rule city is an amount that bears the same ratio to
the State ceiling for such year as the population of the jurisdiction of
such constitutional home rule city bears to the population of the entire
State. The private activity bond limit for issuers other than
constitutional home rule cities is computed in the manner described in
A-2 through A-6 of this Sec. 1.103(n)-3T, except that in computing the
private activity bond limit for issuers other than such constitutional
home rule cities, the State ceiling amount for any calendar year shall
be reduced by the aggregate private activity bond limit for all
constitutional home rule cities in the State. The term ``constitutional
home rule city'' means, with respect to any calendar year, any political
subdivision of a State that, under a State constitution that was adopted
in 1970 and effective on July 1, 1971, had home rule powers on the first
day of the calendar year. See, however, A-17 of this Sec. 1.103(n)-3T
with respect to the penalty for failure to comply with the requirements
of section 631(a)(3) of the Tax Reform Act of 1984.
Q-8: How is the private activity bond limit of an issuing authority
determined under section 103(n)(3) when there are overlapping
jurisdictions?
A-8: If an area is within the jurisdiction of two or more
governmental units, that area will be treated as only within the
jurisdiction of the governmental unit having jurisdiction over the
smallest geographical area. However, the governmental unit with
jurisdiction over the smallest geographical area may enter into a
written agreement to allocate all or a designated portion of such
overlapping area to the governmental unit having jurisdiction over the
next smallest geographical area. Where two or more issuing authorities,
whether governmental units or constituted authorities, have authority to
issue private activity bonds and both issuing authorities have
jurisdiction over the identical geographical area, that area will be
treated as only within the jurisdiction of the one having the broadest
sovereign powers. However, the issuing authority having the broadest
sovereign powers may enter into a written agreement to allocate all or a
designated portion of such area to the one with the narrower sovereign
powers. All written agreements entered into pursuant to this A-8 must be
retained by the assignee in its records for the term of all private
activity bonds it issues in each calendar year to which such agreement
applies. See A-9 of this Sec. 1.103(n)-3T with respect to the private
activity bond limit of issuing authorities other than general purpose
governmental units.
[[Page 414]]
Q-9: What is the private activity bond limit of an issuing authority
(other than a State agency) that is not a general purpose governmental
unit?
A-9: A constituted authority empowered to issue private activity
bonds on behalf of a governmental unit is treated as having jurisdiction
over the same geographical area as the governmental unit on behalf of
which it is empowered to issue private activity bonds. Since a
governmental unit has broader sovereign powers than a constituted
authority empowered to issue private activity bonds on its behalf, a
constituted authority has a private activity bond limit under section
103(n) (2) and (3) of zero. Similarly, a special purpose governmental
unit is treated for purposes of section 103(n) as having jurisdiction
over the same geographical area as that of the general purpose
governmental unit or units from which the special purpose governmental
unit derives its sovereign powers. Since a general purpose governmental
unit has broader sovereign powers than a special purpose governmental
unit, a special purpose governmental unit has a private activity bond
limit under section 103(n) (2) and (3) of zero. An issuer of qualified
scholarship funding bonds, as defined in section 103(e), is treated for
purposes of section 103(n) as issuing on behalf of the State or
politicial subdivision or subdivisions that requested its organization
or its exercise of power to issue bonds. See A-13 and A-14 of this
Sec. 103(n)-3T with respect to assignments of private activity bond
limit. For purposes of Secs. 1.103(n)-1T through 1.103(n)-6T, a special
purpose governmental unit shall be considered to derive its authority
from the smallest general purpose governmental unit that--
(i) Enacts a specific law (e.g., a provision of a State
constitution, charter, or statute) by or under which the special purpose
governmental unit is created, or
(ii) Otherwise empowers, approves, or requests the creation of the
special purpose governmental unit, or
(iii) Appoints members to the governing body of the special purpose
governmental unit,
and within which general purpose governmental unit falls the entire area
in which such special purpose governmental unit may exercise its
sovereign powers. If no one general purpose governmental unit meets such
criteria (e.g., a regional special purpose governmental unit that
exercises its sovereign powers within three counties pursuant to a
separate ordinance adopted by each such county), such special purpose
governmental unit shall be considered to derive its sovereign powers
from each of the general purpose governmental units comprising the
combination of smallest general purpose governmental units within which
falls the entire area in which such special purpose governmental unit
may exercise its sovereign powers and each of which meets (i), (ii), or
(iii) above.
Q-10: Does the issue comply with the requirements of section 103 (n)
under the following circumstances? Based on the most recent estimate of
the resident population of State Y published by the Bureau of the Census
before the beginning of 1988, the State ceiling for State Y is $200
million. Based on the same estimate, the population of City Q is one-
fourth of the population of State Y. No part of the geographical area
within the jurisidiction of City Q is within the jurisdiction of any
other governmental unit with jurisdiction over a smaller geographical
area. There are no consitutional home rule cities in State Y. Neither
the Governor nor the legislature of State Y has provided a different
formula for allocating the State ceiling than that provided by section
103(n) (2) and (3); thus, City Q's private activity bond limit for 1988
is $25 million (.25 x .50 x $200 million). As of March 1, 1988, City
Q has issued $15 million of private activity bonds during calendar year
1988, none of which were issued pursuant to a carryforward election made
in a prior year. On March 1, 1988, City Q will issue $5 million of
private activity bonds to provide a pollution control facility as
described in section 103(b)(4) (F). C, a duly authorized official of
City Q responsible for issuing the bonds, provides a statement that will
be included in the bond indenture or a related document providing that--
(i) Under section 103(n) (2) and (3) of the Internal Revenue Code,
City Q has
[[Page 415]]
a private activity bond limit of $25 million for calendar year 1988 (.25
x .50 x $200 million), none of which has been assigned to it by
another governmental unit,
(ii) State Y has not provided a different method of allocating the
State ceiling,
(iii) City Q has not assigned any portion of its private activity
bond limit to a constituted authority empowered to issue private
activity bonds on its behalf, or to any other governmental unit,
(iv) City Q has not elected to carry forward any of its private
activity bond limit for 1988 to another calendar year, nor has City Q in
any prior year made a carryforward election for the pollution control
facility,
(v) The aggregate amount of private activity bonds issued by City Q
during 1988 is $15 million, and
(vi) The issuance of $5 million of private activity bonds on March
1, 1988, will not violate the requirements of section 103 (n) and the
regulations thereunder.
In addition, C provides the certification described in section 103
(n) (12) (A).
A-10: Based on these facts, the issue meets the requirements of
section 103(n) and Secs. 1.103(n)-1T through 1.103(n)-6T. See
Sec. 1.103-13(b)(8) for the definition of the terms ``bond indenture''
and``related documents.''
Q-11: May a State provide a different formula for allocating the
state ceiling?
A-11: A State, by law enacted at any time, may provide a different
formula for allocating the State ceiling among the governmental units in
the State (other than constitutional home rule cities) having authority
to issue private activity bonds, subject to the limitation provided in
A-12 of this Sec. 1.103(n)-3T. The governor of a State may proclaim a
different formula for allocating the State ceiling among the
governmental units in such State having authority to issue private
activity bonds. The authority of the governor to proclaim a different
formula shall not apply after the earlier of (i) the first day of the
first calendar year beginning after the legislature of the State has met
in regular session for more than 60 days after July 18, 1984, and (ii)
the effective date of any State legislation dealing with the allocation
of the State ceiling. If, on or before either date, the governor of any
State exercises the authority to provide a different allocation, such
allocation shall be effective until the date specified in (ii) of the
immediately preceding sentence. Unless otherwise provided in a State
constitutional amendment or by a law changing the home rule provisions
adopted in the manner provided by the State constitution, the allocation
of that portion of the State ceiling that is allocated to any
constitutional home rule city may not be changed by the governor or
State legislature unless such city agrees to such different allocation.
Q-12: Where a State provides an allocation formula different from
that provided in section 103 (n) (2) and (3), which allocation formula
applies to obligations issued prior to the adoption of the different
allocation formula?
A-12: Where a State provides a different allocation formula, the
determination as to whether a particular bond issue meets the
requirements of section 103(n) will be based upon the allocation formula
in effect at the time such bonds were issued. The amount that may be
reallocated pursuant to the later allocation formula is limited to the
State ceiling for such year reduced by the amount of private activity
bonds issued under the prior allocation formula in effect for such year.
Q-13: May an issuing authority assign a portion of its private
activity bond limit to another issuing authority if the governor or
legislature has not provided for an allocation formula different from
that provided in section 103(n) (2) and (3)?
A-13: Except as provided in this A-13 or in A-8, A-14, or A-15 of
this Sec. 1.103(n)-3T, no issuing authority may assign, directly or
indirectly, all or any portion of its private activity bond limit to any
other issuing authority, and no such attempted assignment will be
effective. However, a general purpose governmental unit may assign a
portion of its private activity bond limit to (i) a constituted
authority empowered to issue private activity bonds
[[Page 416]]
on behalf of the assigning governmental unit, and (ii) a special purpose
governmental unit deriving sovereign powers from the governmental unit
making the assignment. In addition, a State may assign a portion of its
private activity bond limit to a constituted authority empowered to
issue private activity bonds on behalf of any governmental unit within
such State and to any governmental unit within such State. Finally, an
issuing authority that is assigned all or a portion of the private
activity bond limit of a governmental unit pursuant to the immediately
preceding two sentences may assign such amount or any part thereof to
the governmental unit from which it received the assignment. None of
these permissible types of assignments shall be effective, however,
unless made in writing by a duly authorized official of the governmental
unit making the assignment and a record of the assignment is maintained
by the assignee for the term of all private activity bonds it issues in
each calendar year to which such assignment applies. None of these
permissible types of assignments shall be effective if made
retroactively; provided, however, that retroactive assignments may be
made during 1984. In addition, except as provided in A-15 of this
Sec. 1.103(n)-3T, a purported assignment by a governmental unit of a
portion of its private activity bond limit to an issuing authority will
be ineffective to the extent that private activity bonds issued by such
authority provide facilities not located within the jurisdiction of the
governmental unit making the assignment, unless the sole beneficiary of
the facility is the governmental unit attempting to make the assignment.
Similarly, except as provided in A-15 of this Sec. 1.103(n)-3T, a
governmental unit may not allocate a portion of its private activity
bond limit to an issue of obligations to provide a facility not located
within the jurisdiction of that governmental unit unless the sole
beneficiary of the facility is the governmental unit attempting to
allocate its private activity bond limit to the issue. If an issuing
authority issues an issue of obligations a portion of the proceeds of
which are to be used to provide a facility not within its jurisdiction
other than one described in the immediately preceding sentence, that
issue will not meet the requirements of section 103(n) unless an issuing
authority within the jurisdiction of which the facility is to be located
specifically allocates a portion of its private activity bond limit to
such issue equal to the amount of proceeds to be used to provide such
facility.
Q-14: May an issuing authority assign a portion of its private
activity bond limit to another issuing authority if the governor or
legislature has provided for an allocation formula different from that
provided in section 103(n) (2) and (3)?
A-14: Yes, under certain conditions. In providing a different
formula for allocating the State ceiling, a State may permit an issuing
authority to assign all or a portion of its private activity bond limit
to other issuing authorities within the State, provided that such
assignment is made in writing and a record of that assignment is
maintained by the assignee in its records for the term of all private
activity bonds it issues in each calendar year to which such assignment
applies and a record of that assignment is maintained during such period
by the public official responsible for making allocations of the State
ceiling to issuing authorities within the State. The preceding sentence
will only apply where the different formula expressly permits such
assignments. Notwithstanding this A-14, no assignments may be made to
regional authorities without compliance with the provisions of A-15 of
this Sec. 1.103(n)-3T.
Q-15: May a general purpose governmental unit assign a portion of
its private activity bond limit to a regional authority empowered to
issue private activity bonds on behalf of two or more general purpose
governmental units?
A-15: Yes, under certain conditions. In order for an issue of
private activity bonds issued by such a regional authority to meet the
requirements of section 103(n), each of the governmental units on behalf
of which the regional authority issues private activity bonds must
assign to the regional authority a portion of its private activity bond
limit based on the ratio of its population to the aggregate population
of all such
[[Page 417]]
governmental units. The governmental unit within the jurisdiction of
which the facility to be provided by the private activity bonds will be
located, however, may elect to treat the regional authority as if it
were a constituted authority empowered to issue such obligations solely
on behalf of that governmental unit and, therefore, may assign a portion
of its limit to the authority solely to provide the facility within its
jurisdiction. Similarly, if a facility will solely benefit one
governmental unit, that governmental unit may make the election
described in the preceding sentence. In addition, any of the
governmental units on behalf of which the regional authority issues
private activity bonds, other than the governmental unit within the
jurisdiction of which the facility will be located, may elect to be
treated as if it had not empowered the authority to issue that issue of
private activity bonds on its behalf. In providing a different formula
for allocating the State ceiling, a State may permit a governmental unit
to assign all or a portion of its private activity bond limit to a
constituted authority empowered to issue private activity bonds on
behalf of two or more governmental units, all of which are located
within the State. The preceding sentence will only apply where the
different formula expressly so provides. The principles of this A-15
shall not apply to any regional authority created with a principal
purpose of avoiding the restrictions provided in A-13 or A-14 of this
Sec. 1.103(n)-3T. The principles of this A-15 shall also apply to a
special purpose governmental unit providing facilities located within
the jurisdiction of two or more general purpose governmental units from
which it derives sovereign powers.
Examples. The following examples illustrate the provisions of A-8
through A-15 of this section:
Example 1. Authority ZZ is empowered by City Y to issue obligations
on its behalf to provide financing for pollution control facilities
located within the jurisdiction of City Y and the geographical area
within 10 miles of the limits of City Y. Authority ZZ has no sovereign
powers. Although the authority of Authority ZZ to issue obligations
enables it to provide facilities located outside of the jurisdiction of
City Y, Authority ZZ is treated as having jurisdiction over the same
geographical area as City Y. Since City Y has broader sovereign powers
than Authority ZZ, under section 103(n)(3) Authority ZZ has a private
activity bond limit of zero. On March 31, 1985, Authority ZZ issues $5
million of private activity bonds. City Y has not assigned any portion
of its private activity bond limit to Authority ZZ. Thus, the March 31,
1985, issue of private activity bonds is treated as an issue of
obligations not described in section 103(a), and the interest on such
obligations is subject to Federal income taxation.
Example 2. In 1972, State S, State T, and State V empowered
Authority Z to issue industrial development bonds on behalf of the three
States and to provide port facilities in a harbor serving residents of
all three States. S, T, and V have populations of 1,000,000, 2,000,000,
and 7,000,000, respectively. Authority Z will issue $100 million of
private activity bonds on September 1, 1985, to finance construction of
a dock to be located in State S. The obligations will not meet the
requirements of section 103(n) unless S, T, and V assign a portion of
their private activity bond limits to Authority Z pursuant to one of
three methods. First, S, T, and V may assign $10 million, $20 million,
and $70 million, respectively, of their private activity bond limits to
Authority Z for this issue. Second, S, T, and V may assign $100 million,
$0, and $0, respectively, of their private activity bond limits to
Authority Z for this issue. Third, either T or V (but not S) may
allocate $0 of its private activity bond limit to Authority Z for
purposes of this issue, and the remaining two States may allocate the
$100 million based upon their respective populations. For instance, if T
were to allocate $0 for purposes of this issue, S and V must allocate
$12.5 million and $87.5 million, respectively, of their private activity
bond limits to Authority Z.
Q-16: Must an issuing authority allocate any of its private activity
bond limit to certain preliminarily approved projects?
A-16: Yes. Section 631(a)(3) of the Tax Reform Act of 1984 provides
that, with respect to certain projects preliminarily approved by an
issuing authority before October 19, 1983, the issuing authority shall
allocate its share of the private activity bond limit for the calendar
year during which the obligations are to be issued first to those
projects. For purposes of this A-16 and A-17 and A-18 of this
Sec. 1.103(n)-3T, a general purpose governmental unit will be treated as
having preliminarily approved a project if the project was preliminarily
approved by it, by a constituted authority empowered to issue
[[Page 418]]
private activity bonds on its behalf, or by a special purpose
governmental unit treated as having jurisdiction over the same
geographical area as the general purpose governmental unit. Thus, if a
project was approved by a constituted authority, the governmental unit
on behalf of which such issue is to be issued must assign a portion of
its private activity bond limit to the authority pursuant to section
631(a)(3) of the Act. If a project was preliminarily approved by a
constituted authority empowered to issue private activity bonds on
behalf or more than one general purpose governmental unit or a special
purpose governmental unit that derives its sovereign powers from more
than one general purpose governmental unit, the project will be
considered approved by each of such general purpose governmental units
in proportion to their relative populations. The projects that receive
priority under section 631(a)(3) of the Act and this A-16 are those with
respect to which--
(i) There was an inducement resolution (or other comparable
preliminary approval) for a project before October 19, 1983, by an
issuing authority,
(ii) A substantial user of the project notified such issuing
authority--
(A) By August 17, 1984, that it intended to claim its rights under
section 631(a)(3) of the Tax Reform Act of 1984, and
(B) By December 31, 1984, as to the calendar year in which it
expects the obligations to provide the project to be issued, and
(iii) Construction of such project began before October 19, 1983, or
a substantial user was under a binding obligation on that date to incur
significant expenditures with respect to the project.
For purposes of the preceding sentence, the term ``significant
expenditures'' means expenditures that equal or exceed the lesser of $15
million or 20 percent of the estimated cost of the facilities. An
issuing authority may require, as part of the submission required by
(ii)(B) of this A-16, that a substantial user specify the aggregate
amount of private activity bonds necessary for the project. Section
631(a)(3) does not apply to a project to the extent that the aggregate
amount of obligations required for such project exceeds the amount, if
any, provided for in the inducement resolution or resolutions in
existence with respect to such project before October 19, 1983, or in
the statement that may be required by the issuing authority as part of
the submission required by (ii)(B) of this A-16. Similarly, section
631(a)(3) does not apply to a project to the extent of any material
change in its nature, character, purpose, or capacity. Section 631(a)(3)
does not apply to a project if the owner, operator, or manager of such
project is not the same (or a related person) as the owner, operator, or
manager named in the latest inducement resolution with respect to such
project in existence before October 19, 1983. Section 631(a)(3) of the
Act does not apply to any project if the obligations to provide the
project are not issued in the year specified in the submission required
by (ii)(B) of this A-16. In addition, section 631(a)(3) of the Act does
not apply to any project to the extent that the amount of obligations to
be issued for such project exceeds the share of the State ceiling to
which the issuing authority that authorized the project is entitled as
determined under section 103(n) (2) and (3) without regard to any
alternative formula for allocating the State ceiling. The requirements
of section 631(a)(3) will not apply where a State statute specifically
so provides.
Q-17: What is the penalty for failure to comply with the
requirements of section 631(a)(3) of the Act?
A-17: If any issuing authority fails to comply with the requirements
of section 631(a)(3) of the Act, its private activity bond limit for the
calendar year following the year in which the failure occurs shall be
reduced by the amount of private activity bonds with respect to which
the failure occurs. This penalty applies whether the issuing authority's
private activity bond limit is determined under the formula provided
under section 103(n) (2) and (3) or a different formula provided under
section 103(n)(6). The penalty is imposed on the issuing authority that
failed to comply with the requirements of section 631(a)(3) or, if in
the year in which
[[Page 419]]
the penalty is imposed the issuing authority does not have a sufficient
private activity bond limit to absorb the entire penalty, on the general
purpose governmental unit treated as having jurisdiction over the same
geographical area as the issuing authority. For purposes of this A-17,
the general purpose governmental unit's private activity bond limit
includes the private activity bond limit of each issuing authority
treated as having preliminarily approved the project under A-16 of this
Sec. 1.103(n)-3T. Thus, for example, if a governmental unit failed to
comply with the requirements of section 631(a)(3) of the Act with
respect to a $5 million issue to be issued in 1985, and that
governmental unit is assigned $15 million of the State ceiling for 1986
pursuant to a formula provided under section 103(n)(6), that
governmental unit has a private activity bond limit of $10 million for
1986. Similarly, where a project that was preliminarily approved by an
issuing authority that is not a governmental unit qualifies for $10
million of priority under section 631(a)(3) of the Act is not allocated
a total of $10 million by the governmental unit on behalf of which the
issuing authority is empowered to issue private activity bonds, the
issuing authority's private activity bond limit, if any, for the year
following this failure is reduced by $10 million; if the issuing
authority's private activity bond limit for the year following the
failure is less than $10 million, the private activity bond limit of the
governmental unit on behalf of which the private activity bonds would
have been issued had the failure not occurred (including if necessary,
on a proportionate basis, the private activity bond limit purported to
have been assigned to each of the other constituted authorities
empowered to issue private activity bonds on behalf of the governmental
unit and each special purpose governmental unit deriving all or part of
its sovereign powers from the governmental unit) is reduced by the
difference between $10 million and the reduction made in the issuing
authority's private activity bond limit with respect to such failure.
Q-18: Will a penalty be assessed for failure to allocate private
activity bond limit to all projects that meet the requirements section
631(a)(3) if the amount of obligations required by all such projects
preliminarily approved by (or treated as having been preliminarily
approved by) an issuing authority exceeds the private activity bond
limit of such issuing authority?
A-18: No penalty will be assessed if priority is given to those
eligible projects for which substantial expenditures were incurred
before October 19, 1983. An issuer may define the term ``substantial
expenditures'' in any reasonable manner based on the relevant facts and
circumstances and its private activity bond limit.
Examples. The following examples illustrate the provisions of A-16
through A-18:
Example 1. On October 1, 1983, County S approved an inducement
resolution for the issuance of up to $30 million of industrial
development bonds to provide a pollution control facility described in
section 103(b)(4)(F) for Corporation R. On October 5, 1983, R contracted
with Corporation Q to begin construction of the pollution control
facility immediately, and construction began on October 10, 1983. Not
later than August 17, 1984, Corporation R notified County S that it
intended to seek priority under section 631(a)(3) of the Tax Reform Act
of 1984. In addition, prior to December 31, 1984, Corporation R notified
County S that it expected the County to issue $25 million of industrial
development bonds for its project during calendar year 1985. Under
section 103(n)(3), County S has a private activity bond limit of $50
million for calendar year 1985, and neither the Governor nor the
legislature of the State has provided a different allocation formula
under section 103(n)(6). There are no other projects approved by County
S that have rights under section 631(a)(3). On March 1, 1985, County S
issues $25 million of industrial development bonds for the pollution
control facility for Corporation R. If County S allocates less than $25
million of its private activity bond limit to that project, its private
activity bond limit for 1986 will be reduced by the difference between
$25 million and the amount County S actually allocates to the project.
Example 2. The facts are the same as in Example (1) except that
during 1984 Corporation R fails to notify County S of the year in which
it expects the obligations to be issued. Upon such failure the pollution
control facility no longer qualifies for priority under section
631(a)(3), and County S will not be penalized if it does not not
allocate any of its private activity bond limit for 1985, or any future
year, to that project.
[[Page 420]]
Example 3. The facts are the same as in Example (1) except that
under section 103(n)(3) County S has a private activity bond limit of
$10 million for 1985. County S will not be penalized if it allocates $10
million of its private activity bond limit to the project.
Example 4. The facts are the same as in Example (3) except that on
December 31, 1984, the Governor of the State provides a different
allocation from that provided under section 103(n) (2) and (3). (The
State has not enacted a statute specifically providing that section
631(a)(3) does not apply.) The different allocation provides that the
entire State ceiling is allocated to the State and that the State will
allocate the State ceiling to issuing authorities for specific projects
on a first-come, first-served basis. Corporation R qualifies for the
special rights granted by section 631(a)(3) of the Tax Reform Act to the
extent of County S's private activity bond limit as determined under
section 103(n)(3), i.e., $10 million. If the State fails to assign to
County S $10 million of the State ceiling or if County S, after
receiving such assignment, fails to allocate $10 million of private
activity bond limit to the project, County S's private activity bond
limit (if any) for 1986 will be reduced by the difference between $10
million and the amount of private activity bond limit allocated to the
project.
Example 5. The facts are the same as in Example (1) except that
Corporation R notifies County S that it only requires $15 million for
the pollution control facility, County S only issues $15 million of
private activity bonds for the pollution control facility, and County S
only allocates $15 million of its private activity bond limit to such
obligations. County S will not be penalized for not allocating more than
$15 million of its private activity bond limit to Corporation R even
though the original inducement resolution provided for up to $25
million.
(Secs. 103(n) and 7805 of the Internal Revenue Code of 1954 (98 Stat.
916, 26 U.S.C.103(n); 68A Stat. 917, 26 U.S.C. 7805))
[T.D. 7981, 49 FR 39320, Oct. 5, 1984]
Sec. 1.103(n)-4T Elective carryforward of unused private activity
bond limit (temporary).
Q-1: May an issuing authority carry forward any of its unused
private activity bond limit for a calendar year?
A-1: In any calendar year after 1983 in which an issuing authority's
private activity bond limit exceeds the aggregate amount of private
activity bonds issued during such calendar year by such issuing
authority, such issuing authority may elect to treat all, or any
portion, of such excess as a carryforward for any one or more projects
described in A-5 of this Sec. 1.103(n)-4T (carryforward projects).
Q-2: How is the election to carry forward an issuing authority's
unused private activity bond limit made?
A-2: (i) An issuing authority may make the election by means of a
statement, signed by an authorized public official responsible for
making allocations of such issuing authority's private activity bond
limit, that the issuing authority elects to carry forward its unused
private activity bond limit. The statement shall be filed with the
Internal Revenue Service Center, Philadelphia, Pennsylvania 19255.
Except with respect to elections to carry forward any unused private
activity bond limit for calendar year 1984, the election must be filed
prior to the end of the calendar year with respect to which the issuing
authority has the unused private activity bond limit; elections with
respect to unused private activity bond limit for calendar year 1984
must be filed prior to February 26, 1985. The statement is to be titled
``Carryforward election under section 103(n)''.
(ii) The statement required by (i) of this A-2 shall contain the
following information:
(A) The name, address, and TIN of the issuing authority,
(B) The issuing authority's private activity bond limit for the
calendar year,
(C) The aggregate amount of private activity bonds issued by the
issuing authority during the calendar year for which the election is
being made,
(D) The unused private activity bond limit of the issuing authority,
and
(E) For each carryforward project--
(1) A description of the project, including its address (by its
street address or, if none, by a general description designed to
indicate its specific location) and the general type of facility (e.g.,
an airport described in section 103(b)(4)(D)),
(2) The name, address, and TIN of the initial owner, operator, or
manager, and
(3) The amount to be carried forward for the project.
(iii) For purposes of (ii)(E) of this A-2, in the case of a
carryforward project
[[Page 421]]
for which the initial owner, operator, or manager is to be selected
pursuant to a competitive bidding process, the election may include up
to 3 prospective addresses for the project and the name, address, and
TIN of more than one prospective initial owner, operator, or manager, if
prior to the end of the calendar year for which the election is made--
(A) In the case of elections for calendar years other than 1984, the
issuing authority has taken preliminary official action approving the
undertaking of the carryforward project,
(B) All persons included as prospective owners, operators, or
managers have met all applicable conditions (if any) to submit proposals
to provide the project, and
(C) The issuing authority has expended (or has entered into binding
contracts to expend) in connection with the planning and construction of
the carryforward project the lesser of $500,000 or 2\1/2\ percent of the
carryforward amount.
(iv) For purposes of (ii) of this A-2, in the case of a carryforward
election for the purpose of issuing student loan bonds, the statement
need not include the address of a facility or the name, address, and TIN
of an initial owner, operator, or manager of a project but shall state
that the carryforward election is for the purpose of issuing student
loan bonds.
Q-3: Is a carryforward election revocable?
A-3: Any carryforward election, and any specification contained
therein, shall be irrevocable after the last day of the calendar year in
which the election is made. Thus, for example, obligations issued to
finance a carryforward project with a different initial owner, operator,
or manager from the owner, operator, or manager specified in the
carryforward election shall not be issued purusant to such carryforward
election. An insubstantial deviation from a specification contained in a
carryforward election shall not prevent obligations from being issued
pursuant to such carryforward election. In addition, where a
carryforward election is made with respect to more than one carryforward
project, a substantial deviation with respect to one carryforward
project shall not prevent obligations from being issued pursuant to such
carryforward election with respect to the other carryforward projects.
Q-4: How is a carryforward used?
A-4: Any private activity bonds issued during the three calendar
years (six calendar years in the case of a project described in section
103(b)(4)(F)) following the calendard year in which the carryforward
election was first made with respect to a carryforward project shall not
be taken into account in determining whether the issue meets the
requirements of section 103(n). If, however, the amount of private
activity bonds issued for the carryforward project exceeds the amount of
the carryforward elected with respect to the project, then the portion
of the issue that exceeds the carryforward shall be taken into account
in determining whether the issue meets with the requirements of section
103(n); if that portion of the issue does not meet the requirements of
section 103(n) then the entire issue is treated as consisting of
obligations not described in section 103(a). Carryforwards elected with
respect to any project shall be used in the order of the calendar years
in which they arose. Thus, for example, if an issuing authority makes
carryforward elections in 1986 and 1988 for a carryforward project and
issues private activity bonds for that project in 1989 and 1990, the
obligations issued in 1989 will be applied to the 1986 carryforward
election to the extent thereof.
Q-5: For what projects may a carryforward election be made?
A-5: A carryforward election may be made for any project described
in section 103(b) (4) or (5), and for the purpose of issuing student
loan bonds. Thus, for example, an issuing authority may elect to carry
forward its unused private activity bond limit in order to provide a
sports facility described in section 103(b)(4)(B). In addition, a
governmental unit may elect to carry forward its unused private activity
bond limit in order to issue qualified scholarship funding bonds. An
issuing authority may not, however, elect to
[[Page 422]]
carry forward its unused private activity bond limit in order to issue
an exempt small issue of industrial development bonds under section
103(b)(6).
(Secs. 103(n) and 7805 of the Internal Revenue Code of 1954 (98 Stat.
916, 26 U.S.C.103(n); 68A Stat. 917, 26 U.S.C. 7805); sec. 644(b) of the
Tax Reform Act of 1984 (98 Stat. 940); secs. 103(n) and 7805 of the
Internal Revenue Code of 1954 (98 Stat. 915, 26 U.S.C. 103(n); 68A Stat.
917, 26 U.S.C. 7805))
[T.D. 7981, 49 FR 39325, Oct. 5, 1984, as amended by T.D. 8001, 49 FR
50389, Dec. 28, 1984]
Sec. 1.103(n)-5T Certification of no consideration for allocation (temporary).
Q-1: Who must certify that there was no consideration for an
allocation?
A-1: Section 103(n)(12)(A) provides that, with respect to any
private activity bond allocated any portion of the State ceiling, the
private activity bond will not be described under section 103(a) unless
the public official, if any, responsible for such allocation
(``responsible public official'') certifies under penalties of perjury
that to the best of his knowledge the allocation of the State ceiling to
that private activity bond was not made in consideration of any bribe,
gift, gratuity, or direct or indirect contribution to any political
campaign. With respect to any issue of private activity bonds, the
responsible public official is the official or officer of the issuing
authority that in fact is responsible for choosing which individual
projects will be allocated a portion of the State ceiling. If a body of
several individuals is responsible for such choices, any one member of
such body qualifies as the responsible public official.
Q-2: What is the penalty for willfully making an allocation in
consideration of any bribe, gift, gratuity, or direct or indirect
contribution to any political campaign?
A-2: Section 103(n)(12)(B) provides that any person willfully making
an allocation of any portion of the State ceiling in consideration of
any bribe, gift, gratuity, or direct or indirect contribution to any
political campaign will be subject to criminal penalty as though the
allocation were a willful attempt to evade tax imposed by the Internal
Revenue Code.
(Secs. 103(n) and 7805 of the Internal Revenue Code of 1954 (98 Stat.
916, 26 U.S.C.103(n); 68A Stat. 917, 26 U.S.C. 7805))
[T.D. 7981, 49 FR 39326, Oct. 5, 1984]
Sec. 1.103(n)-6T Determinations of population (temporary).
Q-1: What is the proper method for determining population?
A-1: All determinations of population must be made with respect to
any calendar year on the basis of the most recent census estimate
(whether final or provisional) of the resident population of the State
or other governmental unit published by the Bureau of the Census in the
``Current Population Reports'' series before the beginning of the
calendar year.
However, determinations of the population of a general purpose
governmental unit (other than a State, territory, or possession) within
a State, territory, or possession may not be based on estimates that do
not contain estimates for all of the general purpose governmental units
within such State, territory, or possession. Thus, a county may not
determine its population on the basis of a census estimate that does not
provide an estimate of the population of the other general purpose
governmental units within the State (e.g., cities, towns). If no census
estimate is available for all such general purpose governmental units,
the most recent decennial census of population may be relied on.
Example: The following example illustrates the provisions of A-1 of
this Sec. 1.103(n)-6T:
Example. County Q is located within State R. There are no
constitutional home rule cities in State R. State R has not adopted a
formula for allocating the State ceiling different from the formula
provided in section 103(n) (2) and (3). The geographical area within the
jurisdiction of County Q is not within the jurisdiction of any other
governmental unit having jurisdiction over a smaller geographical area.
As of December 31, 1984, the Bureau of the Census has published the
following estimates of resident population: ``Current Population
Reports; Series P-25: Population Estimates and Projections, Estimates of
the Population of States: July 1, 1981-1983'' and ``Current Population
Reports; Series P-26: Local Population Estimates:
[[Page 423]]
Population of State R, Counties, Incorporated Places, and Minor Civil
Divisions: July 1, 1981-1982.'' The most recent population estimate for
State R available prior to 1985 provides population estimates as of July
1, 1983. The most recent population extimates for County Q available
prior to 1985 is the estimate for July 1, 1982. Assuming that the State
ceiling for State R for 1985 is in excess of $200 million (i.e., $150
multiplied by the estimated population of State R as of July 1, 1983,
exceeds $200 million), County Q may determine its private activity bond
limit by using the following formula:
P = $150 x .5 x W x Y / Z, where,
P = County Q's private activity bond limit,
W = the July 1, 1983, population estimate for State R,
Y = the July 1, 1982, population estimate for County Q, and
Z = the July 1, 1982, population estimate for State R.
If the State ceiling for State R is not in excess of $200 million,
County Q may determine its private activity bond limit by using the
following formula:
P = $200,000,000 x .5 x Y / Z, where
P, Y, and Z have the same meaning as above.
(Secs. 103(n) and 7805 of the Internal Revenue Code of 1954 (98 Stat.
916, 26 U.S.C.103(n); 68A Stat. 917, 26 U.S.C. 7805))
[T.D. 7981, 49 FR 39326, Oct. 5, 1984]
Sec. 1.103(n)-7T Election to allocate State ceiling to certain
facilities for local furnishing of electricity (temporary).
(a) Election--(1) In general. The issuing authorities of the State
of New York (``New York'') may elect to use in 1984 up to one-half of
the amount that would have been New York's State ceiling (as defined in
section 103(n)(4) and A-1 of Sec. 1.103(n)-3T) for calendar years 1985,
1986, and 1987 for the purpose of issuing obligations to provide
facilities for the local furnishing of electric energy described in
section 644(a) of the Tax Reform Act of 1984 (the ``Act''). For purposes
of this paragraph, New York's State ceiling for calendar years 1985,
1986, and 1987 is considered equal to the State ceiling for 1984
(without taking into account any increase in the State ceiling for 1984
as a result of an election under section 644(b) and this section).
(2) Procedure. The election shall be made by filing the statement
described in this paragraph (a)(2) with the Internal Revenue Service
Center, Philadelphia, Pennsylvania, on or before December 31, 1984. The
statement shall be titled ``Allocation election under section 644 of the
Tax Reform Act of 1984,'' shall be signed by the Governor of New York or
his authorized representative, and shall contain the following
information:
(i) The name, address, and TIN of the issuing authority (or
authorities) that is expected to issue the obligations for the
facilities described in section 644(a) of the Act pursuant to the
election described in section 644(b) of the Act and this section, and
(ii) The amount of the State ceiling for each of calendar years
1985, 1986, and 1987 with respect to which the election is made.
(b) Effect of election--(1) In 1984. The amount of the State ceiling
for calendar years 1985, 1986, and 1987 with respect to which the
election is made will be considered part of New York's State ceiling for
calendar year 1984. For purposes of section 644(b) of the Act, such
amount will be considered used in 1984 only to the extent that
obligations are issued in 1984 to provide facilities for the local
furnishing of electric energy described in section 644(a) of the Act, or
to the extent that a proper election is made on or before December 31,
1984 (and is not revoked or amended between the time it is made and the
end of 1984) pursuant to section 103(n)(10) and Sec. 1.103(n)-4T to
carry forward all or part of such amount to provide such facilities
during the carryforward period applicable to calendar year 1984 State
ceiling.
(2) In 1985, 1986, and 1987. An election under section 644(b) of the
Act and this section to use in calendar year 1984 an amount of New
York's State ceiling for a subsequent calendar year reduces the State
ceiling for such subsequent calendar year by the amount with respect to
which the election is made, whether or not such amount is considered
used in 1984 pursuant to this paragraph (b). Thus, no obligations may be
issued pursuant to the election described in section 644(b) of the Act
and this section to provide a facility other than the facilities for the
furnishing of electric energy described in section 644(a) of the Act.
[[Page 424]]
(3) Other effects. An election or the failure to make an election
under section 644(b) of the Act and this section shall not affect any
otherwise applicable rule that permits an issuing authority, for any
calendar year, to--
(i) Allocate a portion of its private activity bond limit,
(ii) Issue obligations within its private activity bond limit, or
(iii) Elect under section 103(n)(10) and Sec. 1.103(n)-4T to carry
forward any portion of its private activity bond limit,
in order to issue obligations to provide a facility described in section
644(a) of the Act.
(c) Revocation of election. An election made under section 644(b) of
the Act and this section may not be revoked or amended. An insubstantial
deviation from a specification contained in an election under section
644(b) of the Act and this section shall not prevent obligations from
being issued pursuant to such election.
(Sec. 644(b) of the Tax Reform Act of 1984 (98 Stat. 940); secs. 103(n)
and 7805 of the Internal Revenue Code of 1954 (98 Stat. 915, 26 U.S.C.
103(n); 68A Stat. 917, 26 U.S.C. 7805))
[T.D. 8001, 49 FR 50389, Dec. 28, 1984]
Sec. 1.103A-2 Qualified mortgage bond.
(a)-(j) [Reserved]
(k) Information reporting requirement--(1) In general. An issue
meets the requirements of this paragraph only if the issuer in good
faith attempted to meet the information reporting requirements of this
paragraph. Except as otherwise provided in paragraph (k)(5)(iv) of this
section, the requirements of this paragraph apply to qualified veterans'
mortgage bonds issued after July 18, 1984, and to qualified mortgage
bonds issued after December 31, 1984. With respect to bonds issued after
December 31, 1986, see the regulations under section 149(e).
(2) Information required. (i) The issuer must, based on information
and reasonable expectations determined as of the date of issue, submit
on Form 8038 the information required therein; the issuer need not
however, include the information required by Form 8038 that is relevant
only to obligations described in section 103(l)(1) and the regulations
thereunder. The information that must be submitted includes--
(A) The name, address, and employer identification number of the
issuer,
(B) The date of issue,
(C) The face amount of each obligation which is part of the issue,
(D) The total purchase price of the issue,
(E) The amount allocated to a reasonably required reserve or
replacement fund,
(F) The amount of lendable proceeds,
(G) The stated interest rate of each maturity,
(H) The term of each maturity,
(I) In the case of an issue of qualified mortgage bonds, whether the
issuer has elected under Sec. 6a.103A-2(i)(4)(v) to pay arbitrage to the
United States,
(J) In the case of an issue of qualified mortgage bonds, the
issuer's market limitation as of the date of issue (as defined in
Sec. 6a.103A-2(g)), the amount of qualified mortgage bonds that the
issuer has elected not to issue under section 25(c)(2) and the
regulations thereunder, and the aggregate amount of qualified mortgage
bonds issued to date by the issuer during the calendar year, and
(K) In the case of an issue of qualified veterans' mortgage bonds,
the issuer's State veterans limit (as defined in section 103A(o)(3)(B)
and the regulations thereunder) and the aggregate amount of qualified
veterans' mortgage bonds issued to date by the issuer during the
calendar year and prior to the date of issue of the issue for which the
Form 8038 is being submitted.
(ii) With respect to issues issued after December 31, 1984, the
issuer must submit a report containing information on the borrowers of
the original proceeds of such issues. The report must be filed for each
reporting period in which the original proceeds of any of such issues
are used to provide mortgages. The issuer is not responsible for false
information provided by a borrower if the issuer did not know or have
reason to know that the information was false. The report must be filed
on the form prescribed by the Internal Revenue Service. If no form is
prescribed, or if the form prescribed is not readily available, the
issuer may use its own form provided that such form is in the
[[Page 425]]
format set forth in paragraph (k)(3) of this section and contains the
information required by this paragraph (k)(2)(ii). The report must be
titled ``Qualified Mortgage Bond Information Report'' or ``Qualified
Veterans' Mortgage Bond Information Report'', and must include the name,
address, and TIN of the issuer, the reporting period for which the
information is provided, and the following tables containing information
concerning the borrowers of the original proceeds of the issues subject
to the requirements of this paragraph (k)(2)(ii) with respect to
mortgages provided during the reporting period for which the report is
filed:
(A) A table titled ``Number of Mortgage Loans by Income and
Acquisition Cost'' showing the number of mortgage loans (other than
those issued in connection with qualified home improvement and
rehabilitation loans) made during the reporting period according to the
annualized gross income of the borrowers (categorized in the following
intervals of income:
$0-$9,999
$10,000-$19,999
$20,000-$29,999
$30,000-$39,999
$40,000-$49,999
$50,000-$74,999
$75,000 or more)
and according to the acquisition cost of each residence being financed
(categorized in the following intervals of acquisition cost:
$0-$19,999
$20,000-$39,999
$40,000-$59,999
$60,000-$79,999
$80,000-$99,999
$100,000-$119,999
$120,000-$149,999
$150,000-$199,999
$200,000 or more)
For each interval of income and acquisition cost the table must also be
categorized according to the number of borrowers that--
(1) Did not have a present ownership interest in a principal
residence at any time during the 3-year period ending on the date the
mortgage is executed (i.e., satisfied the 3-year requirement) and
purchased residences in targeted areas,
(2) Satisfied the 3-year requirement and purchased residences not
located in targeted areas,
(3) Did have a present ownership interest in a principal residence
at any time during the 3-year period ending on the date the mortgage is
executed (i.e., did not satisfy the 3-year requirement) and purchased
residences in targeted areas, and
(4) Did not satisfy the 3-year requirement and purchased residences
not located in targeted areas.
With respect to issues of qualified veterans' mortgage bonds, for each
interval of income and acquisition cost the table need only be
categorized according to the number of borrowers that satisfied the 3-
year requirement and the number of borrowers that failed to satisfy the
3-year requirement.
(B) A table titled ``Volume of Mortgage Loans by Income and
Acquisition Cost'' showing the total principal amount of the mortgage
loans (other than qualified home improvement and rehabilitation loans)
provided during the reporting period according to annualized gross
income (categorized in the same intervals of income as the preceding
table) and according to the acquisition cost of the residences acquired
(categorized in the same acquisition cost intervals as the preceding
table). For each interval of income and acquisition cost the table must
also be categorized according to the total principal amount of the
mortgage loans of borrowers that--
(1) Satisfied the 3-year requirement and purchased residences in
targeted areas,
(2) Satisfied the 3-year requirement and purchased residences not
located in targeted areas,
(3) Did not satisfy the 3-year requirement and purchased residences
in targeted areas, and
(4) Did not satisfy the 3-year requirement and purchased residences
not located in targeted areas.
With respect to issues of qualified verterans' mortgage bonds, for each
interval of income and acquisition cost the table need only be
categorized according to the total principal amount of the mortgage
loans of borrowers that satisified the 3-year requirement and the total
principal amount of the
[[Page 426]]
mortgage loans of borrowers that did not satisfy the 3-year requirement.
(C) For issues other than qualified veterans' mortgage bonds, a
table titled ``Mortgage Subsidy Bonds for Qualified Home Improvement and
Rehabilitation Loans'' showing the number of borrowers obtaining
qualified home improvement loans and qualified rehabilitation loans and
the total of the principal amounts of such loans; the information
contained in the table must also be categorized according to whether the
residences with respect to which the loans were provided are located in
targeted areas.
(3) Format. (i) With respect to the report required by paragraph
(k)(2)(ii) of this section, if no form is prescribed by the Internal
Revenue Service, or if the prescribed form is not readily available, the
issuer must submit the report in the format specified in this paragraph
(k)(3).
(ii) With respect to issues of qualified mortgage bonds, the format
of the report specified in this paragraph (k)(3) is the following:
Qualified Mortgage Bond Information Report
Name of issuer:
Address of issuer:
TIN of issuer:
Reporting period:
Number of Mortgage Loans by Income and Acquisition Cost
----------------------------------------------------------------------------------------------------------------
Satisfied Not Satisfied
3-year requirement: Annualized gross monthly income of ----------------------------------------------
borrowers Nontargeted Targeted Nontargeted Targeted Totals
area area area area
----------------------------------------------------------------------------------------------------------------
$0 to $9,999.............................................
$10,000 to $19,999.......................................
$20,000 to $29,999.......................................
$30,000 to $39,999.......................................
$40,000 to $49,999.......................................
$50,000 to $74,999.......................................
$75,000 or more..........................................
------------------------------------------------------
Total..............................................
Acquisition Cost
$0 to $19,999............................................
$20,000 to $39,999.......................................
$40,000 to $59,999.......................................
$60,000 to $79,999.......................................
$80,000 to $99,999.......................................
$100,000 to $119,999.....................................
$120,000 to $149,999.....................................
$150,000 to $199,999.....................................
$200,000 or more.........................................
------------------------------------------------------
Total..............................................
----------------------------------------------------------------------------------------------------------------
Volume of Mortgage Loans by Income and Acquisition Cost
----------------------------------------------------------------------------------------------------------------
Satisfied Not Satisfied
3-year requirement: Annualized gross monthly income of ----------------------------------------------
borrowers Nontargeted Targeted Nontargeted Targeted Totals
area area area area
----------------------------------------------------------------------------------------------------------------
$0 to $9,999.............................................
$10,000 to $19,999.......................................
$20,000 to $29,999.......................................
$30,000 to $39,999.......................................
$40,000 to $49,999.......................................
$50,000 to $74,999.......................................
$75,000 or more..........................................
------------------------------------------------------
Total..............................................
Acquisition Cost
$0 to $19,999............................................
$20,000 to $39,999.......................................
$40,000 to $59,999.......................................
$60,000 to $79,999.......................................
$80,000 to $99,999.......................................
$100,000 to $119,999.....................................
$120,000 to $149,999.....................................
$150,000 to $199,999.....................................
[[Page 427]]
$200,000 or more.........................................
------------------------------------------------------
Total..............................................
----------------------------------------------------------------------------------------------------------------
Mortgage Subsidy Bonds for Qualified Home Improvement and Rehabilitation
Loans
------------------------------------------------------------------------
Nontargeted Targeted
area area Totals
------------------------------------------------------------------------
Number of qualified home improvement
loans..................................
Volume of qualified home improvement
loans..................................
Number of qualified rehabilitation loans
Volume of qualified rehabilitation loans
------------------------------------------------------------------------
(iii) The format of the report specified in this paragraph (k)(3)
for qualified veterans' mortgage bonds is the following:
Qualified Veterans' Mortgage Bond Information Report
Name of issuer:
Address of issuer:
TIN of issuer:
Reporting period:
Number of Mortgage Loans by Income and Acquisition Cost
------------------------------------------------------------------------
3-year requirement: annualized gross Not
monthly income of borrowers Satisfied satisfied Totals
------------------------------------------------------------------------
$0 to $9,999...........................
$10,000 to $19,999.....................
$20,000 to $29,999.....................
$30,000 to $39,999.....................
$40,000 to $49,999.....................
$50,000 to $74,999.....................
$75,000 or more........................
--------------------------------
Total..............................
Acquistion Cost
$0 to $19,999..........................
$20,000 to $39,999.....................
$40,000 to $59,999.....................
$60,000 to $79,999.....................
$80,000 to $99,999.....................
$100,000 to $119,999...................
$120,000 to $149,999...................
$150,000 to $199,999...................
$200,000 or more.......................
Total..............................
------------------------------------------------------------------------
Number of Mortgage Loans by Income and Acquisition Cost
------------------------------------------------------------------------
3-year requirement: annualized gross Not
monthly income of borrowers Satisfied satisfied Totals
------------------------------------------------------------------------
$0 to $9,999...........................
$10,000 to $19,999.....................
$20,000 to $29,999.....................
$30,000 to $39,999.....................
$40,000 to $49,999.....................
$50,000 to $74,999.....................
$75,000 or more........................
--------------------------------
Total..............................
Acquistion Cost
$0 to $19,999..........................
$20,000 to $39,999.....................
$40,000 to $59,999.....................
$60,000 to $79,999.....................
$80,000 to $99,999.....................
$100,000 to $119,999...................
$120,000 to $149,999...................
$150,000 to $199,999...................
$200,000 or more.......................
--------------------------------
Total..............................
------------------------------------------------------------------------
(4) Definitions and special rules. (i) For purposes of this
paragraph the term ``annualized gross income'' means the borrower's
gross monthly income muliplied by 12. Gross monthly income is the sum of
monthly gross pay, any additional income from investments, pensions,
Veterans Administration (VA) compensation, part-time employment,
bonuses, dividends, interest, current overtime pay, net rental income,
etc., and other income (such as alimony and child support, if the
borrower has chosen to disclose such income). Information with respect
to gross monthly income may be obtained from available loan documents,
e.g., the sum of lines 23D and 23E on the Application for VA or FmHA
Home Loan Guaranty or for HUD/FHA Insured Mortgage (VA Form 26-1802a,
HUD 92900, Jan. 1982), or the total line from the Gross Monthly Income
section of FHLMC Residential Loan Application form (FHLMC 65 Rev. 8/78).
With respect to obligations issued prior to October 1, 1985, issuers may
submit data based on annualized gross income or, instead, based on the
adjusted income (as defined in Sec. 1.167(k)-3(b)(3)) of the mortgagor's
family for the previous calendar year. If data is submitted based on
adjusted income, the issuer must note this fact in the report.
(ii) For purposes of this paragraph, the term ``reporting period''
means the following periods:
[[Page 428]]
(A) The period beginning January 1, 1985, and ending on September
30, 1985,
(B) The period beginning on October 1, 1985, and ending on June 30,
1986, and
(C) After June 30, 1986, each 1-year period beginning July 1 and
ending June 30.
(iii) See the regulations under section 103(l) for the definitions
of the terms ``date of issue'', ``maturity'', and ``term of issue''.
(iv) For purposes of this paragraph, verification of information
concernig a borrower's gross monthly income with other available
information concerning the borrower's income (e.g., Federal income tax
returns) is not required. In determining whether a borrower acquiring a
residence in a targeted area satisfies the 3-year requirement, the
issuer may rely on a statement signed by the borrower.
(5) Time for filing. (i) The report required by paragraph (k)(2)(i)
of this section shall be filed not later than the 15th day of the second
calendar month after the close of the calendar quarter in which the
obligation is issued. The statement may be filed at any time before such
date but must be complete based on facts and reasonable expectations as
of the date of issue. The statement need not be amended to report
information learned subsequent to the date of issue or to reflect
changed circumstances with respect to the issuer.
(ii) The report required by paragraph (k)(2)(ii) of this section
(relating to use of proceeds) shall be filed not later than the 15th day
of the second calendar month after the close of the reporting period,
except that the report for the reporting period ending September 30,
1985, is due not later than February 15, 1986. The report may be filed
at any time before such date but must be complete based on facts and
reasonable expectations as of the date the report is filed. The report
need not be amended to reflect information learned subsequent to the
date the report is filed or to reflect changed circumstances with
respect to any borrower.
(iii) The Commissioner may grant an extension of time for the filing
of a report required by paragraph (k)(2) (i) or (ii) of this section if
there is reasonable cause for the failure to file such report in a
timely fashion.
(iv) An issue of qualified veterans' mortgage bonds issued after
July 18, 1984, and prior to January 1, 1985, will be treated as
satisfying the information reporting requirement of this paragraph if a
Form 8038 with respect to the issue is properly filed not later than
February 15, 1985; the report described in paragraph (k)(2)(ii) of this
section need not be filed with respect to such issues.
(6) Place for filing. The reports required by paragraph (k)(2) (i)
and (ii) of this section are to be filed at the Internal Revenue Service
Center, Philadelphia, Pennsylvania 19255.
(l) Policy statement--(1) In general. (i) For obligations issued
after December 31, 1984, an issue meets the requirements of this
paragraph only if the applicable elected representative of the
governmental unit which is the issuer (or on behalf of which the issuing
authority is empowered to issue qualified mortgage bonds) has published
(after a public hearing following reasonable public notice) the report
described in paragraph (l)(3) of this section by the last day of the
year preceding the year in which such issue is issued and a copy of such
report has been submitted to the Commissioner on or before such last
day. The Commissioner may grant an extension of time for publishing and
filing the report if there is reasonable cause for the failure to
publish or file such report in a timely fashion. The requirements of
this paragraph will be treated as met if the issuer in good faith
attempted to meet the policy statement requirements of this paragraph.
(ii) With respect to reports required by paragraph (l)(1)(i) of this
section to be published and submitted to the Commissioner not later than
December 31, 1984, the Commissioner has determined that there is
reasonable cause for the failure to publish or file such reports in a
timely fashion; such a report will be considered published and filed in
a timely fashion if, not later than March 11, 1985, the report is
published (after a public hearing following reasonable public notice)
and a copy is submitted to the Commissioner. In addition, any report
submitted not later
[[Page 429]]
than December 31, 1984, with respect to which an issuer in good faith
attempted to satisfy the requirements of section 103A(j)(5) shall be
treated as substantially satisfying the requirements of this paragraph.
For example, with respect to a report submitted not later than December
31, 1984, an issuer shall not be treated as failing to satisfy the
requirements of section 103A(j)(5) based on the fact that (A) the notice
of public hearing failed to state the manner in which affected residents
may obtain copies of the proposed report prior to the hearing, or (B)
the proposed report was not available prior to or at the public hearing.
With respect to reports required to be published and submitted to the
Commissioner not later than December 31, 1986, the Commissioner has
determined that there is a reasonable cause for the failure to publish
and file such reports in a timely fashion; such reports will be
considered published and filed in a timely fashion if, not later than
December 31, 1987, the report is published (after having a public
hearing following reasonable public notice) and a copy is submitted to
the Commissioner.
(2) Definitions and special rules. (i) In the case of an issuer that
issues qualified mortgage bonds on behalf of one or more governmental
units, a single report may be filed provided that such report is signed
(A) by the applicable elected representative of each governmental unit
on whose behalf obligations have been issued during any preceding
calendar year or (B) by the Governor of the State in which the issuer is
located.
(ii) See notice 103(k)(2)(E) and the regulations thereunder for the
definition of the term ``applicable elected representative''.
(iii) In the case of qualified mortgage bonds issued by, or on
behalf of, a governmental unit that did not reasonably expect during the
preceding calendar year to issue (or have issued on its behalf by any
other issuer) qualified mortgage bonds during the current calendar year,
the requirements of this paragraph will be treated as met if the
applicable governmental unit which is the issuer (or on behalf of which
the issuing authority is empowered to issue qualified mortgage bonds)
has published (after a public hearing following reasonable public
notice) the report described in paragraph (l)(3) of this section prior
to the issuance of any qualified mortgage bonds and a copy of such
report has been submitted to the Commissioner prior to such issuance.
(iv) For purposes of this paragraph a report will be considered to
be ``published'' when the applicable elected representative of the
governmental unit has made copies of the report available for
distribution to the public. Reasonable public notice of the manner in
which copies of the report may be obtained must be provided; such notice
may be included as part of the public notice required by paragraph
(l)(4) of this section.
(3) Report. (i) A report is described in this paragraph (l)(3) if it
contains the issuer's name, TIN, and the title ``Policy Report Under
Section 103A'' stated on the cover page of the report and if it
includes--
(A) A statement of the policies of the issuer with respect to
housing, development, and low-income housing assistance which such
issuer is to follow in issuing qualified mortgage bonds and mortgage
credit certificates, and
(B) An assessment of the compliance of such issuer during the 1-year
period preceding the date of the report with--
(1) The statement of policy on qualified mortgage bonds and mortgage
credit certificates that was set forth in the previous report, if any,
of the issuer, and
(2) The intent of Congress that State and local governments are
expected to use their authority to issue qualified mortgage bonds and
mortgage credit certificates to the greatest extent feasible (taking
into account prevailing interest rates and conditions in the housing
market) to assist lower income families to afford home ownership before
assisting higher income families.
(ii) For example, a report described in this paragraph (l)(3) may
(but is not required to) contain--
(A) A specific statement of the policies with respect to housing,
development, and low-income housing assistance which the issuer is to
follow in issuing qualified mortgage bonds and
[[Page 430]]
mortgage credit certificates, including, for example, a statement as
to--
(1) With respect to housing policies, (i) whether the proceeds will
be used to provide financing for the acquisition of residences, to
provide qualified home improvement loans, or to provide qualified
rehabilitation loans; (ii) whether all or a portion of the proceeds will
be targeted to new, existing, or any other particular class or type of
housing; (iii) how the existence of a need or absence of a need for such
targeting has been determined; (iv) the method by which the proceeds
will be targeted; (v) any other pertinent information relating to the
issuer's housing policies; and (vi) how the housing policies relate to
the issuer's development and low-income housing assistance policies;
(2) With respect to development policies, (i) whether all or a
portion of the proceeds will be targeted to specific areas (including
targeted areas as described in Sec. 6a.103A-2(b)(3)); (ii) a description
of the areas to which the proceeds will be targeted; (iii) the reasons
for selecting such areas; (iv) whether proceeds targeted to each area
are to be used to finance redevelopment of existing housing or new
construction; (v) any other pertinent information relating to the
issuer's development policies; and (vi) how the development policies
relate to the issuer's low-income housing assistance policies; and
(3) With respect to low-income housing assistance policies, (i)
whether all or a portion of the proceeds will be targeted to low-income
(i.e., 80 percent of median income), moderate-income (i.e., 100 percent
of median income), or any other class of borrowers; (ii) the method by
which the proceeds will be targeted to such borrowers; and (iii) any
other pertinent information relating to the issuer's low-income housing
assistance policies;
(B) An assessment of the compliance of the governmental unit or
issuing authority during the twelve-month period ending with the date of
the report with the statement of housing, development, and low-income
housing assistance policies with respect to qualified mortgage bonds and
mortgage credit certificates that were set forth in the report, if any,
published in the preceding year with respect to such governmental unit,
including, for example, a statement as to whether the governmental unit
or issuing authority successfully implemented its policies and, if not,
an analysis of the reasons for such failure; and
(C) An assessment of the compliance of the governmental unit or
issuing authority during the twelve-month period ending with the date of
the report with the intent of Congress that State and local governments
are expected to use their authority to issue qualified mortgage bonds
and mortgage credit certificates to the greatest extent feasible (taking
into account prevailing interest rates and conditions in the housing
market) to assist lower income families to afford home ownership before
assisting higher income families, including, for example, a description
of (1) the method used by the governmental unit or issuing authority to
distribute proceeds, (2) whether and how that method enabled the
governmental unit or issuing authority to assist lower income families
before higher income families, and (3) any income levels that have been
defined and used by the governmental unit or issuing authority in
connection with distribution of the proceeds (no specific definition of
lower income and higher income is imposed on governmental units or
issuing authorities).
(iii) For purposes of the assessments of compliance required by
paragraph (l)(3)(i)(B) of this section to be included in the report, the
``date of the report'' means June 30. For purposes of the report
required to be filed prior to January 1, 1986, an issuer need not
perform these assessments of compliance with respect to any period prior
to January 1, 1985.
(iv) An issuer that fails to establish policies with respect to the
criteria provided in paragraph (l)(3)(i) of this section will not be
treated as failing to satisfy the requirements of this paragraph. Thus,
for example, an issuer may state in its report that none of the proceeds
of the issue will be targeted to specific areas. Similarly, an issuer
that fails to successfully implement its policies will not be treated as
failing to satisfy the requirements of this paragraph.
[[Page 431]]
(4) Public hearing. The public hearing required by paragraph (l)(1)
of this section means a forum providing a reasonable opportunity for
interested individuals to express their views, both orally and in
writing, on the report that the applicable representative proposes to
publish to satisfy the requirements of this paragraph (l). A public
hearing held prior to January 1, 1985, will not fail to satisfy the
requirements of this paragraph (l)(4) merely because the proposed policy
statement was not available prior to the public hearing. In general, a
governmental unit may select its own procedure for the hearing, provided
that interested individuals have a reasonable opportunity to express
their views. Thus, it may impose reasonable requirements on persons who
wish to participate in the hearing, such as a requirement that persons
desiring to speak at the hearing so request in writing at least 24 hours
before the hearing or that they limit their oral remarks to 10 minutes.
For purposes of this public hearing requirement, it is not necessary
that the applicable elected representative who will publish the report
be present at the hearing, that a report on the hearing be submitted to
that official, or that State administrative procedural requirements for
public hearings in general be observed. However, compliance with such
State procedural requirements (except those at variance with a specific
requirement set forth in this paragraph) will generally assure that the
hearing satisfies the requirements of this paragraph. The hearing may be
conducted by any individual appointed or employed to perform such
function by the governmental unit, its agencies, or by the issuer. Thus,
for example, for a report to be issued by an issuing authority that acts
on behalf of a county, the hearing may be conducted by the issuing
authority, the county, or an appointee or employee of either.
(5) Reasonable public notice. (i) The reasonable public notice
required by paragraph (l)(1) of this section means published notice
which is reasonably designed to inform residents of the geographical
area within the jurisdiction of the governmental unit that will publish
the report. The notice must state the time and place for the hearing and
contain the information required by paragraph (l)(5)(ii) of this
section. Notice is presumed reasonable if published no fewer than 14
days before the hearing. Notice is presumed reasonably designed to
inform affected residents only if published in one or more newspapers of
general circulation available to residents of that locality or if
announced by radio or televison broadcast to those residents.
(ii) The notice of hearing described in this paragraph (l)(5) must
state--
(A) The time and place for the hearing,
(B) Any applicable limitations regarding participation in the
hearing,
(C) With respect to any notice of hearing published after December
31, 1984, the manner in which affected residents may obtain copies of
the proposed report prior to the hearing, and
(D) With respect to any notice of hearing published after December
31, 1984, that the hearing will involve the issuer's policies with
respect to housing, development, and low-income housing assistance which
the issuer is to follow in issuing qualified mortgage bonds and mortgage
credit certificates.
(6) Procedure for public hearings of multiple jurisdiction issuers.
In the case of an issuer that issues qualified mortgage bonds on behalf
of two or more governmental units (``multiple jurisdiction issuer''),
each governmental unit on whose behalf the issuer reasonably expects to
issue qualified mortgage bonds during the succeeding calendar year must
hold a public hearing following reasonable public notice prior to the
publication of the report required by this paragraph. A multiple
jurisdiction issuer may hold a combined hearing as long as the combined
hearing is a joint undertaking that provides all residents of the
participating governmental units (i.e., each governmental unit on whose
behalf qualified mortgage bonds were issued by the authority and each
governmental unit on whose behalf the authority reasonably expects to
issue qualified mortgage bonds during the succeeding calendar year) a
reasonable opportunity to be heard. The location of any combined hearing
is presumed to provide a reasonable opportunity for
[[Page 432]]
all affected residents to be heard if it is no farther than 100 miles
from the seat of government of each participating governmental unit
beyond whose geographic jurisdiction the hearing is conducted.
(7) Place for filing. The report is to be filed with the Internal
Revenue Service Center, Philadelphia, Pennsylvania 19255.
(m) State certification requirements--(1) In general. An issue meets
the requirements of this paragraph only if the issuer in good faith
attempted to meet the State certification requirements of this
paragraph. The requirements of this paragraph apply to obligations
issued after December 31, 1984; see section 149(e) and the regulations
thereunder with respect to obligations issued after December 31, 1986.
(2) Certification. (i) An issue satisfied the requirements of
section 103A(j)(4) and this paragraph (m)(2) only if the State official
designated by law (or, if there is no State official, the Governor)
certifies on or before the later of the date of issue or October 3,
1985, following a request for such certification by the issuer, that, as
of the date the certification is executed, the issue meets the
requirements of section 103A(g) and the regulations thereunder (relating
to volume limitation). In the case of any constitutional home rule city,
the certification shall be made by the chief executive officer of the
city. To the extent consistent with State and local law, the Governor
(or the chief executive officer of any constitutional home rule city)
may delegate the responsibility to execute the certification required by
this paragraph.
(ii) The certifying official need not perform an independent
investigation in order to determine whether the issue meets the
requirements of section 103A(g). In determining the aggregate amount of
qualified mortgage bonds previously issued by an issuer during a
calendar year, the certifying official may rely on copies of the reports
submitted, to date, by the issuer pursuant to section 103A(j)(3) for
other issues of qualified mortgage bonds issued during that year and
copies of any elections previously made pursuant to section 25(c)(2) not
to issue qualified mortgage bonds, together with an affidavit executed
by an officer of the issuer responsible for issuing the bonds stating
that the issuer has not, to date during the calendar year, issued any
other qualified mortgage bonds, the amount, if any, of the issuer's
market limitation that it has, to date during the calendar year,
surrendered to other issuing authorities, and that it has not, to date
during the calendar year, made any other elections not to issue
qualified mortgage bonds. If, based on such information, the certifying
official determines that, as of the date the certification is executed,
the issue will not exceed the issuer's market limitation for the year,
the official may certify that the issue meets the requirements of
section 103A(g).
(3) Special rule. If 15 days elapse after the issuer files a proper
request for the certification described in paragraph (m)(2) of this
section and the issuer has not received from the State official
designated by law (or, if there is no State official, the Governor)
certification that the issue meets the requirements of section 103A(g)
and Sec. 6a.103A-2(g) or, in the alternative, a statement that the issue
does not meet such requirements, the issuer may, instead, submit an
affidavit executed by an officer of the issuer responsible for issuing
the bonds stating that--
(i) The issue meets the requirements of section 103(A)(g) and
Sec. 6a.103A-2(g),
(ii) At least 15 days before the execution of the affidavit the
issuer filed a proper request for the certification described in
paragraph (m)(2) of this section, and
(iii) The State official designated by law (or, if there is no State
official, the Governor) has not provided the certification described in
paragraph (m)(2) of this section.
In the case of obligations issued prior to October 4, 1985 the preceding
sentence shall be applied by substituting ``30 days'' for ``15 days''.
For purposes of this paragraph, a request for certification is proper if
the request includes the reports and affidavits described in paragraph
(m)(2)(ii) of this section.
(4) Filing. The certification (or affidavit) required by this
paragraph shall be filed with the Internal Revenue Service Center,
Philadelphia, PA 19255. The certification (or affidavit) shall be
[[Page 433]]
submitted with the Form 8038 required to be filed by section 103A(j)(3)
and paragraph (k) of this Sec. 1.103A-2. The Commissioner may grant an
extension of time for filing the certification (or affidavit) if there
is a reasonable cause for the failure to file such statement in a timely
fashion.
(5) Effect of certification. The fact that an issuer obtains the
certification (or affidavit) described in this paragraph does not ensure
that the requirements of paragraph (g) of Sec. 6a.103A-2 are met.
Obligations that do not meet the requirements of paragraph (g) of
Sec. 6a.103A-2 are not described in section 103(a).
[T.D. 8049, 50 FR 35542, Sept. 3, 1985, as amended by T.D. 8129, 52 FR
7410, Mar. 11, 1987]
Sec. 1.104-1 Compensation for injuries or sickness.
(a) In general. Section 104(a) provides an exclusion from gross
income with respect to certain amounts described in paragraphs (b), (c),
(d) and (e) of this section, which are received for personal injuries or
sickness, except to the extent that such amounts are attributable to
(but not in excess of) deductions allowed under section 213 (relating to
medical, etc., expenses) for any prior taxable year. See section 213 and
the regulations thereunder.
(b) Amounts received under workmen's compensation acts. Section
104(a)(1) excludes from gross income amounts which are received by an
employee under a workmen's compensation act (such as the Longshoremen's
and Harbor Workers' Compensation Act, 33 U.S.C., c. 18), or under a
statute in the nature of a workmen's compensation act which provides
compensation to employees for personal injuries or sickness incurred in
the course of employment. Section 104(a)(1) also applies to compensation
which is paid under a workmen's compensation act to the survivor or
survivors of a deceased employee. However, section 104(a)(1) does not
apply to a retirement pension or annuity to the extent that it is
determined by reference to the employee's age or length of service, or
the employee's prior contributions, even though the employee's
retirement is occasioned by an occupational injury or sickness. Section
104(a)(1) also does not apply to amounts which are received as
compensation for a nonoccupational injury or sickness nor to amounts
received as compensation for an occupational injury or sickness to the
extent that they are in excess of the amount provided in the applicable
workmen's compensation act or acts. See, however, Secs. 1.105-1 through
1.105-5 for rules relating to exclusion of such amounts from gross
income.
(c) Damages received on account of personal physical injuries or
physical sickness--(1) In general. Section 104(a)(2) excludes from gross
income the amount of any damages (other than punitive damages) received
(whether by suit or agreement and whether as lump sums or as periodic
payments) on account of personal physical injuries or physical sickness.
Emotional distress is not considered a physical injury or physical
sickness. However, damages for emotional distress attributable to a
physical injury or physical sickness are excluded from income under
section 104(a)(2). Section 104(a)(2) also excludes damages not in excess
of the amount paid for medical care (described in section 213(d)(1)(A)
or (B)) for emotional distress. For purposes of this paragraph (c), the
term damages means an amount received (other than workers' compensation)
through prosecution of a legal suit or action, or through a settlement
agreement entered into in lieu of prosecution.
(2) Cause of action and remedies. The section 104(a)(2) exclusion
may apply to damages recovered for a personal physical injury or
physical sickness under a statute, even if that statute does not provide
for a broad range of remedies. The injury need not be defined as a tort
under state or common law.
(3) Effective/applicability date. This paragraph (c) applies to
damages paid pursuant to a written binding agreement, court decree, or
mediation award entered into or issued after September 13, 1995, and
received after January 23, 2012. Taxpayers also may apply these final
regulations to damages paid pursuant to a written binding agreement,
court decree, or mediation award entered into or issued after September
13, 1995, and received after August 20, 1996. If applying these final
regulations to
[[Page 434]]
damages received after August 20, 1996, results in an overpayment of
tax, the taxpayer may file a claim for refund before the period of
limitations under section 6511 expires. To qualify for a refund of tax
on damages paid after August 20, 1996, under a written binding
agreement, court decree, or mediation award entered into or issued after
September 13, 1995, a taxpayer must meet the requirements of section
1605 of the Small Business Job Protection Act of 1996, Public Law 104-
188 (110 Stat. 1838).
(d) Accident or health insurance. Section 104(a)(3) excludes from
gross income amounts received through accident or health insurance for
personal injuries or sickness (other than amounts received by an
employee, to the extent that such amounts (1) are attributable to
contributions of the employer which were not includible in the gross
income of the employee, or (2) are paid by the employer). Similar
treatment is also accorded to amounts received under accident or health
plans and amounts received from sickness or disability funds. See
section 105(e) and Sec. 1.105-5. If, therefore, an individual purchases
a policy accident or health insurance out of his own funds, amounts
received thereunder for personal injuries or sickness are excludable
from his gross income under section 104(a)(3). See, however, section 213
and the regulations thereunder as to the inclusion in gross income of
amounts attributable to deductions allowed under section 213 for any
prior taxable year. Section 104(a)(3) also applies to amounts received
by an employee for personal injuries or sickness from a fund which is
maintained exclusively by employee contributions. Conversely, if an
employer is either the sole contributor to such a fund, or is the sole
purchaser of a policy of accident or health insurance for his employees
(on either a group or individual basis), the exclusion provided under
section 104(a)(3) does not apply to any amounts received by his
employees through such fund or insurance. If the employer and his
employees contribute to a fund or purchase insurance which pays accident
or health benefits to employees, section 104(a)(3) does not apply to
amounts received thereunder by employees to the extent that such amounts
are attributable to the employer's contributions. See Sec. 1.105-1 for
rules relating to the determination of the amount attributable to
employer contributions. Although amounts paid by or on behalf of an
employer to an employee for personal injuries or sickness are not
excludable from the employee's gross income under section 104(a)(3),
they may be excludable therefrom under section 105. See Secs. 1.105-1
through 1.105-5, inclusive. For treatment of accident or health benefits
paid to or on behalf of a self- employed individual by a trust described
in section 401(a) which is exempt under section 501(a) or under a plan
described in section 403(a), see paragraph (g) of Sec. 1.72-15.
(e) Amounts received as pensions, etc., for certain personal
injuries or sickness. (1) Section 104(a)(4) excludes from gross income
amounts which are received as a pension, annuity, or similar allowance
for personal injuries or sickness resulting from active service in the
armed forces of any country, or in the Coast and Geodetic Survey, or the
Public Health Service. For purposes of this section, that part of the
retired pay of a member of an armed force, computed under formula No. 1
or 2 of 10 U.S.C. 1401, or under 10 U.S.C. 1402(d), on the basis of
years of service, which exceeds the retired pay that he would receive if
it were computed on the basis of percentage of disability is not
considered as a pension, annuity, or similar allowance for personal
injury or sickness, resulting from active service in the armed forces of
any country, or in the Coast and Geodetic Survey, or the Public Health
Service (see 10 U.S.C. 1403 (formerly 37 U.S.C. 272(h), section 402(h)
of the Career Compensation Act of 1949)). See paragraph (a)(3)(i)(a) of
Sec. 1.105-4 for the treatment of retired pay in excess of the part
computed on the basis of percentage of disability as amounts received
through a wage continuation plan. For the rules relating to certain
reduced uniformed services retirement pay, see paragraph (c)(2) of
Sec. 1.122-1. For rules relating to a waiver by a member or former
member of the uniformed services of a portion of disability retired pay
in favor of a pension or compensation receivable under the
[[Page 435]]
laws administered by the Veterans Administration (38 U.S.C. 3105), see
Sec. 1.122-1(c)(3). For rules relating to a reduction of the disability
retired pay of a member or former member of the uniformed services under
the Dual Compensation Act of 1964 (5 U.S.C. 5531) by reason of Federal
employment, see Sec. 1.122-1(c)(4).
(2) Section 104(a)(4) excludes from gross income amounts which are
received by a participant in the Foreign Service Retirement and
Disability System in a taxable year of such participant ending after
September 8, 1960, as a disability annuity payable under the provisions
of section 831 of the Foreign Service Act of 1946, as amended (22 U.S.C.
1081; 60 Stat. 1021). However, if any amount is received by a survivor
of a disabled or incapacitated participant, such amount is not excluded
from gross income by reason of the provisions of section 104(a)(4).
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6722, 29 FR
5070, Apr. 14, 1964; T.D. 7043, 35 FR 8477, June 2, 1970; T.D. 9573, 77
FR 3107, Jan. 23, 2012]
Sec. 1.105-1 Amounts attributable to employer contributions.
(a) In general. Under section 105(a), amounts received by an
employee through accident or health insurance for personal injuries or
sickness must be included in his gross income to the extent that such
amounts (1) are attributable to contributions of the employer which were
not includible in the gross income of the employee, or (2) are paid by
the employer, unless such amounts are excluded therefrom under section
105(b), (c), or (d). For purposes of this section, the term ``amounts
received by an employee through an accident or health plan'' refers to
any amounts received through accident or health insurance, and also to
any amounts which, under section 105(e), are treated as being so
received. See Sec. 1.105-5. In determining the extent to which amounts
received for personal injuries or sickness by an employee through an
accident or health plan are subject to the provisions of section 105(a),
rather than section 104(a)(3), the provisions of paragraphs (b), (c),
(d), and (e) of this section shall apply. A self-employed individual is
not an employee for purposes of section 105 and Secs. 1.105-1 through
1.105-5. See paragraph (g) of Sec. 1.72-15. Thus, such an individual
will not be treated as an employee with respect to benefits described in
section 105 received from a plan in which he participates as an employee
within the meaning of section 401(c)(1) at the time he, his spouse, or
any of his dependents becomes entitled to receive such benefits.
(b) Noncontributory plans. All amounts received by employees through
an accident or health plan which is financed solely by their employer,
either by payment of premiums on an accident or health insurance policy
(whether on a group or individual basis), by contributions to a fund
which pays accident or health benefits, or by direct payment of the
benefits under the plan, are subject to the provisions of section
105(a), except to the extent that they are excludable under section
105(b), (c), or (d). This rule may be illustrated by the following
examples:
Example 1. Employer A maintains a plan for his employees which
provides that he will continue to pay regular wages to employees who are
absent from work due to sickness or personal injuries. Employees make no
contributions to the plan and all benefits are paid by the employer.
Amounts received by employees under the plan are subject to section
105(a), and must be included in gross income unless excluded therefrom
under section 105(b), (c), or (d).
Example 2. Pursuant to a State nonoccupational disability benefits
law, employer B maintains an accident and health plan for his employees.
Although under the State law B is authorized to withhold from his
employees' wages a specified amount for employee contributions to the
State fund, in actual practice B does not so withhold and makes all
contributions out of his own funds. All amounts received by B's
employees from the State fund are subject to section 105(a), and must be
included in gross income unless excluded therefrom under section 105
(b), (c), or (d).
(c) Contributory plans. (1) In the case of amounts received by an
employee through an accident or health plan which is financed partially
by his employer and partially by contributions of the employee, section
105(a) applies to the extent that such amounts are attributable to
contributions of the employer which were not includible in the
[[Page 436]]
employee's gross income. The portion of such amounts which is
attributable to such contributions of the employer shall be determined
in accordance with paragraph (d) of this section in the case of an
insured plan, or paragraph (e) of this section in the case of a
noninsured plan. As used in this section, the phrase ``contributions of
the employer'' means employer contributions which were not includible in
the gross income of the employee. See section 106 for the exclusion from
an employee's gross income of employer contributions to accident or
health plans.
(2) A separate determination of the portion of the amounts received
under the accident or health plan which is attributable to the
contributions of the employer shall be made with respect to each class
of employees in any case where the plan provides that some classes of
covered employees contribute but others do not, or that the employer
will make different contributions for different classes of employees, or
that different classes of employees will make different contributions,
and where in any such case both the contributions of the employer on
account of each such class of employees and the contributions of such
class of employees can be ascertained. For example, if employees
contribute during the first year of employment but not thereafter, there
will have to be a separate determination for first year employees,
provided that the amount of the contributions of the employer on account
of first-year employees and the contributions of such first-year
employees can be ascertained for the required periods to apply the rules
of paragraph (d) or (e) of this section. If in such a case the
contributions of the employer to the plan on account of first-year
employees are not distinguishable from his other contributions to the
plan, then the determination shall be made for all employees under the
plan, and such determination shall be used by all employees under the
plan.
(3) Except as provided in paragraph (c)(2) of Sec. 1.72-15, if the
plan provides accident or health benefits as well as other benefits for
the employees, and if the respective contributions made by the employer
and the employees to provide the accident or health benefits cannot be
ascertained, the determination of the portion of the accident or health
benefits received under such plan which is attributable to the
contributions of the employer shall be made in accordance with the rules
of paragraph (d) or (e) of this section on the basis of the
contributions of the employer and of the employees to the entire plan.
(4) A determination of the portion attributable to the contributions
of the employer, once made in accordance with the rules of this section,
shall as to such portion be used for all purposes. For example, if an
employee receives amounts under a wage continuation plan during the
month of January and terminates his services during February, the
portion of such amounts which is attributable to the contributions of
the employer may be determined in order to provide the employee with
such information at the time he is provided his Form W-2. The
determination made for such purpose will also be used by the employee to
report his income for his taxable year in which such amounts are
received, without regard to the experience under the plan for the rest
of the year.
(d) Insured plans--(1) Individual policies. If an amount is received
from an insurance company by an employee under an individual policy of
accident or health insurance purchased by contributions of the employer
and the employee, the portion of the amount received which is
attributable to the employer's contributions shall be an amount which
bears the same ratio to the amount received as the portion of the
premiums paid by the employer for the current policy year bears to the
total premiums paid by the employer and the employee for that year. This
rule may be illustrated by the following example:
Example. Employer A maintains a plan whereby he pays two-thirds of
the annual premium cost on individual policies of accident and health
insurance for his employees. The remainder of each employee's premium is
paid by a payroll deduction from the wages of the employee. The annual
premium for employee X is $24, of which $16 is paid by the employer.
Thus, 16/24 or two-thirds of all amounts received by X under such
insurance policy are attributable to the contributions of the employer
and are subject to section
[[Page 437]]
105(a), and the remaining one-third of such amounts is excludable from
X's gross income under section 104(a)(3).
(2) Group policies. If the accident or health coverage is provided
under or is a part of a group insurance policy purchased by
contributions of the employer and of the employees, and the net premiums
for such coverage for a period of at least three policy years are known
at the beginning of the calendar year, the portion of any amount
received by an employee which is attributable to the contributions of
the employer for such coverage shall be an amount which bears the same
ratio to the amount received as the portion of the net premiums
contributed by the employer for the last three policy years which are
known at the beginning of the calendar year, bears to the total of the
net premiums contributed by the employer and all employees for such
policy years. If the net premiums for such coverage for a period of at
least three policy years are not known at the beginning of the calendar
year but are known for at least one policy year, such determination
shall be made by using the net premiums for such coverage which are
known at the beginning of the calendar year. If the net premiums for
such coverage are not known at the beginning of the calendar year for
even one policy year, such determination shall be made by using either
(i) a reasonable estimate of the net premiums for the first policy year,
or (ii) if the net premiums for a policy year are ascertained during the
calendar year, by using such net premiums. These rules may be
illustrated by the following example:
Example. An employer maintains a plan under which a portion of the
cost of a group policy of accident and health insurance for his
employees is paid through payroll deductions from wages of the
employees. The remainder of the cost is borne by the employer. The
policy year begins on November 1 and ends on October 31. The net premium
for the policy year ended October 31, 1954, is not known on January 1,
1955, because certain retroactive premium adjustments, such as dividends
and credits, are not determinable until after January 1. Therefore, for
purposes of this computation the last three policy years are the policy
years ended October 31, 1951, 1952, and 1953. The net premium for the
policy year ended October 31, 1953, was $8,000, of which the employer
contributed $3,000; the net premium for the policy year ended October
31, 1952, was $9,000, of which the employer contributed $3,500; and the
net premium for the policy year ended October 31, 1951, was $7,000, of
which the employer contributed $1,500. The portion of any amount
received under the policy by an employee at any time during 1955 which
is attributable to the contributions of the employer is to be determined
by using the ratio of $8,000 ($3,000 plus $3,500 plus $1,500) to $24,000
($8,000 plus $9,000 plus $7,000. Thus, $8,000 $24,000 or one-third, of
the amounts received by an employee at any time during 1955 is
attributable to contributions of the employer.
(e) Noninsured plans. If the accident or health benefits are a part
of a noninsured plan to which the employer and the employees contribute,
and such plan has been in effect for at least three years before the
beginning of the calendar year, the portion of the amount received which
is attributable to the employer's contributions shall be an amount which
bears the same ratio to the amount received as the contributions of the
employer for the period of three calendar years next preceding the year
of receipt bear to the total contributions of the employer and all the
employees for such period. If, at the beginning of the calendar year of
receipt, such plan has not been in effect for three years but has been
in effect for at least one year, such determination shall be based upon
the contributions made during the 1-year or 2-year period during which
the plan has been in effect. If such plan has not been in effect for one
full year at the beginning of the calendar year of receipt, such
determination may be based upon the portion of the year of receipt
preceding the time when the determination is made, or such determination
may be made periodically (such as monthly or quarterly) and used
throughout the succeeding period. For example, if an employee terminates
his services on April 15, 1955, and 1955 is the first year the plan has
been in effect, such determination may be based upon the contributions
of the employer and the employees during the period beginning with
January 1 and ending with April 15, or during the month of
[[Page 438]]
March, or during the quarter consisting of January, February, and March.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6722, 29 FR
5071, Apr. 14, 1964]
Sec. 1.105-2 Amounts expended for medical care.
Section 105(b) provides an exclusion from gross income with respect
to the amounts referred to in section 105(a) (see Sec. 1.105-1) which
are paid, directly or indirectly, to the taxpayer to reimburse him for
expenses incurred for the medical care (as defined in section 213(e)) of
the taxpayer, his spouse, and his dependents (as defined in section
152). However, the exclusion does not apply to amounts which are
attributable to (and not in excess of) deductions allowed under section
213 (relating to medical, etc., expenses) for any prior taxable year.
See section 213 and the regulations thereunder. Section 105(b) applies
only to amounts which are paid specifically to reimburse the taxpayer
for expenses incurred by him for the prescribed medical care. Thus,
section 105(b) does not apply to amounts which the taxpayer would be
entitled to receive irrespective of whether or not he incurs expenses
for medical care. For example, if under a wage continuation plan the
taxpayer is entitled to regular wages during a period of absence from
work due to sickness or injury, amounts received under such plan are not
excludable from his gross income under section 105(b) even though the
taxpayer may have incurred medical expenses during the period of
illness. Such amounts may, however, be excludable from his gross income
under section 105(d). See Sec. 1.105-4. If the amounts are paid to the
taxpayer solely to reimburse him for expenses which he incurred for the
prescribed medical care, section 105(b) is applicable even though such
amounts are paid without proof of the amount of the actual expenses
incurred by the taxpayer, but section 105(b) is not applicable to the
extent that such amounts exceed the amount of the actual expenses for
such medical care. If the taxpayer incurs an obligation for medical
care, payment to the obligee in discharge of such obligation shall
constitute indirect payment to the taxpayer as reimbursement for medical
care. Similarly, payment to or on behalf of the taxpayer's spouse or
dependents shall constitute indirect payment to the taxpayer.
Sec. 1.105-3 Payments unrelated to absence from work.
Section 105(c) provides an exclusion from gross income with respect
to the amounts referred to in section 105(a) to the extent that such
amounts (a) constitute payments for the permanent loss or permanent loss
of use of a member or function of the body, or the permanent
disfigurement, of the taxpayer, his spouse, or a dependent (as defined
in section 152), and (b) are computed with reference to the nature of
the injury without regard to the period the employee is absent from
work. Loss of use or disfigurement shall be considered permanent when it
may reasonably be expected to continue for the life of the individual.
For purposes of section 105(c), loss or loss of use of a member or
function of the body includes the loss or loss of use of an appendage of
the body, the loss of an eye, the loss of substantially all of the
vision of an eye, and the loss of substantially all of the hearing in
one or both ears. The term ``disfigurement'' shall be given a reasonable
interpretation in the light of all the particular facts and
circumstances. Section 105(c) does not apply if the amount of the
benefits is determined by reference to the period the employee is absent
from work. For example, if an employee is absent from work as a result
of the loss of an arm, and under the accident and health plan
established by his employer, he is to receive $125 a week so long as he
is absent from work for a period not in excess of 52 weeks, section
105(c) is not applicable to such payments. See, however, section 105(d)
and Sec. 1.105-4. However, for purposes of section 105(c), it is
immaterial whether an amount is paid in a lump sum or in installments.
Section 105(c) does not apply to amounts which are treated as workmen's
compensation under paragraph (b) of Sec. 1.104-1, or to amounts paid by
reason of the death of the employee (see section 101).
[[Page 439]]
Sec. 1.105-5 Accident and health plans.
(a) In general. Sections 104(a)(3) and 105 (b), (c), and (d) exclude
from gross income certain amounts received through accident or health
insurance. Section 105(e) provides that for purposes of sections 104 and
105 amounts received through an accident or health plan for employees,
and amounts received from a sickness and disability fund for employees
maintained under the law of a State, a Territory, or the District of
Columbia, shall be treated as amounts received through accident or
health insurance. In general, an accident or health plan is an
arrangement for the payment of amounts to employees in the event of
personal injuries or sickness. A plan may cover one or more employees,
and there may be different plans for different employees or classes of
employees. An accident or health plan may be either insured or
noninsured, and it is not necessary that the plan be in writing or that
the employee's rights to benefits under the plan be enforceable.
However, if the employee's rights are not enforceable, an amount will be
deemed to be received under a plan only if, on the date the employee
became sick or injured, the employee was covered by a plan (or a
program, policy, or custom having the effect of a plan) providing for
the payment of amounts to the employee in the event of personal injuries
or sickness, and notice or knowledge of such plan was reasonably
available to the employee. It is immaterial who makes payment of the
benefits provided by the plan. For example, payment may be made by the
employer, a welfare fund, a State sickness or disability benefits fund,
an association of employers or employees, or by an insurance company.
(b) Self-employed individuals. Under section 105(g), a self-employed
individual is not treated as an employee for purposes of section 105.
Therefore, for example, benefits paid under an accident or health plan
as referred to in section 105(e) to or on behalf of an individual who is
self-employed in the business with respect to which the plan is
established will not be treated as received through accident and health
insurance for purposes of sections 104(a)(3) and 105.
[T.D. 6722, 29 FR 5071, Apr. 14, 1964]
Sec. 1.105-11 Self-insured medical reimbursement plan.
(a) In general. Under section 105(a), amounts received by an
employee through a self-insured medical reimbursement plan which are
attributable to contributions of the employer, or are paid by the
employer, are included in the employee's gross income unless such
amounts are excludable under section 105(b). For amounts reimbursed to a
highly compensated individual to be fully excludable from such
individual's gross income under section 105(b), the plan must satisfy
the requirements of section 105(h) and this section. Section 105(h) is
not satisfied if the plan discriminates in favor of highly compensated
individuals as to eligibility to participate or benefits. All or a
portion of the reimbursements or payments on behalf of such individuals
under a discriminatory plan are not excludable from gross income under
section 105(b). However, benefits paid to participants who are not
highly compensated individuals may be excluded from gross income if the
requirements of section 105(b) are satisfied, even if the plan is
discriminatory.
(b) Self-insured medical reimbursement plan--(1) General rule--(i)
Definition. A self-insured medical reimbursement plan is a separate
written plan for the benefit of employees which provides for
reimbursement of employee medical expenses referred to in section
105(b). A plan or arrangement is self-insured unless reimbursement is
provided under an individual or group policy of accident or health
insurance issued by a licensed insurance company or under an arrangement
in the nature of a prepaid health care plan that is regulated under
federal or state law in a manner similar to the regulation of insurance
companies. Thus, for example, a plan of a health maintenance
organization, established under the Health Maintenance Organization Act
of 1973, would qualify as a prepaid health care plan. In addition, this
section applies to a self-insured medical reimbursement plan, determined
in accordance with the rules of this section, maintained by
[[Page 440]]
an employee organization described in section 501(c)(9).
(ii) Shifting of risk. A plan underwritten by a policy of insurance
or a prepaid health care plan that does not involve the shifting of risk
to an unrelated third party is considered self-insured for purposes of
this section. Accordingly, a cost-plus policy or a policy which in
effect merely provides administrative or bookkeeping services is
considered self-insured for purposes of this section. However, a plan is
not considered self-insured merely because one factor the insurer uses
in determining the premium is the employer's prior claims experience.
(iii) Captive insurance company. A plan underwritten by a policy of
insurance issued by a captive insurance company is not considered self-
insured for purposes of this section if for the plan year the premiums
paid by companies unrelated to the captive insurance company equal or
exceed 50 percent of the total premiums received and the policy of
insurance is similar to policies sold to such unrelated companies.
(2) Other rules. The rules of this section apply to a self-insured
portion of an employer's medical plan or arrangement even if the plan is
in part underwritten by insurance. For example, if an employer's medical
plan reimburses employees for benefits not covered under the insured
portion of an overall plan, or for deductible amounts under the insured
portions, such reimbursement is subject to the rules of this section.
However, a plan which reimburses employees for premiums paid under an
insured plan is not subject to this section. In addition, medical
expense reimbursements not described in the plan are not paid pursuant
to a plan for the benefit of employees, and therefore are not excludable
from gross income under section 105(b). Such reimbursements will not
affect the determination of whether or not a plan is discriminatory.
(c) Prohibited discrimination--(1) In general. A self-insured
medical reimbursement plan does not satisfy the requirements of section
105(h) and this paragraph for a plan year unless the plan satisfies
subparagraphs (2) and (3) of this paragraph. However, a plan does not
fail to satisfy the requirements of this paragraph merely because
benefits under the plan are offset by benefits paid under a self-insured
or insured plan of the employer or another employer, or by benefits paid
under Medicare or other Federal or State law or similar foreign law. A
self-insured plan may take into account the benefits provided under
another plan only to the extent that the type of benefit subject to
reimbursement is the same under both plans. For example, an amount
reimbursed to an employee for a hospital expense under a medical plan
maintained by the employer of the employee's spouse may be offset
against the self-insured benefit where the self-insured plan covering
the employee provides the same type of hospital benefit.
(2) Eligibility to participate--(i) Percentage test. A plan
satisfies the requirements of this subparagraph if it benefits--
(A) Seventy percent or more of all employees, or
(B) Eighty percent or more of all the employees who are eligible to
benefit under the plan if 70 percent or more of all employees are
eligible to benefit under the plan.
(ii) Classification test. A plan satisfies the requirements of this
subparagraph if it benefits such employees as qualify under a
classification of employees set up by the employer which is found by the
Internal Revenue Service not to be discriminatory in favor of highly
compensated individuals. In general, this determination will be made
based upon the facts and circumstances of each case, applying the same
standards as are applied under section 410(b)(1)(B) (relating to
qualified pension, profit-sharing and stock bonus plans), without regard
to the special rules in section 401(a)(5) concerning eligibility to
participate.
(iii) Exclusion of certain employees. Under section 105(h)(3), for
purposes of this subparagraph (2), there may be excluded from
consideration:
(A) Employees who have not completed 3 years of service prior to the
beginning of the plan year. For purposes of this section years of
service may be determined by any method that is reasonable and
consistent. A determination made in the same manner as (and
[[Page 441]]
not requiring service in excess of how) a year of service is determined
under section 410(a)(3) shall be deemed to be reasonable. For purposes
of the 3-year rule, all of an employee's years of service with the
employer prior to a separation from service are not taken into account.
For purposes of the 3-year rule, an employee's years of service prior to
age 25, as a part-time or seasonal employee, as a member of a collective
bargaining unit, or as a nonresident alien, as each is described in this
subdivision, are not excluded by reason of being so described from
counting towards satisfaction of the rule. In addition, if the employer
is a predecessor employer (determined in a manner consistent with
section 414(a)), service for such predecessor is treated as service for
the employer.
(B) Employees who have not attained age 25 prior to the beginning of
the plan year.
(C) Part-time employees whose customary weekly employment is less
than 35 hours, if other employees in similar work with the same employer
(or, if no employees of the employer are in similar work, in similar
work in the same industry and location) have substantially more hours,
and seasonal employees whose customary annual employment is less than 9
months, if other employees in similar work with the same employer (or,
if no employees of the employer are in similar work, in similar work in
the same industry and location) have substantially more months.
Notwithstanding the preceding sentence, any employee whose customary
weekly employment is less than 25 hours or any employee whose customary
annual employment is less than 7 months may be considered as a part-time
or seasonal employee.
(D) Employees who are included in a unit of employees covered by an
agreement between employee representatives and one or more employers
which the Commissioner finds to be a collective bargaining agreement, if
accident and health benefits were the subject of good faith bargaining
between such employee representatives and such employer or employers.
For purposes of determining whether such bargaining occurred, it is not
material that such employees are not covered by another medical plan or
that the plan was not considered in such bargaining.
(E) Employees who are nonresident aliens and who receive no earned
income (within the meaning of section 911(b) and the regulations
thereunder) from the employer which constitutes income from sources
within the United States (within the meaning of section 861(a)(3) and
the regulations thereunder).
(3) Nondiscriminatory benefits--(i) In general. In general, benefits
subject to reimbursement under a plan must not discriminate in favor of
highly compensated individuals. Plan benefits will not satisfy the
requirements of this subparagraph unless all the benefits provided for
participants who are highly compensated individuals are provided for all
other participants. In addition, all the benefits available for the
dependents of employees who are highly compensated individuals must also
be available on the same basis for the dependents of all other employees
who are participants. A plan that provides optional benefits to
participants will be treated as providing a single benefit with respect
to the benefits covered by the option provided that (A) all eligible
participants may elect any of the benefits covered by the option and (B)
there are either no required employee contributions or the required
employee contributions are the same amount. This test is applied to the
benefits subject to reimbursement under the plan rather than the actual
benefit payments or claims under the plan. The presence or absence of
such discrimination will be determined by considering the type of
benefit subject to reimbursement provided highly compensated
individuals, as well as the amount of the benefit subject to
reimbursement. A plan may establish a maximum limit for the amount of
reimbursement which may be paid a participant for any single benefit, or
combination of benefits. However, any maximum limit attributable to
employer contributions must be uniform for all participants and for all
dependents of employees who are participants and may not be modified by
reason of a participant's age or years of service. In addition, if a
plan covers employees
[[Page 442]]
who are highly compensated individuals, and the type or the amount of
benefits subject to reimbursement under the plan are in proportion to
employee compensation, the plan discriminates as to benefits.
(ii) Discriminatory operation. Not only must a plan not discriminate
on its face in providing benefits in favor of highly compensated
individuals, the plan also must not discriminate in favor of such
employees in actual operation. The determination of whether plan
benefits discriminate in operation in favor of highly compensated
individuals is made on the basis of the facts and circumstances of each
case. A plan is not considered discriminatory merely because highly
compensated individuals participating in the plan utilize a broad range
of plan benefits to a greater extent than do other employees
participating in the plan. In addition, if a plan (or a particular
benefit provided by a plan) is terminated, the termination would cause
the plan benefits to be discriminatory if the duration of the plan (or
benefit) has the effect of discriminating in favor of highly compensated
individuals. Accordingly, the prohibited discrimination may occur where
the duration of a particular benefit coincides with the period during
which a highly compensated individual utilizes the benefit.
(iii) Retired employees. To the extent that an employer provides
benefits under a self-insured medical reimbursement plan to a retired
employee that would otherwise be excludible from gross income under
section 105(b), determined without regard to section 105(h), such
benefits shall not be considered a discriminatory benefit under this
paragraph (c). The preceding sentence shall not apply to a retired
employee who was a highly compensated individual unless the type, and
the dollar limitations, of benefits provided retired employees who were
highly compensated individuals are the same for all other retired
participants. If this subdivision applies to a retired participant, that
individual is not considered an employee for purposes of determining the
highest paid 25 percent of all employees under paragraph (d) of this
section solely by reason of receiving such plan benefits.
(4) Multiple plans, etc.--(i) General rule. An employer may
designate two or more plans as constituting a single plan that is
intended to satisfy the requirements of section 105(h)(2) and paragraph
(c) of this section, in which case all plans so designated shall be
considered as a single plan in determining whether the requirements of
such section are satisfied by each of the separate plans. A
determination that the combination of plans so designated does not
satisfy such requirements does not preclude a determination that one or
more of such plans, considered separately, satisfies such requirements.
A single plan document may be utilized by an employer for two or more
separate plans provided that the employer designates the plans that are
to be considered separately and the applicable provisions of each
separate plan.
(ii) Other rules. If the designated combined plan discriminates as
to eligibility to participate or benefits, the amount of excess
reimbursement will be determined under the rules of section 105(h)(7)
and paragraph (e) of this section by taking into account all
reimbursements made under the combined plan.
(iii) H.M.O. participants. For purposes of section 105(h)(2)(A) and
paragraph (c)(2) of this section, a self-insured plan will be deemed to
benefit an employee who has enrolled in a health maintenance
organization (HMO) that is offered on an optional basis by the employer
in lieu of coverage under the self-insured plan if, with respect to that
employee, the employer's contributions to the HMO plan equal or exceed
those that would be made to the self-insured plan, and if the HMO plan
is designated in accordance with subdivision (i) with the self-insured
plan as a single plan. For purposes of section 105(h) and this section,
except as provided in the preceding sentence, employees covered by, and
benefits under, the HMO plan are not treated as part of the self-insured
plan.
(d) Highly compensated individuals defined. For purposes of section
105(h) and this section, the term ``highly compensated individual''
means an individual who is--
(1) One of the 5 highest paid officers,
[[Page 443]]
(2) A shareholder who owns (with the application of section 318)
more than 10 percent in value of the stock of the employer, or
(3) Among the highest paid 25 percent of all employees (including
the 5 highest paid officers, but not including employees excludable
under paragraph (c)(2)(iii) of this section who are not participants in
any self-insured medical reimbursement plan of the employer, whether or
not designated as a single plan under paragraph (c)(4) of this section,
or in a health maintenance organization plan).
The status of an employee as an officer or stockholder is determined
with respect to a particular benefit on the basis of the employee's
officer status or stock ownership at the time during the plan year at
which the benefit is provided. In calculating the highest paid 25
percent of all employees, the number of employees included will be
rounded to the next highest number. For example, if there are 5
employees, the top two are in the highest paid 25 percent. The level of
an employee's compensation is determined on the basis of the employee's
compensation for the plan year. For purposes of the preceding sentence,
fiscal year plans may determine employee compensation on the basis of
the calendar year ending within the plan year.
(e) Excess reimbursement of highly compensated individual--(1) In
general. For purposes of section 105(h) and this section, a
reimbursement paid to a highly compensated individual is an excess
reimbursement if it is paid pursuant to a plan that fails to satisfy the
requirements of paragraph (c)(2) or (c)(3) for the plan year. The amount
reimbursed to a highly compensated individual which constitutes an
excess reimbursement is not excludable from such individual's gross
income under section 105(b).
(2) Discriminatory benefit. In the case of a benefit available to
highly compensated individuals but not to all other participants (or
which otherwise discriminates in favor of highly compensated individuals
as opposed to other participants), the amount of excess reimbursement
equals the total amount reimbursed to the highly compensated individual
with respect to the benefit.
(3) Discriminatory coverage. In the case of benefits (other than
discriminatory benefits described in subparagraph (2)) paid to a highly
compensated individual under a plan which fails to satisfy the
requirements of paragraph (c)(2) relating to nondiscrimination in
eligibility to participate, the amount of excess reimbursement is
determined by multiplying the total amount reimbursed to the individual
by a fraction. The numerator of the fraction is the total amount
reimbursed during that plan year to all highly compensated individuals.
The denominator of the fraction is the total amount reimbursed during
that plan year to all participants. In computing the fraction and the
total amount reimbursed to the individual, discriminatory benefits
described in subparagraph (2) are not taken into account. Accordingly,
any amount which is included in income by reason of the benefit's not
being available to all other participants will not be taken into
account.
(4) Examples. The provisions of this paragraph are illustrated by
the following examples:
Example 1. Corporation M maintains a self-insured medical
reimbursement plan which covers all employees. The plan provides the
following maximum limits on the amount of benefits subject to
reimbursement: $5,000 for officers and $1,000 for all other
participants. During a plan year Employee A, one of the 5 highest paid
officers, received reimbursements in the amount of $4,000. Because the
amount of benefits provided for highly compensated individuals is not
provided for all other participants, the plan benefits are
discriminatory. Accordingly, Employee A received an excess reimbursement
of $3,000 ($4,000-$1,000) which constitutes a benefit available to
highly compensated individuals, but not to all other participants.
Example 2. Corporation N maintains a self-insured medical
reimbursement plan which covers all employees. The plan provides a broad
range of medical benefits subject to reimbursement for all participants.
However, only the 5 highest paid officers are entitled to dental
benefits. During the plan year Employee B, one of the 5 highest paid
officers, received dental payments under the plan in the amount of $300.
Because dental benefits are provided for highly compensated individuals,
and not for all other participants, the
[[Page 444]]
plan discriminates as to benefits. Accordingly, Employee B received an
excess reimbursement in the amount of $300.
Example 3. Corporation O maintains a self-insured medical
reimbursement plan which discriminates as to eligibility by covering
only the highest paid 40% of all employees. Benefits subject to
reimbursement under the plan are the same for all participants. During a
plan year Employee C, a highly compensated individual, received benefits
in the amount of $1,000. The amount of excess reimbursement paid
Employee C during the plan year will be calculated by multiplying the
$1,000 by a fraction determined under subparagraph (3).
Example 4. Corporation P maintains a self-insured medical
reimbursement plan for its employees. Benefits subject to reimbursement
under the plan are the same for all plan participants. However, the plan
fails the eligibility tests of section 105(h)(3)(A) and thereby
discriminates as to eligibility. During the 1980 plan year Employee D, a
highly compensated individual, was hospitalized for surgery and incurred
medical expenses of $4,500 which were reimbursed to D under the plan.
During that plan year the Corporation P medical plan paid $50,000 in
benefits under the plan, $30,000 of which constituted benefits paid to
highly compensated individuals. The amount of excess reimbursement not
excludable by D under section 105(b) is $2,700:
[GRAPHIC] [TIFF OMITTED] TC14NO91.173
Example 5. Corporation Q maintains a self-insured medical
reimbursement plan for its employees. The plan provides a broad range of
medical benefits subject to reimbursement for participants. However,
only the five highest paid officers are entitled to dental benefits. In
addition, the plan fails the eligibility test of section 105(h)(3)(A)
and thereby discriminates as to eligibility. During the calendar 1981
plan year, Employee E, a highly compensated individual, received dental
benefits under the plan in the amount of $300, and no other employee
received dental benefits. In addition, Employee E was hospitalized for
surgery and incurred medical expenses, reimbursement for which was
available to all participants, of $4,500 which were reimbursed to E
under the plan. Because dental benefits are only provided for highly
compensated individuals, Employee E received an excess reimbursement
under paragraph (e)(2) above in the amount of $300. For the 1981 plan
year, the Corporation Q medical plan paid $50,300 in total benefits
under the plan, $30,300 of which constituted benefits paid to highly
compensated individuals. In computing the fraction under paragraph
(e)(3), discriminatory benefits described in paragraph (e)(2) are not
taken into account. Therefore, the amount of excess reimbursement not
excludable to Employee E with respect to the $4,500 of medical expenses
incurred is $2,700:
[GRAPHIC] [TIFF OMITTED] TC14NO91.174
and the total amount of excess reimbursements includable in E's income
for 1981 is $3,000.
Example 6. (i) Corporation R maintains a calendar year self-insured
medical reimbursement plan which covers all employees. The type of
benefits subject to reimbursement under the plan include all medical
care expenses as defined in section 213(e). The amount of reimbursement
available to any employee for any calendar year is limited to 5 percent
of the compensation paid to each employee during the calendar year. The
amount of compensation and reimbursement paid to Employees A-F for the
calendar year is as follows:
------------------------------------------------------------------------
Reimbursable
Employee Compensation amount paid
------------------------------------------------------------------------
A....................................... $100,000 $5,000
B....................................... 25,000 1,250
C....................................... 15,000 750
D....................................... 10,000 500
E....................................... 10,000 500
F....................................... 8,000 400
-----------------
8,400
------------------------------------------------------------------------
(ii) Because the amount of benefits subject to reimbursement under
the plan is in proportion to employee compensation the plan
discriminates as to benefits. In addition, Employees A and B are highly
compensated individuals. The amount of excess reimbursement paid
Employees A and B during the plan year will be determined under
paragraph (e)(2). Because benefits in excess of $400 (Employee F's
maximum benefit) are provided for highly compensated individuals and not
for all other participants, Employees A and B received, respectively, an
excess reimbursement of $4,600 and $850.
(f) Certain controlled groups. For purposes of applying the
provisions of section 105(h) and this section, all employees who are
treated as employed by a single employer under section 414 (b) and (c),
and the regulations thereunder (relating to special rules for qualified
pension, profit-sharing and stock bonus plans), shall be treated as
employed by a single employer.
(g) Exception for medical diagnostic procedures--(1) In general. For
purposes of applying section 105(h) and this section, reimbursements
paid under a plan for medical diagnostic procedures for
[[Page 445]]
an employee, but not a dependent, are not considered to be a part of a
plan described in this section. The medical diagnostic procedures
include routine medical examinations, blood tests, and X-rays. Such
procedures do not include expenses incurred for the treatment, cure or
testing of a known illness or disability, or treatment or testing for a
physical injury, complaint or specific symptom of a bodily malfunction.
For example, a routine dental examination with X-rays is a medical
diagnostic procedure, but X-rays and treatment for a specific complaint
are not. In addition, such procedures do not include any activity
undertaken for exercise, fitness, nutrition, recreation, or the general
improvement of health unless they are for medical care as defined in
section 213(e). The diagnostic procedures must be performed at a
facility which provides no services (directly or indirectly) other than
medical, and ancillary, services. For purposes of the preceding
sentence, physical proximity between a medical facility and nonmedical
facilities will not for that reason alone cause the medical facility not
to qualify. For example, an employee's annual physical examination
conducted at the employee's personal physician's office is not
considered a part of the medical reimbursement plan and therefore is not
subject to the nondiscrimination requirements. Accordingly, the amount
reimbursed may be excludable from the employee's income if the
requirements of section 105(b) are satisfied.
(2) Transportation, etc. expenses. Transportation expenses primarily
for an allowable diagnostic procedure are included within the exception
described in this paragraph, but only to the extent they are ordinary
and necessary. Transportation undertaken merely for the general
improvement of health, or in connection with a vacation, is not within
the scope of this exception, nor are any incidental expenses for food or
lodging; therefore, amounts reimbursed for such expenses may be excess
reimbursements under paragraph (e).
(h) Time of inclusion. Excess reimbursments (determined under
paragraph (e)) paid to a highly compensated individual for a plan year
will be considered as received in the taxable year of the individual in
which (or with which) the plan year ends. The particular plan year to
which reimbursements relate shall be determined under the plan
provisions. In the absence of plan provisions reimbursements shall be
attributed to the plan year in which payment is made. For example, under
a calendar year plan an excess reimbursement paid to A in 1981 on
account of an expense incurred and subject to reimbursement for the 1980
plan year under the terms of the plan will be considered as received in
1980 by A.
(i) Self-insured contributory plan. A medical plan subject to this
section may provide for employer and employee contributions. See
Sec. 1.105-1(c). The tax treatment of reimbursements attributable to
employee contributions is determined under section 104(a)(3). The tax
treatment of reimbursements attributable to employer contributions is
determined under section 105. The amount of reimbursements which are
attributable to contributions of the employer shall be determined in
accordance with Sec. 1.105-1(e).
(j) Effective date. Section 105(h) and this section are effective
for taxable years beginning after December 31, 1979 and for amounts
reimbursed after December 31, 1979. In determining plan discrimination
and the taxability of excess reimbursements made for a plan year
beginning in 1979 and ending in 1980, a plan's eligibility and benefit
requirements as well as actual reimbursements made in the plan year
during 1979, will not be taken into account. In addition, this section
does not apply to expenses which are incurred in 1979 and paid in 1980.
(k) Special rules--(1) Relation to cafeteria plans. If a self-
insured medical reimbursement plan is included in a cafeteria plan as
described in section 125, the rules of this section will determine the
status of a benefit as a taxable or nontaxable benefit, and the rules of
section 125 will determine whether an employee is taxed as though he
elected all available taxable benefits (including taxable benefits under
a discriminatory medical reimbursement plan). This rule is illustrated
by the following example:
[[Page 446]]
Example. Corporation M maintains a cafeteria plan described in
section 125. Under the plan an officer of the corporation may elect to
receive medical benefits provided by a self-insured medical
reimbursement plan which is subject to the rules of this section.
However, the self-insured medical reimbursement plan fails the
nondiscrimination rules under paragraph (c) of this section.
Accordingly, the amount of excess reimbursement is taxable to the
officer participating in the medical reimbursement plan pursuant to
section 105(h) and this section. Therefore, the self-insured medical
reimbursement plan will be considered a taxable benefit under section
125 and the regulations thereunder.
(2) Benefit subject to reimbursement. For purposes of this section,
a benefit subject to reimbursement is a benefit described in the plan
under which a claim for reimbursement or for a payment directly to the
health service provider may be filed by a plan participant. It does not
refer to actual claims or benefit reimbursements paid under a plan.
[T.D. 7754, 46 FR 3505, Jan. 15, 1981]
Sec. 1.106-1 Contributions by employer to accident and health plans.
(a) The gross income of an employee does not include the
contributions that the employer makes to an accident or health plan for
compensation (through insurance or otherwise) to the employee for
personal injuries or sickness incurred by the employee, the employee's
spouse, the employee's dependents (as defined in section 152 determined
without regard to section 152(b)(1), (b)(2), or (d)(1)(B)), or any child
(as defined in section 152(f)(1)) of the employee who as of the end of
the taxable year has not attained age 27. The employer may contribute to
an accident or health plan either by paying the premium (or a portion of
the premium) on a policy of accident or health insurance covering one or
more of his employees, or by contributing to a separate trust or fund
(including a fund referred to in section 105(e)) which provides accident
or health benefits directly or through insurance to one or more of his
employees. However, if such insurance policy, trust, or fund provides
other benefits in addition to accident or health benefits, section 106
applies only to the portion of the employer's contribution which is
allocable to accident or health benefits. See paragraph (d) of
Sec. 1.104-1 and Secs. 1.105-1 through 1.105-5, inclusive, for
regulations relating to exclusion from an employee's gross income of
amounts received through accident or health insurance and through
accident or health plans. For the treatment of the payment of premiums
for accident or health insurance from a qualified trust under section
401(a), see Secs. 1.72-15 and 1.402(a)-1(e).
(b) Effective/applicability date. The first and last sentences of
paragraph (a) of this section apply for taxable years beginning on or
after January 1, 2015.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960, as
amended by T.D. 9665, 79 FR 26841, May 12, 2014]
Sec. 1.107-1 Rental value of parsonages.
(a) In the case of a minister of the gospel, gross income does not
include (1) the rental value of a home, including utilities, furnished
to him as a part of his compensation, or (2) the rental allowance paid
to him as part of his compensation to the extent such allowance is used
by him to rent or otherwise provide a home. In order to qualify for the
exclusion, the home or rental allowance must be provided as remuneration
for services which are ordinarily the duties of a minister of the
gospel. In general, the rules provided in Sec. 1.1402(c)-5 will be
applicable to such determination. Examples of specific services the
performance of which will be considered duties of a minister for
purposes of section 107 include the performance of sacerdotal functions,
the conduct of religious worship, the administration and maintenance of
religious organizations and their integral agencies, and the performance
of teaching and administrative duties at theological seminaries. Also,
the service performed by a qualified minister as an employee of the
United States (other than as a chaplain in the Armed Forces, whose
service is considered to be that of a commissioned officer in his
capacity as such, and not as a minister in the exercise of his
ministry), or a State, Territory, or possession of the United States, or
a political subdivision of any of the foregoing, or the District of
Columbia, is in the exercise of
[[Page 447]]
his ministry provided the service performed includes such services as
are ordinarily the duties of a minister.
(b) For purposes of section 107, the term ``home'' means a dwelling
place (including furnishings) and the appurtenances thereto, such as a
garage. The term ``rental allowance'' means an amount paid to a minister
to rent or otherwise provide a home if such amount is designated as
rental allowance pursuant to official action taken prior to January 1,
1958, by the employing church or other qualified organization, or if
such amount is designated as rental allowance pursuant to official
action taken in advance of such payment by the employing church or other
qualified organization when paid after December 31, 1957. The
designation of an amount as rental allowance may be evidenced in an
employment contract, in minutes of or in a resolution by a church or
other qualified organization or in its budget, or in any other
appropriate instrument evidencing such official action. The designation
referred to in this paragraph is a sufficient designation if it permits
a payment or a part thereof to be identified as a payment of rental
allowance as distinguished from salary or other remuneration.
(c) A rental allowance must be included in the minister's gross
income in the taxable year in which it is received, to the extent that
such allowance is not used by him during such taxable year to rent or
otherwise provide a home. Circumstances under which a rental allowance
will be deemed to have been used to rent or provide a home will include
cases in which the allowance is expended (1) for rent of a home, (2) for
purchase of a home, and (3) for expenses directly related to providing a
home. Expenses for food and servants are not considered for this purpose
to be directly related to providing a home. Where the minister rents,
purchases, or owns a farm or other business property in addition to a
home, the portion of the rental allowance expended in connection with
the farm or business property shall not be excluded from his gross
income.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6691, 28 FR
12817, Dec. 3, 1963]
Sec. 1.108-1 [Reserved]
Sec. 1.108-2 Acquisition of indebtedness by a person related to the debtor.
(a) General rules. The acquisition of outstanding indebtedness by a
person related to the debtor from a person who is not related to the
debtor results in the realization by the debtor of income from discharge
of indebtedness (to the extent required by section 61(a)(12) and section
108) in an amount determined under paragraph (f) of this section. Income
realized pursuant to the preceding sentence is excludible from gross
income to the extent provided in section 108(a). The rules of this
paragraph apply if indebtedness is acquired directly by a person related
to the debtor in a direct acquisition (as defined in paragraph (b) of
this section) or if a holder of indebtedness becomes related to the
debtor in an indirect acquisition (as defined in paragraph (c) of this
section).
(b) Direct acquisition. An acquisition of outstanding indebtedness
is a direct acquisition under this section if a person related to the
debtor (or a person who becomes related to the debtor on the date the
indebtedness is acquired) acquires the indebtedness from a person who is
not related to the debtor. Notwithstanding the foregoing, the
Commissioner may provide by Revenue Procedure or other published
guidance that certain acquisitions of indebtedness described in the
preceding sentence are not direct acquisitions for purposes of this
section.
(c) Indirect acquisition--(1) In general. An indirect acquisition is
a transaction in which a holder of outstanding indebtedness becomes
related to the debtor, if the holder acquired the indebtedness in
anticipation of becoming related to the debtor.
(2) Proof of anticipation of relationship. In determining whether
indebtedness was acquired by a holder in anticipation of becoming
related to the debtor, all relevant facts and circumstances will be
considered. Such facts and circumstances include, but are not limited
to, the intent of the parties at the time of the acquisition, the nature
of any contacts between the parties (or their respective affiliates)
before the acquisition, the period of time for
[[Page 448]]
which the holder held the indebtedness, and the significance of the
indebtedness in proportion to the total assets of the holder group (as
defined in paragraph (c)(5) of this section). For example, if a holder
acquired the indebtedness in the ordinary course of its portfolio
investment activities and the holder's acquisition of the indebtedness
preceded any discussions concerning the acquisition of the holder by the
debtor (or by a person related to the debtor) or the acquisition of the
debtor by the holder (or by a person related to the holder), as the case
may be, these facts, taken together, would ordinarily establish that the
holder did not acquire the indebtedness in anticipation of becoming
related to the debtor. The absence of discussions between the debtor and
the holder (or their respective affiliates), however, does not by itself
establish that the holder did not acquire the indebtedness in
anticipation of becoming related to the debtor (if, for example, the
facts and circumstances show that the holder was considering a potential
acquisition of or by the debtor, or the relationship is created within a
relatively short period of time of the acquisition, or the indebtedness
constitutes a disproportionate portion of the holder group's assets).
(3) Indebtedness acquired within 6 months of becoming related.
Notwithstanding any other provision of this paragraph (c), a holder of
indebtedness is treated as having acquired the indebtedness in
anticipation of becoming related to the debtor if the holder acquired
the indebtedness less than 6 months before the date the holder becomes
related to the debtor.
(4) Disclosure of potential indirect acquisition--(i) In general. If
a holder of outstanding indebtedness becomes related to the debtor under
the circumstances described in paragraph (c)(4)(ii) or (iii) of this
section, the debtor is required to attach the statement described in
paragraph (c)(4)(iv) of this section to its tax return (or to a
qualified amended return within the meaning of Sec. 1.6664-2(c)(3)) for
the taxable year in which the debtor becomes related to the holder,
unless the debtor reports its income on the basis that the holder
acquired the indebtedness in anticipation of becoming related to the
debtor. Disclosure under this paragraph (c)(4) is in addition to, and is
not in substitution for, any disclosure required to be made under
section 6662, 6664 or 6694.
(ii) Indebtedness represents more than 25 percent of holder group's
assets--(A) In general. Disclosure under this paragraph (c)(4) is
required if, on the date the holder becomes related to the debtor,
indebtedness of the debtor represents more than 25 percent of the fair
market value of the total gross assets of the holder group (as defined
in paragraph (c)(5) of this section).
(B) Determination of total gross assets. In determining the total
gross assets of the holder group, total gross assets do not include any
cash, cash item, marketable stock or security, short-term indebtedness,
option, futures contract, notional principal contract, or similar item
(other than indebtedness of the debtor), nor do total gross assets
include any asset in which the holder has substantially reduced its risk
of loss. In addition, total gross assets do not include any ownership
interest in or indebtedness of a member of the holder group.
(iii) Indebtedness acquired within 6 to 24 months of becoming
related. Disclosure under this paragraph (c)(4) is required if the
holder acquired the indebtedness 6 months or more before the date the
holder becomes related to the debtor, but less than 24 months before
that date.
(iv) Contents of statement. A statement under this paragraph (c)(4)
must include the following--
(A) A caption identifying the statement as disclosure under
Sec. 1.108-2(c);
(B) An identification of the indebtedness with respect to which
disclosure is made;
(C) The amount of such indebtedness and the amount of income from
discharge of indebtedness is section 108(e)(4) were to apply;
(D) Whether paragraph (c)(4)(ii) or (iii) of this section applies to
the transaction; and
(E) A statement describing the facts and circumstances supporting
the debtor's position that the holder did not acquire the indebtedness
in anticipation of becoming related to the debtor.
[[Page 449]]
(v) Failure to disclose. In addition to any other penalties that may
apply, if a debtor fails to provide a statement required by this
paragraph (c)(4), the holder is presumed to have acquired the
indebtedness in anticipation of becoming related to the debtor unless
the facts and circumstances clearly established that the holder did not
acquire the indebtedness in anticipation of becoming related to the
debtor.
(5) Holder group. For purposes of this paragraph (c), the holder
group consists of the holder of the indebtedness and all persons who are
both--
(i) Related to the holder before the holder becomes related to the
debtor; and
(ii) Related to the debtor after the holder becomes related to the
debtor.
(6) Holding period--(i) Suspensions. The running of the holding
periods set forth in paragraphs (c)(3) and (c)(4)(iii) of this section
is suspended during any period in which the holder or any person related
to the holder is protected (directly or indirectly) against risk of loss
by an option, a short sale, or any other device or transaction.
(ii) Tacking. For purposes of paragraphs (c)(3) and (c)(4)(iii) of
this section, the period for which a holder held the debtor's
indebtedness includes--
(A) The period for which the indebtedness was held by a corporation
to whose attributes the holder succeeded pursuant to section 381; and
(B) The period (ending on the date on which the holder becomes
related to the debtor) for which the indebtedness was held continuously
by members of the holder group (as defined in paragraph (c)(5) of this
section).
(d) Definitions--(1) Acquisition date. For purposes of this section,
the acquisition date is the date on which a direct acquisition of
indebtedness or an indirect acquisition of indebtedness occurs.
(2) Relationship. For purposes of this section, persons are
considered related if they are related within the meaning of sections
267(b) or 707(b)(1). However--
(i) Sections 267(b) and 707(b)(1) are applied as if section
267(c)(4) provided that the family of an individual consists of the
individual's spouse, the individual's children, grandchildren, and
parents, and any spouse of the individual's children or grandchildren;
and
(ii) Two entities that are treated as a single employer under
subsection (b) or (c) of section 414 are treated as having a
relationship to each other that is described in section 267(b).
(e) Exceptions--(1) Indebtedness retired within one year. This
section does not apply to a direct or indirect acquisition of
indebtedness with a stated maturity date on or before the date that is
one year after the acquisition date, if the indebtedness is, in fact,
retired on or before its stated maturity date.
(2) Acquisitions by securities dealers. (i) This section does not
apply to a direct acquisition or an indirect acquisition of indebtedness
by a dealer that acquires and disposes of such indebtedness in the
ordinary course of its business of dealing in securities if--
(A) The dealer accounts for the indebtedness as a security held
primarily for sale to customers in the ordinary course of business;
(B) The dealer disposes of the indebtedness (or it matures while
held by the dealer) within a period consistent with the holding of the
indebtedness for sale to customers in the ordinary course of business,
taking into account the terms of the indebtedness and the conditions and
practices prevailing in the markets for similar indebtedness during the
period in which it is held; and
(C) The dealer does not sell or otherwise transfer the indebtedness
to a person related to the debtor (other than in a sale to a dealer that
in turn meets the requirements of this paragraph (e)(2)).
(ii) A dealer will continue to satisfy the conditions of this
paragraph (e)(2) with respect to indebtedness that is exchanged for
successor indebtedness in a transaction in which unrelated holders also
exchange indebtedness of the same issue, provided that the conditions of
this paragraph (e)(2) are met with respect to the successor
indebtedness.
(iii) For purposes of this paragraph (e)(2), if the period
consistent with the holding of indebtedness for sale to customers in the
ordinary course of business is 30 days or less, the dealer is considered
to dispose of indebtedness within that period if the aggregate principal
amount of indebtedness of
[[Page 450]]
that issue sold by the dealer to customers in the ordinary course of
business (or that mature and are paid while held by the dealer) in the
calendar month following the month in which the indebtedness is acquired
equals or exceeds the aggregate principal amount of indebtedness of that
issue held in the dealer's inventory at the close of the month in which
the indebtedness is acquired. If the period consistent with the holding
of indebtedness for sale to customers in the ordinary course of business
is greater than 30 days, the dealer is considered to dispose of the
indebtedness within that period if the aggregate principal amount of
indebtedness of that issue sold by the dealer to customers in the
ordinary course of business (or that mature and are paid while held by
the dealer) within that period equals or exceeds the aggregate principal
amount of indebtedness of that issue held in inventory at the close of
the day on which the indebtedness was acquired.
(f) Amount of discharge of indebtedness income realized--(1) Holder
acquired the indebtedness by purchase on or less than six months before
the acquisition date. Except as otherwise provided in this paragraph
(f), the amount of discharge of indebtedness income realized under
paragraph (a) of this section is measured by reference to the adjusted
basis of the related holder (or of the holder that becomes related to
the debtor) in the indebtedness on the acquisition date if the holder
acquired the indebtedness by purchase on or less than six months before
the acquisition date. For purposes of this paragraph (f), indebtedness
is acquired ``by purchase'' if the indebtedness in the hands of the
holder is not substituted basis property within the meaning of section
7701(a)(42). However, indebtedness is also considered acquired by
purchase within six months before the acquisition date if the holder
acquired the indebtedness as transferred basis property (within the
meaning of section 7701(a)(43)) from a person who acquired the
indebtedness by purchase on or less than six months before the
acquisition date.
(2) Holder did not acquire the indebtedness by purchase on or less
than six months before the acquisition date. Except as otherwise
provided in this paragraph (f), the amount of discharge of indebtedness
income realized under paragraph (a) of this section is measured by
reference to the fair market value of the indebtedness on the
acquisition date if the holder (or the transferor to the holder in a
transferred basis transaction) did not acquire the indebtedness by
purchase on or less than six months before the acquisition date.
(3) Acquisitions of indebtedness in nonrecognition transactions.
[Reserved]
(4) Avoidance transactions. The amount of discharge of indebtedness
income realized by the debtor under paragraph (a) of this section is
measured by reference to the fair market value of the indebtedness on
the acquisition date if the indebtedness is acquired in a direct or an
indirect acquisition in which a principal purpose for the acquisition is
the avoidance of federal income tax.
(g) Correlative adjustments--(1) Deemed issuance. For income tax
purposes, if a debtor realizes income from discharge of its indebtedness
in a direct or an indirect acquisition under this section (whether or
not the income is excludible under section 108(a)), the debtor's
indebtedness is treated as new indebtedness issued by the debtor to the
related holder on the acquisition date (the deemed issuance). The new
indebtedness is deemed issued with an issue price equal to the amount
used under paragraph (f) of this section to compute the amount realized
by the debtor under paragraph (a) of this section (i.e., either the
holder's adjusted basis or the fair market value of the indebtedness, as
the case may be). Under section 1273(a)(1), the excess of the stated
redemption price at maturity (as defined in section 1273(a)(2)) of the
indebtedness over its issue price is original issue discount (OID)
which, to the extent provided in sections 163 and 1272, is deductible by
the debtor and includible in the gross income of the related holder.
Notwithstanding the foregoing, the Commissioner may provide by Revenue
Procedure or other published guidance that the indebtedness is not
treated as newly issued indebtedness for purposes of designated
provisions of the income tax laws.
[[Page 451]]
(2) Treatment of related holder. The related holder does not
recognize any gain or loss on the deemed issuance described in paragraph
(g)(1) of this section. The related holder's adjusted basis in the
indebtedness remains the same as it was immediately before the deemed
issuance. The deemed issuance is treated as a purchase of the
indebtedness by the related holder for purposes of section 1272(a)(7)
(pertaining to reduction of original issue discount where a subsequent
holder pays acquisition premium) and section 1276 (pertaining to
acquisitions of debt at a market discount).
(3) Loss deferral on disposition of indebtedness acquired in certain
exchanges. (i) Any loss otherwise allowable to a related holder on the
disposition at any time of indebtedness acquired in a direct or indirect
acquisition (whether or not any discharge of indebtedness income was
realized under paragraph (a) of this section) is deferred until the date
the debtor retires the indebtedness if--
(A) The related holder acquired the debtor's indebtedness in
exchange for its own indebtedness; and
(B) The issue price of the related holder's indebtedness was not
determined by reference to its fair market value (e.g., the issue price
was determined under section 1273(b)(4) or 1274(a) or any other
provision of applicable law).
(ii) Any comparable tax benefit that would otherwise be available to
the holder, debtor, or any person related to either, in any other
transaction that directly or indirectly results in the disposition of
the indebtedness is also deferred until the date the debtor retires the
indebtedness.
(4) Examples. The following examples illustrate the application of
this paragraph (g). In each example, all taxpayers are calendar-year
taxpayers, no taxpayer is insolvent or under the jurisdiction of a court
in a title 11 case and no indebtedness is qualified farm indebtedness
described in section 108(g).
Example 1. (i) P, a domestic corporation, owns 70 percent of the
single class of stock of S, a domestic corporation. S has outstanding
indebtedness that has an issue price of $10,000,000 and provides for
monthly interest payments of $80,000 payable at the end of each month
and a payment at maturity of $10,000,000. The indebtedness has a stated
maturity date of December 31, 1994. On January 1, 1992, P purchases S's
indebtedness from I, an individual not related to S within the meaning
of paragraph (d)(2) of this section, for cash in the amount of
$9,000,000. S repays the indebtedness in full at maturity.
(ii) Under section 61(a)(12), section 108(e)(4), and paragraphs (a)
and (f) of this section, S realizes $1,000,000 of income from discharge
of indebtedness on January 1, 1992.
(iii) Under paragraph (g)(1) of this section, the indebtedness is
treated as issued to P on January 1, 1992, with an issue price of
$9,000,000. Under section 1273(a), the $1,000,000 excess of the stated
redemption price at maturity of the indebtedness ($10,000,000) over its
issue price ($9,000,000) is original issue discount, which is includible
in gross income by P and deductible by S over the remaining term of the
indebtedness under sections 163(e) and 1272(a).
(iv) Accordingly, S deducts and P includes in income original issue
discount, in addition to stated interest, as follows: in 1992,
$289,144.88; in 1993, $331,286.06; and in 1994, $379,569.06.
Example 2. The facts are the same as in Example 1, except that on
January 1, 1992, P sells S's indebtedness to J, who is not related to S
within the meaning of paragraph (d)(2) of this section, for $9,400,000
in cash. J holds S's indebtedness to maturity. On January 1, 1993, P's
adjusted basis in S's indebtedness is $9,289,144.88. Accordingly, P
realizes gain in the amount of $110,855.12 upon the disposition. S and J
continue to deduct and include the original issue discount on the
indebtedness in accordance with Example 1. The amount of original issue
discount includible by J is reduced by the $110,855.12 acquisition
premium as provided in section 1272(a)(7).
Example 3. The facts are the same as in Example 1, except that on
February 1, 1992 (one month after P purchased S's indebtedness), S
retires the indebtedness for an amount of cash equal to the fair market
value of the indebtedness. Assume that the fair market value of the
indebtedness is $9,022,621.41, which in this case equals the issue price
of indebtedness determined under paragraph (g)(1) of this section
($9,000,000) plus the accrued original issue discount through February 1
($22,621.41). Section 1.61-12(c)(3) provides that if indebtedness is
repurchased for a price that is exceeded by the issue price of the
indebtedness plus the amount of discount already deducted, the excess is
income from discharge of indebtedness. Therefore, S does not realize
income from discharge of indebtedness. The result would be the same if P
had contributed the indebtedness to the capital of S. Under section
108(e)(6), S would be treated as having satisfied the indebtedness
[[Page 452]]
with an amount of money equal to P's adjusted basis and, under section
1272(d)(2), P's adjusted basis is equal to $9,022,621.41.
Example 4. (i) P, a domestic corporation, owns 70 percent of the
single class of stock of S, a domestic corporation. On January 1, 1986,
P issued indebtedness that has an issue price of $5,000,000 and provides
for no stated interest payments and a payment at maturity of
$10,000,000. The indebtedness has a stated maturity date of December 31,
1995. On January 1, 1992, S purchases P's indebtedness from K, a
partnership not related to P within the meaning of paragraph (d)(2) of
this section, for cash in the amount of $6,000,000. The sum of the
debt's issue price and previously deducted original issue discount is
$7,578,582.83. P repays the indebtedness in full at maturity.
(ii) Under section 61(a)(12), section 108(e)(4), and paragraphs (a)
and (f) of this section, P realizes $1,578,582.83 in income from
discharge of indebtedness ($7,578,582.83 minus $6,000,000) on January 1,
1992.
(iii) Under paragraph (g)(1) of this section, the indebtedness is
treated as issued to S on January 1, 1992, with an issue price of
$6,000,000. Under section 1273(a), the $4,000,000 excess of the stated
redemption price at maturity of the indebtedness ($10,000,000) over its
issue price ($6,000,000) is orignial issue discount, which is includible
in gross income by S and deductible by P over the remaining term of the
indebtedness under sections 163(e) and 1272(a).
(iv) Accordingly, P deducts and S includes in income original issue
discount as follows: in 1992, $817,316.20; in 1993, $928,650.49; in
1994, $1,055,150.67; and in 1995, $1,198,882.64.
(h) Effective date. This section applies to any transaction
described in paragraph (a) and in either paragraph (b) or (c) of this
section with an acquisition date on or after March 21, 1991. Although
this section does not apply to direct or indirect acquisitions occurring
before March 21, 1991, section 108(e)(4) is effective for any
transaction after December 31, 1980, subject to the rules of section 7
of the Bankruptcy Tax Act of 1980 (Pub. L. 96-589, 94 Stat. 3389, 3411).
Taxpayers may use any reasonable method of determining the amount of
discharge of indebtedness income realized and the treatment of
correlative adjustments under section 108(e)(4) for acquisitions of
indebtedness before March 21, 1991, if such method is applied
consistently by both the debtor and related holder.
[T.D. 8460, 57 FR 61808, Dec. 29, 1992]
Sec. 1.108-3 Intercompany losses and deductions.
(a) General rule. This section applies to certain losses and
deductions from the sale, exchange, or other transfer of property
between corporations that are members of a consolidated group or a
controlled group (an intercompany transaction). See section 267(f)
(controlled groups) and Sec. 1.1502-13 (consolidated groups) for
applicable definitions. For purposes of determining the attributes to
which section 108(b) applies, a loss or deduction not yet taken into
account under section 267(f) or Sec. 1.1502-13 (an intercompany loss or
deduction) is treated as basis described in section 108(b) that the
transferor retains in property. To the extent a loss not yet taken into
account is reduced under this section, it cannot subsequently be taken
into account under section 267(f) or Sec. 1.1502-13. For example, if S
and B are corporations filing a consolidated return, and S sells land
with a $100 basis to B for $90 and the $10 loss is deferred under
section 267(f) and Sec. 1.1502-13, the deferred loss is treated for
purposes of section 108(b) as $10 of basis that S has in land (even
though S has no remaining interest in the land sold to B) and is subject
to reduction under section 108(b)(2)(E). Similar principles apply, with
appropriate adjustments, if S and B are members of a controlled group
and S's loss is deferred only under section 267(f).
(b) Effective date. This section applies with respect to discharges
of indebtedness occurring on or after September 11, 1995.
[T.D. 8597, 60 FR 36680, July 18, 1995]
Sec. 1.108-4 Election to reduce basis of depreciable property under
section 108(b)(5) of the Internal Revenue Code .
(a) Description. An election under section 108(b)(5) is available
whenever a taxpayer excludes discharge of indebtedness income (COD
income) from gross income under sections 108(a)(1)(A), (B), or (C)
(concerning title 11 cases, insolvency, and qualified farm indebtedness,
respectively). See sections 108(d)(2) and (3) for the definitions of
title 11 case and insolvent. See section 108(g)(2) for the definition of
qualified farm indebtedness.
[[Page 453]]
(b) Time and manner. To make an election under section 108(b)(5), a
taxpayer must enter the appropriate information on Form 982, Reduction
of Tax Attributes Due to Discharge of Indebtedness (and Section 1082
Basis Adjustment), and attach the form to the timely filed (including
extensions) Federal income tax return for the taxable year in which the
taxpayer has COD income that is excluded from gross income under section
108(a). An election under this section may be revoked only with the
consent of the Commissioner.
(c) Effective date. This section applies to elections concerning
discharges of indebtedness occurring on or after October 22, 1998.
[T.D. 8787, 63 FR 56562, Oct. 22, 1998]
Sec. 1.108-5 Time and manner for making election under the Omnibus
Budget Reconciliation Act of 1993.
(a) Description. Section 108(c)(3)(C), as added by section 13150 of
the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66, 107 Stat.
446), allows certain noncorporate taxpayers to elect to treat certain
indebtedness described in section 108(c)(3) that is discharged after
December 31, 1992, as qualified real property business indebtedness.
This discharged indebtedness is excluded from gross income to the extent
allowed by section 108.
(b) Time and manner for making election. The election described in
this section must be made on the timely-filed (including extensions)
Federal income tax return for the taxable year in which the taxpayer has
discharge of indebtedness income that is excludible from gross income
under section 108(a). The election is to be made on a completed Form
982, in accordance with that Form and its instructions.
(c) Revocability of election. The election described in this section
is revocable with the consent of the Commissioner.
(d) Effective date. The rules set forth in this section are
effective December 27, 1993.
[T.D. 8688, 61 FR 65322, Dec. 12, 1996. Redesignated by T.D. 8787, 63 FR
56563, Oct. 22, 1998]
Sec. 1.108-6 Limitations on the exclusion of income from the discharge
of qualified real property business indebtedness.
(a) Indebtedness in excess of value. With respect to any qualified
real property business indebtedness that is discharged, the amount
excluded from gross income under section 108(a)(1)(D) (concerning
discharges of qualified real property business indebtedness) shall not
exceed the excess, if any, of the outstanding principal amount of that
indebtedness immediately before the discharge over the net fair market
value of the qualifying real property, as defined in Sec. 1.1017-
1(c)(1), immediately before the discharge. For purposes of this section,
net fair market value means the fair market value of the qualifying real
property (notwithstanding section 7701(g)), reduced by the outstanding
principal amount of any qualified real property business indebtedness
(other than the discharged indebtedness) that is secured by such
property immediately before and after the discharge. Also, for purposes
of section 108(c)(2)(A) and this section, outstanding principal amount
means the principal amount of indebtedness together with all additional
amounts owed that, immediately before the discharge, are equivalent to
principal, in that interest on such amounts would accrue and compound in
the future, except that outstanding principal amount shall not include
amounts that are subject to section 108(e)(2) and shall be adjusted to
account for unamortized premium and discount consistent with section
108(e)(3).
(b) Overall limitation. The amount excluded from gross income under
section 108(a)(1)(D) shall not exceed the aggregate adjusted bases of
all depreciable real property held by the taxpayer immediately before
the discharge (other than depreciable real property acquired in
contemplation of the discharge) reduced by the sum of any--
(1) Depreciation claimed for the taxable year the taxpayer excluded
discharge of indebtedness from gross income under section 108(a)(1)(D);
and
(2) Reductions to the adjusted bases of depreciable real property
required under section 108(b) or section 108(g) for the same taxable
year.
[[Page 454]]
(c) Effective date. This section applies to discharges of qualified
real property business indebtedness occurring on or after October 22,
1998.
[T.D. 8787, 63 FR 56563, Oct. 22, 1998]
Sec. 1.108-7 Reduction of attributes.
(a) In general. (1) If a taxpayer excludes discharge of indebtedness
income (COD income) from gross income under section 108(a)(1)(A), (B),
or (C), then the amount excluded shall be applied to reduce the
following tax attributes of the taxpayer in the following order:
(i) Net operating losses.
(ii) General business credits.
(iii) Minimum tax credits.
(iv) Capital loss carryovers.
(v) Basis of property.
(vi) Passive activity loss and credit carryovers.
(vii) Foreign tax credit carryovers.
(2) The taxpayer may elect under section 108(b)(5), however, to
apply any portion of the excluded COD income to reduce first the basis
of depreciable property. To the extent the excluded COD income is not so
applied, the taxpayer must then reduce any remaining tax attributes in
the order specified in section 108(b)(2). If the excluded COD income
exceeds the sum of the taxpayer's tax attributes, the excess is
permanently excluded from the taxpayer's gross income. For rules
relating to basis reductions required by sections 108(b)(2)(E) and
108(b)(5), see sections 1017 and 1.1017-1. For rules relating to the
time and manner for making an election under section 108(b)(5), see
Sec. 1.108-4.
(b) Carryovers and carrybacks. The tax attributes subject to
reduction under section 108(b)(2) and paragraph (a)(1) of this section
that are carryovers to the taxable year of the discharge, or that may be
carried back to taxable years preceding the year of the discharge, are
taken into account by the taxpayer for the taxable year of the discharge
or the preceding years, as the case may be, before such attributes are
reduced pursuant to section 108(b)(2) and paragraph (a)(1) of this
section.
(c) Transactions to which section 381 applies. If a taxpayer
realizes COD income that is excluded from gross income under section
108(a) either during or after a taxable year in which the taxpayer is
the distributor or transferor of assets in a transaction described in
section 381(a), any tax attributes to which the acquiring corporation
succeeds, including the basis of property acquired by the acquiring
corporation in the transaction, must reflect the reductions required by
section 108(b). For this purpose, all attributes listed in section
108(b)(2) immediately prior to the transaction described in section
381(a), but after the determination of tax for the year of the
distribution or transfer of assets, including basis of property, will be
available for reduction under section 108(b)(2). However, the basis of
stock or securities of the acquiring corporation, if any, received by
the taxpayer in exchange for the transferred assets shall not be
available for reduction under section 108(b)(2).
(d) Special rules for S corporations--(1) In general. If an S
corporation excludes COD income from gross income under section
108(a)(1)(A), (B), or (C), the amount excluded shall be applied to
reduce the S corporation's tax attributes under paragraph (a)(1) of this
section. For purposes of paragraph (a)(1)(i) of this section, the
aggregate amount of the shareholders' losses or deductions that are
disallowed for the taxable year of the discharge under section
1366(d)(1), including disallowed losses or deductions of a shareholder
that transfers all of the shareholder's stock in the S corporation
during the taxable year of the discharge, is treated as the net
operating loss tax attribute (deemed NOL) of the S corporation for the
taxable year of the discharge.
(2) Allocation of excess losses or deductions--(i) In general. If
the amount of an S corporation's deemed NOL exceeds the amount of the S
corporation's COD income that is excluded from gross income under
section 108(a)(1)(A), (B), or (C), the excess deemed NOL shall be
allocated to the shareholder or shareholders of the S corporation as a
loss or deduction that is disallowed under section 1366(d) for the
taxable year of the discharge.
(ii) Multiple shareholders--(A) In general. If an S corporation has
multiple shareholders, to determine the amount of the S corporation's
excess deemed
[[Page 455]]
NOL to be allocated to each shareholder under paragraph (d)(2)(i) of
this section, calculate with respect to each shareholder the
shareholder's excess amount. The shareholder's excess amount is the
amount (if any) by which the shareholder's losses or deductions
disallowed under section 1366(d)(1) (before any reduction under
paragraph (a)(1) of this section) exceed the amount of COD income that
would have been taken into account by that shareholder under section
1366(a) had the COD income not been excluded under section 108(a).
(B) Shareholders with a shareholder's excess amount. Each
shareholder that has a shareholder's excess amount, as determined under
paragraph (d)(2)(ii)(A) of this section, is allocated an amount equal to
the S corporation's excess deemed NOL multiplied by a fraction, the
numerator of which is the shareholder's excess amount and the
denominator of which is the sum of all shareholders' excess amounts.
(C) Shareholders with no shareholder's excess amount. If a
shareholder does not have a shareholder's excess amount as determined in
paragraph (d)(2)(ii)(A) of this section, none of the S corporation's
excess deemed NOL shall be allocated to that shareholder.
(iii) Terminating shareholder. Any amount of the S corporation's
excess deemed NOL allocated under paragraph (d)(2) of this section to a
shareholder that had transferred all of the shareholder's stock in the
corporation during the taxable year of the discharge is permanently
disallowed under Sec. 1.1366-2(a)(6), unless the transfer of stock is
described in section 1041(a). If the transfer of stock is described in
section 1041(a), the amount of the S corporation's excess deemed NOL
allocated to the transferor under paragraph (d)(2) of this section shall
be treated as a loss or deduction incurred by the corporation in the
succeeding taxable year with respect to the transferee. See section
1366(d)(2)(B).
(3) Character of excess losses or deductions allocated to a
shareholder. The character of an S corporation's excess deemed NOL that
is allocated to a shareholder under paragraph (d)(2) of this section
consists of a proportionate amount of each item of the shareholder's
loss or deduction that is disallowed for the taxable year of the
discharge under section 1366(d)(1).
(4) Information requirements. If an S corporation excludes COD
income from gross income under section 108(a) for a taxable year, each
shareholder of the S corporation during the taxable year of the
discharge must report to the S corporation the amount of the
shareholder's losses and deductions that are disallowed for the taxable
year of the discharge under section 1366(d)(1), even if that amount is
zero. If a shareholder fails to report the amount of the shareholder's
losses and deductions that are disallowed for the taxable year of the
discharge under section 1366(d)(1) to the S corporation, or if the S
corporation knows that the amount reported by the shareholder is
inaccurate, or if the information, as reported, appears to be incomplete
or incorrect, the S corporation may rely on its own books and records,
as well as other information available to the S corporation, to
determine the amount of the shareholder's losses and deductions that are
disallowed for the taxable year of the discharge under section
1366(d)(1), provided that the S corporation knows or reasonably believes
that its information presents an accurate reflection of the
shareholder's disallowed losses and deductions under section 1366(d)(1).
The S corporation must report to each shareholder the amount of the S
corporation's excess deemed NOL that is allocated to that shareholder
under paragraph (d)(2) of this section, even if that amount is zero, in
accordance with applicable forms and instructions.
(e) Examples. The following examples illustrate the application of
this section:
Example 1. (i) Facts. In Year 4, X, a corporation in a title 11
case, is entitled under section 108(a)(1)(A) to exclude from gross
income $100,000 of COD income. For Year 4, X has gross income in the
amount of $50,000. In each of Years 1 and 2, X had no taxable income or
loss. In Year 3, X had a net operating loss of $100,000, the use of
which when carried over to Year 4 is not subject to any restrictions
other than those of section 172.
(ii) Analysis. Pursuant to paragraph (b) of this section, X takes
into account the net operating loss carryover from Year 3 in computing
its taxable income for Year 4 before any portion of the COD income
excluded
[[Page 456]]
under section 108(a)(1)(A) is applied to reduce tax attributes. Thus,
the amount of the net operating loss carryover that is reduced under
section 108(b)(2) and paragraph (a) of this section is $50,000.
Example 2. (i) Facts. The facts are the same as in Example 1, except
that in Year 4 X sustains a net operating loss in the amount of
$100,000. In addition, in each of Years 2 and 3, X reported taxable
income in the amount of $25,000.
(ii) Analysis. Pursuant to paragraph (b) of this section and section
172, the net operating loss sustained in Year 4 is carried back to Years
2 and 3 before any portion of the COD income excluded under section
108(a)(1)(A) is applied to reduce tax attributes. Thus, the amount of
the net operating loss that is reduced under section 108(b)(2) and
paragraph (a) of this section is $50,000.
Example 3. (i) Facts. In Year 2, X, a corporation in a title 11
case, has outstanding debts of $200,000 and a depreciable asset that has
an adjusted basis of $75,000 and a fair market value of $100,000. X has
no other assets or liabilities. X has a net operating loss of $80,000
that is carried over to Year 2 but has no general business credit,
minimum tax credit, or capital loss carryovers. Under a plan of
reorganization, X transfers its asset to Corporation Y in exchange for Y
stock with a value of $100,000. X distributes the Y stock to its
creditors in exchange for release of their claims against X. X's
shareholders receive nothing in the transaction. The transaction
qualifies as a reorganization under section 368(a)(1)(G) that satisfies
the requirements of section 354(b)(1)(A) and (B). For Year 2, X has
gross income of $10,000 (without regard to any income from the discharge
of indebtedness) and is allowed a depreciation deduction of $10,000 in
respect of the asset. In addition, it generates no general business
credits.
(ii) Analysis. On the distribution of Y stock to X's creditors,
under section 108(a)(1)(A), X is entitled to exclude from gross income
the debt discharge amount of $100,000. (Under section 108(e)(8), X is
treated as satisfying $100,000 of the debt owed the creditors for
$100,000, the fair market value of the Y stock transferred to those
creditors.) In Year 2, X has no taxable income or loss because its gross
income is exactly offset by the depreciation deduction. As a result of
the depreciation deduction, X's basis in the asset is reduced by $10,000
to $65,000. Pursuant to paragraph (c) of this section, the amount of X's
net operating loss to which Y succeeds pursuant to section 381 and the
basis of X's property transferred to Y must take into account the
reductions required by section 108(b). Pursuant to paragraph (a) of this
section, X's net operating loss carryover in the amount of $80,000 is
reduced by $80,000 of the COD income excluded under section 108(a)(1).
In addition, X's basis in the asset is reduced by $20,000, the extent to
which the COD income excluded under section 108(a)(1) did not reduce the
net operating loss. Accordingly, as a result of the reorganization,
there is no net operating loss to which Y succeeds under section 381.
Pursuant to section 361, X recognizes no gain or loss on the transfer of
its property to Y. Pursuant to section 362(b), Y's basis in the asset
acquired from X is $45,000.
Example 4. (i) Facts. The facts are the same as in Example 3, except
that X elects under section 108(b)(5) to reduce first the basis of its
depreciable asset.
(ii) Analysis. As in Example 3, on the distribution of Y stock to
X's creditors, under section 108(a)(1)(A), X is entitled to exclude from
gross income the debt discharge amount of $100,000. In addition, in Year
2, X has no taxable income or loss because its gross income is exactly
offset by the depreciation deduction. As a result of the depreciation
deduction, X's basis in the asset is reduced by $10,000 to $65,000.
Pursuant to paragraph (c) of this section, the amount of X's net
operating loss to which Y succeeds pursuant to section 381 and the basis
of X's property transferred to Y must take into account the reductions
required by section 108(b). As a result of the election under section
108(b)(5), X's basis in the asset is reduced by $65,000 to $0. In
addition, X's net operating loss is reduced by $35,000, the extent to
which the amount excluded from income under section 108(a)(1)(A) does
not reduce X's asset basis. Accordingly, as a result of the
reorganization, Y succeeds to X's net operating loss in the amount of
$45,000 under section 381. Pursuant to section 361, X recognizes no gain
or loss on the transfer of its property to Y. Pursuant to section
362(b), Y's basis in the asset acquired from X is $0.
Example 5. (i) Facts. During the entire calendar year 2009, A, B,
and C each own equal shares of stock in X, a calendar year S
corporation. As of December 31, 2009, A, B, and C each have a zero stock
basis and X does not have any indebtedness to A, B, or C. For the 2009
taxable year, X excludes from gross income $45,000 of COD income under
section 108(a)(1)(A). The COD income (had it not been excluded) would
have been allocated $15,000 to A, $15,000 to B, and $15,000 to C under
section 1366(a). For the 2009 taxable year, X has $30,000 of losses and
deductions that X passes through pro rata to A, B, and C in the amount
of $10,000 each. The losses and deductions that pass through to A, B,
and C are disallowed under section 1366(d)(1). In addition, B has
$10,000 of section 1366(d) losses from prior years and C has $20,000 of
section 1366(d) losses from prior years. A's ($10,000), B's ($20,000)
and C's ($30,000) combined $60,000 of disallowed losses and deductions
for the taxable year of the discharge are treated as a current year net
operating loss tax attribute of X under section 108(d)(7)(B)
[[Page 457]]
(deemed NOL) for purposes of the section 108(b) reduction of tax
attributes.
(ii) Allocation. Under section 108(b)(2)(A), X's $45,000 of excluded
COD income reduces the $60,000 deemed NOL to $15,000. Therefore, X has a
$15,000 excess net operating loss (excess deemed NOL) to allocate to its
shareholders. Under paragraph (d)(2)(ii)(C) of this section, none of the
$15,000 excess deemed NOL is allocated to A because A's section 1366(d)
losses and deductions immediately prior to the section 108(b)(2)(A)
reduction ($10,000) do not exceed A's share of the excluded COD income
for 2008 ($15,000). Thus, A has no shareholder's excess amount. Each of
B's and C's respective section 1366(d) losses and deductions immediately
prior to the section 108(b)(2)(A) reduction exceed each of B's and C's
respective shares of the excluded COD income for 2008. B's excess amount
is $5,000 ($20,000-$15,000) and C's excess amount is $15,000
($30,000-$15,000). Therefore, the total of all shareholders' excess
amounts is $20,000. Under paragraph (d)(2) of this section, X will
allocate $3,750 of the $15,000 excess deemed NOL to B ($15,000 x
$5,000/$20,000) and $11,250 of the $15,000 excess deemed NOL to C
($15,000 x $15,000/$20,000). These amounts are treated as losses and
deductions disallowed under section 1366(d)(1) for the taxable year of
the discharge. Accordingly, at the beginning of 2010, A has no section
1366(d)(2) carryovers, B has $3,750 of carryovers, and C has $11,250 of
carryovers.
(iii) Character. Immediately prior to the section 108(b)(2)(A)
reduction, B's $20,000 of section 1366(d) losses and deductions
consisted of $8,000 of long-term capital losses, $7,000 of section 1231
losses, and $5,000 of ordinary losses. After the section 108(b)(2)(A)
tax attribute reduction, X will allocate $3,750 of the excess deemed NOL
to B. Under paragraph (d)(3) of this section, the $3,750 excess deemed
NOL allocated to B consists of $1,500 of long-term capital losses
(($8,000/$20,000) x $3,750), $1,312.50 of section 1231 losses
(($7,000/$20,000) x $3,750), and $937.50 of ordinary losses (($5,000/
$20,000) x $3,750). As a result, at the beginning of 2010, B's $3,750
of section 1366(d)(2) carryovers consist of $1,500 of long-term capital
losses, $1,312.50 of section 1231 losses, and $937.50 of ordinary
losses.
Example 6. (i) A and B each own 50 percent of the shares of stock in
X, a calendar year S corporation. On March 1, 2009, X realizes $12,000
of COD income and excludes this amount from gross income under section
108(a)(1)(A) for X's 2009 taxable year. On June 30, 2009, A sells all of
her shares of stock in X to C in a transfer not described in section
1041(a). X does not make a terminating election under section
1377(a)(2). The COD income (had it not been excluded) would have been
allocated $3,000 to A, $6,000 to B, and $3,000 to C under section
1366(a). Prior to the section 108(b)(2)(A) reduction, for the taxable
year of the discharge the shareholders have disallowed losses and
deductions under section 1366(d) (including disallowed losses carried
over to the current year under section 1366(d)(2)) in the following
amounts: A--$5,000, B--$13,000, and C--$2,000. The combined $20,000 of
disallowed losses and deductions for the taxable year of the discharge
are treated as a current year net operating loss tax attribute of X
under section 108(d)(7)(B) (deemed NOL).
(ii) Under section 108(b)(2)(A), X's $12,000 of excluded COD income
reduces the $20,000 deemed NOL to $8,000. Therefore, X has an $8,000
excess net operating loss (excess deemed NOL) to allocate to its
shareholders. Under paragraph (d)(2)(ii)(C) of this section, none of the
$8,000 excess deemed NOL is allocated to C because C's section 1366(d)
losses and deductions immediately prior to the section 108(b)(2)(A)
reduction ($2,000) do not exceed C's share of the excluded COD income
for 2008 ($3,000). However, each of A's and B's respective section
1366(d) losses and deductions immediately prior to the section
108(b)(2)(A) reduction exceed each of A's and B's respective shares of
the excluded COD income for 2009. A's excess amount is $2,000
($5,000-$3,000) and B's excess amount is $7,000 ($13,000-$6,000).
Therefore, the total of all shareholders' excess amounts is $9,000.
Under paragraph (d)(2) of this section, X will allocate $1,777.78 of the
$8,000 excess deemed NOL to A ($8,000 x $2,000/$9,000) and $6,222.22
of the $8,000 excess deemed NOL to B ($8,000 x $7,000/$9,000).
However, because A transferred all of her shares of stock in X in a
transaction not described in section 1041(a), A's $1,777.78 of section
1366(d) losses and deductions are permanently disallowed under paragraph
(d)(2)(iii) of this section. Accordingly, at the beginning of 2010, B
has $6,222.22 of section 1366(d)(2) carryovers and C has no section
1366(d)(2) carryovers.
Example 7. The facts are the same as in Example 6, except that X,
with the consent of A and C, makes a terminating election under section
1377(a)(2) upon A's sale of her stock in X to C. Therefore, the COD
income (had it not been excluded) would have been allocated $6,000 to A,
$6,000 to B, and $0 to C. Under paragraph (d)(2)(ii)(C) of this section,
none of the $8,000 excess deemed NOL is allocated to A because A's
section 1366(d) losses and deductions immediately prior to the section
108(b)(2)(A) reduction ($5,000) do not exceed A's share of the excluded
COD income for 2009 ($6,000). However, each of B's and C's respective
section 1366(d) losses and deductions immediately prior to the section
108(b)(2)(A) reduction exceed each of B's and C's respective shares of
the excluded COD income for 2009. B's excess amount is $7,000
($13,000-$6,000), C's excess amount is $2,000 ($2,000-$0). Therefore,
the total of all shareholders' excess amounts is $9,000. Under paragraph
(d)(2) of this section, X will allocate $6,222.22 of the $8,000 excess
deemed NOL
[[Page 458]]
to B ($8,000 x $7,000/$9,000) and $1,777.78 of the $8,000 excess
deemed NOL to C. Accordingly, at the beginning of 2010, B has $6,222.22
of section 1366(d)(2) carryovers and C has $1,777.78 of section
1366(d)(2) carryovers.
(f) Effective/applicability date--(1) Paragraphs (a), (b), (c), and
Examples 1, 2, 3, and 4 of paragraph (e) of this section apply to
discharges of indebtedness occurring on or after May 10, 2004.
(2) Paragraph (d) and Examples 5, 6, and 7 of paragraph (e) of this
section apply to discharges of indebtedness occurring on or after
October 30, 2009. Paragraph (d)(2)(iii) of this section applies on and
after July 23, 2014. For rules that apply before that date, see 26 CFR
part 1 (revised as of April 1, 2014).
[T.D. 9080, 68 FR 42592, July 18, 2003; 68 FR 56556, Oct. 1, 2003.
Redesignated and amended by T.D. 9127, 69 FR 26039, May 11, 2004; T.D.
9469, 74 FR 56111, Oct. 30, 2009; T.D. 9682, 79 FR 42677, July 23, 2014]
Sec. 1.108-8 Indebtedness satisfied by partnership interest.
(a) In general. For purposes of determining income of a debtor from
discharge of indebtedness (COD income), if a debtor partnership
transfers a capital or profits interest in the partnership to a creditor
in satisfaction of its recourse or nonrecourse indebtedness (a debt-for-
equity exchange), the partnership is treated as having satisfied the
indebtedness with an amount of money equal to the fair market value of
the partnership interest.
(b) Determination of fair market value--(1) In general. All the
facts and circumstances are considered in determining the fair market
value of a partnership interest transferred by a debtor partnership to a
creditor in satisfaction of the debtor partnership's indebtedness (debt-
for-equity interest) for purposes of paragraph (a) of this section. If
the fair market value of the debt-for-equity interest does not equal the
fair market value of the indebtedness exchanged, then general tax law
principles shall apply to account for the difference.
(2) Safe harbor--(i) General rule. For purposes of paragraph (a) of
this section, the fair market value of a debt-for-equity interest is
deemed to be equal to the liquidation value of the debt-for-equity
interest, as defined in paragraph (b)(2)(iii) of this section, if the
following requirements are satisfied--
(A) The creditor, debtor partnership, and its partners treat the
fair market value of the indebtedness as being equal to the liquidation
value of the debt-for-equity interest for purposes of determining the
tax consequences of the debt-for-equity exchange;
(B) If, as part of the same overall transaction, the debtor
partnership transfers more than one debt-for-equity interest to one or
more creditors, then each creditor, debtor partnership, and its partners
treat the fair market value of each debt-for-equity interest transferred
by the debtor partnership to such creditors as equal to its liquidation
value;
(C) The debt-for-equity exchange is a transaction that has terms
that are comparable to terms that would be agreed to by unrelated
parties negotiating with adverse interests; and
(D) Subsequent to the debt-for-equity exchange, the debtor
partnership does not redeem the debt-for-equity interest, and no person
bearing a relationship to the debtor partnership or its partners that is
specified in section 267(b) or section 707(b) purchases the debt-for-
equity interest, as part of a plan at the time of the debt-for-equity
exchange that has as a principal purpose the avoidance of COD income by
the debtor partnership.
(ii) Tiered-partnership rule. For purposes of this paragraph (b)(2),
the liquidation value of a debt-for-equity interest in a partnership
(upper-tier partnership) that directly or indirectly owns an interest in
one or more partnerships (lower-tier partnership(s)) is determined by
taking into account the liquidation value of such lower-tier partnership
interests.
(iii) Definition of liquidation value. For purposes of this
paragraph (b)(2), the liquidation value of a debt-for-equity interest
equals the amount of cash that the creditor would receive with respect
to the debt-for-equity interest if, immediately after the debt-for-
equity exchange, the partnership sold all of its assets (including
goodwill, going concern value, and any other intangibles) for cash equal
to the fair market value of those assets and then liquidated.
[[Page 459]]
(c) Example. The following example illustrates the provisions of
this section:
Example. (i) AB partnership has $1,000 of outstanding indebtedness
owed to C. C agrees to transfer to AB partnership the $1,000
indebtedness in a debt-for-equity exchange for a debt-for-equity
interest in AB partnership. The liquidation value of C's debt-for-equity
interest is $700, which is the amount of cash that C would receive with
respect to that interest if, immediately after the debt-for-equity
exchange, AB partnership sold all of its assets for cash equal to the
fair market value of those assets and then liquidated. Each of the
requirements of the liquidation value safe harbor described in paragraph
(b)(2) of this section is satisfied.
(ii) Because the requirements in paragraph (b)(2) of this section
are satisfied, the fair market value of C's debt-for-equity interest in
AB partnership for purposes of determining AB partnership's COD income
is the liquidation value of C's debt-for-equity interest, or $700.
Accordingly, AB partnership is treated as satisfying the $1,000
indebtedness for $700 under section 108(e)(8).
(d) Effective/applicability date. This section applies to debt-for-
equity exchanges occurring on or after November 17, 2011.
[T.D. 9557, 76 FR 71258, Nov. 17, 2011]
Sec. 1.108-9 Application of the bankruptcy and the insolvency
provisions of section 108 to grantor trusts and disregarded entities.
(a) General rule--(1) Owner is the taxpayer. For purposes of
applying section 108(a)(1)(A) and (B) to discharge of indebtedness
income of a grantor trust or a disregarded entity, neither the grantor
trust nor the disregarded entity shall be considered to be the
``taxpayer,'' as that term is used in section 108(a)(1) and (d)(1)
through (3). Rather, for purposes of section 108(a)(1)(A) and (B) and
(d)(1) through (3) and subject to section 108(d)(6), the owner of the
grantor trust or the owner of the disregarded entity is the
``taxpayer.''
(2) The bankruptcy exclusion. If indebtedness of a grantor trust or
a disregarded entity is discharged in a title 11 case, section
108(a)(1)(A) applies to that discharged indebtedness only if the owner
of the grantor trust or the owner of the disregarded entity is under the
jurisdiction of the court in a title 11 case as the title 11 debtor. If
the grantor trust or the disregarded entity is under the jurisdiction of
the court in a title 11 case as the title 11 debtor, but the owner of
the grantor trust or the owner of the disregarded entity is not, section
108(a)(1)(A) does not apply to the discharge of indebtedness income.
(3) The insolvency exclusion. Section 108(a)(1)(B) applies to the
discharged indebtedness of a grantor trust or a disregarded entity only
to the extent the owner of the grantor trust or the owner of the
disregarded entity is insolvent. If the grantor trust or the disregarded
entity is insolvent, but the owner of the grantor trust or the owner of
the disregarded entity is solvent, section 108(a)(1)(B) does not apply
to the discharge of indebtedness income.
(b) Application to partnerships. Under section 108(d)(6), in the
case of a partnership, section 108(a)(1)(A) and (B) applies at the
partner level. If a partnership holds an interest in a grantor trust or
a disregarded entity, the applicability of section 108(a)(1)(A) and (B)
to the discharge of indebtedness income is tested by looking to each
partner to whom the income is allocable.
(c) Definitions--(1) Disregarded entity. For purposes of this
section, a disregarded entity is an entity that is disregarded as an
entity separate from its owner for Federal income tax purposes. See
Sec. 301.7701-2(c)(2)(i) of this chapter, the Procedure and
Administration Regulations. Examples of disregarded entities include a
domestic single-member limited liability company that does not elect to
be classified as a corporation for Federal income tax purposes pursuant
to Sec. 301.7701-3 of this chapter, a corporation that is a qualified
REIT subsidiary (within the meaning of section 856(i)(2)), and a
corporation that is a qualified subchapter S subsidiary (within the
meaning of section 1361(b)(3)(B)).
(2) Grantor trust. For purposes of this section, a grantor trust is
any portion of a trust that is treated under subpart E of part I of
subchapter J of chapter 1 of subtitle A of title 26 of the United States
Code as being owned by the grantor or another person.
[[Page 460]]
(3) Owner. Notwithstanding any other provision of this section to
the contrary, neither a grantor trust nor a disregarded entity shall be
considered an owner for purposes of this section.
(4) Title 11 debtor. For purposes of this section, a title 11 debtor
is a debtor in a case under title 11 of the United States Code, as
defined in 11 U.S.C. 101(13).
(d) Applicability date. The rules of this section apply to discharge
of indebtedness income occurring on or after June 10, 2016.
[T.D. 9771, 81 FR 37507, June 10, 2016]
Sec. 1.108(c)-1T [Reserved]
Sec. 1.108(i)-0 Definitions and effective/applicability dates.
(a) Definitions. For purposes of regulations under section 108(i)--
(1) Acquisition. An acquisition, with respect to any applicable debt
instrument, includes an acquisition of the debt instrument for cash or
other property, the exchange of the debt instrument for another debt
instrument (including an exchange resulting from a modification of the
debt instrument), the exchange of the debt instrument for corporate
stock or a partnership interest, the contribution of the debt instrument
to capital, the complete forgiveness of the indebtedness by the holder
of the debt instrument, and a direct or an indirect acquisition within
the meaning of Sec. 1.108-2.
(2) Applicable debt instrument. An applicable debt instrument is a
debt instrument that was issued by a C corporation or any other person
in connection with the conduct of a trade or business by such person. In
the case of an intercompany obligation (as defined in Sec. 1.1502-
13(g)(2)(ii)), applicable debt instrument includes only an instrument
for which COD income is realized upon the instrument's deemed
satisfaction under Sec. 1.1502-13(g)(5).
(3) C corporation issuer. C corporation issuer means a C corporation
that issues a debt instrument with any deferred OID deduction.
(4) C corporation partner. A C corporation partner is a C
corporation that is a direct or indirect partner of an electing
partnership or a related partnership.
(5) COD income. COD income means income from the discharge of
indebtedness, as determined under sections 61(a)(12) and 108(a) and the
regulations under those sections.
(6) COD income amount. A COD income amount is a partner's
distributive share of COD income with respect to an applicable debt
instrument of an electing partnership.
(7) Debt instrument. Debt instrument means a bond, debenture, note,
certificate, or any other instrument or contractual arrangement
constituting indebtedness (within the meaning of section 1275(a)(1)).
(8) Deferral period. For a reacquisition that occurs in 2009,
deferral period means the taxable year of the reacquisition and the four
taxable years following such taxable year. For a reacquisition that
occurs in 2010, deferral period means the taxable year of the
reacquisition and the three taxable years following such taxable year.
(9) Deferred amount. A deferred amount is the portion of a partner's
COD income amount with respect to an applicable debt instrument that is
deferred under section 108(i).
(10) Deferred COD income. Deferred COD income means COD income that
is deferred under section 108(i).
(11) Deferred item. A deferred item is any item of deferred COD
income or deferred OID deduction that has not been previously taken into
account under section 108(i).
(12) Deferred OID deduction. A deferred OID deduction means an
otherwise allowable deduction for OID that is deferred under section
108(i)(2) with respect to a debt instrument issued (or treated as issued
under section 108(e)(4)) in a debt-for-debt exchange described in
section 108(i)(2)(A) or a deemed debt-for-debt exchange described in
Sec. 1.108(i)-3(a).
(13) Deferred section 465 amount. A deferred section 465 amount is
described in paragraph (d)(3) of Sec. 1.108(i)-2.
(14) Deferred section 752 amount. A deferred section 752 amount is
described in paragraph (b)(3) of Sec. 1.108(i)-2.
(15) Direct partner. A direct partner is a person that owns a direct
interest in a partnership.
(16) Electing corporation. An electing corporation is a C
corporation with deferred COD income by reason of a section 108(i)
election.
[[Page 461]]
(17) Electing entity. An electing entity is an entity that is a
taxpayer that makes an election under section 108(i).
(18) Electing member. An electing member is an electing corporation
that is a member of an affiliated group that files a consolidated
return.
(19) Electing partnership. An electing partnership is a partnership
that makes an election under section 108(i).
(20) Electing S corporation. An electing S corporation is an S
corporation that makes an election under section 108(i).
(21) Included amount. An included amount is the portion of a
partner's COD income amount with respect to an applicable debt
instrument that is not deferred under section 108(i) and is included in
the partner's distributive share of partnership income for the taxable
year of the partnership in which the reacquisition occurs.
(22) Inclusion period. The inclusion period is the five taxable
years following the last taxable year of the deferral period.
(23) Indirect partner. An indirect partner is a person that owns an
interest in a partnership through an S corporation and/or one or more
partnerships.
(24) Issuing entity. An issuing entity is any entity that is--
(i) A related partnership;
(ii) A related S corporation;
(iii) An electing partnership that issues a debt instrument (or is
treated as issuing a debt instrument under section 108(e)(4)) in a debt-
for-debt exchange described in section 108(i)(2)(A) or a deemed debt-
for-debt exchange described in Sec. 1.108(i)-3(a); or
(iv) An electing S corporation that issues a debt instrument (or is
treated as issuing a debt instrument under section 108(e)(4)) in a debt-
for-debt exchange described in section 108(i)(2)(A) or a deemed debt-
for-debt exchange described in Sec. 1.108(i)-3(a).
(25) OID. OID means original issue discount, as determined under
sections 1271 through 1275 (and the regulations under those sections).
If the amount of OID with respect to a debt instrument is less than a de
minimis amount as determined under Sec. 1.1273-1(d), the OID is treated
as zero for purposes of section 108(i)(2).
(26) Reacquisition. A reacquisition, with respect to any applicable
debt instrument, is any event occurring after December 31, 2008 and
before January 1, 2011, that causes COD income with respect to such
applicable debt instrument, including any acquisition of the debt
instrument by the debtor that issued (or is otherwise the obligor under)
the debt instrument or a person related to such debtor (within the
meaning of section 108(i)(5)(A)).
(27) Related partnership. A related partnership is a partnership
that is related to the electing entity (within the meaning of section
108(i)(5)(A)) and that issues a debt instrument in a debt-for-debt
exchange described in section 108(i)(2)(A) or a deemed debt-for-debt
exchange described in Sec. 1.108(i)-3(a).
(28) Related S corporation. A related S corporation is an S
corporation that is related to the electing entity (within the meaning
of section 108(i)(5)(A)) and that issues a debt instrument in a debt-
for-debt exchange described in section 108(i)(2)(A) or a deemed debt-
for-debt exchange described in Sec. 1.108(i)-3(a).
(29) Separate interest. A separate interest is a direct interest in
an electing partnership or in a partnership or S corporation that is a
direct or indirect partner of an electing partnership.
(30) S corporation partner. An S corporation partner is an S
corporation that is a direct or indirect partner of an electing
partnership or a related partnership.
(b) Effective/Applicability dates--(1) In general. The rules of this
section, Sec. 1.108(i)-1, and Sec. 1.108(i)-2, apply on or after July 2,
2013, to reacquisitions of applicable debt instruments in taxable years
ending after December 31, 2008. In addition, the rules of Sec. 1.108(i)-
3 apply on or after July 2, 2013, to debt instruments issued after
December 31, 2008, in connection with reacquisitions of applicable debt
instruments in taxable years ending after December 31, 2008.
(2) Prior periods. For rules applying before July 2, 2013, see
Sec. 1.108(i)-0T, Sec. 1.108(i)-1T, Sec. 1.108(i)-2T, and Sec. 1.108(i)-
3T, as contained in 26 CFR part 1, revised April 1, 2013.
[T.D. 9622, 78 FR 39986, July 3, 2013; 78 FR 48607, Aug. 9, 2013]
[[Page 462]]
Sec. 1.108(i)-1 Deferred discharge of indebtedness income and
deferred original issue discount deductions of C corporations.
(a) Overview. Section 108(i)(1) provides an election for the
deferral of COD income arising in connection with the reacquisition of
an applicable debt instrument. An electing corporation generally
includes deferred COD income ratably over the inclusion period.
Paragraph (b) of this section provides rules for the mandatory
acceleration of an electing corporation's remaining deferred COD income,
the mandatory acceleration of a C corporation issuer's deferred OID
deductions, and for the elective acceleration of an electing member's
(other than the common parent's) remaining deferred COD income.
Paragraph (c) of this section provides examples illustrating the
application of the mandatory and elective acceleration rules. Paragraph
(d) of this section provides rules for the computation of an electing
corporation's earnings and profits. Paragraph (e) of this section refers
to the effective/applicability dates.
(b) Acceleration events--(1) Deferred COD income. Except as
otherwise provided in paragraphs (b)(2) and (3) of this section, and
Sec. 1.108(i)-2(b)(6) (in the case of a corporate partner), an electing
corporation's deferred COD income is taken into account ratably over the
inclusion period.
(2) Mandatory acceleration events. An electing corporation takes
into account all of its remaining deferred COD income, including its
share of an electing partnership's deferred COD income, immediately
before the occurrence of any one of the events described in this
paragraph (b)(2) (mandatory acceleration events), regardless of whether
the electing corporation is in a title 11 or similar case at the time
the mandatory acceleration event occurs.
(i) Changes in tax status. The electing corporation changes its tax
status. For purposes of the preceding sentence, an electing corporation
is treated as changing its tax status if it becomes one of the following
entities:
(A) A tax-exempt entity as defined in Sec. 1.337(d)-4(c)(2).
(B) An S corporation as defined in section 1361(a)(1).
(C) A qualified subchapter S subsidiary as defined in section
1361(b)(3)(B).
(D) An entity operating on a cooperative basis within the meaning of
section 1381.
(E) A regulated investment company (RIC) as defined in section 851
or a real estate investment trust (REIT) as defined in section 856.
(F) A qualified REIT subsidiary as defined in section 856(i), but
only if the qualified REIT subsidiary was not a REIT immediately before
it became a qualified REIT subsidiary.
(ii) Cessation of corporate existence--(A) In general. The electing
corporation ceases to exist for Federal income tax purposes.
(B) Exception for section 381(a) transactions--(1) In general. The
electing corporation is not treated as ceasing to exist and is not
required to take into account its remaining deferred COD income solely
because its assets are acquired in a transaction to which section 381(a)
applies. In such a case, the acquiring corporation succeeds to the
electing corporation's remaining deferred COD income and becomes subject
to section 108(i) and the regulations thereunder, including all
reporting requirements, as if the acquiring corporation were the
electing corporation. A transaction is not treated as one to which
section 381(a) applies for purposes of this paragraph (b)(2)(ii)(B) in
the following circumstances--
(i) The acquisition of the assets of an electing corporation by an S
corporation, if the acquisition is described in section 1374(d)(8);
(ii) The acquisition of the assets of an electing corporation by a
RIC or REIT, if the acquisition is described in Sec. 1.337(d)-
7(a)(2)(ii);
(iii) The acquisition of the assets of a domestic electing
corporation by a foreign corporation;
(iv) The acquisition of the assets of a foreign electing corporation
by a domestic corporation, if as a result of the transaction, one or
more exchanging shareholders include in income as a deemed dividend the
all earnings and profits amount with respect to stock in the foreign
electing corporation pursuant to Sec. 1.367(b)-3(b)(3);
[[Page 463]]
(v) The acquisition of the assets of an electing corporation by a
tax-exempt entity as defined in Sec. 1.337(d)-4(c)(2); or
(vi) The acquisition of the assets of an electing corporation by an
entity operating on a cooperative basis within the meaning of section
1381.
(2) Special rules for consolidated groups--(i) Liquidations. For
purposes of paragraph (b)(2)(ii)(B) of this section, the acquisition of
assets by distributee members of a consolidated group upon the
liquidation of an electing corporation is not treated as a transaction
to which section 381(a) applies, unless immediately prior to the
liquidation, one of the distributee members owns stock in the electing
corporation meeting the requirements of section 1504(a)(2) (without
regard to Sec. 1.1502-34). See Sec. 1.1502-80(g).
(ii) Taxable years. In the case of an intercompany transaction to
which section 381(a) applies, the transaction does not cause the
transferor or distributor to have a short taxable year for purposes of
determining the taxable year of the deferral and inclusion period.
(iii) Net value acceleration rule--(A) In general. The electing
corporation engages in an impairment transaction and, immediately after
the transaction, the gross value of the electing corporation's assets
(gross asset value) is less than one hundred and ten percent of the sum
of its total liabilities and the tax on the net amount of its deferred
items (the net value floor) (the net value acceleration rule).
Impairment transactions are any transactions, however effected, that
impair an electing corporation's ability to pay the amount of Federal
income tax liability on its deferred COD income and include, for
example, distributions (including section 381(a) transactions),
redemptions, below-market sales, charitable contributions, and the
incurrence of additional indebtedness without a corresponding increase
in asset value. Value-for-value sales or exchanges (for example, an
exchange to which section 351 or section 721 applies), or mere declines
in the market value of the electing corporation's assets are not
impairment transactions. In addition, an electing corporation's
investments and expenditures in pursuance of its good faith business
judgment are not impairment transactions. For purposes of determining an
electing corporation's gross asset value, the amount of any distribution
that is not treated as an impairment transaction under paragraph
(b)(2)(iii)(D) of this section (distributions and charitable
contributions consistent with historical practice) or under paragraph
(b)(2)(iii)(E) of this section (special rules for RICs and REITs) is
treated as an asset of the electing corporation. Solely for purposes of
computing the amount of the net value floor, the tax on the deferred
items is determined by applying the highest rate of tax specified in
section 11(b) for the taxable year.
(B) Transactions integrated. Any transaction that occurs before the
reacquisition of an applicable debt instrument, but that occurs pursuant
to the same plan as the reacquisition, is taken into account in
determining whether the gross asset value of the electing corporation is
less than the net value floor.
(C) Corrective action to restore net value. An electing corporation
is not required to take into account its deferred COD income under the
net value acceleration rule of paragraph (b)(2)(iii)(A) of this section
if, before the due date of the electing corporation's return (including
extensions), value is restored in a transaction in an amount equal to
the lesser of--
(1) The amount of value that was removed from the electing
corporation in one or more impairment transactions (net of amounts
previously restored under this paragraph (b)(2)(iii)(C)); or
(2) The amount by which the electing corporation's net value floor
exceeds its gross asset value.
For example, assume an electing corporation incurs $50 of debt,
distributes the $50 of proceeds to its shareholder, and immediately
after the distribution, the electing corporation's gross asset value is
below the net value floor by $25. The electing corporation may avoid the
inclusion of its remaining deferred COD income if value of at least $25
is restored to it before the due date of the electing corporation's tax
return (including extensions) for the taxable year that includes the
distribution.
[[Page 464]]
The value that must be restored is determined at the time of the
impairment transaction on a net value basis (for example, additional
borrowings by an electing corporation do not restore value).
(D) Exceptions for distributions and charitable contributions that
are consistent with historical practice. An electing corporation's
distributions are not treated as impairment transactions (and are not
taken into account as a reduction of the electing corporation's gross
asset value when applying the net value acceleration rule to any
impairment transaction), to the extent that the distributions are
described in section 301(c) and the amount of these distributions, in
the aggregate, for the applicable taxable year (applicable distribution
amount) does not exceed the annual average amount of section 301(c)
distributions over the preceding three taxable years (average
distribution amount). If an electing corporation's applicable
distribution amount exceeds its average distribution amount (excess
amount), then the amount of the impairment transaction equals the excess
amount. Appropriate adjustments must be made to take into account any
issuances or redemptions of stock, or similar transactions, occurring
during the taxable year of distribution or any of the preceding three
taxable years. If the electing corporation has a short taxable year for
the year of the distribution or for any of the preceding three taxable
years, the amounts are determined on an annualized basis. If an electing
corporation has been in existence for less than three years, the period
during which the electing corporation has been in existence is
substituted for the preceding three taxable years. For purposes of
determining an electing corporation's average distribution amount, the
electing corporation does not take into account the distribution history
of a distributor or transferor in a transaction to which section 381(a)
applies (other than a transaction described in section 368(a)(1)(F)).
Rules similar to those prescribed in this paragraph (b)(2)(iii)(D) also
apply to an electing corporation's charitable contributions (within the
meaning of section 170(c)) that are consistent with its historical
practice.
(E) Special rules for RICs and REITs--(1) Distributions.
Notwithstanding paragraph (b)(2)(iii)(D) of this section, in the case of
a RIC or REIT, any distribution with respect to stock that is treated as
a dividend under section 852 or 857 is not treated as an impairment
transaction (and is not taken into account as a reduction in gross asset
value when applying the net value acceleration rule to any impairment
transaction).
(2) Redemptions by RICs. Any redemption of a redeemable security, as
defined in 15 U.S.C. section 80a-2(a)(32), by a RIC in the ordinary
course of business is not treated as an impairment transaction (and is
not taken into account as a reduction in gross asset value when applying
the net value acceleration rule to any impairment transaction).
(F) Special rules for consolidated groups--(1) Impairment
transactions and net value acceleration rule. In the case of an electing
member, the determination of whether the member has engaged in an
impairment transaction is made on a group-wide basis. An electing member
is treated as engaging in an impairment transaction if any member's
transaction impairs the group's ability to pay the tax liability
associated with all electing members' deferred COD income. Accordingly,
intercompany transactions are not impairment transactions. Similarly,
the net value acceleration rule is applied by reference to the gross
asset value of all members (excluding stock of members whether or not
described in section 1504(a)(4)), the liabilities of all members, and
the tax on all members' deferred items. For example, assume P is the
common parent of the P-S consolidated group, S has a section 108(i)
election in effect, and S makes a $100 distribution to P which, on a
separate entity basis, would reduce S's gross asset value below the net
value floor. S's intercompany distribution to P is not an impairment
transaction. However, if P makes a $100 distribution to its shareholder,
P's distribution is an impairment transaction (unless the distribution
is consistent with its historical practice under paragraph
(b)(2)(iii)(D)
[[Page 465]]
of this section), and the net value acceleration rule is applied by
reference to the assets, liabilities, and deferred items of the P-S
group.
(2) Departing member. If an electing member that previously engaged
in one or more impairment transactions on a separate entity basis ceases
to be a member of a consolidated group (departing member), the cessation
is treated as an impairment transaction and the net value acceleration
rule under paragraph (b)(2)(iii)(A) of this section is applied to the
departing member on a separate entity basis immediately after ceasing to
be a member (and taking into account the impairment transaction(s) that
occurred on a separate entity basis). If the departing member's gross
asset value is below the net value floor, the departing member's
remaining deferred COD income is taken into account immediately before
the departing member ceases to be a member (unless value is restored
under paragraph (b)(2)(iii)(C) of this section). If the departing
member's deferred COD income is not accelerated, the departing member is
subject to the reporting requirements of section 108(i) on a separate
entity basis. If the departing member becomes a member of another
consolidated group, the cessation is treated as an impairment
transaction and the net value acceleration rule under paragraph
(b)(2)(iii)(A) of this section is applied by reference to the assets,
liabilities, and the tax on deferred items of the members of the
acquiring group immediately after the transaction. If the acquiring
group's gross asset value is below the net value floor, the departing
member's remaining deferred COD income is taken into account immediately
before the departing member ceases to be a member (unless value is
restored under paragraph (b)(2)(iii)(C) of this section). If the
departing member's remaining deferred COD income is not accelerated, the
common parent of the acquiring group succeeds to the reporting
requirements of section 108(i) with respect to the departing member.
(3) Elective acceleration for certain consolidated group members--
(i) In general. An electing member (other than the common parent) of a
consolidated group may elect at any time to accelerate in full (and not
in part) the inclusion of its remaining deferred COD income with respect
to all applicable debt instruments by filing a statement described in
paragraph (b)(3)(ii) of this section. Once made, an election to
accelerate deferred COD income under this paragraph (b)(3) is
irrevocable.
(ii) Time and manner for making election--(A) In general. The
election to accelerate the inclusion of an electing member's remaining
deferred COD income with respect to all applicable debt instruments is
made on a statement attached to a timely filed tax return (including
extensions) for the year in which the deferred COD income is taken into
account. The election is made by the common parent on behalf of the
electing member. See Sec. 1.1502-77(a).
(B) Additional information. The statement must include--
(1) Label. A label entitled ``SECTION 1.108(i)-1 ELECTION AND
INFORMATION STATEMENT BY [INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER
OF THE ELECTING MEMBER]''; and
(2) Required Information. An identification of each applicable debt
instrument to which an election under this paragraph (b)(3) applies and
the corresponding amount of--
(i) Deferred COD income that is accelerated under this paragraph
(b)(3); and
(ii) Deferred OID deductions that are accelerated under paragraph
(b)(4) of this section.
(4) Deferred OID deductions--(i) In general. Except as otherwise
provided in paragraph (b)(4)(ii) of this section and Sec. 1.108(i)-
2(b)(6) (in the case of a C corporation partner), a C corporation
issuer's deferred OID deductions are taken into account ratably over the
inclusion period.
(ii) OID acceleration events. A C corporation issuer takes into
account all of its remaining deferred OID deductions with respect to a
debt instrument immediately before the occurrence of any one of the
events described in this paragraph (b)(4)(ii), regardless of whether the
C corporation issuer is in a title 11 or similar case.
(A) Inclusion of deferred COD income. An electing entity or its
owners take
[[Page 466]]
into account all of the remaining deferred COD income to which the C
corporation issuer's deferred OID deductions relate. If, under
Sec. 1.108(i)-2(b) or (c), an electing entity or its owners take into
account only a portion of the deferred COD income to which the deferred
OID deductions relate, then the C corporation issuer takes into account
a proportionate amount of the remaining deferred OID deductions.
(B) Changes in tax status. The C corporation issuer changes its tax
status within the meaning of paragraph (b)(2)(i) of this section.
(C) Cessation of corporate existence--(1) In general. The C
corporation issuer ceases to exist for Federal income tax purposes.
(2) Exception for section 381(a) transactions--(i) In general. A C
corporation issuer is not treated as ceasing to exist and does not take
into account its remaining deferred OID deductions in a transaction to
which section 381(a) applies, taking into account the application of
Sec. 1.1502-34, as appropriate. See Sec. 1.1502-80(g). This exception
does not apply to a transaction that is not treated as one to which
section 381(a) applies under paragraph (b)(2)(iii)(B)(1) of this
section.
(ii) Taxable years. In the case of an intercompany transaction to
which section 381(a) applies, the transaction does not cause the
transferor or distributor to have a short taxable year for purposes of
determining the taxable year of the deferral and inclusion period.
(c) Examples. The application of this section is illustrated by the
following examples. Unless otherwise stated, P, S, S1, and X are
domestic C corporations, and each files a separate return on a calendar
year basis:
Example 1 Net value acceleration rule. (i) Facts. On January 1,
2009, S reacquires its own note and realizes $400 of COD income.
Pursuant to an election under section 108(i), S defers recognition of
the entire $400 of COD income. Therefore, absent a mandatory
acceleration event, S will take into account $80 of its deferred COD
income in each year of the inclusion period. On December 31, 2010, S
makes a $25 distribution to its sole shareholder, P, and this is the
only distribution made by S in the past four years. Immediately
following the distribution, S's gross asset value is $100, S has no
liabilities, and the Federal income tax on S's $400 of deferred COD
income is $140. Accordingly, S's net value floor is $154 (110% x
$140).
(ii) Analysis. Under paragraph (b)(2)(iii)(A) of this section, S's
distribution is an impairment transaction. Immediately following the
distribution, S's gross asset value of $100 is less than the net value
floor of $154. Accordingly, under the net value acceleration rule of
paragraph (b)(2)(iii)(A) of this section, S takes into account its $400
of deferred COD income immediately before the distribution.
(iii) Corrective action to restore value. The facts are the same as
in paragraph (i) of this Example 1, except that P contributes assets
with a value of $25 to S before the due date of S's 2010 return
(including extensions). Because P restores $25 of value to S (the lesser
of the amount of value removed in the distribution ($25) or the amount
by which S's net value floor exceeds its gross asset value ($54)), under
paragraph (b)(2)(iii)(C) of this section, S does not take into account
its $400 of deferred COD income.
Example 2 Distributions consistent with historical practice. (i)
Facts. P, a publicly traded corporation, makes a valid section 108(i)
election with respect to COD income realized in 2009. On December 31,
2009, P distributes $25 million on its 5 million shares of common stock
outstanding. As of January 1, 2006, P has 10 million shares of common
stock outstanding, and on March 31, 2006, P distributes $10 million on
those 10 million shares. On September 15, 2006, P effects a 2:1 reverse
stock split, and on December 31, 2006, P distributes $10 million on its
5 million shares of common stock outstanding. In each of 2007 and 2008,
P distributes $5 million on its 5 million shares of common stock
outstanding. All of the distributions are described in section 301(c).
(ii) Amount of impairment transaction. Under paragraph
(b)(2)(iii)(D) of this section, P's 2009 distributions are not treated
as impairment transactions (and are not taken into account as a
reduction of P's gross asset value when applying the net value
acceleration rule to any impairment transaction), to the extent that the
aggregate amount distributed in 2009 (the applicable distribution
amount) does not exceed the annual average amount of distributions (the
average distribution amount) over the preceding three taxable years.
Accordingly, P's applicable distribution amount for 2009 is $25 million,
and its average distribution amount is $10 million ($20 million (2006)
plus $5 million (2007) plus $5 million (2008) divided by 3). The reverse
stock split in 2006 is not a transaction requiring an adjustment to the
determination of the average distribution amount. Because P's applicable
distribution amount of $25 million exceeds its average distribution
amount of $10 million, under paragraph (b)(2)(iii)(D) of this section,
the
[[Page 467]]
amount of P's 2009 distribution that is treated as an impairment
transaction is $15 million. The balance of the 2009 distribution, $10
million, is not treated as an impairment transaction (and is not taken
into account as a reduction in P's gross asset value when applying the
net value acceleration rule to any impairment transaction).
(iii) Distribution history. The facts are the same as in paragraph
(i) of this Example 2, except that in 2010, P merges into X in a
transaction to which section 381(a) applies, with X succeeding to P's
deferred COD income, and X makes a distribution to its shareholders. For
purposes of determining whether X's distribution is consistent with its
historical practice, the average distribution amount is determined
solely with respect to X's distribution history.
Example 3 Cessation of corporate existence. (i) Transaction to which
section 381(a) applies. P owns all of the stock of S. In 2009, S
reacquires its own note and elects to defer recognition of its $400 of
COD income under section 108(i). On December 31, 2010, S liquidates into
P in a transaction that qualifies under section 332. Under paragraph
(b)(2) of this section, S must take into account all of its remaining
deferred COD income upon the occurrence of any one of the mandatory
acceleration events. Although S ceases its corporate existence as a
result of the liquidation, S is not required to take into account its
remaining deferred COD income under the exception in paragraph
(b)(2)(ii)(B) of this section because its assets are acquired in a
transaction to which section 381(a) applies. However, under paragraph
(b)(2)(iii)(A) of this section, S's distribution to P is an impairment
transaction and the net value acceleration rule is applied with respect
to the assets, liabilities, and deferred items of P (S's successor)
immediately following the distribution. If S's deferred COD income is
not taken into account under the net value acceleration rule of
(b)(2)(iii) of this section, P succeeds to S's remaining deferred COD
income and to S's reporting requirements as if P were the electing
corporation.
(ii) Debt-laden distributee. The facts are the same as in paragraph
(i) of this Example 3, except that in the liquidation, S distributes
$100 of assets to P, a holding company whose only asset is its stock in
S. Assume that immediately following the distribution, P's gross asset
value is $100, P has $60 of liabilities, and the Federal income tax on
the $400 of deferred COD income is $140. Under paragraph (b)(2) of this
section, S must take into account all of its remaining deferred COD
income upon the occurrence of any one of the mandatory acceleration
events. Although S ceases its corporate existence as a result of the
liquidation, S is not required to take into account its remaining
deferred COD income under the exception in paragraph (b)(2)(ii)(B) of
this section because its assets are acquired in a transaction to which
section 381(a) applies. However, under paragraph (b)(2)(iii)(A) of this
section, S's distribution to P is an impairment transaction and the net
value acceleration rule is applied with respect to the assets,
liabilities, and deferred items of P (S's successor). Immediately
following the distribution, P's gross asset value of $100 is less than
the net value floor of $220 [110% x ($60 + $140)]. Accordingly, under
the net value acceleration rule of paragraph (b)(2)(iii)(A) of this
section, S is required to take into account its $400 of deferred COD
income immediately before the distribution, unless value is restored to
P pursuant to paragraph (b)(2)(iii)(C) of this section.
(iii) Foreign acquirer. The facts are the same as in paragraph (i)
of this Example 3, except that P is a foreign corporation. Although S's
assets are acquired in a transaction to which section 381(a) applies,
under paragraph (b)(2)(ii)(B)(1)(iii) of this section, the exception to
accelerated inclusion does not apply and S takes into account its
remaining deferred COD income immediately before the liquidation. See
also section 367(e)(2) and the regulations thereunder.
(iv) Section 338 transaction. P, the common parent of a consolidated
group (P group), owns all the stock of S1, one of the members of the P
group. In 2009, S1 reacquires its own indebtedness and realizes $30 of
COD income. Pursuant to an election under section 108(i), S1 defers
recognition of the entire $30 of COD income. In 2010, P sells all the
stock of S1 to X, an unrelated corporation, for $300, and P and X make a
timely section 338(h)(10) election with respect to the sale. Under
paragraph (b)(2)(ii)(A) of this section, an electing corporation takes
into account its remaining deferred COD income when it ceases its
existence for Federal income tax purposes unless the exception in
paragraph (b)(2)(ii)(B) of this section applies. Pursuant to section
338(h)(10) and the regulations, S1 is treated as transferring all of its
assets to an unrelated person in exchange for consideration that
includes the discharge of its liabilities. This deemed value-for-value
exchange is not an impairment transaction. Following the deemed sale,
while S1 is still a member of the P group, S1 is treated as distributing
all of its assets to P and as ceasing its existence. Under these facts,
the distribution of all of S1's assets constitutes a deemed liquidation,
and is a transaction to which sections 332 and 381(a) apply. Although S1
ceases its corporate existence as a result of the liquidation, S1 is not
required to take into account its remaining deferred COD income under
the exception in paragraph (b)(2)(ii)(B) of this section because its
assets are acquired in a transaction to which section 381(a) applies. P
succeeds to S1's remaining deferred COD income and to S1's reporting
requirements as if P were the electing corporation. Under paragraph
[[Page 468]]
(b)(2)(iii)(F)(1) of this section, the intercompany distribution from S1
to P is not an impairment transaction.
(d) Earnings and profits--(1) In general. Deferred COD income
increases earnings and profits in the taxable year that it is realized
and not in the taxable year or years that the deferred COD income is
includible in gross income. Deferred OID deductions decrease earnings
and profits in the taxable year or years in which the deduction would be
allowed without regard to section 108(i).
(2) Exceptions--(i) RICs and REITs. Notwithstanding paragraph (d)(1)
of this section, deferred COD income increases earnings and profits of a
RIC or REIT in the taxable year or years in which the deferred COD
income is includible in gross income and not in the year that the
deferred COD income is realized. Deferred OID deductions decrease
earnings and profits of a RIC or REIT in the taxable year or years that
the deferred OID deductions are deductible.
(ii) Alternative minimum tax. For purposes of calculating
alternative minimum taxable income, any items of deferred COD income or
deferred OID deduction increase or decrease, respectively, adjusted
current earnings under section 56(g)(4) in the taxable year or years
that the item is includible or deductible.
(e) Effective/applicability dates. For effective/applicability
dates, see Sec. 1.108(i)-0(b).
[T.D. 9622, 78 FR 39987, July 3, 2013; 78 FR 48607, Aug. 9, 2013]
Sec. 1.108(i)-2 Application of section 108(i) to partnerships and
S corporations.
(a) Overview. Under section 108(i), a partnership or an S
corporation may elect to defer COD income arising in connection with a
reacquisition of an applicable debt instrument for the deferral period.
COD income deferred under section 108(i) is included in gross income
ratably over the inclusion period, or earlier upon the occurrence of any
acceleration event described in paragraph (b)(6) or (c)(3) of this
section. If a debt instrument is issued (or treated as issued under
section 108(e)(4)) in a debt-for-debt exchange described in section
108(i)(2)(A) or a deemed debt-for-debt exchange described in
Sec. 1.108(i)-3(a), some or all of the deductions for OID with respect
to such debt instrument must be deferred during the deferral period. The
aggregate amount of OID deductions deferred during the deferral period
is generally allowed as a deduction ratably over the inclusion period,
or earlier upon the occurrence of any acceleration event described in
paragraph (b)(6) or (c)(3) of this section. Paragraph (b) of this
section provides rules that apply to partnerships. Paragraph (c) of this
section provides rules that apply to S corporations. Paragraph (d) of
this section provides general rules that apply to partnerships and S
corporations. Paragraph (e) of this section provides election procedures
and reporting requirements. Paragraph (f) of this section contains the
effective/applicability date. See Sec. 1.108(i)-0(a) for definitions
that apply to this section.
(b) Specific rules applicable to partnerships--(1) Allocation of COD
income and partner's deferred amounts. An electing partnership that
defers any portion of COD income realized from a reacquisition of an
applicable debt instrument under section 108(i) must allocate all of the
COD income with respect to the applicable debt instrument to its direct
partners that are partners in the electing partnership immediately
before the reacquisition in the manner in which the income would be
included in the distributive shares of the partners under section 704
and the regulations under section 704, including Sec. 1.704-
1(b)(2)(iii), without regard to section 108(i). The electing partnership
may determine, in any manner, the portion, if any, of a partner's COD
income amount with respect to an applicable debt instrument that is the
deferred amount, and the portion, if any, that is the included amount.
However, no partner's deferred amount with respect to an applicable debt
instrument may exceed that partner's COD income amount with respect to
such applicable debt instrument, and the aggregate amount of the
partners' COD income amounts and deferred amounts with respect to each
applicable debt instrument must equal the electing partnership's COD
income
[[Page 469]]
amount and deferred amount, respectively, with respect to each such
applicable debt instrument.
(2) Basis adjustments and capital account maintenance--(i) Basis
adjustments. The adjusted basis of a partner's interest in a partnership
is not increased under section 705(a)(1) by the partner's deferred
amount in the taxable year of the reacquisition. The adjusted basis of a
partner's interest in a partnership is not decreased under section
705(a)(2) by the partner's share of any deferred OID deduction in the
taxable year in which the deferred OID accrues. The adjusted basis of a
partner's interest in a partnership is adjusted under section 705(a) by
the partner's share of the electing partnership's deferred items for the
taxable year in which the partner takes into account such deferred items
under this section.
(ii) Capital account maintenance. For purposes of maintaining a
partner's capital account under Sec. 1.704-1(b)(2)(iv) and
notwithstanding Sec. 1.704-1(b)(2)(iv)(n), the capital account of a
partner of a partnership is adjusted under Sec. 1.704-1(b)(2)(iv) for a
partner's share of an electing partnership's deferred items as if no
election under section 108(i) were made.
(3) Deferred section 752 amount--(i) In general. An electing
partnership shall determine, for each of its direct partners with a
deferred amount, the partner's deferred section 752 amount, if any, with
respect to an applicable debt instrument. A partner's deferred section
752 amount with respect to an applicable debt instrument equals the
decrease in the partner's share of a partnership liability under section
752(b) resulting from the reacquisition of the applicable debt
instrument that is not treated as a current distribution of money under
section 752(b) by reason of section 108(i)(6) (deferred section 752
amount). A partner's deferred section 752 amount is treated as a
distribution of money by the partnership to the partner under section
752(b) at the same time and, to the extent remaining, in the same amount
as the partner recognizes the deferred amount with respect to the
applicable debt instrument.
(ii) Electing partnership's computation of a partner's deferred
section 752 amount. To compute a partner's deferred section 752 amount,
the electing partnership must first determine the amount of gain that
its direct partner would recognize in the taxable year of a
reacquisition under section 731 as a result of the reacquisition of one
or more applicable debt instruments during the taxable year absent the
deferral provided in the second sentence of section 108(i)(6) (the
section 108(i)(6) deferral). If a direct partner of an electing
partnership would not recognize any gain under section 731 as a result
of the reacquisition of one or more applicable debt instruments during
the taxable year absent the section 108(i)(6) deferral, the partner will
not have a deferred section 752 amount with respect to any applicable
debt instrument that is reacquired during the taxable year. If a direct
partner of an electing partnership would recognize gain under section
731 as a result of the reacquisition of one or more applicable debt
instruments during the taxable year absent the section 108(i)(6)
deferral, the partner's deferred section 752 amount for all applicable
debt instruments that are reacquired during the taxable year is equal to
the lesser of the partner's aggregate deferred amounts from the electing
partnership for all applicable debt instruments reacquired during the
taxable year, or the gain that the partner would recognize in the
taxable year of the reacquisitions under section 731 as a result of the
reacquisitions absent the section 108(i)(6) deferral. In determining the
amount of gain that the direct partner would recognize in the taxable
year of a reacquisition under section 731 as a result of the
reacquisition of one or more applicable debt instruments during the
taxable year absent the section 108(i)(6) deferral, the rule under
Sec. 1.731-1(a)(1)(ii) applies to any deemed distribution of money under
section 752(b) resulting from a decrease in the partner's share of a
reacquired applicable debt instrument that is treated as an advance or
drawing of money. The amount of any deemed distribution of money under
section 752(b) resulting from a decrease in the partner's share of a
reacquired applicable debt instrument that is treated as an advance or
drawing of
[[Page 470]]
money under Sec. 1.731-1(a)(1)(ii) is determined as if no COD income
resulting from the reacquisition of the applicable debt instrument is
deferred under section 108(i).
(iii) Multiple section 108(i) elections. If a direct partner of an
electing partnership has a deferred section 752 amount under paragraph
(b)(3)(ii) of this section for the taxable year of a reacquisition, and
the partner has a deferred amount with respect to more than one
applicable debt instrument from the electing partnership for which a
section 108(i) election is made in that taxable year, the partner's
deferred section 752 amount with respect to each such applicable debt
instrument equals the partner's deferred section 752 amount as
determined under paragraph (b)(3)(ii) of this section, multiplied by a
ratio, the numerator of which is the partner's deferred amount with
respect to such applicable debt instrument, and the denominator of which
is the partner's aggregate deferred amounts from the electing
partnership for all applicable debt instruments reacquired during the
taxable year.
(iv) Electing partnership's request for information. At the request
of an electing partnership, each direct partner of the electing
partnership that has a deferred amount with respect to such partnership
must provide to the electing partnership a written statement containing
information requested by the partnership that is necessary to determine
the partner's deferred section 752 amount (such as the partner's
adjusted basis in the partner's interest in the electing partnership).
The written statement must be signed under penalties of perjury and
provided to the requesting partnership within 30 days of the date of the
request by the electing partnership.
(v) Examples. The following examples illustrate the rules under
paragraph (b)(3) of this section:
Example 1. (i) A and B each hold a 50 percent interest in
Partnership, a calendar-year partnership. As of January 1, 2009, A and B
each have an adjusted basis of $50 in their partnership interests.
Partnership has two applicable debt instruments outstanding, debt one of
$300 and debt two of $200. A and B share equally in the debt for section
752(b) purposes. On March 1, 2009, debt one is cancelled and Partnership
realizes $300 of COD income. On December 1, 2009, debt two is cancelled
and Partnership realizes $200 of COD income. The Partnership has no
other income or loss items for 2009. A and B are each allocated $150 of
COD income from debt one and $100 of COD income from debt two.
Partnership makes an election under section 108(i) to defer $225 of the
$300 of COD income realized from the reacquisition of debt one, $150 of
which is A's deferred amount, and $75 of which is B's deferred amount.
Partnership also makes an election under section 108(i) to defer $125 of
the $200 of COD income realized from the reacquisition of debt two, $100
of which is A's deferred amount, and $25 of which is B's deferred
amount. A has no included amount for either debt. B has an included
amount of $75 with respect to debt one and an included amount of $75
with respect to debt two for 2009.
(ii) Under paragraph (b)(3)(ii) of this section, the amount of gain
that A would recognize under section 731 as a result of the
reacquisitions absent the section 108(i)(6) deferral is $200. Thus, A's
deferred section 752 amount with respect to debt one and debt two equals
$200 (the lesser of A's aggregate deferred amounts with respect to debt
one and debt two of $250, or gain that A would recognize under section
731 in 2009, as a result of the reacquisitions absent the section
108(i)(6) deferral, of $200). Under paragraph (b)(3)(iii) of this
section, $120 of A's $200 deferred section 752 amount relates to debt
one ($200 x $150/$250) and $80 relates to debt two ($200 x $100/
$250).
(iii) Under paragraph (b)(3)(ii) of this section, the amount of gain
that B would recognize under section 731 as a result of the
reacquisitions absent the section 108(i)(6) deferral is $50. Thus, B's
deferred section 752 amount with respect to debt one and debt two equals
$50 (the lesser of B's aggregate deferred amounts with respect to debt
one and debt two of $100, or gain that B would recognize under section
731 in 2009, as a result of the reacquisitions absent the section
108(i)(6) deferral, of $50). Under paragraph (b)(3)(iii) of this
section, $37.50 of B's $50 deferred section 752 amount relates to debt
one ($50 x $75/$100) and $12.50 relates to debt two ($50 x $25/
$100).
(iv) A will recognize $50 of deferred COD income ($30 with respect
to debt one and $20 with respect to debt two) in each of the five
taxable years of the inclusion period, provided there are no earlier
acceleration events under paragraph (b)(6) of this section. Under
paragraph (b)(3)(i) of this section, A will be treated as receiving a
$30 deemed distribution under section 752(b) with respect to debt one
and a $20 deemed distribution with respect to debt two in each of the
first, second, third, and fourth taxable years of the inclusion period.
A will not have any remaining deferred section 752 amounts in the fifth
taxable year of the inclusion period.
[[Page 471]]
(v) B will recognize $20 of deferred COD income ($15 with respect to
debt one and $5 with respect to debt two) in each of the five taxable
years of the inclusion period, provided there are no earlier
acceleration events under paragraph (b)(6) of this section. Under
paragraph (b)(3)(i) of this section, B will be treated as receiving a
$15 deemed distribution under section 752(b) with respect to debt one
and a $5 deemed distribution with respect to debt two in the first and
second taxable year of the inclusion period, and a $7.50 deemed
distribution under section 752(b) with respect to debt one ($10 x $15/
$20) and a $2.50 deemed distribution with respect to debt two ($10 x
$5/$20) in the third taxable year of the inclusion period. B will not
have any remaining deferred section 752 amounts in the fourth and fifth
taxable years of the inclusion period.
Example 2. (i) The facts are the same as in Example 1, except that
Partnership has gross income for the year (including the $500 of COD
income) of $700 and other separately stated losses of $500. A's and B's
distributive share of each item is 50 percent.
(ii) In determining the amount of gain that A would recognize under
section 731 as a result of the reacquisitions absent the section
108(i)(6) deferral, Partnership first increases A's $50 adjusted basis
in his interest in Partnership by A's distributive share of Partnership
income (other than the deferred amounts relating to debt one and debt
two) of $100, and then decreases A's adjusted basis in Partnership by
deemed distributions under section 752(b) of $250 and, thereafter, by
A's distributive share of Partnership losses of $250, but only to the
extent that A's basis is not reduced below zero. Under paragraph
(b)(3)(ii) of this section, the amount of gain that A would recognize
under section 731 as a result of the reacquisitions absent section
108(i)(6) deferral is $100. Thus, A's deferred section 752 amount with
respect to debt one and debt two equals $100 (the lesser of A's
aggregate deferred amounts with respect to debt one and debt two of
$250, or gain that A would recognize under section 731 as a result of
the reacquisitions absent the deferral section 108(i)(6) deferral of
$100). Under paragraph (b)(3)(iii) of this section, A's deferred section
752 amount with respect to debt one is $60 ($100 x $150/$250), and A's
deferred section 752 amount with respect to debt two is $40 ($100 x
$100/$250). A's $250 of Partnership losses are suspended under section
704(d).
(iii) In determining the amount of gain that B would recognize under
section 731 as a result of the reacquisitions absent the section
108(i)(6) deferral, Partnership first increases B's $50 adjusted basis
in his interest in Partnership by B's distributive share of Partnership
income (other than the deferred amounts relating to debt one and debt
two) of $250 ($100 other income plus $150 included amount with respect
to debt one and debt two), and then decreases B's adjusted basis in
Partnership by deemed distributions under section 752(b) of $250 and,
thereafter, by B's distributive share of Partnership losses of $250, but
only to the extent that B's basis is not reduced below zero. Under
paragraph (b)(3)(ii) of this section, B would not recognize any gain
under section 731 as a result of the reacquisitions absent the section
108(i)(6) deferral. Thus, B has no deferred section 752 amount with
respect to either debt one or debt two. B may deduct his distributive
share of Partnership losses to the extent of $50, with the remaining
$200 suspended under section 704(d).
(4) Tiered partnerships--(i) In general. If a partnership (upper-
tier partnership) is a direct or indirect partner of an electing
partnership and directly or indirectly receives an allocation of a COD
income amount from the electing partnership, all or a portion of which
is deferred under section 108(i), the upper-tier partnership must
allocate its COD income amount to its partners that are partners in the
upper-tier partnership immediately before the reacquisition in the
manner in which the income would be included in the distributive shares
of the partners under section 704 and the regulations under section 704,
including Sec. 1.704-1(b)(2)(iii), without regard to section 108(i). The
upper-tier partnership may determine, in any manner, the portion, if
any, of a partner's COD income amount with respect to an applicable debt
instrument that is the deferred amount, and the portion, if any, that is
the included amount. However, no partner's deferred amount with respect
to an applicable debt instrument may exceed that partner's COD income
amount with respect to such applicable debt instrument, and the
aggregate amount of the partners' COD income amounts and deferred
amounts with respect to each applicable debt instrument must equal the
upper-tier partnership's COD income amount and deferred amount,
respectively, with respect to each such applicable debt instrument.
(ii) Deferred section 752 amount. The computation of a partner's
deferred section 752 amount, as described in paragraph (b)(3)(ii) of
this section, is calculated only for direct partners of the electing
partnership. An upper-tier partnership's deferred section 752 amount
with respect to an applicable
[[Page 472]]
debt instrument of the electing partnership is allocated only to those
partners of the upper-tier partnership that have a deferred amount with
respect to that applicable debt instrument, and in proportion to such
partners' share of the upper-tier partnership's deferred amount with
respect to that applicable debt instrument. A partner's share of the
upper-tier partnership's deferred section 752 amount with respect to an
applicable debt instrument must not exceed that partner's share of the
upper-tier partnership's deferred amount with respect to the applicable
debt instrument to which the deferred section 752 amount relates. The
deferred section 752 amount of a partner of an upper-tier partnership is
treated as a distribution of money by the upper-tier partnership to the
partner under section 752(b), at the same time and, to the extent
remaining, in the same amount as the partner recognizes the deferred
amount with respect to the applicable debt instrument.
(iii) Examples. The following examples illustrate the rules under
paragraph (b)(4) of this section:
Example 1. (i) PRS, a calendar-year partnership, has two equal
partners, A, an individual, and XYZ, a partnership. As of January 1,
2009, A and XYZ each have an adjusted basis of $50 in their partnership
interests. PRS has a $500 applicable debt instrument outstanding. On
June 1, 2009, the creditor agrees to cancel the $500 indebtedness. PRS
realizes $500 of COD income as a result of the reacquisition. PRS has no
other income or loss items for 2009. PRS makes an election under section
108(i) to defer $200 of the $500 of COD income. PRS allocates the $500
of COD income equally between its partners ($250 each). PRS determines
that, for each partner, $100 of the COD income amount is the deferred
amount, and $150 is the included amount. For 2009, each of A's and XYZ's
share of the decrease in PRS's reacquired applicable debt instrument is
$250.
(ii) XYZ has two equal partners, individuals X and Y. X and Y share
equally in XYZ's liabilities. XYZ allocates the $250 COD income amount
from PRS equally between X and Y ($125 each). XYZ determines that X has
a deferred amount of $100 and an included amount of $25. All $125 of Y's
COD income amount is Y's included amount. For 2009, each of X's and Y's
share of XYZ's $250 decrease in liability with respect to the reacquired
applicable debt instrument of PRS is $125.
(iii) Under paragraph (b)(3)(ii) of this section, PRS determines
that XYZ has a deferred section 752 amount of $50. Therefore, for 2009,
of XYZ's $250 share of the decrease in PRS's reacquired applicable debt
instrument, $200 is treated as a deemed distribution under section
752(b) and $50 is the deferred section 752 amount.
(iv) Under paragraph (b)(4)(ii) of this section, none of XYZ's $50
deferred section 752 amount is allocated to Y because Y does not have a
deferred amount with respect to the reacquired applicable debt interest.
XYZ's entire $50 of deferred section 752 amount is allocated to X.
Therefore, of X's $125 share of the XYZ's decrease in liability with
respect to the reacquired applicable debt instrument of PRS, $75 is
treated as a deemed distribution under section 752(b) and $50 is X's
deferred section 752 amount. Y's $125 share of XYZ's decrease in
liability with respect to the reacquired applicable debt instrument of
PRS is treated as a deemed distribution under section 752(b) and none is
a deferred section 752 amount.
Example 2. (i) The facts are the same as in Example 1, except for
the following: XYZ has three partners, X, Y, and Z. The profits and
losses of XYZ are shared 25 percent by X, 25 percent by Y, and 50
percent by Z. XYZ allocates its $250 COD income amount from PRS $62.50
to each of X and Y, and $125 to Z. XYZ determines that X has a deferred
amount of $50 and an included amount of $12.50, Y has a deferred amount
of $0 and an included amount of $62.50, and Z has a deferred amount of
$50 and an included amount of $75 with respect to the applicable debt
instrument. X's, Y's, and Z's share of XYZ's decrease in liability with
respect to the reacquired applicable debt instrument of PRS is $62.50,
$62.50 and $125, respectively.
(ii) Under paragraph (b)(4)(ii) of this section, none of XYZ's $50
deferred section 752 amount is allocated to Y because Y does not have a
deferred amount with respect to the reacquired applicable debt
instrument. XYZ's $50 deferred section 752 amount is allocated to X and
Z in proportion to X's and Z's share of XYZ's deferred amount, or $25
each ($50 x ($50/$100)). Therefore, of X's $62.50 share of XYZ's
decrease in liability with respect to the reacquired applicable debt
instrument, $37.50 is treated as a deemed distribution under section
752(b) and $25 is X's deferred section 752 amount. All of Y's $62.50
share of XYZ's decrease in liability with respect to the reacquired
applicable debt instrument is treated as a deemed distribution under
section 752(b). Of Z's $125 share of XYZ's decrease in liability with
respect to the reacquired applicable debt instrument, $100 is treated as
a deemed distribution under section 752(b) and $25 is Z's deferred
section 752 amount.
[[Page 473]]
(5) S corporation partner--(i) In general. If an S corporation
partner has a deferred amount with respect to an applicable debt
instrument of an electing partnership, such deferred amount is shared
pro rata only among those shareholders that are shareholders of the S
corporation partner immediately before the reacquisition of the
applicable debt instrument.
(ii) Basis adjustments. The adjusted basis of a shareholder's stock
in an S corporation partner is not increased under section 1367(a)(1) by
the shareholder's share of the S corporation partner's deferred amount
in the taxable year of the reacquisition. The adjusted basis of a
shareholder's stock in an S corporation partner is not decreased under
section 1367(a)(2) by the shareholder's share of the S corporation
partner's deferred OID deduction in the taxable year in which the
deferred OID accrues. The adjusted basis of a shareholder's stock in an
S corporation partner is adjusted under section 1367(a) by the
shareholder's share of the S corporation partner's share of the electing
partnership's deferred items for the taxable year in which the
shareholder takes into account its share of such deferred items under
this section.
(iii) Accumulated adjustments account. The accumulated adjustments
account (AAA), as defined in section 1368(e)(1), of an S corporation
partner that has a deferred amount with respect to an applicable debt
instrument of an electing partnership is not increased by its deferred
amount in the taxable year of the reacquisition. The AAA of an S
corporation partner is not decreased by its share of any deferred OID
deduction in the taxable year in which the deferred OID accrues. The AAA
of an S corporation partner is adjusted under section 1368(e) by a
shareholder's share of the S corporation partner's share of the electing
partnership's deferred items for the S period (as defined in section
1368(e)(2)) in which the shareholder of the S corporation partner takes
into account its share of the deferred items under this section.
(6) Acceleration of deferred items--(i) Electing partnership-level
events
(A) General rules. Except as provided in paragraph (b)(6)(iii) of
this section, a direct or indirect partner's share of an electing
partnership's deferred items is accelerated and must be taken into
account by such partner--
(1) In the taxable year in which the electing partnership
liquidates;
(2) In the taxable year in which the electing partnership sells,
exchanges, transfers (including contributions and distributions), or
gifts substantially all of its assets;
(3) In the taxable year in which the electing partnership ceases
doing business; or
(4) In the taxable year that includes the day before the day on
which the electing partnership files a petition in a title 11 or similar
case.
(B) Substantially all requirement. For purposes of this paragraph
(b)(6), substantially all of a partnership's assets means assets
representing at least 90 percent of the fair market value of the net
assets, and at least 70 percent of the fair market value of the gross
assets, held by the partnership immediately prior to the sale, exchange,
transfer, or gift. For purposes of applying the rule in paragraph
(b)(6)(i)(A)(2) of this section, a sale, exchange, transfer, or gift by
any direct or indirect lower-tier partnership of the electing
partnership (lower-tier partnership) of all or part of its assets is not
treated as a sale, exchange, transfer, or gift of the assets of any
partnership that holds, directly or indirectly, an interest in such
lower-tier partnership. However, for purposes of applying the rule in
paragraph (b)(6)(i)(A)(2) of this section, a sale, exchange, transfer,
or gift of substantially all of the assets of a transferee partnership
(as described in paragraph (b)(6)(iii)(A)(1) of this section), or of a
lower-tier partnership that received assets of the electing partnership
from a transferee partnership or another lower-tier partnership in a
transaction governed all or in part by section 721, is treated as a
sale, exchange, transfer, or gift by the holder of an interest in such
transferee partnership or lower-tier partnership of its entire interest
in that transferee partnership or lower-tier partnership.
(ii) Direct or indirect partner-level events--(A) General rules.
Except as provided in paragraph (b)(6)(iii) of this section, a direct or
indirect partner's
[[Page 474]]
share of an electing partnership's deferred items with respect to a
separate interest is accelerated and must be taken into account by such
partner in the taxable year in which--
(1) The partner dies or liquidates;
(2) The partner sells, exchanges (including redemptions treated as
exchanges under section 302), transfers (including contributions and
distributions), or gifts (including transfers treated as gifts under
section 1041) all or a portion of its separate interest;
(3) The partner's separate interest is redeemed within the meaning
of paragraph (b)(6)(ii)(B)(2) of this section; or
(4) The partner abandons its separate interest.
(B) Meaning of terms; special rules--(1) Partial transfers. For
purposes of paragraph (b)(6)(ii)(A)(2) of this section, if a partner
sells, exchanges (including redemptions treated as exchanges under
section 302), transfers (including contributions and distributions), or
gifts (including transfers treated as gifts under section 1041) a
portion of its separate interest, such partner's share of the electing
partnership's deferred items with respect to the separate interest
proportionate to the separate interest sold, exchanged, transferred, or
gifted is accelerated and must be taken into account by such partner.
(2) Redemptions. For purposes of paragraph (b)(6)(ii)(A)(3) of this
section, a partner's separate interest is redeemed if the partner
receives a distribution of cash and/or property in complete liquidation
of such separate interest.
(3) S corporation partners. In addition to the rules in paragraphs
(b)(6)(i) and (ii) of this section, an S corporation partner's share of
the electing partnership's deferred items is accelerated and the
shareholders of the S corporation partner must take into account their
respective shares of the S corporation partner's share of the electing
partnership's deferred items in the taxable year in which the S
corporation partner's election under section 1362(a) terminates.
(4) C corporation partners. In addition to the rules in paragraphs
(b)(6)(i), (ii), and (iii) of this section, the acceleration rules in
Sec. 1.108(i)-1(b) and the earnings and profits rules in Sec. 1.108(i)-
1(d) apply to partners that are electing corporations.
(iii) Events not constituting acceleration. Notwithstanding the
rules in paragraphs (b)(6)(i) and (ii) of this section, a direct or
indirect partner's share of an electing partnership's deferred items
with respect to a separate interest is not accelerated by any of the
events described in this paragraph (b)(6)(iii).
(A) Section 721 contributions--(1) Electing partnership
contributions. A direct or indirect partner's share of an electing
partnership's deferred items is not accelerated if the electing
partnership contributes all or a portion of its assets in a transaction
governed all or in part by section 721(a) to another partnership
(transferee partnership) in exchange for an interest in the transferee
partnership provided that the electing partnership does not terminate
under section 708(b)(1)(A) or transfer its assets and liabilities in a
transaction described in section 708(b)(2)(A) or section 708(b)(2)(B).
See paragraph (b)(6)(iii)(D) of this section for transactions governed
by section 708(b)(2)(A). Notwithstanding the rules in this paragraph
(b)(6)(iii)(A)(1), the rules in paragraphs (b)(6)(i)(A) and
(b)(6)(ii)(A) of this section apply to any part of the transaction to
which section 721(a) does not apply.
(2) Partner contributions. A direct or indirect partner's share of
an electing partnership's deferred items with respect to a separate
interest is not accelerated if the holder of such interest (contributing
partner) contributes its entire separate interest (contributed separate
interest) in a transaction governed all or in part by section 721(a) to
another partnership (transferee partnership) in exchange for an interest
in the transferee partnership provided that the partnership in which the
separate interest is held does not terminate under section 708(b)(1)(A)
or transfer its assets and liabilities in a transaction described in
section 708(b)(2)(A) or section 708(b)(2)(B). See paragraph
(b)(6)(iii)(D) of this section for transactions governed by section
708(b)(2)(A). The transferee partnership becomes subject to section
108(i), including all reporting requirements under this section, with
respect to the
[[Page 475]]
contributing partner's share of the electing partnership's deferred
items associated with the contributed separate interest. The transferee
partnership must allocate and report the share of the electing
partnership's deferred items that is associated with the contributed
separate interest to the contributing partner to the same extent that
such share of the electing partnership's deferred items would have been
allocated and reported to the contributing partner in the absence of
such contribution. Notwithstanding the rules in this paragraph
(b)(6)(iii)(A)(2), the rules in paragraph (b)(6)(ii)(A) of this section
apply to any part of the transaction to which section 721(a) does not
apply.
(B) Section 1031 exchanges. A direct or indirect partner's share of
the electing partnership's deferred items is not accelerated if the
electing partnership transfers property held for productive use in a
trade or business or for investment in exchange for property of like
kind which is to be held either for productive use in a trade or
business or for investment in a transaction to which section 1031(a)(1)
applies. Notwithstanding the rules in this paragraph (b)(6)(iii)(B), to
the extent the electing partnership receives money or other property
which does not meet the requirements of section 1031(a) (boot) in the
exchange, a proportionate amount of the property transferred by the
electing partnership equal to the proportion of the boot to the total
consideration received in the exchange shall be treated as sold for
purposes of paragraph (b)(6)(i)(A)(2) of this section.
(C) Section 708(b)(1)(B) terminations. A direct or indirect
partner's share of the deferred items of an electing partnership with
respect to a separate interest is not accelerated if the electing
partnership or a partnership that is a direct or indirect partner of the
electing partnership terminates under section 708(b)(1)(B).
Notwithstanding the rules in this paragraph (b)(6)(iii)(C), the rules in
paragraph (b)(6)(ii)(A) of this section apply to the event that causes
the termination under section 708(b)(1)(B) to the extent not otherwise
excepted under paragraph (b)(6)(iii) of this section.
(D) Section 708(b)(2)(A) mergers or consolidations. A direct or
indirect partner's share of the deferred items of an electing
partnership with respect to a separate interest is not accelerated if
the partnership in which the separate interest is held (the merger
transaction partnership) merges into or consolidates with another
partnership in a transaction to which section 708(b)(2)(A) applies. The
resulting partnership or new partnership, as determined under
Sec. 1.708-1(c)(1), becomes subject to section 108(i), including all
reporting requirements under this section, to the same extent that the
merger transaction partnership was so subject prior to the transaction,
and must allocate and report any merger transaction partnership's
deferred items to the same extent and to the same partners that the
merger transaction partnership allocated and reported such items prior
to such transaction. Notwithstanding the rules in this paragraph
(b)(6)(iii)(D), the rules in paragraphs (b)(6)(i)(A)(2) and
(b)(6)(ii)(A)(2) of this section apply to that portion of the
transaction that is treated as a sale, and the rules of (b)(6)(ii)(A)(3)
apply if, as part of the transaction, the partner's separate interest is
redeemed and the partner does not receive an interest in the resulting
partnership with respect to such separate interest.
(E) Certain distributions of separate interests. If a partnership
(upper-tier partnership) that is a direct or indirect partner of an
electing partnership distributes its entire separate interest
(distributed separate interest) to one or more of its partners
(distributee partners) that have a share of the electing partnership's
deferred items from upper-tier partnership with respect to the
distributed separate interest, the distributee partners' shares of the
electing partnership's deferred items with respect to such distributed
separate interest are not accelerated. The partnership, the separate
interest in which was distributed, must allocate and report the share of
the electing partnership's deferred items associated with the
distributed separate interest only to such distributee partners that had
a share of the electing partnership's deferred items from the upper-tier
partnership with respect to the
[[Page 476]]
distributed separate interest prior to the distribution. This paragraph
(b)(6)(iii)(E) does not apply if the electing partnership terminates
under section 708(b)(1)(A).
(F) Section 381 transactions. A C corporation partner's share of an
electing partnership's deferred items is not accelerated if, as part of
a transaction described in paragraph (b)(6)(ii)(A) of this section, the
assets of the C corporation partner are acquired by another C
corporation (acquiring C corporation) in a transaction that is treated,
under Sec. 1.108(i)-1(b)(2)(ii)(B), as a transaction to which section
381(a) applies. An S corporation partner's share of an electing
partnership's deferred items is not accelerated if, as part of a
transaction described in paragraph (b)(6)(ii)(A) of this section, the
assets of the S corporation partner are acquired by another S
corporation (acquiring S corporation) in a transaction to which section
381(a) applies. In such cases, the acquiring C corporation or acquiring
S corporation, as the case may be, succeeds to the C corporation
partner's or the S corporation partner's remaining share of the electing
partnership's deferred items and becomes subject to section 108(i),
including all reporting requirements under this section, as if the
acquiring C corporation or acquiring S corporation were the C
corporation partner or the S corporation partner, respectively. The
acquiring S corporation must allocate and report the S corporation
partner's deferred items to the same extent as the S corporation partner
would have been required to allocate and report those deferred items,
and only to those shareholders of the S corporation partner who had a
share of the S corporation partner's deferred items from the electing
partnership prior to the transaction. This paragraph (b)(6)(iii)(F) does
not apply if the electing partnership terminates under section
708(b)(1)(A).
(G) Intercompany transfers. A C corporation partner's share of an
electing partnership's deferred items is not accelerated if, as part of
a transaction described in paragraph (b)(6)(ii)(A) of this section, the
C corporation partner transfers its entire separate interest in an
intercompany transaction, as described in Sec. 1.1502-13(b)(1)(i), and
the electing partnership does not terminate under section 708(b)(1)(A)
as a result of the intercompany transaction.
(H) Retirement of a debt instrument. See Sec. 1.108(i)-3(c)(1) for
rules regarding the retirement of a debt instrument that is subject to
section 108(i).
(I) Other non-acceleration events. A direct or indirect partner's
share of an electing partnership's deferred items is not accelerated
with respect to any transaction if the Commissioner makes a
determination by published guidance that such transaction is not an
acceleration event under the rules of this paragraph (b)(6).
(iv) Related partnerships. A direct or indirect partner's share of a
related partnership's deferred OID deduction (as determined in paragraph
(d)(2) of this section) that has not previously been taken into account
is accelerated and taken into account by the direct or indirect partner
in the taxable year in which, and to the extent that, the deferred COD
income to which the related partnership's deferred OID deduction relates
is taken into account by the electing entity or its owners.
(v) Examples. The following examples illustrate the rules under this
paragraph (b)(6):
Example 1 Meaning of ``separate interest.'' (i) Electing partnership
(EP) has three partners, MT1, MT2, and UT, each of which is a
partnership. The partners of MT1 are X and UT. The partners of MT2 are
Y, UT, and B. The partners of UT are A, B, and C. In addition to their
interests in the partnerships noted, MT1, MT2, and UT own other assets.
(ii) Within the meaning of paragraph (a)(29) of Sec. 1.108(i)-0, A
and C each hold one separate interest (their interests in UT), B holds
two separate interests (its interests in UT and MT2), UT holds three
separate interests (its interests in MT1, MT2, and EP), MT1 and MT2 each
hold one separate interest (their interests in EP), and X and Y each
hold one separate interest (their interests in MT1 and MT2,
respectively) with respect to EP.
Example 2 Distributions of separate interests in an electing
partnership. (i) The facts are the same as in Example 1, except that A,
as a direct partner of UT, has a share of EP's deferred items with
respect to UT's interests in MT1 and EP. A does not have a share of EP's
deferred items with respect to UT's interest in MT2. B, as a direct
partner of UT, has a share of EP's deferred items with respect to UT's
interest in MT1 and MT2, but not with respect to UT's interest in EP. B
also has a share of EP's deferred items with respect to
[[Page 477]]
its separate interest in MT2. C does not have any share of EP's deferred
items with respect to UT's interest in MT1, MT2, or EP.
(ii) UT distributes 40 percent of its separate interest in MT1 to A
in redemption of A's interest in UT. Under paragraphs (b)(6)(ii)(A)(2)
and (b)(6)(ii)(B)(1) of this section, a portion of UT's interest in MT1
has been transferred and a corresponding portion (40 percent) of UT's
share of EP's deferred items from MT1 is accelerated. Thus, 40 percent
of A's and B's share of EP's deferred items from UT with respect to UT's
interest in MT1 is accelerated. Further, because A's interest in UT is
redeemed within the meaning of paragraph (b)(6)(ii)(B)(2) of this
section, all of A's shares of EP's deferred items from UT are
accelerated under paragraph (b)(6)(ii)(A)(3) of this section. UT
continues to allocate and report to B its remaining share of EP's
deferred items from its separate interest in MT1 that was not
distributed to A.
(iii) UT distributes its entire separate interest in MT1 to B (other
than in redemption of B's interest in UT). Under paragraph
(b)(6)(ii)(A)(2) of this section, UT's share of EP's deferred items from
MT1 would be accelerated. However, because UT distributes its entire
separate interest in MT1 to B, B's share of EP's deferred items from UT
with respect to UT's separate interest in MT1 is not accelerated under
paragraph (b)(6)(iii)(E) of this section. MT1 allocates and reports to B
B's share of EP's deferred items from UT's separate interest in MT1 that
was distributed to B.
(iv) UT distributes its entire separate interest in MT1 to A and B
(other than in redemption of their interests in UT). Under paragraph
(b)(6)(iii)(E) of this section, none of A's or B's shares of EP's
deferred items from UT with respect to UT's separate interest in MT1 is
accelerated, and MT1 allocates and reports to A and B their respective
share of EP's deferred items from UT's separate interest in MT1 that was
distributed to A and B.
Example 3 Partial sale of interest by an indirect partner. (i)
Individual A holds a 50 percent partnership interest in UTP, a
partnership that holds a 50 percent interest in EP, a partnership that
makes an election to defer COD income under section 108(i). A's share of
UTP's deferred amount with respect to EP's election under section 108(i)
is $100. During a taxable year within the deferral period, A sells 25
percent of his partnership interest in UTP to an unrelated third party.
(ii) Under paragraphs (b)(6)(ii)(A)(2) and (b)(6)(ii)(B)(1) of this
section, 25 percent of A's $100 deferred amount is accelerated as a
result of A's partial sale of his interest in UTP. Thus, A must
recognize $25 of his deferred amount in the taxable year of the sale.
A's remaining deferred amount is $75.
Example 4 Section 708(b)(1)(B) termination of electing partnership.
(i) A and B are equal partners in partnership AB. On January 1, 2009, AB
reacquires an applicable debt instrument and makes an election under
section 108(i) to defer $400 of COD income. A and B each have a deferred
amount with respect to the applicable debt instrument of $200. On
January 1, 2010, A sells its entire 50 percent interest in AB to C in a
transfer that terminates the partnership under section 708(b)(1)(B).
(ii) Under paragraph (b)(6)(iii)(C) of this section, the technical
termination of AB under section 708(b)(1)(B) does not cause A's or B's
shares of AB's deferred items to be accelerated. However, A's $200
deferred amount is accelerated under paragraph (b)(6)(ii)(A)(2) of this
section as a result of the sale.
Example 5 Section 708(b)(2)(A) mergers. (i) A, B, and C are equal
partners in partnership X, which has made an election under section
108(i) to defer $150 of COD income. The fair market value of each
interest in partnership X is $100. A, B, and C each has a deferred
amount of $50 with respect to partnership X's election under section
108(i). E, F, and G are partners in partnership Y. Partnership X and
partnership Y merge in a taxable year during the deferral period of
partnership X's election under section 108(i). Under section
708(b)(2)(A), the resulting partnership is considered a continuation of
partnership Y and partnership X is considered terminated. Under state
law, partnerships X and Y undertake the assets-over form of Sec. 1.708-
1(c)(3)(i) to accomplish the merger. C does not want to become a partner
in partnership Y, and partnership X does not have the resources to
redeem C's interest before the merger. C, partnership X, and partnership
Y enter into a merger agreement that satisfies the requirements of
Sec. 1.708-1(c)(4) and specifies that partnership Y will purchase C's
interest in partnership X for $100 before the merger, and as part of the
agreement, C consents to treat the transaction in a manner that is
consistent with the agreement. As part of the merger, partnership X
receives from partnership Y $100 (which will be distributed to C
immediately before the merger), $100 (which will be distributed equally
to A and B ($50 each)), and interests in partnership Y with a value of
$100 (which will be distributed equally to A and B) in exchange for
partnership X's assets and liabilities.
(ii) Under the general rule of paragraph (b)(6)(iii)(D) of this
section, and except as provided below, the deferred items of partnership
X are not accelerated as a result of the merger with partnership Y.
Partnership Y, the resulting partnership that is considered the
continuation of partnership X, becomes subject to section 108(i),
including all reporting requirements under section 108(i), to the same
extent that partnership X was subject to such rules. Under paragraph
[[Page 478]]
(b)(6)(iii)(D) of this section, partnership Y must allocate and report
partnership X's deferred items to A and B in the same manner as
partnership X had prior to the merger transaction.
(iii) Under Sec. 1.708-1(c)(4), C is treated as selling its interest
in partnership X immediately before the merger. As a result, C's $50
deferred amount is accelerated under paragraph (b)(6)(ii)(A)(2) of this
section.
(iv) Under section 707(a)(2)(B), partnership X is deemed to have
sold a portion of its assets to partnership Y. Because partnership X is
not treated as selling substantially all of its assets under paragraph
(b)(6)(i)(B) of this section, A's and B's deferred amounts are not
accelerated under paragraph (b)(6)(i)(A)(2) of this section.
(v) Because A's and B's interests in partnership X are redeemed
within the meaning of paragraph (b)(6)(ii)(B)(2) of this section, all of
their shares of partnership X's deferred items would be accelerated
under paragraph (b)(6)(ii)(A)(3). However, because they receive an
interest in partnership Y in the merger, none of A's and B's share of
partnership X's deferred items is accelerated.
(7) Withholding under section 1446. See section 1446 regarding
withholding by a partnership on a foreign partner's share of income
effectively connected with a U.S. trade or business.
(c) Specific rules applicable to S corporations--(1) Deferred COD
income. An electing S corporation's COD income deferred under section
108(i) (an S corporation's deferred COD income) is shared pro rata among
those shareholders that are shareholders of the electing S corporation
immediately before the reacquisition of the applicable debt instrument.
Any COD income deferred under section 108(i) is taken into account under
section 1366(a) by those shareholders in the inclusion period, or
earlier upon the occurrence of an acceleration event described in
paragraph (c)(3) of this section.
(2) Basis adjustments and accumulated adjustments account--(i) Basis
adjustments. The adjusted basis of a shareholder's stock in an electing
S corporation is not increased under section 1367(a)(1) by the
shareholder's share of the S corporation's deferred COD income in the
taxable year of the reacquisition. The adjusted basis of a shareholder's
stock in an electing S corporation or a related S corporation is not
decreased under section 1367(a)(2) by the shareholder's share of the S
corporation's deferred OID deduction in the taxable year in which the
deferred OID accrues. The adjusted basis of a shareholder's stock in an
electing S corporation or a related S corporation is adjusted under
section 1367(a) by the shareholder's share of the S corporation's
deferred items for the taxable year in which the shareholder takes into
account its share of the deferred items under this section.
(ii) Accumulated adjustments account. The AAA of an electing S
corporation is not increased by the S corporation's deferred COD income
in the taxable year of a reacquisition. The AAA of an electing S
corporation or a related S corporation is not decreased by the S
corporation's deferred OID deduction in the taxable year in which the
deferred OID accrues. The AAA of an electing S corporation or a related
S corporation is adjusted under section 1368(e) by a shareholder's share
of the S corporation's deferred items for the S period (as defined in
section 1368(e)(2)) in which a shareholder of the S corporation takes
into account its share of the deferred items under this section.
(3) Acceleration of deferred items--(i) Electing S corporation-level
events--(A) General rules. Except as provided in paragraph (c)(3)(iii)
of this section, a shareholder's share of an electing S corporation's
deferred items is accelerated and must be taken into account by such
shareholder--
(1) In the taxable year in which the electing S corporation
liquidates;
(2) In the taxable year in which the electing S corporation sells,
exchanges, transfers (including contributions and distributions), or
gifts substantially all of its assets;
(3) In the taxable year in which the electing S corporation ceases
doing business;
(4) In the taxable year in which the electing S corporation's
election under section 1362(a) terminates; or
(5) In the taxable year that includes the day before the day on
which the electing S corporation files a petition in a title 11 or
similar case.
(B) Substantially all requirement. For purposes of this paragraph
(c)(3), substantially all of an electing S corporation's or
partnership's assets means assets representing at least 90 percent of
the fair market value of the net assets,
[[Page 479]]
and at least 70 percent of the fair market value of the gross assets,
held by the S corporation or partnership immediately prior to the sale,
exchange, transfer, or gift. For purposes of applying the rule in
paragraph (c)(3)(i)(A)(2) of this section, a sale, exchange, transfer,
or gift by any direct or indirect lower-tier partnership of the electing
S corporation (lower-tier partnership) of all or part of its assets is
not treated as a sale, exchange, transfer, or gift of the assets of any
person that holds, directly or indirectly, an interest in such lower-
tier partnership. However, for purposes of applying the rule in
paragraph (c)(3)(i)(A)(2) of this section, a sale, exchange, transfer,
or gift of substantially all of the assets of a transferee partnership
(as described in paragraph (c)(3)(iii)(A) of this section), or of a
lower-tier partnership that received assets of the electing S
corporation from a transferee partnership of the electing S corporation
or another lower-tier partnership in a transaction governed all or in
part by section 721, is treated as a sale, exchange, transfer, or gift
by the holder of an interest in such transferee partnership or lower-
tier partnership of its entire interest in that transferee partnership
or lower-tier partnership.
(ii) Shareholder events--(A) General rules. Except as provided in
paragraph (c)(3)(iii) of this section, a shareholder's share of an
electing S corporation's deferred items is accelerated and must be taken
into account by such shareholder in the taxable year in which--
(1) The shareholder dies;
(2) The shareholder sells, exchanges (including redemptions treated
as exchanges under section 302), transfers (including contributions and
distributions), or gifts (including transfers treated as gifts under
section 1041) all or a portion of its interest in the electing S
corporation; or
(3) The shareholder abandons its interest in the electing S
corporation.
(B) Partial transfers. For purposes of paragraph (c)(3)(ii)(A)(2) of
this section, if a shareholder of an electing S corporation sells,
exchanges (including redemptions treated as exchanges under section
302), transfers (including contributions or distributions), or gifts
(including transfers treated as gifts under section 1041) a portion of
its interest in the electing S corporation, such shareholder's share of
the electing S corporation's deferred items proportionate to the
interest that was sold, exchanged, transferred, or gifted is accelerated
and must be taken into account by such shareholder.
(iii) Events not constituting acceleration. Notwithstanding the
rules in paragraphs (c)(3)(i) and (ii) of this section, a shareholder's
share of an electing S corporation's deferred items is not accelerated
by any of the events described in this paragraph (c)(3)(iii).
(A) Electing S corporation's contributions. A shareholder's share of
an electing S corporation's deferred items is not accelerated if the
electing S corporation contributes all or a portion of its assets in a
transaction governed all or in part by section 721(a) to a partnership
(transferee partnership) in exchange for an interest in the transferee
partnership. Notwithstanding the rules in this paragraph (c)(3)(iii)(A),
the rules in paragraph (c)(3)(i)(A) of this section apply to any part of
the transaction to which section 721(a) does not apply.
(B) Section 1031 exchanges. A shareholder's share of an electing S
corporation's deferred items is not accelerated if the electing S
corporation transfers property held for productive use in a trade or
business or for investment in exchange for property of like kind which
is to be held either for productive use in a trade or business or for
investment in a transaction to which section 1031(a)(1) applies.
Notwithstanding the rules in this paragraph (c)(3)(iii)(B), to the
extent the electing S corporation receives money or other property which
does not meet the requirements of section 1031(a) (boot) in the
exchange, a proportionate amount of the property transferred by the
electing S corporation equal to the proportion of the boot to the total
consideration received in the exchange shall be treated as sold for
purposes of paragraph (c)(3)(i)(A)(2) of this section.
(C) Section 381 transactions. A shareholder's share of an electing S
corporation's deferred items is not accelerated if, as part of a
transaction described in paragraph (c)(3)(i)(A) of this section,
[[Page 480]]
the electing S corporation's assets are acquired by another S
corporation (acquiring S corporation) in a transaction to which section
381(a) applies. In such a case, the acquiring S corporation succeeds to
the electing S corporation's remaining deferred items and becomes
subject to section 108(i), including all reporting requirements under
this section, as if the acquiring S corporation were the electing S
corporation. The acquiring S corporation must allocate and report the
electing S corporation's deferred items to the same extent that the
electing S corporation would have been required to allocate and report
those deferred items, and only to those shareholders who had a share of
the electing S corporation's deferred items prior to the transaction.
(D) Retirement of a debt instrument. See Sec. 1.108(i)-3(c)(1) for
rules regarding the retirement of a debt instrument that is subject to
section 108(i).
(E) Other non-acceleration events. A shareholder's share of an
electing S corporation's deferred items is not accelerated with respect
to any transaction if the Commissioner makes a determination by
published guidance that such transaction is not an acceleration event
under the rules of this paragraph (c)(3).
(iv) Related S corporations. A shareholder's share of a related S
corporation's deferred OID deduction (as determined in paragraph (d)(2)
of this section) that has not previously been taken into account is
accelerated and taken into account by the shareholder in the taxable
year in which, and to the extent that, deferred COD income to which the
related S corporation's deferred OID deduction relates is taken into
account by the electing entity or its owners.
(d) General rules applicable to partnerships and S corporations--(1)
Applicable debt instrument (trade or business requirement). The
determination of whether a debt instrument issued by a partnership or an
S corporation is treated as a debt instrument issued in connection with
the conduct of a trade or business by the partnership or S corporation
for purposes of this section is based on all the facts and
circumstances. However, a debt instrument issued by a partnership or an
S corporation shall be treated as an applicable debt instrument for
purposes of this section if the electing partnership or electing S
corporation can establish that--
(i) The gross fair market value of the trade or business assets of
the partnership or S corporation that issued the debt instrument
represented at least 80 percent of the gross fair market value of that
partnership's or S corporation's total assets on the date of issuance;
(ii) The trade or business expenditures of the partnership or S
corporation that issued the debt instrument represented at least 80
percent of the partnership's or S corporation's total expenditures for
the taxable year of issuance;
(iii) At least 95 percent of interest paid or accrued on the debt
instrument issued by the partnership or S corporation was allocated to
one or more trade or business expenditures under Sec. 1.163-8T for the
taxable year of issuance;
(iv) At least 95 percent of the proceeds from the debt instrument
issued by the partnership or S corporation were used by the partnership
or S corporation to acquire one or more trades or businesses within six
months from the date of issuance; or
(v) The partnership or S corporation issued the debt instrument to a
seller of a trade or business to acquire the trade or business.
(2) Deferral of OID at entity level--(i) In general. For each
taxable year during the deferral period, an issuing entity determines
the amount of its deferred OID deduction with respect to a debt
instrument, if any. An issuing entity's deferred OID deduction for a
taxable year is the lesser of:
(A) The OID that accrues in a current taxable year during the
deferral period with respect to the debt instrument (less any of such
OID that is allowed as a deduction in the current taxable year as a
result of an acceleration event), or
(B) The excess, if any, of the electing entity's deferred COD income
(less the aggregate amount of such deferred COD income that has been
included in income in the current taxable year and any previous taxable
year during the deferral period) over the aggregate amount of OID that
accrued in previous taxable years during the deferral
[[Page 481]]
period with respect to the debt instrument (less the aggregate amount of
such OID that has been allowed as a deduction in the current taxable
year and any previous taxable year during the deferral period).
(ii) Excess deferred OID deduction. If, as a result of an
acceleration event during a taxable year in the deferral period, an
issuing entity's aggregate deferred OID deduction for previous taxable
years with respect to a debt instrument (less the aggregate amount of
such deferred OID deduction that has been allowed as a deduction in a
previous taxable year during the deferral period) exceeds the amount of
the electing entity's deferred COD income (less the aggregate amount of
such deferred COD income that has been included in income in the current
taxable year and any previous taxable year during the deferral period),
the excess deferred OID deduction shall be allowed as a deduction in the
taxable year in which the acceleration event occurs.
(iii) Examples. The following examples illustrate the rules under
paragraph (d)(2) of this section:
Example 1 Partner joins partnership during deferral period. (i) A
and B each hold a 50 percent interest in AB partnership, a calendar-year
partnership. On January 1, 2009, AB partnership issues a new debt
instrument with OID and uses all of the proceeds to reacquire an
outstanding applicable debt instrument of AB partnership, realizing $100
of COD income, and makes an election under section 108(i) to defer $50
of the COD income. During the deferral period, a total of $150 of OID
accrues on the new debt instrument issued as part of the reacquisition.
A and B each have a deferred amount of $25 with respect to the
applicable debt instrument reacquired by AB partnership. For 2009, $28
of OID accrues on the new debt instrument and A and B are each allocated
$14 of accrued OID with respect to the new debt instrument. On January
1, 2010, C contributes cash to AB partnership in exchange for a \1/3\
partnership interest. For 2010, $29 of OID accrues on the new debt
instrument, and A, B, and C are each allocated $9.67 of accrued OID.
(ii) Under paragraph (d)(2) of this section, AB partnership's
deferred OID deduction for 2009 is the lesser of: $28 of OID that
accrues on the new debt instrument in 2009, or the excess of AB
partnership's deferred COD income of $50 over the aggregate amount of
OID that accrued on the debt instrument in previous taxable years during
the deferral period of $0, or $50. Thus, all $28 of the OID that accrues
on the debt instrument in 2009 is deferred under section 108(i).
(iii) Under paragraph (d)(2) of this section, AB partnership's
deferred OID deduction for 2010 is the lesser of: $29 of OID that
accrues on the new debt instrument in 2010, or the excess of AB
partnership's deferred COD income of $50 over the aggregate amount of
OID that accrued on the debt instrument in previous taxable years during
the deferral period of $28, or $22. Thus, $22 of the $29 of OID that
accrues in 2010 is deferred under section 108(i). A, B, and C will each
defer $7.33 of the $9.67 of accrued OID that was allocated to each of
them.
Example 2 Acceleration of deferred items during deferral period. (i)
On January 1, 2009, ABC partnership, a calendar-year partnership with
three partners, issues a new debt instrument with OID and uses all of
the proceeds to reacquire an outstanding applicable debt instrument of
ABC partnership. ABC partnership realizes $150 of COD income and makes
an election under section 108(i) to defer the $150 of COD income. A's
deferred amount with respect to the applicable debt instrument is $75,
while B and C each have a deferred amount of $37.50. In 2009, $28 of OID
accrues on the new debt instrument and is allocated $7.00 to A and
$10.50 to each of B and C. In 2010, $29 of OID accrues on the new debt
instrument and is allocated $7.25 to A and $10.87 to each of B and C. In
2011, $30 of OID accrues on the new debt instrument and is allocated
$7.50 to A and $11.25 to each of B and C. In 2012, $31 of OID accrues on
the new debt instrument and is allocated $7.75 to A and $11.62 to each
of B and C. On December 31, 2012, A's entire share of ABC partnership's
deferred items is accelerated under paragraph (b)(6) of this section.
For 2012, A includes $75 of COD income in income and is allowed a
deduction of $21.75 for A's share of ABC partnership's deferred OID
deduction for taxable years 2009 through 2011, and a deduction of $7.75
for A's share of ABC partnership's OID that accrues on the debt
instrument in 2012.
(ii) Under paragraph (d)(2) of this section, ABC partnership's
deferred OID deduction for 2012 is the lesser of: $23.25 ($31 of OID
that accrues on the new debt instrument in 2012 less $7.75 of this OID
that is allowed as a deduction to A in 2012) or $9.75 (the excess of $75
(ABC partnership's deferred COD income of $150 less A's share of ABC
partnership's deferred COD income that is included in A's income for
2012 of $75) over $65.25 (the aggregate amount of OID that accrued in
previous taxable years of $87 less the aggregate amount of such OID that
has been allowed as a deduction by A in 2012 of $21.75)). Thus, of the
$31 of OID that accrues in 2012, $9.75 is deferred under section 108(i).
[[Page 482]]
(3) Effect of an election under section 108(i) on recapture amounts
under section 465(e)--(i) In general. To the extent that a decrease in a
partner's or shareholder's amount at risk (as defined in section 465) in
an activity as a result of a reacquisition of an applicable debt
instrument would cause a partner with a deferred amount or a shareholder
with a share of the S corporation's deferred COD income to have income
under section 465(e) in the taxable year of the reacquisition, such
decrease (not to exceed the partner's deferred amount or the
shareholder's share of the S corporation's deferred COD income with
respect to that applicable debt instrument) (deferred section 465
amount) shall not be taken into account for purposes of determining the
partner's or shareholder's amount at risk in an activity under section
465 as of the close of the taxable year of the reacquisition. A
partner's or shareholder's deferred section 465 amount is treated as a
decrease in the partner's or shareholder's amount at risk in an activity
at the same time, and to the extent remaining in the same amount, as the
partner recognizes its deferred amount or the S corporation shareholder
recognizes its share of the S corporation's deferred COD income.
(ii) Example. The following example illustrates the rules in
paragraph (d)(3) of this section:
Example. (i) PRS is a calendar-year partnership with two equal
partners, individuals A and B. PRS is engaged in an activity described
in section 465(c) (Activity). PRS has a $500 recourse applicable debt
instrument outstanding. Each partner's amount at risk on January 1, 2009
is $50. On June 1, 2009, the creditor agrees to cancel the $500
indebtedness. PRS realizes $500 of COD income as a result of the
reacquisition. The partners' share of the liabilities of PRS decreases
by $500 under section 752(b), and each partner's amount at risk is
decreased by $250. Other than the $500 of COD income, PRS's income and
expenses for 2009 are equal. PRS makes an election under section 108(i)
to defer $200 of the $500 COD income realized in connection with the
reacquisition. PRS allocates the $500 of COD income equally between its
partners, A and B. A and B each have a COD income amount of $250 with
respect to the applicable debt instrument. PRS determines that, for both
partners A and B, $100 of the $250 COD income amount is the deferred
amount, and $150 is the included amount. Beginning in each taxable year
2014 through 2018, A and B each include $20 of the deferred amount in
gross income.
(ii) Under paragraph (d)(3)(i) of this section, $50 of the $250
decrease in A's and B's amount at risk in Activity is the deferred
section 465 amount for each of A and B and is not taken into account for
purposes of determining A's and B's amount at risk in Activity at the
close of 2009. In taxable year 2014, A's and B's amount at risk in
Activity is decreased by $20 (deferred section 465 amount that equals
the deferred amount included in A's and B's gross income in 2014). In
taxable year 2015, A's and B's amount at risk in Activity is decreased
by $20 for the deferred section 465 amount that equals the deferred
amount included in A's and B's gross income in 2015. In taxable year
2016, A's and B's amount at risk in Activity is decreased by $10 (the
remaining amount of the deferred section 465 amount).
(e) Election procedures and reporting requirements--(1)
Partnerships--(i) In general. A partnership makes an election under
section 108(i) by following procedures outlined in guidance and
applicable forms and instructions issued by the Commissioner. An
electing partnership (or its successor) must provide to its partners
certain information as required by guidance and applicable forms and
instructions issued by the Commissioner.
(ii) Tiered passthrough entities. A partnership that is a direct or
indirect partner of an electing partnership (or its successor) or a
related partnership or an S corporation partner must provide to its
partners or shareholders, as the case may be, certain information as
required by guidance and applicable forms and instructions issued by the
Commissioner.
(iii) Related partnerships. A related partnership must provide to
its partners certain information as required by guidance and applicable
forms and instructions issued by the Commissioner.
(2) S corporations--(i) In general. An S corporation makes an
election under section 108(i) by following procedures outlined in
guidance and applicable forms and instructions issued by the
Commissioner. An electing S corporation (or its successor) must provide
to its shareholders certain information as required by guidance and
applicable forms and instructions issued by the Commissioner.
(ii) Related S corporations. A related S corporation must provide to
its shareholders certain information as required
[[Page 483]]
by guidance and applicable forms and instructions issued by the
Commissioner.
(f) Effective/applicability dates. For the applicability dates of
this section, see Sec. 1.108(i)-0(b).
[T.D. 9623, 78 FR 39975, July 3, 2013; 78 FR 49366, Aug. 14, 2013]
Sec. 1.108(i)-3 Rules for the deduction of OID.
(a) Deemed debt-for-debt exchanges--(1) In general. For purposes of
section 108(i)(2) (relating to deferred OID deductions that arise in
certain debt-for-debt exchanges involving the reacquisition of an
applicable debt instrument), if the proceeds of any debt instrument are
used directly or indirectly by the issuer or a person related to the
issuer (within the meaning of section 108(i)(5)(A)) to reacquire an
applicable debt instrument, the debt instrument shall be treated as
issued for the applicable debt instrument being reacquired. Therefore,
section 108(i)(2) may apply, for example, to a debt instrument issued by
a corporation for cash in which some or all of the proceeds are used
directly or indirectly by the corporation's related subsidiary in the
reacquisition of the subsidiary's applicable debt instrument.
(2) Directly or indirectly. Whether the proceeds of an issuance of a
debt instrument are used directly or indirectly to reacquire an
applicable debt instrument depends upon all of the facts and
circumstances surrounding the issuance and the reacquisition. The
proceeds of an issuance of a debt instrument will be treated as being
used indirectly to reacquire an applicable debt instrument if--
(i) At the time of the issuance of the debt instrument, the issuer
of the debt instrument anticipated that an applicable debt instrument of
the issuer or a person related to the issuer would be reacquired by the
issuer, and the debt instrument would not have been issued if the issuer
had not so anticipated such reacquisition;
(ii) At the time of the issuance of the debt instrument, the issuer
of the debt instrument or a person related to the issuer anticipated
that an applicable debt instrument would be reacquired by a related
person and the related person receives cash or property that it would
not have received unless the reacquisition had been so anticipated; or
(iii) At the time of the reacquisition, the issuer or a person
related to the issuer foresaw or reasonably should have foreseen that
the issuer or a person related to the issuer would be required to issue
a debt instrument, which it would not have otherwise been required to
issue if the reacquisition had not occurred, in order to meet its future
economic needs.
(b) Proportional rule for accruals of OID. For purposes of section
108(i)(2), if only a portion of the proceeds from the issuance of a debt
instrument are used directly or indirectly to reacquire an applicable
debt instrument, the rules of section 108(i)(2)(A) will apply to the
portion of OID on the debt instrument that is equal to the portion of
the proceeds from such instrument used to reacquire the outstanding
applicable debt instrument. Except as provided in the last sentence of
section 108(i)(2)(A), the amount of deferred OID deduction that is
subject to section 108(i)(2)(A) for a taxable year is equal to the
product of the amount of OID that accrues in the taxable year under
section 1272 or section 1275 (and the regulations under those sections),
whichever section is applicable, and a fraction, the numerator of which
is the portion of the total proceeds from the issuance of the debt
instrument used directly or indirectly to reacquire the applicable debt
instrument and the denominator of which is the total proceeds from the
issuance of the debt instrument.
(c) No acceleration--(1) Retirement. Retirement of a debt instrument
subject to section 108(i)(2) does not accelerate deferred OID
deductions.
(2) Cross-reference. See Sec. 1.108(i)-1 and Sec. 1.108(i)-2 for
rules relating to the acceleration of deferred OID deductions.
(d) Examples. The application of this section is illustrated by the
following examples. Unless otherwise stated, all taxpayers in the
following examples are calendar-year taxpayers, and P and S each file
separate returns:
Example 1. (i) Facts. P, a domestic corporation, owns all of the
stock of S, a domestic corporation. S has a debt instrument outstanding
that has an adjusted issue price of $100,000. On January 1, 2010, P
issues for
[[Page 484]]
$160,000 a four-year debt instrument that has an issue price of $160,000
and a stated redemption price at maturity of $200,000, resulting in
$40,000 of OID. In P's discussion with potential lenders/holders, and as
described in offering materials provided to potential lenders/holders, P
disclosed that it planned to use all or a portion of the proceeds from
the issuance of the debt instrument to reacquire outstanding debt of P
and its affiliates. Following the issuance, P makes a $70,000 capital
contribution to S. S then reacquires its debt instrument from X, a
person not related to S within the meaning of section 108(i)(5)(A), for
$70,000. At the time of the reacquisition, the adjusted issue price of
S's debt instrument is $100,000. Under Sec. 1.61-12(c), S realizes
$30,000 of COD income. S makes a section 108(i) election for the $30,000
of COD income.
(ii) Analysis. Under the facts, at the time of P's issuance of its
$160,000 debt instrument, P anticipated that the loan proceeds would be
used to reacquire the debt of S, and P's debt instrument would not have
been issued for an amount greater than $90,000 if P had not anticipated
that S would use the proceeds to reacquire its debt. Pursuant to
paragraph (a) of this section, the proceeds from P's issuance of its
debt instrument are treated as being used indirectly to reacquire S's
applicable debt instrument. Therefore, section 108(i)(2)(B) applies to
P's debt instrument and P's OID deductions on its debt instrument are
subject to deferral under section 108(i)(2)(A). However, because only a
portion of the proceeds from P's debt instrument are used by S to
reacquire its applicable debt instrument, only a portion of P's total
OID deductions will be deferred under section 108(i)(2)(A). See section
108(i)(2)(B). Accordingly, a maximum of $17,500 ($40,000 x $70,000/
$160,000) of P's $40,000 total OID deductions is subject to deferral
under section 108(i)(2)(A). Under paragraph (b) of this section, the
amount of P's deferred OID deduction each taxable year under section
108(i)(2)(A) is equal to the product of the amount of OID that accrues
in the taxable year under section 1272 for the debt instrument and a
fraction ($70,000/$160,000). As a result, P's deferred OID deductions
are the following amounts: $4,015.99 for 2010 ($9,179.40 x $70,000/
$160,000); $4,246.39 for 2011 ($9,706.04 x $70,000/$160,000);
$4,490.01 for 2012 ($10,262.88 x $70,000/$160,000); and $4,747.61 for
2013 ($10,851.68 x $70,000/$160,000).
Example 2. (i) Facts. The facts are the same as in Example 1, except
that S makes a section 108(i) election for only $10,000 of the $30,000
of COD income.
(ii) Analysis. The maximum amount of P's deferred OID deductions
under section 108(i)(2)(A) is $10,000 rather than $17,500 because S made
a section 108(i) election for only $10,000 of the $30,000 of COD income.
Under section 108(i)(2)(A), because the amount of OID that accrues prior
to 2014 attributable to the portion of the debt instrument issued to
indirectly reacquire S's applicable debt instrument under paragraph (b)
of this section ($17,500) exceeds the amount of deferred COD income
under section 108(i) ($10,000), P's deferred OID deductions are the
following amounts: $4,015.99 for 2010; $4,246.39 for 2011; $1,737.62 for
2012; and $0 for 2013.
Example 3. (i) Facts. The facts are the same as in Example 1, except
that P pays $200,000 in cash to the lenders/holders on December 31,
2012, to retire the debt instrument. P did not directly or indirectly
obtain the funds to retire the debt instrument from the issuance of
another debt instrument with OID.
(ii) Analysis. Under paragraph (c)(1) of this section, the
retirement of P's debt instrument is not an acceleration event for the
deferred OID deductions of $4,015.99 for 2010, $4,246.39 for 2011, and
$4,490.01 for 2012. Except as provided in Sec. 1.108(i)-1(b)(4), these
amounts will be taken into account during the inclusion period. P,
however, paid a repurchase premium of $10,851.68 in 2012 ($200,000 minus
the adjusted issue price of $189,148.32) to retire the debt instrument.
If otherwise allowable, P may deduct this amount in 2012 under
Sec. 1.163-7(c).
(e) Effective/applicability dates. For effective/applicability
dates, see Sec. 1.108(i)-0(b).
[T.D. 9622, 78 FR 39991, July 3, 2013]
Sec. 1.109-1 Exclusion from gross income of lessor of real property
of value of improvements erected by lessee.
(a) Income derived by a lessor of real property upon the
termination, through forfeiture or otherwise, of the lease of such
property and attributable to buildings erected or other improvements
made by the lessee upon the leased property is excluded from gross
income. However, where the facts disclose that such buildings or
improvements represent in whole or in part a liquidation in kind of
lease rentals, the exclusion from gross income shall not apply to the
extent that such buildings or improvements represent such liquidation.
The exclusion applies only with respect to the income realized by the
lessor upon the termination of the lease and has no application to
income, if any, in the form of rent, which may be derived by a lessor
during the period of the lease and attributable to buildings erected or
other improvements made by the lessee. It has no application to income
which may be realized by the lessor upon the termination of
[[Page 485]]
the lease but not attributable to the value of such buildings or
improvements. Neither does it apply to income derived by the lessor
subsequent to the termination of the lease incident to the ownership of
such buildings or improvements.
(b) The provisions of this section may be illustrated by the
following example:
Example. The A Corporation leased in 1945 for a period of 50 years
unimproved real property to the B Corporation under a lease providing
that the B Corporation erect on the leased premises an office building
costing $500,000, in addition to paying the A Corporation a lease rental
of $10,000 per annum beginning on the date of completion of the
improvements, the sum of $100,000 being placed in escrow for the payment
of the rental. The building was completed on January 1, 1950. The lease
provided that all improvements made by the lessee on the leased property
would become the absolute property of the A Corporation on the
termination of the lease by forfeiture or otherwise and that the lessor
would become entitled on such termination to the remainder of the sum,
if any, remaining in the escrow fund. The B Corporation forfeited its
lease on January 1, 1955, when the improvements had a value of $100,000.
Under the provisions of section 109, the $100,000 is excluded from gross
income. The amount of $50,000 representing the remainder in the escrow
fund is forfeited to the A Corporation and is included in the gross
income of that taxpayer. As to the basis of the property in the hands of
the A Corporation, see Sec. 1.1019-1.
Sec. 1.110-1 Qualified lessee construction allowances.
(a) Overview. Amounts provided to a lessee by a lessor for property
to be constructed and used by the lessee pursuant to a lease are not
includible in the lessee's gross income if the amount is a qualified
lessee construction allowance under paragraph (b) of this section.
(b) Qualified lessee construction allowance--(1) In general. A
qualified lessee construction allowance means any amount received in
cash (or treated as a rent reduction) by a lessee from a lessor--
(i) Under a short-term lease of retail space;
(ii) For the purpose of constructing or improving qualified long-
term real property for use in the lessee's trade or business at that
retail space; and
(iii) To the extent the amount is expended by the lessee in the
taxable year received on the construction or improvement of qualified
long-term real property for use in the lessee's trade or business at
that retail space.
(2) Definitions--(i) Qualified long-term real property is
nonresidential real property under section 168(e)(2)(B) that is part of,
or otherwise present at, the retail space referred to in paragraph
(b)(1)(i) of this section and which reverts to the lessor at the
termination of the lease. Thus, qualified long-term real property does
not include property qualifying as section 1245 property under section
1245(a)(3).
(ii) Short-term lease is a lease (or other agreement for occupancy
or use) of retail space for 15 years or less (as determined pursuant to
section 168(i)(3)).
(iii) Retail space is nonresidential real property under section
168(e)(2)(B) that is leased, occupied, or otherwise used by the lessee
in its trade or business of selling tangible personal property or
services to the general public. The term retail space includes not only
the space where the retail sales are made, but also space where
activities supporting the retail activity are performed (such as an
administrative office, a storage area, and employee lounge). Examples of
services typically sold to the general public include services provided
by hair stylists, tailors, shoe repairmen, doctors, lawyers,
accountants, insurance agents, stock brokers, securities dealers
(including dealers who sell securities out of inventory), financial
advisors and bankers. For purposes of this paragraph (b)(2)(iii), a
taxpayer is selling to the general public if the products or services
for sale are made available to the general public, even if the product
or service is targeted to certain customers or clients.
(3) Purpose requirement. An amount will meet the requirement in
paragraph (b)(1)(ii) of this section only to the extent that the lease
agreement for the retail space expressly provides that the construction
allowance is for the purpose of constructing or improving qualified
long-term real property for use in the lessee's trade or business at
[[Page 486]]
the retail space. An ancillary agreement between the lessor and the
lessee providing for a construction allowance, executed
contemporaneously with the lease or during the term of the lease, is
considered a provision of the lease agreement for purposes of the
preceding sentence, provided the agreement is executed before payment of
the construction allowance.
(4) Expenditure requirement--(i) In general. Expenditures referred
to in paragraph (b)(1)(iii) of this section may be treated as being made
first from the lessee's construction allowance. Tracing of the
construction allowance to the actual lessee expenditures for the
construction or improvement of qualified long-term real property is not
required. However, the lessee should maintain accurate records of the
amount of the qualified lessee construction allowance received and the
expenditures made for qualified long-term real property.
(ii) Time when expenditures deemed made. For purposes of paragraph
(b)(1)(iii) of this section, an amount is deemed to have been expended
by a lessee in the taxable year in which the construction allowance was
received by the lessee if--
(A) The amount is expended by the lessee within 8\1/2\ months after
the close of the taxable year in which the amount was received; or
(B) The amount is a reimbursement from the lessor for amounts
expended by the lessee in a prior year and for which the lessee has not
claimed any depreciation deductions.
(5) Consistent treatment by lessor. Qualified long-term real
property constructed or improved with any amount excluded from a
lessee's gross income by reason of paragraph (a) of this section must be
treated as nonresidential real property owned by the lessor (for
purposes of depreciation under 168(e)(2)(B) and determining gain or loss
under section 168(i)(8)(B)). For purposes of the preceding sentence, the
lessor must treat the construction allowance as fully expended in the
manner required by paragraph (b)(1)(iii) of this section unless the
lessor is notified by the lessee in writing to the contrary. General tax
principles apply for purposes of determining when the lessor may begin
depreciation of its nonresidential real property. The lessee's exclusion
from gross income under paragraph (a) of this section, however, is not
dependent upon the lessor's treatment of the property as nonresidential
real property.
(c) Information required to be furnished--(1) In general. The lessor
and the lessee described in paragraph (b) of this section who are paying
and receiving a qualified lessee construction allowance, respectively,
must furnish the information described in paragraph (c)(3) of this
section in the time and manner prescribed in paragraph (c)(2) of this
section.
(2) Time and manner for furnishing information. The requirement to
furnish information under paragraph (c)(1) of this section is met by
attaching a statement with the information described in paragraph (c)(3)
of this section to the lessor's or the lessee's, as applicable, timely
filed (including extensions) Federal income tax return for the taxable
year in which the construction allowance was paid by the lessor or
received by the lessee (either in cash or treated as a rent reduction),
as applicable. A lessor or a lessee may report the required information
for several qualified lessee construction allowances on a combined
statement. However, a lessor's or a lessee's failure to provide
information with respect to each lease will be treated as a separate
failure to provide information for purposes of paragraph (c)(4) of this
section.
(3) Information required--(i) Lessor. The statement provided by the
lessor must contain the lessor's name (and, in the case of a
consolidated group, the parent's name), employer identification number,
taxable year and the following information for each lease:
(A) The lessee's name (in the case of a consolidated group, the
parent's name).
(B) The address of the lessee.
(C) The employer identification number of the lessee.
(D) The location of the retail space (including mall or strip center
name, if applicable, and store name).
(E) The amount of the construction allowance.
[[Page 487]]
(F) The amount of the construction allowance treated by the lessor
as nonresidential real property owned by the lessor.
(ii) Lessee. The statement provided by the lessee must contain the
lessee's name (and, in the case of a consolidated group, the parent's
name), employer identification number, taxable year and the following
information for each lease:
(A) The lessor's name (in the case of a consolidated group, the
parent's name).
(B) The address of the lessor.
(C) The employer identification number of the lessor.
(D) The location of the retail space (including mall or strip center
name, if applicable, and store name).
(E) The amount of the construction allowance.
(F) The amount of the construction allowance that is a qualified
lessee construction allowance under paragraph (b) of this section.
(4) Failure to furnish information. A lessor or a lessee that fails
to furnish the information required in this paragraph (c) may be subject
to a penalty under section 6721.
(d) Effective date. This section is applicable to leases entered
into on or after October 5, 2000.
[T.D. 8901, 65 FR 53586, Sept. 5, 2000]
Sec. 1.111-1 Recovery of certain items previously deducted or credited.
(a) General. Section 111 provides that income attributable to the
recovery during any taxable year of bad debts, prior taxes, and
delinquency amounts shall be excluded from gross income to the extent of
the ``recovery exclusion'' with respect to such items. The rule of
exclusion so prescribed by statute applies equally with respect to all
other losses, expenditures and accruals made the basis of deductions
from gross income for prior taxable years, including war losses referred
to in section 127 of the Internal Revenue Code of 1939, but not
including deductions with respect to depreciation, depletion,
amortization, or amortizable bond premiums. The term ``recovery
exclusion'' as used in this section means an amount equal to the portion
of the bad debts, prior taxes, and delinquency amounts (the items
specifically referred to in section 111), and of all other items subject
to the rule of exclusion which, when deducted or credited for a prior
taxable year, did not result in a reduction of any tax of the taxpayer
under subtitle A (other than the accumulated earnings tax imposed by
section 531 or the personal holding company tax imposed by section 541)
of the Internal Revenue Code of 1954 or corresponding provisions of
prior income tax laws (other than the World War II excess profits tax
imposed under subchapter E, chapter 2 of the Internal Revenue Code of
1939).
(1) Section 111 items. The term ``section 111 items'' as used in
this section means bad debts, prior taxes, delinquency amounts, and all
other items subject to the rule of exclusion, for which a deduction or
credit was allowed for a prior taxable year. If a bad debt was
previously charged against a reserve by a taxpayer on the reserve method
of treating bad debts, it was not deducted, and it is therefore not
considered a section 111 item. Bad debts, prior taxes, and delinquency
amounts are defined in section 111(b) (1), (2), and (3), respectively.
An example of a delinquency amount is interest on delinquent taxes. An
example of the other items not expressly referred to in section 111 but
nevertheless subject to the rule of exclusion is a loss sustained upon
the sale of stock and later recovered, in whole or in part, through an
action against the party from whom such stock had been purchased.
(2) Definition of ``recovery''. Recoveries result from the receipt
of amounts in respect of the previously deducted or credited section 111
items, such as from the collection or sale of a bad debt, refund or
credit of taxes paid, or cancellation of taxes accrued. Care should be
taken in the case of bad debts which were treated as only partially
worthless in prior years to distinguish between the item described in
section 111, that is, the part of such debt which was deducted, and the
part not previously deducted, which is not a section 111 item and is
considered the first part collected. The collection of the part not
deducted is not considered a ``recovery''. Furthermore, the term
``recovery'' does not include the gain
[[Page 488]]
resulting from the receipt of an amount on account of a section 111 item
which, together with previous such receipts, exceeds the deduction or
credit previously allowed for such item. For instance, a $100 corporate
bond purchased for $40 and later deducted as worthless is subsequently
collected to the extent of $50. The $10 gain (excess of $50 collection
over $40 cost) is not a recovery of a section 111 item. Such gain is in
no case excluded from gross income under section 111, regardless of
whether the $40 recovery is or is not excluded.
(3) Treatment of debt deducted in more than one year by reason of
partial worthlessness. In the case of a bad debt deducted in part for
two or more prior years, each such deduction of a part of the debt is
considered a separate section 111 item. A recovery with respect to such
debt is considered first a recovery of those items (or portions
thereof), resulting from such debt, for which there are recovery
exclusions. If there are recovery exclusions for two or more items
resulting from the same bad debt, such items are considered recovered in
the order of the taxable years for which they were deducted, beginning
with the latest. The recovery exclusion for any such item is determined
by considering the recovery exclusion with respect to the prior year for
which such item was deducted as being first used to offset all other
applicable recoveries in the year in which the bad debt is recovered.
(4) Special provisions as to worthless bonds, etc., which are
treated as capital losses. Certain bad debts arising from the
worthlessness of securities and certain nonbusiness bad debts are
treated as losses from the sale or exchange of capital assets. See
sections 165(g) and 166(d). The amounts of the deductions allowed for
any year under section 1211 on account of such losses for such year are
considered to be section 111 items. Any part of such losses which, under
section 1211, is a deduction for a subsequent year through the capital
loss carryover (any later receipt of an amount with respect to such
deducted loss is a recovery) is considered a section 111 item for the
year in which such loss was sustained.
(b) Computation of recovery exclusion--(1) Amount of recovery
exclusion allowable for year of recovery. For the year of any recovery,
the section 111 items which were deducted or credited for one prior year
are considered as a group and the recovery thereon is considered
separately from recoveries of any items which were deducted or credited
for other years. This recovery is excluded from gross income to the
extent of the recovery exclusion with respect to this group of items as
(i) determined for the original year for which such items were deducted
or credited (see subparagraph (2) of this paragraph) and (ii) reduced by
the excludable recoveries in intervening years on account of all section
111 items for such original year. A taxpayer claiming a recovery
exclusion shall submit, at the time the exclusion is claimed, the
computation of the recovery exclusion claimed for the original year for
which the items were deducted or credited, and computations showing the
amount recovered in intervening years on account of the section 111
items deducted or credited for the original year.
(2) Determination of recovery exclusion for original year for which
items were deducted or credited. (i) The recovery exclusion for the
taxable year for which section 111 items were deducted or credited (that
is, the ``original taxable year'') is the portion of the aggregate
amount of such deductions and credits which could be disallowed without
causing an increase in any tax of the taxpayer imposed under subtitle A
(other than the accumulated earnings tax imposed by section 531 or the
personal holding company tax imposed by section 541) of the Internal
Revenue Code of 1954 or corresponding provisions of prior income tax
laws (other than the World War II excess profits tax imposed under
subchapter E, chapter 2 of the Internal Revenue Code of 1939). For the
purpose of such recovery exclusion, consideration must be given to the
effect of net operating loss carryovers and carrybacks or capital loss
carryovers.
(ii) This rule shall be applied by determining the recovery
exclusion as the aggregate amount of the section 111 items for the
original year for which such items were deducted or
[[Page 489]]
credited reduced by whichever of the following amounts is the greater:
(a) The difference between (1) the taxable income for such original
year and (2) the taxable income computed without regard to the section
111 items for such original year.
(b) In the case of a taxpayer subject to any income tax in lieu of
normal tax or surtax or both (except the alternative tax on capital
gains imposed by section 1201, which is disregarded), the difference
between (1) the income subject to such tax for such original year and
(2) the income subject to such tax computed without regard to the
section 111 items for such original year.
(Neither the amount determined under (1) nor the amount under (2) of (a)
or (b) of this subdivision shall in any case be considered less than
zero.) For this determination of the recovery exclusion, the aggregate
of the section 111 items must be further decreased by the portion
thereof which caused a reduction in tax in preceding or succeeding
taxable years through any net operating loss carryovers or carrybacks or
capital loss carryovers affected by such items. This decrease is the
aggregate of the largest amount determined for each of such preceding
and succeeding years under (a) and (b) of this subdivision, the
computation of each carryover or carryback to the preceding or
succeeding year being made under (1) of (a) and (b) of this subdivision
with regard to the section 111 items for the original year and such
computation being made under (2) of (a) and (b) of this subdivision
without regard to such items. For the purpose of the preceding sentence,
the computations under both (1) and (2) of (a) and (b) of this
subdivision shall be made without regard to any section 111 items for
such preceding or succeeding year and the carryovers and carrybacks to
such year shall be determined without regard to any section 111 items
for years subsequent to the original year.
(iii) The determination of the recovery exclusion for original
taxable years subject to the provisions of the Internal Revenue Code of
1939 shall be made under 26 CFR (1939) 39.22(b)(12)-1(b)(2) (Regulations
118).
(3) Example. The provisions of this paragraph may be illustrated by
the following example:
Example. A single individual with no dependents has for his 1954
taxable year the following income and deductions:
------------------------------------------------------------------------
With Without
deduction deduction
of of
section section
111 items 111 items
------------------------------------------------------------------------
Gross income...................................... $25,000 $25,000
=====================
Less deductions:
Depreciation.................................... 20,000 20,000
Business bad debts and taxes.................... 6,300
Personal exemption.............................. 600 600
---------------------
26,900 20,600
=====================
Taxable income or (loss).......................... (1,900) 4,400
Adjustment under section 172(d)(3)................ 600
---------------------
Net operating loss............................ (1,300) .........
------------------------------------------------------------------------
The full amount of the net operating loss of $1,300 is carried back and
allowed as a deduction for 1952. The aggregate of the section 111 items
for 1954 is $6,300 (bad debts and taxes). The recovery exclusion on
account of section 111 items for 1954 is $600, determined by reducing
the $6,300 aggregate of the section 111 items by $5,700, i.e., the sum
of (1) the difference between the amount of the taxable income for 1954
computed without regard to the section 111 items ($4,400) and the amount
of the taxable income for 1954 (not less than zero) computed by taking
such items into account, and (2) the amount of the net operating loss
($1,300) which caused the reduction in tax for 1952 by reason of the
carryback provisions. If in 1956 the taxpayer recovers $400 of the bad
debts, all of the recovery is excluded from the income by reason of the
recovery exclusion of $600 determined for the original year 1954. If in
1957 the taxpayer recovers an additional $300 of the bad debts, only
$200 is excluded from gross income. That is, the recovery exclusion of
$600 determined for the original year 1954 is reduced by the $400
recovered in 1956, leaving a balance of $200 which is used in 1957. The
balance of the amount recovered in 1957, $100 ($300 less $200), is
included in gross income for 1957.
(c) Provisions as to taxes imposed by section 531 (relating to the
accumulated earnings tax) and section 541 (relating to the tax on
personal holding companies). A recovery exclusion allowed for purposes
of subtitle A (other than section 531 or section 541) of the Internal
Revenue Code of 1954 shall also be allowed for the purpose of
determining the accumulated earnings tax under section
[[Page 490]]
531 or the personal holding company tax under section 541 regardless of
whether or not the section 111 items on which such recovery exclusion is
based resulted in a reduction of the tax under section 531 or section
541 of the Internal Revenue Code of 1954 (or corresponding provisions of
prior income tax laws) for the prior taxable year. Furthermore, if there
is recovery of a section 111 item which was not allowable as a deduction
or credit for the prior taxable year for purposes of Subtitle A (not
including section 531 or section 541) or corresponding provisions of
prior income tax laws (other than Subchapter E, Chapter 2 of the
Internal Revenue Code of 1939, relating to World War II excess profits
tax), but was allowable for such prior taxable year in determining the
tax under section 531 or section 541 (or corresponding provisions of
prior income tax laws) then for the purpose of determining the tax under
section 531 or section 541 a recovery exclusion shall be allowable with
respect to such recovery if the section 111 item did not result in a
reduction of the tax under section 531 or section 541 (or corresponding
provisions of prior income tax laws).
Sec. 1.112-1 Combat zone compensation of members of the Armed Forces.
(a) Combat zone compensation exclusion--(1) Amount excluded. In
addition to the exemptions and credits otherwise applicable, section 112
excludes from gross income the following compensation of members of the
Armed Forces:
(i) Enlisted personnel. Compensation received for active service as
a member below the grade of commissioned officer in the Armed Forces of
the United States for any month during any part of which the member
served in a combat zone or was hospitalized at any place as a result of
wounds, disease, or injury incurred while serving in the combat zone.
(ii) Commissioned officers. Compensation not exceeding the monthly
dollar limit received for active service as a commissioned officer in
the Armed Forces of the United States for any month during any part of
which the officer served in a combat zone or was hospitalized at any
place as a result of wounds, disease, or injury incurred while serving
in the combat zone. The monthly dollar limit is the monthly amount
excludable from the officer's income under section 112(b) as amended.
Beginning in 1966, the monthly dollar limit for periods of active
service after 1965 became $500. As of September 10, 1993, the monthly
dollar limit continues to be $500.
(2) Time limits on exclusion during hospitalization. Compensation
received for service for any month of hospitalization that begins more
than 2 years after the date specified by the President in an Executive
Order as the date of the termination of combatant activities in the
combat zone cannot be excluded under section 112. Furthermore,
compensation received while hospitalized after January 1978 for wounds,
disease, or injury incurred in the Vietnam combat zone designated by
Executive Order 11216 cannot be excluded under section 112.
(3) Special terms. A commissioned warrant officer is not a
commissioned officer under section 112(b) and is entitled to the
exclusion allowed to enlisted personnel under section 112(a).
Compensation, for the purpose of section 112, does not include pensions
and retirement pay. Armed Forces of the United States is defined (and
members of the Armed Forces are described) in section 7701(a)(15).
(4) Military compensation only. Only compensation paid by the Armed
Forces of the United States to members of the Armed Forces can be
excluded under section 112, except for compensation paid by an agency or
instrumentality of the United States or by an international organization
to a member of the Armed Forces whose military active duty status
continues during the member's assignment to the agency or
instrumentality or organization on official detail. Compensation paid by
other employers (whether private enterprises or governmental entities)
to members of the Armed Forces cannot be excluded under section 112 even
if the payment is made to supplement the member's military compensation
or is labeled by the employer as compensation for active service in the
Armed Forces of the United States.
[[Page 491]]
Compensation paid to civilian employees of the federal government,
including civilian employees of the Armed Forces, cannot be excluded
under section 112, except as provided in section 112(d)(2) (which
extends the exclusion to compensation of civilian employees of the
federal government in missing status due to the Vietnam conflict).
(b) Service in combat zone--(1) Active service. The exclusion under
section 112 applies only if active service is performed in a combat
zone. A member of the Armed Forces is in active service if the member is
actually serving in the Armed Forces of the United States. Periods
during which a member of the Armed Forces is absent from duty on account
of sickness, wounds, leave, internment by the enemy, or other lawful
cause are periods of active service. A member of the Armed Forces in
active service in a combat zone who becomes a prisoner of war or missing
in action in the combat zone is deemed, for the purpose of section 112,
to continue in active service in the combat zone for the period for
which the member is treated as a prisoner of war or as missing in action
for military pay purposes.
(2) Combat zone status. Except as provided in paragraphs (e) and (f)
of this section, service is performed in a combat zone only if it is
performed in an area which the President of the United States has
designated by Executive Order, for the purpose of section 112, as an
area in which Armed Forces of the United States are or have been engaged
in combat, and only if it is performed on or after the date designated
by the President by Executive Order as the date of the commencing of
combatant activities in that zone and on or before the date designated
by the President by Executive Order as the date of the termination of
combatant activities in that zone.
(3) Partial month service. If a member of the Armed Forces serves in
a combat zone for any part of a month, the member is entitled to the
exclusion for that month to the same extent as if the member has served
in that zone for the entire month. If a member of the Armed Forces is
hospitalized for a part of a month as a result of wounds, disease, or
injury incurred while serving in that zone, the member is entitled to
the exclusion for the entire month.
(4) Payment time and place. The time and place of payment are
irrelevant in considering whether compensation is excludable under
section 112; rather, the time and place of the entitlement to
compensation determine whether the compensation is excludable under
section 112. Thus, compensation can be excluded under section 112
whether or not it is received outside a combat zone, or while the
recipient is hospitalized, or in a year different from that in which the
service was rendered for which the compensation is paid, provided that
the member's entitlement to the compensation fully accrued in a month
during which the member served in the combat zone or was hospitalized as
a result of wounds, disease, or injury incurred while serving in the
combat zone. For this purpose, entitlement to compensation fully accrues
upon the completion of all actions required of the member to receive the
compensation. Compensation received by a member of the Armed Forces for
services rendered while in active service can be excluded under section
112 even though payment is received subsequent to discharge or release
from active service. Compensation credited to a deceased member's
account for a period subsequent to the established date of the member's
death and received by the member's estate can be excluded from the gross
income of the estate under section 112 to the same extent that it would
have been excluded from the gross income of the member had the member
lived and received the compensation.
(5) Examples of combat zone compensation. The rules of this section
are illustrated by the following examples:
Example 1. On January 5, outside of a combat zone, an enlisted
member received basic pay for active duty services performed from the
preceding December 1 through December 31. On December 4 (and no other
date), the member performed services within a combat zone. The member
may exclude from income the entire payment received on January 5,
although the member served in the combat zone only one day during
December, received the payment outside of the combat zone, and received
the payment in a year other than the year in which the combat zone
services were performed.
[[Page 492]]
Example 2. From March through December, an enlisted member became
entitled to 25 days of annual leave while serving in a combat zone. The
member used all 25 days of leave in the following year. The member may
exclude from income the compensation received for those 25 days, even if
the member performs no services in the combat zone in the year the
compensation is received.
Example 3. From March through December, a commissioned officer
became entitled to 25 days of annual leave while serving in a combat
zone. During that period the officer also received basic pay of $1,000
per month from which the officer excluded from income $500 per month
(exhausting the monthly dollar limit under section 112 for that period).
The officer used all 25 days of leave in the following year. The officer
may not exclude from income any compensation received in the following
year related to those 25 days of leave, since the officer had already
excluded from income the maximum amount of combat zone compensation for
the period in which the leave was earned.
Example 4. In November, while serving in a combat zone, an enlisted
member competing for a cash award submitted an employee suggestion.
After November, the member neither served in a combat zone nor was
hospitalized for wounds incurred in the combat zone. In June of the
following year, the member's suggestion was selected as the winner of
the competition and the award was paid. The award can be excluded from
income as combat zone compensation although granted and received outside
of the combat zone, since the member completed the necessary action to
win the award (submission of the suggestion) in a month during which the
member served in the combat zone.
Example 5. In July, while serving in a combat zone, an enlisted
member voluntarily reenlisted. After July, the member neither served in
a combat zone nor was hospitalized for wounds incurred in the combat
zone. In February of the following year, the member received a bonus as
a result of the July reenlistment. The reenlistment bonus can be
excluded from income as combat zone compensation although received
outside of the combat zone, since the member completed the necessary
action for entitlement to the reenlistment bonus in a month during which
the member served in the combat zone.
Example 6. In July, while serving outside a combat zone, an enlisted
member voluntarily reenlisted. In February of the following year, the
member, while performing services in a combat zone, received a bonus as
a result of the July reenlistment. The reenlistment bonus cannot be
excluded from income as combat zone compensation although received while
serving in the combat zone, since the member completed the necessary
action for entitlement to the reenlistment bonus in a month during which
the member had neither served in the combat zone nor was hospitalized
for wounds incurred while serving in a combat zone.
(c) Hospitalization--(1) Presumption of combat zone injury. If an
individual is hospitalized for wound, disease, or injury while serving
in a combat zone, the wound, disease, or injury will be presumed to have
been incurred while serving in a combat zone, unless the contrary
clearly appears. In certain cases, however, a wound, disease, or injury
may have been incurred while serving in a combat zone even though the
individual was not hospitalized for it while so serving. In exceptional
cases, a wound, disease, or injury will not have been incurred while
serving in a combat zone even though the individual was hospitalized for
it while so serving.
(2) Length of hospitalization. An individual is hospitalized only
until the date the individual is discharged from the hospital.
(3) Examples of combat zone injury. The rules of this paragraph (c)
are illustrated by the following examples:
Example 1. An individual is hospitalized for a disease in the combat
zone where the individual has been serving for three weeks. The
incubation period of the disease is two to four weeks. The disease is
incurred while serving in the combat zone.
Example 2. The facts are the same as in Example 1 except that the
incubation period of the disease is one year. The disease is not
incurred while serving in the combat zone.
Example 3. A member of the Air Force, stationed outside the combat
zone, is shot while participating in aerial combat over the combat zone,
but is not hospitalized until returning to the home base. The injury is
incurred while serving in a combat zone.
Example 4. An individual is hospitalized for a disease three weeks
after having departed from a combat zone. The incubation period of the
disease is two to four weeks. The disease is incurred while serving in a
combat zone.
(d) Married members. The exclusion under section 112 applies without
regard to the marital status of the recipient of the compensation. If
both spouses meet the requirements of the statute, then each spouse is
entitled to the benefit of an exclusion. In the case of a husband and
wife domiciled in a State recognized for Federal income tax purposes as
a community property State, any exclusion from gross income
[[Page 493]]
under section 112 operates before apportionment of the gross income of
the spouses under community property law. For example, a husband and
wife are domiciled in a community property State and the member spouse
is entitled, as a commissioned officer, to the benefit of the exclusion
under section 112(b) of $500 for each month. The member receives $7,899
as compensation for active service for 3 months in a combat zone. Of
that amount, $1,500 is excluded from gross income under section 112(b)
and $6,399 is taken into account in determining the gross income of both
spouses.
(e) Service in area outside combat zone--(1) Combat zone treatment.
For purposes of section 112, a member of the Armed Forces who performs
military service in an area outside the area designated by Executive
Order as a combat zone is deemed to serve in that combat zone while the
member's service is in direct support of military operations in that
zone and qualifies the member for the special pay for duty subject to
hostile fire or imminent danger authorized under section 310 of title 37
of the United States Code, as amended (37 U.S.C. 310) (hostile fire/
imminent danger pay).
(2) Examples of combat zone treatment. The examples in this
paragraph (e)(2) are based on the following circumstances: Certain
areas, airspace, and adjacent waters are designated as a combat zone for
purposes of section 112 as of May 1. Some members of the Armed Forces
are stationed in the combat zone; others are stationed in two foreign
countries outside the combat zone, named Nearby Country and Destination
Country.
Example 1. B is a member of an Armed Forces ground unit stationed in
the combat zone. On May 31, B's unit crosses into Nearby Country. B
performs military service in Nearby Country in direct support of the
military operations in the combat zone from June 1 through June 8 that
qualifies B for hostile fire/imminent danger pay. B does not return to
the combat zone during June. B is deemed to serve in the combat zone
from June 1 through June 8. Accordingly, B is entitled to the exclusion
under section 112 for June. Of course, B is also entitled to the
exclusion for any month (May, in this example) in which B actually
served in the combat zone.
Example 2. B is a member of an Armed Forces ground unit stationed in
the combat zone. On May 31, B's unit crosses into Nearby Country. On
June 1, B is wounded while performing military service in Nearby Country
in direct support of the military operations in the combat zone that
qualifies B for hostile fire/imminent danger pay. On June 2, B is
transferred for treatment to a hospital in the United States. B is
hospitalized from June through October for those wounds. B is deemed to
have incurred the wounds while serving in the combat zone on June 1.
Accordingly, B is entitled to the exclusion under section 112 for June
through October. Of course, B is also entitled to the exclusion for any
month (May, in this example) in which B actually served in the combat
zone.
Example 3. B is stationed in Nearby Country for the entire month of
June as a member of a ground crew servicing combat aircraft operating in
the combat zone. B's service in Nearby Country during June does not
qualify B for hostile fire/imminent danger pay. Accordingly, B is not
deemed to serve in the combat zone during June and is not entitled to
the exclusion under section 112 for that month.
Example 4. B is assigned to an air unit stationed in Nearby Country
for the entire month of June. In June, members of air units of the Armed
Forces stationed in Nearby Country fly combat and supply missions into
and over Destination Country in direct support of military operations in
the combat zone. B flies combat missions over Destination Country from
Nearby Country from June 1 through June 8. B's service qualifies B for
hostile fire/imminent danger pay. Accordingly, B is deemed to serve in
the combat zone during June and is entitled to the exclusion under
section 112. The result would be the same if B were to fly supply
missions into Destination Country from Nearby Country in direct support
of operations in the combat zone qualifying B for hostile fire/imminent
danger pay.
Example 5. Assigned to an air unit stationed in Nearby Country, B
was killed in June when B's plane crashed on returning to the airbase in
Nearby Country. B was performing military service in direct support of
the military operations in the combat zone at the time of B's death. B's
service also qualified B for hostile fire/imminent danger pay. B is
deemed to have died while serving in the combat zone or to have died as
a result of wounds, disease, or injury incurred while serving in the
combat zone for purposes of section 692(a) and section 692(b) (providing
relief from certain income taxes for members of the Armed Forces dying
in a combat zone or as a result of wounds, disease, or injury incurred
while serving in a combat zone) and section 2201 (providing relief from
certain estate taxes for members of the Armed Forces dying in a combat
zone or
[[Page 494]]
by reason of combat-zone-incurred wounds). The result would be the same
if B's mission had been a supply mission instead of a combat mission.
Example 6. In June, B was killed as a result of an off-duty
automobile accident while leaving the airbase in Nearby Country shortly
after returning from a mission over Destination Country. At the time of
B's death, B was not performing military duty qualifying B for hostile
fire/imminent danger pay. B is not deemed to have died while serving in
the combat zone or to have died as the result of wounds, disease, or
injury incurred while serving in the combat zone. Accordingly, B does
not qualify for the benefits of section 692(a), section 692(b), or
section 2201.
Example 7. B performs military service in Nearby Country from June 1
through June 8 in direct support of the military operations in the
combat zone. Nearby Country is designated as an area in which members of
the Armed Forces qualify for hostile fire/imminent danger pay due to
imminent danger, even though members in Nearby Country are not subject
to hostile fire. B is deemed to serve in the combat zone from June 1
through June 8. Accordingly, B is entitled to the exclusion under
section 112 for June.
(f) Nonqualifying presence in combat zone--(1) Inapplicability of
exclusion. The following members of the Armed Forces are not deemed to
serve in a combat zone within the meaning of section 112(a)(1) or
section 112(b)(1) or to be hospitalized as a result of wounds, disease,
or injury incurred while serving in a combat zone within the meaning of
section 112(a)(2) or section 112(b)(2)--
(i) Members present in a combat zone while on leave from a duty
station located outside a combat zone;
(ii) Members who pass over or through a combat zone during the
course of a trip between two points both of which lie outside a combat
zone; or
(iii) Members present in a combat zone solely for their own personal
convenience.
(2) Exceptions for temporary duty or special pay. Paragraph (f)(1)
of this section does not apply to members of the Armed Forces who--
(i) Are assigned on official temporary duty to a combat zone
(including official temporary duty to the airspace of a combat zone); or
(ii) Qualify for hostile fire/imminent danger pay.
(3) Examples of nonqualifying presence and its exceptions. The
examples in this paragraph (f)(3) are based on the following
circumstances: Certain areas, airspace, and adjacent waters are
designated as a combat zone for purposes of section 112 as of May 1.
Some members of the Armed Forces are stationed in the combat zone;
others are stationed in two foreign countries outside the combat zone,
named Nearby Country and Destination Country.
Example 1. B is a member of the Armed Forces assigned to a unit
stationed in Nearby Country. On June 1, B voluntarily visits a city
within the combat zone while on leave. B is not deemed to serve in a
combat zone since B is present in a combat zone while on leave from a
duty station located outside a combat zone.
Example 2. B is a member of the Armed Forces assigned to a unit
stationed in Nearby Country. During June, B takes authorized leave and
elects to spend the leave period by visiting a city in the combat zone.
While on leave in the combat zone, B is subject to hostile fire
qualifying B for hostile fire/imminent danger pay. Although B is present
in the combat zone while on leave from a duty station outside the combat
zone, B qualifies for the exclusion under section 112 because B
qualifies for hostile fire/imminent danger pay while in the combat zone.
Example 3. B is a member of the Armed Forces assigned to a ground
unit stationed in the combat zone. During June, B takes authorized leave
and elects to spend the leave period in the combat zone. B is not on
leave from a duty station located outside a combat zone, nor is B
present in a combat zone solely for B's own personal convenience.
Accordingly, B's combat zone tax benefits continue while B is on leave
in the combat zone.
Example 4. B is assigned as a navigator to an air unit stationed in
Nearby Country. On June 4, during the course of a flight between B's
home base in Nearby Country and another base in Destination Country, the
aircraft on which B serves as a navigator flies over the combat zone. B
is not on official temporary duty to the airspace of the combat zone and
does not qualify for hostile fire/imminent danger pay as a result of the
flight. Accordingly, B is not deemed to serve in a combat zone since B
passes over the combat zone during the course of a trip between two
points both of which lie outside the combat zone without either being on
official temporary duty to the combat zone or qualifying for hostile
fire/imminent danger pay.
Example 5. B is a member of the Armed Forces assigned to a unit
stationed in Nearby Country. B enters the combat zone on a 3-day pass. B
is not on official temporary duty
[[Page 495]]
and does not qualify for hostile fire/imminent danger pay while present
in the combat zone. Accordingly, B is not deemed to serve in a combat
zone since B is present in the combat zone solely for B's own personal
convenience.
Example 6. B, stationed in Nearby Country, is a military courier
assigned on official temporary duty to deliver military pouches in the
combat zone and in Destination Country. On June 1, B arrives in the
combat zone from Nearby Country, and on June 2, B departs for
Destination Country. Although B passes through the combat zone during
the course of a trip between two points outside the combat zone, B is
nevertheless deemed to serve in a combat zone while in the combat zone
because B is assigned to the combat zone on official temporary duty.
Example 7. B is a member of an Armed Forces ground unit stationed in
Nearby Country. On June 1, B took authorized leave and elected to spend
the leave period by visiting a city in the combat zone. On June 2, while
on leave in the combat zone, B was wounded by hostile fire qualifying B
for hostile fire/imminent danger pay. On June 3, B was transferred for
treatment to a hospital in the United States. B is hospitalized from
June through October for those wounds. Although B was present in the
combat zone while on leave from a duty station outside the combat zone,
B is deemed to have incurred the wounds while serving in the combat zone
on June 2, because B qualified for hostile fire/imminent danger pay
while in the combat zone. Accordingly, B is entitled to the exclusion
under section 112 for June through October.
Example 8. The facts are the same as in Example 7 except that B dies
on September 1 as a result of the wounds incurred in the combat zone. B
is deemed to have died as a result of wounds, disease, or injury
incurred while serving in the combat zone for purposes of section 692(a)
and section 692(b) (providing relief from certain income taxes for
members of the Armed Forces dying in a combat zone or as a result of
wounds, disease, or injury incurred while serving in a combat zone) and
section 2201 (providing relief from certain estate taxes for members of
the Armed Forces dying in a combat zone or by reason of combat-zone-
incurred wounds).
[T.D. 8489, 58 FR 47640, Sept. 10, 1993]
Sec. 1.113-1 Mustering-out payments for members of the Armed Forces.
For the purposes of the exclusion from gross income under section
113 of mustering-out payments with respect to service in the Armed
Forces, mustering-out payments are payments made to any recipients
pursuant to the provisions of 38 U.S.C. 2105 (formerly section 5 of the
Mustering-out Payment Act of 1944 and section 505 of the Veterans'
Readjustment Assistance Act of 1952).
Sec. 1.117-1 Exclusion of amounts received as a scholarship or
fellowship grant.
(a) In general. Any amount received by an individual as a
scholarship at an educational institution or as a fellowship grant,
including the value of contributed services and accommodations, shall be
excluded from the gross income of the recipient, subject to the
limitations set forth in section 117(b) and Sec. 1.117-2. The exclusion
from gross income of an amount which is a scholarship or fellowship
grant is controlled solely by section 117. Accordingly, to the extent
that a scholarship or a fellowship grant exceeds the limitations of
section 117(b) and Sec. 1.117-2, it is includible in the gross income of
the recipient notwithstanding the provisions of section 102 relating to
exclusion from gross income of gifts, or section 74(b) relating to
exclusion from gross income of certain prizes and awards. For
definitions, see Sec. 1.117-3.
(b) Exclusion of amounts received to cover expenses. (1) Subject to
the limitations provided in subparagraph (2) of this paragraph, any
amount received by an individual to cover expenses for travel (including
meals and lodging while traveling and an allowance for travel of the
individual's family), research, clerical help, or equipment is
excludable from gross income provided that such expenses are incident to
a scholarship or fellowship grant which is excludable from gross income
under section 117(a)(1). If, however, only a portion of a scholarship or
fellowship grant is excludable from gross income under section 117(a)(1)
because of the part-time employment limitation contained in section
117(b)(1) or because of the expiration of the 36-month period described
in section 117(b)(2)(B), only the amount received to cover expenses
incident to such excludable portion is excludable from gross income. The
requirement that these expenses be incident to the scholarship or the
fellowship grant means that the expenses of
[[Page 496]]
travel, research, clerical help, or equipment must be incurred by the
individual in order to effectuate the purpose for which the scholarship
or the fellowship grant was awarded.
(2)(i) In the case of a scholarship or fellowship grant which is
awarded after July 28, 1956, the exclusion provided under subparagraph
(1) of this paragraph is not applicable unless the amount received by
the individual is specifically designated to cover expenses for travel,
research, clerical help, or equipment.
(ii) In the case of a scholarship or fellowship grant awarded before
July 29, 1956, the exclusion provided under subparagraph (1) of this
paragraph is not applicable unless the recipient establishes, by
competent evidence, that the amount was received to cover expenses for
travel, research, clerical help, or equipment, but such amount need not
be specifically designated. The fact that the recipient actually
incurred expenses for travel, research, clerical help, or equipment is
not sufficient to establish that the amount was received to cover such
expenses.
(iii) The exclusion provided under subparagraph (1) of this
paragraph is applicable only to the extent that the amount received for
travel, research, clerical help, or equipment is actually expended for
such expenses by the recipient during the term of the scholarship or
fellowship grant and within a reasonable time before and after such
term.
(3) The portion of any amount received to cover the expenses
described in subparagraph (1) of this paragraph which is not actually
expended for such expenses within the exclusion period described in
subparagraph (2) of this paragraph shall, if not returned to the grantor
within this period, be included in the gross income of the recipient for
the taxable year in which such exclusion period expires.
Sec. 1.117-2 Limitations.
(a) Individuals who are candidates for degrees--(1) In general.
Under the limitations provided by section 117(b)(1) in the case of an
individual who is a candidate for a degree at an educational
institution, the exclusion from gross income shall not apply (except as
otherwise provided in subparagraph (2) of this paragraph) to that
portion of any amount received as payment for teaching, research, or
other services in the nature of parttime employment required as a
condition to receiving the scholarship or fellowship grant. Payments for
such part-time employment shall be included in the gross income of the
recipient in an amount determined by reference to the rate of
compensation ordinarily paid for similar services performed by an
individual who is not the recipient of a scholarship or a fellowship
grant. A typical example of employment under this subparagraph is the
case of an individual who is required, as a condition to receiving the
scholarship or the fellowship grant, to perform part-time teaching
services. A requirement that the individual shall furnish periodic
reports to the grantor of the scholarship or the fellowship grant for
the purpose of keeping the grantor informed as to the general progress
of the individual shall not be deemed to constitute the performance of
services in the nature of part-time employment.
(2) Exception. If teaching, research, or other services are required
of all candidates (whether or not recipients of scholarships or
fellowship grants) for a particular degree as a condition to receiving
the degree, such teaching, research, or other services on the part of
the recipient of a scholarship or fellowship grant who is a candidate
for such degree shall not be regarded as part-time employment within the
meaning of this paragraph. Thus, if all candidates for a particular
education degree are required, as part of their regular course of study
or curriculum, to perform part-time practice teaching services, such
services are not to be regarded as part-time employment within the
meaning of this paragraph.
(b) Individuals who are not candidates for degrees--(1) Conditions
for exclusion. In the case of an individual who is not a candidate for a
degree at an educational institution, the exclusion from gross income of
an amount received as a scholarship or a fellowship grant shall apply
(to the extent provided in subparagraph (2) of this paragraph) only if
the grantor of the scholarship or fellowship grant is--
[[Page 497]]
(i) An organization described in section 501(c)(3) which is exempt
from tax under section 501(a),
(ii) The United States or an instrumentality or agency thereof, or a
State, a territory, or a possession of the United States, or any
political subdivision thereof, or the District of Columbia, or
(iii) For taxable years beginning after December 31, 1961, a foreign
government, an international organization, or a binational or
multinational educational and cultural foundation or commission created
or continued pursuant to section 103 of the Mutual Educational and
Cultural Exchange Act of 1961 (22 U.S.C. 2453).
(2) Extent of exclusion. (i) In the case of an individual who is not
a candidate for a degree, the amount received as a scholarship or a
fellowship grant which is excludable from gross income under section
117(a)(1) shall not exceed an amount equal to $300 times the number of
months for which the recipient received amounts under the scholarship or
fellowship grant during the taxable year. In determining the number of
months during the period for which the recipient received amounts under
a scholarship or fellowship grant, computation shall be made on the
basis of whole calendar months. A whole calendar month means a period of
time terminating with the day of the succeeding month numerically
corresponding to the day of the month of its beginning, less one, except
that if there be no corresponding day of the succeeding month the period
terminates with the last day of the succeeding month. For purposes of
this computation a fractional part of a calendar month consisting of a
period of time including 15 days or more shall be considered to be a
whole calendar month and a fractional part of a calendar month
consisting of a period of time including 14 days or less shall be
disregarded. For example, if an individual receives a fellowship grant
on September 13 which is to expire on June 12 of the following year, the
grant shall be considered to have extended for a period of 9 months. If
in the preceding example the grant expired on June 27, instead of June
12, the grant shall be considered to have extended for a period of 10
months.
(ii) No exclusion shall be allowed under section 117(a)(1) to an
individual who is not a candidate for a degree after the recipient has,
as an individual who is not a candidate for a degree, been entitled to
an exclusion under that section for a period of 36 months. This
limitation applies if the individual has received any amount which was
either excluded or excludable from his gross income under section
117(a)(1) for any prior 36 months, whether or not consecutive. For
example, if the individual received a fellowship grant of $7,200 for 3
years (which he elected to receive in 36 monthly installments of $200),
his exclusion period would be exhausted even though he did not in any of
the 36 months make use of the maximum exclusion. Accordingly, such
individual would be entitled to no further exclusion from gross income
with respect to any additional grants which he may receive as an
individual who is not a candidate for a degree.
(iii) If an individual who is not a candidate for a degree receives
amounts from more than one scholarship or fellowship grant during the
taxable year, the total amounts received in the taxable year shall be
aggregated for the purpose of computing the amount which may be
excludable from gross income for such taxable year. If amounts are
received from more than one scholarship or fellowship grant during the
same month or months within the taxable year, such month or months shall
be counted only once for the purpose of determining the number of months
for which the individual received such amounts under the scholarships or
fellowship grants during the taxable year. For example, if an individual
receives a fellowship grant from one source for the months of January to
June of the taxable year and also receives a fellowship grant from
another source for the months of March through December of the same
taxable year, he shall be considered to have received amounts for 12
months of the taxable year. See example (4) in subparagraph (3) of this
paragraph for further illustration.
(3) Examples. The application of this paragraph may be further
illustrated
[[Page 498]]
by the following examples, it being assumed that in each example the
grantor is a grantor who is described in section 117(b)(2)(A) and
subparagraph (1) of this paragraph:
Example 1. B, an individual who files his return on the calendar
year basis, is awarded a post-doctorate fellowship grant in March 1955.
The grant is to commence on September 1, 1955, and is to end on May 31,
1956, so that it will extend over a period of 9 months. The amount of
the fellowship grant is $4,500 and B receives this amount in monthly
installments of $500 on the first day of each month commencing September
1, 1955. During the taxable year 1955, B receives a total of $2,000 with
respect to the 4-month period September through December, inclusive. He
may exclude $1,200 from gross income in the taxable year 1955 ($300 x
4) and must include the remaining $800 in gross income for that year.
For the year 1956, he will exclude $1,500 ($300 x 5) from gross income
with respect to the $2,500 which he receives in that year and must
include in gross income $1,000.
Example 2. Assume the same facts as in example (1) except that B
receives the full amount of the grant ($4,500) on September 1, 1955.
Since the amount received in the taxable year 1955 is for the full term
of the fellowship grant (9 months), B may exclude $2,700 ($300 x 9)
from gross income for the taxable year 1955. The remaining $1,800 must
be included in gross income for that year.
Example 3. C, an individual who files his return on the calendar
year basis, is awarded a post-doctorate fellowship grant in March 1955.
The amount of the grant is $4,500 for a period commencing on September
1, 1955, and ending 24 months thereafter. C receives the full amount of
the grant on September 1, 1955. C may exclude from gross income for the
taxable year 1955, the full amount of the grant ($4,500) since this
amount does not exceed an amount equal to $300 times the number of
months (24) for which he received the amount of the grant during that
taxable year.
Example 4. (i) F, an individual who files his return on the calendar
year basis, is awarded a post-doctorate fellowship grant (Grant A) for
two years commencing June 1, 1955, in the amount of $4,800. He elects to
receive his grant in monthly installments of $200 commencing June 1,
1955. On March 1, 1956, F is awarded another post-doctorate fellowship
grant (Grant B) for two years commencing September 1, 1956, in the
amount of $7,200. He elects to receive this grant in monthly
installments of $300 commencing September 1, 1956.
(ii) For the calendar year 1955, F receives $1,400 from Grant A
which he is entitled to exclude from gross income since it does not
exceed an amount equal to $300 times the number of months (7) for which
he received amounts under the grant in the taxable year.
(iii) For the calendar year 1956, F receives $3,600 as the aggregate
of amounts received under fellowship grants ($2,400 from Grant A and
$1,200 from Grant B). F will be entitled to exclude the entire amount of
$3,600 from gross income for the calendar year 1956 since such amount
does not exceed an amount equal to $300 times the number of months (12)
for which he received amounts under the grants in the taxable year.
(iv) For the calendar year 1957, F receives $4,600 as the aggregate
of amounts received under fellowship grants ($1,000 from Grant A and
$3,600 from Grant B). F will be entitled to exclude $3,600 ($300 x 12)
from gross income for the calendar year 1957 and he will have to include
$1,000 in gross income.
(v) For the calendar year 1958, F receives $2,400 from Grant B. F is
entitled to exclude $1,500 ($300 x 5) from gross income for the
calendar year 1958 and he will have to include $900 in gross income.
While F receives amounts under fellowship Grant B for 8 months during
the calendar year 1958, he is limited to an amount equal to $300 times 5
(months) because of the fact that he has already been entitled to
exclude (and has in fact excluded) amounts received as a fellowship
grant for a period of 31 months. Accordingly, he can only exclude
amounts received under the fellowship grant for 5 months during the
calendar year 1958, because of the 36-month limitation period. The fact
that he was entitled to exclude only $1,400 ($200 a month for 7 months)
instead of the maximum amount of $2,100 ($300 x 7) in 1955, is
immaterial and the limitation period of 36 months is applicable.
(vi) The following chart illustrates the computation of the number
of months for which F received amounts under the fellowship grants
during the respective taxable years and the computation of the total
amounts received under the fellowship grants during each taxable year:
------------------------------------------------------------------------
Number
Period for which received and source of Amounts
months received
------------------------------------------------------------------------
1955:
June 1 to December 31............................. 7
Grant A......................................... ........ $1,400
Grant B......................................... ........ None
-------------------
Aggregate..................................... 7 1,400
1956:
January 1 to August 31............................ 8
Grant A......................................... ........ 1,600
Grant B......................................... ........ None
September 1 to December 31........................ 4
Grant A......................................... ........ 800
Grant B......................................... ........ 1,200
-------------------
Aggregate..................................... 12 3,600
1957:
January 1 to May 31............................... 5
Grant A......................................... ........ 1,000
[[Page 499]]
Grant B......................................... ........ 1,500
June 1 to December 31............................. 7
Grant A......................................... ........ None
Grant B......................................... ........ 2,100
-------------------
Aggregate..................................... 12 4,600
1958:
January 1 to August 31............................ 8
Grant A......................................... ........ None
Grant B......................................... ........ 2,400
-------------------
Aggregate..................................... ........ 2,400
------------------------------------------------------------------------
[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6782, 29 FR
18355, Dec. 24, 1964]
Sec. 1.117-3 Definitions.
(a) Scholarship. A scholarship generally means an amount paid or
allowed to, or for the benefit of, a student, whether an undergraduate
or a graduate, to aid such individual in pursuing his studies. The term
includes the value of contributed services and accommodations (see
paragraph (d) of this section) and the amount of tuition, matriculation,
and other fees which are furnished or remitted to a student to aid him
in pursuing his studies. The term also includes any amount received in
the nature of a family allowance as a part of a scholarship. However,
the term does not include any amount provided by an individual to aid a
relative, friend, or other individual in pursuing his studies where the
grantor is motivated by family or philanthropic considerations. If an
educational institution maintains or participates in a plan whereby the
tuition of a child of a faculty member of such institution is remitted
by any other participating educational institution attended by such
child, the amount of the tuition so remitted shall be considered to be
an amount received as a scholarship.
(b) Educational organization. For definition of ``educational
organization'' paragraphs (a) and (b) of section 117 adopt the
definition of that term which is prescribed in section 151(e)(4).
Accordingly, for purposes of section 117 the term ``educational
organization'' means only an educational organization which normally
maintains a regular faculty and curriculum and normally has a regularly
organized body of students in attendance at the place where its
educational activities are carried on. See section 151(e)(4) and
regulations thereunder.
(c) Fellowship grant. A fellowship grant generally means an amount
paid or allowed to, or for the benefit of, an individual to aid him in
the pursuit of study or research. The term includes the value of
contributed services and accommodations (see paragraph (d) of this
section) and the amount of tuition, matriculation, and other fees which
are furnished or remitted to an individual to aid him in the pursuit of
study or research. The term also includes any amount received in the
nature of a family allowance as a part of a fellowship grant. However,
the term does not include any amount provided by an individual to aid a
relative, friend, or other individual in the pursuit of study or
research where the grantor is motivated by family or philanthropic
considerations.
(d) Contributed services and accommodations. The term ``contributed
services and accommodations'' means such services and accommodations as
room, board, laundry service, and similar services or accommodations
which are received by an individual as a part of a scholarship or
fellowship grant.
(e) Candidate for a degree. The term ``candidate for a degree''
means an individual, whether an undergraduate or a graduate, who is
pursuing studies or conducting research to meet the requirements for an
academic or professional degree conferred by colleges or universities.
It is not essential that such study or research be pursued or conducted
at an educational institution which confers such degrees if the purpose
thereof is to meet the requirements for a degree of a college or
university which does confer such degrees. A student who receives a
scholarship for study at a secondary school or other educational
institution is considered to be a ``candidate for a degree.''
[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960, as
amended by T.D. 8032, 50 FR 27232, July 2, 1985]
Sec. 1.117-4 Items not considered as scholarships or fellowship grants.
The following payments or allowances shall not be considered to be
[[Page 500]]
amounts received as a scholarship or a fellowship grant for the purpose
of section 117:
(a) Educational and training allowances to veterans. Educational and
training allowances to a veteran pursuant to section 400 of the
Servicemen's Readjustment Act of 1944 (58 Stat. 287) or pursuant to 38
U.S.C. 1631 (formerly section 231 of the Veterans' Readjustment
Assistance Act of 1952).
(b) Allowances to members of the Armed Forces of the United States.
Tuition and subsistence allowances to members of the Armed Forces of the
United States who are students at an educational institution operated by
the United States or approved by the United States for their education
and training, such as the United States Naval Academy and the United
States Military Academy.
(c) Amounts paid as compensation for services or primarily for the
benefit of the grantor. (1) Except as provided in paragraph (a) of
Secs. 1.117-2 and 1.117-5, any amount paid or allowed to, or on behalf
of, an individual to enable him to pursue studies or research, if such
amount represents either compensation for past, present, or future
employment services or represents payment for services which are subject
to the direction or supervision of the grantor.
(2) Any amount paid or allowed to, or on behalf of, an individual to
enable him to pursue studies or research primarily for the benefit of
the grantor.
However, amounts paid or allowed to, or on behalf of, an individual to
enable him to pursue studies or research are considered to be amounts
received as a scholarship or fellowship grant for the purpose of section
117 if the primary purpose of the studies or research is to further the
education and training of the recipient in his individual capacity and
the amount provided by the grantor for such purpose does not represent
compensation or payment for the services described in subparagraph (1)
of this paragraph. Neither the fact that the recipient is required to
furnish reports of his progress to the grantor, nor the fact that the
results of his studies or research may be of some incidental benefits to
the grantor shall, of itself, be considered to destroy the essential
character of such amount as a scholarship or fellowship grant.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960, as
amended by T.D. 8032, 50 FR 27232, July 2, 1985]
Sec. 1.117-5 Federal grants requiring future service as a Federal employee.
(a) In general. Under section 117(c), amounts received by an
individual under a Federal program as a scholarship or grant for
qualified tuition and expenses at an institution of higher education are
excluded from the gross income of the recipient even though the
recipient is required to perform future service as a Federal employee.
See paragraph (c) of this section for the definitions of the terms
``qualified tuition and expenses'' and ``institution of higher
education.''
(b) Exception for uniformed services scholarship programs. The
requirements of this section do not apply to amounts received before
1985 by a member of a uniformed service who entered training before 1981
under the Armed Forces Health Professions Scholarship Program, National
Public Health Service Corps Scholarship Training Program, or other
substantially similar Federal programs requiring the recipient to work
for a uniformed Federal service after completion of studies. These
awards are governed by section 4 of Pub. L. 93-483 as amended by Pub. L.
95-171, Pub. L. 95-600 and Pub. L. 96-167. See section 101(3) of title
37, United States Code for the definition of the term ``uniformed
service.''
(c) Definitions--(1) Qualified tuition and related expenses. For
purposes of section 117(c) and this section, qualified tuition and
related expenses are those amounts which under the terms of the Federal
program are required to be used and in fact are used for payment of:
(i) Tuition and fees that are required for the recipient's
enrollment or attendance at an institution of higher education; and
(ii) Those amounts used for payment of fees, books, supplies and
equipment required for courses of instruction at such an institution.
[[Page 501]]
Incidental expenses are not considered related expenses and thus are not
excludable from gross income under section 117(c). Incidental expenses
include room and board at an institution of higher education, expenses
for travel (including expenses for meals and lodging incurred during
travel and allowances for travel of the recipient's family), research,
clerical help, equipment and other expenses which are not required for
enrollment at the institution or in a course of instruction at such
institution.
(2) Institution of higher education. To qualify as an institution of
higher education under this section, the institution must be a public or
other nonprofit institution in any state which--
(i) Admits as regular students only individuals who have a
certificate of graduation from a high school or the recognized
equivalent of such a certificate;
(ii) Is legally authorized within the state to provide a program of
education beyond high school; and
(iii) Provides an education program for which it awards a bachelor's
or higher degree or which is acceptable for full credit towards such a
degree, or which trains and prepares students for gainful employment in
a recognized health profession. For purposes of this section, recognized
health professions are those health professions which are supervised or
monitored by appropriate state or Federal agencies or governing
professional associations and which require members to be currently
licensed or certified in order to practice.
(3) Service as a Federal employee--(i) In general. Except as
otherwise provided in paragraph (c)(3)(ii) of this section, service as a
Federal employee refers to employment of the recipient by the Federal
government to work directly for the Federal government. Thus, Federal
grants or scholarships which do not require the recipient to work
directly for the Federal government are not governed by the rules of
this section.
(ii) Service in a health manpower shortage area. For purposes of
this section an obligation under a grant for the recipient to serve in a
health related field in a health manpower shortage area as designated by
the Secretary of Health and Human Services according to the criteria of
the Public Health Services Act (42 U.S.C. 254(e)) and the regulations
promulgated thereunder (42 CFR 5.1-5.4) will be considered an obligation
to serve as a Federal employee.
(d) Records required for exclusion from gross income. To exclude
amounts received under Federal programs requiring future services as a
Federal employee, the recipient must maintain records that establish
that the amounts received under such programs were used for qualified
tuition and related expenses as defined in paragraph (c)(1) of this
section. Qualifying uses may be established by providing to the Service,
upon request, copies of relevant bills, receipts, cancelled checks or
other convenient documentation or records which clearly reflect the use
of the money received under the grant. The recipient must also submit,
upon request, documentation establishing receipt of the grant and
setting out the terms and requirements of the particular grant.
(e) Applicability of rules of Secs. 117(a) and 117(b). Except where
a different rule has been expressly provided in this section, amounts
received under Federal grants requiring future service as a Federal
employee, and which meet the requirements for exclusion from gross
income under this section, are subject to the rules, limitations and
definitions specified in Secs. 117 (a) and (b) of the Code and
Secs. 1.117-1 through 1.117-4.
(f) Effective date. Except as provided in paragraph (b) of this
section, this section will apply to amounts received after December 31,
1980 under Federal programs which meet the requirements of this section.
[T.D. 8032, 50 FR 27232, July 2, 1985]
Sec. 1.118-1 Contributions to the capital of a corporation.
In the case of a corporation, section 118 provides an exclusion from
gross income with respect to any contribution of money or property to
the capital of the taxpayer. Thus, if a corporation requires additional
funds for conducting its business and obtains such funds through
voluntary pro rata payments by its shareholders, the amounts so received
being credited to its surplus account or to a special account, such
[[Page 502]]
amounts do not constitute income, although there is no increase in the
outstanding shares of stock of the corporation. In such a case the
payments are in the nature of assessments upon, and represent an
additional price paid for, the shares of stock held by the individual
shareholders, and will be treated as an addition to and as a part of the
operating capital of the company. Section 118 also applies to
contributions to capital made by persons other than shareholders. For
example, the exclusion applies to the value of land or other property
contributed to a corporation by a governmental unit or by a civic group
for the purpose of inducing the corporation to locate its business in a
particular community, or for the purpose of enabling the corporation to
expand its operating facilities. However, the exclusion does not apply
to any money or property transferred to the corporation in consideration
for goods or services rendered, or to subsidies paid for the purpose of
inducing the taxpayer to limit production. See section 362 for the basis
of property acquired by a corporation through a contribution to its
capital by its stockholders or by nonstockholders.
Sec. 1.118-2 Contribution in aid of construction.
(a) Special rule for water and sewerage disposal utilities--(1) In
general. For purposes of section 118, the term contribution to the
capital of the taxpayer includes any amount of money or other property
received from any person (whether or not a shareholder) by a regulated
public utility that provides water or sewerage disposal services if--
(i) The amount is a contribution in aid of construction under
paragraph (b) of this section;
(ii) In the case of a contribution of property other than water or
sewerage disposal facilities, the amount satisfies the expenditure rule
under paragraph (c) of this section; and
(iii) The amount (or any property acquired or constructed with the
amount) is not included in the taxpayer's rate base for ratemaking
purposes.
(2) Definitions--(i) Regulated public utility has the meaning given
such term by section 7701(a)(33), except that such term does not include
any utility which is not required to provide water or sewerage disposal
services to members of the general public in its service area.
(ii) Water or sewerage disposal facility is defined as tangible
property described in section 1231(b) that is used predominately (80% or
more) in the trade or business of furnishing water or sewerage disposal
services.
(b) Contribution in aid of construction--(1) In general. For
purposes of section 118(c) and this section, the term contribution in
aid of construction means any amount of money or other property
contributed to a regulated public utility that provides water or
sewerage disposal services to the extent that the purpose of the
contribution is to provide for the expansion, improvement, or
replacement of the utility's water or sewerage disposal facilities.
(2) Advances. A contribution in aid of construction may include an
amount of money or other property contributed to a regulated public
utility for a water or sewerage disposal facility subject to a
contingent obligation to repay the amount, in whole or in part, to the
contributor (commonly referred to as an advance). For example, an amount
received by a utility from a developer to construct a water facility
pursuant to an agreement under which the utility will pay the developer
a percentage of the receipts from the facility over a fixed period may
constitute a contribution in aid of construction. Whether an advance is
a contribution or a loan is determined under general principles of
federal tax law based on all the facts and circumstances. For the
treatment of any amount of a contribution in aid of construction that is
repaid by the utility to the contributor, see paragraphs (c)(2)(ii) and
(d)(2) of this section.
(3) Customer connection fee--(i) In general. Except as provided in
paragraph (b)(3)(ii) of this section, a customer connection fee is not a
contribution in aid of construction under this paragraph (b) and
generally is includible in income. The term customer connection fee
includes any amount of money or other property transferred to the
utility representing the cost of installing a connection or service line
(including the cost of meters and piping) from the
[[Page 503]]
utility's main water or sewer lines to the line owned by the customer or
potential customer. A customer connection fee also includes any amount
paid as a service charge for starting or stopping service.
(ii) Exceptions--(A) Multiple customers. Money or other property
contributed for a connection or service line from the utility's main
line to the customer's or the potential customer's line is not a
customer connection fee if the connection or service line serves, or is
designed to serve, more than one customer. For example, a contribution
for a split service line that is designed to serve two customers is not
a customer connection fee. On the other hand, if a water or sewerage
disposal utility treats an apartment or office building as one utility
customer, then the cost of installing a connection or service line from
the utility's main water or sewer lines serving that single customer is
a customer connection fee.
(B) Fire protection services. Money or other property contributed
for public and private fire protection services is not a customer
connection fee.
(4) Reimbursement for a facility previously placed in service--(i)
In general. If a water or sewerage disposal facility is placed in
service by the utility before an amount is contributed to the utility,
the contribution is not a contribution in aid of construction under this
paragraph (b) with respect to the cost of the facility unless, no later
than 8\1/2\ months after the close of the taxable year in which the
facility was placed in service, there is an agreement, binding under
local law, that the utility is to receive the amount as reimbursement
for the cost of acquiring or constructing the facility. An order or
tariff, binding under local law, that is issued or approved by the
applicable public utility commission requiring current or prospective
utility customers to reimburse the utility for the cost of acquiring or
constructing the facility, is a binding agreement for purposes of the
preceding sentence. If an agreement exists, the basis of the facility
must be reduced by the amount of the expected contributions. Appropriate
adjustments must be made if actual contributions differ from expected
contributions.
(ii) Example. The application of paragraph (b)(4)(i) of this section
is illustrated by the following example:
Example. M, a calendar year regulated public utility that provides
water services, spent $1,000,000 for the construction of a water
facility that can serve 200 customers. M placed the facility in service
in 2000. In June 2001, the public utility commission that regulates M
approves a tariff requiring new customers to reimburse M for the cost of
constructing the facility by paying a service availability charge of
$5,000 per lot. Pursuant to the tariff, M expects to receive
reimbursements for the cost of the facility of $100,000 per year for the
years 2001 through 2010. The reimbursements are contributions in aid of
construction under paragraph (b) of this section because no later than
8\1/2\ months after the close of the taxable year in which the facility
was placed in service there was a tariff, binding under local law,
approved by the public utility commission requiring new customers to
reimburse the utility for the cost of constructing the facility. The
basis of the $1,000,000 facility is zero because the expected
contributions equal the cost of the facility.
(5) Classification by ratemaking authority. The fact that the
applicable ratemaking authority classifies any money or other property
received by a utility as a contribution in aid of construction is not
conclusive as to its treatment under this paragraph (b).
(c) Expenditure rule--(1) In general. An amount satisfies the
expenditure rule of section 118(c)(2) if the amount is expended for the
acquisition or construction of property described in section
118(c)(2)(A), the amount is paid or incurred before the end of the
second taxable year after the taxable year in which the amount was
received as required by section 118(c)(2)(B), and accurate records are
kept of contributions and expenditures as provided in section
118(c)(2)(C).
(2) Excess amount--(i) Includible in the utility's income. An amount
received by a utility as a contribution in aid of construction that is
not expended for the acquisition or construction of water or sewerage
disposal facilities as required by paragraph (c)(1) of this section (the
excess amount) is not a contribution to the capital of the taxpayer
under paragraph (a) of this section. Except as provided in paragraph
(c)(2)(ii) of this section, such excess amount is includible in the
utility's income in
[[Page 504]]
the taxable year in which the amount was received.
(ii) Repayment of excess amount. If the excess amount described in
paragraph (c)(2)(i) of this section is repaid, in whole or in part,
either--
(A) Before the end of the time period described in paragraph (c)(1)
of this section, the repayment amount is not includible in the utility's
income; or
(B) After the end of the time period described in paragraph (c)(1)
of this section, the repayment amount may be deducted by the utility in
the taxable year in which it is paid or incurred to the extent such
amount was included in income.
(3) Example. The application of this paragraph (c) is illustrated by
the following example:
Example. M, a calendar year regulated public utility that provides
water services, received a $1,000,000 contribution in aid of
construction in 2000 for the purpose of constructing a water facility.
To the extent that the $1,000,000 exceeded the actual cost of the
facility, the contribution was subject to being returned. In 2001, M
built the facility at a cost of $700,000 and returned $200,000 to the
contributor. As of the end of 2002, M had not returned the remaining
$100,000. Assuming accurate records are kept, the requirement under
section 118(c)(2) is satisfied for $700,000 of the contribution. Because
$200,000 of the contribution was returned within the time period during
which qualifying expenditures could be made, this amount is not
includible in M's income. However, the remaining $100,000 is includible
in M's income for its 2000 taxable year (the taxable year in which the
amount was received) because the amount was neither spent nor repaid
during the prescribed time period. To the extent M repays the remaining
$100,000 after year 2002, M would be entitled to a deduction in the year
such repayment is paid or incurred.
(d) Adjusted basis--(1) Exclusion from basis. Except for a repayment
described in paragraph (d)(2) of this section, to the extent that a
water or sewerage disposal facility is acquired or constructed with an
amount received as a contribution to the capital of the taxpayer under
paragraph (a) of this section, the basis of the facility is reduced by
the amount of the contribution. To the extent the water or sewerage
disposal facility is acquired as a contribution to the capital of the
taxpayer under paragraph (a) of this section, the basis of the
contributed facility is zero.
(2) Repayment of contribution. If a contribution to the capital of
the taxpayer under paragraph (a) of this section is repaid to the
contributor, either in whole or in part, then the repayment amount is a
capital expenditure in the taxable year in which it is paid or incurred,
resulting in an increase in the property's adjusted basis in such year.
Capital expenditures allocated to depreciable property under paragraph
(d)(3) of this section may be depreciated over the remaining recovery
period for that property.
(3) Allocation of contributions. An amount treated as a capital
expenditure under this paragraph (d) is to be allocated proportionately
to the adjusted basis of each property acquired or constructed with the
contribution based on the relative cost of such property.
(4) Example. The application of this paragraph (d) is illustrated by
the following example:
Example. A, a calendar year regulated public utility that provides
water services, received a $1,000,000 contribution in aid of
construction in 2000 as an advance from B, a developer, for the purpose
of constructing a water facility. To the extent that the $1,000,000
exceeds the actual cost of the facility, the contribution is subject to
being returned. Under the terms of the advance, A agrees to pay to B a
percentage of the receipts from the facility over a fixed period, but
limited to the cost of the facility. In 2001, A builds the facility at a
cost of $700,000 and returns $300,000 to B. In 2002, A pays $20,000 to B
out of the receipts from the facility. Assuming accurate records are
kept, the $700,000 advance is a contribution to the capital of A under
paragraph (a) of this section and is excludable from A's income. The
basis of the $700,000 facility constructed with this contribution to
capital is zero. The $300,000 excess amount is not a contribution to the
capital of A under paragraph (a) of this section because it does not
meet the expenditure rule described in paragraph (c)(1) of this section.
However, this excess amount is not includible in A's income pursuant to
paragraph (c)(2)(ii) of this section since the amount is repaid to B
within the required time period. The repayment of the $300,000 excess
amount to B in 2001 is not treated as a capital expenditure by A. The
$20,000 payment to B in 2002 is treated as a capital expenditure by A in
2002 resulting in an increase in the adjusted basis of the water
facility from zero to $20,000.
[[Page 505]]
(e) Statute of limitations--(1) Extension of statute of limitations.
Under section 118(d)(1), the statutory period for assessment of any
deficiency attributable to a contribution to capital under paragraph (a)
of this section does not expire before the expiration of 3 years after
the date the taxpayer notifies the Secretary in the time and manner
prescribed in paragraph (e)(2) of this section.
(2) Time and manner of notification. Notification is made by
attaching a statement to the taxpayer's federal income tax return for
the taxable year in which any of the reportable items in paragraphs
(e)(2)(i) through (iii) of this section occur. The statement must
contain the taxpayer's name, address, employer identification number,
taxable year, and the following information with respect to
contributions of property other than water or sewerage disposal
facilities that are subject to the expenditure rule described in
paragraph (c) of this section--
(i) The amount of contributions in aid of construction expended
during the taxable year for property described in section 118(c)(2)(A)
(qualified property) as required under paragraph (c)(1) of this section,
identified by taxable year in which the contributions were received;
(ii) The amount of contributions in aid of construction that the
taxpayer does not intend to expend for qualified property as required
under paragraph (c)(1) of this section, identified by taxable year in
which the contributions were received; and
(iii) The amount of contributions in aid of construction that the
taxpayer failed to expend for qualified property as required under
paragraph (c)(1) of this section, identified by taxable year in which
the contributions were received.
(f) Effective date. This section is applicable for any money or
other property received by a regulated public utility that provides
water or sewerage disposal services on or after January 11, 2001.
[T.D. 8936, 66 FR 2254, Jan. 11, 2001]
Sec. 1.119-1 Meals and lodging furnished for the convenience of the employer.
(a) Meals--(1) In general. The value of meals furnished to an
employee by his employer shall be excluded from the employee's gross
income if two tests are met: (i) The meals are furnished on the business
premises of the employer, and (ii) the meals are furnished for the
convenience of the employer. The question of whether meals are furnished
for the convenience of the employer is one of fact to be determined by
analysis of all the facts and circumstances in each case. If the tests
described in subdivisions (i) and (ii) of this subparagraph are met, the
exclusion shall apply irrespective of whether under an employment
contract or a statute fixing the terms of employment such meals are
furnished as compensation.
(2) Meals furnished without a charge. (i) Meals furnished by an
employer without charge to the employee will be regarded as furnished
for the convenience of the employer if such meals are furnished for a
substantial noncompensatory business reason of the employer. If an
employer furnishes meals as a means of providing additional compensation
to his employee (and not for a substantial noncompensatory business
reason of the employer), the meals so furnished will not be regarded as
furnished for the convenience of the employer. Conversely, if the
employer furnishes meals to his employee for a substantial
noncompensatory business reason, the meals so furnished will be regarded
as furnished for the convenience of the employer, even though such meals
are also furnished for a compensatory reason. In determining the reason
of an employer for furnishing meals, the mere declaration that meals are
furnished for a noncompensatory business reason is not sufficient to
prove that meals are furnished for the convenience of the employer, but
such determination will be based upon an examination of all the
surrounding facts and circumstances. In subdivision (ii) of this
subparagraph, there are set forth some of the substantial
noncompensatory business reasons which occur frequently and which
justify the conclusion that meals furnished for such a reason are
furnished
[[Page 506]]
for the convenience of the employer. In subdivision (iii) of this
subparagraph, there are set forth some of the business reasons which are
considered to be compensatory and which, in the absence of a substantial
noncompensatory business reason, justify the conclusion that meals
furnished for such a reason are not furnished for the convenience of the
employer. Generally, meals furnished before or after the working hours
of the employee will not be regarded as furnished for the convenience of
the employer, but see subdivision (ii) (d) and (f) of this subparagraph
for some exceptions to this general rule. Meals furnished on nonworking
days do not qualify for the exclusion under section 119. If the employee
is required to occupy living quarters on the business premises of his
employer as a condition of his employment (as defined in paragraph (b)
of this section), the exclusion applies to the value of any meal
furnished without charge to the employee on such premises.
(ii)(a) Meals will be regarded as furnished for a substantial
noncompensatory business reason of the employer when the meals are
furnished to the employee during his working hours to have the employee
available for emergency call during his meal period. In order to
demonstrate that meals are furnished to the employee to have the
employee available for emergency call during the meal period, it must be
shown that emergencies have actually occurred, or can reasonably be
expected to occur, in the employer's business which have resulted, or
will result, in the employer calling on the employee to perform his job
during his meal period.
(b) Meals will be regarded as furnished for a substantial
noncompensatory business reason of the employer when the meals are
furnished to the employee during his working hours because the
employer's business is such that the employee must be restricted to a
short meal period, such as 30 or 45 minutes, and because the employee
could not be expected to eat elsewhere in such a short meal period. For
example, meals may qualify under this subdivision when the employer is
engaged in a business in which the peak work load occurs during the
normal lunch hours. However, meals cannot qualify under this subdivision
(b) when the reason for restricting the time of the meal period is so
that the employee can be let off earlier in the day.
(c) Meals will be regarded as furnished for a substantial
noncompensatory business reason of the employer when the meals are
furnished to the employee during his working hours because the employee
could not otherwise secure proper meals within a reasonable meal period.
For example, meals may qualify under this subdivision (c) when there are
insufficient eating facilities in the vicinity of the employer's
premises.
(d) A meal furnished to a restaurant employee or other food service
employee for each meal period in which the employee works will be
regarded as furnished for a substantial noncompensatory business reason
of the employer, irrespective of whether the meal is furnished during,
immediately before, or immediately after the working hours of the
employee.
(e) If the employer furnishes meals to employees at a place of
business and the reason for furnishing the meals to each of
substantially all of the employees who are furnished the meals is a
substantial noncompensatory business reason of the employer, the meals
furnished to each other employee will also be regarded as furnished for
a substantial noncompensatory business reason of the employer.
(f) If an employer would have furnished a meal to an employee during
his working hours for a substantial noncompensatory business reason, a
meal furnished to such an employee immediately after his working hours
because his duties prevented him from obtaining a meal during his
working hours will be regarded as furnished for a substantial
noncompensatory business reason.
(iii) Meals will be regarded as furnished for a compensatory
business reason of the employer when the meals are furnished to the
employee to promote the morale or goodwill of the employee, or to
attract prospective employees.
(3) Meals furnished with a charge. (i) If an employer provides meals
which an
[[Page 507]]
employee may or may not purchase, the meals will not be regarded as
furnished for the convenience of the employer. Thus, meals for which a
charge is made by the employer will not be regarded as furnished for the
convenience of the employer if the employee has a choice of accepting
the meals and paying for them or of not paying for them and providing
his meals in another manner.
(ii) If an employer furnishes an employee meals for which the
employee is charged an unvarying amount (for example, by subtraction
from his stated compensation) irrespective of whether he accepts the
meals, the amount of such flat charge made by the employer for such
meals is not, as such, part of the compensation includible in the gross
income of the employee; whether the value of the meals so furnished is
excludable under section 119 is determined by applying the rules of
subparagraph (2) of this paragraph. If meals furnished for an unvarying
amount are not furnished for the convenience of the employer in
accordance with the rules of subparagraph (2) of this paragraph, the
employee shall include in gross income the value of the meals regardless
of whether the value exceeds or is less than the amount charged for such
meals. In the absence of evidence to the contrary, the value of the
meals may be deemed to be equal to the amount charged for them.
(b) Lodging. The value of lodging furnished to an employee by the
employer shall be excluded from the employee's gross income if three
tests are met:
(1) The lodging is furnished on the business premises of the
employer,
(2) The lodging is furnished for the convenience of the employer,
and
(3) The employee is required to accept such lodging as a condition
of his employment.
The requirement of subparagraph (3) of this paragraph that the employee
is required to accept such lodging as a condition of his employment
means that he be required to accept the lodging in order to enable him
properly to perform the duties of his employment. Lodging will be
regarded as furnished to enable the employee properly to perform the
duties of his employment when, for example, the lodging is furnished
because the employee is required to be available for duty at all times
or because the employee could not perform the services required of him
unless he is furnished such lodging. If the tests described in
subparagraphs (1), (2), and (3) of this paragraph are met, the exclusion
shall apply irrespective of whether a charge is made, or whether, under
an employment contract or statute fixing the terms of employment, such
lodging is furnished as compensation. If the employer furnishes the
employee lodging for which the employee is charged an unvarying amount
irrespective of whether he accepts the lodging, the amount of the charge
made by the employer for such lodging is not, as such, part of the
compensation includible in the gross income of the employee; whether the
value of the lodging is excludable from gross income under section 119
is determined by applying the other rules of this paragraph. If the
tests described in subparagraph (1), (2), and (3) of this paragraph are
not met, the employee shall include in gross income the value of the
lodging regardless of whether it exceeds or is less than the amount
charged. In the absence of evidence to the contrary, the value of the
lodging may be deemed to be equal to the amount charged.
(c) Business premises of the employer--(1) In general. For purposes
of this section, the term ``business premises of the employer''
generally means the place of employment of the employee. For example,
meals and lodging furnished in the employer's home to a domestic servant
would constitute meals and lodging furnished on the business premises of
the employer. Similarly, meals furnished to cowhands while herding their
employer's cattle on leased land would be regarded as furnished on the
business premises of the employer.
(2) Certain camps. For taxable years beginning after December 31,
1981, in the case of an individual who is furnished lodging by or on
behalf of his employer in a camp (as defined in paragraph (d) of this
section) in a foreign country (as defined in Sec. 1.911-2(h)), the camp
shall be considered to be part of the business premises of the employer.
[[Page 508]]
(d) Camp defined--(1) In general. For the purposes of paragraph
(c)(2) of this section, a camp is lodging that is all of the following:
(i) Provided by or on behalf of the employer for the convenience of
the employer because the place at which the employee renders services is
in a remote area where satisfactory housing is not available to the
employee on the open market within a reasonable commuting distance of
that place;
(ii) Located, as near as practicable, in the vicinity of the place
at which the employee renders services; and
(iii) Furnished in a common area or enclave which is not available
to the general public for lodging or accommodations and which normally
accommodates ten or more employees.
(2) Satisfactory housing. For purposes of paragraph (d)(1)(i) of
this section, facts and circumstances that may be relevant in
determining whether housing available to the employee is satisfactory
include, but are not limited to, the size and condition of living space
and the availability and quality of utilities such as water, sewers or
other waste disposal facilities, electricity, or heat. The general
environment in which housing is located (e.g., climate, prevalence of
insects, etc.) does not of itself make housing unsatisfactory. The
general environment is relevant, however, if housing is inadequate to
protect the occupants from environmental conditions. The individual
employee's income level is not relevant in determining whether housing
is satisfactory; it may, however, be relevant in determining whether
satisfactory housing is available to the employee (see paragraph
(d)(3)(i)(B) of this section).
(3) Availability of satisfactory housing--(i) Facts and
circumstances. For purposes of paragraph (d)(1)(i) of this section,
facts and circumstances to be considered in determining whether
satisfactory housing is available to the employee on the open market
include but are not limited to:
(A) The number of housing units available on the open market in
relation to the number of housing units required for the employer's
employees;
(B) The cost of housing available on the open market;
(C) The quality of housing available on the open market; and
(D) The presence of warfare or civil insurrection within the area
where housing would be available which would subject U.S. citizens to
unusual risk of personal harm or property loss.
(ii) Presumptions. Satisfactory housing will generally be considered
to be unavailable to the employee on the open market if either of the
following conditions is satisfied:
(A) The foreign government requires the employer to provide housing
for its employees other than housing available on the open market; or
(B) An unrelated person awarding work to the employer requires that
the employer's employees occupy housing specified by such unrelated
person.
The condition of either paragraph (d)(3)(ii) (A) or (B) of this section
is not satisfied if the requirement described therein and imposed either
by a foreign government or unrelated person applies primarily to U.S.
employers and not to a significant number of third country employers or
applies primarily to employers of U.S. employees and not to a
significant number of employers of third country employees.
(4) Reasonable commuting distance. For purposes of paragraph
(d)(1)(i) of this section, in determining whether a commuting distance
is reasonable, the accessibility of the place at which the employee
renders services due to geographic factors, the quality of the roads,
the customarily available transportation, and the usual travel time (at
the time of day such travel would be required) to the place at which the
employee renders services shall be taken into account.
(5) Common area or enclave. A cluster of housing units does not
satisfy paragraph (d)(1)(iii) of this section if it is adjacent to or
surrounded by substantially similar housing available to the general
public. Two or more common areas or enclaves that house employees who
work on the same project (for example, a highway project) are considered
to be one common area or enclave in determining whether they normally
accommodate ten or more employees.
(e) Rules. The exclusion provided by section 119 applies only to
meals and
[[Page 509]]
lodging furnished in kind by or on behalf of an employer to his
employee. If the employee has an option to receive additional
compensation in lieu of meals or lodging in kind, the value of such
meals and lodging is not excludable from gross income under section 119.
However, the mere fact that an employee, at his option, may decline to
accept meals tendered in kind will not of itself require inclusion of
the value thereof in gross income. Cash allowances for meals or lodging
received by an employee are includible in gross income to the extent
that such allowances constitute compensation.
(f) Examples. The provisions of section 119 may be illustrated by
the following examples:
Example 1. A waitress who works from 7 a.m. to 4 p.m. is furnished
without charge two meals a work day. The employer encourages the
waitress to have her breakfast on his business premises before starting
work, but does not require her to have breakfast there. She is required,
however, to have her lunch on such premises. Since the waitress is a
food service employee and works during the normal breakfast and lunch
periods, the waitress is permitted to exclude from her gross income both
the value of the breakfast and the value of the lunch.
Example 2. The waitress in example (1) is allowed to have meals on
the employer's premises without charge on her days off. The waitress is
not permitted to exclude the value of such meals from her gross income.
Example 3. A bank teller who works from 9 a.m. to 5 p.m. is
furnished his lunch without charge in a cafeteria which the bank
maintains on its premises. The bank furnishes the teller such meals in
order to limit his lunch period to 30 minutes since the bank's peak work
load occurs during the normal lunch period. If the teller had to obtain
his lunch elsewhere, it would take him considerably longer than 30
minutes for lunch, and the bank strictly enforces the 30-minute time
limit. The bank teller may exclude from his gross income the value of
such meals obtained in the bank cafeteria.
Example 4. Assume the same facts as in example (3), except that the
bank charges the bank teller an unvarying rate per meal regardless of
whether he eats in the cafeteria. The bank teller is not required to
include in gross income such flat amount charged as part of his
compensation, and he is entitled to exclude from his gross income the
value of the meals he receives for such flat charge.
Example 5. A Civil Service employee of a State is employed at an
institution and is required by his employer to be available for duty at
all times. The employer furnishes the employee with meals and lodging at
the institution without charge. Under the applicable State statute, his
meals and lodging are regarded as part of the employee's compensation.
The employee would nevertheless be entitled to exclude the value of such
meals and lodging from his gross income.
Example 6. An employee of an institution is given the choice of
residing at the institution free of charge, or of residing elsewhere and
receiving a cash allowance in addition to his regular salary. If he
elects to reside at the institution, the value to the employee of the
lodging furnished by the employer will be includible in the employee's
gross income because his residence at the institution is not required in
order for him to perform properly the duties of his employment.
Example 7. A construction worker is employed at a construction
project at a remote job site in Alaska. Due to the inaccessibility of
facilities for the employees who are working at the job site to obtain
food and lodging and the prevailing weather conditions, the employer is
required to furnish meals and lodging to the employee at the camp site
in order to carry on the construction project. The employee is required
to pay $40 a week for the meals and lodging. The weekly charge of $40 is
not, as such, part of the compensation includible in the gross income of
the employee, and under paragraphs (a) and (b) of this section the value
of the meals and lodging is excludable from his gross income.
Example 8. A manufacturing company provides a cafeteria on its
premises at which its employees can purchase their lunch. There is no
other eating facility located near the company's premises, but the
employee can furnish his own meal by bringing his lunch. The amount of
compensation which any employee is required to include in gross income
is not reduced by the amount charged for the meals, and the meals are
not considered to be furnished for the convenience of the employer.
Example 9. A hospital maintains a cafeteria on its premises where
all of its 230 employees may obtain a meal during their working hours.
No charge is made for these meals. The hospital furnishes such meals in
order to have each of 210 of the employees available for any emergencies
that may occur, and it is shown that each such employee is at times
called upon to perform services during his meal period. Although the
hospital does not require such employees to remain on the premises
during meal periods, they rarely leave the hospital during their meal
period. Since the hospital furnishes meals to each of substantially all
of its employees in order to have each of them available for emergency
call during his meal period, all of the hospital employees who obtain
their meals in
[[Page 510]]
the hospital cafeteria may exclude from their gross income the value of
such meals.
[T.D. 6745, 29 FR 9380, July 9, 1964, as amended by T.D. 8006, 50 FR
2964, Jan. 23, 1985]
Sec. 1.120-1 Statutory subsistence allowance received by police.
(a) Section 120 excludes from the gross income of an individual
employed as a police official by a State, Territory, or possession of
the United States, by any of their political subdivisions, or by the
District of Columbia, any amount received as a statutory subsistence
allowance to the extent that such allowance does not exceed $5 per day.
For purposes of this section, the term ``statutory subsistence
allowance'' means an amount which is designated as a subsistence
allowance under the laws of a State, a Territory, or a possession of the
United States, any political subdivision of any of the foregoing, or the
District of Columbia and which is paid to an individual who is employed
as a police official of such governmental unit. A subsistence allowance
paid to a police official by any of the foregoing governmental units
which is not so provided by statute may not be excluded from gross
income under the provisions of section 120. The term ``police official''
includes an employee of any of the foregoing governmental units who has
police duties, such as a sheriff, a detective, a policeman, or a State
police trooper, however designated.
(b) The exclusion provided by section 120 is to be computed on a
daily basis, that is, for each day for which the statutory allowance is
paid. If the statute providing the allowance does not specify the daily
amount of such allowance, the allowance shall be converted to a daily
basis for the purpose of applying the limitation provided herein. For
example, if a State statute provides for a weekly subsistence allowance,
the daily amount is to be determined by dividing the weekly amount by
the number of days for which the allowance is paid. Thus, if a State
trooper receives a weekly statutory subsistence allowance of $40 would
be $8, that is, $40 divided by 5 for 5 days of the week, the daily
amount would be $8, that is, $40 divided by 5. However, for purposes of
this section, only $5 per day may be excluded, or $25 on a weekly basis.
(c) Expenses in respect of which the allowance under section 120 is
paid may not be deducted under any provision of the income tax laws
except to the extent that (1) such expenses exceed the amount of the
exclusion, and (2) the excess is otherwise allowable as a deduction. For
example, if a State statute provides a subsistence allowance of $3 per
day and the taxpayer, a state trooper, incurs expenditures of $4.50 for
meals while away from home overnight on official police duties only $3
would be excludable under this section. Expenses relating to such
exclusion ($3) may not be deducted under any provision of the income tax
laws. However, the remaining $1.50 may be an allowable deduction under
section 162 as traveling expenses while away from home in the
performance of official duties. See Sec. 1.162-2.
(d) In the case of taxable years ending after September 30, 1958,
section 120 and this section do not apply to amounts received as a
statutory subsistence allowance for any day after September 30, 1958.
Sec. 1.120-3 Notice of application for recognition of status of
qualified group legal services plan.
(a) In general. In order for a plan to be a qualified group legal
services plan for purposes of the exclusion from gross income provided
by section 120(a), the plan must give notice to the Internal Revenue
Service that it is applying for recognition of its status as a qualified
plan. Paragraph (b) of this section describes how the notice is to be
filed for the plan. Paragraph (c) of this section describes the action
that the Internal Revenue Service will take in response to the notice
submitted for the plan. Paragraph (d) of this section describes the
period of plan qualification.
(b) Filing of notice--(1) In general. A notice of application for
recognition of the status of a qualified group legal services plan must
be filed with the key district director of internal revenue as described
in Sec. 601.201(n). The notice must be filed on Form 1024, Application
for Recognition of Exemption
[[Page 511]]
Under section 501(a) or for Determination Under section 120, with the
accompanying Schedule L, and must contain the information required by
the form and any accompanying instructions. The form may be filed by
either the employer adopting the plan or the person administering the
plan. No Form 1024 and Schedule L may be filed for a plan before an
employer adopts the plan, or proposes to adopt the plan contingent only
upon the recognition of the plan as a qualified plan.
(2) Plans to which more than one employer contributes. In general,
for purposes of section 120 the adoption of a plan by an employer
constitutes the adoption of a separate plan to which that employer alone
contributes, notwithstanding that, in form, the employer purports to
adopt a plan with respect to which the employer is one of two or more
contributing employers. Accordingly, a separate Schedule L must be filed
pursuant to the instructions accompanying Form 1024 for each employer
adopting a plan.
(3) Certain collectively bargained plans. Notwithstanding
subparagraph (2) of this paragraph, if a plan to which more than one
employer contributes is a plan to which this subparagraph (3) applies,
the plan is treated as a single plan for purposes of section 120.
Accordingly, only one Form 1024 and Schedule L is required to be filed
for the plan, regardless of the number of employers originally adopting
the plan. In addition, once a Form 1024 and Schedule L is filed, no
additional filing is required with respect to an employer who thereafter
adopts the plan. In general, this subparagraph (3) applies to any plan
that is maintained pursuant to a collective bargaining agreement between
employee representatives and more than one employer who is required by
the plan instrument or other agreement to contribute to the plan with
respect to employees (or their spouses or dependents) participating in
the plan. This subparagraph does not apply, however, if all employers
required to contribute to the plan are corporations which are members of
a controlled group of corporations within the meaning of section
1563(a), determined without regard to section 1563(e)(3)(C). If all
employers required to contribute to the plan are corporations which are
members of such a controlled group, the filing requirements described in
subparagraph (2) of this paragraph apply, notwithstanding that the plan
is maintained pursuant to a collective bargaining agreement.
(c) Internal Revenue Service action on notice of application for
recognition. The Internal Revenue Service will issue to the person
submitting Form 1024 and Schedule L a ruling or determination letter
stating that the plan is or is not a qualified group legal services
plan. For general procedural rules, see Sec. 601.201 (a) through (n), as
that section relates to rulings and determination letters.
(d) Period of plan qualification--(1) In general. In the case of a
favorable determination, the plan will be considered a qualified group
legal services plan. If a Form 1024 and Schedule L required to be filed
by or on behalf of an employer is filed before--
(i) The end of the first plan year (as determined under the plan),
(ii) The end of the plan year within which the employer adopts the
plan, or
(iii) July 29, 1980,
the period of plan qualification with respect to the employer will begin
on the date the plan is adopted by the employer (or, if later, January
1, 1977). If the form and schedule are not filed before the latest of
the dates described in subdivisions (i), (ii) and (iii), the period of
plan qualification with respect to the employer will begin on the date
of filing. In any case in which either the Form 1024 or Schedule L filed
by or on behalf of an employer is incomplete, the date of filing is the
date on which the incomplete form or schedule is filed, if the necessary
additional information is provided at the request of the Commissioner
within the additional time period allowed by the Commissioner. If the
additional information is not provided within the additional time
period, allowed, the date of filing is the date on which the additional
information is filed. If no separate Form 1024 and Schedule L are
required to be filed by or on behalf of an employer (see paragraph
(b)(3) of this section), the period of plan qualification with respect
to the employer will begin on the date the plan is adopted
[[Page 512]]
by the employer (or, if later, January 1, 1977). In any case in which a
plan is materially modified to conform to the requirements of section
120, either before or after a Form 1024 and Schedule L are filed, the
period of plan qualification will not include any period before the
effective date of the modification.
(2) Plans in existence on June 4, 1976. (i) Notwithstanding
paragraph (d)(1) of this section, a written group legal services plan
providing for employer contributions which was in existence on June 4,
1976, will be considered a qualified group legal services plan for the
period January 1, 1977, through April 2, 1977. However, if the plan is
maintained pursuant to one or more agreements which were in effect on
October 4, 1976, and which the Secretary of Labor finds to be collective
bargaining agreements, the period of deemed qualification will extend
beyond April 2, 1977, and end on the date on which the last of the
collective bargaining agreements relating to the plan terminates.
Extensions of a bargaining agreement which are agreed to after October
4, 1976, are to be disregarded. The period of deemed qualification for a
plan maintained pursuant to a collective bargaining agreement will not,
however, extend beyond December 31, 1981.
(ii) A written group legal services plan will be considered to have
been in existence on June 4, 1976, if on or before that date the plan
was reduced to writing and adopted by one or more employers. No amounts
need have been contributed under the plan as of June 4, 1976.
(iii) Notwithstanding that a plan is a qualified plan for the period
of deemed qualification described in this paragraph (d)(2), the rules of
paragraphs (c) and (d)(1) of this section still apply with respect to a
Form 1024 and Schedule L filed for the plan. For example, if a Form 1024
and Schedule L filed by or on behalf of an employer are filed before the
latest of the 3 dates described in paragraph (d)(1) of this section, in
the case of a favorable determination the plan will be a qualified plan
from the date the plan is adopted by the employer (or, if later, January
1, 1977), and any period of deemed qualification and the period of
qualification based upon the favorable determination will overlap.
However, in the case of a plan to which this paragraph (d)(2) applies,
if a Form 1024 and Schedule L required to be filed by or on behalf of an
employer is not filed before the latest of the 3 dates described in
paragraph (d)(1) of this section, the following rules shall apply. In
general, if Form 1024 and Schedule L are filed before the end of the
plan year following the plan year with or within which the plan's period
of deemed qualification expires, in the event of a favorable
determination the plan will be a qualified plan with respect to the
employer beginning on the earlier of the day following the date on which
the period of deemed qualification expires or the date on which the Form
1024 and Schedule L are filed. The period of plan qualification with
respect to an employer cannot, however, include any period before the
employer adopts the plan. If the Form 1024 and Schedule L are not filed
before the end of the plan year following the plan year with or within
which the plan's period of deemed qualification expires, in the case of
a favorable determination the plan will be a qualified plan with respect
to an employer from the later of the date of filing or adoption of the
plan by the employer. The rules described in paragraph (d)(1) of this
section relating to incomplete filings and plan modifications apply with
respect to a filing described in this paragraph (d)(2).
(e) Effective date. This section is effective for notices of
application for recognition of the status of a qualified group legal
services plan filed after May 29, 1980.
(Secs. 120(c)(4) and 7805 of the Internal Revenue Code of 1954, 90 Stat.
1926, 68A Stat. 917; (26 U.S.C. 120(c)(4), 7805))
[T.D. 7696, 45 FR 28320, Apr. 29, 1980]
Sec. 1.121-1 Exclusion of gain from sale or exchange of a principal
residence.
(a) In general. Section 121 provides that, under certain
circumstances, gross income does not include gain realized on the sale
or exchange of property that was owned and used by a taxpayer as the
taxpayer's principal residence. Subject to the other provisions of
section 121, a taxpayer may exclude gain only if, during the 5-year
period
[[Page 513]]
ending on the date of the sale or exchange, the taxpayer owned and used
the property as the taxpayer's principal residence for periods
aggregating 2 years or more.
(b) Residence--(1) In general. Whether property is used by the
taxpayer as the taxpayer's residence depends upon all the facts and
circumstances. A property used by the taxpayer as the taxpayer's
residence may include a houseboat, a house trailer, or the house or
apartment that the taxpayer is entitled to occupy as a tenant-
stockholder in a cooperative housing corporation (as those terms are
defined in section 216(b)(1) and (2)). Property used by the taxpayer as
the taxpayer's residence does not include personal property that is not
a fixture under local law.
(2) Principal residence. In the case of a taxpayer using more than
one property as a residence, whether property is used by the taxpayer as
the taxpayer's principal residence depends upon all the facts and
circumstances. If a taxpayer alternates between 2 properties, using each
as a residence for successive periods of time, the property that the
taxpayer uses a majority of the time during the year ordinarily will be
considered the taxpayer's principal residence. In addition to the
taxpayer's use of the property, relevant factors in determining a
taxpayer's principal residence, include, but are not limited to--
(i) The taxpayer's place of employment;
(ii) The principal place of abode of the taxpayer's family members;
(iii) The address listed on the taxpayer's federal and state tax
returns, driver's license, automobile registration, and voter
registration card;
(iv) The taxpayer's mailing address for bills and correspondence;
(v) The location of the taxpayer's banks; and
(vi) The location of religious organizations and recreational clubs
with which the taxpayer is affiliated.
(3) Vacant land--(i) In general. The sale or exchange of vacant land
is not a sale or exchange of the taxpayer's principal residence unless--
(A) The vacant land is adjacent to land containing the dwelling unit
of the taxpayer's principal residence;
(B) The taxpayer owned and used the vacant land as part of the
taxpayer's principal residence;
(C) The taxpayer sells or exchanges the dwelling unit in a sale or
exchange that meets the requirements of section 121 within 2 years
before or 2 years after the date of the sale or exchange of the vacant
land; and
(D) The requirements of section 121 have otherwise been met with
respect to the vacant land.
(ii) Limitations--(A) Maximum limitation amount. For purposes of
section 121(b)(1) and (2) (relating to the maximum limitation amount of
the section 121 exclusion), the sale or exchange of the dwelling unit
and the vacant land are treated as one sale or exchange. Therefore, only
one maximum limitation amount of $250,000 ($500,000 for certain joint
returns) applies to the combined sales or exchanges of vacant land and
the dwelling unit. In applying the maximum limitation amount to sales or
exchanges that occur in different taxable years, gain from the sale or
exchange of the dwelling unit, up to the maximum limitation amount under
section 121(b)(1) or (2), is excluded first and each spouse is treated
as excluding one-half of the gain from a sale or exchange to which
section 121(b)(2)(A) and Sec. 1.121-2(a)(3)(i) (relating to the
limitation for certain joint returns) apply.
(B) Sale or exchange of more than one principal residence in 2-year
period. If a dwelling unit and vacant land are sold or exchanged in
separate transactions that qualify for the section 121 exclusion under
this paragraph (b)(3), each of the transactions is disregarded in
applying section 121(b)(3) (restricting the application of section 121
to only 1 sale or exchange every 2 years) to the other transactions but
is taken into account as a sale or exchange of a principal residence on
the date of the transaction in applying section 121(b)(3) to that
transaction and the sale or exchange of any other principal residence.
(C) Sale or exchange of vacant land before dwelling unit. If the
sale or exchange of the dwelling unit occurs in a later taxable year
than the sale or exchange of the vacant land and after the
[[Page 514]]
date prescribed by law (including extensions) for the filing of the
return for the taxable year of the sale or exchange of the vacant land,
any gain from the sale or exchange of the vacant land must be treated as
taxable on the taxpayer's return for the taxable year of the sale or
exchange of the vacant land. If the taxpayer has reported gain from the
sale or exchange of the vacant land as taxable, after satisfying the
requirements of this paragraph (b)(3) the taxpayer may claim the section
121 exclusion with regard to the sale or exchange of the vacant land
(for any period for which the period of limitation under section 6511
has not expired) by filing an amended return.
(4) Examples. The provisions of this paragraph (b) are illustrated
by the following examples:
Example 1. Taxpayer A owns 2 residences, one in New York and one in
Florida. From 1999 through 2004, he lives in the New York residence for
7 months and the Florida residence for 5 months of each year. In the
absence of facts and circumstances indicating otherwise, the New York
residence is A's principal residence. A would be eligible for the
section 121 exclusion of gain from the sale or exchange of the New York
residence, but not the Florida residence.
Example 2. Taxpayer B owns 2 residences, one in Virginia and one in
Maine. During 1999 and 2000, she lives in the Virginia residence. During
2001 and 2002, she lives in the Maine residence. During 2003, she lives
in the Virginia residence. B's principal residence during 1999, 2000,
and 2003 is the Virginia residence. B's principal residence during 2001
and 2002 is the Maine residence. B would be eligible for the 121
exclusion of gain from the sale or exchange of either residence (but not
both) during 2003.
Example 3. In 1991 Taxpayer C buys property consisting of a house
and 10 acres that she uses as her principal residence. In May 2005 C
sells 8 acres of the land and realizes a gain of $110,000. C does not
sell the dwelling unit before the due date for filing C's 2005 return,
therefore C is not eligible to exclude the $110,000 of gain. In March
2007 C sells the house and remaining 2 acres realizing a gain of
$180,000 from the sale of the house. C may exclude the $180,000 of gain.
Because the sale of the 8 acres occurred within 2 years from the date of
the sale of the dwelling unit, the sale of the 8 acres is treated as a
sale of the taxpayer's principal residence under paragraph (b)(3) of
this section. C may file an amended return for 2005 to claim an
exclusion for $70,000 ($250,000-$180,000 gain previously excluded) of
the $110,000 gain from the sale of the 8 acres.
Example 4. In 1998 Taxpayer D buys a house and 1 acre that he uses
as his principal residence. In 1999 D buys 29 acres adjacent to his
house and uses the vacant land as part of his principal residence. In
2003 D sells the house and 1 acre and the 29 acres in 2 separate
transactions. D sells the house and 1 acre at a loss of $25,000. D
realizes $270,000 of gain from the sale of the 29 acres. D may exclude
the $245,000 gain from the 2 sales.
(c) Ownership and use requirements--(1) In general. The requirements
of ownership and use for periods aggregating 2 years or more may be
satisfied by establishing ownership and use for 24 full months or for
730 days (365 x 2). The requirements of ownership and use may be
satisfied during nonconcurrent periods if both the ownership and use
tests are met during the 5-year period ending on the date of the sale or
exchange.
(2) Use. (i) In establishing whether a taxpayer has satisfied the 2-
year use requirement, occupancy of the residence is required. However,
short temporary absences, such as for vacation or other seasonal absence
(although accompanied with rental of the residence), are counted as
periods of use.
(ii) Determination of use during periods of out-of-residence care.
If a taxpayer has become physically or mentally incapable of self-care
and the taxpayer sells or exchanges property that the taxpayer owned and
used as the taxpayer's principal residence for periods aggregating at
least 1 year during the 5-year period preceding the sale or exchange,
the taxpayer is treated as using the property as the taxpayer's
principal residence for any period of time during the 5-year period in
which the taxpayer owns the property and resides in any facility
(including a nursing home) licensed by a State or political subdivision
to care for an individual in the taxpayer's condition.
(3) Ownership--(i) Trusts. If a residence is owned by a trust, for
the period that a taxpayer is treated under sections 671 through 679
(relating to the treatment of grantors and others as substantial owners)
as the owner of the trust or the portion of the trust that includes the
residence, the taxpayer will be treated as owning the residence for
purposes of satisfying the 2-year ownership requirement of section 121,
[[Page 515]]
and the sale or exchange by the trust will be treated as if made by the
taxpayer.
(ii) Certain single owner entities. If a residence is owned by an
eligible entity (within the meaning of Sec. 301.7701-3(a) of this
chapter) that has a single owner and is disregarded for federal tax
purposes as an entity separate from its owner under Sec. 301.7701-3 of
this chapter, the owner will be treated as owning the residence for
purposes of satisfying the 2-year ownership requirement of section 121,
and the sale or exchange by the entity will be treated as if made by the
owner.
(4) Examples. The provisions of this paragraph (c) are illustrated
by the following examples. The examples assume that Sec. 1.121-3
(relating to the reduced maximum exclusion) does not apply to the sale
of the property. The examples are as follows:
Example 1. Taxpayer A has owned and used his house as his principal
residence since 1986. On January 31, 1998, A moves to another state. A
rents his house to tenants from that date until April 18, 2000, when he
sells it. A is eligible for the section 121 exclusion because he has
owned and used the house as his principal residence for at least 2 of
the 5 years preceding the sale.
Example 2. Taxpayer B owns and uses a house as her principal
residence from 1986 to the end of 1997. On January 4, 1998, B moves to
another state and ceases to use the house. B's son moves into the house
in March 1999 and uses the residence until it is sold on July 1, 2001. B
may not exclude gain from the sale under section 121 because she did not
use the property as her principal residence for at least 2 years out of
the 5 years preceding the sale.
Example 3. Taxpayer C lives in a townhouse that he rents from 1993
through 1996. On January 18, 1997, he purchases the townhouse. On
February 1, 1998, C moves into his daughter's home. On May 25, 2000,
while still living in his daughter's home, C sells his townhouse. The
section 121 exclusion will apply to gain from the sale because C owned
the townhouse for at least 2 years out of the 5 years preceding the sale
(from January 19, 1997 until May 25, 2000) and he used the townhouse as
his principal residence for at least 2 years during the 5-year period
preceding the sale (from May 25, 1995 until February 1, 1998).
Example 4. Taxpayer D, a college professor, purchases and moves into
a house on May 1, 1997. He uses the house as his principal residence
continuously until September 1, 1998, when he goes abroad for a 1-year
sabbatical leave. On October 1, 1999, 1 month after returning from the
leave, D sells the house. Because his leave is not considered to be a
short temporary absence under paragraph (c)(2) of this section, the
period of the sabbatical leave may not be included in determining
whether D used the house for periods aggregating 2 years during the 5-
year period ending on the date of the sale. Consequently, D is not
entitled to exclude gain under section 121 because he did not use the
residence for the requisite period.
Example 5. Taxpayer E purchases a house on February 1, 1998, that he
uses as his principal residence. During 1998 and 1999, E leaves his
residence for a 2-month summer vacation. E sells the house on March 1,
2000. Although, in the 5-year period preceding the date of sale, the
total time E used his residence is less than 2 years (21 months), the
section 121 exclusion will apply to gain from the sale of the residence
because, under paragraph (c)(2) of this section, the 2-month vacations
are short temporary absences and are counted as periods of use in
determining whether E used the residence for the requisite period.
(d) Depreciation taken after May 6, 1997--(1) In general. The
section 121 exclusion does not apply to so much of the gain from the
sale or exchange of property as does not exceed the portion of the
depreciation adjustments (as defined in section 1250(b)(3)) attributable
to the property for periods after May 6, 1997. Depreciation adjustments
allocable to any portion of the property to which the section 121
exclusion does not apply under paragraph (e) of this section are not
taken into account for this purpose.
(2) Example. The provisions of this paragraph (d) are illustrated by
the following example:
Example. On July 1, 1999, Taxpayer A moves into a house that he owns
and had rented to tenants since July 1, 1997. A took depreciation
deductions totaling $14,000 for the period that he rented the property.
After using the residence as his principal residence for 2 full years, A
sells the property on August 1, 2001. A's gain realized from the sale is
$40,000. A has no other section 1231 or capital gains or losses for
2001. Only $26,000 ($40,000 gain realized--$14,000 depreciation
deductions) may be excluded under section 121. Under section 121(d)(6)
and paragraph (d)(1) of this section, A must recognize $14,000 of the
gain as unrecaptured section 1250 gain within the meaning of section
1(h).
[[Page 516]]
(e) Property used in part as a principal residence--(1) Allocation
required. Section 121 will not apply to the gain allocable to any
portion (separate from the dwelling unit) of property sold or exchanged
with respect to which a taxpayer does not satisfy the use requirement.
Thus, if a portion of the property was used for residential purposes and
a portion of the property (separate from the dwelling unit) was used for
non-residential purposes, only the gain allocable to the residential
portion is excludable under section 121. No allocation is required if
both the residential and non-residential portions of the property are
within the same dwelling unit. However, section 121 does not apply to
the gain allocable to the residential portion of the property to the
extent provided by paragraph (d) of this section.
(2) Dwelling unit. For purposes of this paragraph (e), the term
dwelling unit has the same meaning as in section 280A(f)(1), but does
not include appurtenant structures or other property.
(3) Method of allocation. For purposes of determining the amount of
gain allocable to the residential and non-residential portions of the
property, the taxpayer must allocate the basis and the amount realized
between the residential and the non-residential portions of the property
using the same method of allocation that the taxpayer used to determine
depreciation adjustments (as defined in section 1250(b)(3)), if
applicable.
(4) Examples. The provisions of this paragraph (e) are illustrated
by the following examples:
Example 1 Non-residential use of property not within the dwelling
unit. (i) Taxpayer A owns a property that consists of a house, a stable
and 35 acres. A uses the stable and 28 acres for non-residential
purposes for more than 3 years during the 5-year period preceding the
sale. A uses the entire house and the remaining 7 acres as his principal
residence for at least 2 years during the 5-year period preceding the
sale. For periods after May 6, 1997, A claims depreciation deductions of
$9,000 for the non-residential use of the stable. A sells the entire
property in 2004, realizing a gain of $24,000. A has no other section
1231 or capital gains or losses for 2004.
(ii) Because the stable and the 28 acres used in the business are
separate from the dwelling unit, the allocation rules under this
paragraph (e) apply and A must allocate the basis and amount realized
between the portion of the property that he used as his principal
residence and the portion of the property that he used for non-
residential purposes. A determines that $14,000 of the gain is allocable
to the non-residential-use portion of the property and that $10,000 of
the gain is allocable to the portion of the property used as his
residence. A must recognize the $14,000 of gain allocable to the non-
residential-use portion of the property ($9,000 of which is unrecaptured
section 1250 gain within the meaning of section 1(h), and $5,000 of
which is adjusted net capital gain). A may exclude $10,000 of the gain
from the sale of the property.
Example 2 Non-residential use of property not within the dwelling
unit and rental of the entire property. (i) In 1998 Taxpayer B buys a
property that includes a house, a barn, and 2 acres. B uses the house
and 2 acres as her principal residence and the barn for an antiques
business. In 2002, B moves out of the house and rents it to tenants. B
sells the property in 2004, realizing a gain of $21,000. Between 1998
and 2004 B claims depreciation deductions of $4,800 attributable to the
antiques business. Between 2002 and 2004 B claims depreciation
deductions of $3,000 attributable to the house. B has no other section
1231 or capital gains or losses for 2004.
(ii) Because the portion of the property used in the antiques
business is separate from the dwelling unit, the allocation rules under
this paragraph (e) apply. B must allocate basis and amount realized
between the portion of the property that she used as her principal
residence and the portion of the property that she used for non-
residential purposes. B determines that $4,000 of the gain is allocable
to the non-residential portion of the property and that $17,000 of the
gain is allocable to the portion of the property that she used as her
principal residence.
(iii) B must recognize the $4,000 of gain allocable to the non-
residential portion of the property (all of which is unrecaptured
section 1250 gain within the meaning of section 1(h)). In addition, the
section 121 exclusion does not apply to the gain allocable to the
residential portion of the property to the extent of the depreciation
adjustments attributable to the residential portion of the property for
periods after May 6, 1997 ($3,000). Therefore, B may exclude $14,000 of
the gain from the sale of the property.
Example 3 Non-residential use of a separate dwelling unit. (i) In
2002 Taxpayer C buys a 3-story townhouse and converts the basement
level, which has a separate entrance, into a separate apartment by
installing a kitchen and bathroom and removing the interior stairway
that leads from the basement to the upper floors. After the conversion,
the property constitutes 2 dwelling units within the meaning of
paragraph (e)(2) of this section. C uses the first and second floors of
the
[[Page 517]]
townhouse as his principal residence and rents the basement level to
tenants from 2003 to 2007. C claims depreciation deductions of $2,000
for that period with respect to the basement apartment. C sells the
entire property in 2007, realizing gain of $18,000. C has no other
section 1231 or capital gains or losses for 2007.
(ii) Because the basement apartment and the upper floors of the
townhouse are separate dwelling units, C must allocate the gain between
the portion of the property that he used as his principal residence and
the portion of the property that he used for non-residential purposes
under paragraph (e) of this section. After allocating the basis and the
amount realized between the residential and non-residential portions of
the property, C determines that $6,000 of the gain is allocable to the
non-residential portion of the property and that $12,000 of the gain is
allocable to the portion of the property used as his residence. C must
recognize the $6,000 of gain allocable to the non-residential portion of
the property ($2,000 of which is unrecaptured section 1250 gain within
the meaning of section 1(h), and $4,000 of which is adjusted net capital
gain). C may exclude $12,000 of the gain from the sale of the property.
Example 4 Separate dwelling unit converted to residential use. The
facts are the same as in Example 3 except that in 2007 C incorporates
the basement of the townhouse into his principal residence by
eliminating the kitchen and building a new interior stairway to the
upper floors. C uses all 3 floors of the townhouse as his principal
residence for 2 full years and sells the townhouse in 2010, realizing a
gain of $20,000. Under section 121(d)(6) and paragraph (d) of this
section, C must recognize $2,000 of the gain as unrecaptured section
1250 gain within the meaning of section 1(h). Because C used the entire
3 floors of the townhouse as his principal residence for 2 of the 5
years preceding the sale of the property, C may exclude the remaining
$18,000 of the gain from the sale of the house.
Example 5 Non-residential use within the dwelling unit, property
depreciated. Taxpayer D, an attorney, buys a house in 2003. The house
constitutes a single dwelling unit but D uses a portion of the house as
a law office. D claims depreciation deductions of $2,000 during the
period that she owns the house. D sells the house in 2006, realizing a
gain of $13,000. D has no other section 1231 or capital gains or losses
for 2006. Under section 121(d)(6) and paragraph (d) of this section, D
must recognize $2,000 of the gain as unrecaptured section 1250 gain
within the meaning of section 1(h). D may exclude the remaining $11,000
of the gain from the sale of her house because, under paragraph (e)(1)
of this section, she is not required to allocate gain to the business
use within the dwelling unit.
Example 6 Non-residential use within the dwelling unit, property not
depreciated. The facts are the same as in Example 5, except that D is
not entitled to claim any depreciation deductions with respect to her
business use of the house. D may exclude $13,000 of the gain from the
sale of her house because, under paragraph (e)(1) of this section, she
is not required to allocate gain to the business use within the dwelling
unit.
(f) Effective date. This section is applicable for sales and
exchanges on or after Decmeber 24, 2002. For rules on electing to apply
the provisions of this section retroactively, see Sec. 1.121-4(j).
[T.D. 9030, 67 FR 78361, Dec. 24, 2002]
Sec. 1.121-2 Limitations.
(a) Dollar limitations--(1) In general. A taxpayer may exclude from
gross income up to $250,000 of gain from the sale or exchange of the
taxpayer's principal residence. A taxpayer is eligible for only one
maximum exclusion per principal residence.
(2) Joint owners. If taxpayers jointly own a principal residence but
file separate returns, each taxpayer may exclude from gross income up to
$250,000 of gain that is attributable to each taxpayer's interest in the
property, if the requirements of section 121 have otherwise been met.
(3) Special rules for joint returns--(i) In general. A husband and
wife who make a joint return for the year of the sale or exchange of a
principal residence may exclude up to $500,000 of gain if--
(A) Either spouse meets the 2-year ownership requirements of
Sec. 1.121-1(a) and (c);
(B) Both spouses meet the 2-year use requirements of Sec. 1.121-1(a)
and (c); and
(C) Neither spouse excluded gain from a prior sale or exchange of
property under section 121 within the last 2 years (as determined under
paragraph (b) of this section).
(ii) Other joint returns. For taxpayers filing jointly, if either
spouse fails to meet the requirements of paragraph (a)(3)(i) of this
section, the maximum limitation amount to be claimed by the couple is
the sum of each spouse's limitation amount determined on a separate
basis as if they had not been married. For this purpose, each spouse
[[Page 518]]
is treated as owning the property during the period that either spouse
owned the property.
(4) Examples. The provisions of this paragraph (a) are illustrated
by the following examples. The examples assume that Sec. 1.121-3
(relating to the reduced maximum exclusion) does not apply to the sale
of the property. The examples are as follows:
Example 1. Unmarried Taxpayers A and B own a house as joint owners,
each owning a 50 percent interest in the house. They sell the house
after owning and using it as their principal residence for 2 full years.
The gain realized from the sale is $256,000. A and B are each eligible
to exclude $128,000 of gain because the amount of realized gain
allocable to each of them from the sale does not exceed each taxpayer's
available limitation amount of $250,000.
Example 2. The facts are the same as in Example 1, except that A and
B are married taxpayers who file a joint return for the taxable year of
the sale. A and B are eligible to exclude the entire amount of realized
gain ($256,000) from gross income because the gain realized from the
sale does not exceed the limitation amount of $500,000 available to A
and B as taxpayers filing a joint return.
Example 3. During 1999, married Taxpayers H and W each sell a
residence that each had separately owned and used as a principal
residence before their marriage. Each spouse meets the ownership and use
tests for his or her respective residence. Neither spouse meets the use
requirement for the other spouse's residence. H and W file a joint
return for the year of the sales. The gain realized from the sale of H's
residence is $200,000. The gain realized from the sale of W's residence
is $300,000. Because the ownership and use requirements are met for each
residence by each respective spouse, H and W are each eligible to
exclude up to $250,000 of gain from the sale of their individual
residences. However, W may not use H's unused exclusion to exclude gain
in excess of her limitation amount. Therefore, H and W must recognize
$50,000 of the gain realized on the sale of W's residence.
Example 4. Married Taxpayers H and W sell their residence and file a
joint return for the year of the sale. W, but not H, satisfies the
requirements of section 121. They are eligible to exclude up to $250,000
of the gain from the sale of the residence because that is the sum of
each spouse's dollar limitation amount determined on a separate basis as
if they had not been married ($0 for H, $250,000 for W).
Example 5. Married Taxpayers H and W have owned and used their
principal residence since 1998. On February 16, 2001, H dies. On
September 24, 2001, W sells the residence and realizes a gain of
$350,000. Pursuant to section 6013(a)(3), W and H's executor make a
joint return for 2001. All $350,000 of the gain from the sale of the
residence may be excluded.
Example 6. Assume the same facts as Example 5, except that W does
not sell the residence until January 31, 2002. Because W's filing status
for the taxable year of the sale is single, the special rules for joint
returns under paragraph (a)(3) of this section do not apply and W may
exclude only $250,000 of the gain.
(b) Application of section 121 to only 1 sale or exchange every 2
years--(1) In general. Except as otherwise provided in Sec. 1.121-3
(relating to the reduced maximum exclusion), a taxpayer may not exclude
from gross income gain from the sale or exchange of a principal
residence if, during the 2-year period ending on the date of the sale or
exchange, the taxpayer sold or exchanged other property for which gain
was excluded under section 121. For purposes of this paragraph (b)(1),
any sale or exchange before May 7, 1997, is disregarded.
(2) Example. The following example illustrates the rules of this
paragraph (b). The example assumes that Sec. 1.121-3 (relating to the
reduced maximum exclusion) does not apply to the sale of the property.
The example is as follows:
Example. Taxpayer A owns a townhouse that he uses as his principal
residence for 2 full years, 1998 and 1999. A buys a house in 2000 that
he owns and uses as his principal residence. A sells the townhouse in
2002 and excludes gain realized on its sale under section 121. A sells
the house in 2003. Although A meets the 2-year ownership and use
requirements of section 121, A is not eligible to exclude gain from the
sale of the house because A excluded gain within the last 2 years under
section 121 from the sale of the townhouse.
(c) Effective date. This section is applicable for sales and
exchanges on or after December 24, 2002. For rules on electing to apply
the provisions of this section retroactively, see Sec. 1.121-4(j).
[T.D. 9030, 67 FR 78361, Dec. 24, 2002]
Sec. 1.121-3 Reduced maximum exclusion for taxpayers failing to meet
certain requirements.
(a) In general. In lieu of the limitation under section 121(b) and
Sec. 1.121-2, a reduced maximum exclusion limitation
[[Page 519]]
may be available for a taxpayer who sells or exchanges property used as
the taxpayer's principal residence but fails to satisfy the ownership
and use requirements described in Sec. 1.121-1(a) and (c) or the 2-year
limitation described in Sec. 1.121-2(b).
(b) Primary reason for sale or exchange. In order for a taxpayer to
claim a reduced maximum exclusion under section 121(c), the sale or
exchange must be by reason of a change in place of employment, health,
or unforeseen circumstances. If a safe harbor described in this section
applies, a sale or exchange is deemed to be by reason of a change in
place of employment, health, or unforeseen circumstances. If a safe
harbor described in this section does not apply, a sale or exchange is
by reason of a change in place of employment, health, or unforeseen
circumstances only if the primary reason for the sale or exchange is a
change in place of employment (within the meaning of paragraph (c) of
this section), health (within the meaning of paragraph (d) of this
section), or unforeseen circumstances (within the meaning of paragraph
(e) of this section). Whether the requirements of this section are
satisfied depends upon all the facts and circumstances. Factors that may
be relevant in determining the taxpayer's primary reason for the sale or
exchange include (but are not limited to) the extent to which--
(1) The sale or exchange and the circumstances giving rise to the
sale or exchange are proximate in time;
(2) The suitability of the property as the taxpayer's principal
residence materially changes;
(3) The taxpayer's financial ability to maintain the property is
materially impaired;
(4) The taxpayer uses the property as the taxpayer's residence
during the period of the taxpayer's ownership of the property;
(5) The circumstances giving rise to the sale or exchange are not
reasonably foreseeable when the taxpayer begins using the property as
the taxpayer's principal residence; and
(6) The circumstances giving rise to the sale or exchange occur
during the period of the taxpayer's ownership and use of the property as
the taxpayer's principal residence.
(c) Sale or exchange by reason of a change in place of employment--
(1) In general. A sale or exchange is by reason of a change in place of
employment if, in the case of a qualified individual described in
paragraph (f) of this section, the primary reason for the sale or
exchange is a change in the location of the individual's employment.
(2) Distance safe harbor. A sale or exchange is deemed to be by
reason of a change in place of employment (within the meaning of
paragraph (c)(1) of this section) if--
(i) The change in place of employment occurs during the period of
the taxpayer's ownership and use of the property as the taxpayer's
principal residence; and
(ii) The qualified individual's new place of employment is at least
50 miles farther from the residence sold or exchanged than was the
former place of employment, or, if there was no former place of
employment, the distance between the qualified individual's new place of
employment and the residence sold or exchanged is at least 50 miles.
(3) Employment. For purposes of this paragraph (c), employment
includes the commencement of employment with a new employer, the
continuation of employment with the same employer, and the commencement
or continuation of self-employment.
(4) Examples. The following examples illustrate the rules of this
paragraph (c):
Example 1. A is unemployed and owns a townhouse that she has owned
and used as her principal residence since 2003. In 2004 A obtains a job
that is 54 miles from her townhouse, and she sells the townhouse.
Because the distance between A's new place of employment and the
townhouse is at least 50 miles, the sale is within the safe harbor of
paragraph (c)(2) of this section and A is entitled to claim a reduced
maximum exclusion under section 121(c)(2).
Example 2. B is an officer in the United States Air Force stationed
in Florida. B purchases a house in Florida in 2002. In May 2003 B moves
out of his house to take a 3-year assignment in Germany. B sells his
house in January 2004. Because B's new place of employment in Germany is
at least 50 miles farther from the residence sold than is B's former
place of employment in Florida, the
[[Page 520]]
sale is within the safe harbor of paragraph (c)(2) of this section and B
is entitled to claim a reduced maximum exclusion under section
121(c)(2).
Example 3. C is employed by Employer R at R's Philadelphia office. C
purchases a house in February 2002 that is 35 miles from R's
Philadelphia office. In May 2003 C begins a temporary assignment at R's
Wilmington office that is 72 miles from C's house, and moves out of the
house. In June 2005 C is assigned to work in R's London office. C sells
her house in August 2005 as a result of the assignment to London. The
sale of the house is not within the safe harbor of paragraph (c)(2) of
this section by reason of the change in place of employment from
Philadelphia to Wilmington because the Wilmington office is not 50 miles
farther from C's house than is the Philadelphia office. Furthermore, the
sale is not within the safe harbor by reason of the change in place of
employment to London because C is not using the house as her principal
residence when she moves to London. However, C is entitled to claim a
reduced maximum exclusion under section 121(c)(2) because, under the
facts and circumstances, the primary reason for the sale is the change
in C's place of employment.
Example 4. In July 2003 D, who works as an emergency medicine
physician, buys a condominium that is 5 miles from her place of
employment and uses it as her principal residence. In February 2004, D
obtains a job that is located 51 miles from D's condominium. D may be
called in to work unscheduled hours and, when called, must be able to
arrive at work quickly. Because of the demands of the new job, D sells
her condominium and buys a townhouse that is 4 miles from her new place
of employment. Because D's new place of employment is only 46 miles
farther from the condominium than is D's former place of employment, the
sale is not within the safe harbor of paragraph (c)(2) of this section.
However, D is entitled to claim a reduced maximum exclusion under
section 121(c)(2) because, under the facts and circumstances, the
primary reason for the sale is the change in D's place of employment.
(d) Sale or exchange by reason of health--(1) In general. A sale or
exchange is by reason of health if the primary reason for the sale or
exchange is to obtain, provide, or facilitate the diagnosis, cure,
mitigation, or treatment of disease, illness, or injury of a qualified
individual described in paragraph (f) of this section, or to obtain or
provide medical or personal care for a qualified individual suffering
from a disease, illness, or injury. A sale or exchange that is merely
beneficial to the general health or well-being of an individual is not a
sale or exchange by reason of health.
(2) Physician's recommendation safe harbor. A sale or exchange is
deemed to be by reason of health if a physician (as defined in section
213(d)(4)) recommends a change of residence for reasons of health (as
defined in paragraph (d)(1) of this section).
(3) Examples. The following examples illustrate the rules of this
paragraph (d):
Example 1. In 2003 A buys a house that she uses as her principal
residence. A is injured in an accident and is unable to care for
herself. A sells her house in 2004 and moves in with her daughter so
that the daughter can provide the care that A requires as a result of
her injury. Because, under the facts and circumstances, the primary
reason for the sale of A's house is A's health, A is entitled to claim a
reduced maximum exclusion under section 121(c)(2).
Example 2. H's father has a chronic disease. In 2003 H and W
purchase a house that they use as their principal residence. In 2004 H
and W sell their house in order to move into the house of H's father so
that they can provide the care he requires as a result of his disease.
Because, under the facts and circumstances, the primary reason for the
sale of their house is the health of H's father, H and W are entitled to
claim a reduced maximum exclusion under section 121(c)(2).
Example 3. H and W purchase a house in 2003 that they use as their
principal residence. Their son suffers from a chronic illness that
requires regular medical care. Later that year their son begins a new
treatment that is available at a hospital 100 miles away from their
residence. In 2004 H and W sell their house so that they can be closer
to the hospital to facilitate their son's treatment. Because, under the
facts and circumstances, the primary reason for the sale is to
facilitate the treatment of their son's chronic illness, H and W are
entitled to claim a reduced maximum exclusion under section 121(c)(2).
Example 4. B, who has chronic asthma, purchases a house in Minnesota
in 2003 that he uses as his principal residence. B's doctor tells B that
moving to a warm, dry climate would mitigate B's asthma symptoms. In
2004 B sells his house and moves to Arizona to relieve his asthma
symptoms. The sale is within the safe harbor of paragraph (d)(2) of this
section and B is entitled to claim a reduced maximum exclusion under
section 121(c)(2).
Example 5. In 2003 H and W purchase a house in Michigan that they
use as their principal residence. H's doctor tells H that he should get
more outdoor exercise, but H is not suffering from any disease that can
be
[[Page 521]]
treated or mitigated by outdoor exercise. In 2004 H and W sell their
house and move to Florida so that H can increase his general level of
exercise by playing golf year-round. Because the sale of the house is
merely beneficial to H's general health, the sale of the house is not by
reason of H's health. H and W are not entitled to claim a reduced
maximum exclusion under section 121(c)(2).
(e) Sale or exchange by reason of unforeseen circumstances--(1) In
general. A sale or exchange is by reason of unforeseen circumstances if
the primary reason for the sale or exchange is the occurrence of an
event that the taxpayer could not reasonably have anticipated before
purchasing and occupying the residence. A sale or exchange by reason of
unforeseen circumstances (other than a sale or exchange deemed to be by
reason of unforeseen circumstances under paragraph (e)(2) or (3) of this
section) does not qualify for the reduced maximum exclusion if the
primary reason for the sale or exchange is a preference for a different
residence or an improvement in financial circumstances.
(2) Specific event safe harbors. A sale or exchange is deemed to be
by reason of unforeseen circumstances (within the meaning of paragraph
(e)(1) of this section) if any of the events specified in paragraphs
(e)(2)(i) through (iii) of this section occur during the period of the
taxpayer's ownership and use of the residence as the taxpayer's
principal residence:
(i) The involuntary conversion of the residence.
(ii) Natural or man-made disasters or acts of war or terrorism
resulting in a casualty to the residence (without regard to
deductibility under section 165(h)).
(iii) In the case of a qualified individual described in paragraph
(f) of this section--
(A) Death;
(B) The cessation of employment as a result of which the qualified
individual is eligible for unemployment compensation (as defined in
section 85(b));
(C) A change in employment or self-employment status that results in
the taxpayer's inability to pay housing costs and reasonable basic
living expenses for the taxpayer's household (including amounts for
food, clothing, medical expenses, taxes, transportation, court-ordered
payments, and expenses reasonably necessary to the production of income,
but not for the maintenance of an affluent or luxurious standard of
living);
(D) Divorce or legal separation under a decree of divorce or
separate maintenance; or
(E) Multiple births resulting from the same pregnancy.
(3) Designation of additional events as unforeseen circumstances.
The Commissioner may designate other events or situations as unforeseen
circumstances in published guidance of general applicability and may
issue rulings addressed to specific taxpayers identifying other events
or situations as unforeseen circumstances with regard to those taxpayers
(see Sec. 601.601(d)(2) of this chapter).
(4) Examples. The following examples illustrate the rules of this
paragraph (e):
Example 1. In 2003 A buys a house in California. After A begins to
use the house as her principal residence, an earthquake causes damage to
A's house. A sells the house in 2004. The sale is within the safe harbor
of paragraph (e)(2)(ii) of this section and A is entitled to claim a
reduced maximum exclusion under section 121(c)(2).
Example 2. H works as a teacher and W works as a pilot. In 2003 H
and W buy a house that they use as their principal residence. Later that
year W is furloughed from her job for six months. H and W are unable to
pay their mortgage and reasonable basic living expenses for their
household during the period W is furloughed. H and W sell their house in
2004. The sale is within the safe harbor of paragraph (e)(2)(iii)(C) of
this section and H and W are entitled to claim a reduced maximum
exclusion under section 121(c)(2).
Example 3. In 2003 H and W buy a two-bedroom condominium that they
use as their principal residence. In 2004 W gives birth to twins and H
and W sell their condominium and buy a four-bedroom house. The sale is
within the safe harbor of paragraph (e)(2)(iii)(E) of this section, and
H and W are entitled to claim a reduced maximum exclusion under section
121(c)(2).
Example 4. In 2003 B buys a condominium in a high-rise building and
uses it as his principal residence. B's monthly condominium fee is $X.
Three months after B moves into the condominium, the condominium
association replaces the building's roof and heating system. Six months
later, B's monthly condominium fee doubles in order to pay for the
[[Page 522]]
repairs. B sells the condominium in 2004 because he is unable to afford
the new condominium fee along with a monthly mortgage payment. The safe
harbors of paragraph (e)(2) of this section do not apply. However, under
the facts and circumstances, the primary reason for the sale, the
doubling of the condominium fee, is an unforeseen circumstance because B
could not reasonably have anticipated that the condominium fee would
double at the time he purchased and occupied the property. Consequently,
the sale of the condominium is by reason of unforeseen circumstances and
B is entitled to claim a reduced maximum exclusion under section
121(c)(2).
Example 5. In 2003 C buys a house that he uses as his principal
residence. The property is located on a heavily traveled road. C sells
the property in 2004 because C is disturbed by the traffic. The safe
harbors of paragraph (e)(2) of this section do not apply. Under the
facts and circumstances, the primary reason for the sale, the traffic,
is not an unforeseen circumstance because C could reasonably have
anticipated the traffic at the time he purchased and occupied the house.
Consequently, the sale of the house is not by reason of unforeseen
circumstances and C is not entitled to claim a reduced maximum exclusion
under section 121(c)(2).
Example 6. In 2003 D and her fiance E buy a house and live in it as
their principal residence. In 2004 D and E cancel their wedding plans
and E moves out of the house. Because D cannot afford to make the
monthly mortgage payments alone, D and E sell the house in 2004. The
safe harbors of paragraph (e)(2) of this section do not apply. However,
under the facts and circumstances, the primary reason for the sale, the
broken engagement, is an unforeseen circumstance because D and E could
not reasonably have anticipated the broken engagement at the time they
purchased and occupied the house. Consequently, the sale is by reason of
unforeseen circumstances and D and E are each entitled to claim a
reduced maximum exclusion under section 121(c)(2).
Example 7. In 2003 F buys a small condominium that she uses as her
principal residence. In 2005 F receives a promotion and a large increase
in her salary. F sells the condominium in 2004 and purchases a house
because she can now afford the house. The safe harbors of paragraph
(e)(2) of this section do not apply. Under the facts and circumstances,
the primary reason for the sale of the house, F's salary increase, is an
improvement in F's financial circumstances. Under paragraph (e)(1) of
this section, an improvement in financial circumstances, even if the
result of unforeseen circumstances, does not qualify for the reduced
maximum exclusion by reason of unforeseen circumstances under section
121(c)(2).
Example 8. In April 2003 G buys a house that he uses as his
principal residence. G sells his house in October 2004 because the house
has greatly appreciated in value, mortgage rates have substantially
decreased, and G can afford a bigger house. The safe harbors of
paragraph (e)(2) of this section do not apply. Under the facts and
circumstances, the primary reasons for the sale of the house, the
changes in G's house value and in the mortgage rates, are an improvement
in G's financial circumstances. Under paragraph (e)(1) of this section,
an improvement in financial circumstances, even if the result of
unforeseen circumstances, does not qualify for the reduced maximum
exclusion by reason of unforeseen circumstances under section 121(c)(2).
Example 9. H works as a police officer for City X. In 2003 H buys a
condominium that he uses as his principal residence. In 2004 H is
assigned to City X's K-9 unit and is required to care for the police
service dog at his home. Because H's condominium association does not
permit H to have a dog in his condominium, in 2004 he sells the
condominium and buys a house. The safe harbors of paragraph (e)(2) of
this section do not apply. However, under the facts and circumstances,
the primary reason for the sale, H's assignment to the K-9 unit, is an
unforeseen circumstance because H could not reasonably have anticipated
his assignment to the K-9 unit at the time he purchased and occupied the
condominium. Consequently, the sale of the condominium is by reason of
unforeseen circumstances and H is entitled to claim a reduced maximum
exclusion under section 121(c)(2).
Example 10. In 2003, J buys a small house that she uses as her
principal residence. After J wins the lottery, she sells the small house
in 2004 and buys a bigger, more expensive house. The safe harbors of
paragraph (e)(2) of this section do not apply. Under the facts and
circumstances, the primary reason for the sale of the house, winning the
lottery, is an improvement in J's financial circumstances. Under
paragraph (e)(1) of this section, an improvement in financial
circumstances, even if the result of unforeseen circumstances, does not
qualify for the reduced maximum exclusion under section 121(c)(2).
(f) Qualified individual. For purposes of this section, qualified
individual means--
(1) The taxpayer;
(2) The taxpayer's spouse;
(3) A co-owner of the residence;
(4) A person whose principal place of abode is in the same household
as the taxpayer; or
[[Page 523]]
(5) For purposes of paragraph (d) of this section, a person bearing
a relationship specified in sections 152(a)(1) through 152(a)(8)
(without regard to qualification as a dependent) to a qualified
individual described in paragraphs (f)(1) through (4) of this section,
or a descendant of the taxpayer's grandparent.
(g) Computation of reduced maximum exclusion. (1) The reduced
maximum exclusion is computed by multiplying the maximum dollar
limitation of $250,000 ($500,000 for certain joint filers) by a
fraction. The numerator of the fraction is the shortest of the period of
time that the taxpayer owned the property during the 5-year period
ending on the date of the sale or exchange; the period of time that the
taxpayer used the property as the taxpayer's principal residence during
the 5-year period ending on the date of the sale or exchange; or the
period of time between the date of a prior sale or exchange of property
for which the taxpayer excluded gain under section 121 and the date of
the current sale or exchange. The numerator of the fraction may be
expressed in days or months. The denominator of the fraction is 730 days
or 24 months (depending on the measure of time used in the numerator).
(2) Examples. The following examples illustrate the rules of this
paragraph (g):
Example 1. Taxpayer A purchases a house that she uses as her
principal residence. Twelve months after the purchase, A sells the house
due to a change in place of her employment. A has not excluded gain
under section 121 on a prior sale or exchange of property within the
last 2 years. A is eligible to exclude up to $125,000 of the gain from
the sale of her house (12/24 x $250,000).
Example 2. (i) Taxpayer H owns a house that he has used as his
principal residence since 1996. On January 15, 1999, H and W marry and W
begins to use H's house as her principal residence. On January 15, 2000,
H sells the house due to a change in W's place of employment. Neither H
nor W has excluded gain under section 121 on a prior sale or exchange of
property within the last 2 years.
(ii) Because H and W have not each used the house as their principal
residence for at least 2 years during the 5-year period preceding its
sale, the maximum dollar limitation amount that may be claimed by H and
W will not be $500,000, but the sum of each spouse's limitation amount
determined on a separate basis as if they had not been married. (See
Sec. 1.121-2(a)(3)(ii).)
(iii) H is eligible to exclude up to $250,000 of gain because he
meets the requirements of section 121. W is not eligible to exclude the
maximum dollar limitation amount. Instead, because the sale of the house
is due to a change in place of employment, W is eligible to claim a
reduced maximum exclusion of up to $125,000 of the gain (365/730 x
$250,000). Therefore, H and W are eligible to exclude up to $375,000 of
gain ($250,000 + $125,000) from the sale of the house.
(h) Effective dates. Paragraphs (a) and (g) of this section are
applicable for sales and exchanges on or after December 24, 2002.
Paragraphs (b) through (f) of this section are applicable for sales and
exchanges on or after August 13, 2004.
[T.D. 9030, 67 FR 78361, Dec. 24, 2002, as amended by T.D. 9152, 69 FR
50304, Aug. 16, 2004]
Sec. 1.121-4 Special rules.
(a) Property of deceased spouse--(1) In general. For purposes of
satisfying the ownership and use requirements of section 121, a taxpayer
is treated as owning and using property as the taxpayer's principal
residence during any period that the taxpayer's deceased spouse owned
and used the property as a principal residence before death if--
(i) The taxpayer's spouse is deceased on the date of the sale or
exchange of the property; and
(ii) The taxpayer has not remarried at the time of the sale or
exchange of the property.
(2) Example. The provisions of this paragraph (a) are illustrated by
the following example. The example assumes that Sec. 1.121-3 (relating
to the reduced maximum exclusion) does not apply to the sale of the
property. The example is as follows:
Example. Taxpayer H has owned and used a house as his principal
residence since 1987. H and W marry on July 1, 1999 and from that date
they use H's house as their principal residence. H dies on August 15,
2000, and W inherits the property. W sells the property on September 1,
2000, at which time she has not remarried. Although W has owned and used
the house for less than 2 years, W will be considered to have satisfied
the ownership and use requirements of section 121 because W's period of
ownership and use includes the period that H owned and used the property
before death.
[[Page 524]]
(b) Property owned by spouse or former spouse--(1) Property
transferred to individual from spouse or former spouse. If a taxpayer
obtains property from a spouse or former spouse in a transaction
described in section 1041(a), the period that the taxpayer owns the
property will include the period that the spouse or former spouse owned
the property.
(2) Property used by spouse or former spouse. A taxpayer is treated
as using property as the taxpayer's principal residence for any period
that the taxpayer has an ownership interest in the property and the
taxpayer's spouse or former spouse is granted use of the property under
a divorce or separation instrument (as defined in section 71(b)(2)),
provided that the spouse or former spouse uses the property as his or
her principal residence.
(c) Tenant-stockholder in cooperative housing corporation. A
taxpayer who holds stock as a tenant-stockholder in a cooperative
housing corporation (as those terms are defined in section 216(b)(1) and
(2)) may be eligible to exclude gain under section 121 on the sale or
exchange of the stock. In determining whether the taxpayer meets the
requirements of section 121, the ownership requirements are applied to
the holding of the stock and the use requirements are applied to the
house or apartment that the taxpayer is entitled to occupy by reason of
the taxpayer's stock ownership.
(d) Involuntary conversions--(1) In general. For purposes of section
121, the destruction, theft, seizure, requisition, or condemnation of
property is treated as a sale of the property.
(2) Application of section 1033. In applying section 1033 (relating
to involuntary conversions), the amount realized from the sale or
exchange of property used as the taxpayer's principal residence is
treated as being the amount determined without regard to section 121,
reduced by the amount of gain excluded from the taxpayer's gross income
under section 121.
(3) Property acquired after involuntary conversion. If the basis of
the property acquired as a result of an involuntary conversion is
determined (in whole or in part) under section 1033(b) (relating to the
basis of property acquired through an involuntary conversion), then for
purposes of satisfying the requirements of section 121, the taxpayer
will be treated as owning and using the acquired property as the
taxpayer's principal residence during any period of time that the
taxpayer owned and used the converted property as the taxpayer's
principal residence.
(4) Example. The provisions of this paragraph (d) are illustrated by
the following example:
Example. (i) On February 18, 1999, fire destroys Taxpayer A's house
which has an adjusted basis of $80,000. A had owned and used this
property as her principal residence for 20 years prior to its
destruction. A's insurance company pays A $400,000 for the house. A
realizes a gain of $320,000 ($400,000--$80,000). On August 27, 1999, A
purchases a new house at a cost of $100,000.
(ii) Because the destruction of the house is treated as a sale for
purposes of section 121, A will exclude $250,000 of the realized gain
from A's gross income. For purposes of section 1033, the amount realized
is then treated as being $150,000 ($400,000--$250,000) and the gain
realized is $70,000 ($150,000 amount realized--$80,000 basis). A elects
under section 1033 to recognize only $50,000 of the gain ($150,000
amount realized--$100,000 cost of new house). The remaining $20,000 of
gain is deferred and A's basis in the new house is $80,000 ($100,000
cost--$20,000 gain not recognized).
(iii) A will be treated as owning and using the new house as A's
principal residence during the 20-year period that A owned and used the
destroyed house.
(e) Sales or exchanges of partial interests--(1) Partial interests
other than remainder interests--(i) In general. Except as provided in
paragraph (e)(2) of this section (relating to sales or exchanges of
remainder interests), a taxpayer may apply the section 121 exclusion to
gain from the sale or exchange of an interest in the taxpayer's
principal residence that is less than the taxpayer's entire interest if
the interest sold or exchanged includes an interest in the dwelling
unit. For rules relating to the sale or exchange of vacant land, see
Sec. 1.121-1(b)(3).
(ii) Limitations--(A) Maximum limitation amount. For purposes of
section 121(b)(1) and (2) (relating to the maximum limitation amount of
the section 121 exclusion), sales or exchanges of partial interests in
the same principal
[[Page 525]]
residence are treated as one sale or exchange. Therefore, only one
maximum limitation amount of $250,000 ($500,000 for certain joint
returns) applies to the combined sales or exchanges of the partial
interests. In applying the maximum limitation amount to sales or
exchanges that occur in different taxable years, a taxpayer may exclude
gain from the first sale or exchange of a partial interest up to the
taxpayer's full maximum limitation amount and may exclude gain from the
sale or exchange of any other partial interest in the same principal
residence to the extent of any remaining maximum limitation amount, and
each spouse is treated as excluding one-half of the gain from a sale or
exchange to which section 121(b)(2)(A) and Sec. 1.121-
2(a)(3)(i)(relating to the limitation for certain joint returns) apply.
(B) Sale or exchange of more than one principal residence in 2-year
period. For purposes of applying section 121(b)(3) (restricting the
application of section 121 to only 1 sale or exchange every 2 years),
each sale or exchange of a partial interest is disregarded with respect
to other sales or exchanges of partial interests in the same principal
residence, but is taken into account as of the date of the sale or
exchange in applying section 121(b)(3) to that sale or exchange and the
sale or exchange of any other principal residence.
(2) Sales or exchanges of remainder interests--(i) In general. A
taxpayer may elect to apply the section 121 exclusion to gain from the
sale or exchange of a remainder interest in the taxpayer's principal
residence.
(ii) Limitations--(A) Sale or exchange of any other interest. If a
taxpayer elects to exclude gain from the sale or exchange of a remainder
interest in the taxpayer's principal residence, the section 121
exclusion will not apply to a sale or exchange of any other interest in
the residence that is sold or exchanged separately.
(B) Sales or exchanges to related parties. This paragraph (e)(2)
will not apply to a sale or exchange to any person that bears a
relationship to the taxpayer that is described in section 267(b) or
707(b).
(iii) Election. The taxpayer makes the election under this paragraph
(e)(2) by filing a return for the taxable year of the sale or exchange
that does not include the gain from the sale or exchange of the
remainder interest in the taxpayer's gross income. A taxpayer may make
or revoke the election at any time before the expiration of a 3-year
period beginning on the last date prescribed by law (determined without
regard to extensions) for the filing of the return for the taxable year
in which the sale or exchange occurred.
(3) Example. The provisions of this paragraph (e) are illustrated by
the following example:
Example. In 1991 Taxpayer A buys a house that A uses as his
principal residence. In 2004 A's friend B moves into A's house and A
sells B a 50% interest in the house realizing a gain of $136,000. A may
exclude the $136,000 of gain. In 2005 A sells his remaining 50% interest
in the home to B realizing a gain of $138,000. A may exclude $114,000
($250,000--$136,000 gain previously excluded) of the $138,000 gain from
the sale of the remaining interest.
(f) No exclusion for expatriates. The section 121 exclusion will not
apply to any sale or exchange by an individual if the provisions of
section 877(a) (relating to the treatment of expatriates) applies to the
individual.
(g) Election to have section not apply. A taxpayer may elect to have
the section 121 exclusion not apply to a sale or exchange of property.
The taxpayer makes the election by filing a return for the taxable year
of the sale or exchange that includes the gain from the sale or exchange
of the taxpayer's principal residence in the taxpayer's gross income. A
taxpayer may make an election under this paragraph (g) to have section
121 not apply (or revoke an election to have section 121 not apply) at
any time before the expiration of a 3-year period beginning on the last
date prescribed by law (determined without regard to extensions) for the
filing of the return for the taxable year in which the sale or exchange
occurred.
(h) Residences acquired in rollovers under section 1034. If a
taxpayer acquires property in a transaction that qualifies under section
1034 (section 1034 property) for the nonrecognition of gain realized on
the sale or exchange of another property and later sells or exchanges
such property, in determining
[[Page 526]]
the period of the taxpayer's ownership and use of the property under
section 121 the taxpayer may include the periods that the taxpayer owned
and used the section 1034 property as the taxpayer's principal residence
(and each prior residence taken into account under section 1223(7) in
determining the holding period of the section 1034 property).
(i) [Reserved]
(j) Election to apply regulations retroactively. Taxpayers who would
otherwise qualify under Secs. 1.121-1 through 1.121-4 to exclude gain
from a sale or exchange of a principal residence before December 24,
2002 but on or after May 7, 1997, may elect to apply Secs. 1.121-1
through 1.121-4 for any years for which the period of limitation under
section 6511 has not expired. The taxpayer makes the election under this
paragraph (j) by filing a return for the taxable year of the sale or
exchange that does not include the gain from the sale or exchange of the
taxpayer's principal residence in the taxpayer's gross income. Taxpayers
who have filed a return for the taxable year of the sale or exchange may
elect to apply the provisions of these regulations for any years for
which the period of limitation under section 6511 has not expired by
filing an amended return.
(k) Audit protection. The Internal Revenue Service will not
challenge a taxpayer's position that a sale or exchange of a principal
residence occurring before December 24, 2002 but on or after May 7,
1997, qualifies for the section 121 exclusion if the taxpayer has made a
reasonable, good faith effort to comply with the requirements of section
121. Compliance with the provisions of the regulations project under
section 121 (REG-105235-99 (2000-2 C.B. 447)) generally will be
considered a reasonable, good faith effort to comply with the
requirements of section 121.
(l) Effective date. This section is applicable for sales and
exchanges on or after December 24, 2002. For rules on electing to apply
the provisions retroactively, see paragraph (j) of this section.
[T.D. 9030, 67 FR 78361, Dec. 24, 2002; 68 FR 6350, Feb. 7, 2003]
Sec. 1.121-5 Suspension of 5-year period for certain members of
the uniformed services and Foreign Service.
(a) In general. Under section 121(d)(9), a taxpayer who is serving
(or whose spouse is serving) on qualified official extended duty as a
member of the uniformed services or Foreign Service of the United States
may elect to suspend the running of the 5-year period of ownership and
use during such service but for not more than 10 years. The election
does not suspend the running of the 5-year period for any period during
which the running of the 5-year period with respect to any other
property of the taxpayer is suspended by an election under section
121(d)(9).
(b) Manner of making election. The taxpayer makes the election under
section 121(d)(9) and this section by filing a return for the taxable
year of the sale or exchange of the taxpayer's principal residence that
does not include the gain in the taxpayer's gross income.
(c) Application of election to closed years. A taxpayer who would
otherwise qualify under Secs. 1.121-1 through 1.121-4 to exclude gain
from a sale or exchange of a principal residence on or after May 7,
1997, may elect to apply section 121(d)(9) and this section for any
years for which a claim for refund is barred by operation of any law or
rule of law by filing an amended return before November 11, 2004.
(d) Example. The provisions of this section are illustrated by the
following example:
Example. B purchases a house in Virginia in 2003 that he uses as his
principal residence for 3 years. For 8 years, from 2006 through 2014, B
serves on qualified official extended duty as a member of the Foreign
Service of the United States in Brazil. In 2015 B sells the house. B did
not use the house as his principal residence for 2 of the 5 years
preceding the sale. Under section 121(d)(9)and this section, however, B
may elect to suspend the running of the 5-year period of ownership and
use during his 8-year period of service with the Foreign Service in
Brazil. If B makes the election, the 8-year period is not counted in
determining whether B used the house for 2 of the 5 years preceding the
sale. Therefore, B may exclude the gain from the sale of the house under
section 121.
[[Page 527]]
(e) Effective date. This section is applicable for sales and
exchanges on or after May 7, 1997.
[T.D. 9152, 69 FR 50306, Aug. 16, 2004]
Sec. 1.122-1 Applicable rules relating to certain reduced uniformed
services retirement pay.
(a) Rule applicable prior to January 1, 1966. In the case of a
member or former member of the uniformed services of the United States
(as defined in 37 U.S.C. 101(3)) who has made an election under
Subchapter I of Chapter 73 of title 10 of the U.S. Code (also referred
to in this section as the Retired Serviceman's Family Protection Plan
(10 U.S.C. 1431)) to receive a reduced amount of retired or retainer
pay, gross income shall include the amount of any reduction made in his
retired or retainer pay before January 1, 1966, by reason of such
election, unless such reduction, or portion thereof, is otherwise
excluded from gross income under Part III of Subchapter B of Chapter 1
of the Internal Revenue Code of 1954 or any other provision of law.
(b) Rule applicable after December 31, 1965--(1) In a case of a
member or former member of the uniformed services of the United States
(as defined in 37 U.S.C. 101(3)), gross income shall not include the
amount of any reduction made in his or her retired or retainer pay after
December 31, 1965, by reason of--
(i) An election made under the Retired Serviceman's Family
Protection Plan (10 U.S.C. 1431), or
(ii) The provisions of Subchapter II of Chapter 73 of title 10 of
the U.S. Code (also referred to in this section as the Survivor Benefit
Plan (10 U.S.C. 1447)).
(2)(i) In a case where a member or former member of the uniformed
services has, pursuant to the election described in paragraph (a) of
this section, received before January 1, 1966, a reduced amount of
retired or retainer pay, he shall, after December 31, 1965, exclude from
gross income under section 122(b) and this subdivision all amounts
received as uniformed services retired or retainer pay until there has
been so excluded an amount of retired or retainer pay equal to the
``consideration for the contract'' (as described in subdivision (iii) of
this subparagraph).
(ii) Upon the death of a member or former member of the uniformed
services, where the ``consideration for the contract'' (as described in
subdivision (iii) of this subparagraph) has not been excluded in whole
or in part from gross income under section 122(b) and subdivision (i) of
this subparagraph, the survivor of such member who is receiving an
annuity under Chapter 73 of title 10 of the U.S. Code shall, after
December 31, 1965, exclude from gross income under section 72(o) and
this subdivision such annuity payments received after December 31, 1965,
until there has been so excluded annuity payments equalling the portion
of the ``consideration for the contract'' not previously excluded under
subdivision (i) of this subparagraph.
(iii) The term ``consideration for the contract'' as used in this
subparagraph means--
(a) The total amount of the reductions, if any, before January 1,
1966, in retired or retainer pay by reason of an election under
Subchapter I of Chapter 73 of title 10 of the United States Code, plus
(b) The total amount, if any, deposited by the serviceman at any
time pursuant to the provisions of sections 1438 or 1452(d) of title 10
of the United States Code, plus
(c) The total amount, if any, excludable from income under section
101(b)(2)(D) and paragraph (a)(2) of Sec. 1.101-2 with respect to a
survivor annuity provided by such retired or retainer pay, minus
(d) The total amount, if any, excluded from income before January 1,
1966, pursuant to the provisions of section 72 (b) and (d) with respect
to a survivor annuity provided by such retired or retainer pay.
(iv) In determining whether there has been a recovery of the
``consideration for the contract'' under subdivision (i) of this
subparagraph, the exclusion of retired pay from income after December
31, 1965, under sections 104(a)(4) and 105(d) shall not be considered as
recovery of all or part of the ``consideration for the contract.''
(c) Special rules. In any of the following situations, the
computation of
[[Page 528]]
the excludable portion of disability retired pay received by the member
or former member of the uniformed services shall be governed by the
following rules:
(1) An exclusion under section 122(a) and paragraph (b)(1) of this
section is applicable only in the taxable year in which a reduction in
retired pay is made under the Retired Serviceman's Family Protection
Plan (10 U.S.C. 1431) or the Survivor Benefit Plan (10 U.S.C. 1447).
(2) Where the member or former member of the uniformed services is
entitled to exclude the whole or a portion of his retired pay under the
provisions of section 104(a)(4) or section 105(d) and under section
122(a) and paragraph (b)(1) of this section, the exclusion under section
122(a) and paragraph (b)(1) of this section shall be applied prior to
the exclusions under sections 104(a)(4) and 105(d).
(3) Where the member or former member of the uniformed services
waives a portion of his disability retired pay, or such retired pay
reduced under the Retired Serviceman's Family Protection Plan (10 U.S.C.
1431),or the Survivor Benefit Plan (10 U.S.C. 1447) in favor of a
nontaxable pension or compensation receivable under laws administered by
the Veterans Administration (38 U.S.C. 3105), the waived amount of such
disability retired pay, or reduced amount thereof, shall first be
subtracted from any amounts which are excludable under the provisions of
sections 104(a)(4) or 105(d) so as to reduce the amounts otherwise
excludable under those sections.
(4) Where the member or former member of the uniformed services
receives (before any forfeiture) disability retired pay (whether or not
reduced under the Retired Serviceman's Family Protection Plan) or the
Survivor Benefit Plan which is partially excludable under section
104(a)(4), and also forfeits a portion of such disability retired pay
under the Dual Compensation Act of 1964 (5 U.S.C. 5531 or any former
corresponding provision of law), the amount of the forfeiture under such
Act shall be applied against disability retired pay (before any
forfeiture) in the same proportion that the excludable portion of such
pay under section 104(a)(4) bears to the total amount of such pay after
subtraction of any reduction under the Retired Serviceman's Family
Protection Plan (10 U.S.C. 1431) or the Survivor Benefit Plan (10 U.S.C.
1447).
(5) The exclusion provided by section 122(b) and paragraph (b)(2)(i)
of this section shall be available with respect to repayments made upon
removal from the temporary disability retired list even though such
repayments were previously excluded from gross income under section
104(a)(4) or 105(d).
However, the exclusion permitted by the prior sentence will apply only
to the extent the repaid amount has not been previously excluded under
section 122(b) and paragraph (b)(2)(i) of this section.
(d) Examples with respect to the Retired Serviceman's Family
Protection Plan. The rules discussed in this section relating to the
Retired Serviceman's Family Protection Plan (10 U.S.C. 1431) may be
illustrated by the following examples:
Example 1. A, a member of the uniformed services, retires on January
1, 1963, and receives nondisability retired pay computed to be 60
percent of his active duty pay of $10,000 per year, or $6,000 per year,
based upon 24 years of service. He elects, under the Retired
Serviceman's Family Protection Plan (10 U.S.C. 1431), to provide his
survivor with an annuity equal to one-fourth of his reduced retired pay.
His retired pay of $6,000 is reduced by $600, to $5,400, in order to
provide a survivor annuity of $1,350 per year or $112.50 per month. For
1963, 1964, and 1965, A must include in gross income the unreduced
amount of retired pay, or $6,000. For 1966 and subsequent years, he may
exclude under section 122(a) and paragraph (b)(1) of this section the
$600 total annual reductions to provide the survivor annuity, and may,
for 1966, further exclude from gross income under section 122(b) and
paragraph (b)(2)(i) of this section the $1,800 ``consideration for the
contract'' i.e., the total reductions which were made in 1963, 1964, and
1965, to provide the survivor annuity. Accordingly, A will include
$3,600 of retired pay in gross income for 1966 ($6,000 minus the sum of
$600 and $1,800).
Example 2. Assume the facts in Example (1) except that A retires on
disability resulting from active service and his disability is rated at
40 percent. The entire amount of disability retirement pay, prior to and
including 1966, is excludable from gross income under sections 104(a)(4)
and 105(d), and in 1966, section 122(a). Assume further that A attains
retirement age on December 31, 1966, dies on January 1, 1967, and his
widow then
[[Page 529]]
begins receiving a survivor annuity under the Retired Serviceman's
Family Protection Plan (10 U.S.C. 1431). A's widow may exclude from
gross income in 1967 and 1968 under section 72(o) and paragraph
(b)(2)(ii) of this section, the $1,800 of ``consideration for the
contract'' i.e., the reductions in 1963, 1964, and 1965 to provide the
survivor annuity. Thus, A's widow will exclude all of the survivor
annuity she receives in 1967 ($1,350) and $450 of the $1,350 annuity
received in 1968. In addition, if A had not attained retirement age at
the time of his death, his widow would, under section 101 and paragraph
(a)(2) of Sec. 1.101-2, exclude up to $5,000 subject to the limitations
of paragraph (b)(2)(ii) of this section.
Example 3. Assume, in the previous example, that A dies on January
1, 1965, and his widow then begins receiving a survivor annuity. Assume
further that A's widow is entitled to exclude under section 72(b) $1,000
of the $1,350 she received in 1965. Under section 72(o) and paragraph
(b)(2)(ii) of this section, A's widow for 1966 will exclude the $200
remaining consideration for the contract ($1,200-$1,000) and will
include $1,150 of the survivor annuity in gross income.
Example 4. B, a member of the uniformed services, retires on January
1, 1966, after 32 years of active military service, and receives
disability retirement pay under section 1401 of title 10, limited to 75
percent of his active duty pay of $15,000 per year, or $11,250. His
disability rating is 30 percent. B has not reached retirement age (as
defined in Sec. 1.79-2(b)(3)). He elects under the Retired Serviceman's
Family Protection Plan (10 U.S.C. 1431) to provide his survivor with an
annuity equal to one-half of his reduced retired pay and, for that
purpose, his retired pay of $11,250 is reduced by $1,250 to provide an
annuity of $5,000 per year. B also elects to waive retired pay in the
amount of $1,000 in order to receive disability compensation in like
amount under laws administered by the Veterans Administration. In
addition, B is required to forfeit $4,088 of his retired pay under the
Dual Compensation Act of 1964 (5 U.S.C. 5532) ($11,250-$1,000 = $10,250
less one-half of excess thereof over $2,074) and by reason of his
Federal employment is not entitled to an exclusion of his retired pay
under section 105(d). B's taxable retired pay for 1966 is $3,002,
computed as follows:
Gross retired pay............................................ $11,250
Less: Section 122(a) exclusion............................. (1,250)
----------
Reduced retired pay.......................................... 10,000
Less: Retired pay waived to receive V.A. compensation...... (1,000)
----------
Adjusted retired pay-- 9,000
Less:
(i) Excludable retired pay computed under section $4,500
104(a)(4) as limited by 10 U.S.C. 1403..................
(ii) Less: Retired pay, not to exceed (i), waived to (1,000)
receive V.A. compensation...............................
----------
(iii) Net disability exclusion........................... (3,500)
Taxable retired pay before adjustment for Dual Compensation 5,500
forfeiture..................................................
Less:
Adjustment for Dual Compensation forfeiture of $4,088
5500 9000 x $4,088 = $2,498 (rounded).................... (2,498)
----------
Net taxable retired pay...................................... 3,002
Example 5. C, a member of the uniformed services retires on January
1, 1966, and receives disability retirement pay of $11,250 per year,
which is reduced by $1,250 to provide a survivor annuity, and $1,000 of
which is waived in order to receive disability compensation in like
amount under laws administered by the Veterans Administration. C has not
reached retirement age for purposes of section 105(d) and is not
employed by the Federal Government. C's taxable disability retirement
pay for 1966 is $300 computed as follows:
Adjusted retired pay............................. $9,000
Less:
(i) Excludable retired pay under section (a)(4) $4,500
as limited by 10 U.S.C. 1403..................
(ii) Excludable retired pay under section 5,200
105(d)......................................
-----------
(iii) Total.................................. 9,700
(iv) Less: Retired pay, not to exceed (iii), (1,000)
waived to receive V.A. compensation ``sick
pay'' exclusion.............................
-----------
(v) Net disability and ``sick pay'' exclusion ......... (8,700)
-----------
Net taxable retired pay.......................... 800
Example 6. D, a member of the uniformed services, retires for
physical disability resulting from active service on January 1, 1966,
after 35 years of service and with a disability rated at 20 percent. His
active duty pay is $4,000 per year and he attained retirement age prior
to retirement. He had an election in effect under the Retired
Serviceman's Family Protection Plan to provide his survivor with an
annuity and his retired pay is reduced therefor by $500 per year. He
waives $1,300 of his retired pay in order to receive compensation from
the Veterans Administration in like amount. His taxable retired pay for
1966 is $1,200 computed as follows:
Gross retired pay (75% x $4,000)............... $3,000
Less: Section 122(a) exclusion................. (500)
------------
Reduced retired pay.............................. 2,500
Less: V.A. waiver.............................. (1,300)
------------
Adjusted retired pay............................. 1,200
Less:
(i) Section 104(a)(4) exclusion.............. $800
[[Page 530]]
(ii) Less: Retired pay, not to exceed (i), (800)
waived to receive V.A. compensation.........
-----------
(iii) Net disability exclusion............... 0
-----------
Net taxable retired pay.......................... ......... 1,200
(e) Principles applicable to the Survivor Benefit Plan. The
principles illustrated by the examples set forth in paragraph (d) of
this section apply to an annuity under the Survivor Benefit Plan (10
U.S.C. 1447).
[T.D. 7043, 35 FR 8478, June 2, 1970, as amended by T.D. 7562, 43 FR
38819, Aug. 31, 1978]
Sec. 1.123-1 Exclusion of insurance proceeds for reimbursement of
certain living expenses.
(a) In general. (1) Gross income does not include insurance proceeds
received by an individual on or after January 1, 1969, pursuant to the
terms of an insurance contract for indemnification of the temporary
increase in living expenses resulting from the loss of use or occupancy
of his principal residence, or a part thereof, due to damage or
destruction by fire, storm, or other casualty. The term ``other
casualty'' has the same meaning assigned to such term under section
165(c)(3). The exclusion also applies in the case of an individual who
is denied access to his principal residence by governmental authorities
because of the occurrence (or threat of occurrence) of such a casualty.
The amount excludable under this section is subject to the limitation
set forth in paragraph (b) of this section.
(2) This exclusion applies to amounts received as reimbursement or
compensation for the reasonable and necessary increase in living
expenses incurred by the insured and members of his household to
maintain their customary standard of living during the loss period.
(3) This exclusion does not apply to an insurance recovery for the
loss of rental income. Nor does the exclusion apply to any insurance
recovery which compensates for the loss of, or damage to, real or
personal property. See section 165(c)(3) relating to casualty losses;
section 1231 relating to gain on an involuntary conversion of a capital
asset held for more than 1 year (6 months for taxable years beginning
before 1977; 9 months for taxable years beginning in 1977); and section
1033 relating to recognition of gain on an involuntary conversion. In
the case of property used by an insured partially as a principal
residence and partially for other purposes, the exclusion does not apply
to the amount of insurance proceeds which compensates for the portion of
increased expenses attributable to the nonresidential use of temporary
replacement property during the loss period. In the case of denial of
access to a principal residence by governmental authority, the exclusion
provided by this section does not apply to an insurance recovery
received by an individual as reimbursement for living expenses incurred
by reason of a governmental condemnation or order not related to a
casualty or the threat of a casualty.
(4)(i) Subject to the limitation set forth in paragraph (b), the
amount excludable is the amount which is identified by the insurer as
being paid exclusively for increased living expenses resulting from the
loss of use or occupancy of the principal residence and pursuant to the
terms of the insurance contract.
(ii) When a lump-sum insurance settlement includes, but does not
specifically identify, compensation for property damage, loss of rental
income, and increased living expenses, the amount of such settlement
allocable to living expenses shall, in the case of uncontested claims,
be that portion of the settlement which bears the same ratio to the
total recovery as the amount of claimed increased living expense bears
to the total amount of claimed losses and expenses, to the extent not in
excess of the coverage limitations specified in the contract for such
losses and expenses.
(iii) In the case of a lump-sum settlement involving contested
claims, the insured shall establish the amount reasonably allocable to
increased living expenses, consistent with the terms of the contract and
other facts of the particular case.
(iv) In no event may the amount of a lump-sum settlement which is
allocable to increased living expenses exceed the coverage limitation
specified
[[Page 531]]
in the contract for increased living expenses. Where, however, a
coverage limitation is applicable to the total amount payable for
increased living expenses and, for example, loss of rental income, the
amount of an unitemized settlement which is allocable to increased
living expenses may not exceed the portion of the applicable coverage
limitation which bears the same ratio to such limitation as the amount
of increased living expenses bears to the sum of the amount of such
increased living expenses and the amount, if any, of lost rental income.
(5) The portion of any insurance recovery for increased living
expenses which exceeds the limitation set forth in paragraph (b) shall
be included in gross income under section 61 of the Code.
(b) Limitation--(1) Amount excludable. The amount excludable under
this section is limited to amounts received which are not in excess of
the amount by which (i) total actual living expenses incurred by the
insured and members of his household which result from the loss of use
or occupancy of their residence exceed (ii) the total normal living
expenses which would have been incurred during the loss period but are
not incurred as a result of the loss of use or occupancy of the
principal residence. Generally, the excludable amount represents such
excess expenses actually incurred by reason of a casualty, or threat
thereof, for renting suitable housing and for extraordinary expenses for
transportation, food, utilities, and miscellaneous services during the
period of repair or replacement of the damaged principal residence or
denial of access by governmental authority.
(2) Actual living expenses. For purposes of this section, actual
living expenses are the reasonable and necessary expenses incurred as a
result of the loss of use or occupancy of the principal residence to
maintain the insured and members of his household in accordance with
their customary standard of living. Actual living expenses must be of
such a nature as to qualify as a reimbursable expense under the terms of
the applicable insurance contract without regard to monetary limitations
upon coverage. Generally, actual living expenses include the cost during
the loss period of temporary housing, utilities furnished at the place
of temporary housing, meals obtained at restaurants which customarily
would have been prepared in the residence, transportation, and other
miscellaneous services. To the extent that the loss of use or occupancy
of the principal residence results merely in an increase in the amount
expended for items of living expenses normally incurred, such as food
and transportation, only the increase in such costs shall be considered
as actual living expenses in computing the limitation.
(3) Normal living expenses not incurred. Normal living expenses
consist of the same categories of expenses comprising actual living
expenses which would have been incurred but are not incurred as a result
of the casualty or threat thereof. If the loss of use of the residence
results in a decrease in the amount normally expended for a living
expense item during the loss period, the item of normal living expense
is considered not to have been incurred to the extent of the decrease
for purposes of computing the limitation.
(4) Examples. The application of this paragraph (b) may be
illustrated by the following examples:
Example 1. On March 1, 1970, A's principal residence, a dwelling
owned by A no part of which was rented to others or used for
nonresidential purposes, was extensively damaged by fire. The damaged
residence was under repair during the entire month of March making it
necessary for A and his spouse to obtain temporary lodging and to take
their meals at a restaurant. A and his spouse incur expenses of $200 for
lodging at a motel, $180 for meals which customarily would have been
prepared in his residence, and $25 for commercial laundry service which
customarily would have been done by A's wife. A makes (directly or
through mortgage insurance), or remains liable for, the required March
payment of $190 on the mortgage note on his residence. The mortgage
payment results from a contractual obligation having no causal
relationship to the occurrence of the casualty and is not considered as
an actual living expense resulting from the loss of use of the
residence. A's customary commuting expense of $40 for bus fares to and
from work is decreased by $20 for the month because of the motel's
closer proximity to his place of employment. Other transportation
expenses remain stable. Since
[[Page 532]]
there has been a decrease in the amount of A's customary bus fares,
normal transportation expenses are considered not to have been incurred
to the extent of the decrease. Finally, A does not incur customary
expenses of $150 for food obtained for home preparation, $75 for
utilities expenses, and $10 for laundry cleansers. The limitation upon
the excludable amount of an insurance recovery for excess living
expenses is $150, computed as follows:
Living Expenses
------------------------------------------------------------------------
Actual
resulting Normal not Increase
from incurred (decrease)
casualty
------------------------------------------------------------------------
Housing............................ $200.00 .......... $200.00
Utilities.......................... .......... $75.00 (75.00)
Meals.............................. 180.00 150.00 30.00
Transportation..................... .......... 20.00 (20.00)
Laundry............................ 25.00 10.00 150.00
------------------------------------
Total.......................... 405.00 255.00 15.00
------------------------------------------------------------------------
Example 2. Assume the same facts as in example (1) except that the
damaged residence is not owned by A but is rented to him for $100 per
month and that the risk of loss is upon the lessor. Since A would not
have incurred the normal rental of $100 for March, the excludable amount
is limited to $50 ($150 as in previous example less $100 normal rent not
incurred).
(c) Principal residence. Whether or not property is used by the
insured taxpayer and members of his household as their principal
residence depends upon all the facts and circumstances in each case. For
purposes of this section, a principal residence may be a dwelling or an
apartment leased to the insured as well as a dwelling or apartment owned
by the insured.
[T.D. 7118, 36 FR 10729, June 2, 1971, as amended by T.D. 7728, 45 FR
72650, Nov. 3, 1980]
Sec. 1.125-3 Effect of the Family and Medical Leave Act (FMLA) on the
operation of cafeteria plans.
The following questions and answers provide guidance on the effect
of the Family and Medical Leave Act (FMLA), 29 U.S.C. 2601 et seq., on
the operation of cafeteria plans:
Q-1: May an employee revoke coverage or cease payment of his or her
share of group health plan premiums when taking unpaid FMLA, 29 U.S.C.
2601 et seq., leave?
A-1: Yes. An employer must either allow an employee on unpaid FMLA
leave to revoke coverage, or continue coverage but allow the employee to
discontinue payment of his or her share of the premium for group health
plan coverage (including a health flexible spending arrangement (FSA))
under a cafeteria plan for the period of the FMLA leave. See 29 CFR
825.209(e). FMLA does not require that an employer allow an employee to
revoke coverage if the employer pays the employee's share of premiums.
As discussed in Q&A-3, if the employer continues coverage during an FMLA
leave, the employer may recover the employee's share of the premiums
when the employee returns to work. FMLA also provides the employee a
right to be reinstated in the group health plan coverage (including a
health FSA) provided under a cafeteria plan upon returning from FMLA
leave if the employee's group health plan coverage terminated while on
FMLA leave (either by revocation or due to nonpayment of premiums). Such
an employee is entitled, to the extent required under FMLA, to be
reinstated on the same terms as prior to taking FMLA leave (including
family or dependent coverage), subject to any changes in benefit levels
that may have taken place during the period of FMLA leave as provided in
29 CFR 825.215(d)(1). See 29 CFR 825.209(e) and 825.215(d). In addition,
such an employee has the right to revoke or change elections under
Sec. 1.125-4 (e.g., because of changes in status or cost or coverage
changes as provided under Sec. 1.125-4) under the same terms and
conditions as are available to employees participating in the cafeteria
plan who are working and not on FMLA leave.
Q-2: Who is responsible for making premium payments under a
cafeteria plan when an employee on FMLA leave continues group health
plan coverage?
A-2: FMLA provides that an employee is entitled to continue group
health plan coverage during FMLA leave whether or not that coverage is
provided under a health FSA or other component of a cafeteria plan. See
29 CFR 825.209(b). FMLA permits an employer to require an employee who
chooses to continue group health plan coverage while on FMLA leave to be
responsible for the share of group health
[[Page 533]]
premiums that would be allocable to the employee if the employee were
working, and, for this purpose, treats amounts paid pursuant to a pre-
tax salary reduction agreement as amounts allocable to the employee.
However, FMLA requires the employer to continue to contribute the share
of the cost of the employee's coverage that the employer was paying
before the employee commenced FMLA leave. See 29 CFR 825.100(b) and
825.210(a).
Q-3: What payment options are required or permitted to be offered
under a cafeteria plan to an employee who continues group health plan
coverage while on unpaid FMLA leave, and what is the tax treatment of
these payments?
A-3: (a) In general. Subject to the limitations described in
paragraph (b) of this Q&A-3, a cafeteria plan may offer one or more of
the following payment options, or a combination of these options, to an
employee who continues group health plan coverage (including a health
FSA) while on unpaid FMLA leave; provided that the payment options for
employees on FMLA leave are offered on terms at least as favorable as
those offered to employees not on FMLA leave. These options are referred
to in this section as pre-pay, pay-as-you-go, and catch-up. See also the
FMLA notice requirements at 29 CFR 825.301(b)(1)(iv).
(1) Pre-pay. (i) Under the pre-pay option, a cafeteria plan may
permit an employee to pay, prior to commencement of the FMLA leave
period, the amounts due for the FMLA leave period. However, FMLA
provides that the employer may not mandate that an employee pre-pay the
amounts due for the leave period. See 29 CFR 825.210(c)(3) and (4).
(ii) Contributions under the pre-pay option may be made on a pre-tax
salary reduction basis from any taxable compensation (including from
unused sick days or vacation days). However, see Q&A-5 of this section
regarding additional restrictions on pre-tax salary reduction
contributions when an employee's FMLA leave spans two cafeteria plan
years.
(iii) Contributions under the pre-pay option may also be made on an
after-tax basis.
(2) Pay-as-you-go. (i) Under the pay-as-you-go option, employees may
pay their share of the premium payments on the same schedule as payments
would have been made if the employee were not on leave or under any
other payment schedule permitted by the Labor Regulations at 29 CFR
825.210(c) (e.g., on the same schedule as payments are made under
section 4980B (relating to coverage under the Consolidated Omnibus
Budget Reconciliation Act (COBRA), 26 U.S.C. 4980B), under the
employer's existing rules for payment by employees on leave without pay,
or under any other system voluntarily agreed to between the employer and
the employee that is not inconsistent with this section or with 29 CFR
825.210(c)).
(ii) Contributions under the pay-as-you-go option are generally made
by the employee on an after-tax basis. However, contributions may be
made on a pre-tax basis to the extent that the contributions are made
from taxable compensation (e.g., from unused sick days or vacation days)
that is due the employee during the leave period.
(iii) An employer is not required to continue the group health
coverage of an employee who fails to make required premium payments
while on FMLA leave, provided that the employer follows the notice
procedures required under FMLA. See 29 CFR 825.212. However, if the
employer chooses to continue the health coverage of an employee who
fails to pay his or her share of the premium payments while on FMLA
leave, FMLA permits the employer to recoup the premiums (to the extent
of the employee's share). See 29 CFR 825.212(b). Such recoupment may be
made as set forth in paragraphs (a)(3)(i) and (ii) of this Q&A-3. See
also Q&A-6 of this section regarding coverage under a health FSA when an
employee fails to make the required premium payments while on FMLA
leave.
(3) Catch-up. (i) Under the catch-up option, the employer and the
employee may agree in advance that the group coverage will continue
during the period of unpaid FMLA leave, and that the employee will not
pay premiums until the employee returns from the FMLA leave. Where an
employee is electing to use the catch-up option, the
[[Page 534]]
employer and the employee must agree in advance of the coverage period
that: the employee elects to continue health coverage while on unpaid
FMLA leave; the employer assumes responsibility for advancing payment of
the premiums on the employee's behalf during the FMLA leave; and these
advance amounts are to be paid by the employee when the employee returns
from FMLA leave.
(ii) When an employee fails to make required premium payments while
on FMLA leave, an employer is permitted to utilize the catch-up option
to recoup the employee's share of premium payments when the employee
returns from FMLA leave. See, e.g., 29 CFR 825.212(b). If the employer
chooses to continue group coverage under these circumstances, the prior
agreement of the employee, as set forth in paragraph (a)(3)(i) of this
Q&A-3, is not required.
(iii) Contributions under the catch-up option may be made on a pre-
tax salary reduction basis from any available taxable compensation
(including from unused sick days and vacation days) after the employee
returns from FMLA leave. The cafeteria plan may provide for the catch-up
option to apply on a pre-tax salary reduction basis if premiums have not
been paid on any other basis (i.e., have not been paid under the pre-pay
or pay-as-you-go options or on a catch-up after-tax basis).
(iv) Contributions under the catch-up option may also be made on an
after-tax basis.
(b) Exceptions. Whatever payment options are offered to employees on
non-FMLA leave must be offered to employees on FMLA leave. In accordance
with 29 CFR 825.210(c), cafeteria plans may offer one or more of the
payment options described in paragraph (a) of this Q&A-3, with the
following exceptions:
(1) FMLA does not permit the pre-pay option to be the sole option
offered to employees on FMLA leave. However, the cafeteria plan may
include pre-payment as an option for employees on FMLA leave, even if
such option is not offered to employees on non-FMLA leave-without-pay.
(2) FMLA allows the catch-up option to be the sole option offered to
employees on FMLA leave if and only if the catch-up option is the sole
option offered to employees on non-FMLA leave-without-pay.
(3) If the pay-as-you-go option is offered to employees on non-FMLA
leave-without-pay, the option must also be offered to employees on FMLA
leave. The employer may also offer employees on FMLA leave the pre-pay
option and/or the catch-up option.
(c) Voluntary waiver of employee payments. In addition to the
foregoing payment options, an employer may voluntarily waive, on a
nondiscriminatory basis, the requirement that employees who elect to
continue group health coverage while on FMLA leave pay the amounts the
employees would otherwise be required to pay for the leave period.
(d) Example. The following example illustrates this Q&A-3:
Example. (i) Employer Y allows employees to pay premiums for group
health coverage during an FMLA leave on an after-tax basis while the
employee is on unpaid FMLA leave. Under the terms of Y's cafeteria plan,
if an employee elects to continue health coverage during an unpaid FMLA
leave and fails to pay one or more of the after-tax premium payments due
for that coverage, the employee's salary after the employee returns from
FMLA leave is reduced to cover unpaid premiums (i.e. the premiums that
were to be paid by the employee on an after-tax basis during the FMLA
leave, but were paid by the employer instead).
(ii) In this Example, Y's cafeteria plan satisfies the conditions in
this Q&A-3. Y's cafeteria plan would also satisfy the conditions in this
Q&A-3 if the plan provided for coverage to cease in the event the
employee fails to make a premium payment when due during an unpaid FMLA
leave.
Q-4: Do the special FMLA requirements concerning payment of premiums
by an employee who continues group health plan coverage under a
cafeteria plan apply if the employee is on paid FMLA leave?
A-4: No. The Labor Regulations provide that, if an employee's FMLA
leave is paid leave as described at 29 CFR 825.207 and the employer
mandates that the employee continue group health plan coverage while on
FMLA leave, the employee's share of the premiums must be paid by the
method normally used during any paid leave (e.g., by pre-tax salary
reduction if the employee's share of premiums were paid by pre-tax
[[Page 535]]
salary reduction before the FMLA leave began). See 29 CFR 825.210(b).
Q-5: What restrictions apply to contributions when an employee's
FMLA leave spans two cafeteria plan years?
A-5: (a) No amount will be included in an employee's gross income
due to participation in a cafeteria plan during FMLA leave, provided
that the plan complies with other generally applicable cafeteria plan
requirements. Among other requirements, a plan may not operate in a
manner that enables employees on FMLA leave to defer compensation from
one cafeteria plan year to a subsequent cafeteria plan year. See section
125(d)(2).
(b) The following example illustrates this Q&A-5:
Example. (i) Employee A elects group health coverage under a
calendar year cafeteria plan maintained by Employer X. Employee A's
premium for health coverage is $100 per month throughout the 12-month
period of coverage. Employee A takes FMLA leave for 12 weeks beginning
on October 31 after making 10 months of premium payments totaling $1,000
(10 months x $100 = $1,000). Employee A elects to continue health
coverage while on FMLA leave and utilizes the pre-pay option by applying
his or her unused sick days in order to make the required premium
payments due while he or she is on FMLA leave.
(ii) Because A cannot defer compensation from one plan year to a
subsequent plan year, A may pre-pay the premiums due in November and
December (i.e., $100 per month) on a pre-tax basis, but A cannot pre-pay
the premium payment due in January on a pre-tax basis. If A participates
in the cafeteria plan in the subsequent plan year, A must either pre-pay
for January on an after-tax basis or use another option (e.g., pay-as-
you-go, catch-up, reduction in unused sick days, etc.) to make the
premium payment due in January.
Q-6: Are there special rules concerning employees taking FMLA leave
who participate in health FSAs offered under a cafeteria plan?
A-6: (a) In general. (1) A group health plan that is a flexible
spending arrangement (FSA) offered under a cafeteria plan must conform
to the generally applicable rules in this section concerning employees
who take FMLA leave. Thus, to the extent required by FMLA (see 29 CFR
825.209(b)), an employer must--
(i) Permit an employee taking FMLA leave to continue coverage under
a health FSA while on FMLA leave; and
(ii) If an employee is on unpaid FMLA leave, either--
(A) Allow the employee to revoke coverage; or
(B) Continue coverage, but allow the employee to discontinue payment
of his or her share of the premium for the health FSA under the
cafeteria plan during the unpaid FMLA leave period.
(2) Under FMLA, the plan must permit the employee to be reinstated
in health coverage upon return from FMLA leave on the same terms as if
the employee had been working throughout the leave period, without a
break in coverage. See 29 CFR 825.214(a) and 825.215(d)(1) and paragraph
(b)(2) of this Q&A-6. In addition, under FMLA, a plan may require an
employee to be reinstated in health coverage upon return from a period
of unpaid FMLA leave, provided that employees who return from a period
of unpaid leave not covered by the FMLA are also required to resume
participation upon return from leave.
(b) Coverage. (1) Regardless of the payment option selected under
Q&A-3 of this section, for so long as the employee continues health FSA
coverage (or for so long as the employer continues the health FSA
coverage of an employee who fails to make the required contributions as
described in Q&A-3(a)(2)(iii) of this section), the full amount of the
elected health FSA coverage, less any prior reimbursements, must be
available to the employee at all times, including the FMLA leave period.
(2)(i) If an employee's coverage under the health FSA terminates
while the employee is on FMLA leave, the employee is not entitled to
receive reimbursements for claims incurred during the period when the
coverage is terminated. If an employee subsequently elects or the
employer requires the employee to be reinstated in the health FSA upon
return from FMLA leave for the remainder of the plan year, the employee
may not retroactively elect health FSA coverage for claims incurred
during the period when the coverage was terminated. Upon reinstatement
into a health FSA upon return
[[Page 536]]
from FMLA leave (either because the employee elects reinstatement or
because the employer requires reinstatement), the employee has the right
under FMLA: to resume coverage at the level in effect before the FMLA
leave and make up the unpaid premium payments, or to resume coverage at
a level that is reduced and resume premium payments at the level in
effect before the FMLA leave. If an employee chooses to resume health
FSA coverage at a level that is reduced, the coverage is prorated for
the period during the FMLA leave for which no premiums were paid. In
both cases, the coverage level is reduced by prior reimbursements.
(ii) FMLA requires that an employee on FMLA leave have the right to
revoke or change elections (because of events described in Sec. 1.125-4)
under the same terms and conditions that apply to employees
participating in the cafeteria plan who are not on FMLA leave. Thus, for
example, if a group health plan offers an annual open enrollment period
to active employees, then, under FMLA, an employee on FMLA leave when
the open enrollment is offered must be offered the right to make
election changes on the same basis as other employees. Similarly, if a
group health plan decides to offer a new benefit package option and
allows active employees to elect the new option, then, under FMLA, an
employee on FMLA leave must be allowed to elect the new option on the
same basis as other employees.
(3) The following examples illustrate the rules in this Q&A-6:
Example 1. (i) Employee B elects $1,200 worth of coverage under a
calendar year health FSA provided under a cafeteria plan, with an annual
premium of $1,200. Employee B is permitted to pay the $1,200 through
pre-tax salary reduction amounts of $100 per month throughout the 12-
month period of coverage. Employee B incurs no medical expenses prior to
April 1. On April 1, B takes FMLA leave after making three months of
contributions totaling $300 (3 months x $100 = $300). Employee B's
coverage ceases during the FMLA leave. Consequently, B makes no premium
payments for the months of April, May, and June, and B is not entitled
to submit claims or receive reimbursements for expenses incurred during
this period. Employee B returns from FMLA leave and elects to be
reinstated in the health FSA on July 1.
(ii) Employee B must be given a choice of resuming coverage at the
level in effect before the FMLA leave (i.e., $1,200) and making up the
unpaid premium payments ($300), or resuming health FSA coverage at a
level that is reduced on a prorata basis for the period during the FMLA
leave for which no premiums were paid (i.e., reduced for 3 months or \1/
4\ of the plan year) less prior reimbursements (i.e., $0) with premium
payments due in the same monthly amount payable before the leave (i.e.,
$100 per month). Consequently, if B chooses to resume coverage at the
level in effect before the FMLA leave, B's coverage for the remainder of
the plan year would equal $1,200 and B's monthly premiums would be
increased to $150 per month for the remainder of the plan year, to make
up the $300 in premiums missed ($100 per month plus $50 per month ($300
divided by the remaining 6 months)). If B chooses prorated coverage, B's
coverage for the remainder of the plan year would equal $900, and B
would resume making premium payments of $100 per month for the remainder
of the plan year.
Example 2. (i) Assume the same facts as Example 1 except that B
incurred medical expenses totaling $200 in February and obtained
reimbursement of these expenses.
(ii) The results are the same as in Example 1, except that if B
chooses to resume coverage at the level in effect before the FMLA leave,
B's coverage for the remainder of the year would equal $1,000 ($1,200
reduced by $200) and the monthly payments for the remainder of the year
would still equal $150. If instead B chooses prorated coverage, B's
coverage for the remainder of the plan year would equal $700 ($1,200
prorated for 3 months, and then reduced by $200) and the monthly
payments for the remainder of the year would still equal $100.
Example 3. (i) Assume the same facts as Example 1 except that, prior
to taking FMLA leave, B elects to continue health FSA coverage during
the FMLA leave. The plan permits B (and B elects) to use the catch-up
payment option described in Q&A-3 of this section, and as further
permitted under the plan, B chooses to repay the $300 in missed payments
on a ratable basis over the remaining 6-month period of coverage (i.e.,
$50 per month).
(ii) Thus, B's monthly premium payments for the remainder of the
plan year will be $150 ($100 + $50).
Q-7: Are employees entitled to non-health benefits while taking FMLA
leave?
A-7: FMLA does not require an employer to maintain an employee's
non-health benefits (e.g., life insurance) during FMLA leave. An
employee's entitlement to benefits other than group
[[Page 537]]
health benefits under a cafeteria plan during a period of FMLA leave is
to be determined by the employer's established policy for providing such
benefits when the employee is on non-FMLA leave (paid or unpaid). See 29
CFR 825.209(h). Therefore, an employee who takes FMLA leave is entitled
to revoke an election of non-health benefits under a cafeteria plan to
the same extent as employees taking non-FMLA leave are permitted to
revoke elections of non-health benefits under a cafeteria plan. For
example, election changes are permitted due to changes of status or upon
enrollment for a new plan year. See Sec. 1.125-4. However, FMLA provides
that, in certain cases, an employer may continue an employee's non-
health benefits under the employer's cafeteria plan while the employee
is on FMLA leave in order to ensure that the employer can meet its
responsibility to provide equivalent benefits to the employee upon
return from unpaid FMLA. If the employer continues an employee's non-
health benefits during FMLA leave, the employer is entitled to recoup
the costs incurred for paying the employee's share of the premiums
during the FMLA leave period. See 29 CFR 825.213(b). Such recoupment may
be on a pre-tax basis. A cafeteria plan must, as required by FMLA,
permit an employee whose coverage terminated while on FMLA leave (either
by revocation or nonpayment of premiums) to be reinstated in the
cafeteria plan on return from FMLA leave. See 29 CFR 825.214(a) and
825.215(d).
Q-8: What is the applicability date of the regulations in this
section?
A-8: This section is applicable for cafeteria plan years beginning
on or after January 1, 2002.
[T.D. 8966, 66 FR 52677, Oct. 17, 2001; 66 FR 63920, Dec. 11, 2001]
Sec. 1.125-4 Permitted election changes.
(a) Election changes. A cafeteria plan may permit an employee to
revoke an election during a period of coverage and to make a new
election only as provided in paragraphs (b) through (g) of this section.
Section 125 does not require a cafeteria plan to permit any of these
changes. See paragraph (h) of this section for special provisions
relating to qualified cash or deferred arrangements, and paragraph (i)
of this section for special definitions used in this section.
(b) Special enrollment rights--(1) In general. A cafeteria plan may
permit an employee to revoke an election for coverage under a group
health plan during a period of coverage and make a new election that
corresponds with the special enrollment rights provided in section
9801(f).
(2) Examples. The following examples illustrate the application of
this paragraph (b):
Example 1. (i) Employer M provides health coverage for its employees
pursuant to a plan that is subject to section 9801(f). Under the plan,
employees may elect either employee-only coverage or family coverage. M
also maintains a calendar year cafeteria plan under which qualified
benefits, including health coverage, are funded through salary
reduction. M's employee, A, is married to B and they have a child, C. In
accordance with M's cafeteria plan, Employee A elects employee-only
health coverage before the beginning of the calendar year. During the
year, A and B adopt a child, D. Within 30 days thereafter, A wants to
revoke A's election for employee-only health coverage and obtain family
health coverage for A's spouse, C, and D as of the date of D's adoption.
Employee A satisfies the conditions for special enrollment of an
employee with a new dependent under section 9801(f)(2), so that A may
enroll in family coverage under M's accident or health plan in order to
provide coverage effective as of the date of D's adoption.
(ii) M's cafeteria plan may permit A to change A's salary reduction
election to family coverage for salary not yet currently available. The
increased salary reduction is permitted to reflect the cost of family
coverage from the date of adoption. (A's adoption of D is also a change
in status, and the election of family coverage is consistent with that
change in status. Thus, under paragraph (c) of this section, M's
cafeteria plan could permit A to elect family coverage prospectively in
order to cover B, C, and D for the remaining portion of the period of
coverage.)
Example 2. (i) The employer plans and permissible coverage are the
same as in Example 1. Before the beginning of the calendar year,
Employee E elects employee-only health coverage under M's cafeteria
plan. Employee E marries F during the plan year. F's employer, N, offers
health coverage to N's employees, and, prior to the marriage, F had
elected employee-only coverage. Employee E wants to revoke the election
for employee-only coverage under M's cafeteria plan, and
[[Page 538]]
is considering electing family health coverage under M's plan or
obtaining family health coverage under N's plan.
(ii) M's cafeteria plan may permit E to change E's salary reduction
election to reflect the change to family coverage under M's accident or
health plan because the marriage would result in special enrollment
rights under section 9801(f), pursuant to which an election of family
coverage under M's accident or health plan would be required to be
effective no later than the first day of the first calendar month
beginning after the completed request for enrollment is received by the
plan. Since no retroactive coverage is required in the event of marriage
under section 9801(f), E's salary reduction election may only be changed
on a prospective basis. (E's marriage to F is also a change in status
under paragraph (c) of this section, as illustrated in Example 1 of
paragraph (c)(4) of this section.)
(c) Changes in status--(1) Change in status rule. A cafeteria plan
may permit an employee to revoke an election during a period of coverage
with respect to a qualified benefits plan (defined in paragraph (i)(8)
of this section) to which this paragraph (c) applies and make a new
election for the remaining portion of the period (referred to in this
section as an election change) if, under the facts and circumstances--
(i) A change in status described in paragraph (c)(2) of this section
occurs; and
(ii) The election change satisfies the consistency rule of paragraph
(c)(3) of this section.
(2) Change in status events. The following events are changes in
status for purposes of this paragraph (c):
(i) Legal marital status. Events that change an employee's legal
marital status, including the following: marriage; death of spouse;
divorce; legal separation; and annulment.
(ii) Number of dependents. Events that change an employee's number
of dependents, including the following: birth; death; adoption; and
placement for adoption.
(iii) Employment status. Any of the following events that change the
employment status of the employee, the employee's spouse, or the
employee's dependent: a termination or commencement of employment; a
strike or lockout; a commencement of or return from an unpaid leave of
absence; and a change in worksite. In addition, if the eligibility
conditions of the cafeteria plan or other employee benefit plan of the
employer of the employee, spouse, or dependent depend on the employment
status of that individual and there is a change in that individual's
employment status with the consequence that the individual becomes (or
ceases to be) eligible under the plan, then that change constitutes a
change in employment under this paragraph (c) (e.g., if a plan only
applies to salaried employees and an employee switches from salaried to
hourly-paid with the consequence that the employee ceases to be eligible
for the plan, then that change constitutes a change in employment status
under this paragraph (c)(2)(iii)).
(iv) Dependent satisfies or ceases to satisfy eligibility
requirements. Events that cause an employee's dependent to satisfy or
cease to satisfy eligibility requirements for coverage on account of
attainment of age, student status, or any similar circumstance.
(v) Residence. A change in the place of residence of the employee,
spouse, or dependent.
(vi) Adoption assistance. For purposes of adoption assistance
provided through a cafeteria plan, the commencement or termination of an
adoption proceeding.
(3) Consistency rule--(i) Application to accident or health coverage
and group-term life insurance. An election change satisfies the
requirements of this paragraph (c)(3) with respect to accident or health
coverage or group-term life insurance only if the election change is on
account of and corresponds with a change in status that affects
eligibility for coverage under an employer's plan. A change in status
that affects eligibility under an employer's plan includes a change in
status that results in an increase or decrease in the number of an
employee's family members or dependents who may benefit from coverage
under the plan.
(ii) Application to other qualified benefits. An election change
satisfies the requirements of this paragraph (c)(3) with respect to
other qualified benefits if the election change is on account of and
corresponds with a change in status that affects eligibility for
coverage under an employer's plan. An election
[[Page 539]]
change also satisfies the requirements of this paragraph (c)(3) if the
election change is on account of and corresponds with a change in status
that effects expenses described in section 129 (including employment-
related expenses as defined in section 21(b)(2)) with respect to
dependent care assistance, or expenses described in section 137
(including qualified adoption expenses as defined in section 137(d))
with respect to adoption assistance.
(iii) Application of consistency rule. If the change in status is
the employee's divorce, annulment or legal separation from a spouse, the
death of a spouse or dependent, or a dependent ceasing to satisfy the
eligibility requirements for coverage, an employee's election under the
cafeteria plan to cancel accident or health insurance coverage for any
individual other than the spouse involved in the divorce, annulment or
legal separation, the deceased spouse or dependent, or the dependent
that ceased to satisfy the eligibility requirements for coverage,
respectively, fails to correspond with that change in status. Thus, if a
dependent dies or ceases to satisfy the eligibility requirements for
coverage, the employee's election to cancel accident or health coverage
for any other dependent, for the employee, or for the employee's spouse
fails to correspond with that change in status. In addition, if an
employee, spouse, or dependent gains eligibility for coverage under a
family member plan (as defined in paragraph (i)(5) of this section) as a
result of a change in marital status under paragraph (c)(2)(i) of this
section or a change in employment status under paragraph (c)(2)(iii) of
this section, an employee's election under the cafeteria plan to cease
or decrease coverage for that individual under the cafeteria plan
corresponds with that change in status only if coverage for that
individual becomes applicable or is increased under the family member
plan. With respect to group-term life insurance and disability coverage
(as defined in paragraph (i)(4) of this section), an election under a
cafeteria plan to increase coverage (or an election to decrease
coverage) in response to a change in status described in paragraph
(c)(2) of this section is deemed to correspond with that change in
status as required by paragraph (c)(3)(i) of this section.
(iv) Exception for COBRA. If the employee, spouse, or dependent
becomes eligible for continuation coverage under the group health plan
of the employee's employer as provided in section 4980B or any similar
state law, a cafeteria plan may permit the employee to elect to increase
payments under the employer's cafeteria plan in order to pay for the
continuation coverage.
(4) Examples. The following examples illustrate the application of
this paragraph (c):
Example 1. (i) Employer M provides health coverage (including a
health FSA) for its employees through its cafeteria plan. Before the
beginning of the calendar year, Employee A elects employee-only health
coverage under M's cafeteria plan and elects salary reduction
contributions to fund coverage under the health FSA. Employee A marries
B during the year. Employee B's employer, N, offers health coverage to
N's employees (but not including any health FSA), and, prior to the
marriage, B had elected employee-only coverage. Employee A wants to
revoke the election for employee-only coverage, and is considering
electing family health coverage under M's plan or obtaining family
health coverage under N's plan.
(ii) Employee A's marriage to B is a change in status under
paragraph (c)(2)(i) of this section, pursuant to which B has become
eligible for coverage under M's health plan under paragraph (c)(3)(i) of
this section. Two possible election changes by A correspond with the
change in status: Employee A may elect family health coverage under M's
plan to cover A and B; or A may cancel coverage under M's plan, if B
elects family health coverage under N's plan to cover A and B. Thus, M's
cafeteria plan may permit A to make either election change.
(iii) Employee A may also increase salary reduction contributions to
fund coverage for B under the health FSA.
Example 2. (i) Employee C, a single parent, elects family health
coverage under a calendar year cafeteria plan maintained by Employer O.
Employee C and C's 21-year old child, D, are covered under O's health
plan. During the year, D graduates from college. Under the terms of the
health plan, dependents over the age of 19 must be full-time students to
receive coverage. Employee C wants to revoke C's election for family
health coverage and obtain employee-only coverage under O's cafeteria
plan.
(ii) D's loss of eligibility for coverage under the terms of the
health plan is a change in status under paragraph (c)(2)(iv) of
[[Page 540]]
this section. A revocation of C's election for family coverage and new
election for employee-only coverage corresponds with the change in
status. Thus, O's cafeteria plan may permit C to elect employee-only
coverage.
Example 3. (i) Employee E is married to F and they have one child,
G. Employee E is employed by Employer P, and P maintains a calendar year
cafeteria plan that allows employees to elect no health coverage,
employee-only coverage, employee-plus-one-dependent coverage, or family
coverage. Under the plan, before the beginning of the calendar year, E
elects family health coverage for E, F, and G. E and F divorce during
the year and F loses eligibility for coverage under P's plan. G does not
lose eligibility for health coverage under P's plan upon the divorce. E
now wants to revoke E's election under the cafeteria plan and elect no
coverage.
(ii) The divorce is a change in status under paragraph (c)(2)(i). A
change in the cafeteria plan election to cancel health coverage for F is
consistent with that change in status. However, an election change to
cancel E's or G's health coverage does not satisfy the consistency rule
under paragraph (c)(3)(iii) of this section regarding cancellation of
coverage for an employee's other dependents in the event of divorce.
Therefore, the cafeteria plan may not permit E to elect no coverage.
However, an election to change to employee-plus-one-dependent health
coverage would correspond with the change in status, and thus the
cafeteria plan may permit E to elect employee-plus-one-dependent health
coverage.
(iii) In addition, under paragraph (f)(4) of this section, if F
makes an election change to cover G under F's employer's plan, then E
may make a corresponding change to elect employee-only coverage under
P's cafeteria plan.
Example 4. (i) Employer R maintains a calendar year cafeteria plan
under which full-time employees may elect coverage under one of three
benefit package options provided under an accident or health plan: an
indemnity option or either of two HMO options for employees who work in
the respective service areas of the two HMOs. Employee A, who works in
the service area of HMO 1, elects the HMO 1 option. During the year, A
is transferred to another work location which is outside the HMO 1
service area and inside the HMO 2 service area.
(ii) The transfer is a change in status under paragraph (c)(2)(iii)
of this section (relating to a change in worksite), and, under the
consistency rule in paragraph (c)(3) of this section, the cafeteria plan
may permit A to make an election change to elect the indemnity option or
HMO 2 or to cancel accident or health coverage.
(iii) The change in work location has no effect on A's eligibility
under R's health FSA, so no change in A's health FSA is authorized under
this paragraph (c).
Example 5. (i) Employer S maintains a calendar year cafeteria plan
that allows employees to elect coverage under an accident or health plan
providing indemnity coverage and coverage under a health FSA. Prior to
the beginning of the calendar year, Employee B elects employee-only
indemnity coverage, and elects salary reduction contributions of $600
during the year to fund coverage under the health FSA for up to $600 of
reimbursements for the year. Employee B's spouse, C, has employee-only
coverage under an accident or health plan maintained by C's employer.
During the year, C terminates employment and loses coverage under that
plan. B now wants to elect family coverage under S's accident or health
plan and increase B's FSA election.
(ii) C's termination of employment is a change in status under
paragraph (c)(2)(iii) of this section, and the election change satisfies
the consistency rule of paragraph (c)(3) of this section. Therefore, the
cafeteria plan may permit B to elect family coverage under S's accident
or health plan and to increase B's FSA coverage.
Example 6. (i) Employer T provides group-term life insurance
coverage as described under section 79. Under T's plan, an employee may
elect life insurance coverage in an amount up to $50,000. T also
maintains a calendar year cafeteria plan under which qualified benefits,
including the group-term life insurance coverage, are funded through
salary reduction. Employee D has a spouse and a child. Before the
beginning of the year, D elects $10,000 of group-term life insurance
coverage. During the year, D is divorced.
(ii) The divorce is a change in status under paragraph (c)(2)(i) of
this section. Under paragraph (c)(3)(iii) of this section, either an
increase or a decrease in coverage is consistent with this change in
status. Thus, T's cafeteria plan may permit D to increase or to decrease
D's group-term life insurance coverage.
Example 7. (i) Employee E is married to F and they have one child,
G. Employee E's employer, U, maintains a cafeteria plan under which
employees may elect no coverage, employee-only coverage, or family
coverage under a group health plan maintained by U, and may make a
separate vision coverage election under the plan. Before the beginning
of the calendar year, E elects family health coverage and no vision
coverage under U's cafeteria plan. Employee F's employer, V, maintains a
cafeteria plan under which employees may elect no coverage, employee-
only coverage, or family coverage under a group health plan maintained
by V, and may make a separate vision coverage election under the plan.
Before the beginning
[[Page 541]]
of the calendar year, F elects no health coverage and employee-only
vision coverage under V's plan. During the year, F terminates employment
with V and loses vision coverage under V's plan. Employee E now wants to
elect family vision coverage under U's group health plan.
(ii) F's termination of employment is a change in status under
paragraph (c)(2)(iii) of this section, and the election change satisfies
the consistency rule of paragraph (c)(3) of this section. Therefore, U's
cafeteria plan may permit E to elect family vision coverage (covering E
and G as well as F) under U's group health plan.
Example 8. (i) Before the beginning of the year, Employee H elects
to participate in a cafeteria plan maintained by H's employer, W.
However, in order to change the election during the year so as to cancel
coverage, and by prior understanding with W, H terminates employment and
resumes employment one week later.
(ii) In this Example 8, under the facts and circumstances, a
principal purpose of the termination of employment was to alter the
election, and reinstatement of employment was understood at the time of
termination. Accordingly, H does not have a change in status under
paragraph (c)(2)(iii) of this section.
(iii) However, H's termination of employment would constitute a
change in status, permitting a cancellation of coverage during the
period of unemployment, if H's original cafeteria plan election for the
period of coverage was reinstated upon resumption of employment (for
example, if W's cafeteria plan contains a provision requiring an
employee who resumes employment within 30 days, without any other
intervening event that would permit a change in election, to return to
the election in effect prior to termination of employment).
(iv) If, instead, H terminates employment and cancels coverage
during a period of unemployment, and then returns to work more than 30
days following termination of employment, the cafeteria plan may permit
H the option of returning to the election in effect prior to termination
of employment or making a new election under the plan. Alternatively,
the cafeteria plan may prohibit H from returning to the plan during that
plan year.
Example 9. (i) Employee A has one child, B. Employee A's employer,
X, maintains a calendar year cafeteria plan that allows employees to
elect coverage under a dependent care FSA. Prior to the beginning of the
calendar year, A elects salary reduction contributions of $4,000 during
the year to fund coverage under the dependent care FSA for up to $4,000
of reimbursements for the year. During the year, B reaches the age of
13, and A wants to cancel coverage under the dependent care FSA.
(ii) When B turns 13, B ceases to satisfy the definition of
qualifying individual under section 21(b)(1) of the Internal Revenue
Code. Accordingly, B's attainment of age 13 is a change in status under
paragraph (c)(2)(iv) of this section that affects A's employment-related
expenses as defined in section 21(b)(2). Therefore, A may make a
corresponding change under X's cafeteria plan to cancel coverage under
the dependent care FSA.
Example 10. (i) Employer Y maintains a calendar year cafeteria plan
under which full-time employees may elect coverage under either an
indemnity option or an HMO. Employee C elects the employee-only
indemnity option. During the year, C marries D. D has two children from
a previous marriage, and has family group health coverage in a cafeteria
plan sponsored by D's employer, Z. C wishes to change from employee-only
indemnity coverage to HMO coverage for the family. D wishes to cease
coverage in Z's group health plan and certifies to Z that D will have
family coverage under C's plan (and Z has no reason to believe the
certification is incorrect).
(ii) The marriage is a change in status under paragraph (c)(2)(i) of
this section. Under the consistency rule in paragraph (c)(3) of this
section, Y's cafeteria plan may permit C to change his or her salary
reduction contributions to reflect the change from employee-only
indemnity to HMO family coverage, and Z may permit D to revoke coverage
under Z's cafeteria plan.
(d) Judgment, decree, or order--(1) Conforming election change. This
paragraph (d) applies to a judgment, decree, or order (order) resulting
from a divorce, legal separation, annulment, or change in legal custody
(including a qualified medical child support order as defined in section
609 of the Employee Retirement Income Security Act of 1974 (Public Law
93-406 (88 Stat. 829))) that requires accident or health coverage for an
employee's child or for a foster child who is a dependent of the
employee. A cafeteria plan will not fail to satisfy section 125 if it--
(i) Changes the employee's election to provide coverage for the
child if the order requires coverage for the child under the employee's
plan; or
(ii) Permits the employee to make an election change to cancel
coverage for the child if:
(A) The order requires the spouse, former spouse, or other
individual to provide coverage for the child; and
(B) That coverage is, in fact, provided.
[[Page 542]]
(2) Example. The following example illustrates the application of
this paragraph (d):
Example. (i) Employer M maintains a calendar year cafeteria plan
that allows employees to elect no health coverage, employee-only
coverage, employee-plus-one-dependent coverage, or family coverage. M's
employee, A, is married to B and they have one child, C. Before the
beginning of the year, A elects employee-only health coverage. Employee
A divorces B during the year and, pursuant to A's divorce agreement with
B, M's health plan receives a qualified medical child support order (as
defined in section 609 of the Employee Retirement Income Security Act of
1974) during the plan year. The order requires M's health plan to cover
C.
(ii) Under this paragraph (d), M's cafeteria plan may change A's
election from employee-only health coverage to employee-plus-one-
dependent coverage in order to cover C.
(e) Entitlement to Medicare or Medicaid. If an employee, spouse, or
dependent who is enrolled in an accident or health plan of the employer
becomes entitled to coverage (i.e., becomes enrolled) under Part A or
Part B of title XVIII of the Social Security Act (Medicare) (Public Law
89-97 (79 Stat. 291)) or title XIX of the Social Security Act (Medicaid)
(Public Law 89-97 (79 Stat. 343)), other than coverage consisting solely
of benefits under section 1928 of the Social Security Act (the program
for distribution of pediatric vaccines), a cafeteria plan may permit the
employee to make a prospective election change to cancel or reduce
coverage of that employee, spouse, or dependent under the accident or
health plan. In addition, if an employee, spouse, or dependent who has
been entitled to such coverage under Medicare or Medicaid loses
eligibility for such coverage, the cafeteria plan may permit the
employee to make a prospective election to commence or increase coverage
of that employee, spouse, or dependent under the accident or health
plan.
(f) Significant cost or coverage changes--(1) In general. Paragraphs
(f)(2) through (5) of this section set forth rules for election changes
as a result of changes in cost or coverage. This paragraph (f) does not
apply to an election change with respect to a health FSA (or on account
of a change in cost or coverage under a health FSA).
(2) Cost changes--(i) Automatic changes. If the cost of a qualified
benefits plan increases (or decreases) during a period of coverage and,
under the terms of the plan, employees are required to make a
corresponding change in their payments, the cafeteria plan may, on a
reasonable and consistent basis, automatically make a prospective
increase (or decrease) in affected employees' elective contributions for
the plan.
(ii) Significant cost changes. If the cost charged to an employee
for a benefit package option (as defined in paragraph (i)(2) of this
section) significantly increases or significantly decreases during a
period of coverage, the cafeteria plan may permit the employee to make a
corresponding change in election under the cafeteria plan. Changes that
may be made include commencing participation in the cafeteria plan for
the option with a decrease in cost, or, in the case of an increase in
cost, revoking an election for that coverage and, in lieu thereof,
either receiving on a prospective basis coverage under another benefit
package option providing similar coverage or dropping coverage if no
other benefit package option providing similar coverage is available.
For example, if the cost of an indemnity option under an accident or
health plan significantly increases during a period of coverage,
employees who are covered by the indemnity option may make a
corresponding prospective increase in their payments or may instead
elect to revoke their election for the indemnity option and, in lieu
thereof, elect coverage under another benefit package option including
an HMO option (or drop coverage under the accident or health plan if no
other benefit package option is offered).
(iii) Application of cost changes. For purposes of paragraphs
(f)(2)(i) and (ii) of this section, a cost increase or decrease refers
to an increase or decrease in the amount of the elective contributions
under the cafeteria plan, whether that increase or decrease results from
an action taken by the employee (such as switching between full-time and
part-time status) or from an action
[[Page 543]]
taken by an employer (such as reducing the amount of employer
contributions for a class of employees).
(iv) Application to dependent care. This paragraph (f)(2) applies in
the case of a dependent care assistance plan only if the cost change is
imposed by a dependent care provider who is not a relative of the
employee. For this purpose, a relative is an individual who is related
as described in section 152(a)(1) through (8), incorporating the rules
of section 152(b)(1) and (2).
(3) Coverage changes--(i) Significant curtailment without loss of
coverage. If an employee (or an employee's spouse or dependent) has a
significant curtailment of coverage under a plan during a period of
coverage that is not a loss of coverage as described in paragraph
(f)(3)(ii) of this section (for example, there is a significant increase
in the deductible, the copay, or the out-of-pocket cost sharing limit
under an accident or health plan), the cafeteria plan may permit any
employee who had been participating in the plan and receiving that
coverage to revoke his or her election for that coverage and, in lieu
thereof, to elect to receive on a prospective basis coverage under
another benefit package option providing similar coverage. Coverage
under a plan is significantly curtailed only if there is an overall
reduction in coverage provided under the plan so as to constitute
reduced coverage generally. Thus, in most cases, the loss of one
particular physician in a network does not constitute a significant
curtailment.
(ii) Significant curtailment with loss of coverage. If an employee
(or the employee's spouse or dependent) has a significant curtailment
that is a loss of coverage, the plan may permit that employee to revoke
his or her election under the cafeteria plan and, in lieu thereof, to
elect either to receive on a prospective basis coverage under another
benefit package option providing similar coverage or to drop coverage if
no similar benefit package option is available. For purposes of this
paragraph (f)(3)(ii), a loss of coverage means a complete loss of
coverage under the benefit package option or other coverage option
(including the elimination of a benefits package option, an HMO ceasing
to be available in the area where the individual resides, or the
individual losing all coverage under the option by reason of an overall
lifetime or annual limitation). In addition, the cafeteria plan may, in
its discretion, treat the following as a loss of coverage--
(A) A substantial decrease in the medical care providers available
under the option (such as a major hospital ceasing to be a member of a
preferred provider network or a substantial decrease in the physicians
participating in a preferred provider network or an HMO);
(B) A reduction in the benefits for a specific type of medical
condition or treatment with respect to which the employee or the
employee's spouse or dependent is currently in a course of treatment; or
(C) Any other similar fundamental loss of coverage.
(iii) Addition or improvement of a benefit package option. If a plan
adds a new benefit package option or other coverage option, or if
coverage under an existing benefit package option or other coverage
option is significantly improved during a period of coverage, the
cafeteria plan may permit eligible employees (whether or not they have
previously made an election under the cafeteria plan or have previously
elected the benefit package option) to revoke their election under the
cafeteria plan and, in lieu thereof, to make an election on a
prospective basis for coverage under the new or improved benefit package
option.
(4) Change in coverage under another employer plan. A cafeteria plan
may permit an employee to make a prospective election change that is on
account of and corresponds with a change made under another employer
plan (including a plan of the same employer or of another employer) if--
(i) The other cafeteria plan or qualified benefits plan permits
participants to make an election change that would be permitted under
paragraphs (b) through (g) of this section (disregarding this paragraph
(f)(4)); or
(ii) The cafeteria plan permits participants to make an election for
a period of coverage that is different from the period of coverage under
the other
[[Page 544]]
cafeteria plan or qualified benefits plan.
(5) Loss of coverage under other group health coverage. A cafeteria
plan may permit an employee to make an election on a prospective basis
to add coverage under a cafeteria plan for the employee, spouse, or
dependent if the employee, spouse, or dependent loses coverage under any
group health coverage sponsored by a governmental or educational
institution, including the following--
(i) A State's children's health insurance program (SCHIP) under
title XXI of the Social Security Act;
(ii) A medical care program of an Indian Tribal government (as
defined in section 7701(a)(40)), the Indian Health Service, or a tribal
organization;
(iii) A State health benefits risk pool; or
(iv) A Foreign government group health plan.
(6) Examples. The following examples illustrate the application of
this paragraph (f):
Example 1. (i) A calendar year cafeteria plan is maintained pursuant
to a collective bargaining agreement for the benefit of Employer M's
employees. The cafeteria plan offers various benefits, including
indemnity health insurance and a health FSA. As a result of mid-year
negotiations, premiums for the indemnity health insurance are reduced in
the middle of the year, insurance co-payments for office visits are
reduced under the indemnity plan by an amount which constitutes a
significant benefit improvement, and an HMO option is added.
(ii) Under these facts, the reduction in health insurance premiums
is a reduction in cost. Accordingly, under paragraph (f)(2)(i) of this
section, the cafeteria plan may automatically decrease the amount of
salary reduction contributions of affected participants by an amount
that corresponds to the premium change. However, the plan may not permit
employees to change their health FSA elections to reflect the mid-year
change in copayments under the indemnity plan.
(iii) Also, the decrease in co-payments is a significant benefit
improvement and the addition of the HMO option is an addition of a
benefit package option. Accordingly, under paragraph (f)(3)(ii) of this
section, the cafeteria plan may permit eligible employees to make an
election change to elect the indemnity plan or the new HMO option.
However, the plan may not permit employees to change their health FSA
elections to reflect differences in co-payments under the HMO option.
Example 2. (i) Employer N sponsors an accident or health plan under
which employees may elect either employee-only coverage or family health
coverage. The 12-month period of coverage under N's cafeteria plan
begins January 1, 2001. N's employee, A, is married to B. Employee A
elects employee-only coverage under N's plan. B's employer, O, offers
health coverage to O's employees under its accident or health plan under
which employees may elect either employee-only coverage or family
coverage. O's plan has a 12-month period of coverage beginning September
1, 2001. B maintains individual coverage under O's plan at the time A
elects coverage under N's plan, and wants to elect no coverage for the
plan year beginning on September 1, 2001, which is the next period of
coverage under O's accident or health plan. A certifies to N that B will
elect no coverage under O's accident or health plan for the plan year
beginning on September 1, 2001 and N has no reason to believe that A's
certification is incorrect.
(ii) Under paragraph (f)(4)(ii) of this section, N's cafeteria plan
may permit A to change A's election prospectively to family coverage
under that plan effective September 1, 2001.
Example 3. (i) Employer P sponsors a calendar year cafeteria plan
under which employees may elect either employee-only or family health
coverage. Before the beginning of the year, P's employee, C, elects
family coverage under P's cafeteria plan. C also elects coverage under
the health FSA for up to $200 of reimbursements for the year to be
funded by salary reduction contributions of $200 during the year. C is
married to D, who is employed by Employer Q. Q does not maintain a
cafeteria plan, but does maintain an accident or health plan providing
its employees with employee-only coverage. During the calendar year, Q
adds family coverage as an option under its health plan. D elects family
coverage under Q's plan, and C wants to revoke C's election for health
coverage and elect no health coverage under P's cafeteria plan for the
remainder of the year.
(ii) Q's addition of family coverage as an option under its health
plan constitutes a new coverage option described in paragraph (f)(3)(ii)
of this section. Accordingly, pursuant to paragraph (f)(4)(i) of this
section, P's cafeteria plan may permit C to revoke C's health coverage
election if D actually elects family health coverage under Q's accident
or health plan. Employer P's plan may not permit C to change C's health
FSA election.
Example 4. (i) Employer R maintains a cafeteria plan under which
employees may elect accident or health coverage under either an
indemnity plan or an HMO. Before the beginning of the year, R's
employee, E elects coverage under the HMO at a premium cost of $100 per
month. During the year, E decides to
[[Page 545]]
switch to the indemnity plan, which charges a premium of $140 per month.
(ii) E's change from the HMO to indemnity plan is not a change in
cost or coverage under this paragraph (f), and none of the other
election change rules under paragraphs (b) through (e) of this section
apply.
(iii) Although R's health plan may permit E to make the change from
the HMO to the indemnity plan, R's cafeteria plan may not permit E to
make an election change to reflect the increased premium. Accordingly,
if E switches from the HMO to the indemnity plan, E may pay the $40 per
month additional cost on an after-tax basis.
Example 5. (i) Employee A is married to Employee B and they have one
child, C. Employee A's employer, M, maintains a calendar year cafeteria
plan that allows employees to elect coverage under a dependent care FSA.
Child C attends X's on site child care center at an annual cost of
$3,000. Prior to the beginning of the year, A elects salary reduction
contributions of $3,000 during the year to fund coverage under the
dependent care FSA for up to $3,000 of reimbursements for the year.
Employee A now wants to revoke A's election of coverage under the
dependent care FSA, because A has found a new child care provider.
(ii) The availability of dependent care services from the new child
care provider (whether the new provider is a household employee or
family member of A or B or a person who is independent of A and B) is a
significant change in coverage similar to a benefit package option
becoming available. Because the FSA is a dependent care FSA rather than
a health FSA, the coverage rules of this section apply and M's cafeteria
plan may permit A to elect to revoke A's previous election of coverage
under the dependent care FSA, and make a corresponding new election to
reflect the cost of the new child care provider.
Example 6. (i) Employee D is married to Employee E and they have one
child, F. Employee D's employer, N, maintains a calendar year cafeteria
plan that allows employees to elect coverage under a dependent care FSA.
Child F is cared for by Y, D's household employee, who provides child
care services five days a week from 9 a.m. to 6 p.m. at an annual cost
in excess of $5,000. Prior to the beginning of the year, D elects salary
reduction contributions of $5,000 during the year to fund coverage under
the dependent care FSA for up to $5,000 of reimbursements for the year.
During the year, F begins school and, as a result, Y's regular hours of
work are changed to five days a week from 3 p.m. to 6 p.m. Employee D
now wants to revoke D's election under the dependent care FSA, and make
a new election under the dependent care FSA to an annual cost of $4,000
to reflect a reduced cost of child care due to Y's reduced hours.
(ii) The change in the number of hours of work performed by Y is a
change in coverage. Thus, N's cafeteria plan may permit D to reduce D's
previous election under the dependent care FSA to $4,000.
Example 7. (i) Employee G is married to Employee H and they have one
child, J. Employee G's employer, O, maintains a calendar year cafeteria
plan that allows employees to elect coverage under a dependent care FSA.
Child J is cared for by Z, G's household employee, who is not a relative
of G and who provides child care services at an annual cost of $4,000.
Prior to the beginning of the year, G elects salary reduction
contributions of $4,000 during the year to fund coverage under the
dependent care FSA for up to $4,000 of reimbursements for the year.
During the year, G raises Z's salary. Employee G now wants to revoke G's
election under the dependent care FSA, and make a new election under the
dependent care FSA to an annual amount of $4,500 to reflect the raise.
(ii) The raise in Z's salary is a significant increase in cost under
paragraph (f)(2)(ii) of this section, and an increase in election to
reflect the raise corresponds with that change in status. Thus, O's
cafeteria plan may permit G to elect to increase G's election under the
dependent care FSA.
Example 8. (i) Employer P maintains a calendar year cafeteria plan
that allows employees to elect employee-only, employee plus one
dependent, or family coverage under an indemnity plan. During the middle
of the year, Employer P gives its employees the option to select
employee-only or family coverage from an HMO plan. P's employee, J, who
had elected employee plus one dependent coverage under the indemnity
plan, decides to switch to family coverage under the HMO plan.
(ii) Employer P's midyear addition of the HMO option is an addition
of a benefit package option. Under paragraph (f) of this section,
Employee J may change his or her salary reduction contributions to
reflect the change from indemnity to HMO coverage, and also to reflect
the change from employee plus one dependent to family coverage (however,
an election of employee-only coverage under the new option would not
correspond with the addition of a new option). Employer P may not permit
J to change J's health FSA election.
(g) Special requirements relating to the Family and Medical Leave
Act. An employee taking leave under the Family and Medical Leave Act
(FMLA) (Public Law 103-3 (107 Stat. 6)) may revoke an existing election
of accident or health plan coverage and make such other election for the
remaining portion of
[[Page 546]]
the period of coverage as may be provided for under the FMLA. See
Sec. 1.125-3 for additional rules.
(h) Elective contributions under a qualified cash or deferred
arrangement. The provisions of this section do not apply with respect to
elective contributions under a qualified cash or deferred arrangement
(within the meaning of section 401(k)) or employee contributions subject
to section 401(m). Thus, a cafeteria plan may permit an employee to
modify or revoke elections in accordance with section 401(k) and (m) and
the regulations thereunder.
(i) Definitions. Unless otherwise provided, the definitions in
paragraphs (i)(1) though (8) of this section apply for purposes of this
section.
(1) Accident or health coverage. Accident or health coverage means
coverage under an accident or health plan as defined in regulations
under section 105.
(2) Benefit package option. A benefit package option means a
qualified benefit under section 125(f) that is offered under a cafeteria
plan, or an option for coverage under an underlying accident or health
plan (such as an indemnity option, an HMO option, or a PPO option under
an accident or health plan).
(3) Dependent. A dependent means a dependent as defined in section
152, except that, for purposes of accident or health coverage, any child
to whom section 152(e) applies is treated as a dependent of both
parents, and, for purposes of dependent care assistance provided through
a cafeteria plan, a dependent means a qualifying individual (as defined
in section 21(b)(1)) with respect to the employee.
(4) Disability coverage. Disability coverage means coverage under an
accident or health plan that provides benefits due to personal injury or
sickness, but does not reimburse expenses incurred for medical care (as
defined in section 213(d)) of the employee or the employee's spouse and
dependents. For purposes of this section, disability coverage includes
payments described in section 105(c).
(5) Family member plan. A family member plan means a cafeteria plan
or qualified benefit plan sponsored by the employer of the employee's
spouse or the employee's dependent.
(6) FSA, health FSA. An FSA means a qualified benefits plan that is
a flexible spending arrangement as defined in section 106(c)(2) . A
health FSA means a health or accident plan that is an FSA.
(7) Placement for adoption. Placement for adoption means placement
for adoption as defined in regulations under section 9801.
(8) Qualified benefits plan. A qualified benefits plan means an
employee benefit plan governing the provision of one or more benefits
that are qualified benefits under section 125(f). A plan does not fail
to be a qualified benefits plan merely because it includes an FSA,
assuming that the FSA meets the requirements of section 125 and the
regulations thereunder.
(9) Similar coverage. Coverage for the same category of benefits for
the same individuals (e.g., family to family or single to single). For
example, two plans that provide coverage for major medical are
considered to be similar coverage. For purposes of this definition, a
health FSA is not similar coverage with respect to an accident or health
plan that is not a health FSA. A plan may treat coverage by another
employer, such as a spouse's or dependent's employer, as similar
coverage.
(j) Effective date--(1) General rule. Except as provided in
paragraph (j)(2) of this section, this section is applicable for
cafeteria plan years beginning on or after January 1, 2001.
(2) Delayed effective date for certain provisions. The following
provisions are applicable for cafeteria plan years beginning on or after
January 1, 2002: paragraph (c) of this section to the extent applicable
to qualified benefits other than an accident or health plan or a group-
term life insurance plan; paragraph (d)(1)(ii)(B) of this section
(relating to a spouse, former spouse, or other individual obtaining
accident or health coverage for an employee's child in response to a
judgment, decree, or order); paragraph (f) of this section (rules for
election changes as a result
[[Page 547]]
of cost or coverage changes); and paragraph (i)(9) of this section
(defining similar coverage).
[T.D. 8878, 65 FR 15550, Mar. 23, 2000, as amended by T.D. 8921, 66 FR
1840, Jan. 10, 2001; 66 FR 13013, Mar. 2, 2001; T.D. 8966, 66 FR 52680,
Oct. 17, 2001]
Sec. 1.127-1 Amounts received under a qualified educational
assistance program.
(a) Exclusion from gross income. The gross income of an employee
does not include--
(1) Amounts paid to, or on behalf of the employee under a qualified
educational assistance program described in Sec. 1.127-2, or
(2) The value of education provided to the employee under such a
program.
(b) Disallowance of excluded amounts as credit or deduction. Any
amount excluded from the gross income of an employee under paragraph (a)
of this section shall not be allowed as a credit or deduction to such
employee under any other provision of this part.
(c) Amounts received under a nonqualified program. Any amount
received under an educational assistance program that is not a
``qualified program'' described in Sec. 1.127-2 will not be excluded
from gross income under paragraph (a) of this section. All or part of
the amounts received under such a nonqualified program may, however, be
excluded under section 117 or deducted under section 162 or section 212
(as the case may be), if the requirements of such section are satisfied.
(d) Definitions. For rules relating to the meaning of the terms
``employee'' and ``employer'', see paragraph (h) of Sec. 1.127-2.
(e) Effective date. This section is effective for taxable years of
the employee beginning after December 31, 1978, and before January 1,
1984.
[T.D. 7898, 48 FR 31017, July 6, 1983]
Sec. 1.127-2 Qualified educational assistance program.
(a) In general. A qualified educational assistance program is a plan
established and maintained by an employer under which the employer
provides educational assistance to employees. To be a qualified program,
the requirements described in paragraphs (b) through (g) of this section
must be satisfied. It is not required that a program be funded or that
the employer apply to the Internal Revenue Service for a determination
that the plan is a qualified program. However, under Sec. 601.201
(relating to rulings and determination letters), an employer may request
that the Service determine whether a plan is a qualified program.
(b) Separate written plan. The program must be a separate written
plan of the employer. This requirement means that the terms of the
program must be set forth in a separate document or documents providing
only educational assistance within the meaning of paragraph (c) of this
section. The requirement for a separate plan does not, however, preclude
an educational assistance program from being part of a more
comprehensive employer plan that provides a choice of nontaxable
benefits to employees.
(c) Educational assistance--(1) In general. The benefits provided
under the program must consist solely of educational assistance. The
term ``educational assistance'' means--
(i) The employer's payment of expenses incurred by or on behalf of
an employee for education, or
(ii) The employer's provision of education to an employee.
(2) Alternative benefits. Benefits will not be considered to consist
solely of educational assistance if the program, in form or in actual
operation, provides employees with a choice between educational
assistance and other remuneration includible in the employee's gross
income.
(3) Certain benefits not considered educational assistance. The term
``educational assistance'' does not include the employer's payment for,
or provision of--
(i) Tools or supplies (other than textbooks) that the employee may
retain after completing a course of instruction,
(ii) Meals, lodging, or transportation, or
(iii) Education involving sports, games, or hobbies, unless such
education involves the business of the employer or is required as part
of a degree program. The phrase ``sports, games, or hobbies'' does not
include education
[[Page 548]]
that instructs employees how to maintain and improve health so long as
such education does not involve the use of athletic facilities or
equipment and is not recreational in nature.
(4) Education defined. As used in section 127, Sec. 1.127-1, and
this section, the term ``education'' includes any form of instruction or
training that improves or develops the capabilities of an individual.
Education paid for or provided under a qualified program may be
furnished directly by the employer, either alone or in conjunction with
other employers, or through a third party such as an educational
institution. Education is not limited to courses that are job related or
part of a degree program.
(d) Exclusive benefit. The program may benefit only the employees of
the employer, including, at the employer's option, individuals who are
employees within the meaning of paragraph (h)(1) of this section. A
program that provides benefits to spouses or dependents of employees is
not a qualified program within the meaning of this section.
(e) Prohibited discrimination--(1) Eligibility for benefits. The
program must benefit the employer's employees generally. Among those
benefited may be employees who are officers, shareholders, self-employed
or highly compensated. A program is not for the benefit of employees
generally, however, if the program discriminates in favor of employees
described in the preceding sentence (or in favor of their spouses and
dependents who are themselves employees) in requirements relating to
eligibility for benefits. Thus, although a program need not provide
benefits for all employees, it must benefit those employees who qualify
under a classification of employees that does not discriminate in favor
of the employees with respect to whom discrimination is prohibited. The
classification of employees to be considered benefited will consist of
that group of employees who are actually eligible for educational
assistance under the program, taking into account the eligibility
requirements set forth in the written plan, the eligibility requirements
reflected in the types of educational assistance available under the
program, and any other conditions that may affect the availability of
benefits under the program. Thus, for example, if an employer's plan
provides that all employees are eligible for educational assistance, yet
limits that assistance to courses of study leading to postgraduate
degrees in fields relating to the employer's business, then only those
employees able to pursue such a course of study are considered actually
eligible for educational assistance under the program. Whether any
classification of employees discriminates in favor of employees with
respect to whom discrimination is prohibited will generally be
determined by applying the same standards as are applied under section
410(b)(1)(B) (relating to qualified pension, profit-sharing and stock
bonus plans), without regard to section 401(a)(5). For purposes of
making this determination, there shall be excluded from consideration
employees not covered by the program who are included in a unit of
employees covered by an agreement which the Secretary of Labor finds to
be a collective bargaining agreement between employee representatives
and one or more employers, if the Internal Revenue Service finds that
educational assistance benefits were the subject of good faith
bargaining between the employee representatives and the employer or
employers. For purposes of determining whether such bargaining occurred,
it is not material that the employees are not covered by another
educational assistance program or that the employer's present program
was not considered in the bargaining.
(2) Factors not considered in determining the existence of
prohibited discrimination. A program shall not be considered
discriminatory under this paragraph (e) merely because--
(i) Different types of educational assistance available under the
program are utilized to a greater degree by employees with respect to
whom discrimination is prohibited than by other employees, or
(ii) With respect to a course of study for which benefits are
otherwise available, successful completion of the course, attaining a
particular course grade, or satisfying a reasonable condition subsequent
(such as remaining employed for one year after completing
[[Page 549]]
the course) are required or considered in determining the availability
of benefits.
(f) Benefit limitation--(1) In general. Under section 127(b)(3), a
program is a qualified program for a program year only if no more than
5% of the amounts paid or incurred by the employer for educational
assistance benefits during the year are provided to the limitation class
described in subparagraph (2). For purposes of this paragraph (f), the
program year must be specified in the written plan as either the
calendar year or the taxable year of the employer.
(2) Limitation class. The limitation class consists of--
(i) Shareholders. Individuals who, on any day of the program year,
own more than 5% of the total number of shares of outstanding stock of
the employer, or
(ii) Owners. In the case of an employer's trade or business which is
not incorporated, individuals who, on any day of the program year, own
more than 5% of the capital or profits interest in the employer, and
(iii) Spouses or dependents. Individuals who are spouses or
dependents of shareholders or owners described in subdivision (i) or
(ii). For purposes of determining stock ownership, the attribution rules
described in paragraph (h)(4) of this section apply. The regulations
prescribed under section 414(c) are applicable in determining an
individual's interest in the capital or profits of an unincorporated
trade or business.
(g) Notification of employees. A program is not a qualified program
unless employees eligible to participate in the program are given
reasonable notice of the terms and availability of the program.
(h) Definitions. For purposes of this section and Sec. 1.127-1--
(1) Employee. The term ``employee'' includes--
(i) A retired, disabled or laid-off employee,
(ii) A present employee who is on leave, as, for example, in the
Armed Forces of the United States, or
(iii) An individual who is self-employed within the meaning of
section 401(c)(1).
(2) Employer. An individual who owns the entire interest in an
unincorporated trade or business shall be treated as his or her own
employer. A partnership is treated as the employer of each partner who
is an employee within the meaning of section 401(c)(1).
(3) Officer. An officer is an individual who is an officer within
the meaning of regulations prescribed under section 414(c).
(4) Shareholder. The term ``shareholder'' includes an individual who
is a shareholder as determined by the attribution rules under section
1563 (d) and (e), without regard to section 1563(e)(3)(C).
(5) Highly compensated. The term ``highly compensated'' has the same
meaning as it does for purposes of section 410(b)(1)(B).
(i) Substantiation. An employee receiving payments under a qualified
educational assistance program must be prepared to provide
substantiation to the employer such that it is reasonable to believe
that payments or reimbursements made under the program constitute
educational assistance within the meaning of paragraph (c) of this
section.
[T.D. 7898, 48 FR 31017, July 6, 1983]
Sec. 1.132-0 Outline of regulations under section 132.
The following is an outline of regulations in this section relating
to exclusions from gross income for certain fringe benefits:
Sec. 1.132-0 Outline of regulations under section 132.
Sec. 1.132-1 Exclusion from gross income for certain fringe benefits.
Sec. 1.132-1 (a) In general.
Sec. 1.132-1 (b) Definition of employee.
(1) No-additional-cost services and qualified employee discounts.
(2) Working condition fringes.
(3) On-premises athletic facilities.
(4) De minimis fringes.
(5) Dependent child.
Sec. 1.132-1 (c) Special rules for employers--Effect of section 414.
Sec. 1.132-1 (d) Customers not to include employees.
Sec. 1.132-1 (e) Treatment of on-premises athletic facilities.
(1) In general.
(2) Premises of the employer.
[[Page 550]]
(3) Application of rules to membership in an athletic facility.
(4) Operation by the employer.
(5) Nonapplicability of nondiscrimination rules.
Sec. 1.132-1 (f) Nonapplicability of section 132 in certain cases.
(1) Tax treatment provided for in another section.
(2) Limited statutory exclusions.
Sec. 1.132-1 (g) Effective date.
Sec. 1.132-2 No-additional-cost services.
Sec. 1.132-2 (a) In general.
(1) Definition.
(2) Excess capacity services.
(3) Cash rebates.
(4) Applicability of nondiscrimination rules.
(5) No substantial additional cost.
(6) Payments for telephone service.
Sec. 1.132-2 (b) Reciprocal agreements.
Sec. 1.132-2 (c) Example.
Sec. 1.132-3 Qualified employee discounts.
Sec. 1.132-3 (a) In general.
(1) Definition.
(2) Qualified property or services.
(3) No reciprocal agreement exception.
(4) Property of services provided without charge, at a reduced
price, or by rebates.
(5) Property or services provided directly by the employer or
indirectly through a third party.
(6) Applicability of nondiscrimination rules.
Sec. 1.132-3 (b) Employee discount.
(1) Definition.
(2) Price to customers.
(3) Damaged, distressed, or returned goods.
Sec. 1.132-3 (c) Gross profit percentage.
(1) In general.
(2) Line of business.
(3) Generally accepted accounting principles.
Sec. 1.132-3 (d) Treatment of leased sections of department stores.
(1) In general.
(2) Employees of the leased section.
Sec. 1.132-3 (e) Excess discounts.
Sec. 1.132-4 Line of business limitation.
Sec. 1.132-4 (a) In general.
(1) Applicability.
(2) Definition.
(3) Aggregation of two-digit classifications.
Sec. 1.132-4 (b) Grandfather rule for certain retail stores.
(1) In general.
(2) Taxable year of affiliated group.
(3) Definition of ``sales''.
(4) Retired and disabled employees.
(5) Increase of employee discount.
Sec. 1.132-4 (c) Grandfather rule for telephone service provided to
pre-divestiture retirees.
Sec. 1.132-4 (d) Special rule for certain affiliates of commercial
airlines.
(1) General rule.
(2) ``Airline affiliated group'' defined.
(3) ``Qualified affiliate'' defined.
Sec. 1.132-4 (e) Grandfather rule for affiliated groups operating
airlines.
Sec. 1.132-4 (f) Special rule for qualified air transportation
organizations.
Sec. 1.132-4 (g) Relaxation of line of business requirement.
Sec. 1.132-4 (h) Line of business requirement does not expand
benefits eligible for exclusion.
Sec. 1.132-5 Working condition fringes.
Sec. 1.132-5 (a) In general.
(1) Definition.
(2) Trade or business of the employee.
Sec. 1.132-5 (b) Vehicle allocation rules.
(1) In general.
(2) Use of different employer-provided vehicles.
(3) Provision of a vehicle and chauffeur services.
Sec. 1.132-5 (c) Applicability of substantiation requirements of
sections 162 and 274(d).
(1) In general.
(2) Section 274(d) requirements.
Sec. 1.132-5 (d) Safe harbor substantiation rules.
(1) In general.
(2) Period for use of safe harbor rules.
Sec. 1.132-5 (e) Safe harbor substantiation rule for vehicles not
used for personal purposes.
Sec. 1.132-5 (f) Safe harbor substantiation rule for vehicles not
available to employees for personal use other than commuting.
Sec. 1.132-5 (g) Safe harbor substantiation rule for vehicles used
in connection with the business of farming that are available to
employees for personal use.
(1) In general.
(2) Vehicles available to more than one individual.
(3) Examples.
Sec. 1.132-5 (h) Qualified nonpersonal use vehicles.
(1) In general.
(2) Shared usage of qualified nonpersonal use vehicles.
Sec. 1.132-5 (i) [Reserved]
Sec. 1.132-5 (j) Application of section 280F.
Sec. 1.132-5 (k) Aircraft allocation rule.
Sec. 1.132-5 (l) [Reserved]
Sec. 1.132-5 (m) Employer-provided transportation for security
concerns.
(1) In general.
(2) Demonstration of bona fide business-oriented security concerns.
(3) Application of security rules to spouses and dependents.
(4) Working condition safe harbor for travel on employer-provided
aircraft.
(5) Bodyguard/chauffeur provided for a bona fide business-oriented
security concern.
(6) Special valuation rule for government employees.
[[Page 551]]
(7) Government employer and employee defined.
(8) Examples.
Sec. 1.132-5 (n) Product testing.
(1) In general.
(2) Employer-imposed limits.
(3) Discriminating classifications.
(4) Factors that negate the existence of a product testing program.
(5) Failure to meet the requirements of this paragraph (n).
(6) Example.
Sec. 1.132-5 (o) Qualified automobile demonstration use.
(1) In general.
(2) Full-time automobile salesman.
(3) Demonstration automobile.
(4) Substantial restrictions on personal use.
(5) Sales area.
(6) Applicability of substantiation requirements of sections 162 and
274(d).
(7) Special valuation rules.
Sec. 1.132-5 (p) Parking.
(1) In general.
(2) Reimbursement of parking expenses.
(3) Parking on residential property.
(4) Dates of applicability.
Sec. 1.132-5 (q) Nonapplicability of nondiscrimination rules.
Sec. 1.132-5 (r) Volunteers.
(1) In general.
(2) Limit on application of this paragraph.
(3) Definitions.
(4) Example.
Sec. 1.132-6 De minimis fringes.
Sec. 1.132-6 (a) In general.
Sec. 1.132-6 (b) Frequency.
(1) Employee-measured frequency.
(2) Employer-measured frequency.
Sec. 1.132-6 (c) Administrability.
Sec. 1.132-6 (d) Special rules.
(1) Transit passes.
(2) Occasional meal money or local transportation fare.
(3) Use of special rules or examples to establish a general rule.
(4) Benefits exceeding value and frequency limits.
Sec. 1.132-6 (e) Examples.
(1) Benefits excludable from income.
(2) Benefits not excludable as de minimis fringes.
Sec. 1.132-6 (f) Nonapplicability of nondiscrimination rules.
Sec. 1.132-7 Employer-operated eating facilities.
Sec. 1.132-7 (a) In general.
(1) Conditions for exclusion.
(2) Employer-operated eating facility for employees.
(3) Operation by the employer.
(4) Example.
Sec. 1.132-7 (b) Direct operating costs.
(1) In general.
(2) Multiple dining rooms or cafeterias.
(3) Payment to operator of facility.
Sec. 1.132-7 (c) Valuation of non-excluded meals provided at an
employer-operated eating facility for employees.
Sec. 1.132-8 Fringe benefit nondiscrimination rules.
Sec. 1.132-8 (a) Application of nondiscrimination rules.
(1) General rule.
(2) Consequences of discrimination.
(3) Scope of the nondiscrimination rules provided in this section.
Sec. 1.132-8 (b) Aggregation of Employees.
(1) Section 132(a) (1) and (2).
(2) Section 132(e)(2).
(3) Classes of employees who may be excluded.
Sec. 1.132-8 (c) Availability on substantially the same terms.
(1) General rule.
(2) Certain terms relating to priority.
Sec. 1.132-8 (d) Testing for discrimination.
(1) Classification test.
(2) Classifications that are per se discriminatory.
(3) Former employees.
(4) Restructuring of benefits.
(5) Employer-operated eating facilities for employees.
Sec. 1.132-8 (e) Cash bonuses or rebates.
Sec. 1.132-8 (f) Highly compensated employee.
(1) Government and non-government employees.
(2) Former employees.
Sec. 1.132-9 Qualified transportation fringes.
Sec. 1.132-9 (a) Table of contents.
Sec. 1.132-9 (b) Questions and answers.
[T.D. 8256, 54 FR 28600, July 6, 1989, as amended by T.D. 8457, 57 FR
62196, Dec. 30, 1992]
Sec. 1.132-1 Exclusion from gross income for certain fringe benefits.
(a) In general. Gross income does not include any fringe benefit
which qualifies as a--
(1) No-additional-cost service,
(2) Qualified employee discount,
(3) Working condition fringe, or
(4) De minimis fringe.
Special rules apply with respect to certain on-premises gyms and other
athletic facilities (Sec. 1.132-1(e)), demonstration use of employer-
provided automobiles by full-time automobile salesmen (Sec. 1.132-5(o)),
parking provided to an employee on or near the business premises of the
employer (Sec. 1.132-5(p)), and on-premises eating facilities
(Sec. 1.132-7).
(b) Definition of employee--(1) No-additional-cost services and
qualified employee
[[Page 552]]
discounts. For purposes of section 132(a)(1) (relating to no-additonal-
cost services) and section 132(a)(2) (relating to qualified employee
discounts), the term ``employee'' (with respect to a line of business of
an employer means--
(i) Any individual who is currently employed by the employer in the
line of business,
(ii) Any individual who was formerly employed by the employer in the
line of business and who separated from service with the employer in the
line of business by reason of retirement or disability, and
(iii) Any widow or widower of an individual who died while employed
by the employer in the line of business or who separated from service
with the employer in the line of business by reason of retirement or
disability.
For purposes of this paragraph (b)(1), any partner who performs services
for a partnership is considered employed by the partnership. In
addition, any use by the spouse or dependent child (as defined in
paragraph (b)(5) of this section) of the employee will be treated as use
by the employee. For purposes of section 132(a)(1) (relating to no-
additional-cost services), any use of air transportation by a parent of
an employee (determined without regard to section 132(f)(1)(B) and
paragraph (b)(1)(iii) of this section) will be treated as use by the
employee.
(2) Working condition fringes. For purposes of section 132(a)(3)
(relating to working condition fringes), the term ``employee'' means--
(i) Any individual who is currently employed by the employer,
(ii) Any partner who performs services for the partnership,
(iii) Any director of the employer, and
(iv) Any independent contractor who performs services for the
employer.
Notwithstanding anything in this paragraph (b)(2) to the contrary, an
independent contractor who performs services for the employer cannot
exclude the value of parking or the use of consumer goods provided
pursuant to a product testing program under Sec. 1.132-5(n); in
addition, any director of the employer cannot exclude the value of the
use of consumer goods provided pursuant to a product testing program
under Sec. 1.132-5(n).
(3) On-premises athletic facilities. For purposes of section
132(h)(5) (relating to on-premises athletic facilities), the term
``employee'' means--
(i) Any individual who is currently employed by the employer,
(ii) Any individual who was formerly employed by the employer and
who separated from service with the employer by reason of retirement or
disability, and
(iii) Any widow or widower of an individual who died while employed
by the employer or who separated from service with the employer by
reason of retirement or disability.
For purposes of this paragraph (b)(3), any partner who performs services
for a partnership is considered employed by the partnership. In
addition, any use by the spouse or dependent child (as defined in
paragraph (b)(5) of this section) of the employee will be treated as use
by the employee.
(4) De minimis fringes. For purposes of section 132(a)(4) (relating
to de minimis fringes), the term ``employee'' means any recipient of a
fringe benefit.
(5) Dependent child. The term ``dependent child'' means any son,
stepson, daughter, or stepdaughter of the employee who is a dependent of
the employee, or both of whose parents are deceased and who has not
attained age 25. Any child to whom section 152(e) applies will be
treated as the dependent of both parents.
(c) Special rules for employers--Effect of section 414. All
employees treated as employed by a single employer under section 414
(b), (c), (m), or (o) will be treated as employed by a single employer
for purposes of this section. Thus, employees of one corporation that is
part of a controlled group of corporations may under certain
circumstances be eligible to receive section 132 benefits from the other
corporations that comprise the controlled group. However, the
aggregation of employers described in this paragraph (c) does not change
the other requirements for an exclusion, such as the line of business
requirement. Thus, for example, if a controlled group of corporations
consists of two corporations that operate in different lines of
business,
[[Page 553]]
the corporations are not treated as operating in the same line of
business even though the corporations are treated as one employer.
(d) Customers not to include employees. For purposes of section 132
and the regulations thereunder, the term ``customer'' means any customer
who is not an employee. However, the preceding sentence does not apply
to section 132(c)(2) (relating to the gross profit percentage for
determining a qualified employee discount). Thus, an employer that
provides employee discounts cannot exclude sales made to employees in
determining the aggregate sales to customers.
(e) Treatment of on-premises athletic facilities--(1) In general.
Gross income does not include the value of any on-premises athletic
facility provided by an employer to its employees. For purposes of
section 132(h)(5) and this paragraph (e), the term ``on-premises
athletic facility'' means any gym or other athletic facility (such as a
pool, tennis court, or golf course)--
(i) Which is located on the premises of the employer, (ii) Which is
operated by the employer, and (iii) Substantially all of the use of
which during the calendar year is by employees of the employer, their
spouses, and their dependent children.
For purposes of paragraph (e) (1) (iii) of this section, the term
``dependent children'' has the same meaning as the plural of the term
``dependent child'' in paragraph (b)(5) of this section. The exclusion
of this paragraph (e) does not apply to any athletic facility if access
to the facility is made available to the general public through the sale
of memberships, the rental of the facility, or a similar arrangement.
(2) Premises of the employer. The athletic facility need not be
located on the employer's business premises. However, the athletic
facility must be located on premises of the employer. The exclusion
provided in this paragraph (e) applies whether the premises are owned or
leased by the employer; in addition, the exclusion is available even if
the employer is not a named lessee on the lease so long as the employer
pays reasonable rent. The exclusion provided in this paragraph (e) does
not apply to any athletic facility that is a facility for residential
use. Thus, for example, a resort with accompanying athletic facilities
(such as tennis courts, pool, and gym) would not qualify for the
exclusion provided in this paragraph (e). An athletic facility is
considered to be located on the employer's premises if the facility is
located on the premises of a voluntary employees' beneficiary
association funded by the employer.
(3) Application of rules to membership in an athletic facility. The
exclusion provided in this paragraph (e) does not apply to any
membership in an athletic facility (including health clubs or country
clubs) unless the facility is owned (or leased) and operated by the
employer and substantially all the use of the facility is by employees
of the employer, their spouses, and their dependent children. Therefore,
membership in a health club or country club not meeting the rules
provided in this paragraph (e) would not qualify for the exclusion.
(4) Operation by the employer. An employer is considered to operate
the athletic facility if the employer operates the facility through its
own employees, or if the employer contracts out to another to operate
the athletic facility. For example, if an employer hires an independent
contractor to operate the athletic facility for the employer's
employees, the facility is considered to be operated by the employer. In
addition, if an athletic facility is operated by more than one employer,
it is considered to be operated by each employer. For purposes of
paragraph (e) (1) (iii) of this section, substantially all of the use of
a facility that is operated by more than one employer must be by
employees of the various employers, their spouses, and their dependent
children. Where the facility is operated by more than one employer, an
employer that pays rent either directly to the owner of the premises or
to a sublessor of the premises is eligible for the exclusion. If an
athletic facility is operated by a voluntary employees' beneficiary
association funded by an employer, the employer is considered to operate
the facility.
(5) Nonapplicability of nondiscrimination rules. The
nondiscrimination rules of section 132 and Sec. 1.132-8 do not apply to
on-premises athletic facilities.
[[Page 554]]
(f) Nonapplicability of section 132 in certain cases--(1) Tax
treatment provided for in another section. If the tax treatment or a
particular fringe benefit is expressly provided for in another section
of Chapter 1 of the Internal Revenue Code of 1986, section 132 and the
applicable regulations (except for section 132 (e) and the regulations
thereunder) do not apply to such fringe benefit. For example, because
section 129 provides an exclusion from gross income for amounts paid or
incurred by an employer for dependent care assistance for an employee,
the exclusions under section 132 and this section do not apply to the
provision by an employer to an employee of dependent care assistance.
Similarly, because section 117 (d) applies to tuition reductions, the
exclusions under section 132 do not apply to free or discounted tuition
provided to an employee by an organization operated by the employer,
whether the tuition is for study at or below the graduate level. Of
course, if the amounts paid by the employer are for education relating
to the employee's trade or business of being an employee of the employer
so that, if the employee paid for the education, the amount paid could
be deducted under section 162, the costs of the education may be
eligible for exclusion as a working condition fringe.
(2) Limited statutory exclusions. If another section of Chapter 1 of
the Internal Revenue Code of 1986 provides an exclusion from gross
income based on the cost of the benefit provided to the employee and
such exclusion is a limited amount, section 132 and the regulations
thereunder may apply to the extent the cost of the benefit exceeds the
statutory exclusion.
(g) Effective date. Sections 1.132-0, 1.132-1, 1.132-2, 1.132-3,
1.132-4, 1.132-5, 1.132-6, 1.132-7 and 1.132-8 are effective as of
January 1, 1989, except that Secs. 1.132-1(b)(1) with respect to the use
of air transportation by a parent of an employee and 1.132-4(d) are
effective as of January 1, 1985. Furthermore, in Sec. 1.132-5, the
eleventh sentence of paragraph (m)(1), Examples 6 and 7 in paragraph
(m)(8), and paragraphs (m)(2)(i), (m)(2)(v), (m)(3)(iv), (m)(6), (m)(7),
and (r) are effective December 30, 1992; however, taxpayers may treat
the rules as applicable to benefits provided on or after January 1,
1989. For the applicable rules relating to employer-provided
transportation for security concerns prior to December 30, 1992, see
Sec. 1.132-5(m) (as contained in 26 CFR part 1 (Secs. 1.61 to 1.169)
revised April 1, 1992). See Secs. 1.132-1T, 1.132-2T, 1.132-3T, 1.132-
4T, 1.132-5T, 1.132-6T, 1.132-7T and 1.132-8T for rules in effect for
benefits received from January 1, 1985, to December 31, 1988.
[T.D. 8256, 54 FR 28601, July 6, 1989, as amended by T.D. 8457, 57 FR
62196, Dec. 30, 1992; 58 FR 7296, Feb. 5, 1993]
Sec. 1.132-1T Exclusion from gross income of certain fringe
benefits--1985 through 1988 (temporary).
(a) In general. Gross income does not include any fringe benefit
which qualifies as a--
(1) No-additional-cost service,
(2) Qualified employee discount,
(3) Working condition fringe, or
(4) De minimis fringe.
Special rules apply with respect to certain on-premises gyms and other
athletic facilities (Sec. 1.132-1T(e)), demonstration use of employer-
provided automobiles by full-time automobile salesmen (Sec. 1.132-
1T(n)), parking provided to an employee on or near the business premises
of the employer (Sec. 1.132-5T(o)), and on-premises eating facilities
(Sec. 1.132-7T).
(b) Definition of employee--(1) No-additional-cost services and
qualified employee discounts. For purposes of section 132(a)(1)
(relating to no-additional-cost services) and section 132(a)(2)
(relating to qualified employee discounts), the term ``employee'' (with
respect to a line of business of an employer) means--
(i) Any individual who is currently employed by the employer in the
line of business,
(ii) Any individual who was formerly employed by the employer in the
line of business and who separated from service with the employer in the
line of business by reason of retirement or disability, and
(iii) Any widow or widower of an individual who died while employed
by the employer in the line of business or who
[[Page 555]]
separated from service with the employer in the line of business by
reason of retirement or disability.
For purposes of this paragraph (b)(1), any partner who performs services
for a partnership is considered employed by the partnership. In
addition, any use by the spouse or dependent child (as defined in this
paragraph (b)) of the employee will be treated as use by the employee.
(2) Working condition fringes. For purposes of section 132(a)(2)
(relating to working condition fringes), the term ``employee'' means--
(i) Any individual who is currently employed by the employer,
(ii) Any partner who performs services for the partnership,
(iii) Any director of the employer, and
(iv) Any independent contractor who performs services for the
employer.
Notwithstanding anything in this paragraph (b)(2) to the contrary, any
independent contractor who performs services for the employer cannot
exclude the value of parking or the use of consumer goods provided
pursuant to a product testing program under Sec. 1.132-5T (n); in
addition, any director of the employer cannot exclude the value of the
use of consumer goods provided pursuant to a product testing program
under Sec. 1.132-5T (n).
(3) De minimis fringe. For purpose of section 132(a)(4) (relating to
de minimis fringes), the term ``employee'' means any recipient of a
fringe benefit.
(4) Dependent child. For purposes of this paragraph (b), the term
``dependent child'' means any son, stepson, daughter or stepdaughter of
the employee who is a dependent of the employee, or both of whose
parents are deceased. Any child to whom section 152(e) applies will be
treated as the dependent of both parents.
(c) Special rules for employers--Effect of section 414. All
employees treated as employed by a single employer under section 414(b),
(c) or (m) will be treated as employed by a single employer for purposes
of this section. Thus, employees of one corporation that is part of a
controlled group of corporations may under certain circumstances be
eligible to receive section 132 benefits from the other corporations
that comprise the controlled group. However, the aggregation of
employers described in this paragraph (c) does not change the other
requirements for an exclusion, such as the line of business requirement.
Thus, for example, if a controlled group of corporations consists of two
corporations that operate in different lines of business, the
corporations are not treated as operating in the same line of business
even though the corporations are treated as one employer.
(d) Customers not to include employees. For purposes of section 132
and the regulations thereunder, the term ``customer'' means customers
who are not employees. However, the preceding sentence does not apply to
section 132(c)(2) (relating to the gross profit percentage for
determining a qualified employee discount). Thus, an employer that
provides employee discounts cannot exclude sales made to employees in
determining the aggregate sales to customers.
(e) Treatment of on-premises athletic facilities--(1) In general.
Gross income does not include the value of any on-premises athletic
facility provided by the employer to its employees. For purposes of
section 132 and this paragraph (e), the term ``on-premises athletic
facility'' means any gym or other athletic facility (such as a pool,
tennis court, or golf course)--
(i) Which is located on the premises of the employer,
(ii) Which is operated by the employer, and
(iii) Where substantially all of the use of which is, during the
calendar year, by employees of the employer, their spouses, and their
dependent children.
For purposes of this paragraph (e)(1)(iii), the term ``dependent
children'' has the same meaning as the plural of the term ``dependent
child'' in paragraph (b)(4) of this section. The exclusion of this
paragraph (e) does not apply to any athletic facility if access to the
facility is made available to the general public through the sale of
memberships, the rental of the facility, etc.
(2) Premises of the employer. The athletic facility need not be
located on the employer's business premises. However,
[[Page 556]]
the athletic facility must be located on premises of the employer. The
exclusion provided in this paragraph (e) applies whether the premises
are owned or leased by the employer; in addition, the exclusion is
available even if the employer is not a named lesse on the lease so long
as the employer pays reasonable rent. The exclusion provided in this
paragraph (e) does not apply to any athletic facility that is a facility
for residential use. Thus, for example, a resort with accompanying
athletic facilities (such as tennis courts, pool, and gym) would not
qualify for the exclusion provided in this paragraph (e).
(3) Application of rules to membership in an athletic facility. The
exclusion provided in this paragraph (e) does not apply to any
membership in an athletic facility (including health clubs or country
clubs) unless the facility is owned (or leased) and operated by the
employer and substantially all the use of the facility is by employees
of the employer, their spouses, and their dependent children. Therefore,
membership in health club or country club not meeting the rules provided
in this paragraph (e) would not quality for the exclusion.
(4) Operation by the employer. An employer is considered to operate
the athletic facility if the employer itself operates the facility
through its own employees, or if the employer contracts out to another
to operate the athletic facility. For example, if an employer hires an
independent contractor to operate the athletic facility for the
employer's employees, the facility is considered to be operated by the
employer. In addition, if an athletic facility is operated by more than
one employer, it is considered to be operated by each employer. For
purposes of paragraph (e)(1)(iii) of this section, substantially all the
use of a facility operated by more than one employer must be by
employees of all of the employers, their spouses, and their dependent
children. Where the facility is operated by more than one employer, an
employer that either pays rent directly to the owner of the premises or
pays rent to a named lessor of the premises is eligible for the
exclusion.
(5) Nonapplicability of nondiscrimination rules. The
nondiscrimination rules of section 132 and Sec. 1.132-8T do not apply to
on-premises athletic facilities.
(f) Nonapplicability of section 132. If the tax treatment of a
particular fringe benefit is expressely provided for in another section
of Chapter 1, section 132 and the applicable regulations (except for
section 132 (e) and the regulations thereunder) do not apply to such
fringe benefits. For example, since section 129 provides an exclusion
from gross income for amounts paid or incurred by the employer for
dependent care assistance for an employee, the exclusions under section
132 and this section do not apply to the provision by an employer to an
employee of dependent care assistance.
[T.D. 8063, 50 FR 52297, Dec. 23, 1985, as amended by T.D. 8256, 54 FR
28600, July 6, 1989]
Sec. 1.132-2 No-additional-cost services.
(a) In general--(1) Definition. Gross income does not include the
value of a no-additional-cost service. A ``no-additional-cost service''
is any service provided by an employer to an employee for the employee's
personal use if--
(i) The service is offered for sale by the employer to its customers
in the ordinary course of the line of business of the employer in which
the employee performs substantial services, and
(ii) The employer incurs no substantial additional cost in providing
the service to the employee (including foregone revenue and excluding
any amount paid by or on behalf of the employee for the service).
For rules relating to the line of business limitation, see Sec. 1.132-4.
For purposes of this section, a service will not be considered to be
offered for sale by the employer to its customers if that service is
primarily provided to employees and not to the employer's customers.
(2) Excess capacity services. Services that are eligible for
treatment as no-additional-cost services include excess capacity
services such as hotel accommodations; transportation by aircraft,
train, bus, subway, or cruise line; and telephone services. Services
that are not eligible for treatment as no-additional-cost services are
non-excess capacity services such as the facilitation
[[Page 557]]
by a stock brokerage firm of the purchase of stock. Employees who
receive non-excess capacity services may, however, be eligible for a
qualified employee discount of up to 20 percent of the value of the
service provided. See Sec. 1.132-3.
(3) Cash rebates. The exclusion for a no-additional-cost service
applies whether the service is provided at no charge or at a reduced
price. The exclusion also applies if the benefit is provided through a
partial or total cash rebate of an amount paid for the service.
(4) Applicability of nondiscrimination rules. The exclusion for a
no-additional-cost service applies to highly compensated employees only
if the service is available on substantially the same terms to each
member of a group of employees that is defined under a reasonable
classification set up by the employer that does not discriminate in
favor of highly compensated employees. See Sec. 1.132-8.
(5) No substantial additional cost--(i) In general. The exclusion
for a no-additional-cost service applies only if the employer does not
incur substantial additional cost in providing the service to the
employee. For purposes of the preceding sentence, the term ``cost''
includes revenue that is forgone because the service is provided to an
employee rather than a nonemployee. (For purposes of determining whether
any revenue is forgone, it is assumed that the employee would not have
purchased the service unless it were available to the employee at the
actual price charged to the employee.) Whether an employer incurs
substantial additional cost must be determined without regard to any
amount paid by the employee for the service. Thus, any reimbursement by
the employee for the cost of providing the service does not affect the
determination of whether the employer incurs substantial additional
cost.
(ii) Labor intensive services. An employer must include the cost of
labor incurred in providing services to employees when determining
whether the employer has incurred substantial additional cost. An
employer incurs substantial additional cost, whether non-labor costs are
incurred, if a substantial amount of time is spent by the employer or
its employees in providing the service to employees. This would be the
result whether the time spent by the employer or its employees in
providing the services would have been ``idle,'' or if the services were
provided outside normal business hours. An employer generally incurs no
substantial additional cost, however, if the services provided to the
employee are merely incidental to the primary service being provided by
the employer. For example, the in-flight services of a flight attendant
and the cost of in-flight meals provided to airline employees traveling
on a space-available basis are merely incidental to the primary service
being provided (i.e., air transportation). Similarly, maid service
provided to hotel employees renting hotel rooms on a space-available
basis is merely incidental to the primary service being provided (i.e.,
hotel accommodations).
(6) Payments for telephone service. Payment made by an entity
subject to the modified final judgment (as defined in section 559(c)(5)
of the Tax Reform Act of 1984) of all or part of the cost of local
telephone service provided to an employee by a person other than an
entity subject to the modified final judgment shall be treated as
telephone service provided to the employee by the entity making the
payment for purposes of this section. The preceding sentence also
applies to a rebate of the amount paid by the employee for the service
and a payment to the person providing the service. This paragraph (a)(6)
applies only to services and employees described in Sec. 1.132-4 (c).
For a special line of business rule relating to such services and
employees, see Sec. 1.132-4 (c).
(b) Reciprocal agreements. For purposes of the exclusion from gross
income for a no-additional-cost service, an exclusion is available to an
employee of one employer for a no-additional-cost service provided by an
unrelated employer only if all of the following requirements are
satisfied--
(1) The service provided to such employee by the unrelated employer
is the same type of service generally provided to nonemployee customers
by both the line of business in which the employee works and the line of
business in which the service is provided to
[[Page 558]]
such employee (so that the employee would be permitted to exclude from
gross income the value of the service if such service were provided
directly by the employee's employer);
(2) Both employers are parties to a written reciprocal agreement
under which a group of employees of each employer, all of whom perform
substantial services in the same line of business, may receive no-
additional-cost services from the other employer; and
(3) Neither employer incurs any substantial additional cost
(including forgone revenue) in providing such service to the employees
of the other employer, or pursuant to such agreement. If one employer
receives a substantial payment from the other employer with respect to
the reciprocal agreement, the paying employer will be considered to have
incurred a substantial additional cost pursuant to the agreement, and
consequently services performed under the reciprocal agreement will not
qualify for exclusion as no-additional-cost services.
(c) Example. The rules of this section are illustrated by the
following example:
Example. Assume that a commercial airline permits its employees to
take personal flights on the airline at no charge and receive reserved
seating. Because the employer forgoes potential revenue by permitting
the employees to reserve seats, employees receiving such free flights
are not eligible for the no-additional-cost exclusion.
[T.D. 8256, 54 FR 28602, July 6, 1989]
Sec. 1.132-2T No-additional-cost service--1985 through 1988 (temporary).
(a) In general--(1) Definition. Gross income does not include the
value of a no-additional-cost service. The term ``no-additional-cost
service'' means any service provided by an employer to an employee for
the employee's personal use if--
(i) The service is offered for sale to customers in the ordinary
course of the line of business of the employer in which the employee
performs substantial services, and
(ii) The employer incurs no substantial additional cost in providing
the service to the employee (including forgone revenue and excluding any
amount paid by or on behalf of the employee for the service).
For rules relating to the line of business limitation, see Sec. 1.132-
4T.
(2) Examples. Services that are eligible for treatment as no-
additional-cost services are excess capacity services such as hotel
accommodations; transportation by aircraft, train, bus, subway, or
cruise line; and telephone services. Services that are not eligible for
treatment as no-additonal-cost services are non-excess capacity services
such as the facilitation by a stock brokerage firm of the purchase of
stock. Employees who receive non-excess capacity services may, however,
be eligible for a qualified employee discount of up to 20 percent of the
value of the service provided. See Sec. 1.132-3T.
(3) Cash rebates. The exclusion for a no-additional-cost service
applies whether the service is provided at no charge or at a reduced
price. The exclusion also applies if the benefit is provided through a
partial or total cash rebate of an amount paid for the service.
(4) Applicability of nondiscrimination rules. The exclusion for a
no-additional-cost service applies to officers, owners, and highly
compensated employees only if the service is available on substantially
the same terms to each member of a group of employees that is defined
under a reasonable classification set up by the employer that does not
discriminate in favor of officers, owners, or highly compensated
employees. See Sec. 1.132-8T.
(5) No substantial additional cost--(i) In general. The exclusion
for a non-additional-cost service applies only if the employer does not
incur substantial additional cost in providing the service to the
employee. For purposes of the preceding sentence, the term ``cost''
includes revenue that is forgone because the service is provided to an
employee rather than a nonemployee. (For purposes of determining whether
any revenue is forgone, it is assumed that the employee would not have
purchased the service unless it were available to the employee at the
actual price charged to the employee.) Whether an employer incurs
substantial additional
[[Page 559]]
cost must be determined without regard to any amount paid by the
employee for the service. Thus, any reimbursement by the employee for
the cost of providing the service does not affect the determination of
whether the employer incurs substantial additional cost.
(ii) Labor intensive services. An employer must include the cost of
labor incurred in providing services to employees when determining
whether the employer has incurred substantial additional cost. An
employer has incurred substantial additional cost. An employer incurs
substantial additional cost, whether or not non-labor costs are
incurred, if a substantial amount of time is spent by the employer or
its employees in providing the service to employees. This would be the
result whether or not the time spent by the employer or its employees in
providing the services would have been ``idle'', or if the services were
provided outside normal business hours. An employer generally incurs no
substantial additional cost, however, if the employee services provided
are merely incidental to the primary service being provided by the
employer. For example, the in-flight services of a flight attendant
provided to airline employees traveling on a space-available basis are
merely incidental to the primary service being provided (i.e., air
transportation). In addition, the cost of in-flight meals provided to
airline employees is not considered substantial in relation to the air
transportation being provided.
(b) Reciprocal agreements. For purposes of the exclusion for a no-
additional-cost service, any service provided by an employer to an
employee of another employer shall be treated as provided by the
employer of such employee if all of the following requirements are
satisfied:
(1) The service is provided pursuant to a written reciprocal
agreement between the employers under which a group of employees of each
employer, all of whom perform substantial services in the same line of
business, may receive no-additional-cost services from the other
employer;
(2) The service provided pursuant to the agreement to the employees
of both employers is the same type of service provided by the employers
to customers both in the line of business in which the employees perform
substantial services and the line of business in which the service is
provided to customers; and
(3) Neither employer incurs substantial additional cost (including
forgone revenue) in providing the service to the employees of the other
employer or pursuant to the agreement.
If one employer receives a substantial payment from the other employer
with respect to the reciprocal agreement, the paying employer will be
considered to have incurred a substantial additional cost pursuant to
the agreement.
[T.D. 8063, 50 FR 52298, Dec. 23, 1985, as amended by T.D. 8256, 54 FR
28600, July 6, 1989]
Sec. 1.132-3 Qualified employee discounts.
(a) In general--(1) Definition. Gross income does not include the
value of a qualified employee discount. A ``qualified employee
discount'' is any employee discount with respect to qualified property
or services provided by an employer to an employee for use by the
employee to the extent the discount does not exceed--
(i) The gross profit percentage multiplied by the price at which the
property is offered to customers in the ordinary course of the
employer's line of business, for discounts on property, or
(ii) Twenty percent of the price at which the service is offered to
customers, for discounts on services.
(2) Qualified property or services--(i) In general. The term
``qualified property or services'' means any property or services that
are offered for sale to customers in the ordinary course of the line of
business of the employer in which the employee performs substantial
services. For rules relating to the line of business limitation, see
Sec. 1.132-4.
(ii) Exception for certain property. The term ``qualified property''
does not include real property and it does not include personal property
(whether tangible or intangible) of a kind commonly held for investment.
Thus, an employee may not exclude from gross income the amount of an
employee discount provided on the purchase of securities, commodities,
or currency, or of
[[Page 560]]
either residential or commercial real estate, whether or not the
particular purchase is made for investment purposes.
(iii) Property and services not offered in ordinary course of
business. The term ``qualified property or services'' does not include
any property or services of a kind that is not offered for sale to
customers in the ordinary course of the line of business of the
employer. For example, employee discounts provided on property or
services that are offered for sale primarily to employees and their
families (such as merchandise sold at an employee store or through an
employer-provided catalog service) may not be excluded from gross
income. For rules relating to employer-operated eating facilities, see
Sec. 1.132-7, and for rules relating to employer-operated on-premises
athletic facilities, see Sec. 1.132-1(e).
(3) No reciprocal agreement exception. The exclusion for a qualified
employee discount does not apply to property or services provided by
another employer pursuant to a written reciprocal agreement that exists
between employers to provide discounts on property and services to
employees of the other employer.
(4) Property or services provided without charge, at a reduced
price, or by rebates. The exclusion for a qualified employee discount
applies whether the property or service is provided at no charge (in
which case only part of the discount may be excludable as a qualified
employee discount) or at a reduced price. The exclusion also applies if
the benefit is provided through a partial or total cash rebate of an
amount paid for the property or service.
(5) Property or services provided directly by the employer or
indirectly through a third party. A qualified employee discount may be
provided either directly by the employer or indirectly through a third
party. For example, an employee of an appliance manufacturer may receive
a qualified employee discount on the manufacturer's appliances purchased
at a retail store that offers such appliances for sale to customers. The
employee may exclude the amount of the qualified employee discount
whether the employee is provided the appliance at no charge or purchases
it at a reduced price, or whether the employee receives a partial or
total cash rebate from either the employer-manufacturer or the retailer.
If an employee receives additional rights associated with the property
that are not provided by the employee's employer to customers in the
ordinary course of the line of business in which the employee performs
substantial services (such as the right to return or exchange the
property or special warranty rights), the employee may only receive a
qualified employee discount with respect to the property and not the
additional rights. Receipt of such additional rights may occur, for
example, when an employee of a manufacturer purchases property
manufactured by the employee's employer at a retail outlet.
(6) Applicability of nondiscrimination rules. The exclusion for a
qualified employee discount applies to highly compensated employees only
if the discount is available on substantially the same terms to each
member of a group of employees that is defined under a reasonable
classification set up by the employer that does not discriminate in
favor of highly compensated employees. See Sec. 1.132-8.
(b) Employee discount--(1) Definition. The term ``employee
discount'' means the excess of--
(i) The price at which the property or service is being offered by
the employer for sale to customers, over
(ii) The price at which the property or service is provided by the
employer to an employee for use by the employee. A transfer of property
by an employee without consideration is treated as use by the employee
for purposes of this section. Thus, for example, if an employee receives
a discount on property offered for sale by his employer to customers and
the employee makes a gift of the property to his parent, the property
will be considered to be provided for use by the employee; thus, the
discount will be eligible for exclusion as a qualified employee
discount.
(2) Price to customers--(i) Determined at time of sale. In
determining the amount of an employee discount, the price at which the
property or service is being offered to customers at the
[[Page 561]]
time of the employee's purchase is controlling. For example, assume that
an employer offers a product to customers for $20 during the first six
months of a calendar year, but at the time the employee purchases the
product at a discount, the price at which the product is being offered
to customers is $25. In this case, the price from which the employee
discount is measured is $25. Assume instead that, at the time the
employee purchases the product at a discount, the price at which the
product is being offered to customers is $15 and the price charged the
employee is $12. The employee discount is measured from $15, the price
at which the product is offered for sale to customers at the time of the
employee purchase. Thus, the employee discount is $15 -$12, or $3.
(ii) Quantity discount not reflected. The price at which a property
or service is being offered to customers cannot reflect any quantity
discount unless the employee actually purchases the requisite quantity
of the property or service.
(iii) Price to employer's customers controls. In determining the
amount of an employee discount, the price at which a property or service
is offered to customers of the employee's employer is controlling. Thus,
the price at which the property is sold to the wholesale customers of a
manufacturer will generally be lower than the price at which the same
property is sold to the customers of a retailer. However, see paragraph
(a)(5) of this section regarding the effect of a wholesaler providing to
its employees additional rights not provided to customers of the
wholesaler in the ordinary course of its business.
(iv) Discounts to discrete customer or consumer groups. Subject to
paragraph (2)(ii) of this section, if an employer offers for sale
property or services at one or more discounted prices to discrete
customer or consumer groups, and sales at all such discounted prices
comprise at least 35 percent of the employer's gross sales for a
representative period, then in determining the amount of an employee
discount, the price at which such property or service is being offered
to customers for purposes of this section is a discounted price. The
applicable discounted price is the current undiscounted price, reduced
by the percentage discount at which the greatest percentage of the
employer's discounted gross sales are made for such representative
period. If sales at different percentage discounts equal the same
percentage of the employer's gross sales, the price at which the
property or service is being provided to customers may be reduced by the
average of the discounts offered to each of the two groups. For purposes
of this section, a representative period is the taxable year of the
employer immediately preceding the taxable year in which the property or
service is provided to the employee at a discount. If more than one
employer would be aggregated under section 414 (b), (c), (m), or (o),
and not all of the employers have the same taxable year, the employers
required to be aggregated must designate the 12-month period to be used
in determining gross sales for a representative period. The 12-month
period designated, however, must be used on a consistent basis.
(v) Examples. The rules provided in this paragraph (b)(2) are
illustrated by the following examples:
Example 1. Assume that a wholesale employer offers property for sale
to two discrete customer groups at differing prices. Assume further that
during the prior taxable year of the employer, 70 percent of the
employer's gross sales are made at a 15 percent discount and 30 percent
at no discount. For purposes of this paragraph (b)(2), the current
undiscounted price at which the property or service is being offered by
the employer for sale to customers may be reduced by the 15 percent
discount.
Example 2. Assume that a retail employer offers a 20 percent
discount to members of the American Bar Association, a 15 percent
discount to members of the American Medical Association, and a ten
percent discount to employees of the Federal Government. Assume further
that during the prior taxable year of the employer, sales to American
Bar Association members equal 15 percent of the employer's gross sales,
sales to American Medical Association members equal 20 percent of the
employer's gross sales, and sales to Federal Government employees equal
25 percent of the employer's gross sales. For purposes of this paragraph
(b)(2), the current undiscounted price at which the property or service
is being offered by the employer for sale to customers may be reduced by
the ten percent Federal Government discount.
[[Page 562]]
(3) Damaged, distressed, or returned goods. If an employee pays at
least fair market value for damaged, distressed, or returned property,
such employee will not have income attributable to such purchase.
(c) Gross profit percentage--(1) In general--(i) General rule. An
exclusion from gross income for an employee discount on qualified
property is limited to the price at which the property is being offered
to customers in the ordinary course of the employer's line of business,
multiplied by the employer's gross profit percentage. The term ``gross
profit percentage'' means the excess of the aggregate sales price of the
property sold by the employer to customers (including employees) over
the employer's aggregate cost of the property, then divided by the
aggregate sales price.
(ii) Calculation of gross profit percentage. The gross profit
percentage must be calculated separately for each line of business based
on the aggregate sales price and aggregate cost of property in that line
of business for a representative period. For purposes of this section, a
representative period is the taxable year of the employer immediately
preceding the taxable year in which the discount is available. For
example, if the aggregate amount of sales of property in an employer's
line of business for the prior taxable year was $800,000, and the
aggregate cost of the property for the year was $600,000, the gross
profit percentage would be 25 percent ($800,000 minus $600,000, then
divided by $800,000). If two or more employers are required to aggregate
under section 414 (b), (c), (m), or (o) (aggregated employer), and if
all of the aggregated employers do not share the same taxable year, then
the aggregated employers must designate the 12-month period to be used
in determining the gross profit percentage. The 12-month period
designated, however, must be used on a consistent basis. If an employee
performs substantial services in more than one line of business, the
gross profit percentage of the line of business in which the property is
sold determines the amount of the excludable employee discount.
(iii) Special rule for employers in their first year of existence.
An employer in its first year of existence may estimate the gross profit
percentage of a line of business based on its mark-up from cost.
Alternatively, an employer in its first year of existence may determine
the gross profit percentage by reference to an appropriate industry
average.
(iv) Redetermination of gross profit percentage. If substantial
changes in an employer's business indicate at any time that it is
inappropriate for the prior year's gross profit percentage to be used
for the current year, the employer must, within a reasonable period,
redetermine the gross profit percentage for the remaining portion of the
current year as if such portion of the year were the first year of the
employer's existence.
(2) Line of business. In general, an employer must determine the
gross profit percentage on the basis of all property offered to
customers (including employees) in each separate line of business. An
employer may instead select a classification of property that is
narrower than the applicable line of business. However, the
classification must be reasonable. For example, if an employer computes
gross profit percentage according to the department in which products
are sold, such classification is reasonable. Similarly, it is reasonable
to compute gross profit percentage on the basis of the type of
merchandise sold (such as high mark-up and low mark-up classifications).
It is not reasonable, however, for an employer to classify certain low
mark-up products preferred by certain employees (such as highly
compensated employees) with high mark-up products or to classify certain
high mark-up products preferred by other employees with low mark-up
products.
(3) Generally accepted accounting principles. In general, the
aggregate sales price of property must be determined in accordance with
generally accepted accounting principles. An employer must compute the
aggregate cost of property in the same manner in which it is computed
for the employer's Federal income tax liability; thus, for example,
section 263A and the regulations thereunder apply in determining the
cost of property.
[[Page 563]]
(d) Treatment of leased sections of department stores--(1) In
general--(i) General rule. For purposes of determining whether employees
of a leased section of a department store may receive qualified employee
discounts at the department store and whether employees of the
department store may receive qualified employee discounts at the leased
section of the department store, the leased section is treated as part
of the line of business of the person operating the department store,
and employees of the leased section are treated as employees of the
person operating the department store as well as employees of their
employer. The term ``leased section of a department store'' means a
section of a department store where substantially all of the gross
receipts of the leased section are from over-the-counter sales of
property made under a lease, license, or similar arrangement where it
appears to the general public that individuals making such sales are
employed by the department store. A leased section of a department store
which, in connection with the offering of beautician services,
customarily makes sales of beauty aids in the ordinary course of
business is deemed to derive substantially all of its gross receipts
from over-the-counter sales of property.
(ii) Calculation of gross profit percentage. For purposes of
paragraph (d) of this section, when calculating the gross profit
percentage of property and services sold at a department store, sales of
property and services sold at the department store, as well as sales of
property and services sold at the leased section, are considered. The
rule provided in the preceding sentence does not apply, however, if it
is more reasonable to calculate the gross profit percentage for the
department store and leased section separately, or if it would be
inappropriate to combine them (such as where either the department store
or the leased section but not both provides employee discounts).
(2) Employees of the leased section--(i) Definition. For purposes of
this paragraph (d), ``employees of the leased section'' means all
employees who perform substantial services at the leased section of the
department store regardless of whether the employees engage in over-the-
counter sales of property or services. The term ``employee'' has the
same meaning as in section 132(f) and Sec. 1.132-1(b)(1).
(ii) Discounts offered to either department store employees or
employees of the leased section. If the requrements of this paragraph
(d) are satisfied, employees of the leased section may receive qualified
employee discounts at the department store whether or not employees of
the department store are offered discounts at the leased section.
Similarly, employees of the department store may receive a qualified
employee discount at the leased section whether or not employees of the
leased section are offered discounts at the department store.
(e) Excess discounts. Unless excludable under a provision of the
Internal Revenue Code of 1986 other than section 132(a)(2), an employee
discount provided on property is excludable to the extent of the gross
profit percentage multiplied by the price at which the property is being
offered for sale to customers. If an employee discount exceeds the gross
profit percentage, the excess discount is includible in the employee's
income. For example, if the discount on employer-purchased property is
30 percent and the employer's gross profit percentage for the period in
the relevant line of business is 25 percent, then 5 percent of the price
at which the property is being offered for sale to customers is
includible in the empoyee's income. With respect to services, an
employee discount of up to 20 percent may be excludable. If an employee
discount exceeds 20 percent, the excess discount is includible in the
employee's income. For example, assume that a commercial airline
provides a pass to each of its employees permitting the employees to
obtain a free round-trip coach ticket with a confirmed seat to any
destination the airline services. Neither the exclusion of section
132(a)(1) (relating to no-additional-cost services) nor any other
statutory exclusion applies to a flight taken primarily for personal
purposes by an employee under this program. However, an employee
discount of up to 20 percent may be excluded as a qualified employee
discount. Thus, if the price charged to customers for the
[[Page 564]]
flight taken is $300 (under restrictions comparable to those actually
placed on travel associated with the employee airline ticket), $60 is
excludible from gross income as a qualified employee discount and $240
is includible in gross income.
[T.D. 8256, 54 FR 28603, July 6, 1989]
Sec. 1.132-3T Qualified employee discount--1985 through 1988 (temporary).
(a) In general--(1) Definition. Gross income does not include the
value of a qualified employee discount. The term ``qualified employee
discount'' means any employee discount with respect to qualified
property or services provided by an employer to an employee for the
employee's personal use to the extent the discount does not exceed--
(i) The gross profit percentage of the price at which the property
is offered to customers, for discounts on property, or
(ii) 20 percent of the price at which the services are offered to
customers, for discounts on services.
(2) Qualified property or services--(i) In general. The term
``qualified property or services'' means any property or services that
are offered for sale to customers in the ordinary course of the line of
business of the employer in which the employee performs substantial
services. For rules relating to the line of business limitation, see
Sec. 1.132-4T.
(ii) Exception for certain property. The term ``qualified property''
does not include real property and it does not include personal property
(whether tangible or intangible) of a kind commonly held for investment.
Thus, an employee may not exclude from gross income the amount of an
employee discount provided on the purchase of either residential or
commercial real estate, securities, commodities, or currency, whether or
not the particular purchase is made for investment purposes.
(iii) Property and services not offered in ordinary course of
business. The term ``qualified property or services'' does not include
any property or services of a kind that is not offered for sale to
customers in the ordinary course of the line of business of the
employer. For example, employee discounts provided on property or
services that are offered for sale only to employees and their families
(such as merchandise sold at an employee store or through an employer-
provided catalog service) may not be excluded from gross income.
(3) No reciprocal agreement exception. The exclusion for a qualified
employee discount does not apply to property or services provided by
another employer pursuant to a written reciprocal agreement that exists
between employers to provide discounts on property and services to
employees of the other employer.
(4) Cash or third-party rebates--(i) Property or services provided
without charge or at a reduced price. The exclusion for a qualified
employee discount applies whether the property or service is provided at
no charge (in which case only part of the discount may be excludable as
a qualified employee discount) or at a reduced price. The exclusion also
applies if the benefit is provided through a partial or total cash
rebate of an amount paid for the property or service.
(ii) Property or services provided directly by the employer or
indirectly through a third party. A qualified employee discount may be
provided either directly by the employer or indirectly through a third
party. For example, an employee of an appliance manufacturer may receive
a qualified employee discount on the manufacturer's appliances purchased
at a retail store that offers such appliances for sale to customers. The
employee may exclude the amount of the qualified employee discount
whether the employee is provided the appliance at no charge or purchases
it at a reduced price, or whether the employee receives a partial or
total cash rebate from either the employer-manufacturer or the retailer.
If an employee receives additional rights associated with the property
that are not provided by the employee's employer to customers in the
ordinary course of the line of business in which the employee performs
substantial services (such as the right to return or exchange the
property or special warranty rights), the employee may only receive a
qualified employee discount with respect to the property and not the
additional
[[Page 565]]
rights. Receipt of such additional rights may occur, for example, when
an employee of a manufacturer purchases property manufactured by the
employee's employer at a retail outlet.
(5) Applicability of nondiscrimination rules. The exclusion for a
qualified employee discount applies to officers, owners, and highly
compensated employees only if the discount is available on substantially
the same terms to each member of a group of employees that is defined
under a reasonable classification set up by the employer that does not
discriminate in favor of officers, owners, or highly compensated
employees. See Sec. 1.132-8T.
(b) Employee discount--(1) Definition. The term ``employee
discount'' means the excess of--
(i) The price at which the property or service is being offered by
the employer for sale to customers, over
(ii) The price at which the property or service is provided by the
employer to an employee for use by the employee.
A transfer of property by an employee without consideration is
considered use by the employee for purposes of this section. Thus, for
example, if an employee receives a discount on property offered for sale
by his employer to customers and the employee makes a gift of the
property to his parent, the property will be considered to be provided
for use by the employee, thus enabling the discount to be eligible for
exclusion as a qualified employee discount.
(2) Price to customers--(i) Determined at time of sale. In
determining the amount of an employee discount, the price at which the
property or service is being offered to customers at the time of the
employee's purchase is controlling. For example, assume that an employer
offers a product to customers for $20 during the first six months of a
calendar year, but at the time the employee purchases the product at a
discount, the price at which the product is being offered to customers
is $25. In this case, the price from which the employee discount is
measured is $25.
(ii) Quantity discount not reflected. The price referred to in
paragraph (b)(2)(i) of this section cannot reflect any quantity discount
unless the employee actually purchases the requisite quantity of the
property or service.
(iii) Customers of employee's employer controls. In determining the
amount of an employee discount, the price at which the property or
service is offered to customers of the employee's employer is
controlling. Thus, the price at which property is sold to the wholesale
customers of a manufacturer will generally be lower than the price at
which the same property is sold to the customers of a retailer. However,
see paragraph (a)(4)(ii) of this section regarding the effect of a
wholesaler providing to its employees additional rights not provided to
customers of the wholesaler in the ordinary course of its business.
(iv) Discounts to discrete customer or consumer groups. In
determining the amount of an employee discount, if an employer offers
for sale property or services at one or more discounted prices to
discrete customer or consumer groups, and sales at all such discounted
prices comprise at least 35 percent of the employer's gross sales for a
representative period, then the price at which property or service is
being offered to customers is a discounted price. The applicable
discounted price is the current undiscounted price, reduced by the
percentage discount at which the greatest percentage of the employer's
gross sales are made for such representative period. If sales at
different percentage discounts equal the same percentage of the
employer's gross sales, the price at which the property or service is
being provided to customers may be reduced by the average of the two
group discounts. For purposes of this section, a representative period
is the taxable year of the employer immediately preceding the taxable
year in which the property or service is provided to the employee at a
discount. If more than one employer would be aggregated under section
414 (b), (c), or (m), and all of the employers do not have the same
taxable year, the employers required to be aggregated must designate the
12-month period to be used in determining gross sales for a
representative period.
(v) Examples. The rules provided in this paragraph (b)(2) are
illustrated by the following examples:
[[Page 566]]
Example 1. Assume that a wholesale employer offers property for sale
to two discrete customer groups at differing prices. Assume further that
during the prior taxable year of the employer, 70 percent of the
employer's gross sales are made at a 15-percent discount and 30 percent
at no discount. The current undiscounted price at which the property or
service is being offered by the employer for sale to customers may be
reduced by the 15-percent discount.
Example 2. Assume that a retail employer offers a 20 percent
discount to members of the American Bar Association, a 15 percent
discount to members of the American Medical Association, and a ten
percent discount to employees of the Federal Government. Assume further
that during the prior taxable year of the employer, sales to American
Bar Association members equal 15 percent of the employer's gross sales,
sales to American Medical Association members equal 20 percent of the
employer's gross sales, and sales to Federal Government employees equal
25 percent of the employer's gross sales. The current undiscounted price
at which the property or service is being offered by the employer for
sale to customers may be reduced by the ten percent Federal Government
discount.
(3) Damaged, distressed, or returned goods. If an employee pays at
least fair market value for damaged, distressed, or returned property,
such employee will not have income attributable to such purchase.
(c) Gross profit percentage--(1) In general--(i) General rule. An
exclusion from gross income for an employee discount on qualified
property is limited to the price at which the property is being offered
to customers in the ordinary course of the employer's line of business,
multiplied by the employer's gross profit percentage. The term ``gross
profit percentage'' means the excess of the aggregate sales price of the
property sold by the employer to customers (including employees) over
the employer's aggregate cost of the property, then divided by the
aggregate sales price.
(ii) Calculation of gross profit percentage. The gross profit
percentage must be calculated separately for each line of business based
on the aggregate sales price and aggregate cost of property in that line
of business for a representative period. For purposes of this section, a
representative period is the taxable year of the employer immediately
preceding the taxable year in which the discount is available. For
example, if the aggregate sales of property in an employer's line of
business for the prior taxable year were $800,000, and the aggregate
cost of the property for the year were $600,000, the gross profit
percentage would be 25 percent ($800,000 minus $600,000, then divided by
$800,000). If more than one employer would be aggregated under section
414 (b), (c), or (m), and all of the employers do not have the same
taxable year, the employers required to be aggregated must designate the
12-month period to be used in determining the gross profit percentage.
If an employee performs substantial services in more than one line of
business, the gross profit percentage of the line of business in which
the property is sold determines the amount of the excludable employee
discount.
(iii) Special rule for employers in their first year of existence.
An employer in its first year of existence may estimate the gross profit
percentage of a line of business based on its mark-up from the cost.
Alternatively, an employer in its first year of existence may determine
the gross profit percentage by reference to an appropriate industry
average.
(iv) Redetermination of gross profit percentage. If substantial
changes in an employer's business indicate at any time that it is
inappropriate for the prior years' gross profit percentage to be used
for the current year, the employer must, within a reasonable period,
redetermine the gross profit percentage for the remaining portion of the
current year as if such portion of the year were the first year of the
employer's existence.
(2) Line of business. In general, an employer must determine the
gross profit percentage on the basis of all property offered to
customers (including employees) in each separate line of business. An
employer may instead select a classification of property that is
narrower than the applicable line of business. However, such
classification must be reasonable. For example, if an employer computes
gross profit percentage according to the department in which products
are sold, such classification is reasonable. Similarly, it is
[[Page 567]]
reasonable to compute gross profit percentage on the basis of the type
of merchandise sold (such as high mark-up and low mark-up
classifications). It is not reasonable, however, for an employer to
classify certain low mark-up products preferred by certain employees
(such as officers, owners, and highly compensated employees) with high
mark-up products or to classify certain high mark-up products preferred
by other employees with low mark-up products.
(3) Generally accepted accounting principles. In general, the
aggregate sales price of property must be determined in accordance with
generally accepted accounting principles. An employer must compute the
aggregate cost of property in the same manner in which it is computed
for the employer's Federal income tax liability, pursuant to the
inventory rules in section 471 and the regulations thereunder.
(d) Treatment of leased sections of department stores--(1) In
general--(i) General rule. For purposes of determining whether employees
of a leased section of a department store may receive qualified
employees discounts at the department store and whether employees of the
department store may receive qualified employee discounts at the leased
section of the department store, the leased section is treated as part
of the line of business of the person operating the department store,
and employees of the leased section are treated as employees of the
person operating the department store as well as employees of their
employer. The term ``leased section of a department store'' means a
section of a department store where substantially all of the gross
receipts of the leased section are over-the-counter sales of property
made under a lease, license, or similar arrangement where it appears to
the general public that individuals making such sales are employed by
the department store. An example of a leased section of a department
store is a cosmetics firm that leases floor space from a department
store.
(ii) Calculation of gross profit percentage. When calculating the
gross profit percentage of property and services sold at the department
store under paragraph (c) of this section, sales of property and
services sold at the department store, as well as sales of property and
services sold at the leased section, are considered. The rule provided
in the preceding sentence does not apply, however, if it is reasonable
to calculate the gross profit percentage for the department store and
leased section separately, or if it would be inappropriate to combine
them (such as where either the department store or the leased section,
but not both, provides employee discounts).
(2) Employees of the leased section--(i) Definition. For purposes of
this paragraph (d), ``employees of the leased section'' means all
employees who perform substantial services at the leased section
regardless of whether the employees engage in over-the-counter sales of
property or services. The term ``employee'' has the same meaning as in
section 133(f).
(ii) Discounts offered to either department store employees or
employees of the leased section. If the requirements of this paragraph
(d) are satisfied, employees of the leased section may receive qualified
employee discounts at the department store regardless of whether
employees of the department store are offered discounts at the leased
section. Similarly, regardless of whether employees of the leased
section are offered discounts at the department store, employees of the
department store may receive qualified employee discounts at the leased
section.
(e) Excess discounts. Unless excludable under a statutory provision
other than section 132(a)(2), an employee discount provided on property
is excludable to the extent of the gross profit percentage multiplied by
the price at which the property is being offered for sale to customers.
If an employee discount exceeds the gross profit percentage, the excess
discount is includible in the employee's income. For example, if the
discount on property is 30 percent and the employer's gross profit
percentage for the period in the relevant line of business is 25
percent, then 5 percent of the price at which the property is being
offered for sale to customers is includible in the emloyee's income.
With respect to services, an employee discount of up to 20 percent may
be excludable.
[[Page 568]]
If an employee discount exceeds 20 percent, the excess discount is
includible in the employee's income.
[T.D. 8063, 50 FR 52299, Dec. 23, 1985, as amended by T.D. 8256, 54 FR
28600, July 6, 1989]
Sec. 1.132-4 Line of business limitation.
(a) In general--(1) Applicability--(i) General rule. A no-
additional-cost service or a qualified employee discount provided to an
employee is only available with respect to property or services that are
offered for sale to customers in the ordinary course of the same line of
business in which the employee receiving the property or service
performs substantial services. Thus, an employee who does not perform
substantial services in a particular line of business of the employer
may not exclude from income under section 132 (a)(1) or (a)(2) the value
of services or employee discounts received on property or services in
that line of business. For rules that relax the line of business
requirement, see paragraphs (b) through (g) of this section.
(ii) Property and services sold to employees rather than customers.
Because the property or services must be offered for sale to customers
in the ordinary course of the same line of business in which the
employee performs substantial services, the line of business limitation
is not satisfied if the employer's products or services are sold
primarily to employees of the employer, rather than to customers. Thus,
for example, an employer in the banking line of business is not
considered in the variety store line of business if the employer
establishes an employee store that offers variety store items for sale
to the employer's employees. See Sec. 1.132-7 for rules relating to
employer-operated eating facilities, and see Sec. 1.132-1(e) for rules
relating to employer-operated on-premises athletic facilities.
(iii) Performance of substantial services in more than one line of
business. An employee who performs services in more than one of the
employer's lines of business may only exclude no-additional-cost
services and qualified employee discounts in the lines of business in
which the employee performs substantial services.
(iv) Performance of services that directly benefit more than one
line of business--(A) In general. An employee who performs substantial
services that directly benefit more than one line of business of an
employer is treated as performing substantial services in all such line
of business. For example, an employee who maintains accounting records
for an employer's three lines of business may receive qualified employee
discounts in all three lines of business. Similarly, if an employee of a
minor line of business of an employer that is significantly interrelated
with a major line of business of the employer performs substantial
services that directly benefit both the major and the minor lines of
business, the employee is treated as performing substantial services for
both the major and the minor lines of business.
(B) Examples. The rules provided in this paragraph (a)(1)(iv) are
illustrated by the following examples:
Example 1. Assume that employees of units of an employer provide
repair or financing services, or sell by catalog, with respect to retail
merchandise sold by the employer. Such employees may be considered to
perform substantial services for the retail merchandise line of business
under paragraph (a)(1)(iv)(A) of this section.
Example 2. Assume that an employer operates a hospital and a laundry
service. Assume further that some of the gross receipts of the laundry
service line of business are from laundry services sold to customers
other than the hospital employer. Only the employees of the laundry
service who perform substantial services which directly benefit the
hospital line of business (through the provision of laundry services to
the hospital) will be treated as performing substantial services for the
hospital line of business. Other employees of the laundry service line
of business will not be treated as employees of the hospital line of
business.
Example 3. Assume the same facts as in example (2), except that the
employer also operates a chain of dry cleaning stores. Employees who
perform substantial services which directly benefit the dry cleaning
stores but who do not perform substantial services that directly benefit
the hospital line of business will not be treated as performing
substantial services for the hospital line of business.
(2) Definition--(i) In general. An employer's line of business is
determined by reference to the Enterprise Standard Industrial
Classification Manual
[[Page 569]]
(ESIC Manual) prepared by the Statistical Policy Division of the U.S.
Office of Management and Budget. An employer is considered to have more
than one line of business if the employer offers for sale to customers
property or services in more than one two-digit code classification
referred to in the ESIC Manual.
(ii) Examples. Examples of two-digit classifications are general
retail merchandise stores; hotels and other lodging places; auto repair,
services, and garages; and food stores.
(3) Aggregation of two-digit classifications. If, pursuant to
paragraph (a)(2) of this section, an employer has more than one line of
business, such lines of business will be treated as a single line of
business where and to the extent that one or more of the following
aggregation rules apply:
(i) If it is uncommon in the industry of the employer for any of the
separate lines of business of the employer to be operated without the
others, the separate lines of business are treated as one line of
business.
(ii) If it is common for a substantial number of employees (other
than those employees who work at the headquarters or main office of the
employer) to perform substantial services for more than one line of
business of the employer, so that determination of which employees
perform substantial services for which line or lines of business would
be difficult, then the separate lines of business of the employer in
which such employees perform substantial services are treated as one
line of business. For example, assume that an employer operates a
delicatessen with an attached service counter at which food is sold for
consumption on the premises. Assume further that most but not all
employees work both at the delicatessen and at the service counter.
Under the aggregation rule of this paragraph (a)(3)(ii), the
delicatessen and the service counter are treated as one line of
business.
(iii) If the retail operations of an employer that are located on
the same premises are in separate lines of business but would be
considered to be within one line of business under paragraph (a)(2) of
this section if the merchandise offered for sale in such lines of
business were offered for sale at a department store, then the
operations are treated as one line of business. For example, assume that
on the same premises an employer sells both women's apparel and jewelry.
Because, if sold together at a department store, the operations would be
part of the same line of business, the operations are treated as one
line of business.
(b) Grandfather rule for certain retail stores--(1) In general. The
line of business limitation may be relaxed under the special grandfather
rule of this paragraph (b). Under this special grandfather rule, if--
(i) On October 5, 1983, at least 85 percent of the employees of one
member of an affiliated group (as defined in section 1504 without regard
to subsections (b)(2) and (b)(4) thereof) (``first member'') were
entitled to receive employee discounts at retail department stores
operated by another member of the affiliated group (``second member''),
and
(ii) More than 50 percent of the previous year's sales of the
affiliated group are attributable to the operation of retail department
stores, then, for purposes of the exclusion from gross income of a
qualified employee discount, the first member is treated as engaged in
the same line of business as the second member (the opeator of the
retail department stores). Therefore, employees of the first member of
the affiliated group may exclude from income qualified employee
discounts received at the retail department stores operated by the
second member. However, employees of the second member of the affiliated
group may not under this paragraph (b)(1) exclude any discounts received
on property or services offered for sale to customers by the first
member of the affiliated group.
(2) Taxable year of affiliated group. If not all of the members of
an affiliated group have the same taxable year, the affiliated group
must designate the 12-month period to be used in determining the
``previous year's sales'' (as referred to in the grandfather rule of
this paragraph (b)). The 12-month period designated, however, must be
used on a consistent basis.
(3) Definition of ``sales.'' For purposes of this paragraph (b), the
term ``sales''
[[Page 570]]
means the gross receipts of an affiliated group, based upon the
accounting methods used by its members.
(4) Retired and disabled employees. For purposes of this paragraph
(b), an employee includes any individual who was, or whose spouse was,
formerly employed by the first member of an affiliated group and who
separated from service with the member by reason of retirement or
disability if the second member of the group provided employee discounts
to that individual on October 5, 1983.
(5) Increase of employee discount. If, after October 5, 1983, the
employee discount described in this paragraph (b) is increased, the
grandfather rule of this paragraph (b) does not apply to the amount of
the increase. For example, if on January 1, 1989, the employee discount
is increased from 10 percent to 15 percent, the grandfather rule will
not apply to the additional 5 percent discount.
(c) Grandfather rule for telephone service provided to
predivestiture retirees. All entities subject to the modified final
judgment (as defined in section 559(c)(5) of the Tax Reform Act of 1984)
shall be treated as a single employer engaged in the same line of
business for purposes of determining whether telephone service provided
to certain employees is a no-additional-cost service. The preceding
sentence applies only in the case of an employee who by reason of
retirement or disability separated before January 1, 1984, from the
service of an entity subject to the modified final judgment. This
paragraph (c) only applies to services provided to such employees as of
January 1, 1984. For a special no-additional-cost service rule relating
to such employees and such services, see Sec. 1.132-2(a)(6).
(d) Special rule for certain affiliates of commercial airlines--(1)
General rule. If a qualified affiliate is a member of an airline
affiliated group and employees of the qualified affiliate who are
directly engaged in providing airline-related services are entitled to
no-additional-cost service with respect to air transportation provided
by such other member, then, for purposes of applying Sec. 1.132-2
(relating to no-additional-cost services with respect to such air
transportation), such qualified affiliate shall be treated as engaged in
the same line of business as such other member.
(2) ``Airline affiliated group'' defined. An ``airline affiliated
group'' is an affiliated group (as defined in section 1504 (a)) one of
whose members operates a commercial airline that provides air
transportation to customers on a per-seat basis.
(3) ``Qualified affiliate'' defined. A ``qualified affiliate'' is
any corporation that is predominantly engaged in providing airline-
related services. The term ``airline-related services'' means any of the
following services provided in connection with air transportation:
(i) Catering,
(ii) Baggage handling,
(iii) Ticketing and reservations,
(iv) Flight planning and weather analysis, and
(v) Restaurants and gift shops located at an airport.
(e) Grandfather rule for affiliated groups operating airlines. The
line of business limitation may be relaxed under the special grandfather
rule of this paragraph (e). Under this special grandfather rule, if, as
of September 12, 1984--
(1) An individual--
(i) Was an employee (within the meaning of Sec. 1.132-1 (b)) of one
member of an affiliated group (as defined in section 1504(a)) (``first
corporation''), and
(ii) Was eligible for no-additional-cost services in the form of air
transportation provided by another member of such affiliated group
(``second corporation''),
(2) At least 50 percent of the individuals performing services for
the first corporation were, or had been employees of, or had previously
performed services for, the second corporation, and
(3) The primary business of the affiliated group was air
transportation of passengers, then, for purposes of applying sections
132(a) (1) and (2), with respect to no-additional-cost services and
qualified employee discounts provided after December 31, 1984, for that
individual by the second corporation, the first corporation is treated
as engaged in the same air transporation line of business as the second
corporation. For purposes of the preceding sentence, an employee of the
second corporation
[[Page 571]]
who is performing services for the first corporation is also treated as
an employee of the first corporation.
(f) Special rule for qualified air transportation organizations. A
qualified air transportation organization is treated as engaged in the
line of business of providing air transportation with respect to any
individual who performs services for the organization if those services
are peformed primarily for persons engaged in providing air
transportation, and are of a kind which (if performed on September 12,
1984) would qualify the individual for no-additional-cost services in
the form of air transportation. The term ``qualified air transportation
organization'' means any organization--
(1) If such organization (or a predecessor) was in existence on
September 12, 1984,
(2) If such organization is--
(i) A tax-exempt organization under section(c)(6) whose membership
is limited to entities engaged in the transportation by air of
individuals or property for compensation or hire, or
(ii) Is a corporation all the stock of which is owned entirely by
entities described in paragraph (f)(2)(i) of this section, and
(3) If such organization is operated in furtherance of the
activities of its members or owners.
(g) Relaxation of line of business requirement. The line of business
requirement may be relaxed under an elective grandfather rule provided
in section 4977. For rules relating to the section 4977 election, see
Sec. 54.4977-1T.
(h) Line of business requirement does not expand benefits eligible
for exclusion. The line of business requirement limits the benefits
eligible for the no-additional-cost service and qualified employee
discount exclusions to property or services provided by an employer to
its customers in the ordinary course of the line of business of the
employer in which the employee performs substantial services. The
requirement is intended to ensure that employers do not offer, on a tax-
free or reduced basis, property or services to employees that are not
offered to the employer's customers, even if the property or services
offered to the customers and the employees are within the same line of
business (as defined in this section).
[T.D. 8256, 54 FR 28606, July 6, 1989]
Sec. 1.132-4T Line of business limitation--1985 through 1988 (temporary).
(a) In general--(1) Applicability--(i) General rule. A no-
additional-cost service or qualified employee discount provided to an
employee must be for property or services that are offered for sale to
customers in the ordinary course of the same line of business in which
the employee receiving the property or service performs substantial
services. Thus, an employee who does not perform substantial services in
a particular line of business of the employer may not exclude the value
of services or employee discounts received on property or services in
that line of business.
(ii) Property and services sold to employees rather than customers.
Since the property or services must be offered for sale to customers in
the ordinary course of the same line of business in which the employee
performs substantial services, the line of business limitation is not
satisfied if the employer's products or services are sold to employees
of the employer, rather than to customers. Thus, for example, an
employer in the banking line of business is not considered in the
variety store line of business if the employer establishes an employee
store that offers variety store items for sale to the employer's
employees.
(iii) Performance of substantial services in more than one line of
business. An employee who performs services in more than one of the
employer's lines of business may only exclude no-additional-cost
services and qualified employee discounts in the lines of business in
which the employee performs substantial services.
(iv) Performance of services that directly benefit more than one
line of business--(A) In general. An employee who performs substantial
services that directly benefit more than one line of business of an
employer is treated as performing substantial services in all such lines
of business. For example, an employee who maintains accounting records
for an employer's three lines of
[[Page 572]]
business may receive qualified employee discounts in all three lines of
business.
(B) Significantly interrelated minor line of business. The employees
of a minor line of business of an employer that is significantly
interrelated with a major line of business of the employer who perform
substantial services that directly benefit both the major and the minor
lines of business are treated as employees of both the major and the
minor lines of business. Employees of the minor line of business who do
not perform substantial services which directly benefit the major line
of business are not treated as employees of the major line of business.
A minor line of business is significantly interrelated with a major line
of business when, for example, the activity of the minor line of
business is directly related to but is a minor part of the major line of
business (such as laundry services provided at a hospital).
(C) Examples. The rules provided in this paragraph are illustrated
in the following examples:
Example 1. Assume that employees of units of an employer provide
repair or financing services, or sell by catalog, with respect to retail
merchandise sold by the employer. Such employees may be considered as
employees of the retail merchandise line of business under this
paragraph (a)(1)(iv).
Example 2. Assume that an employer operates a hospital and a laundry
service. Assume further that some of the gross receipts of the laundry
service line of business are from laundry services sold to customers
other than the hospital employer. Only the employees of the laundry
service who perform substantial services which directly benefit the
hospital line of business (through the provision of laundry services to
the hospital) will be treated as employees of the hospital line of
business. Other employees of the laundry service line of business will
not be treated as employees of the hospital line of business.
Example 3. Assume the same facts as in example (2), except that the
minor line of business also operates a chain of dry cleaning stores.
Employees who perform substantial services which directly benefit the
dry cleaning stores but who do not perform substantial services that
directly benefit the hospital line of business will not be treated as
employees of the hospital line of business.
(2) Definition--(i) In general. An employer's line of business is
determined by reference to the Enterprise Standard Industrial
Classification Manual (ESIC Manual) prepared by the Statistical Policy
Division of the U.S. Office of Management and Budget. An employer is
considered to have more than one line of business if the employer offers
for sale to customers property or services in more than one two-digit
code classification referred to in the ESIC Manual.
(ii) Examples. Examples of two-digit classifications are general
retail merchandise stores; hotels and other lodging places; auto repair,
services, and garages; and food stores.
(3) Aggregation of two-digit classifications. If, pursuant to
paragraph (a)(2) of this section, an employer has more than one line of
business, such lines of business will be treated as a single line of
business where and to the extent that one or more of the following
aggregation rules apply:
(i) If it is uncommon in the industry of the employer for any of the
separate lines of business of the employer to be operated without the
others, the separate lines of business are treated as one line of
business.
(ii) If it is common for a substantial number of employees (other
than those employees who work at the headquarters or main office of the
employer) to perform substantial services for more than one line of
business of the employer, so that determination of which employees
perform substantial services for which line of business would be
difficult, then the separate lines of business of the employer in which
such employees perform substantial services are treated as one line of
business. For example, assume that an employer operates a delicatessen
with an attached service counter at which food is sold for consumption
on the premises. Assume further that most but not all employees work
both at the delicatessen and at the service counter. The delicatessen
and the service counter are treated as one line of business.
(iii) If the retail operations of an employer that are located on
the same premises are in separate lines of business but would be
considered to be within one line of business under paragraph (a)(2) of
this section if the merchandise offered for sale in such lines
[[Page 573]]
of business were offered for sale at a department store, then the
operations are treated as one line of business. For example, assume that
on the same premises an employer sells both women's apparel and jewelry.
Since, if sold together at a department store, the operations would be
part of the same line of business, the operations are treated as one
line of business.
(b) Grandfather rule for certain retail stores--(1) In general. The
line of business limitation may be relaxed under a special grandfather
rule. If--
(i) On October 5, 1983, 85 percent of the employees of one member of
an affiliated group (as defined in section 1504 without regard to
subsections (b)(2) and (b)(4) thereof) were entitled to employee
discounts at retail department stores operated by another member of the
affiliated group, and
(ii) More than 50 percent of the current year's sales of the
affiliated group are attributable to the operation of retail department
stores,
then for purposes of the exclusion from gross income of a qualified
employee discount, the first member is treated as engaged in the same
line of business as the second member (the operator of the retail
department stores). Therefore, employees of the first member of the
affiliated group may exclude qualified employee discounts received at
the retail department stores operated by the second member. However,
employees of the second member of the affiliated group may not exclude
any discounts received on property or services offered for sale to
customers by the first member of the affiliated group.
(2) Taxable year of affiliated group. If all of the members do not
have the same taxable year, the affiliated group must designate the 12-
month period to be used in determining the ``current year's sales'' (as
referred to in this paragraph (b)). The 12-month period designated,
however, must be used consistently.
(3) Definition of ``sales''. For purposes of this paragraph (b), the
term ``sales'' means the gross receipts of the affiliated group, based
upon the accounting methods used by its members.
(4) Retired and disabled employees. For purposes of this paragraph
(b), an employee includes any individual who was, or whose spouse was,
formerly employed by the first member of the affiliated group and who
separated from service with the member by reason of retirement or
disability if the second member of the group provided employee discounts
to such individuals on October 5, 1983.
(5) Increase of employee discount. If, after October 5, 1983, the
employee discount described in this paragraph (b) is increased, the
grandfather rule of this paragraph (b) does not apply to the amount of
the increase. For example, if on January 1, 1985, the employee discount
is increased from 10 percent to 15 percent, the grandfather rule will
not apply to the additional five percent discount.
(c) Relaxation of line of business requirement. The line of business
requirement may be relaxed under an elective grandfather rule provided
in section 4977. For rules relating to the section 4977 election, see
Sec. 54.4977-1.
[T.D. 8063, 50 FR 52301, Dec. 23, 1985, as amended by T.D. 8256, 54 FR
28600, July 6, 1989]
Sec. 1.132-5 Working condition fringes.
(a) In general--(1) Definition. Gross income does not include the
value of a working condition fringe. A ``working condition fringe'' is
any property or service provided to an employee of an employer to the
extent that, if the employee paid for the property or service, the
amount paid would be allowable as a deduction under section 162 or 167.
(i) A service or property offered by an employer in connection with
a flexible spending account is not excludable from gross income as a
working condition fringe. For purposes of the preceding sentence, a
flexible spending account is an agreement (whether or not written)
entered into between an employer and an employee that makes available to
the employee over a time period a certain level of unspecified non-cash
benefits with a pre-determined cash value.
(ii) If, under section 274 or any other section, certain
substantiation requirements must be met in order for a deduction under
section 162 or 167 to be allowable, then those substantiation
requirements apply when determining
[[Page 574]]
whether a property or service is excludable as a working condition
fringe.
(iii) An amount that would be deductible by the employee under a
section other than section 162 or 167, such as section 212, is not a
working condition fringe.
(iv) A physical examination program provided by the employer is not
excludable as a working condition fringe even if the value of such
program might be deductible to the employee under section 213. The
previous sentence applies without regard to whether the employer makes
the program mandatory to some or all employees.
(v) A cash payment made by an employer to an employee will not
qualify as a working condition fringe unless the employer requires the
employee to--
(A) Use the payment for expenses in connection with a specific or
pre-arranged activity or undertaking for which a deduction is allowable
under section 162 or 167,
(B) Verify that the payment is actually used for such expenses, and
(C) Return to the employer any part of the payment not so used.
(vi) The limitation of section 67(a) (relating to the two-percent
floor on miscellaneous itemized deductions) is not considered when
determining the amount of a working condition fringe. For example,
assume that an employer provides a $1,000 cash advance to Employee A and
that the conditions of paragraph (a)(1)(v) of this section are not
satisfied. Even to the extent A uses the allowance for expenses for
which a deduction is allowable under section 162 and 167, because such
cash payment is not a working condition fringe, section 67(a) applies.
The $1,000 payment is includible in A's gross income and subject to
income and employment tax withholding. If, however, the conditions of
paragraph (a)(1)(v) of this section are satisfied with respect to the
payment, then the amount of A's working condition fringe is determined
without regard to section 67(a). The $1,000 payment is excludible from
A's gross income and not subject to income and employment tax reporting
and withholding.
(2) Trade or business of the employee--(i) General. If the
hypothetical payment for a property or service would be allowable as a
deduction with respect to a trade or business of an employee other than
the employee's trade or business of being an employee of the employer,
it cannot be taken into account for purposes of determining the amount,
if any, of the working condition fringe.
(ii) Examples. The rule of paragraph (a)(2)(i) of this section may
be illustrated by the following examples:
Example 1. Assume that, unrelated to company X's trade or business
and unrelated to employee A's trade or business of being an employee of
company X, A is a member of the board of directors of company Y. Assume
further that company X provides A with air transportation to a company Y
board of director's meeting. A may not exclude from gross income the
value of the air transportation to the meeting as a working condition
fringe. A may, however, deduct such amount under section 162 if the
section 162 requirements are satisfied. The result would be the same
whether the air transportation was provided in the form of a flight on a
commercial airline or a seat on a company X airplane.
Example 2. Assume the same facts as in example (1) except that A
serves on the board of directors of company Z and company Z regularly
purchases a significant amount of goods and services from company X.
Because of the relationship between Company Z and A's employer, A's
membership on Company Z's board of directors is related to A's trade or
business of being an employee of Company X. Thus, A may exclude from
gross income the value of air transportation to board meetings as a
working condition fringe.
Example 3. Assume the same facts as in example (1) except that A
serves on the board of directors of a charitable organization. Assume
further that the service by A on the charity's board is substantially
related to company X's trade or business. In this case, A may exclude
from gross income the value of air transportation to board meetings as a
working condition fringe.
Example 4. Assume the same facts as in example (3) except that
company X also provides A with the use of a company X conference room
which A uses for monthly meetings relating to the charitable
organization. Also assume that A uses company X's copy machine and word
processor each month in connection with functions of the charitable
organization. Because of the substantial business benefit that company X
derives from A's service on the board of the charity, A may exclude as a
working condition fringe the value of the use of company X property in
connection with the charitable organization.
[[Page 575]]
(b) Vehicle allocation rules--(1) In general--(i) General rule. In
general, with respect to an employer-provided vehicle, the amount
excludable as a working condition fringe is the amount that would be
allowable as a deduction under section 162 or 167 if the employee paid
for the availability of the vehicle. For example, assume that the value
of the availability of an employer-provided vehicle for a full year is
$2,000, without regard to any working condition fringe (i.e., assuming
all personal use). Assume Further that the employee drives the vehicle
6,000 miles for his employer's business and 2,000 miles for reasons
other than the employer's business. In this situation, the value of the
working condition fringe is $2,000 multiplied by a fraction, the
numerator of which is the business-use mileage (6,000 miles) and the
denominator of which is the total mileage (8,000 miles). Thus, the value
of the working condition fringe is $1,500. The total amount includible
in the employee's gross income on account of the availability of the
vehicle is $500 ($2,000-$1,500). For purposes of this section, the term
``vehicle'' has the meaning given the term in Sec. 1.61-21(e)(2).
Generally, when determining the amount of an employee's working
condition fringe, miles accumulated on the vehicle by all employees of
the employer during the period in which the vehicle is available to the
employee are considered. For example, assume that during the year in
which the vehicle is available to the employee in the above example,
other employees accumulate 2,000 additional miles on the vehicle (while
the employee is not in the automobile). In this case, the value of the
working condition fringe is $2,000 multiplied by a fraction, the
numerator of which is the business-use mileage by the employee
(including all mileage (business and personal) accumulated by other
employees) (8,000 miles) and the denominator of which is the total
mileage (including all mileage accumulated by other employees) (10,000
miles). Thus, the value of the working condition fringe is $1,600; the
total amount includible in the employee's gross income on account of the
availability of the vehicle is $400 ($2,000-$1,600). If, however,
substantially all of the use of the automobile by other employees in the
employer's business is limited to a certain period, such as the last
three months of the year, the miles driven by the other employees during
that period would not be considered when determining the employee's
working condition fringe exclusion. Similarly, miles driven by other
employees are not considered if the pattern of use of the employer-
provided automobiles is designed to reduce Federal taxes. For example,
assume that an employer provides employees A and B each with the
availability of an employer-provided automobile and that A uses the
automobile assigned to him 80 percent for the employer's business and
that B uses the automobile assigned to him 30 percent for the employer's
business. If A and B alternate the use of their assigned automobiles
each week in such a way as to achieve a reduction in federal taxes, then
the employer may count only miles placed on the automobile by the
employee to whom the automobile is assigned when determining each
employee's working condition fringe.
(ii) Use by an individual other than the employee. For purposes of
this section, if the availability of a vehicle to an individual would be
taxed to an employee, use of the vehicle by the individual is included
in references to use by the employee.
(iii) Provision of an expensive vehicle for personal use. If an
employer provides an employee with a vehicle that an employee may use in
part for personal purposes, there is no working condition fringe
exclusion with respect to the personal miles driven by the employee; if
the employee paid for the availability of the vehicle, he would not be
entitled to deduct under section 162 or 167 any part of the payment
attributable to personal miles. The amount of the inclusion is not
affected by the fact that the employee would have chosen the
availability of a less expensive vehicle. Moreover, the result is the
same even though the decision to provide an expensive rather than an
inexpensive vehicle is made by the employer for bona fide
noncompensatory business reasons.
[[Page 576]]
(iv) Total value inclusion. In lieu of excluding the value of a
working condition fringe with respect of an automobile, an employer
using the automobile lease valuation rule of Sec. 1.61-21(d) may include
in an employee's gross income the entire Annual Lease Value of the
automobile. Any deduction allowable to the employee under section 162 or
167 with respect to the automobile may be taken on the employee's income
tax return. The total inclusion rule of this paragraph (b)(1)(iv) is not
available if the employer is valuing the use or availability of a
vehicle under general valuation principles or a special valuation rule
other than the automobile lease valuation rule. See Secs. 1.162-25 and
1.162-25T for rules relating to the employee's deduction.
(v) Shared usage. In calculating the working condition fringe
benefit exclusion with respect to a vehicle provided for use by more
than one employee, an employer shall compute the working condition
fringe in a manner consistent with the allocation of the value of the
vehicle under section 1.61-21(c)(2)(ii)(B).
(2) Use of different employer-provided vehicles. The working
condition fringe exclusion must be applied on a vehicle-by-vehicle
basis. For example, assume that automobile Y is available to employee D
for 3 days in January and for 5 days in March, and automobile Z is
available to D for a week in July. Assume further that the Daily Lease
Value, as defined in Sec. 1.61-21(d)(4)(ii), of each automobile is $50.
For the eight days of availability of Y in January and March, D uses Y
90 percent for business (by mileage). During July, D uses Z 60 percent
for business (by mileage). The value of the working condition fringe is
determined separately for each automobile. Therefore, the working
condition fringe for Y is $360 ($400 x .90) leaving an income
inclusion of $40. The working condition fringe for Z is $210 ($350 x
.60), leaving an income inclusion of $140. If the value of the
availability of an automobile is determined under the Annual Lease Value
rule for one period and Daily Lease Value rule for a second period (see
Sec. 1.61-21(d)), the working condition fringe exclusion must be
calculated separately for the two periods.
(3) Provision of a vehicle and chauffeur services--(i) General rule.
In general, with respect to the value of chauffeur services provided by
an employer, the amount excludable as a working condition fringe is the
amount that would be allowable as a deduction under section 162 and 167
if the employee paid for the chauffeur services. The working condition
fringe with respect to a chauffeur is determined separately from the
working condition fringe with respect to the vehicle. An employee may
exclude from gross income the excess of the value of the chauffeur
services over the value of the chauffeur services for personal purposes
(such as commuting) as determined under Sec. 1.61-21(b)(5). See
Sec. 1.61-21(b)(5) for additional rules and examples concerning the
valuation of chauffeur services. See Sec. 1.132-5(m)(5) for rules
relating to an exclusion from gross income for the value of bodyguard/
chauffeur services. When determining whether miles placed on the vehicle
are for the employer's business, miles placed on the vehicle by a
chauffeur between the chauffeur's residence and the place at which the
chauffeur picks up (or drops off) the employee are with respect to the
employee (but not the chauffeur) considered to be miles placed on the
vehicle for the employer's business and thus eligible for the working
condition fringe exclusion. Thus, because miles placed on the vehicle by
a chauffeur between the chauffeur's residence and the place at which the
chauffeur picks up (or drops off) the employee are not considered
business miles with respect to the chauffeur, the value of the
availability of the vehicle for commuting is includible in the gross
income of the chauffeur. For general and special rules concerning the
valuation of the use of employer-provided vehicles, see paragraphs (b)
through (f) of Sec. 1.61-21.
(ii) Examples. The rules of paragraph (b)(3)(i) of this section are
illustrated by the following examples:
Example 1. Assume that an employer makes available to an employee an
automobile and a chauffeur. Assume further that the value of the
chauffeur services determined in accordance with Sec. 1.61-21 is $30,000
and that the chauffeur spends 30 percent of each workday
[[Page 577]]
driving the employee for personal purposes. There may be excluded from
the employee's income 70 percent of $30,000, or $21,000, leaving an
income inclusion with respect to the chauffeur services of $9,000.
Example 2. Assume that the value of the availability of an employer-
provided vehicle for a year is $4,850 and that the value of employer-
provided chauffeur services with respect to the vehicle for the year is
$20,000. Assume further that 40 percent of the miles placed on the
vehicle are for the employer's business and that 60 percent are for
other purposes. In addition, assume that the chauffeur spends 25 percent
of each workday driving the employee for personal purposes (i.e., 2
hours). The value of the chauffeur services includible in the employee's
income is 25 percent of $20,000, or $5,000. The excess of $20,000 over
$5,000 or $15,000 is excluded from the employee's income as a working
condition fringe. The amount excludable as a working condition fringe
with respect to the vehicle is 40 percent of $4,850, or $1,940 and the
amount includible is $4,850-$1,940, or $2,910.
(c) Applicability of substantiation requirements of sections 162 and
274(d)--(1) In general. The value of property or services provided to an
employee may not be excluded from the employee's gross income as a
working condition fringe, by either the employer or the employee, unless
the applicable substantiation requirements of either section 274(d) or
section 162 (whichever is applicable) and the regulations thereunder are
satisfied. The substantiation requirements of section 274(d) apply to an
employee even if the requirements of section 274 do not apply to the
employee's employer for deduction purposes (such as when the employer is
a tax-exempt organization or a governmental unit).
(2) Section 274(d) requirements. The substantiation requirements of
section 274(d) are satisfied by ``adequate records or sufficient
evidence corroborating the [employee's] own statement''. Therefore, such
records or evidence provided by the employee, and relied upon by the
employer to the extent permitted by the regulations promulgated under
section 274(d), will be sufficient to substantiate a working condition
fringe exclusion.
(d) Safe harbor substantiation rules--(1) In general. Section 1.274-
6T provides that the substantiation requirements of section 274(d) and
the regulations thereunder may be satisfied, in certain circumstances,
by using one or more of the safe harbor rules prescribed in Sec. 1.274-
6T. If the employer uses one of the safe harbor rules prescribed in
Sec. 1.274-6T during a period with respect to a vehicle (as defined in
Sec. 1.61-21(e)(2)), that rule must be used by the employer to
substantiate a working condition fringe exclusion with respect to that
vehicle during the period. An employer that is exempt from Federal
income tax may still use one of the safe harbor rules (if the
requirements of that section are otherwise met during a period) to
substantiate a working condition fringe exclusion with respect to a
vehicle during the period. If the employer uses one of the methods
prescribed in Sec. 1.274-6T during a period with respect to an employer-
provided vehicle, that method may be used by an employee to substantiate
a working condition fringe exclusion with respect to the same vehicle
during the period, as long as the employee includes in gross income the
amount allocated to the employee pursuant to Sec. 1.274-6T and this
section. (See Sec. 1.61-21(c)(2) for other rules concerning when an
employee must include in income the amount determined by the employer.)
If, however, the employer uses the safe harbor rule prescribed in
Sec. 1.274-6T(a) (2) or (3) and the employee without the employer's
knowledge uses the vehicle for purposes other than de minimis personal
use (in the case of the rule prescribed in Sec. 1.274-6T(a)(2)), or for
purposes other than de minimis personal use and commuting (in the case
of the rule prescribed in Sec. 1.274-6T(a)(3)), then the employees must
include an additional amount in income for the unauthorized use of the
vehicle.
(2) Period for use of safe harbor rules. The rules prescribed in
this paragraph (d) assume that the safe harbor rules prescribed in
Sec. 1.274-6T are used for a one-year period. Accordingly, references to
the value of the availability of a vehicle, amounts excluded as a
working condition fringe, etc., are based on a one-year period. If the
safe harbor rules prescribed in Sec. 1.274-6T are used for a period of
less than a year, the amounts referred to in the previous sentence must
be adjusted accordingly. For purposes of this section, the term
``personal use'' has the same meaning as prescribed in Sec. 1.274-6T
(e)(5).
[[Page 578]]
(e) Safe harbor substantiation rule for vehicles not used for
personal purposes. For a vehicle described in Sec. 1.274-6T(a)(2)
(relating to certain vehicles not used for personal purposes), the
working condition fringe exclusion is equal to the value of the
availability of the vehicle if the employer uses the method prescribed
in Sec. 1.274-6T(a)(2).
(f) Safe harbor substantiation rule for vehicles not available to
employees for personal use other than commuting. For a vehicle described
in Sec. 1.274-6T(a)(3) (relating to certain vehicles not used for
personal purposes other than commuting), the working condition fringe
exclusion is equal to the value of the availability of the vehicle for
purposes other than commuting if the employer uses the method prescribed
in Sec. 1.274-6T(a)(3). This rule applies only if the special rule for
valuing commuting use, as prescribed in Sec. 1.61-21(f), is used and the
amount determined under the special rule is either included in the
employee's income or reimbursed by the employee.
(g) Safe harbor substantiation rule for vehicles used in connection
with the business of farming that are available to employees for
personal use--(1) In general. For a vehicle described in Sec. 1.274-
6T(b) (relating to certain vehicles used in connection with the business
of farming), the working condition fringe exclusion is calculated by
multiplying the value of the availability of the vehicle by 75 percent.
(2) Vehicles available to more than one individual. If the vehicle
is available to more than one individual, the employer must allocate the
gross income inclusion attributable to the vehicle (25 percent of the
value of the availability of the vehicle) among the employees (and other
individuals whose use would not be attributed to an employee) to whom
the vehicle was available. This allocation must be done in a reasonable
manner to reflect the personal use of the vehicle by the individuals. An
amount that would be allocated to a sole proprietor reduces the amounts
that may be allocated to employees but is otherwise to be disregarded
for purposes of this paragraph (g). For purposes of this paragraph (g),
the value of the availability of a vehicle may be calculated as if the
vehicle were available to only one employee continuously and without
regard to any working condition fringe exclusion.
(3) Examples. The following examples illustrate a reasonable
allocation of gross income with respect to an employer-provided vehicle
between two employees:
Example 1. Assume that two farm employees share the use of a vehicle
that for a calendar year is regularly used directly in connection with
the business of farming and qualifies for use of the rule in Sec. 1.274-
6T(b). Employee A uses the vehicle in the morning directly in connection
with the business of farming and employee B uses the vehicle in the
afternoon directly in connection with the business of farming. Assume
further that employee B takes the vehicle home in the evenings and on
weekends. The employer should allocate all the income attributable to
the availability of the vehicle to employee B.
Example 2. Assume that for a calendar year, farm employees C and D
share the use of a vehicle that is regularly used directly in connection
with the business of farming and qualifies for use of the rule in
Sec. 1.2.4-6T(b). Assume further that the employees alternate taking the
vehicle home in the evening and alternate the availability of the
vehicle for personal purposes on weekends. The employer should allocate
the income attributable to the availability of the vehicle for personal
use (25 percent of the value of the availability of the vehicle) equally
between the two employees.
Example 3. Assume the same facts as in example (2) except that C is
the sole proprietor of the farm. Based on these facts, C should allocate
the same amount of income to D as was allocated to D in example (2). No
other income attributable to the availability of the vehicle for
personal use should be allocated.
(h) Qualified nonpersonal use vehicles--(1) In general. Except as
provided in paragraph (h)(2) of this section, 100 percent of the value
of the use of a qualified nonpersonal use vehicle (as described in
Sec. 1.274-5(k)) is excluded from gross income as a working condition
fringe, provided that, in the case of a vehicle described in Sec. 1.274-
5(k)(3) through (8), the use of the vehicle conforms to the requirements
of paragraphs (k)(3) through (8).
(2) Shared usage of qualified nonpersonal use vehicles. In general,
a working condition fringe under this paragraph (h) is available to the
driver and all passengers of a qualified nonpersonal
[[Page 579]]
use vehicle. However, a working condition fringe under this paragraph
(h) is available only with respect to the driver and not with respect to
any passengers of a qualified nonpersonal use vehicle described in
Sec. 1.274-5(k)(2)(ii)(L) or (P).
(i) [Reserved]
(j) Application of section 280F. In determining the amount, if any,
of an employee's working condition fringe, section 280F and the
regulations thereunder do not apply. For example, assume that an
employee has available for a calendar year an employer-provided
automobile with a fair market value of $28,000. Assume further that the
special rule provided in Sec. 1.61-21(d) is used yielding an Annual
Lease Value, as defined in Sec. 1.61-21(d), of $7,750, and that all of
the employee's use of the automobile is for the employer's business. The
employee would be entitled to exclude as a working condition fringe the
entire Annual Lease Value, despite the fact that if the employee paid
for the availability of the automobile, an income inclusion would be
required under Sec. 1.280F-6(d)(1). This paragraph (j) does not affect
the applicability of section 280F to the employer with respect to such
employer-provided automobile, nor does it affect the applicability of
section 274 to either the employer or the employee. For rules concerning
substantiation of an employee's working condition fringe, see paragraph
(c) of this section.
(k) Aircraft allocation rule. In general, with respect to a flight
on an employer-provided aircraft, the amount excludable as a working
condition fringe is the amount that would be allowable as a deduction
under section 162 or 167 if the employee paid for the flight on the
aircraft. For example, if employee P and P's spouse fly on P's
employer's airplane primarily for business reasons of P's employer so
that P could deduct the expenses relating to the trip to the extent of
P's payments, the value of the flights is excludable from gross income
as a working condition fringe. However, if P's children accompany P on
the trip primarily for personal reasons, the value of the flights by P's
children are includible in P's gross income. See Sec. 1.61-21 (g) for
special rules for valuing personal flights on employer-provided
aircraft.
(l) [Reserved]
(m) Employer-provided transportation for security concerns--(1) In
general. The amount of a working condition fringe exclusion with respect
to employer-provided transportation is the amount that would be
allowable as a deduction under section 162 or 167 if the employee paid
for the transportation. Generally, if an employee pays for
transportation taken for primarily personal purposes, the employee may
not deduct any part of the amount paid. Thus, the employee may not
generally exclude the value of employer-provided transportation as a
working condition fringe if such transportation is primarily personal.
If, however, for bona fide business-oriented security concerns, the
employee purchases transportation that provides him or her with
additional security, the employee may generally deduct the excess of the
amount actually paid for the transportation over the amount the employee
would have paid for the same mode of transportation absent the bona fide
business-oriented security concerns. This is the case whether or not the
employee would have taken the same mode of transportation absent the
bona fide business-oriented security concerns. With respect to a
vehicle, the phrase ``the same mode of transportation'' means use of the
same vehicle without the additional security aspects, such as
bulletproof glass. With respect to air transportation, the phrase ``the
same mode of transportation'' means comparable air transportation. These
same rules apply to the determination of an employee's working condition
fringe exclusion. For example, if an employer provides an employee with
a vehicle for commuting and, because of bona fide business-oriented
security concerns, the vehicle is specially designed for security, then
the employee may exclude from gross income the value of the special
security design as a working condition fringe. The employee may not
exclude the value of the commuting from income as a working condition
fringe because commuting is a nondeductible personal expense. However,
if an independent security study meeting the requirements of paragraph
(m)(2)(v) of
[[Page 580]]
this section has been performed with respect to a government employee,
the government employee may exclude the value of the personal use (other
than commuting) of the employer-provided vehicle that the security study
determines to be reasonable and necessary for local transportation.
Similarly, if an employee travels on a personal trip in an employer-
provided aircraft for bona fide business-oriented security concerns, the
employee may exclude the excess, if any, of the value of the flight over
the amount the employee would have paid for the same mode of
transportation, but for the bona fide business-oriented security
concerns. Because personal travel is a nondeductible expense, the
employee may not exclude the total value of the trip as a working
condition fringe.
(2) Demonstration of bona fide business-oriented security concerns--
(i) In general. For purposes of this paragraph (m), a bona fide
business-oriented security concern exists only if the facts and
circumstances establish a specific basis for concern regarding the
safety of the employee. A generalized concern for an employee's safety
is not a bona fide business-oriented security concern. Once a bona fide
business-oriented security concern is determined to exist with respect
to a particular employee, the employer must periodically evaluate the
situation for purposes of determining whether the bona fide business-
oriented security concern still exists. Example of factors indicating a
specific basis for concern regarding the safety of an employee are--
(A) A threat of death or kidnapping of, or serious bodily harm to,
the employee or a similarly situated employee because of either
employee's status as an employee of the employer; or
(B) A recent history of violent terrorist activity (such as
bombings) in the geographic area in which the transportation is
provided, unless that activity is focused on a group of individuals
which does not include the employee (or a similarly situated employee of
an employer), or occurs to a significant degree only in a location
within the geographic area where the employee does not travel.
(ii) Establishment of overall security program. Notwithstanding
anything in paragraph (m)(2)(i) of this section to the contrary, no bona
fide business-oriented security concern will be deemed to exist unless
the employee's employer establishes to the satisfaction of the
Commissioner that an overall security program has been provided with
respect to the employee involved. An overall security program is deemed
to exist if the requirements of paragraph (m)(2)(iv) of this section are
satisfied (relating to an independent security study).
(iii) Overall security program--(A) Defined. An overall security
program is one in which security is provided to protect the employee on
a 24-hour basis. The employee must be protected while at the employee's
residence, while commuting to and from the employee's workplace, and
while at the employee's workplace. In addition, the employee must be
protected while traveling both at home and away from home, whether for
business or personal purposes. An overall security program must include
the provision of a bodyguard/chauffeur who is trained in evasive driving
techniques; an automobile specially equipped for security; guards, metal
detectors, alarms, or similar methods of controlling access to the
employee's workplace and residence; and, in appropriate cases, flights
on the employer's aircraft for business and personal reasons.
(B) Application. There is no overall security program when, for
example, security is provided at the employee's workplace but not at the
employee's residence. In addition, the fact that an employer requires an
employee to travel on the employer's aircraft, or in an employer-
provided vehicle that contains special security features, does not alone
constitute an overall security program. The preceding sentence applies
regardless of the existence of a corporate or other resolution requiring
the employee to travel in the employer's aircraft or vehicle for
personal as well as business reasons.
(iv) Effect of an independent security study. An overall security
program with respect to an employee is deemed to exist if the conditions
of this paragraph (m)(2)(iv) are satisfied:
[[Page 581]]
(A) A security study is performed with respect to the employer and
the employee (or a similarly situated employee of the employer) by an
independent security consultant;
(B) The security study is based on an objective assessment of all
facts and circumstances;
(C) The recommendation of the security study is that an overall
security program (as defined in paragraph (m)(2)(iii) of this section)
is not necessary and the recommendation is reasonable under the
circumstances; and
(D) The employer applies the specific security recommendations
contained in the security study to the employee on a consistent basis.
The value of transportation-related security provided pursuant to a
security study that meets the requirements of this paragraph (m)(2)(iv)
may be excluded from income if the security study conclusions are
reasonable and, but for the bona fide business-oriented security
concerns, the employee would not have had such security. No exclusion
from income applies to security provided by the employer that is not
recommended in the security study. Security study conclusions may be
reasonable even if, for example, it is recommended that security be
limited to certain geographic areas, as in the case in which air travel
security is provided only in certain foreign countries.
(v) Independent security study with respect to government employees.
For purposes of establishing the existence of an overall security
program under paragraph (m)(2)(ii) of this section with respect to a
particular government employee, a security study conducted by the
government employer (including an agency or instrumentality thereof)
will be treated as a security study pursuant to paragraph (m)(2)(iv) of
this section if, in lieu of the conditions of paragraphs (m)(2)(iv)(A)
through (D) of this section, the following conditions are satisfied:
(A) The security study is conducted by a person expressly designated
by the government employer as having the responsibility and independent
authority to determine both the need for employer-provided security and
the appropriate protective services in response to that determination;
(B) The security study is conducted in accordance with written
internal procedures that require an independent and objective assessment
of the facts and circumstances, such as the nature of the threat to the
employee, the appropriate security response to that threat, an estimate
of the length of time protective services will be necessary, and the
extent to which employer-provided transportation may be necessary during
the period of protection;
(C) With respect to employer-provided transportation, the security
study evaluates the extent to which personal use, including commuting,
by the employee and the employee's spouse and dependents may be
necessary during the period of protection and makes a recommendation as
to what would be considered reasonable personal use during that period;
and
(D) The employer applies the specific security recommendations
contained in the study to the employee on a consistent basis.
(3) Application of security rules to spouses and dependents--(i) In
general. If a bona fide business-oriented security concern exists with
respect to an employee (because, for example, threats are made on the
life of an employee), the bona fide business-oriented security concern
is deemed to exist with respect to the employee's spouse and dependents
to the extent provided in this paragraph (m)(3).
(ii) Certain transportation. If a working condition fringe exclusion
is available under this paragraph (m) for transportation in a vehicle or
aircraft provided for a bona fide business-oriented security concern
with respect to an employee, the requirements of this paragraph (m) are
deemed to be satisfied with respect to transportation in the same
vehicle or aircraft provided at the same time to the employee's spouse
and dependent children.
(iii) Other. Except as provided in paragraph (m)(3)(ii) of this
section, a bona fide business oriented security concern is deemed to
exist for the spouse and dependent children of the employer only if the
requirements of paragraph (m)(2) (iii) or (iv) of this section are
applied independently to such spouse and dependent children.
[[Page 582]]
(iv) Spouses and dependents of government employees. The security
rules of this paragraph (m)(3) apply to the spouse and dependents of a
government employee. However, the value of local vehicle transportation
provided to the government employee's spouse and dependents for personal
purposes, other than commuting, during the period that a bona fide
business-oriented security concern exists with respect to the government
employee will not be included in the government employee's gross income
if the personal use is determined to be reasonable and necessary by the
security study described in paragraph (m)(2)(v) of this section.
(4) Working condition safe harbor for travel on employer-provided
aircraft. Under the safe harbor rule of this paragraph (m)(4), if, for a
bona fide business-oriented security concern, the employer requires that
an employee travel on an employer-provided aircraft for a personal trip,
the employer and the employee may exclude from the employee's gross
income, as a working condition fringe, the excess value of the aircraft
trip over the safe harbor airfare without having to show what method of
transportation the employee would have flown but for the bona fide
business-oriented security concern. For purposes of the safe harbor rule
of this paragraph (m)(4), the value of the safe harbor airfare is
determined under the non-commercial flight valuation rule of Sec. 1.61-
21(g) (regardless of whether the employer or employee elects to use such
valuation rule) by multiplying an aircraft multiple of 200-percent by
the applicable cents-per-mile rates and the number of miles in the
flight and then adding the applicable terminal charge. The value of the
safe harbor airfare determined under this paragraph (m)(4) must be
included in the employee's income (to the extent not reimbursed by the
employee) regardless of whether the employee or the employer uses the
special valuation rule of Sec. 1.61-21(g). The excess of the value of
the aircraft trip over this amount may be excluded from gross income as
a working condition fringe. If, for a bona fide business-oriented
security concern, the employer requires that an employee's spouse and
dependents travel on an employer-provided aircraft for a personal trip,
the special rule of this paragraph (m)(4) is available to exclude the
excess value of the aircraft trips over the safe harbor airfares.
(5) Bodyguard/chauffeur provided for a bona fide business-oriented
security concern. If an employer provides an employee with vehicle
transportation and a bodyguard/chauffeur for a bona fide business-
oriented security concern, and but for the bona fide business-oriented
security concern the employee would not have had a bodyguard or a
chauffeur, then the entire value of the services of the bodyguard/
chauffeur is excludable from gross income as a working condition fringe.
For purposes of this section, a bodyguard/chauffeur must be trained in
evasive driving techniques. An individual who performs services as a
driver for an employee is not a bodyguard/chauffeur if the individual is
not trained in evasive driving techniques. Thus, no part of the value of
the services of such an individual is excludable from gross income under
this paragraph (m)(5). (See paragraph (b)(3) of this section for rules
relating to the determination of the working condition fringe exclusion
for chauffeur services.)
(6) Special valuation rule for government employees. If
transportation is provided to a government employee for commuting during
the period that a bona fide business-oriented security concern under
Sec. 1.132-5(m) exists, the commuting use may be valued by reference to
the values set forth in Sec. 1.61-21(e)(1)(i) or (f)(3) (vehicle cents-
per-mile or commuting valuation of $1.50 per one-way commute,
respectively) without regard to the additional requirements contained in
Sec. 1.61-21 (e) or (f) and is deemed to have met the requirements of
Sec. 1.61-21(c).
(7) Government employer and employee defined. For purposes of this
paragraph (m), ``government employer'' includes any Federal, State, or
local government unit, and any agency or instrumentality thereof. A
``government employee'' is any individual who is employed by the
government employer.
(8) Examples. The provisions of this paragraph (m) may be
illustrated by the following examples:
[[Page 583]]
Example 1. Assume that in response to several death threats on the
life of A, the president of X a multinational company, X establishes an
overall security program for A, including an alarm system at A's home
and guards at A's workplace, the use of a vehicle that is specially
equipped with alarms, bulletproof glass, and armor plating, and a
bodyguard/chauffeur. Assume further that A is driven for both personal
and business reasons in the vehicle. Also, assume that but for the bona
fide business-oriented security concerns, no part of the overall
security program would have been provided to A. With respect to the
transportation provided for security reasons, A may exclude as a working
condition fringe the value of the special security features of the
vehicle and the value attributable to the bodyguard/chauffeur. Thus, if
the value of the specially equipped vehicle is $40,000, and the value of
the vehicle without the security features is $25,000, A may determine
A's inclusion in income attributable to the vehicle as if the vehicle
were worth $25,000. A must include in income the value of the
availability of the vehicle for personal use.
Example 2. Assume that B is the chief executive officer of Y, a
multinational corporation. Assume further that there have been
kidnapping attempts and other terrorist activities in the foreign
countries in which B performs services and that at least some of such
activities have been directed against B or similarly situated employees.
ln response to these activities, Y provides B with an overall security
program, including an alarm system at B's home and bodyguards at B's
workplace, a bodyguard/chauffeur, and a vehicle specially designed for
security during B's overseas travels. In addition, assume that Y
requires B to travel in Y's airplane for business and personal trips
taken to, from, and within these foreign countries. Also, assume that
but for bona fide business-oriented security concerns, no part of the
overall security program would have been provided to B. B may exclude as
a working condition fringe the value of the special security features of
the automobile and the value attributable to the bodyguards and the
bodyguard/chauffeur. B may also exclude the excess, if any, of the value
of the flights over the amount A would have paid for the same mode of
transportation but for the security concerns. As an alternative to the
preceding sentence, B may use the working condition safe harbor
described in paragraph (m)(4) of this section and exclude as a working
condition fringe the excess, if any, of the value of personal flights in
the Y airplane over the safe harbor airfare determined under the method
described in paragraph (m)(4) of this section. If this alternative is
used, B must include in income the value of the availability of the
vehicle for personal use and the value of the safe harbor.
Example 3. Assume the same facts as in example (2) except that Y
also requires B to travel in Y's airplane within the United States, and
provides B with a chauffeur-driven limousine for business and personal
travel in the United States. Assume further that Y also requires B's
spouse and dependents to travel in Y's airplane for personal flights in
the United States. If no bona fide business-oriented security concern
exists with respect to travel in the United States, B may not exclude
from income any portion of the value of the availability of the
chauffeur or limousine for personal use in the United States. Thus, B
must include in income the value of the availability of the vehicle and
chauffeur for personal use. In addition, B may not exclude any portion
of the value attributable to personal flights by B or B's spouse and
dependents on Y's airplane. Thus, B must include in income the value
attributable to the personal use of Y's airplane. See Sec. 1.61-21 for
rules relating to the valuation of an employer-provided vehicle and
chauffeur, and personal flights on employer-provided airplanes.
Example 4. Assume that company Z retains an independent security
consultant to perform a security study with respect to its chief
executive officer. Assume further that, based on an objective assessment
of the facts and circumstances, the security consultant reasonably
recommends that 24-hour protection is not necessary but that the
employee be provided security at his workplace and for ground
transportation, but not for air transportation. If company Z follows the
recommendations on a consistent basis, an overall security program will
be deemed to exist with respect to the workplace and ground
transportation security only.
Example 5. Assume the same facts as in example (4) except that
company Z only provides the employee security while commuting to and
from work, but not for any other ground transportation. Because the
recommendations of the independent security study are not applied on a
consistent basis, an overall security program will not be deemed to
exist. Thus, the value of commuting to and from work is not excludable
from income. However, the value of a bodyguard with professional
security training who does not provide chauffeur or other personal
services to the employee or any member of the employee's family may be
excludable as a working condition fringe if such expense would be
otherwise allowable as a deduction by the employee under section 162 or
167.
Example 6. J is a United States District Judge. At the beginning of
a 3-month criminal trial in J's court, a member of J's family receives
death threats. M, the division (within government agency W) responsible
for evaluating threats and providing protective services to the Federal
judiciary, directs its
[[Page 584]]
threat analysis unit to conduct a security study with respect to J and
J's family. The study is conducted pursuant to internal written
procedures that require an independent and objective assessment of any
threats to members of the Federal judiciary and their families, a
statement of the requisite security response, if any, to a particular
threat (including the form of transportation to be furnished to the
employee as part of the security program), and a description of the
circumstances under which local transportation for the employee and the
employee's spouse and dependents may be necessary for personal reasons
during the time protective services are provided. M's study concludes
that a bona fide business-oriented security concern exists with respect
to J and J's family and determines that 24-hour protection of J and J's
family is not necessary, but that protection is necessary during the
course of the criminal trial whenever J or J's family is away from home.
Consistent with that recommendation, J is transported every day in a
government vehicle for both personal and business reasons and is
accompanied by two bodyguard/chauffeurs who have been trained in evasive
driving techniques. In addition, J's spouse is driven to and from work
and J's children are driven to and from school and occasional school
activities. Shortly after the trial is concluded, M's threat analysis
unit determines that J and J's family no longer need special protection
because the danger posed by the threat no longer exists and,
accordingly, vehicle transportation is no longer provided. Because the
security study conducted by M complies with the conditions of
Sec. 1.132-5(m)(2)(v), M has satisfied the requirement for an
independent security study and an overall security program with respect
to J is deemed to exist. Thus, with respect to the transportation
provided for security concerns, J may exclude as a working condition
fringe the value of any special security features of the government
vehicle and the value attributable to the two bodyguard/chauffeurs. See
Example (1) of this paragraph (m)(8). The value of vehicle
transportation provided to J and J's family for personal reasons, other
than commuting, may also be excluded during the period of protection,
because its provision was consistent with the recommendation of the
security study.
Example 7. Assume the same facts as in Example (6) and that J's one-
way commute between home and work is 10 miles. Under paragraph (m)(6) of
this section, the Federal Government may value transportation provided
to J for commuting purposes pursuant to the value set forth in either
the vehicle cents-per-mile rule of Sec. 1.61-21(e) or the commuting
valuation rule of Sec. 1.61-21(f). Because the commuting valuation rule
yields the least amount of taxable income to J under the circumstances,
W values the transportation provided to J for commuting at $1.50 per
one-way commute, even though J is a control employee within the meaning
of Sec. 1.61-21(f)(6).
(n) Product testing--(1) In general. The fair market value of the
use of consumer goods, which are manufactured for sale to nonemployees,
for product testing and evaluation by an employee of the manufacturer
outside the employer's workplace, is excludible from gross income as a
working condition fringe if--
(i) Consumer testing and evaluation of the product is an ordinary
and necessary business expense of the employer;
(ii) Business reasons necessitate that the testing and evaluation of
the product be performed off the employer's business premises by
employees (i.e., the testing and evaluation cannot be carried out
adequately in the employer's office or in laboratory testing
facilities);
(iii) The product is furnished to the employee for purposes of
testing and evaluation;
(iv) The product is made available to the employee for no longer
than necessary to test and evaluate its performance and (to the extent
not exhausted) must be returned to the employer at completion of the
testing and evaluation period;
(v) The employer imposes limits on the employee's use of the product
that significantly reduce the value of any personal benefit to the
employee; and
(vi) The employee must submit detailed reports to the employer on
the testing and evaluation. The length of the testing and evaluation
period must be reasonable in relation to the product being tested.
(2) Employer-imposed limits. The requirement of paragraph (n)(1)(v)
of this section is satisfied if--
(i) The employer places limits on the employee's ability to select
among different models or varieties of the consumer product that is
furnished for testing and evaluation purposes; and
(ii) The employer generally prohibits use of the product by persons
other than the employee and, in appropriate cases, requires the
employee, to purchase or lease at the employee's own expense the same
type of product as
[[Page 585]]
that being tested (so that personal use by the employee's family will be
limited). In addition, any charge by the employer for the personal use
by an employee of a product being tested shall be taken into account in
determining whether the requirement of paragraph (n)(1)(v) of this
section is satisfied.
(3) Discriminating classifications. If an employer furnishes
products under a testing and evaluation program only, or presumably, to
certain classes of employees (such as highly compensated employees, as
defined in Sec. 1.132-8(g)), this fact may be relevant when determining
whether the products are furnished for testing and evaluation purposes
or for compensation purposes, unless the employer can show a business
reason for the classification of employees to whom the products are
furnished (e.g., that automobiles are furnished for testing and
evaluation by an automobile manufacturer to its design engineers and
supervisory mechanics).
(4) Factors that negate the existence of a product testing program.
If an employer fails to tabulate and examine the results of the detailed
reports submitted by employees within a reasonable period of time after
expiration of the testing period, the program will not be considered a
product testing program for purposes of the exclusion of this paragraph
(n). Existence of one or more of the following factors may also
establish that the program is not a bona fide product testing program
for purposes of the exclusion of this paragraph (n):
(i) The program is in essence a leasing program under which
employees lease the consumer goods from the employer for a fee;
(ii) The nature of the product and other considerations are
insufficient to justify the testing program; or
(iii) The expense of the program outweighs the benefits to be gained
from testing and evaluation.
(5) Failure to meet the requirements of this paragraph (n). The fair
market value of the use of property for product testing and evaluation
by an employee outside the employee's workplace, under a product testing
program that does not meet all of the requirements of this paragraph
(n), is not excludable from gross income as a working condition fringe
under this paragraph (n).
(6) Example. The rules of this paragraph (n) may be illustrated by
the following example:
Example. Assume that an employer that manufactures automobiles
establishes a product testing program under which 50 of its 5,000
employees test and evaluate the automobiles for 30 days. Assume further
that the 50 employees represent a fair cross-section of all of the
employees of the employer, such employees submit detailed reports to the
employer on the testing and evaluation, the employer tabulates and
examines the test results within a reasonable time, and the use of the
automobiles is restricted to the employees. If the employer imposes the
limits described in paragraph (n)(2) of this section, the employees may
exclude the value of the use of the automobile during the testing and
evaluation period.
(o) Qualified automobile demonstration use--(1) In general. The
value of qualified automobile demonstration use is excludable from gross
income as a working condition fringe. ``Qualified automobile
demonstration use'' is any use of a demonstration automobile by a full-
time automobile salesman in the sales area in which the automobile
dealer's sales office is located if--
(i) Such use is provided primarily to facilitate the salesman's
performance of services for the employer; and
(ii) There are substantial restrictions on the personal use of the
automobile by the salesman.
(2) Full-time automobile salesman--(i) Defined. The term ``full-time
automobile salesman'' means any individual who--
(A) Is employed by an automobile dealer;
(B) Customarily spends at least half of a normal business day
performing the functions of a floor salesperson or sales manager;
(C) Directly engages in substantial promotion and negotiation of
sales to customers;
(D) Customarily works a number of hours considered full-time in the
industry (but at a rate not less than 1,000 hours per year); and
(E) Derives at least 25 percent of his or her gross income from the
[[Page 586]]
automobi1e dealership directly as a result of the activities described
in paragraphs (o)(2)(i) (B) and (C) of this section.
For purposes of paragraph (o)(2)(i) (E) of this section, income is not
considered to be derived directly as a result of activities described in
paragraphs (o)(2)(i) (B) and (C) of this section to the extent that the
income is attributable to an individual's ownership interest in the
dealership. An individual will not be considered to engage in direct
sales activities if the individual's sales-related activities are
substantially limited to review of sales price offers from customers. An
individual, such as the general manager of an automobi1e dealership, who
receives a sales commission on the sale of an automobile is not a full-
time automobile salesman unless the requirements of this paragraph
(o)(2)(i) are met. The exclusion provided in this paragraph (o) is
available to an individual who meets the definition of this paragraph
(o)(2)(i) whether the individual performs services in addition to those
described in this paragraph (o)(2)(i). For example, an individual who is
an owner of the automobile dealership but who otherwise meets the
requirements of this paragraph (o)(2)(i) may exclude from gross income
the value of qualified automobile demonstration use. However, the
exclusion of this paragraph (o) is not available to owners of large
automobile dealerships who do not customarily engage in significant
sales activities.
(ii) Use by an individual other than a full-time automobile
salesman. Personal use of a demonstration automobile by an individual
other than a full-time automobile salesman is not treated as a working
condition fringe. Therefore, any personal use, including commuting use,
of a demonstration automobile by a part-time salesman, automobile
mechanic, or other individual who is not a full-time automobile salesman
is not ``qualified automobile demonstration use'' and thus not
excludable from gross income. This is the case whether or not the
personal use is within the sales area (as defined in paragraph (o)(5) of
this section).
(3) Demonstration automobile. The exclusion provided in this
paragraph (o) applies only to qualified use of a demonstration
automobile. A demonstration automobile is an automobile that is--
(i) Currently in the inventory of the automobile dealership; and
(ii) Available for test drives by customers during the normal
business hours of the employee.
(4) Substantial restrictions on personal use. Substantial
restrictions on the personal use of a demonstration automobile exist
when all of the following conditions are satisfied:
(i) Use by individuals other than the full-time automobile salesmen
(e.g., the salesman's family) is prohibited;
(ii) Use for personal vacation trips is prohibited;
(iii) The storage of personal possessions in the automobile is
prohibited; and
(iv) The total use by mileage of the automobile by the salesman
outside the salesman's normal working hours is limited.
(5) Sales area--(i) In general. Qualified automobile demonstration
use consists of use in the sales area in which the automobile dealer's
sales office is located. The sales area is the geographic area
surrounding the automobile dealer's sales office from which the office
regularly derives customers.
(ii) Sales area safe harbor. With respect to a particular full-time
salesman, the automobile dealer's sales area may be treated as the area
within a radius of the larger of--
(A) 75 miles or
(B) The one-way commuting distance (in miles) of the particular
salesman from the dealer's sales office.
(6) Applicability of substantiation requirements of sections 162 and
274(d). Notwithstanding anything in this section to the contrary, the
value of the use of a demonstration automobile may not be excluded from
gross income as a working condition fringe, by either the employer or
the employee, unless, with respect to the restrictions of paragraph
(o)(4) of this section, the substantiation requirements of section
274(d) and the regulations thereunder are satisfied. See Sec. 1.132-5(c)
for general and safe harbor rules relating to the applicability of the
substantiation requirements of section 274(d).
[[Page 587]]
(7) Special valuation rules. See Sec. 1.61-21(d)(6)(ii) for special
rules that may be used to value the availability of demonstration
automobiles.
(p) Parking--(1) In general. The value of parking provided to an
employee on or near the business premises of the employer is excludable
from gross income as a working condition fringe under the special rule
of this paragraph (p). If the rules of this paragraph (p) are satisfied,
the value of parking is excludable from gross income whether the amount
paid by the employee for parking would be deductible under section 162.
The working condition fringe exclusion applies whether the employer owns
or rents the parking facility or parking space.
(2) Reimbursement of parking expenses. A reimbursement to the
employee of the ordinary and necessary expenses of renting a parking
space on or near the business premises of the employer is excludable
from gross income as a working condition fringe, if, but for the parking
expense, the employee would not have been entitled to receive and retain
such amount from the employer. If, however an employee is entitled to
retain a general transportation allowance or a similar benefit whether
or not the employee has parking expenses, no portion of that allowance
is excludable from gross income under this paragraph (p) even if it is
used for parking expenses.
(3) Parking on residential property. With respect to an employee,
this paragraph (p) does not apply to any parking facility or space
located on property owned or leased by the employee for residential
purposes.
(4) Dates of applicability. This paragraph (p) applies to benefits
provided before January 1, 1993. For benefits provided after December
31, 1992, see Sec. 1.132-9.
(q) Nonapplicability of nondiscrimination rules. Except to the
extent provided in paragraph (n)(3) of this section (relating to
discriminating classifications of a product testing program), the
nondiscrimination rules of section 132 (h)(1) and Sec. 1.132-8 do not
apply in determining the amount, if any, of a working condition fringe.
(r) Volunteers--(1) In general. Solely for purposes of section
132(d) and paragraph (a)(1) of this section, a bona fide volunteer
(including a director or officer) who performs services for an
organization exempt from tax under section 501(a), or for a government
employer (as defined in paragraph (m)(7) of this section), is deemed to
have a profit motive under section 162.
(2) Limit on application of this paragraph. This paragraph (r) shall
not be used to support treatment of the bona fide volunteer as having a
profit motive for purposes of any provision of the Internal Revenue Code
of 1986 (Code) other than section 132(d). Nothing in this paragraph (r)
shall be interpreted as determining the employment status of a bona fide
volunteer for purposes of any section of the Code other than section
132(d).
(3) Definitions--(i) Bona fide volunteer. For purposes of this
paragraph (r), an individual is considered a ``bona fide volunteer'' if
the individual does not have a profit motive for purposes of section
162. For example, an individual is considered a ``bona fide volunteer''
if the total value of the benefits provided with respect to the
volunteer services is substantially less than the total value of the
volunteer services the individual provides to an exempt organization or
government employer.
(ii) Liability insurance coverage for a bona fide volunteer. For
purposes of this paragraph (r), the receipt of liability insurance
coverage by a volunteer, or an exempt organization or government
employer's undertaking to indemnify the volunteer for liability, does
not by itself confer a profit motive on the volunteer, provided the
insurance coverage or indemnification relates to acts performed by the
volunteer in the discharge of duties, or the performance of services, on
behalf of the exempt organization or government employer.
(4) Example. The following example illustrates the provisions of
paragraph (r) of this section.
Example. A is a manager and full-time employee of P, a tax-exempt
organization described in section 501(c)(3). B is a member of P's board
of directors. Other than $25 to defray expenses for attending board
meetings, B receives no compensation for serving as a director and does
not have a profit motive. Therefore, B is a bona fide volunteer by
application of paragraph (r)(3)(i) of this section and is deemed to have
a profit motive under
[[Page 588]]
paragraph (r)(1) of this section for purposes of section 132(d). In
order to provide liability insurance coverage, P purchases a policy that
covers actions arising from A's and B's activities performed as part of
their duties to P. The value of the policy and payments made to or on
behalf of A under the policy are excludable for A's gross income as a
working condition fringe, because A has a profit motive under section
162 and would be able to deduct payments for liability insurance
coverage had he paid for it himself. The receipt of liability insurance
coverage by B does not confer a profit motive on B by application of
paragraph (r)(3)(ii) of this section. Thus, the value of the policy and
payments made to or on behalf of B under the policy are excludable from
B's income as a working condition fringe. For the year in which the
liability insurance coverage is provided to A and B, P may exclude the
value of the benefit on the Form W-2 it issues to A or on any Form 1099
it might otherwise issue to B.
(s) Application of section 274(a)(3)--(1) In general. If an
employer's deduction under section 162(a) for dues paid or incurred for
membership in any club organized for business, pleasure, recreation, or
other social purpose is disallowed by section 274(a)(3), the amount, if
any, of an employee's working condition fringe benefit relating to an
employer-provided membership in the club is determined without regard to
the application of section 274(a) to the employee. To be excludible as a
working condition fringe benefit, however, the amount must otherwise
qualify for deduction by the employee under section 162(a). If an
employer treats the amount paid or incurred for membership in any club
organized for business, pleasure, recreation, or other social purpose as
compensation under section 274(e)(2), then the expense is deductible by
the employer as compensation and no amount may be excluded from the
employee's gross income as a working condition fringe benefit. See
Sec. 1.274-2(f)(2)(iii)(A).
(2) Treatment of tax-exempt employers. In the case of an employer
exempt from taxation under subtitle A of the Internal Revenue Code, any
reference in this paragraph (s) to a deduction disallowed by section
274(a)(3) shall be treated as a reference to the amount which would be
disallowed as a deduction by section 274(a)(3) to the employer if the
employer were not exempt from taxation under subtitle A of the Internal
Revenue Code.
(3) Examples. The following examples illustrate this paragraph (s):
Example 1. Assume that Company X provides Employee B with a country
club membership for which it paid $20,000. B substantiates, within the
meaning of paragraph (c) of this section, that the club was used 40
percent for business purposes. The business use of the club (40 percent)
may be considered a working condition fringe benefit, notwithstanding
that the employer's deduction for the dues allocable to the business use
is disallowed by section 274(a)(3), if X does not treat the club
membership as compensation under section 274(e)(2). Thus, B may exclude
from gross income $8,000 (40 percent of the club dues, which reflects
B's business use). X must report $12,000 as wages subject to withholding
and payment of employment taxes (60 percent of the value of the club
dues, which reflects B's personal use). B must include $12,000 in gross
income. X may deduct as compensation the amount it paid for the club
dues which reflects B's personal use provided the amount satisfies the
other requirements for a salary or compensation deduction under section
162.
Example 2. Assume the same facts as Example 1 except that Company X
treats the $20,000 as compensation to B under section 274(e)(2). No
portion of the $20,000 will be considered a working condition fringe
benefit because the section 274(a)(3) disallowance will apply to B.
Therefore, B must include $20,000 in gross income.
(t) Application of section 274(m)(3)--(1) In general. If an
employer's deduction under section 162(a) for amounts paid or incurred
for the travel expenses of a spouse, dependent, or other individual
accompanying an employee is disallowed by section 274(m)(3), the amount,
if any, of the employee's working condition fringe benefit relating to
the employer-provided travel is determined without regard to the
application of section 274(m)(3). To be excludible as a working
condition fringe benefit, however, the amount must otherwise qualify for
deduction by the employee under section 162(a). The amount will qualify
for deduction and for exclusion as a working condition fringe benefit if
it can be adequately shown that the spouse's, dependent's, or other
accompanying individual's presence on the employee's business trip has a
bona fide business purpose and if the employee substantiates the travel
within the meaning of paragraph
[[Page 589]]
(c) of this section. If the travel does not qualify as a working
condition fringe benefit, the employee must include in gross income as a
fringe benefit the value of the employer's payment of travel expenses
with respect to a spouse, dependent, or other individual accompanying
the employee on business travel. See Secs. 1.61-21(a)(4) and 1.162-2(c).
If an employer treats as compensation under section 274(e)(2) the amount
paid or incurred for the travel expenses of a spouse, dependent, or
other individual accompanying an employee, then the expense is
deductible by the employer as compensation and no amount may be excluded
from the employee's gross income as a working condition fringe benefit.
See Sec. 1.274-2(f)(2)(iii)(A).
(2) Treatment of tax-exempt employers. In the case of an employer
exempt from taxation under subtitle A of the Internal Revenue Code, any
reference in this paragraph (t) to a deduction disallowed by section
274(m)(3) shall be treated as a reference to the amount which would be
disallowed as a deduction by section 274(m)(3) to the employer if the
employer were not exempt from taxation under subtitle A of the Internal
Revenue Code.
[T.D. 8256, 54 FR 28608, July 6, 1989, as amended by T.D. 8451, 57 FR
57669, Dec. 7, 1992; T.D. 8457, 57 FR 62196, Dec. 30, 1992; T.D. 8666,
61 FR 27006, May 30, 1996; T.D. 8933, 66 FR 2244, Jan. 11, 2001; T.D.
9483, 75 FR 27936, May 19, 2010]
Sec. 1.132-5T Working condition fringe--1985 through 1988 (temporary).
(a) In general--(1) Definition. Gross income does not include the
value of a working condition fringe. The term ``working condition
fringe'' means any property or service provided to an employee of an
employer to the extent that, if the employee paid for the property or
service, the amount paid would be allowable as a deduction under section
162 or 167. If, under section 274 or any other section, certain
substantiation requirements must be met in order for a deduction under
section 162 or 167 to be allowable, those substantiation requirements
apply to the determination of a working condition fringe. An amount that
would be deductible by the employee under, for example, section 212 is
not a working condition fringe.
(2) Trade or business of the employee. If the hypothetical payment
for the property or service would be allowable as a deduction with
respect to a trade or business of the employee other than the employee's
trade or business of being an employee of the employer, it cannot be
taken into account for purposes of determining the amount, if any, of
the working condition fringe. For example, assume that, unrelated to
company X's trade or business and unrelated to company X's employee's
trade or business of being an employee of company X, the employee is a
member of the board of directors of company Y. Assume further that
company X provides the employee with air transportation to a company Y
board of director's meeting. The employee may not exclude the value of
the air transportation to the meeting as a working condition fringe. The
employee may, however, deduct such amount under section 162 if the
section 162 requirements are satisfied. The result would be the same
whether the air transportation was provided in the form of a flight on a
commercial airline or a seat on a company X airplane.
(b) Vehicle allocation rules--(1) In general--(i) General rule. In
general, with respect to an employer-provided vehicle, the amount
excludable as a working condition fringe is the amount that would be
allowable as a deduction under section 162 or 167 if the employee paid
for the availability of the vehicle. For example, assume that the value
of the availability of an employer-provided vehicle for a full year is
$2,000, without regard to any working condition fringe (i.e., assuming
all personal use). Assume further that the employee drives the vehicle
6,000 miles for his employer's business and 2,000 miles for reasons
other than the employer's business. In this situation, the value of the
working condition fringe is $2,000 multiplied by a fraction, the
numerator of which is the business-use mileage (6,000 miles) and the
denominator of which is the total mileage (8,000 miles). Thus, the value
of the working condition fringe is $1,500. The total amount includable
in the employee's gross income on account of the availability of
[[Page 590]]
the vehicle is $500. For purposes of this section, the term ``vehicle''
has the same meaning given the term in Sec. 1.61-2T(e)(2). Generally,
when determining the amount of an employee's working condition fringe,
miles accumulated on the vehicle by all employees of the employer during
the period in which the vehicle is available to the employee must be
considered. For example, assume that an employee of the employer is
provided the availability of an automobile for one year. Assume further
that during the year, the automobile is regularly used in the employer's
business by other employees. All miles accumulated on the automobile by
all employees of the employer during the year must be considered. If,
however, substantially all the use of the automobile by other employees
in the employer's business is permitted during a certain period, such as
the last three months of the year, the miles driven by the other
employees during that period would not be considered when determining
the employee's working condition fringe exclusion.
(ii) Use by an individual other than the employee. For purposes of
this section, if the availability of a vehicle to an individual would be
taxed to an employee, use of the vehicle by the individual is included
in references to use by the employee.
(iii) Provision of an expensive vehicle for personal use. Assume an
employer provides an employee with an expensive vehicle that an employee
may use in part for personal purposes. Even though the decision to
provide an expensive rather than an inexpensive vehicle is made by the
employer for bona fide noncompensatory business reasons, there is no
working condition fringe exclusion with respect to the personal miles
driven by the employee. If the employee paid for the availability of the
vehicle, he would not be entitled to deduct any part of the payment
attributable to personal miles.
(2) Use of different employer-provided automobiles. The working
condition fringe exclusion must be applied on an automobile by
automobile basis. For example, assume that automobile Y is available to
employee D for 3 days in January and for 5 days in March, and automobile
Z is available to D for a week in July. Assume further that the Daily
Lease Value, as defined in Sec. 1.61-2T, of each automobile is $50. For
the eight days of availability of Y in January and March, D uses Y 90
percent for business (by mileage). During July, D uses Z 60 percent for
business (by mileage). The value of the working condition fringe is
determined separately for each automobile. Therefore, the working
condition fringe for Y is $360 ($400 x .90) leaving an income
inclusion of $40. The working condition fringe for Z is $210 ($350 x
.60) leaving an income inclusion of $140. If the value of the
availability of an automobile is determined under the Annual Lease Value
rule for one period and Daily Lease Value rule for a second period (see
Sec. 1.61-2T), the working condition fringe exclusion must be calculated
separately for the two periods.
(c) Applicability of sections 162 and 274(d)--(1) In general. The
value of property or services provided to an employee may not be
excluded from the employee's gross income as a working condition fringe,
by either the employer or the employee, unless the applicable
substantiation requirements of either section 274(d) or section 162
(whichever is applicable) and the regulations thereunder are statisfied.
With respect to listed property, the substantiation requirements of
section 274(d) and the regulations thereunder do not apply to the
determination of an employee's working condition fringe exclusion prior
to the date that those requirements apply to the first taxable year of
the employer beginning after December 31, 1985. For example, if an
employer's first taxable year beginning after December 31, 1985, begins
on July 1, 1986, with respect to listed property, the substantiation
requirements of section 274(d) apply as of that date. The substantiation
requirements of section 274(d) apply to an employee even if the
requirements of section 274 do not apply to the employee's employer for
deduction purposes (such as when the employer is a tax-exempt
organization or a governmental unit); in these cases, the requirements
of section 274(d) apply to the employee as of January 1, 1986.
(2) Section 274(d) requirements. The substantiation requirements of
section
[[Page 591]]
274(d) are satisfied by ``adequate records or sufficient evidence
corroborating the [employee's] own statement''. Therefore, such records
or evidence provided by the employee, and relied upon by the employer to
the extent permitted by the regulations promulgated under section
274(d), will be sufficient to substantiate a working condition fringe
exclusion.
(d) Safe harbor rules--(1) In general. Section 1.274-6T provides
that the substantiation requirements of section 274(d) and the
regulations thereunder may be satisfied, in certain circumstances, by
using one or more of the safe harbor rules prescribed in Sec. 1.274-6T.
If the employer uses one of the safe harbor rules prescribed in
Sec. 1.274-6T during a period with respect to a vehicle (as defined in
Sec. 1.61-2T), that rule must be used by the employer to substantiate a
working condition fringe exclusion with respect to that vehicle during
the period. An employer that is exempt from Federal income tax may still
use one of the safe harbor rules (if the requirements of that section
are otherwise met during a period) to substantiate a working condition
fringe exclusion with respect to a vehicle during the period. If the
employer uses one of the methods prescribed in Sec. 1.274-6T during a
period with respect to an employer-provided vehicle, that method may be
used by an employee to substantiate a working condition fringe exclusion
with respect to the same vehicle during the period, as long as the
employee includes in gross income the amount allocated to the employee
pursuant to Sec. 1.274-6T and this section. (See Sec. 1.61-2T(c)(2)(i)
for other rules concerning when an employee must include in income the
amount determined by the employer.) If, however, the employer uses the
safe harbor rule prescribed in Sec. 1.274-6T(a) (2) or (3) and the
employee without the employer's knowledge uses the vehicle for purposes
other than de minimis personal use (in the case of the rule prescribed
in Sec. 1.274-6T(a)(2)), or for purposes other than de minimis personal
use and commuting (in the case of the rule prescribed in Sec. 1.274-
6T(a)(3)), then the employee must include additional income for the
unauthorized use of the vehicle.
(2) Period for use of safe harbor rules. The rules prescribed in
this paragraph (d) assume that the safe harbor rules prescribed in
Sec. 1.274-6T are used for a one-year period. Accordingly, references to
the value of the availability of a vehicle, amounts excluded as a
working condition fringe, etc., are based on a one-year period. If the
safe harbor rules prescribed in Sec. 1.274-6T are used for a period of
less than a year, the amounts referenced in the previous sentence must
be adjusted accordingly. For purposes of this section, the term
``personal use'' has the same meaning as prescribed in Sec. 1.274-
6T(e)(5).
(e) Vehicles not available to employees for personal use. For a
vehicle described in Sec. 1.274-6T(a)(2) (relating to certain vehicles
not used for personal purposes), the working condition fringe exclusion
is equal to the value of the availability of the vehicle if the employer
uses the method prescribed in Sec. 1.274-6T(a)(2).
(f) Vehicles not available to employees for personal use other than
commuting. For a vehicle described in Sec. 1.274-6T(a)(3) (relating to
certain vehicles not used for personal purposes other than commuting),
the working condition fringe exclusion is equal to the value of the
availability of the vehicle for purposes other than commuting if the
employer uses the method prescribed in Sec. 1.274-6T(a)(3). This rule
applies only if the special rule for valuing commuting use, as
prescribed in Sec. 1.61-2T, is used and the amount determined under the
special rule is either included in the employee's income or reimbursed
by the employee.
(g) Vehicles used in connection with the business of farming that
are available to employees for personal use--(1) In general. For a
vehicle described in Sec. 1.274-6T(b) (relating to certain vehicles used
in connection with the business of farming), the working condition
fringe exclusion is calculated by multiplying the value of the
availability of the vehicle by 75 percent.
(2) Vehicles available to more than one individual. If the vehicle
is available to more than one individual, the employer must allocate the
gross income attributable to the vehicle (25 percent of the value of the
availability of the vehicle)
[[Page 592]]
among the employees (and other individuals whose use would not be
attributed to an employee) to whom the vehicle was available. This
allocation must be done in a reasonable manner to reflect the personal
use of the vehicle by the individuals. An amount that would be allocated
to a sole proprietor reduces the amounts that may be allocated to
employees but are otherwise to be disregarded for purposes of this
paragraph (g). For purposes of this paragraph (g), the value of the
availability of a vehicle may be calculated as if the vehicle were
available to only one employee continuously and without regard to any
working condition fringe exclusion.
(3) Examples. The following examples illustrate a reasonable
allocation of gross income with respect to an employer-provided vehicle
between two employees:
Example 1. Assume that two farm employees share the use of a vehicle
which for a calendar year is regularly used directly in connection with
the business of farming and qualifies for use of the rule in Sec. 1.274-
6T (b). Employee A uses the vehicle in the morning directly in
connection with the business of farming and employee B uses the vehicle
in the afternoon directly in connection with the business of farming.
Assume further that employee B takes the vehicle home in the evenings
and on weekends. The employer should allocate all the income
attributable to the availability of the vehicle to employee B.
Example 2. Assume that for a calendar year, farm employees C and D
share the use of a vehicle that is regularly used directly in connection
with the business of farming and qualifies for use of the rule in
Sec. 1.274-6T (b). Assume further that the employees alternate taking
the vehicle home in the evening and alternate the availability of the
vehicle for personal purposes on weekends. The employer should allocate
the income attributable to the availability of the vehicle for personal
use (25 percent of the value of the availability of the vehicle) equally
between the two employees.
Example 3. Assume the same facts as in example (2) except that C is
the sole proprietor of the farm. Based on these facts, C should allocate
the same amount of income to D as was allocated to D in example (2). No
other income attributable to the availability of the vehicle for
personal use should be allocated.
(h) Qualified non-personal use vehicles. Effective January 1, 1985,
100 percent of the value of the use of a qualified nonpersonal use
vehicle (as described in Sec. 1.274-5T (k)) is excluded from gross
income as a working condition fringe, provided that, in the case of a
vehicle described in paragraph (k) (3) through (7) of that section, the
use of the vehicles conforms to the requirements of that paragraph.
(i) [Reserved]
(j) Application of section 280F. In determining the amount, if any,
of an employee's working condition fringe, section 280F and the
regulations thereunder do not apply. For example, assume that an
employee has available for a calendar year an employer-provided
automobile with a fair market value of $28,000. Assume further that the
special rule provided in Sec. 1.61-2T is used and that the Annual Lease
Value, as defined in Sec. 1.61-2T, is $7,750, and that all of the
employee's use of the automobile is in the employer's business. The
employee would be entitled to exclude the entire Annual Lease Value as a
working condition fringe, despite the fact that if the employee paid for
the availability of the automobile, an income inclusion would be
required under Sec. 1.280F-5T(d)(1). This paragraph (j) does not affect
the applicability of section 280F to the employer with respect to such
employer-provided automobile, nor does it affect the applicability of
section 274. For rules concerning substantiation of an employee's
working condition fringe, see paragraph (c) of this section.
(k) Aircraft allocation rule. In general, with respect to a flight
on an employer-provided aircraft, the amount excludable as a working
condition fringe is the amount that would be allowable as a deduction
under section 162 or 167 if the employee paid for the flight on the
aircraft. For example, if employee P flies on P's employer's airplane
primarily for business reasons of P's employer, the value of P's flight
is excludable as a working condition fringe. However, if P's spouse and
children accompany P on such airplane trip primarily for personal
reasons, the value of the flights by P's spouse and children are
includable in P's gross income. See Sec. 1.61-2T(g) for special rules
for valuing personal flights.
(l) [Reserved]
[[Page 593]]
(m) Employer-provided transportation for security concerns--(1) In
general. The amount of a working condition fringe exclusion with respect
to employer-provided transportation is the amount that would be
allowable as a deduction under section 162 or 167 if the employee paid
for the transportation. Generally, if an employee pays for
transportation taken for primarily personal purposes, the employee may
not deduct any part of the amount paid. Thus, the employee may not
generally exclude the value of employer-provided transportation as a
working condition fringe if such transportation is primarily personal.
If, however, for bona fide business-oriented security concerns, the
employee purchases transportation that provides him or her with
additional security, the employee may generally deduct the excess of the
amount paid for the transportation over the lesser amount the employee
would have paid for the same mode of transportation absent the bona fide
business-oriented security concerns. With respect to a vehicle, the
phrase ``the same mode of transportation'' means use of the same vehicle
without the additional security aspects, such as bulletproof glass. With
respect to air transportation, the phrase ``the same mode of
transportation'' means comparable air transportation. These same rules
apply to the determination of an employee's working condition fringe
exclusion. For example, if an employer provides an employee with an
automobile for commuting and, for bona fide business-oriented security
concerns, the automobile is specially designed for security, then the
employee may exclude the value of the special security design as a
working condition fringe if the employee's automobile would not have had
such security design but for the bona fide business-oriented security
concerns. The employee may not exclude the value of the commuting from
income as a working condition fringe because commuting is a
nondeductible personal expense. Similarly, if an employee travels on a
personal trip in an employer-provided aircraft for bona fide business-
oriented security concerns, the employee may exclude the excess, if any,
of the value of the flight over the amount the employee would have paid
for comparable air transportation, but for the bona fide business-
oriented security concerns. Because personal travel is a nondeductible
expense, the employee may not exclude the total value of the trip as a
working condition fringe.
(2) Demonstration of bona fide business-oriented security concerns--
(i) In general. For purposes of this paragraph (m), the existence of a
bona fide business-oriented security concern for the furnishing of a
specific form of transportation to an employee is determined on the
basis of all the facts and circumstances within the following
guidelines:
(A) Services performed outside the United States. With respect to an
employee performing services for an employer in a geographic area other
than the United States, a factor indicating a bona fide business-
oriented security concern is a recent history of violent terrorist
activity in such geographic area (such as bombings or abductions for
ransom), unless such activity is focused on a group of individuals which
does not include the employee or a similarly situated employee or on a
section of the geographic area which does not incude the employee.
(B) Services performed in the United States. With respect to an
employee performing services for an employer in the United States, a
factor indicating a bona fide business-oriented security concern is
threats on the life of the employee or on the life of a similarly
situated employee because of the employee's status as an employee of the
employer.
(ii) Establishment of overall security program. Notwithstanding
anything in paragraph (m)(2)(i) of this section to the contrary, no bona
fide business-oriented security concern will be deemed to exist unless
the employee's employer establishes an overall security program with
respect to the employee involved.
(iii) Overall security program--(A) Definition. An overall security
program is one in which security is provided to protect the employee on
a 24-hour basis. The employee must be protected while at the employee's
residence, while commuting to and from the employee's workplace, and
while at the
[[Page 594]]
employee's workplace. In addition, the employee must be protected while
traveling, whether for business or personal purposes. An overall
security program would include the provision of a bodyguard/driver who
is trained in evasive driving techniques; and automobile specially
equipped for security; guards, metal detectors, alarms, or similar
methods of controling access to the employee's workplace and residence;
and, in appropriate cases, flights on the employer's aircraft for
business and personal reasons.
(B) Application. There is no overall security program when, for
example, security is provided at the employee's workplace but not at the
employee's residence. In addition, the fact that an employer requires an
employee to travel on the employer's aircraft, or in an employer-
provided vehicle that contains special security features, does not alone
constitute an overall security program. The preceding sentence applies
regardless of the existence of a corporate or other resolution requiring
the employee to travel in the employer's airplane or vehicle for
personal as well as business reasons. Similarly, the existence of an
independent security study particular to the employer and its employees,
or to the employee involved, does not alone constitute an overall
security program.
(iv) Effect of an independent security study. An overall security
program with respect to an employee is deemed to exist even though
security is not provided to an employee on a 24-hour basis if the
conditions of this paragraph (m)(2)(iv) are satisfied:
(A) A security study is performed with respect to the employer and
the employee (or a similarly situated employee) by an independent
security consultant;
(B) The security study is based on an objective assessment of all
the facts and circumstances;
(C) The recommendation of the security study is that an overall
security program (as defined in paragraph (m)(2)(iii) of this section)
is not necessary and such recommendation is reasonable under the
circumstances; and
(D) The employer applies the specific security recommendations
contained in the security study to the employee on a consistent basis.
The value of the security provided pursuant to a security study that
meets the requirements of this paragraph (m)(2)(iv) may be excluded from
income, if the security study conclusions are reasonable and, but for
the bona fide business-oriented security concerns, the employee would
not have had such security. No exclusion from income applies to security
provided by the employer that is not recommended in the security study.
Security study conclusions may be reasonable even if, for example, it is
recommended that security be limited to certain geographic areas, as in
the case where air travel security is provided only in certain foreign
countries.
(v) Application of security rules to spouses and dependents. The
availability of a working condition fringe exclusion based on the
existence of a bona fide business-oriented security concern with respect
to the spouse and dependents of an employee is determined separately for
such spouse and dependents under the rules established in this paragraph
(m).
(vi) Working condition safe harbor. Under the special rule of this
paragraph (m)(2)(vi), if, for a bona fide business-oriented security
concern, the employer requires that the employee travel on an employer-
provided aircraft for a personal trip, the employer and the employee may
exclude, as a working condition fringe, the excess value of the trip
over comparable first-class airfare without having to show that but for
the bona fide business-oriented security concerns, the employee would
have flown first-class on a commercial aircraft. If the special
valuation rule provided in Sec. 1.61-2T is used, the excess over the
amount determined by multiplying an aircraft multiple of 200-percent by
the base aircraft valuation formula may be excluded as a working
condition fringe.
(3) Examples. The provisions of this paragraph (m) may be
illustrated by the following examples:
Example 1. Assume that in response to several death threats on the
life of A, the president of a multinational company (company
[[Page 595]]
X), company X establishes an overall security program for A, including
an alarm system at A's home and guards at A's workplace, the use of a
vehicle that is specially equipped with alarms, bulletproof glass, and
armor plating and a bodyguard/driver who is trained in evasive driving
techniques. Assume further that A is driven for both personal and
business reasons in the vehicle. Also, assume that but for the bona fide
business-oriented security concerns, no part of the overall suecurity
program would been provided to A. With respect to the transportation
provided for security reasons, A may exclude as a working condition
fringe the value of the special security features of the vehicle and the
value attributable to the bodyguard/driver. Thus, if the value of the
specially equipped vehicle is $40,000, and the value of the vehicle
without the security features is $25,000, A may determine A's income
attributable to the vehicle as if the vehicle were worth $25,000. A must
include in income the value of the availability of the vehicle for
personal use.
Example 2. Assume that B is the chief executive officer of a
multinational corporation (company Y). Assume further that there have
been kidnapping attempts and other terrorist activities in the foreign
countries in which B performs services and that at least some of such
activities have been directed against B or similarly situated employees.
In response to these activities, company Y provides B with an overall
security program, including an alarm system at B's home and bodyguards
at B's workplace, a bodyguard/driver who is trained in evasive driving
techniques, and a vehicle specially designed for security during B's
overseas travels. In addition, assume that company Y requires B to
travel in company Y's airplane for business and personal trips taken to,
from, and within these foreign countries. Also, assume that but for bona
fide business-oriented security concerns, no part of the overall
sucurity program would have been provided to B. B may exclude as a
working condition fringe the value of the special security features of
the automobile and the value attributable to the bodyguards and the
bodyguard/driver. B may also exclude as a working condition fringe the
excess, if any, of the value of personal flights in the company Y
airplane over first-class airfare (as determined under the special
valuation rule provided in Sec. 1.61-2T if the safe harbor described in
paragraph (m)(2)(vi) of this section is used). B must include in income
the value of the availability of the vehicle for personal use and the
lesser of the value of first-class airfare or the value of the flight
determined under Sec. 1.61-2T for each personal flight taken by B in
company Y's airplane.
Example 3. Assume the same facts as in example (2) except that
company Y also requires B to travel in company Y's airplane within the
United States, and provides B with a chauffeur-driven limousine for
business and personal travel in the United States. Assume further that
company Y also requires B's spouse and dependents to travel in company
Y's airplane for personal flights in the United States. If no bona fide
business-oriented security concern exists with respect to travel in the
United States, B may not exclude any portion of the value of the
availability of the driver or limousine for personal use in the United
States. Thus, B must include in income the value of the availability of
the vehicle and driver for personal use. In addition, B may not exclude
any portion of the value attributable to personal flights by B or B's
spouse and dependents on company Y's airplane. Thus, B must include in
income the value attributable to the personal use of company Y's
airplane. See Sec. 1.61-2T for rules relating to the valuation of
personal flights on employer-provided airplanes.
Example 4. Assume that company Z retains an independent security
consultant to perform a security study with respect to its chief
executive officer. Assume further that, based on an objective assessment
of the facts and circumstances, the security consultant reasonably
recommends that the employee be provided security at his workplace and
for ground transportation, but not for air transportation. If company Z
follows the recommendations on a consistent basis, an overall security
program will be deemed to exist with respect to the workplace and ground
transportation security only.
Example 5. Assume the same facts as in example (4) except that
company Z only provides the employee security while commuting to and
from work, but not for any other ground transportation. Since the
recommendations of the independent security study are not applied on a
consistent basis, an overall security program will not be deemed to
exist.
(n) Product testing--(1) In general. The fair market value of the
use of consumer goods, which are manufactured for sale to nonemployees,
for product testing and evaluation by an employee outside the employer's
workplace is excludable as a working condition fringe if--
(i) Consumer testing and evaluation of the product is an ordinary
and necessary business expense of the employer,
(ii) Business reasons necessitate that the testing and evaluation of
the product be performed off the employer's business premises by
employees (i.e., the testing and evaluation cannot be
[[Page 596]]
carried out adequately in the employer's office or in laboratory testing
facilities),
(iii) The product is furnished to the employee for purposes of
testing and evaluation,
(iv) The product is made available to the employee for no longer
than necessary to test and evaluate its performance and must be returned
to the employer at completion of the testing and evaluation period,
(v) The employer imposes limitations of the employee's use of the
product which significantly reduce the value of any personal benefit to
the employee, and
(vi) The employee must submit detailed reports to the employer on
the testing and evaluation.
The length of the testing and evaluation period must be reasonable in
relation to the product being tested.
(2) Employer-imposed limitations. The requirement of paragraph
(n)(1)(v) of this section is satisfied if--
(i) The employer places limitations on the employee's ability to
select among different models or varieties of the consumer product that
is furnished for testing and evaluation purposes,
(ii) The employer's policy provides for the employee, in appropriate
cases, to purchase or lease at his or her own expense the same type of
product as that being tested (so that personal use by the employee's
family will be limited), and
(iii) The employer generally prohibits use of the product by members
of the employee's family.
(3) Discriminating classifications. If an employer furnishes
products under a testing and evaluation program only to officers,
owners, or highly compensated employees, this fact may be considered in
a determination of whether the products are furnished for testing and
evaluation purposes or for compensation purposes, unless the employer
can show a business reason for the classification of employees to whom
the products are furnished (e.g., that automobiles are furnished for
testing and evaluation by an automobile manufacturer to its design
engineers and supervisory mechanics).
(4) Factors that negate the existence of a product testing program.
If an employer fails to tabulate and examine the results of the detailed
reports within a reasonable period of time after expiration of the
testing period, the program will not be considered a product testing
program. Existence of one or more of the following factors may also
establish that the program is not a bona fide product testing program:
(i) The program is in essence a leasing program under which
employees lease the consumer goods from the employer for a fee;
(ii) The nature of the product and other considerations are
insufficient to justify the testing program; or
(iii) The expense of the program outweighs the benefits to be gained
from testing and evaluation.
(5) Failure to meet the requirements of this paragraph (n). The fair
market value of the use of property for product testing and evaluation
by an employee outside the employee's workplace, under a product testing
program that does not meet all of the requirements of this paragraph
(n), is not excludable as a working condition fringe.
(6) Example. Assume that an employer that manufactures automobiles
establishes a product testing program under which 50 of its 5,000
employees test and evaluate the automobiles for 30 days. Assume further
that the 50 employees represent a fair cross section of all of the
employees of the employer, such employees submit detailed reports to the
employer on the testing and evaluation, the employer tabulates and
examines the test results within a reasonable time, and the use of the
automobiles is restricted to the employees. If the rules of paragraph
(n)(2) of this section are also met, the employees may exclude the value
of the use of the automobile during the testing and evaluation period.
(o) Qualified automobile demonstration use--(1) In general. The
value of qualified automobile demonstration use is excludable from gross
income as a working condition fringe. The term ``qualified automobile
demonstration use'' means any use of a demonstration automobile by a
full-time automobile salesman in the sales area in which the automobile
dealer's sales office is located if--
[[Page 597]]
(i) Such use is provided primarily to facilitate the salesman's
performance of services for the employer, and
(ii) There are substantial restrictions on the personal use of the
automobile by the salesman.
(2) Full-time automobile salesman--(i) Definition. The term ``full-
time automobile salesman'' means any individual who--
(A) Is employed by an automobile dealer,
(B) Customarily spends substantially all of a normal business day on
the sales floor selling automobiles to customers of the automobile
dealership,
(C) Customarily works a number of hours considered full-time in the
industry (but at a rate not less than 1,000 hours per year), and
(D) Derives at least 85 percent of his or her gross income from the
automobile dealership directly as a result of such automobile sales
activities.
An individual, such as the general manager of an automobile dealership,
who receives a sales commission on the sale of an automobile is not a
full-time automobile salesman unless the requirements of this paragraph
(o)(2)(i) are met. The exclusion provided in this paragraph (o) is
available to an individual who meets the definition of this paragraph
(o)(2)(i) regardless of whether the individual performs services in
addition to those described in this paragraph (o)(2)(i). For example, an
individual who is an owner of the automobile dealership but who
otherwise meets the requirements of this paragraph (o)(2)(i) may exclude
from gross income the value of qualified automobile demonstration use.
(ii) Use by an individual other than a full-time automobile
salesman. Personal use of a demonstration automobile by an individual
other than a full-time automobile salesman is not treated as a working
condition fringe. Therefore, any personal use, including commuting use,
of a demonstration automobile by a part-time salesman, automobile
mechanic, manager, or other individual is not ``qualified automobile
demonstration use'' and thus not excludable from gross income.
(3) Demonstration automobile. The exclusion provided in this
paragraph (o) applies only to qualified use of a demonstration
automobile. A demonstration automobile is an automobile that is--
(i) Currently in the inventory of the automobile dealership, and
(ii) Available for test drives by customers during the normal
business hours of the employee.
(4) Substantial restrictions on personal use. Substantial
restrictions on the personal use of demonstration automobiles exist when
all of the following conditions are satisfied:
(i) Use by individuals other than the full-time automobile salesmen
(e.g., the salesman's family) is prohibited,
(ii) Use for personal vacation trips is prohibited,
(iii) The storage of personal possessions in the automobile is
prohibited, and
(iv) The total use by mileage of the automobile by the salesman
outside the salesman's normal working hours is limited.
(5) Sales area--(i) In general. Qualified automobile demonstration
use must be use in the sales area in which the automobile dealer's sales
office is located. The sales area is the geographic area surrounding the
automobile dealer's sales office from which the office regularly derives
customers.
(ii) Sales area safe harbor. With respect to a particular full-time
salesman, the automobile dealer's sales area may be treated as the
larger of the area within a 75 mile radius of the dealer's sales office,
or the on-way commuting distance (in miles) of the particular salesman.
(p) Parking--(1) In general. The value of parking provided to an
employee on or near the business premises of the employer is excludable
from gross income as a working condition fringe. The working condition
fringe exclusion applies whether the employer owns or rents the parking
facility or parking space.
(2) Reimbursement of parking expenses. Any reimbursement to the
employee of the ordinary and necessary expenses of renting a parking
space on or near the business premises of the employer is excludable as
a working condition fringe. The preceding sentence does not apply,
however, to cash payments that are not actually used for renting a
[[Page 598]]
parking space. Thus, that part of a general transportation allowance
that is not used for parking is not excludable as a working condition
fringe under this paragraph (p).
(3) Parking on residential property. With respect to an employee,
this paragraph (p) does not apply to any parking facility or space
located on property owned or leased for residential purposes by the
employee.
(q) Nonapplicability of nondiscrimination rules. Except to the
extent provided in paragraph (n)(3) of this section, the
nondiscrimination rules of section 132(h)(1) and Sec. 1.132-8T do not
apply in determining the amount, if any, of a working condition fringe.
[T.D. 8063, 50 FR 52303, Dec. 23, 1985, as amended by T.D. 8256, 54 FR
28600, July 6, 1989]
Sec. 1.132-6 De minimis fringes.
(a) In general. Gross income does not include the value of a de
minimis fringe provided to an employee. The term ``de minimis fringe''
means any property or service the value of which is (after taking into
account the frequency with which similar fringes are provided by the
employer to the employer's employees) so small as to make accounting for
it unreasonable or administratively impracticable.
(b) Frequency--(1) Employee-measured frequency. Generally, the
frequency with which similar fringes are provided by the employer to the
employer's employees is determined by reference to the frequency with
which the employer provides the fringes to each individual employee. For
example, if an employer provides a free meal in kind to one employee on
a daily basis, but not to any other employee, the value of the meals is
not de minimis with respect to that one employee even though with
respect to the employer's entire workforce the meals are provided
``infrequently.''
(2) Employer-measured frequency. Notwithstanding the rule of
paragraph (b)(1) of this section, except for purposes of applying the
special rules of paragraph (d)(2) of this section, where it would be
administratively difficult to determine frequency with respect to
individual employees, the frequency with which similar fringes are
provided by the employer to the employer's employees is determined by
reference to the frequency with which the employer provides the fringes
to the workforce as a whole. Therefore, under this rule, the frequency
with which any individual employee receives such a fringe benefit is not
relevant and in some circumstances, the de minimis fringe exclusion may
apply with respect to a benefit even though a particular employee
receives the benefit frequently. For example, if an employer exercises
sufficient control and imposes significant restrictions on the personal
use of a company copying machine so that at least 85 percent of the use
of the machine is for business purposes, any personal use of the copying
machine by particular employees is considered to be a de minimis fringe.
(c) Administrability. Unless excluded by a provision of chapter 1 of
the Internal Revenue Code of 1986 other than section 132(a)(4), the
value of any fringe benefit that would not be unreasonable or
administratively impracticable to account for is includible in the
employee's gross income. Thus, except as provided in paragraph (d)(2) of
this section, the provision of any cash fringe benefit is never
excludable under section 132(a) as a de minimis fringe benefit.
Similarly except as otherwise provided in paragraph (d) of this section,
a cash equivalent fringe benefit (such as a fringe benefit provided to
an employee through the use of a gift certificate or charge or credit
card) is generally not excludable under section 132(a) even if the same
property or service acquired (if provided in kind) would be excludable
as a de minimis fringe benefit. For example, the provision of cash to an
employee for a theatre ticket that would itself be excludable as a de
minimis fringe (see paragraph (e)(1) of this section) is not excludable
as a de minimis fringe.
(d) Special rules--(1) Transit passes. A public transit pass
provided at a discount to defray an employee's commuting costs may be
excluded from the employee's gross income as a de minimis fringe if such
discount does not exceed $21 in any month. The exclusion provided in
this paragraph (d)(1) also applies to the provision of tokens or fare
cards that enable an individual to travel on the public transit system
if
[[Page 599]]
the value of such tokens and fare cards in any month does not exceed by
more than $21 the amount the employee paid for the tokens and fare cards
for such month. Similarly, the exclusion of this paragraph (d)(1)
applies to the provision of a voucher or similar instrument that is
exchangeable solely for tokens, fare cards, or other instruments that
enable the employee to use the public transit system if the value of
such vouchers and other instruments in any month does not exceed $21.
The exclusion of this paragraph (d)(1) also applies to reimbursements
made by an employer to an employee after December 31, 1988, to cover the
cost of commuting on a public transit system, provided the employee does
not receive more than $21 in such reimbursements for commuting costs in
any given month. The reimbursement must be made under a bona fide
reimbursement arrangement. A reimbursement arrangement will be treated
as bona fide if the employer establishes appropriate procedures for
verifying on a periodic basis that the employee's use of public
transportation for commuting is consistent with the value of the benefit
provided by the employer for that purpose. The amount of in-kind public
transit commuting benefits and reimbursements provided during any month
that are excludible under this paragraph (d)(1) is limited to $21. For
months ending before July 1, 1991, the amount is $15 per month. The
exclusion provided in this paragraph (d)(1) does not apply to the
provision of any benefit to defray public transit expenses incurred for
personal travel other than commuting.
(2) Occasional meal money or local transportation fare--(i) General
rule. Meals, meal money or local transportation fare provided to an
employee is excluded as a de minimis fringe benefit if the benefit
provided is reasonable and is provided in a manner that satisfies the
following three conditions:
(A) Occasional basis. The meals, meal money or local transportation
fare is provided to the employee on an occasional basis. Whether meal
money or local transportation fare is provided to an employee on an
occasional basis will depend upon the frequency i.e., the availability
of the benefit and regularity with which the benefit is provided by the
employer to the employee. Thus, meals, meal money, or local
transportation fare or a combination of such benefits provided to an
employee on a regular or routine basis is not provided on an occasional
basis.
(B) Overtime. The meals, meal money or local transportation fare is
provided to an employee because overtime work necessitates an extension
of the employee's normal work schedule. This condition does not fail to
be satisifed merely because the circumstances giving rise to the need
for overtime work are reasonably foreseeable.
(C) Meal money. ln the case of a meal or meal money, the meal or
meal money is provided to enable the employee to work overtime. Thus,
for example, meals provided on the employer's premises that are consumed
during the period that the employee works overtime or meal money
provided for meals consumed during such period satisfy this condition.
In no event shall meal money or local transportation fare calculated on
the basis of the number of hours worked (e.g., $1.00 per hour for each
hour over eight hours) be considered a de minimis fringe benefit.
(ii) Applicability of other exclusions for certain meals and for
transportation provided for security concerns. The value of meals
furnished to an employee, an employee's spouse, or any of the employee's
dependents by or on behalf of the employee's employer for the
convenience of the employer is excluded from the employee's gross income
if the meals are furnished on the business premises of the employer (see
section 119). (For purposes of the exclusion under section 119, the
definitions of an employee under Sec. 1.132-1(b) do not apply.) If, for
a bona fide business-oriented security concern, an employer provides an
employee vehicle transportation that is specially designed for security
(for example, the vehicle is equipped with bulletproof glass and armor
plating), and the conditions of Sec. 1.132-5(m) are satisfied, the value
of the special security design is excludable from gross income as a
working condition fringe if the employee would
[[Page 600]]
not have had such special security design but for the bona fide
business-oriented security concern.
(iii) Special rule for employer-provided transportation provided in
certain circumstances. (A) Partial exclusion of value. If an employer
provides transportation (such as taxi fare to an employee for use in
commuting to and/or from work because or unusual circumstances and
because, based on the facts and circumstances, it is unsafe for the
employee to use other available means of transportation, the excess of
the value of each one-way trip over $1.50 per one-way commute is
excluded from gross income. The rule of this paragraph (d)(2)(iii) is
not available to a control employee as defined in Sec. 1.61-21(f) (5)
and (6).
(B) ``Unusual circumstances''. Unusual circumstances are determined
with respect to the employee receiving the transportation and are based
on all facts and circumstances. An example of unusual circumstances
would be when an employee is asked to work outside of his normal work
hours (such as being called to the workplace at 1:00 am when the
employee normally works from 8:00 am to 4:00 pm). Another example of
unusual circumstances is a temporary change in the employee's work
schedule (such as working from 12 midnight to 8:00 am rather than from
8:00 am to 4:00 pm for a two-week period).
(C) ``Unsafe conditions''. Factors indicating whether it is unsafe
for an employee to use other available means of transportation are the
history of crime in the geographic area surrounding the employee's
workplace or residence and the time of day during which the employee
must commute.
(3) Use of special rules or examples to establish a general rule.
The special rules provided in this paragraph (d) or examples provided in
paragraph (e) of this section may not be used to establish any general
rule permitting exclusion as a de minimis fringe. For example, the fact
that $252 (i.e., $21 per month for 12 months) worth of public transit
passes can be excluded from gross income as a de minimis fringe in 1992
does not mean that any fringe benefit with a value equal to or less than
$252 may be excluded as a de minimis fringe. As another example, the
fact that the commuting use of an employer-provided vehicle more than
one day a month is an example of a benefit not excludable as a de
minimis fringe (see paragraph (e)(2) of this section) does not mean that
the commuting use of a vehicle up to 12 times per year is excludable
from gross income as a de minimis fringe.
(4) Benefits exceeding value and frequency limits. If a benefit
provided to an employee is not de minimis because either the value or
frequency exceeds a limit provided in this paragraph (d), no amount of
the benefit is considered to be a de minimis fringe. For example, if, in
1992, an employer provides a $50 monthly public transit pass, the entire
$50 must be included in income, not just the excess value over $21.
(e) Examples--(1) Benefits excludable from income. Examples of de
minimis fringe benefits are occasional typing of personal letters by a
company secretary; occasional personal use of an employer's copying
machine, provided that the employer exercises sufficient control and
imposes significant restrictions on the personal use of the machine so
that at least 85 percent of the use of the machine is for business
purposes; occasional cocktail parties, group meals, or picnics for
employees and their guests; traditional birthday or holiday gifts of
property (not cash) with a low fair market value; occasional theater or
sporting event tickets; coffee, doughnuts, and soft drinks; local
telephone calls; and flowers, fruit, books, or similar property provided
to employees under special circumstances (e.g., on account of illness,
outstanding performance, or family crisis).
(2) Benefits not excludable as de minimis fringes. Examples of
fringe benefits that are not excludable from gross income as de minimis
fringes are: season tickets to sporting or theatrical events; the
commuting use of an employer-provided automobile or other vehicle more
than one day a month; membership in a private country club or athletic
facility, regardless of the frequency with which the employee uses the
facility; employer-provided group-term life insurance on the life of the
spouse or child of an employee; and
[[Page 601]]
use of employer-owned or leased facilities (such as an apartment,
hunting lodge, boat, etc.) for a weekend. Some amount of the value of
certain of these fringe benefits may be excluded from income under other
statutory provisions, such as the exclusion for working condition
fringes. See Sec. 1.132-5.
(f) Nonapplicability of nondiscrimination rules. Except to the
extent provided in Sec. 1.132-7, the nondiscrimination rules of section
132(h)(1) and Sec. 1.132-8 do not apply in determining the amount, if
any, of a de minimis fringe. Thus, a fringe benefit may be excludable as
a de minimis fringe even if the benefit is provided exclusively to
highly compensated employees of the employer.
[T.D. 8256, 54 FR 28615, July 6, 1989, as amended by T.D. 8389, 57 FR
1871, Jan. 16, 1992; 57 FR 5982, Feb. 19, 1992]
Sec. 1.132-6T De minimis fringe--1985 through 1988 (temporary).
(a) In general. Gross income does not include the value of a de
minimis fringe provided to an employee. The term ``de minimis fringe''
means any property or service the value of which is (after taking into
account the frequency with which similar fringes are provided by the
employer to the employer's employees) so small as to make accounting for
it unreasonable or administratively impracticable.
(b) Frequency. Generally, the frequency with which similar fringes
are provided by the employer to the employer's employees is determined
by reference to the frequency with which the employer provides the
fringe to each individual employee. For example, if an employer provides
a free meal to one employee on a daily basis, but not to any other
employee, the value of the meals is not de minimis with respect to that
one employee even though with respect to the employer's entire workforce
the meals are provided ``infrequently.'' However, where it would be
administratively difficult to determine frequency with respect to
individual employees, the frequency with which similar fringes are
provided by the employer to the employer's employees is determined by
reference to the frequency with which the employer provides the fringes
to the employees and not the frequency with which individual employees
receive them. In these cases, if an employer occasionally provides a
fringe benefit of de minimis value to the employer's employees, the de
minimis fringe exclusion may apply even though a particular employee
receives the benefit frequently. For example, if an employer exercises
sufficient control and imposes significant restrictions on the personal
use of a company copying machine so that at least 85 percent of the use
of the machine is for business purposes, any personal use the copying
machine by particular employees is considered to be a de minimis fringe.
(c) Administrability. Unless excluded by a statutory provision other
than section 132(a)(4), the value of any fringe benefit that would not
be unreasonable or administratively impracticable to account for must be
included in the employee's gross income. Thus, except as otherwise
provided in this section, the provision of any cash fringe benefit (or
any fringe benefit provided to an employee through the use of a charge
or credit card) is not excludable as a de minimis fringe. For example,
the provision of cash to an employee for personal entertainment is not
excludable as a de minimis fringe.
(d) Special rules--(1) Transit passes. A transit pass provided to an
employee at a discount not exceeding $15 per month may be excluded as a
de minimis fringe. The exclusion provided in this paragraph (d) also
applies to the provision of $15 in tokens or fare cards that enable an
individual to travel on the transit system. The exclusion provided in
this paragraph (d) does not apply to any provision of cash or other
benefit to defray transit expenses incurred for personal travel.
(2) Occasional meal money or local transportation fare. Occasional
meal money or local transportation fare provided to an employee because
overtime work necessitates an extension of the employee's normal workday
is excluded as a de minimis fringe.
(3) Use of special rules to establish a general rule. The special
rules provided in this paragraph (d) may not be used to establish any
general rule. For example, the fact that $180 ($15 per month for 12
months) worth of transit passes can be excluded in a year does not
[[Page 602]]
mean that any fringe benefit with a value equal to or less than $180 may
be excluded as a de minimis fringe.
(4) Benefits exceeding value and frequency limitations. If the
benefit provided to an employee is not de minimis because either the
value or frequency exceeds a limit provided in this paragraph (d), no
amount of the benefit is considered to be de minimis. For example, if an
employer provides a $20 monthly transit pass, the entire $20 must be
included in income, not just the excess value over $15.
(e) Nonapplicability of nondiscrimination rules. Except to the
extent provided in Sec. 1.132-7T, the nondiscrimination rules of section
132(h)(1) and Sec. 1.132-8T do not apply. Thus, for example, a fringe
benefit may be a de minimis fringe even if the benefit is provided
exclusively to officers of the employer.
(f) Examples--(1) Benefits excludable from income. Examples of de
minimis fringe benefits are occasional typing of personal letters by a
company secretary; occasional personal use of an employer's copying
machine, provided that the employer exercises sufficient control and
imposes significant restrictions on the personal use of the machine so
that at least 85 percent of the use of the machine is for business
purposes; occasional cocktail parties or picnics for employees and their
guests; traditional holiday gifts of property (not cash) with a low fair
market value; occasional theatre or sporting event tickets; and coffee
and doughnuts.
(2) Benefits not excludable as de minimis fringes. Examples of
fringe benefits that are not excludable from income as de minimis
fringes are: season tickets to sporting or theatrical events; the
commuting use of an employer-provided automobile or other vehicle more
than once a month; membership in a private country club or athletic
facility, regardless of the frequency with which the employee uses the
facility; and use of employer-owned or leased facilities (such as an
apartment, hunting lodge, boat, etc.) for a weekend. Some amount of the
value of these fringe benefits may be excluded under other statutory
provisions, such as the exclusion for working condition fringes. See
Sec. 1.132-5T.
[T.D. 8063, 50 FR 52308, Dec. 23, 1985, as amended by T.D. 8256, 54 FR
28600, July 6, 1989]
Sec. 1.132-7 Employer-operated eating facilities.
(a) In general--(1) Condition for exclusion--(i) General rule. The
value of meals provided to employees at an employer-operated eating
facility for employees is excludable from gross income as a de minimis
fringe only if on an annual basis, the revenue from the facility equals
or exceeds the direct operating costs of the facility.
(ii) Additional condition for highly compensated employees. With
respect to any highly compensated employee, an exclusion is available
under this section only if the condition set out in paragraph (a)(1)(i)
of this section is satisfied and access to the facility is available on
substantially the same terms to each member of a group of employees that
is defined under a reasonable classification set up by the employer that
does not discriminate in favor of highly compensated employees. See
Sec. 1.132-8. For purposes of this paragraph (a)(1)(ii), each dining
room or cafeteria in which meals are served is treated as a separate
eating facility, whether each such dining room or cafeteria has its own
kitchen or other food-preparation area.
(2) Employer-operated eating facility for employees. An employer-
operated eating facility for employees is a facility that meets all of
the following conditions--
(i) The facility is owned or leased by the employer,
(ii) The facility is operated by the employer,
(iii) The facility is located on or near the business premises of
the employer, and
(iv) The meals furnished at the facility are provided during, or
immediately before or after, the employee's workday.
For purposes of this section, the term ``meals'' means food, beverages,
and related services provided at the facility. If an employer can
reasonably determine the number of meals that are excludable from income
by the recipient
[[Page 603]]
employees under section 119, the employer may, in determining whether
the requirement of paragraph (a)(1)(i) of this section is satisfied,
disregard all costs and revenues attributable to such meals provided to
such employees. lf an employer can reasonably determine the number of
meals received by volunteers who receive food and beverages at a
hospital, free or at a discount, the employer may, in determining
whether the requirement of paragraph (a)(1)(i) of this section is
satisfied, disregard all costs and revenues attributable to such meals
provided to such volunteers. If an employer charges nonemployees a
greater amount than employees, in determining whether the requirement of
paragraph (a)(1)(i) of this section is satisfied, the employer must
disregard all costs and revenues attributable to such meals provided to
such nonemployees.
(3) Operation by the employer. If an employer contracts with another
to operate an eating facility for its employees, the facility is
considered to be operated by the employer for purposes of this section.
If an eating facility is operated by more than one employer, it is
considered to be operated by each employer.
(4) Example. The provisions of this paragraph (a)(2) may be
illustrated by the following example:
Example 1. Assume that a not-for-profit hospital system maintains
cafeterias for the use of its employees and volunteers. Only the
employees are charged for food service at the cafeteria and the policy
of the hospital is to charge the employees only for the costs of food,
beverage and labor directly attributable to the meal. Most of the
cafeterias within the system furnish more free meals to volunteers than
they serve paid meals to employees. For purposes of this paragraph, as
long as the employer can accurately determine the number of meals
received free or at a discount by volunteers, the employer may disregard
all the costs and revenues attributable to such meals provided to
volunteers. Therefore, for purposes of this paragraph, the costs of the
hospital system for furnishing meals to employees who pay for them are
the costs to be compared to determine if the revenues from the facility
equal or exceed direct operating costs of the facility's service to
employees.
(b) Direct operating costs--(1) In general. For purposes of this
section, the direct operating costs of an eating facility are--
(i) The cost of food and beverages, and
(ii) The cost of labor for personnel whose services relating to the
facility are performed primarily on the premises of the eating facility.
Direct operating costs do not include the labor cost attributable to
personnel whose services relating to the facility are not performed
primarily on the premises of the eating facility. Thus, for example, the
labor costs attributable to cooks, waiters, and waitresses are included
in direct operating costs, but the labor cost attributable to a manager
of an eating facility whose services relating to the facility are not
primarily performed on the premises of the eating facility is not
included in direct operating costs. If an employee performs services
relating to the facility both on and off the premises of the eating
facility, only the portion of the total labor cost of the employee
relating to the facility that bears the same proportion to such total
labor cost as time spent on the premises bears to total time spent
performing services relating to the facility is included in direct
operating costs. For example, assume that 60 percent of the services of
a cook in the above example are not related to the eating facility. Only
40 percent of the total labor cost of the cook is includible in direct
operating costs. For purposes of this section, labor costs include all
compensation required to be reported on a Form W-2 for income tax
purposes and related employment taxes paid by the employer. In
determining the direct operating costs of an eating facility, the
employer may include as part of the facility, vending machines that are
provided by the employer and located on the same premises as the other
eating facilities operated by the employer.
(2) Multiple dining rooms or cafeterias. The direct operating costs
test may be applied separately for each dining room or cafeteria.
Alternatively, the direct operating costs test may be applied with
respect to all the eating facilities operated by the employer.
(3) Payment to operator of facility. If an employer contracts with
another to operate an eating facility for its employees, the direct
operating costs of the facility consist both of direct operating
[[Page 604]]
costs, if any, incurred by the employer and the amount paid to the
operator of the facility to the extent that such amount is attributable
to what would be direct operating costs if the employer operated the
facility directly.
(c) Valuation of non-excluded meals provided at an employer-operated
eating facility for employees. If the exclusion for meals provided at an
employer-operated eating facility for employees is not available, the
recipient of meals provided at such facility must include in income the
amount by which the fair market value of the meals provided exceeds the
sum of--
(1) The amount, if any, paid for the meals, and
(2) The amount, if any, specifically excluded by another section of
chapter 1 of this subtitle.
For special valuation rules relating to such meals, see Sec. 1.61-21(j).
[T.D. 8256, 54 FR 28617, July 6, 1989]
Sec. 1.132-7T Treatment of employer-operated eating facilities--1985
through 1988 (temporary).
(a) In general--(1) General rule. The value of meals provided to
employees at an employer-operated eating facility for employees is
excludable from gross income as a de minimis fringe only if--
(i) On an annual basis, the revenue from the facility equals or
exceeds the direct operating costs of the facility, and
(ii) With respect to any officer, owner or highly compensated
employee, access to the facility is available on substantially the same
terms to each member of a group of employees that is defined under a
reasonable classification set up by the employer that does not
discriminate in favor of officers, owners, and highly compensated
employees. See Sec. 1.132-8T.
(2) Employer-operated eating facility for employees. An employer-
operated eating facility for employees is a facility that meets all of
the following conditions--
(i) The facility is owned or leased by the employer,
(ii) The facility is operated by the employer,
(iii) The facility is located on or near the business premises of
the employer,
(iv) Substantially all of the use of the facility is by employees of
the employer operating the facility, and
(v) The meals furnished at the facility are provided during, or
immediately before or after, the employee's workday.
For purposes of this section, the term ``meals'' means food, beverages,
and related services provided at the facility. If an employer can
determine the number of employees who receive meals that are excludable
from income under section 119, the employer may, in determining whether
the requirement of paragraph (a)(1)(i) of this section is satisfied,
disregard all costs and revenues attributable to such meals provided to
such employees. For purposes of this section, each dining room or
cafeteria in which meals are served is treated as a separate eating
facility, regardless of whether each such dining room or cafeteria has
its own kitchen or other food-preparation area.
(3) Operation by the employer. If an employer contracts with another
to operate an eating facility for its employees, the facility is
considered to be operated by the employer for purposes of this section.
If an eating facility is operated by more than one employer, it is
considered to be operated by each employer.
(b) Direct operating costs. The direct operating costs test must be
applied separately for each dining room or cafeteria. For purpose of
this section, the direct operating costs of an eating facilities are:
(1) The cost of food and beverages and (2) the cost of labor for
personnel whose services relating to the facility are performed
primarily on the premises of the eating facility. Direct operating costs
do not include the cost of labor for personnel whose services relating
to the facility are not performed primarily on the premises of the
eating facility. Thus, for example, the labor cost for cooks, waiters,
and waitresses is included in direct operating costs, but the labor cost
for a manager of an eating facility whose services relating to the
facility are not primarily performed on the premises of the eating
facility is not included in direct operating costs. If an employee
perfoms services both on and off the premises of the eating facility,
only
[[Page 605]]
the applicable percentage of the total labor cost of the employee that
bears the same proportion as time spent on the premises bears to total
time is included in direct operating costs. For example, assume that 60
percent of the services of the cooks in the above example are not
related to the eating facility. Only 40 percent of the total labor cost
of the cooks is includible in direct operating costs. For purposes of
this section, labor costs include all compensation required to be
reported on a Form W-2 for income tax purposes and related employment
taxes paid by the employer.
(c) Valuation of non-excluded meals provided at an employer-operated
eating facility for employees. If the exclusion for meals provided at an
employer-operated eating facility for employees is not available, the
recipient of meals provided at such facility must include in income the
amount by which the fair market value of the meals provided exceeds the
sume of: (1) The amount, if any, paid for the meals, and (2) the amount,
if any, specifically excluded by another section of the Code. For
special valuation rules relating to such meals see Sec. 1.61-2T (j).
[T.D. 8063, 50 FR 52308, Dec. 23, 1985, as amended by T.D. 8256, 54 FR
28600, July 6, 1989]
Sec. 1.132-8 Fringe benefit nondiscrimination rules.
(a) Application of nondiscrimination rules--(1) General rule. A
highly compensated employee who receives a no-additional cost service, a
qualified employee discount or a meal provided at an employer-operated
eating facility for employees shall not be permitted to exclude such
benefit from his or her income unless the benefit is available on
substantially the same terms to:
(i) All employees of the employer; or
(ii) A group of employees of the employer which is defined under a
reasonable classification set up by the employer that does not
discriminate in favor of highly compensated employees. See paragraph (f)
of this section for the definition of a highly compensated employee.
(2) Consequences of discrimination--(i) In general. If an employer
maintains more than one fringe benefit program, i.e., either different
fringe benefits being provided to the same group of employees, or
different classifications of employees or the same fringe benefit being
provided to two or more classifications of employees, the
nondiscrimination requirements of section 132 will generally be applied
separately to each such program. Thus, a determination that one fringe
benefit program discriminates in favor of highly compensated employees
generally will not cause other fringe benefit programs covering the same
highly compensated employees to be treated as discriminatory. If the
fringe benefits provided to a highly compensated individual do not
satisfy the nondiscrimination rules provided in this section, such
individual shall be unable to exclude from gross income any portion of
the benefit. For example, if an employer offers a 20 percent discount
(which otherwise satisfies the requirements for a qualified employee
discount) to all non-highly compensated employees and a 35 percent
discount to all highly compensated employees, the entire value of the 35
percent discount (not just the excess over 20 percent) is includible in
the gross income and wages of the highly compensated employees who make
purchases at a discount.
(ii) Exception--(A) Related fringe benefit programs. If one of a
group of fringe benefit programs discriminates in favor of highly
compensated employees, no related fringe benefit provided to such highly
compensated employees under any other fringe benefit program may be
excluded from the gross income of such highly compensated employees. For
example, assume a department store provides a 20 percent merchandise
discount to all employees under one fringe benefit program. Assume
further that under a second fringe benefit program, the department store
provides an additional 15 percent merchandise discount to a group of
employees defined under a classification which discriminates in favor of
highly compensated employees. Because the second fringe benefit program
is discriminatory, the 15 percent merchandise discount provided to the
highly compensated employees is not a qualified employee discount. In
addition, because the 20 percent merchandise discount provided
[[Page 606]]
under the first fringe benefit program is related to the fringe benefit
provided under the second fringe benefit program, the 20 percent
merchandise discount provided the highly compensated employees is not a
qualified employee discount. Thus, the entire 35 percent merchandise
discount provided to the highly compensated employees is includible in
such employees' gross incomes.
(B) Employer operated eating facilities for employees. For purposes
of paragraph (a)(2)(ii)(A) of this section, meals at different employer-
operated eating facilities for employees are not related fringe
benefits, so that a highly compensated employee may exclude from gross
income the value of a meal at a nondiscriminatory facility even though
any meals provided to him or her at a discriminatory facility cannot be
excluded.
(3) Scope of the nondiscrimination rules provided in this section.
The nondiscrimination rules provided in this section apply only to
fringe benefits provided pursuant to section 132 (a)(1), (a)(2), and
(e)(2). These rules have no application to any other employee benefit
that may be subject to nondiscrimination requirements under any other
section of the Code.
(b) Aggregation of employees--(1) Section 132(a) (1) and (2). For
purposes of determining whether the exclusions for no-additional-cost
services and qualified employee discounts are available to highly
compensated employees, the nondiscrimination rules of this section are
applied by aggregating the employees of all related employers (as
defined in Sec. 1.132-1(c)), except that employees in different lines of
business (as defined in Sec. 1.132-4) are not to be aggregated. Thus, in
general, for purposes of this section, the term ``employees of the
employer'' refers to all employees of the employer and any other entity
that is a member of a group described in sections 414 (b), (c), (m), or
(o) and that performs services within the same line of business as the
employer which provides the particular fringe benefit. Employees in
different lines of business will be aggregated, however, if the line of
business limitation has been relaxed pursuant to paragraphs (b) through
(g) of Sec. 1.132-4.
(2) Section 132 (e) (2). For purposes of determining whether the
exclusions for meals provided at employer-operated eating facilities are
available to highly compensated, the nondiscrimination rules of this
section are applied by aggregating the employees of all related
employers (as defined in section Sec. 1.132-1(c)) who regularly work at
or near the premises on which the eating facility is located, except
that employees in different lines of business (as defined in Sec. 1.132-
4) are not to be aggregated. The nondiscrimination rules of this section
are applied separately to each eating facility. Each dining room or
cafeteria in which meals are served is treated as a separate eating
facility, regardless of whether each such dining room or cafeteria has
its own kitchen or other food-preparation area.
(3) Classes of employees who may be excluded. For purposes of
applying the nondiscrimination rules of this section to a particular
fringe benefit program, there may be excluded from consideration
employees who may be excluded from consideration under section 89(h), as
enacted by the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085
(1986) and amended by the Technical and Miscellaneous Revenue Act of
1988, Pub. L. 100-647, 102 Stat. 3342 (1988).
(c) Availability on substantially the same terms--(1) General rule.
The determination of whether a benefit is available on substantially the
same terms shall be made upon the basis of the facts and circumstances
of each situation. In general, however, if any one of the terms or
conditions governing the availability of a particular benefit to one or
more employees varies from any one of the terms or conditions governing
the availability of a benefit made available to one or more other
employees, such benefit shall not be considered to be available on
substantially the same terms except to the extent otherwise provided in
paragraph (c)(2) of this section. For example, if a department store
provides a 20 percent qualified employee discount to all of its
employees on all merchandise, the substantially the same terms
requirement will be satisfied. Similarly, if the discount provided to
all employees is 30 percent on certain merchandise (such as apparel),
and 20 percent on all other
[[Page 607]]
merchandise, the substantially the same terms requirement will be
satisfied. However, if a department store provides a 20 percent
qualified employee discount to all employees, but as to the employees in
certain departments, the discount is available upon hire, and as to the
remaining departments, the discount is only available when an employee
has completed a specified term of services, the 20 percent discount is
not available on substantially the same terms to all of the employees of
the employer. Similarly, if a greater discount is given to employees
with more seniority, full-time work status, or a particular job
description, such benefit (i.e., the discount) would not be available to
all employees eligible for the discount on substantially the same terms,
except to the extent otherwise provided in paragraph (c)(2) of this
section. These examples also apply to no-additional-cost-services. Thus,
if an employer charges non-highly compensated employees for a no-
additional-cost service and does not charge highly compensated employees
(or charges highly compensated employees a lesser amount), the
substantially the same terms requirement will not be satisfied.
(2) Certain terms relating to priority. Certain fringe benefits made
available to employees are available only in limited quantities that may
be insufficient to meet employee demand. This situation may occur either
because of employer policy (such as where an employer determines that
only a certain number of units of a specific product will be made
available to employees each year) or because of the nature of the fringe
benefit (such as where an employer provides a no-additional-cost
transportation service that is limited to the number of seats available
just before departure). Under these circumstances, an employer may find
it necessary to establish some method of allocating the limited fringe
benefits among the employees eligible to receive the fringe benefits.
The employer may establish the priorities described below.
(i) Priority on a first come, first served, or similar basis. A
benefit shall not fail to be treated as available to a group of
employees on substantially the same terms merely because the employer
allocates the benefit among such employees on a ``first come, first
served'' or lottery basis, provided that the same notice of the terms of
availability is given to all employees in the group and the terms under
which the benefit is provided to employees within the group are
otherwise the same with respect to all employees. For purposes of the
preceding sentence, a program that gives priority to employees who are
the first to submit written requests for the benefit will constitute
priority on a ``first come, first served'' basis. Similarly, if the
employer regularly engages in the practice of allocating benefits on a
priority basis to employees demonstrating a critical need, such benefit
shall not fail to be treated as available on substantially the same
terms to all of the employees with respect to whom such priority status
is available as long as the determination is based upon uniform and
objective criteria which have been communicated to all employees in the
group of eligible employees. An example of a critical need would be
priority transportation given to an employee in the event of a medical
emergency involving the employee (or a member of the employee's
immediate family) or a recent death in the employee's immediate family.
Frustrated vacation plans or forfeited deposits would not be treated as
giving rise to particularly critical needs.
(ii) Priority on the basis of seniority. Solely for purposes of
Sec. 1.132-8, a benefit shall not fail to be treated as available to a
group of employees of the employer on substantially the same terms
merely because the employer allocates the benefit among such employees
on a seniority basis provided that:
(A) The same notice of the terms of availability is given to all
employees in the group; and
(B) The average value of the benefit provided for each nonhighly
compensated employee is at least 75% of that provided for each highly
compensated employee. For purposes of this test, the average value of
the benefit provided for each nonhighly compensated (highly compensated)
employee is determined by taking the sum
[[Page 608]]
of the fair market values of such benefit provided to all the nonhighly
compensated (highly compensated) employees, determined in accordance
with Sec. 1.61-21, and then dividing that sum by the total number of
nonhighly compensated (highly compensated) employees of the employer.
For purposes of determining the average value of the benefit provided
for each employee, all employee's of the employer are counted, including
those who are not eligible to receive the benefit from the employer.
(d) Testing for discrimination--(1) Classification test. In the
event that a benefit described in section 132 (a)(1), (a)(2) or (e)(2)
is not available on substantially the same terms to all of the employees
of the employer, no exclusion shall be available to a highly compensated
employee for such benefit unless the program under which the benefit is
provided satisfies the nondiscrimination standards set forth in this
section. The nondiscrimination standard of this section will be
satisfied only if the benefit is available on substantially the same
terms to a group of employees of the employer which is defined under a
reasonable classification established by the employer that does not
discriminate in favor of highly compensated employees. The determination
of whether a particular classification is discriminatory will generally
depend upon the facts and circumstances involved, based upon principles
similar to those applied for purposes of section 410(b)(2)(A)(i) or, for
years commencing prior to January 1, 1988, section 410(b)(1)(B). Thus,
in general, except as otherwise provided in this section, if a benefit
is available on substantially the same terms to a group of employees
which, when compared with all of the other employees of the employer,
constitutes a nondiscriminatory classification under section
410(b)(2)(A)(i) (or, if applicable, section 410(b)(1)(B)), it shall be
deemed to be nondiscriminatory.
(2) Classifications that are per se discriminatory. A classification
that, on its face, makes fringe benefits available principally to highly
compensated employees is per se discriminatory. In addition, a
classification that is based on either an amount or rate of compensation
is per se discriminatory if it favors those with the higher amount or
rate of compensation. On the other hand, a classification that is based
on factors such as seniority, full-time vs. part-time employment, or job
description is not per se discriminatory but may be discriminatory as
applied to the workforce of a particular employer.
(3) Former employees. When determining whether a classification is
discriminatory, former employees shall be tested separately from other
employees of the employer. Therefore, a classification is not
discriminatory solely because the employer does not make fringe benefits
available to any former employee. Whether a classification of former
employees discriminates in favor of highly compensated employees will
depend upon the particular facts and circumstances.
(4) Restructuring of benefits. For purposes of testing whether a
particular group of employees would constitute a discriminatory
classification for purposes of this section, an employer may restructure
its fringe benefit program as described in this paragraph. If a fringe
benefit is provided to more than one group of employees, and one or more
such groups would constitute a discriminatory classification if
considered by itself, then for purposes of this section, the employer
may restructure its fringe benefit program so that all or some of the
members of such group may be aggregated with another group, provided
that each member of the restructured group will have available to him or
her the same benefit upon the same terms and conditions. For example,
assume that all highly compensated employees of an employer have fewer
than five years of service and all nonhighly compensated employees have
over five years of service. If the employer provided a five percent
discount to employees with under five years of service and a ten percent
discount to employees with over five years of service, the discount
program available to the highly compensated employees would not satisfy
the nondiscriminatory classification test; however, as a result of the
rule described in this paragraph (d)(4), the employer could structure
the program to consist
[[Page 609]]
of a five percent discount for all employees and a five percent
additional discount for nonhighly compensated employees.
(5) Employer-operated eating facilities for employees--(i) General
rule. If access to an employer-operated eating facility for employees is
available to a classification of employees that discriminates in favor
of highly compensated employees, then the classification will not be
treated as discriminating in favor of highly compensated employees
unless the facility is used by one or more executive group employees
more than a de minimis amount.
(ii) Executive group employee. For purposes of this paragraph
(d)(5), an employee is an ``executive group employee'' if the definition
of paragraph (f)(1) of this section is satisfied. For purposes of
identifying such employees, the phrase ``top one percent of the
employees'' is substituted for the phrase ``top ten percent of the
employees'' in section 414(q)(4) (relating to the definition of ``top-
paid group'').
(e) Cash bonuses or rebates. A cash bonus or rebate provided to an
employee by an employer that is determined with reference to the value
of employer-provided property or services purchased by the employee, is
treated as an equivalent employee discount. For example, assume a
department store provides a 20 percent merchandise discount to all
employees under a fringe benefit program. In addition, assume that the
department store provides cash bonuses to a group of employees defined
under a classification which discriminates in favor of highly
compensated employees. Assume further that such cash bonuses equal 15
percent of the value of merchandise purchased by each employee. This
arrangement is substantively identical to the example described in
paragraph (e)(2)(i) of this section concerning related fringe benefit
programs. Thus, both the 20 percent merchandise discount and the 15
percent cash bonus provided to the highly compensated employees are
includible in such employees' gross incomes.
(f) Highly compensated employee--(1) Government and nongovernment
employees. A highly compensated employee of any employer is any employee
who, during the year or the preceding year--
(i) Was a 5-percent owner,
(ii) Received compensation from the employer in excess of $75,000,
(iii) Received compensation from the employer in excess of $50,000
and was in the top-paid group of employees for such year, or
(iv) Was at any time an officer and received compensation greater
than 150 percent of the amount in effect under section 415(c)(1)(A) for
such year.
For purposes of determining whether an employee is a highly compensated
employee, the rules of sections 414 (q), (s), and (t) apply.
(2) Former employees. A former employee shall be treated as a highly
compensated employee if--
(i) The employee was a highly compensated employee when the employee
separated from service, or
(ii) The employee was a highly compensated employee at any time
after attaining age 55.
[T.D. 8256, 54 FR 28618, July 6, 1989]
Sec. 1.132-8T Nondiscrimination rules--1985 through 1988 (temporary).
(a) Application of nondiscrimination rules--(1) General rule. To
qualify under section 132 for the exclusions for non-additional-cost
services, qualified employee discounts, or meals provided at employer-
operated eating facilities for employees, the fringe benefit must be
available on substantially the same terms to each member of a group of
employees which is defined under a reasonable classification set up by
the employer that does not discriminate in favor of officers, owners, or
highly compensated employees (the ``prohibited group employees'').
(2) Consequences of discrimination. If the availability of or the
provision of the fringe benefit does not satisfy the nondiscrimination
rules provided in this section, the exclusion applies only to those
employees (if any) who receive the benefit and who are not prohibited
group employees. For example, if an employer offers a 20 percent
discount (which otherwise satisfies the requirements for a qualified
employee discount) to all nonprohibited group employees and a 35 percent
discount to all prohibited group employees, the entire
[[Page 610]]
value of the 35 percent discount (not just the excess over 20 percent)
is includible in the gross income and wages of the prohibited group
employees who make purchases at a discount.
(3) Scope of the nondiscrimination rules provided in this section.
The nondiscrimination rules provided in this section apply only to
fringe benefits provided pursuant to section 132 (a)(1), (a)(2), and
(e)(2). These rules have no application to any other employee benefit
that may be subject to nondiscrimination requirements under any other
section of the Code.
(b) Coverage requirement--(1) Section 132 (a)(1) and (2). For
purposes of the exclusions for no-additional-cost services and qualified
employee discounts, the nondiscrimination rules of this section are
applied by aggregating the employees of all related employers (as
defined in Sec. 1.132-1T (c)), but without aggregating employees in
different lines of business (as defined in Sec. 1.132-4T). Employees in
different lines of business will be aggregated, however, if the line of
business limitation has been relaxed pursuant to either section 1.132-4T
(b) or (c). Except as provided in paragraph (e) of this section, the
nondiscrimination rules of this section are generally applied separately
to each fringe benefit program of an employer.
(2) Section 132(e)(2). For purposes of the exclusion for meals
provided at employer-operated eating facilities for employees, the
nondiscrimination rules of this section are applied by aggregating the
employees of all related employers, without regard to different lines of
business, who regularly work at or near the premises on which the eating
facility is located. The nondiscrimination rules of this section are
applied separately to each eating facility. Each dining room or
cafeteria in which meals are served is treated as a separate eating
facility, regardless of whether each such dining room or cafeteria has
its own kitchen or other food-preparation area.
(3) Classes of employees who may be excluded. Except as otherwise
provided in this section, for purposes of applying the nondiscrimination
rules of this section to a particular fringe benefit program, there may
be excluded from consideration the following classes of employees
provided that, with respect to each class (other than the class
described in paragraph (b)(3)(iii) of this section), all employees in
the class are excluded from participating in the particular fringe
benefit program--
(i) All part-time or seasonal employees who are (or who are
reasonably expected to be) credited with less than 1,000 hours (or such
lesser number required for the program) of service during a calendar
year;
(ii) All employees who are included in a unit of employees covered
by an agreement with the Secretary of Labor finds to be a collective
bargaining agreement between employee representatives and one or more
employers, if there is evidence that the particular fringe benefit
program was the subject of good faith bargaining between such employee
representatives and such employer or employers (and if, after March 31,
1984, the additional condition of section 7701(a)(46) is satisfied);
(iii) All employees who are nonresident aliens and who receive no
earned income (within the meaning of section 911(d)(2)) from the
employer which constitutes income from services within the United States
(within the meaning of section 861(a)(3));
(iv) All employees who have not completed at least one year (or such
lesser period required for the program) of service with the employer;
(v) All employees who have separated from the service of the
employer in a year prior to the current year (regardless of the reason
for the separation);
(vi) All employees who have separated from the service of the
employer in a year prior to the current year except for retired and/or
disabled employees (either with or without a time limit based on a set
number of years since separation from the service of the employer); and
(vii) All employees of a leased section of a department store.
(c) Classification requirement--(1) General rule. The determination
of whether a particular classification established by an employer
discriminates in favor of the prohibited group will depend on the facts
and circumstances involved,
[[Page 611]]
based on principles similar to those applied in the qualified plan area
(see section 410(b)(1)(B) and the regulations thereunder). In general,
except as otherwise provided in this section, a classification that
would be determined to be nondiscriminatory pursuant to the application
of the nondiscrimination standards that are applied in the qualified
plan area shall be deemed to be nondiscriminatory for purposes of
section 132.
(2) Classifications that are per se discriminatory. A classification
that, on its face, makes fringe benefits available only to prohibited
group employees is per se discriminatory, and no exclusion from gross
income is available to any prohibited group employee under section 132.
In addition, a classification that is based on either an amount or rate
of compensation is per se discriminatory if it favors those with the
higher amount or rate of compensation. On the other hand, a
classification that is based on factors such as seniority, full-time vs.
part-time employment, or job description is not per se discriminatory
but may be discriminatory as applied to the workforce of a particular
employer.
(3) Former employees. When determining whether a classification is
discriminatory, former employees shall not be considered together with
other employees of the employer. Therefore, a classification is not
discriminatory if the employer does not make the fringe benefits
available to any former employee. Whether a classification of former
employees discriminates in favor of prohibited group employees will
depend on the facts and circumstances. The rules of this section shall
apply separately to the former employee classification.
(4) Employer-operated eating facilities for employees--(i) General
rule. If access to an employer-operated eating facility for employees is
available to a classification of employees that discriminates in favor
of highly compensated employees, the classification will not be treated
as discriminating in favor of the prohibited group employees unless the
facility is used, more than a de minimis amount, by any executive group
employee.
(ii) Executive group employees. For purposes of this paragraph
(c)(4), the term ``executive group employees'' has the same meaning as
the term ``prohibited group employees'' (as defined in paragraph (g) of
this section), except that for purposes of identifying highly
compensated employees--
(A) The exception provided in paragraph (g)(1)(i)(A) of this section
does not apply, and
(B) The phrase ``highest-paid one percent of all employees of an
employer'' is substituted for the phrase ``highest-paid ten percent of
all employees of an employer'' in paragraph (g)(1)(ii)(A) of this
section.
(d) Substantially-the-same-terms requirement--(1) General rule.
Fringe benefits available to a particular classification of employees
must be available to each employee in the classification on
substantially the same terms. The determination of whether this
requirement is met shall depend on the facts and circumstances involved.
For example, if a department store provides a 20 percent qualified
employee discount to its employees on all merchandise, the
substantially-the-same-terms requirement will be satisfied. Similarly,
if the discount provided to all employees is 30 percent on certain
merchandise (such as apparel), and 20 percent on all other merchandise,
the substantially-the-same-terms requirement will be satisfied. However,
if the discount provided is 20 percent on all merchandise for hourly
employees and 30 percent on all merchandise for salaried employees, the
substantially-the-same-terms requirement will not be satisfied. In
addition, if the percentage discount varies depending on either an
employee's amount or rate of compensation, or volume of purchases, the
substantially-the-same-terms requirement will not be satisfied. In order
to determine whether such a discount program satisfies the
nondiscrimination requirements of section 132, each group of employees
that does receive fringe benefits on substantially the same terms must
be treated as a separate classification. However, subject to the rules
of paragraph (e)(2) of this section, an employer may divide a fringe
benefit
[[Page 612]]
program into two programs for purposes of aggregating groups of
employees. See Example (1) of paragraph (d)(3) of this section.
(2) Terms relating to priority. Certain fringe benefits made
available to employees are available only in limited quantities that may
be insufficient to meet employee demand. This may occur either because
of employer policy (such as where an employer determines that only a
certain number of units of a specific product will be made available to
employees each year) or because of the nature of the fringe benefit
(such as where an employer provides a no-additional-cost transportation
service that is limited to the number of seats available just before
departure). Under these circumstances, an employer may find it necessary
to establish some method of allocating the limited fringe benefits among
the employees eligible to receive the fringe benefits. An allocation
among employees on a ``first-come, first-served'' basis will not violate
the substantially-the-same-terms requirement provided that such an
allocation is not discriminatory in practice. In addition, an allocation
among employees on a lottery basis will not violate the substantially-
the-same-terms requirement provided that such an allocation is
nondiscriminatory in practice. For example, assume that an employer has
a limited number of a particular benefit to offer to its employees.
Assume further that the employees interested in receiving the benefit
submit their names to the employer who then selects a number of names,
at random, equal to the number of fringe benefits available. This
lottery system would not violate the substantially-the-same-terms
requirement. An allocation among employees on other than a ``first-come,
first-served'', lottery, or similar basis will violate the
substantially-the-same-terms requirement. Therefore, an allocation based
on seniority, full-time vs. part-time employment, or job description
will violate the substantially-the-same-terms requirement. In order to
determine whether such a fringe benefit program satisfies the
nondiscrimination requirements of section 132, each group of employees
that does receive fringe benefits on substantially the same terms must
be treated as a separate classification. For purposes of this rule, the
last two sentences of paragraph (d)(1) of this section apply.
(3) Examples. The followings examples illustrate the provisions of
this paragraph (d):
Example 1. Assume that with respect to a benefit available in
limited quantities an employer provides priority to employees based on
seniority. Assume further that all non-prohibited group employees have
ten years of seniority and all prohibited group employees have nine
years seniority. If each of these groups were tested separately, the
benefits offered to prohibited group employees would be discriminatory
under this section. In this case, the employer could divide the fringe
benefit program provided to non-prohibited group employees into two
parts: one relating to nine years of seniority and one relating to an
additional year of seniority. As restructured in this manner, all
employees receive the benefit relating to nine years seniority and only
non-prohibited group employees receive the benefit relating to an
additional year of seniority. Both groups (all employees and all non-
prohibited group employees) are nondiscriminatory groups.
Example 2. Assume that prices charged to prohibited group employees
at an employer-operated eating facility for employees are lower than
prices charged to non-prohibited group employees. The substantially-the-
same requirement is not satisfied.
(4) Disproportionate use of eating facility. If access to an
employer-operated eating facility for employees is technically available
on substantially-the-same-terms (to (i) all employees who regularly work
at or near the premises on which the eating facility is located (the
employee group), or (ii) a nondiscriminatory classification of the
employee group, but in practice a highly disproportionate number of the
prohibited group employees in the employee group, compared to the non-
prohibited group employees in the employee group, use the facility, the
substantially-the-same-terms requirement will not be satisfied unless no
member of the executive group eats there more than a de minimis amount.
(e) Aggregation of separate fringe benefit programs--(1) General
rule. If an employer maintains more than one fringe
[[Page 613]]
benefit program, i.e., two or more classifications of employees
providing either identical or different fringe benefits, the
nondiscrimination requirements of section 132 will generally be applied
separately to each such program. Thus, a determination that one fringe
benefit program discriminates in favor of prohibited group employees
generally will not cause other fringe benefit programs covering the same
prohibited group employees to be treated as discriminatory.
(2) Exception--(i) Related fringe benefit programs. If one of a
group of fringe benefit programs discriminates in favor of prohibited
group employees, no related fringe benefit provided to such prohibited
group employees under any other fringe benefit program may be excluded
from the gross income of such prohibited group employees. For example,
assume a department store provides a 20 percent merchandise discount to
all employees under one fringe benefit program. Assume further that
under a second fringe benefit program, the department store provides an
additional 15 percent merchandise discount to a group of employees
defined under a classification which discriminates in favor of the
prohibited group. Because the second fringe benefit program is
discriminatory, the 15 percent merchandise discount provided to the
prohibited group employees is not a qualified employee discount. In
addition, because the 20 percent merchandise discount provided under the
first fringe benefit program is related to the fringe benefit provided
under the second fringe benefit program, the 20 percent merchandise
discount provided the prohibited group employees is not a qualified
employee discount. Thus, the entire 35 percent merchandise discount
provided to the prohibited group employees is includible in such
employees' gross incomes.
(ii) Employer-operated eating facilities for employees. For purposes
of paragraph (e)(2)(i) of this section, meals at different employer-
operated eating facilities for employees are not related fringe
benefits, so that a prohibited group employee may exclude the value of a
meal at a nondiscriminatory facility even though any meals provided to
him or her at the discriminatory facility cannot be excluded.
(f) Cash bonuses or rebates. A cash bonus or rebate provided to an
employee by an employer that is determined pursuant to the value of
employer-provided property or services purchased by the employee, is
treated as an equivalent employee discount. For example, assume a
department store provides a 20 percent merchandise discount to all
employees under a fringe benefit program. In addition, assume that the
department store provides cash bonuses to a group of employees defined
under a classification which discriminates in favor of the prohibited
group. Assume further that such cash bonuses equal 15 percent of the
value of merchandise purchased by each employee. This arrangement is
substantively identical to the example described in paragraph (e)(2) of
this section. Thus, both the 20 percent merchandise discount and the 15
percent cash bonus provided to the prohibited group employees are
includible in such employees' gross incomes.
(g) Prohibited group employees--(1) Highly compensated--(i) General
rule. Except as otherwise provided in this paragraph (g)(1)(i), any
employee of an employer who has (or is reasonably expected to have)
compensation during a calendar year equal to or greater than the
employer's base compensation amount is highly compensated. There are two
exceptions to this rule:
(A) Any employee who has (or is reasonably expected to have)
compensation during a calendar year equal to or greater than $50,000 is
highly compensated, regardless of whether such compensation is in excess
of the base compensation amount, and
(B) Any employee who is reasonably expected to have compensation
during a calendar year equal to or less than $20,000 is not highly
compensated, unless no employee of the employer is reasonably expected
to have compensation equal to or greater than $35,000.
The determination of whether an employee is a highly compensated
employee will be determined based on the entire employee workforce of
all employers aggregated pursuant to the
[[Page 614]]
rules of section 414 (b), (c), or (m) without regard to the regular
workplace of the employees.
(ii) Base compensation amount--(A) General rule. The term ``base
compensation amount'' is defined as that amount corresponding to the
lowest annual compensation amount received by the highest-paid ten
percent of all employees of an employer (the number of employees in the
top ten percent will be increased to the next highest integer if
necessary), determined on the basis of the preceding calendar year. For
purposes of this paragraph (g)(1)(ii), the term ``employer'' includes
all entities that would be aggregated pursuant to the rules of section
414 (b), (c), or (m).
(B) Employees that are excluded. For purposes of determining the
base compensation amount with respect to a fringe benefit program,
employees described in paragraph (b)(3) of this section are excluded
whether or not they are covered under the fringe benefit program, except
that: (1) Employees described in paragraph (b)(3)(ii) of this section
are taken into account with respect to the program even if they are
excluded under paragraph (b)(3), and (2) employees described in
paragraph (b)(3) (i) and (iv) of this section are taken into account
with respect to the program unless they are excluded under paragraph
(b)(3).
(C) Exception to preceding calendar year rule. In the case of an
employer's first year of operation, or where an employer's business has
changed significantly from the prior calendar year (e.g., due to an
acquisition or merger), the employer must make a good faith attempt to
either determine or adjust the base compensation amount for the current
year based on reasonable estimates of current year compensation.
(iii) Compensation. The term ``compensation'' is defined as the
amount reportable on a Form W-2 as income. Amounts that would be
excluded from income but for section 132(h)(1) are not included in
compensation for purposes of this paragraph (g)(1). Compensation
includes amounts received from all entities which would be treated as a
single employer under section 414 (b), (c), or (m) and is not restricted
to amounts received with respect to any one line of business.
(iv) Employee. Generally, for purposes of determining whether an
employee is highly compensated under this paragraph (g)(1), the term
``employee'' does not include any individual who does not perform
services for the employer as an employee during the calendar year. For
example, if an employer has active employees, retired or disabled
employees, and widows or widowers who are ``employees'' under section
132(f)(1)(B), the general rule (described in paragraph (g)(1)(i) of this
section) applies only to the active employees.
(2) Owner--(i) General rule. For purposes of this section, the term
``owner'' means any employee who owns a one percent or greater interest
in either the employer or in any entity that would be aggregated with
the employer pursuant to the rules of section 414 (b), (c), or (m). In
addition, such an employee shall be treated as an owner of all entities
that would be aggregated with the employer pursuant to the rules of
section 414 (b), (c), or (m).
(ii) Determining ownership. Ownership in a corporation shall be
determined pursuant to the rules of section 318(a). For purposes of
determining ownership in an entity other than a corporation, the rules
of section 318(a) shall apply in a manner similar to the way in which
they apply for purposes of determining ownership in a corporation. For
non-corporate interests, capital or profits interest must be substituted
for stock.
(3) Officer--(i) Non-government. For purposes of this section, an
officer of a non-government employer is any employee who is appointed,
confirmed, or elected by the Board or shareholders of the employer. 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 number of officers is not to exceed one-percent of
the total number of employees of all entities treated as a single
employer pursuant to section 414 (b), (c), or (m) (increased to the next
highest integer, if necessary). If the number of officers exceeds one-
percent of all employees, then the limitation is to be applied to
employees in descending order of compensation (as defined in paragraph
[[Page 615]]
(g)(1)(iii) of this section). Thus, if an employer with 1,000 employees
has 11 board-appointed officers, the employee with the least
compensation of those officers would not be an officer under this
paragraph (g)(3)(i). In determining the total number of employees with
respect to a fringe benefit program, employees described in paragraph
(b)(3) of this section are excluded whether or not they are covered
under the fringe benefit program, except that (A) employees described in
paragraph (b)(3)(ii) of this section are taken into account with respect
to the program even if they are excluded under paragraph (b)(3), and (B)
employees described in paragraph (b)(3) (i) and (iv) of this section are
taken into account with respect to the program unless they are excluded
under paragraph (b)(3).
(ii) Government. For purposes of this section, an officer of a
government employer is any--
(A) Elected official,
(B) Federal employee appointed by the President and confirmed by the
Senate. However, in the case of any commissioned officer of the United
States Armed Forces, an officer is any employee with the rank of
brigadier general or rear admiral (lower half) or above, and
(C) State or local executive officer comparable to individuals
described in paragraphs (g)(3)(ii) (A) and (B) of this section.
For purposes of this paragraph (g)(3)(ii), the term ``government''
includes any Federal, state, or local governmental unit, and any agency
or instrumentality thereof.
(4) Former employees. [Reserved]
[T.D. 8063, 50 FR 52309, Dec. 23, 1985, as amended by T.D. 8256, 54 FR
28600, July 6, 1989]
Sec. 1.132-9 Qualified transportation fringes.
(a) Table of contents. This section contains a list of the questions
and answers in Sec. 1.132-9.
(1) General rules.
Q-1. What is a qualified transportation fringe?
Q-2. What is transportation in a commuter highway vehicle?
Q-3. What are transit passes?
Q-4. What is qualified parking?
Q-5. May qualified transportation fringes be provided to individuals
who are not employees?
Q-6. Must a qualified transportation fringe benefit plan be in
writing?
(2) Dollar limitations.
Q-7. Is there a limit on the value of qualified transportation
fringes that may be excluded from an employee's gross income?
Q-8. What amount is includible in an employee's wages for income and
employment tax purposes if the value of the qualified transportation
fringe exceeds the applicable statutory monthly limit?
Q-9. Are excludable qualified transportation fringes calculated on a
monthly basis?
Q-10. May an employee receive qualified transportation fringes from
more than one employer?
(3) Compensation reduction.
Q-11. May qualified transportation fringes be provided to employees
pursuant to a compensation reduction agreement?
Q-12. What is a compensation reduction election for purposes of
section 132(f)?
Q-13. Is there a limit to the amount of the compensation reduction?
Q-14. When must the employee have made a compensation reduction
election and under what circumstances may the amount be paid in cash to
the employee?
Q-15. May an employee whose qualified transportation fringe costs
are less than the employee's compensation reduction carry over this
excess amount to subsequent periods?
(4) Expense reimbursements.
Q-16. How does section 132(f) apply to expense reimbursements?
Q-17. May an employer provide nontaxable cash reimbursement under
section 132(f) for periods longer than one month?
Q-18. What are the substantiation requirements if an employer
distributes transit passes?
Q-19. May an employer choose to impose substantiation requirements
in addition to those described in this regulation?
(5) Special rules for parking and vanpools.
Q-20. How is the value of parking determined?
Q-21. How do the qualified transportation fringe rules apply to van
pools?
(6) Reporting and employment taxes.
Q-22. What are the reporting and employment tax requirements for
qualified transportation fringes?
(7) Interaction with other fringe benefits.
Q-23. How does section 132(f) interact with other fringe benefit
rules?
(8) Application to individuals who are not employees.
[[Page 616]]
Q-24. May qualified transportation fringes be provided to
individuals who are partners, 2-percent shareholders of S-corporations,
or independent contractors?
(9) Effective date.
Q-25. What is the effective date of this section?
(b) Questions and answers.
Q-1. What is a qualified transportation fringe?
A-1. (a) The following benefits are qualified transportation fringe
benefits:
(1) Transportation in a commuter highway vehicle.
(2) Transit passes.
(3) Qualified parking.
(b) An employer may simultaneously provide an employee with any one
or more of these three benefits.
Q-2. What is transportation in a commuter highway vehicle?
A-2. Transportation in a commuter highway vehicle is transportation
provided by an employer to an employee in connection with travel between
the employee's residence and place of employment. A commuter highway
vehicle is a highway vehicle with a seating capacity of at least 6
adults (excluding the driver) and with respect to which at least 80
percent of the vehicle's mileage for a year is reasonably expected to
be--
(a) For transporting employees in connection with travel between
their residences and their place of employment; and
(b) On trips during which the number of employees transported for
commuting is at least one-half of the adult seating capacity of the
vehicle (excluding the driver).
Q-3. What are transit passes?
A-3. A transit pass is any pass, token, farecard, voucher, or
similar item (including an item exchangeable for fare media) that
entitles a person to transportation--
(a) On mass transit facilities (whether or not publicly owned); or
(b) Provided by any person in the business of transporting persons
for compensation or hire in a highway vehicle with a seating capacity of
at least 6 adults (excluding the driver).
Q-4. What is qualified parking?
A-4. (a) Qualified parking is parking provided to an employee by an
employer--
(1) On or near the employer's business premises; or
(2) At a location from which the employee commutes to work
(including commuting by carpool, commuter highway vehicle, mass transit
facilities, or transportation provided by any person in the business of
transporting persons for compensation or hire).
(b) For purposes of section 132(f), parking on or near the
employer's business premises includes parking on or near a work location
at which the employee provides services for the employer. However,
qualified parking does not include--
(1) The value of parking provided to an employee that is excludable
from gross income under section 132(a)(3) (as a working condition
fringe), or
(2) Reimbursement paid to an employee for parking costs that is
excludable from gross income as an amount treated as paid under an
accountable plan. See Sec. 1.62-2.
(c) However, parking on or near property used by the employee for
residential purposes is not qualified parking.
(d) Parking is provided by an employer if--
(1) The parking is on property that the employer owns or leases;
(2) The employer pays for the parking; or
(3) The employer reimburses the employee for parking expenses (see
Q/A-16 of this section for rules relating to cash reimbursements).
Q-5. May qualified transportation fringes be provided to individuals
who are not employees?
A-5. An employer may provide qualified transportation fringes only
to individuals who are currently employees of the employer at the time
the qualified transportation fringe is provided. The term employee for
purposes of qualified transportation fringes is defined in Sec. 1.132-
1(b)(2)(i). This term includes only common law employees and other
statutory employees, such as officers of corporations. See Q/A-24 of
this section for rules regarding partners, 2-percent shareholders, and
independent contractors.
[[Page 617]]
Q-6. Must a qualified transportation fringe benefit plan be in
writing?
A-6. No. Section 132(f) does not require that a qualified
transportation fringe benefit plan be in writing.
Q-7. Is there a limit on the value of qualified transportation
fringes that may be excluded from an employee's gross income?
A-7. (a) Transportation in a commuter highway vehicle and transit
passes. Before January 1, 2002, up to $65 per month is excludable from
the gross income of an employee for transportation in a commuter highway
vehicle and transit passes provided by an employer. On January 1, 2002,
this amount is increased to $100 per month.
(b) Parking. Up to $175 per month is excludable from the gross
income of an employee for qualified parking.
(c) Combination. An employer may provide qualified parking benefits
in addition to transportation in a commuter highway vehicle and transit
passes.
(d) Cost-of-living adjustments. The amounts in paragraphs (a) and
(b) of this Q/A-7 are adjusted annually, beginning with 2000, to reflect
cost-of-living. The adjusted figures are announced by the Service before
the beginning of the year.
Q-8. What amount is includible in an employee's wages for income and
employment tax purposes if the value of the qualified transportation
fringe exceeds the applicable statutory monthly limit?
A-8. (a) Generally, an employee must include in gross income the
amount by which the fair market value of the benefit exceeds the sum of
the amount, if any, paid by the employee and any amount excluded from
gross income under section 132(a)(5). Thus, assuming no other statutory
exclusion applies, if an employer provides an employee with a qualified
transportation fringe that exceeds the applicable statutory monthly
limit and the employee does not make any payment, the value of the
benefits provided in excess of the applicable statutory monthly limit is
included in the employee's wages for income and employment tax purposes.
See Sec. 1.61-21(b)(1).
(b) The following examples illustrate the principles of this Q/A-8:
Example 1. (i) For each month in a year in which the statutory
monthly transit pass limit is $100 (i.e., a year after 2001), Employer M
provides a transit pass valued at $110 to Employee D, who does not pay
any amount to Employer M for the transit pass.
(ii) In this Example 1, because the value of the monthly transit
pass exceeds the statutory monthly limit by $10, $120 ($110--$100, times
12 months) must be included in D's wages for income and employment tax
purposes for the year with respect to the transit passes.
Example 2. (i) For each month in a year in which the statutory
monthly qualified parking limit is $175, Employer M provides qualified
parking valued at $195 to Employee E, who does not pay any amount to M
for the parking.
(ii) In this Example 2, because the fair market value of the
qualified parking exceeds the statutory monthly limit by $20, $240
($195--$175, times 12 months) must be included in Employee E's wages for
income and employment tax purposes for the year with respect to the
qualified parking.
Example 3. (i) For each month in a year in which the statutory
monthly qualified parking limit is $175, Employer P provides qualified
parking with a fair market value of $220 per month to its employees, but
charges each employee $45 per month.
(ii) In this Example 3, because the sum of the amount paid by an
employee ($45) plus the amount excludable for qualified parking ($175)
is not less than the fair market value of the monthly benefit, no amount
is includible in the employee's wages for income and employment tax
purposes with respect to the qualified parking.
Q-9. Are excludable qualified transportation fringes calculated on a
monthly basis?
A-9. (a) In general. Yes. The value of transportation in a commuter
highway vehicle, transit passes, and qualified parking is calculated on
a monthly basis to determine whether the value of the benefit has
exceeded the applicable statutory monthly limit on qualified
transportation fringes. Except in the case of a transit pass provided to
an employee, the applicable statutory monthly limit applies to qualified
transportation fringes used by the employee in a month. Monthly
exclusion amounts are not combined to provide a qualified transportation
fringe for any month exceeding the statutory limit. A month is a
calendar month or a substantially equivalent period applied
consistently.
[[Page 618]]
(b) Transit passes. In the case of transit passes provided to an
employee, the applicable statutory monthly limit applies to the transit
passes provided by the employer to the employee in a month for that
month or for any previous month in the calendar year. In addition,
transit passes distributed in advance for more than one month, but not
for more than twelve months, are qualified transportation fringes if the
requirements in paragraph (c) of this Q/A-9 are met (relating to the
income tax and employment tax treatment of advance transit passes). The
applicable statutory monthly limit under section 132(f)(2) on the
combined amount of transportation in a commuter highway vehicle and
transit passes may be calculated by taking into account the monthly
limits for all months for which the transit passes are distributed. In
the case of a pass that is valid for more than one month, such as an
annual pass, the value of the pass may be divided by the number of
months for which it is valid for purposes of determining whether the
value of the pass exceeds the statutory monthly limit.
(c) Rule if employee's employment terminates--(1) Income tax
treatment. The value of transit passes provided in advance to an
employee with respect to a month in which the individual is not an
employee is included in the employee's wages for income tax purposes.
(2) Reporting and employment tax treatment. Transit passes
distributed in advance to an employee are excludable from wages for
employment tax purposes under sections 3121, 3306, and 3401 (FICA, FUTA,
and income tax withholding) if the employer distributes transit passes
to the employee in advance for not more than three months and, at the
time the transit passes are distributed, there is not an established
date that the employee's employment will terminate (for example, if the
employee has given notice of retirement) which will occur before the
beginning of the last month of the period for which the transit passes
are provided. If the employer distributes transit passes to an employee
in advance for not more than three months and at the time the transit
passes are distributed there is an established date that the employee's
employment will terminate, and the employee's employment does terminate
before the beginning of the last month of the period for which the
transit passes are provided, the value of transit passes provided for
months beginning after the date of termination during which the employee
is not employed by the employer is included in the employee's wages for
employment tax purposes. If transit passes are distributed in advance
for more than three months, the value of transit passes provided for the
months during which the employee is not employed by the employer is
includible in the employee's wages for employment tax purposes
regardless of whether at the time the transit passes were distributed
there was an established date of termination of the employee's
employment.
(d) Examples. The following examples illustrate the principles of
this Q/A-9:
Example 1. (i) Employee E incurs $150 for qualified parking used
during the month of June of a year in which the statutory monthly
parking limit is $175, for which E is reimbursed $150 by Employer R.
Employee E incurs $180 in expenses for qualified parking used during the
month of July of that year, for which E is reimbursed $180 by Employer
R.
(ii) In this Example 1, because monthly exclusion amounts may not be
combined to provide a benefit in any month greater than the applicable
statutory limit, the amount by which the amount reimbursed for July
exceeds the applicable statutory monthly limit ($180 minus $175 equals
$5) is includible in Employee E's wages for income and employment tax
purposes.
Example 2. (i) Employee F receives transit passes from Employer G
with a value of $195 in March of a year (for which the statutory monthly
transit pass limit is $65) for January, February, and March of that
year. F was hired during January and has not received any transit passes
from G.
(ii) In this Example 2, the value of the transit passes (three
months times $65 equals $195) is excludable from F's wages for income
and employment tax purposes.
Example 3. (i) Employer S has a qualified transportation fringe
benefit plan under which its employees receive transit passes near the
beginning of each calendar quarter for that calendar quarter. All
employees of Employer S receive transit passes from Employer S with a
value of $195 on March 31 for the second calendar quarter covering the
months April, May, and June (of a year in which the statutory monthly
transit pass limit is $65).
[[Page 619]]
(ii) In this Example 3, because the value of the transit passes may
be calculated by taking into account the monthly limits for all months
for which the transit passes are distributed, the value of the transit
passes (three months times $65 equals $195) is excludable from the
employees' wages for income and employment tax purposes.
Example 4. (i) Same facts as in Example 3, except that Employee T,
an employee of Employer S, terminates employment with S on May 31. There
was not an established date of termination for Employee T at the time
the transit passes were distributed.
(ii) In this Example 4, because at the time the transit passes were
distributed there was not an established date of termination for
Employee T, the value of the transit passes provided for June ($65) is
excludable from T's wages for employment tax purposes. However, the
value of the transit passes distributed to Employee T for June ($65) is
not excludable from T's wages for income tax purposes.
(iii) If Employee T's May 31 termination date was established at the
time the transit passes were provided, the value of the transit passes
provided for June ($65) is included in T's wages for both income and
employment tax purposes.
Example 5. (i) Employer F has a qualified transportation fringe
benefit plan under which its employees receive transit passes semi-
annually in advance of the months for which the transit passes are
provided. All employees of Employer F, including Employee X, receive
transit passes from F with a value of $390 on June 30 for the 6 months
of July through December (of a year in which the statutory monthly
transit pass limit is $65). Employee X's employment terminates and his
last day of work is August 1. Employer F's other employees remain
employed throughout the remainder of the year.
(ii) In this Example 5, the value of the transit passes provided to
Employee X for the months September, October, November, and December
($65 times 4 months equals $260) of the year is included in X's wages
for income and employment tax purposes. The value of the transit passes
provided to Employer F's other employees is excludable from the
employees' wages for income and employment tax purposes.
Example 6. (i) Each month during a year in which the statutory
monthly transit pass limit is $65, Employer R distributes transit passes
with a face amount of $70 to each of its employees. Transit passes with
a face amount of $70 can be purchased from the transit system by any
individual for $65.
(ii) In this Example 6, because the value of the transit passes
distributed by Employer R does not exceed the applicable statutory
monthly limit ($65), no portion of the value of the transit passes is
included as wages for income and employment tax purposes.
Q-10. May an employee receive qualified transportation fringes from
more than one employer?
A-10. (a) General rule. Yes. The statutory monthly limits described
in Q/A-7 of this section apply to benefits provided by an employer to
its employees. For this purpose, all employees treated as employed by a
single employer under section 414(b), (c), (m), or (o) are treated as
employed by a single employer. See section 414(t) and Sec. 1.132-1(c).
Thus, qualified transportation fringes paid by entities under common
control under section 414(b), (c), (m), or (o) are combined for purposes
of applying the applicable statutory monthly limit. In addition, an
individual who is treated as a leased employee of the employer under
section 414(n) is treated as an employee of that employer for purposes
of section 132. See section 414(n)(3)(C).
(b) Examples. The following examples illustrate the principles of
this Q/A-10:
Example 1. (i) During a year in which the statutory monthly
qualified parking limit is $175, Employee E works for Employers M and N,
who are unrelated and not treated as a single employer under section
414(b), (c), (m), or (o). Each month, M and N each provide qualified
parking benefits to E with a value of $100.
(ii) In this Example 1, because M and N are unrelated employers, and
the value of the monthly parking benefit provided by each is not more
than the applicable statutory monthly limit, the parking benefits
provided by each employer are excludable as qualified transportation
fringes assuming that the other requirements of this section are
satisfied.
Example 2. (i) Same facts as in Example 1, except that Employers M
and N are treated as a single employer under section 414(b).
(ii) In this Example 2, because M and N are treated as a single
employer, the value of the monthly parking benefit provided by M and N
must be combined for purposes of determining whether the applicable
statutory monthly limit has been exceeded. Thus, the amount by which the
value of the parking benefit exceeds the monthly limit ($200 minus the
monthly limit amount of $175 equals $25) for each month in the year is
includible in E's wages for income and employment tax purposes.
Q-11. May qualified transportation fringes be provided to employees
pursuant to a compensation reduction agreement?
[[Page 620]]
A-11. Yes. An employer may offer employees a choice between cash
compensation and any qualified transportation fringe. An employee who is
offered this choice and who elects qualified transportation fringes is
not required to include the cash compensation in income if--
(a) The election is pursuant to an arrangement described in Q/A-12
of this section;
(b) The amount of the reduction in cash compensation does not exceed
the limitation in Q/A-13 of this section;
(c) The arrangement satisfies the timing and reimbursement rules in
Q/A-14 and 16 of this section; and
(d) The related fringe benefit arrangement otherwise satisfies the
requirements set forth elsewhere in this section.
Q-12. What is a compensation reduction election for purposes of
section 132(f)?
A-12. (a) Election requirements generally. A compensation reduction
arrangement is an arrangement under which the employer provides the
employee with the right to elect whether the employee will receive
either a fixed amount of cash compensation at a specified future date or
a fixed amount of qualified transportation fringes to be provided for a
specified future period (such as qualified parking to be used during a
future calendar month). The employee's election must be in writing or
another form, such as electronic, that includes, in a permanent and
verifiable form, the information required to be in the election. The
election must contain the date of the election, the amount of the
compensation to be reduced, and the period for which the benefit will be
provided. The election must relate to a fixed dollar amount or fixed
percentage of compensation reduction. An election to reduce compensation
for a period by a set amount for such period may be automatically
renewed for subsequent periods.
(b) Automatic election permitted. An employer may provide under its
qualified transportation fringe benefit plan that a compensation
reduction election will be deemed to have been made if the employee does
not elect to receive cash compensation in lieu of the qualified
transportation fringe, provided that the employee receives adequate
notice that a compensation reduction will be made and is given adequate
opportunity to choose to receive the cash compensation instead of the
qualified transportation fringe. See Sec. 1.401(a)-21 of this chapter
for rules permitting the use of electronic media to make participant
elections with respect to employee benefit arrangements.
Q-13. Is there a limit to the amount of the compensation reduction?
A-13. Yes. Each month, the amount of the compensation reduction may
not exceed the combined applicable statutory monthly limits for
transportation in a commuter highway vehicle, transit passes, and
qualified parking. For example, for a year in which the statutory
monthly limit is $65 for transportation in a commuter highway vehicle
and transit passes, and $175 for qualified parking, an employee could
elect to reduce compensation for any month by no more than $240 ($65
plus $175) with respect to qualified transportation fringes. If an
employee were to elect to reduce compensation by $250 for a month, the
excess $10 ($250 minus $240) would be includible in the employee's wages
for income and employment tax purposes.
Q-14. When must the employee have made a compensation reduction
election and under what circumstances may the amount be paid in cash to
the employee?
A-14. (a) The compensation reduction election must satisfy the
requirements set forth under paragraphs (b), (c), and (d) of this Q/A-
14.
(b) Timing of election. The compensation reduction election must be
made before the employee is able currently to receive the cash or other
taxable amount at the employee's discretion. The determination of
whether the employee is able currently to receive the cash does not
depend on whether it has been constructively received for purposes of
section 451. The election must specify that the period (such as a
calendar month) for which the qualified transportation fringe will be
provided must not begin before the election is made. Thus, a
compensation reduction election must relate to qualified transportation
fringes to be provided after
[[Page 621]]
the election. For this purpose, the date a qualified transportation
fringe is provided is--
(1) The date the employee receives a voucher or similar item; or
(2) In any other case, the date the employee uses the qualified
transportation fringe.
(c) Revocability of elections. The employee may not revoke a
compensation reduction election after the employee is able currently to
receive the cash or other taxable amount at the employee's discretion.
In addition, the election may not be revoked after the beginning of the
period for which the qualified transportation fringe will be provided.
(d) Compensation reduction amounts not refundable. Unless an
election is revoked in a manner consistent with paragraph (c) of this Q/
A-14, an employee may not subsequently receive the compensation (in cash
or any form other than by payment of a qualified transportation fringe
under the employer's plan). Thus, an employer's qualified transportation
fringe benefit plan may not provide that an employee who ceases to
participate in the employer's qualified transportation fringe benefit
plan (such as in the case of termination of employment) is entitled to
receive a refund of the amount by which the employee's compensation
reductions exceed the actual qualified transportation fringes provided
to the employee by the employer.
(e) Examples. The following examples illustrate the principles of
this Q/A-14:
Example 1. (i) Employer P maintains a qualified transportation
fringe benefit arrangement during a year in which the statutory monthly
limit is $100 for transportation in a commuter highway vehicle and
transit passes (2002 or later) and $180 for qualified parking. Employees
of P are paid cash compensation twice per month, with the payroll dates
being the first and the fifteenth day of the month. Under P's
arrangement, an employee is permitted to elect at any time before the
first day of a month to reduce his or her compensation payable during
that month in an amount up to the applicable statutory monthly limit
($100 if the employee elects coverage for transportation in a commuter
highway vehicle or a mass transit pass, or $180 if the employee chooses
qualified parking) in return for the right to receive qualified
transportation fringes up to the amount of the election. If such an
election is made, P will provide a mass transit pass for that month with
a value not exceeding the compensation reduction amount elected by the
employee or will reimburse the cost of other qualified transportation
fringes used by the employee on or after the first day of that month up
to the compensation reduction amount elected by the employee. Any
compensation reduction amount elected by the employee for the month that
is not used for qualified transportation fringes is not refunded to the
employee at any future date.
(ii) In this Example 1, the arrangement satisfies the requirements
of this Q/A-14 because the election is made before the employee is able
currently to receive the cash and the election specifies the future
period for which the qualified transportation fringes will be provided.
The arrangement would also satisfy the requirements of this Q/A-14 and
Q/A-13 of this section if employees are allowed to elect to reduce
compensation up to $280 per month ($100 plus $180).
(iii) The arrangement would also satisfy the requirements of this Q/
A-14 (and Q/A-13 of this section) if employees are allowed to make an
election at any time before the first or the fifteenth day of the month
to reduce their compensation payable on that payroll date by an amount
not in excess of one-half of the applicable statutory monthly limit
(depending on the type of qualified transportation fringe elected by the
employee) and P provides a mass transit pass on or after the applicable
payroll date for the compensation reduction amount elected by the
employee for the payroll date or reimburses the cost of other qualified
transportation fringes used by the employee on or after the payroll date
up to the compensation reduction amount elected by the employee for that
payroll date.
Example 2. (i) Employee Q elects to reduce his compensation payable
on March 1 of a year (for which the statutory monthly mass transit limit
is $65) by $195 in exchange for a mass transit voucher to be provided in
March. The election is made on the preceding February 27. Employee Q was
hired in January of the year. On March 10 of the year, the employer of
Employee Q delivers to Employee Q a mass transit voucher worth $195 for
the months of January, February, and March.
(ii) In this Example 2, $65 is included in Employee Q's wages for
income and employment tax purposes because the compensation reduction
election fails to satisfy the requirement in this Q/A-14 and Q/A-12 of
this section that the period for which the qualified transportation
fringe will be provided not begin before the election is made to the
extent the election relates to $65 worth of transit passes for January
of the year. The $65 for February is not taxable because the election
was for a future period that includes at least one day in February.
[[Page 622]]
(iii) However, no amount would be included in Employee Q's wages as
a result of the election if $195 worth of mass transit passes were
instead provided to Q for the months of February, March, and April
(because the compensation reduction would relate solely to fringes to be
provided for a period not beginning before the date of the election and
the amount provided does not exceed the aggregate limit for the period,
i.e., the sum of $65 for each of February, March, and April). See Q/A-9
of this section for rules governing transit passes distributed in
advance for more than one month.
Example 3. (i) Employee R elects to reduce his compensation payable
on March 1 of a year (for which the statutory monthly parking limit is
$175) by $185 in exchange for reimbursement by Employer T of parking
expenses incurred by Employee R for parking on or near Employer T's
business premises during the period beginning after the date of the
election through March. The election is made on the preceding February
27. Employee R incurs $10 in parking expenses on February 28 of the
year, and $175 in parking expenses during the month of March. On April 5
of the year, Employer T reimburses Employee R $185 for the parking
expenses incurred on February 28, and during March, of the year.
(ii) In this Example 3, no amount would be includible in Employee
R's wages for income and employment tax purposes because the
compensation reduction related solely to parking on or near Employer R's
business premises used during a period not beginning before the date of
the election and the amount reimbursed for parking used in any one month
does not exceed the statutory monthly limitation.
Q-15. May an employee whose qualified transportation fringe costs
are less than the employee's compensation reduction carry over this
excess amount to subsequent periods?
A-15. (a) Yes. An employee may carry over unused compensation
reduction amounts to subsequent periods under the plan of the employee's
employer.
(b) The following example illustrates the principles of this Q/A-15:
Example. (i) By an election made before November 1 of a year for
which the statutory monthly mass transit limit is $65, Employee E elects
to reduce compensation in the amount of $65 for the month of November. E
incurs $50 in employee-operated commuter highway vehicle expenses during
November for which E is reimbursed $50 by Employer R, E's employer. By
an election made before December, E elects to reduce compensation by $65
for the month of December. E incurs $65 in employee-operated commuter
highway vehicle expenses during December for which E is reimbursed $65
by R. Before the following January, E elects to reduce compensation by
$50 for the month of January. E incurs $65 in employee-operated commuter
highway vehicle expenses during January for which E is reimbursed $65 by
R because R allows E to carry over to the next year the $15 amount by
which the compensation reductions for November and December exceeded the
employee-operated commuter highway vehicle expenses incurred during
those months.
(ii) In this Example, because Employee E is reimbursed in an amount
not exceeding the applicable statutory monthly limit, and the
reimbursement does not exceed the amount of employee-operated commuter
highway vehicle expenses incurred during the month of January, the
amount reimbursed ($65) is excludable from E's wages for income and
employment tax purposes.
Q-16. How does section 132(f) apply to expense reimbursements?
A-16. (a) In general. The term qualified transportation fringe
includes cash reimbursement by an employer to an employee for expenses
incurred or paid by an employee for transportation in a commuter highway
vehicle or qualified parking. The term qualified transportation fringe
also includes cash reimbursement for transit passes made under a bona
fide reimbursement arrangement, but, in accordance with section
132(f)(3), only if permitted under paragraph (b) of this Q/A-16. The
reimbursement must be made under a bona fide reimbursement arrangement
which meets the rules of paragraph (c) of this Q/A-16. A payment made
before the date an expense has been incurred or paid is not a
reimbursement. In addition, a bona fide reimbursement arrangement does
not include an arrangement that is dependent solely upon an employee
certifying in advance that the employee will incur expenses at some
future date.
(b) Special rule for transit passes--(1) In general. The term
qualified transportation fringe includes cash reimbursement for transit
passes made under a bona fide reimbursement arrangement, but, in
accordance with section 132(f)(3), only if no voucher or similar item
that may be exchanged only for a transit pass is readily available for
direct distribution by the employer to employees. If a voucher is
readily available, the requirement that a
[[Page 623]]
voucher be distributed in-kind by the employer is satisfied if the
voucher is distributed by the employer or by another person on behalf of
the employer (for example, if a transit operator credits amounts to the
employee's fare card as a result of payments made to the operator by the
employer).
(2) Voucher or similar item. For purposes of the special rule in
paragraph (b) of this Q/A-16, a transit system voucher is an instrument
that may be purchased by employers from a voucher provider that is
accepted by one or more mass transit operators (e.g., train, subway, and
bus) in an area as fare media or in exchange for fare media. Thus, for
example, a transit pass that may be purchased by employers directly from
a voucher provider is a transit system voucher.
(3) Voucher provider. The term voucher provider means any person in
the trade or business of selling transit system vouchers to employers,
or any transit system or transit operator that sells vouchers to
employers for the purpose of direct distribution to employees. Thus, a
transit operator might or might not be a voucher provider. A voucher
provider is not, for example, a third-party employee benefits
administrator that administers a transit pass benefit program for an
employer using vouchers that the employer could obtain directly.
(4) Readily available. For purposes of this paragraph (b), a voucher
or similar item is readily available for direct distribution by the
employer to employees if and only if an employer can obtain it from a
voucher provider that--
(i) does not impose fare media charges that cause vouchers to not be
readily available as described in paragraph (b)(5) of this section; and
(ii) does not impose other restrictions that cause vouchers to not
be readily available as described in paragraph (b)(6) of this section.
(5) Fare media charges. For purposes of paragraph (b)(4) of this
section, fare media charges relate only to fees paid by the employer to
voucher providers for vouchers. The determination of whether obtaining a
voucher would result in fare media charges that cause vouchers to not be
readily available as described in this paragraph (b) is made with
respect to each transit system voucher. If more than one transit system
voucher is available for direct distribution to employees, the employer
must consider the fees imposed for the lowest cost monthly voucher for
purposes of determining whether the fees imposed by the voucher provider
satisfy this paragraph. However, if transit system vouchers for multiple
transit systems are required in an area to meet the transit needs of the
individual employees in that area, the employer has the option of
averaging the costs applied to each transit system voucher for purposes
of determining whether the fare media charges for transit system
vouchers satisfy this paragraph. Fare media charges are described in
this paragraph (b)(5), and therefore cause vouchers to not be readily
available, if and only if the average annual fare media charges that the
employer reasonably expects to incur for transit system vouchers
purchased from the voucher provider (disregarding reasonable and
customary delivery charges imposed by the voucher provider, e.g., not in
excess of $15) are more than 1 percent of the average annual value of
the vouchers for a transit system.
(6) Other restrictions. For purposes of paragraph (b)(4) of this
section, restrictions that cause vouchers to not be readily available
are restrictions imposed by the voucher provider other than fare media
charges that effectively prevent the employer from obtaining vouchers
appropriate for distribution to employees. Examples of such restrictions
include--
(i) Advance purchase requirements. Advance purchase requirements
cause vouchers to not be readily available only if the voucher provider
does not offer vouchers at regular intervals or fails to provide the
voucher within a reasonable period after receiving payment for the
voucher. For example, a requirement that vouchers may be purchased only
once per year may effectively prevent an employer from obtaining
vouchers for distribution to employees. An advance purchase requirement
that vouchers be purchased not more frequently than monthly does not
effectively prevent the employer
[[Page 624]]
from obtaining vouchers for distribution to employees.
(ii) Purchase quantity requirements. Purchase quantity requirements
cause vouchers to not be readily available if the voucher provider does
not offer vouchers in quantities that are reasonably appropriate to the
number of the employer's employees who use mass transportation (for
example, the voucher provider requires a $1,000 minimum purchase and the
employer seeks to purchase only $200 of vouchers).
(iii) Limitations on denominations of vouchers that are available.
If the voucher provider does not offer vouchers in denominations
appropriate for distribution to the employer's employees, vouchers are
not readily available. For example, vouchers provided in $5 increments
up to the monthly limit are appropriate for distribution to employees,
while vouchers available only in a denomination equal to the monthly
limit are not appropriate for distribution to employees if the amount of
the benefit provided to the employer's employees each month is normally
less than the monthly limit.
(7) Example. The following example illustrates the principles of
this paragraph (b):
Example. (i) Company C in City X sells mass transit vouchers to
employers in the metropolitan area of X in various denominations
appropriate for distribution to employees. Employers can purchase
vouchers monthly in reasonably appropriate quantities. Several different
bus, rail, van pool, and ferry operators service X, and a number of the
operators accept the vouchers either as fare media or in exchange for
fare media. To cover its operating expenses, C imposes on each voucher a
50 cents charge, plus a reasonable and customary $15 charge for delivery
of each order of vouchers. Employer M disburses vouchers purchased from
C to its employees who use operators that accept the vouchers and M
reasonably expects that $55 is the average value of the voucher it will
purchase from C for the next calendar year.
(ii) In this Example, vouchers for X are readily available for
direct distribution by the employer to employees because the expected
cost of the vouchers disbursed to M's employees for the next calendar
year is not more than 1 percent of the value of the vouchers (50 cents
divided by $55 equals 0.91 percent), the delivery charges are
disregarded because they are reasonable and customary, and there are no
other restrictions that cause the vouchers to not be readily available.
Thus, any reimbursement of mass transportation costs in X would not be a
qualified transportation fringe.
(c) Substantiation requirements. Employers that make cash
reimbursements must establish a bona fide reimbursement arrangement to
establish that their employees have, in fact, incurred expenses for
transportation in a commuter highway vehicle, transit passes, or
qualified parking. For purposes of section 132(f), whether cash
reimbursements are made under a bona fide reimbursement arrangement may
vary depending on the facts and circumstances, including the method or
methods of payment utilized within the mass transit system. The employer
must implement reasonable procedures to ensure that an amount equal to
the reimbursement was incurred for transportation in a commuter highway
vehicle, transit passes, or qualified parking. The expense must be
substantiated within a reasonable period of time. An expense
substantiated to the payor within 180 days after it has been paid will
be treated as having been substantiated within a reasonable period of
time. An employee certification at the time of reimbursement in either
written or electronic form may be a reasonable reimbursement procedure
depending on the facts and circumstances. Examples of reasonable
reimbursement procedures are set forth in paragraph (d) of this Q/A-16.
(d) Illustrations of reasonable reimbursement procedures. The
following are examples of reasonable reimbursement procedures for
purposes of paragraph (c) of this Q/A-16. In each case, the
reimbursement is made at or within a reasonable period after the end of
the events described in paragraphs (d)(1) through (d)(3) of this
section.
(1) An employee presents to the employer a parking expense receipt
for parking on or near the employer's business premises, the employee
certifies that the parking was used by the employee, and the employer
has no reason to doubt the employee's certification.
(2) An employee either submits a used time-sensitive transit pass
(such as a monthly pass) to the employer and certifies that he or she
purchased it or presents an unused or used transit pass to the employer
and certifies that he or
[[Page 625]]
she purchased it and the employee certifies that he or she has not
previously been reimbursed for the transit pass. In both cases, the
employer has no reason to doubt the employee's certification.
(3) If a receipt is not provided in the ordinary course of business
(e.g., if the employee uses metered parking or if used transit passes
cannot be returned to the user), the employee certifies to the employer
the type and the amount of expenses incurred, and the employer has no
reason to doubt the employee's certification.
Q-17. May an employer provide nontaxable cash reimbursement under
section 132(f) for periods longer than one month?
A-17. (a) General rule. Yes. Qualified transportation fringes
include reimbursement to employees for costs incurred for transportation
in more than one month, provided the reimbursement for each month in the
period is calculated separately and does not exceed the applicable
statutory monthly limit for any month in the period. See Q/A-8 and 9 of
this section if the limit for a month is exceeded.
(b) Example. The following example illustrates the principles of
this Q/A-17:
Example. (i) Employee R pays $100 per month for qualified parking
used during the period from April 1 through June 30 of a year in which
the statutory monthly qualified parking limit is $175. After receiving
adequate substantiation from Employee R, R's employer reimburses R $300
in cash on June 30 of that year.
(ii) In this Example, because the value of the reimbursed expenses
for each month did not exceed the applicable statutory monthly limit,
the $300 reimbursement is excludable from R's wages for income and
employment tax purposes as a qualified transportation fringe.
Q-18. What are the substantiation requirements if an employer
distributes transit passes?
A-18. There are no substantiation requirements if the employer
distributes transit passes. Thus, an employer may distribute a transit
pass for each month with a value not more than the statutory monthly
limit without requiring any certification from the employee regarding
the use of the transit pass.
Q-19. May an employer choose to impose substantiation requirements
in addition to those described in this regulation?
A-19. Yes.
Q-20. How is the value of parking determined?
A-20. Section 1.61-21(b)(2) applies for purposes of determining the
value of parking.
Q-21. How do the qualified transportation fringe rules apply to van
pools?
A-21. (a) Van pools generally. Employer and employee-operated van
pools, as well as private or public transit-operated van pools, may
qualify as qualified transportation fringes. The value of van pool
benefits which are qualified transportation fringes may be excluded up
to the applicable statutory monthly limit for transportation in a
commuter highway vehicle and transit passes, less the value of any
transit passes provided by the employer for the month.
(b) Employer-operated van pools. The value of van pool
transportation provided by or for an employer to its employees is
excludable as a qualified transportation fringe, provided the van
qualifies as a commuter highway vehicle as defined in section
132(f)(5)(B) and Q/A-2 of this section. A van pool is operated by or for
the employer if the employer purchases or leases vans to enable
employees to commute together or the employer contracts with and pays a
third party to provide the vans and some or all of the costs of
operating the vans, including maintenance, liability insurance and other
operating expenses.
(c) Employee-operated van pools. Cash reimbursement by an employer
to employees for expenses incurred for transportation in a van pool
operated by employees independent of their employer are excludable as
qualified transportation fringes, provided that the van qualifies as a
commuter highway vehicle as defined in section 132(f)(5)(B) and Q/A-2 of
this section. See Q/A-16 of this section for the rules governing cash
reimbursements.
(d) Private or public transit-operated van pool transit passes. The
qualified transportation fringe exclusion for transit passes is
available for travel in van pools owned and operated either by public
transit authorities or by any person in the business of transporting
[[Page 626]]
persons for compensation or hire. In accordance with paragraph (b) of Q/
A-3 of this section, the van must seat at least 6 adults (excluding the
driver). See Q/A-16(b) and (c) of this section for a special rule for
cash reimbursement for transit passes and the substantiation
requirements for cash reimbursement.
(e) Value of van pool transportation benefits. Section 1.61-21(b)(2)
provides that the fair market value of a fringe benefit is based on all
the facts and circumstances. Alternatively, transportation in an
employer-provided commuter highway vehicle may be valued under the
automobile lease valuation rule in Sec. 1.61-21(d), the vehicle cents-
per-mile rule in Sec. 1.61-21(e), or the commuting valuation rule in
Sec. 1.61-21(f). If one of these special valuation rules is used, the
employer must use the same valuation rule to value the use of the
commuter highway vehicle by each employee who share the use. See
Sec. 1.61-21(c)(2)(i)(B).
(f) Qualified parking prime member. If an employee obtains a
qualified parking space as a result of membership in a car or van pool,
the applicable statutory monthly limit for qualified parking applies to
the individual to whom the parking space is assigned. This individual is
the prime member. In determining the tax consequences to the prime
member, the statutory monthly limit amounts of each car pool member may
not be combined. If the employer provides access to the space and the
space is not assigned to a particular individual, then the employer must
designate one of its employees as the prime member who will bear the tax
consequences. The employer may not designate more than one prime member
for a car or van pool during a month. The employer of the prime member
is responsible for including the value of the qualified parking in
excess of the statutory monthly limit in the prime member's wages for
income and employment tax purposes.
Q-22. What are the reporting and employment tax requirements for
qualified transportation fringes?
A-22. (a) Employment tax treatment generally. Qualified
transportation fringes not exceeding the applicable statutory monthly
limit described in Q/A-7 of this section are not wages for purposes of
the Federal Insurance Contributions Act (FICA), the Federal Unemployment
Tax Act (FUTA), and federal income tax withholding. Any amount by which
an employee elects to reduce compensation as provided in Q/A-11 of this
section is not subject to the FICA, the FUTA, and federal income tax
withholding. Qualified transportation fringes exceeding the applicable
statutory monthly limit described in Q/A-7 of this section are wages for
purposes of the FICA, the FUTA, and federal income tax withholding and
are reported on the employee's Form W-2, Wage and Tax Statement.
(b) Employment tax treatment of cash reimbursement exceeding monthly
limits. Cash reimbursement to employees (for example, cash reimbursement
for qualified parking) in excess of the applicable statutory monthly
limit under section 132(f) is treated as paid for employment tax
purposes when actually or constructively paid. See Secs. 31.3121(a)-
2(a), 31.3301-4, 31.3402(a)-1(b) of this chapter. Employers must report
and deposit the amounts withheld in addition to reporting and depositing
other employment taxes. See Q/A-16 of this section for rules governing
cash reimbursements.
(c) Noncash fringe benefits exceeding monthly limits. If the value
of noncash qualified transportation fringes exceeds the applicable
statutory monthly limit, the employer may elect, for purposes of the
FICA, the FUTA, and federal income tax withholding, to treat the noncash
taxable fringe benefits as paid on a pay period, quarterly, semi-annual,
annual, or other basis, provided that the benefits are treated as paid
no less frequently than annually.
Q-23. How does section 132(f) interact with other fringe benefit
rules?
A-23. For purposes of section 132, the terms working condition
fringe and de minimis fringe do not include any qualified transportation
fringe under section 132(f). If, however, an employer provides local
transportation other than transit passes (without any direct or indirect
compensation reduction election), the value of the benefit may be
excludable, either totally or partially, under fringe benefit rules
other
[[Page 627]]
than the qualified transportation fringe rules under section 132(f). See
Secs. 1.132-6(d)(2)(i) (occasional local transportation fare), 1.132-
6(d)(2)(iii) (transportation provided under unusual circumstances), and
1.61-21(k) (valuation of local transportation provided to qualified
employees). See also Q/A-4(b) of this section.
Q-24. May qualified transportation fringes be provided to
individuals who are partners, 2-percent shareholders of S-corporations,
or independent contractors?
A-24. (a) General rule. Section 132(f)(5)(E) states that self-
employed individuals who are employees within the meaning of section
401(c)(1) are not employees for purposes of section 132(f). Therefore,
individuals who are partners, sole proprietors, or other independent
contractors are not employees for purposes of section 132(f). In
addition, under section 1372(a), 2-percent shareholders of S
corporations are treated as partners for fringe benefit purposes. Thus,
an individual who is both a 2-percent shareholder of an S corporation
and a common law employee of that S corporation is not considered an
employee for purposes of section 132(f). However, while section 132(f)
does not apply to individuals who are partners, 2-percent shareholders
of S corporations, or independent contractors, other exclusions for
working condition and de minimis fringes may be available as described
in paragraphs (b) and (c) of this Q/A-24. See Secs. 1.132-1(b)(2) and
1.132-1(b)(4).
(b) Transit passes. The working condition and de minimis fringe
exclusions under section 132(a)(3) and (4) are available for transit
passes provided to individuals who are partners, 2-percent shareholders,
and independent contractors. For example, tokens or farecards provided
by a partnership to an individual who is a partner that enable the
partner to commute on a public transit system (not including privately-
operated van pools) are excludable from the partner's gross income if
the value of the tokens and farecards in any month does not exceed the
dollar amount specified in Sec. 1.132-6(d)(1). However, if the value of
a pass provided in a month exceeds the dollar amount specified in
Sec. 1.132-6(d)(1), the full value of the benefit provided (not merely
the amount in excess of the dollar amount specified in Sec. 1.132-
6(d)(1)) is includible in gross income.
(c) Parking. The working condition fringe rules under section 132(d)
do not apply to commuter parking. See Sec. 1.132-5(a)(1). However, the
de minimis fringe rules under section 132(e) are available for parking
provided to individuals who are partners, 2-percent shareholders, or
independent contractors that qualifies under the de minimis rules. See
Sec. 1.132-6(a) and (b).
(d) Example. The following example illustrates the principles of
this Q/A-24:
Example. (i) Individual G is a partner in partnership P. Individual
G commutes to and from G's office every day and parks free of charge in
P's lot.
(ii) In this Example, the value of the parking is not excluded under
section 132(f), but may be excluded under section 132(e) if the parking
is a de minimis fringe under Sec. 1.132-6.
Q-25. What is the effective date of this section?
A-25. (a) Except as provided in paragraph (b) of this Q/A-25, this
section is applicable for employee taxable years beginning after
December 31, 2001. For this purpose, an employer may assume that the
employee taxable year is the calendar year.
(b) The last sentence of paragraph (b)(5) of Q/A-16 of this section
(relating to whether transit system vouchers for transit passes are
readily available) is applicable for employee taxable years beginning
after December 31, 2003. For this purpose, an employer may assume that
the employee taxable year is the calendar year.
[T.D. 8933, 66 FR 2244, Jan. 11, 2001; 66 FR 18190, Apr. 6, 2001, as
amended by T.D. 9294, 71 FR 61883, Oct. 20, 2006]
Sec. 1.133-1T Questions and answers relating to interest on certain
loans used to acquire employer securities (temporary).
Q-1: What does section 133 provide?
A-1: In general, section 133 provides that certain commercial
lenders may exclude from gross income fifty percent of the interest
received with respect to securities acquisition loans. A securities
acquisition loan is any loan to an employee stock ownership plan
[[Page 628]]
(ESOP) (as defined in section 4975(e)(7)) that qualifies as an exempt
loan under Secs. 54.4975-7 and -11 to the extent that the proceeds are
used to acquire employer securities (within the meaning of section
409(l)) for the ESOP. A loan made to a corporation sponsoring an ESOP
(or to a person related to such corporation under section 133(b)(2)) may
also qualify as a securities acquisition loan to the extent and for the
period that the proceeds are (a) loaned to the corporation's ESOP under
a loan that qualifies as an exempt loan under Secs. 54.4975-7 and -11
and that has substantially similar terms as the loan from the commercial
lender to the sponsoring corporation, and (b) used to acquire employer
securities for the ESOP. The terms of the loan between the commercial
lender and the sponsoring corporation (or a related corporation) and the
loan between such corporation and the ESOP shall be treated as
substantially similar only if the timing and rate at which employer
securities would be released from encumbrance if the loan from the
commercial lender were the exempt loan under the applicable rule of
Sec. 54.4975-7(b)(8) are substantially similar to the timing and rate at
which employer securities will actually be released from encumbrance in
accordance with such rule. For this purpose, if the loan from the
commercial lender to the sponsoring corporation states a variable rate
of interest and the loan between the corporation and the ESOP states a
fixed rate of interest, whether the terms of the loans are substantially
similar shall be determined at the time the obligations are initially
issued by taking into account the adjustment interval on the variable
rate loan and the maturity of the fixed rate loan. For example, if the
rate on the loan from the commercial lender to the sponsoring
corporation adjusts each six months and the loan from the corporation to
the ESOP has a ten year term, the initial interest rate on the variable
rate loan could be compared to the rate on the fixed rate loan by
comparing the yields on 6 month and ten year Treasury obligations.
Similarly, if the rates on the two loans are based on different
compounding assumptions, whether the terms of the loans are
substantially similar shall be determined by taking into account the
different compounding assumptions. A securities acquisition loan may be
evidenced by any note, bond, debenture, or certificate. Also, section
133(b)(2) provides that certain loans between related persons are not
securities acquisition loans. In addition, a loan from a commercial
lender to an ESOP or sponsoring corporation to purchase employer
securities will not be treated as a securities acquisition loan to the
extent that such loan is used, either directly or indirectly, to
purchase employer securities from any other qualified plan, including
any other ESOP, maintained by the employer or any other corporation
which is a member of the same controlled group (as defined in section
409(l)(4)).
Q-2: What lenders are eligible to receive the fifty percent interest
exclusion?
A-2: Under section 133(a), a bank (within the meaning of section
581), an insurance company to which subchapter L applies, or a
corporation (other than a subchapter S corporation) actively engaged in
the business of lending money may exclude from gross income fifty
percent of the interest received with respect to a securities
acquisition loan (as defined in Q&A-1 of Sec. 1.133-1T). For purposes of
section 133(a)(3), a corporation is actively engaged in the business of
lending money if it lends money to the public on a regular and
continuing basis (other than in connection with the purchase by the
public of goods and services from the lender or a related party). A
corporation is not actively engaged in the business of lending money if
a predominant share of the original value of the loans it makes to
unrelated parties (other than in connection with the purchase by the
public of goods and services from the lender or a related party) are
securities acquisition loans.
Q-3: May loans which qualify for the fifty percent interest
exclusion under section 133 be syndicated to other lending institutions?
A-3: Securities acquisition loans under section 133 may be
syndicated to other lending institutions provided that such lending
institutions are described in section 133(a) (1), (2) or (3)
[[Page 629]]
and the loan was originated by a qualified holder. Subsequent holders of
the debt instrument may qualify for the partial interest exclusion of
section 133 if such holders satisfy the requirements of section 133 and
such loan does not fail to be a securities acquisition loan under
section 133(b)(2).
Q-4: When is section 133 effective?
A-4: Section 133 applies to securities acquisition loans made after
July 18, 1984, and used to acquire employer securities after July 18,
1984. The provision does not apply to loans made after July 18, 1984, to
the extent that such loans are renegotiations, directly or indirectly,
of loans outstanding on such date. A loan extended to an ESOP or
sponsoring corporation after July 18, 1984, will be treated as a
renegotiation of an outstanding loan if the loan proceeds are used to
refinance acquisitions of employer securities made prior to July 19,
1984. For example, if an ESOP borrowed money prior to July 19, 1984, to
purchase employer securities and after July 18, 1984, borrows other
funds from the same or a different commercial lender to repay the first
loan, the second loan will be treated as a renegotiation of an
outstanding loan to the extent of the repaid amount. Similarly, if,
after July 18, 1984, an ESOP sells employer securities, uses the
proceeds to retire a pre-July 19, 1984, loan and obtains a second loan
to acquire replacement employer securities, the second loan will be
treated as a renegotiation of an outstanding loan.
[T.D. 8073, 51 FR 4319, Feb. 4, 1986]
[[Page 631]]
FINDING AIDS
--------------------------------------------------------------------
A list of CFR titles, subtitles, chapters, subchapters and parts and
an alphabetical list of agencies publishing in the CFR are included in
the CFR Index and Finding Aids volume to the Code of Federal Regulations
which is published separately and revised annually.
Table of CFR Titles and Chapters
Alphabetical List of Agencies Appearing in the CFR
Table of OMB Control Numbers
List of CFR Sections Affected
[[Page 633]]
Table of CFR Titles and Chapters
(Revised as of April 1, 2017)
Title 1--General Provisions
I Administrative Committee of the Federal Register
(Parts 1--49)
II Office of the Federal Register (Parts 50--299)
III Administrative Conference of the United States (Parts
300--399)
IV Miscellaneous Agencies (Parts 400--500)
Title 2--Grants and Agreements
Subtitle A--Office of Management and Budget Guidance
for Grants and Agreements
I Office of Management and Budget Governmentwide
Guidance for Grants and Agreements (Parts 2--199)
II Office of Management and Budget Guidance (Parts 200--
299)
Subtitle B--Federal Agency Regulations for Grants and
Agreements
III Department of Health and Human Services (Parts 300--
399)
IV Department of Agriculture (Parts 400--499)
VI Department of State (Parts 600--699)
VII Agency for International Development (Parts 700--799)
VIII Department of Veterans Affairs (Parts 800--899)
IX Department of Energy (Parts 900--999)
X Department of the Treasury (Parts 1000--1099)
XI Department of Defense (Parts 1100--1199)
XII Department of Transportation (Parts 1200--1299)
XIII Department of Commerce (Parts 1300--1399)
XIV Department of the Interior (Parts 1400--1499)
XV Environmental Protection Agency (Parts 1500--1599)
XVIII National Aeronautics and Space Administration (Parts
1800--1899)
XX United States Nuclear Regulatory Commission (Parts
2000--2099)
XXII Corporation for National and Community Service (Parts
2200--2299)
XXIII Social Security Administration (Parts 2300--2399)
XXIV Housing and Urban Development (Parts 2400--2499)
XXV National Science Foundation (Parts 2500--2599)
XXVI National Archives and Records Administration (Parts
2600--2699)
XXVII Small Business Administration (Parts 2700--2799)
[[Page 634]]
XXVIII Department of Justice (Parts 2800--2899)
XXIX Department of Labor (Parts 2900--2999)
XXX Department of Homeland Security (Parts 3000--3099)
XXXI Institute of Museum and Library Services (Parts 3100--
3199)
XXXII National Endowment for the Arts (Parts 3200--3299)
XXXIII National Endowment for the Humanities (Parts 3300--
3399)
XXXIV Department of Education (Parts 3400--3499)
XXXV Export-Import Bank of the United States (Parts 3500--
3599)
XXXVI Office of National Drug Control Policy, Executive
Office of the President (Parts 3600--3699)
XXXVII Peace Corps (Parts 3700--3799)
LVIII Election Assistance Commission (Parts 5800--5899)
LIX Gulf Coast Ecosystem Restoration Council (Parts 5900--
5999)
Title 3--The President
I Executive Office of the President (Parts 100--199)
Title 4--Accounts
I Government Accountability Office (Parts 1--199)
Title 5--Administrative Personnel
I Office of Personnel Management (Parts 1--1199)
II Merit Systems Protection Board (Parts 1200--1299)
III Office of Management and Budget (Parts 1300--1399)
IV Office of Personnel Management and Office of the
Director of National Intelligence (Parts 1400--
1499)
V The International Organizations Employees Loyalty
Board (Parts 1500--1599)
VI Federal Retirement Thrift Investment Board (Parts
1600--1699)
VIII Office of Special Counsel (Parts 1800--1899)
IX Appalachian Regional Commission (Parts 1900--1999)
XI Armed Forces Retirement Home (Parts 2100--2199)
XIV Federal Labor Relations Authority, General Counsel of
the Federal Labor Relations Authority and Federal
Service Impasses Panel (Parts 2400--2499)
XVI Office of Government Ethics (Parts 2600--2699)
XXI Department of the Treasury (Parts 3100--3199)
XXII Federal Deposit Insurance Corporation (Parts 3200--
3299)
XXIII Department of Energy (Parts 3300--3399)
XXIV Federal Energy Regulatory Commission (Parts 3400--
3499)
XXV Department of the Interior (Parts 3500--3599)
XXVI Department of Defense (Parts 3600--3699)
XXVIII Department of Justice (Parts 3800--3899)
[[Page 635]]
XXIX Federal Communications Commission (Parts 3900--3999)
XXX Farm Credit System Insurance Corporation (Parts 4000--
4099)
XXXI Farm Credit Administration (Parts 4100--4199)
XXXIII Overseas Private Investment Corporation (Parts 4300--
4399)
XXXIV Securities and Exchange Commission (Parts 4400--4499)
XXXV Office of Personnel Management (Parts 4500--4599)
XXXVI Department of Homeland Security (Parts 4600--4699)
XXXVII Federal Election Commission (Parts 4700--4799)
XL Interstate Commerce Commission (Parts 5000--5099)
XLI Commodity Futures Trading Commission (Parts 5100--
5199)
XLII Department of Labor (Parts 5200--5299)
XLIII National Science Foundation (Parts 5300--5399)
XLV Department of Health and Human Services (Parts 5500--
5599)
XLVI Postal Rate Commission (Parts 5600--5699)
XLVII Federal Trade Commission (Parts 5700--5799)
XLVIII Nuclear Regulatory Commission (Parts 5800--5899)
XLIX Federal Labor Relations Authority (Parts 5900--5999)
L Department of Transportation (Parts 6000--6099)
LII Export-Import Bank of the United States (Parts 6200--
6299)
LIII Department of Education (Parts 6300--6399)
LIV Environmental Protection Agency (Parts 6400--6499)
LV National Endowment for the Arts (Parts 6500--6599)
LVI National Endowment for the Humanities (Parts 6600--
6699)
LVII General Services Administration (Parts 6700--6799)
LVIII Board of Governors of the Federal Reserve System
(Parts 6800--6899)
LIX National Aeronautics and Space Administration (Parts
6900--6999)
LX United States Postal Service (Parts 7000--7099)
LXI National Labor Relations Board (Parts 7100--7199)
LXII Equal Employment Opportunity Commission (Parts 7200--
7299)
LXIII Inter-American Foundation (Parts 7300--7399)
LXIV Merit Systems Protection Board (Parts 7400--7499)
LXV Department of Housing and Urban Development (Parts
7500--7599)
LXVI National Archives and Records Administration (Parts
7600--7699)
LXVII Institute of Museum and Library Services (Parts 7700--
7799)
LXVIII Commission on Civil Rights (Parts 7800--7899)
LXIX Tennessee Valley Authority (Parts 7900--7999)
LXX Court Services and Offender Supervision Agency for the
District of Columbia (Parts 8000--8099)
LXXI Consumer Product Safety Commission (Parts 8100--8199)
LXXIII Department of Agriculture (Parts 8300--8399)
LXXIV Federal Mine Safety and Health Review Commission
(Parts 8400--8499)
[[Page 636]]
LXXVI Federal Retirement Thrift Investment Board (Parts
8600--8699)
LXXVII Office of Management and Budget (Parts 8700--8799)
LXXX Federal Housing Finance Agency (Parts 9000--9099)
LXXXIII Special Inspector General for Afghanistan
Reconstruction (Parts 9300--9399)
LXXXIV Bureau of Consumer Financial Protection (Parts 9400--
9499)
LXXXVI National Credit Union Administration (Parts 9600--
9699)
XCVII Department of Homeland Security Human Resources
Management System (Department of Homeland
Security--Office of Personnel Management) (Parts
9700--9799)
XCVIII Council of the Inspectors General on Integrity and
Efficiency (Parts 9800--9899)
XCIX Military Compensation and Retirement Modernization
Commission (Parts 9900--9999)
C National Council on Disability (Partys 10000--10049)
Title 6--Domestic Security
I Department of Homeland Security, Office of the
Secretary (Parts 1--199)
X Privacy and Civil Liberties Oversight Board (Parts
1000--1099)
Title 7--Agriculture
Subtitle A--Office of the Secretary of Agriculture
(Parts 0--26)
Subtitle B--Regulations of the Department of
Agriculture
I Agricultural Marketing Service (Standards,
Inspections, Marketing Practices), Department of
Agriculture (Parts 27--209)
II Food and Nutrition Service, Department of Agriculture
(Parts 210--299)
III Animal and Plant Health Inspection Service, Department
of Agriculture (Parts 300--399)
IV Federal Crop Insurance Corporation, Department of
Agriculture (Parts 400--499)
V Agricultural Research Service, Department of
Agriculture (Parts 500--599)
VI Natural Resources Conservation Service, Department of
Agriculture (Parts 600--699)
VII Farm Service Agency, Department of Agriculture (Parts
700--799)
VIII Grain Inspection, Packers and Stockyards
Administration (Federal Grain Inspection Service),
Department of Agriculture (Parts 800--899)
IX Agricultural Marketing Service (Marketing Agreements
and Orders; Fruits, Vegetables, Nuts), Department
of Agriculture (Parts 900--999)
X Agricultural Marketing Service (Marketing Agreements
and Orders; Milk), Department of Agriculture
(Parts 1000--1199)
[[Page 637]]
XI Agricultural Marketing Service (Marketing Agreements
and Orders; Miscellaneous Commodities), Department
of Agriculture (Parts 1200--1299)
XIV Commodity Credit Corporation, Department of
Agriculture (Parts 1400--1499)
XV Foreign Agricultural Service, Department of
Agriculture (Parts 1500--1599)
XVI Rural Telephone Bank, Department of Agriculture (Parts
1600--1699)
XVII Rural Utilities Service, Department of Agriculture
(Parts 1700--1799)
XVIII Rural Housing Service, Rural Business-Cooperative
Service, Rural Utilities Service, and Farm Service
Agency, Department of Agriculture (Parts 1800--
2099)
XX Local Television Loan Guarantee Board (Parts 2200--
2299)
XXV Office of Advocacy and Outreach, Department of
Agriculture (Parts 2500--2599)
XXVI Office of Inspector General, Department of Agriculture
(Parts 2600--2699)
XXVII Office of Information Resources Management, Department
of Agriculture (Parts 2700--2799)
XXVIII Office of Operations, Department of Agriculture (Parts
2800--2899)
XXIX Office of Energy Policy and New Uses, Department of
Agriculture (Parts 2900--2999)
XXX Office of the Chief Financial Officer, Department of
Agriculture (Parts 3000--3099)
XXXI Office of Environmental Quality, Department of
Agriculture (Parts 3100--3199)
XXXII Office of Procurement and Property Management,
Department of Agriculture (Parts 3200--3299)
XXXIII Office of Transportation, Department of Agriculture
(Parts 3300--3399)
XXXIV National Institute of Food and Agriculture (Parts
3400--3499)
XXXV Rural Housing Service, Department of Agriculture
(Parts 3500--3599)
XXXVI National Agricultural Statistics Service, Department
of Agriculture (Parts 3600--3699)
XXXVII Economic Research Service, Department of Agriculture
(Parts 3700--3799)
XXXVIII World Agricultural Outlook Board, Department of
Agriculture (Parts 3800--3899)
XLI [Reserved]
XLII Rural Business-Cooperative Service and Rural Utilities
Service, Department of Agriculture (Parts 4200--
4299)
Title 8--Aliens and Nationality
I Department of Homeland Security (Immigration and
Naturalization) (Parts 1--499)
[[Page 638]]
V Executive Office for Immigration Review, Department of
Justice (Parts 1000--1399)
Title 9--Animals and Animal Products
I Animal and Plant Health Inspection Service, Department
of Agriculture (Parts 1--199)
II Grain Inspection, Packers and Stockyards
Administration (Packers and Stockyards Programs),
Department of Agriculture (Parts 200--299)
III Food Safety and Inspection Service, Department of
Agriculture (Parts 300--599)
Title 10--Energy
I Nuclear Regulatory Commission (Parts 0--199)
II Department of Energy (Parts 200--699)
III Department of Energy (Parts 700--999)
X Department of Energy (General Provisions) (Parts
1000--1099)
XIII Nuclear Waste Technical Review Board (Parts 1300--
1399)
XVII Defense Nuclear Facilities Safety Board (Parts 1700--
1799)
XVIII Northeast Interstate Low-Level Radioactive Waste
Commission (Parts 1800--1899)
Title 11--Federal Elections
I Federal Election Commission (Parts 1--9099)
II Election Assistance Commission (Parts 9400--9499)
Title 12--Banks and Banking
I Comptroller of the Currency, Department of the
Treasury (Parts 1--199)
II Federal Reserve System (Parts 200--299)
III Federal Deposit Insurance Corporation (Parts 300--399)
IV Export-Import Bank of the United States (Parts 400--
499)
V Office of Thrift Supervision, Department of the
Treasury (Parts 500--599)
VI Farm Credit Administration (Parts 600--699)
VII National Credit Union Administration (Parts 700--799)
VIII Federal Financing Bank (Parts 800--899)
IX Federal Housing Finance Board (Parts 900--999)
X Bureau of Consumer Financial Protection (Parts 1000--
1099)
XI Federal Financial Institutions Examination Council
(Parts 1100--1199)
XII Federal Housing Finance Agency (Parts 1200--1299)
XIII Financial Stability Oversight Council (Parts 1300--
1399)
XIV Farm Credit System Insurance Corporation (Parts 1400--
1499)
[[Page 639]]
XV Department of the Treasury (Parts 1500--1599)
XVI Office of Financial Research (Parts 1600--1699)
XVII Office of Federal Housing Enterprise Oversight,
Department of Housing and Urban Development (Parts
1700--1799)
XVIII Community Development Financial Institutions Fund,
Department of the Treasury (Parts 1800--1899)
Title 13--Business Credit and Assistance
I Small Business Administration (Parts 1--199)
III Economic Development Administration, Department of
Commerce (Parts 300--399)
IV Emergency Steel Guarantee Loan Board (Parts 400--499)
V Emergency Oil and Gas Guaranteed Loan Board (Parts
500--599)
Title 14--Aeronautics and Space
I Federal Aviation Administration, Department of
Transportation (Parts 1--199)
II Office of the Secretary, Department of Transportation
(Aviation Proceedings) (Parts 200--399)
III Commercial Space Transportation, Federal Aviation
Administration, Department of Transportation
(Parts 400--1199)
V National Aeronautics and Space Administration (Parts
1200--1299)
VI Air Transportation System Stabilization (Parts 1300--
1399)
Title 15--Commerce and Foreign Trade
Subtitle A--Office of the Secretary of Commerce (Parts
0--29)
Subtitle B--Regulations Relating to Commerce and
Foreign Trade
I Bureau of the Census, Department of Commerce (Parts
30--199)
II National Institute of Standards and Technology,
Department of Commerce (Parts 200--299)
III International Trade Administration, Department of
Commerce (Parts 300--399)
IV Foreign-Trade Zones Board, Department of Commerce
(Parts 400--499)
VII Bureau of Industry and Security, Department of
Commerce (Parts 700--799)
VIII Bureau of Economic Analysis, Department of Commerce
(Parts 800--899)
IX National Oceanic and Atmospheric Administration,
Department of Commerce (Parts 900--999)
XI Technology Administration, Department of Commerce
(Parts 1100--1199)
XIII East-West Foreign Trade Board (Parts 1300--1399)
[[Page 640]]
XIV Minority Business Development Agency (Parts 1400--
1499)
Subtitle C--Regulations Relating to Foreign Trade
Agreements
XX Office of the United States Trade Representative
(Parts 2000--2099)
Subtitle D--Regulations Relating to Telecommunications
and Information
XXIII National Telecommunications and Information
Administration, Department of Commerce (Parts
2300--2399)
Title 16--Commercial Practices
I Federal Trade Commission (Parts 0--999)
II Consumer Product Safety Commission (Parts 1000--1799)
Title 17--Commodity and Securities Exchanges
I Commodity Futures Trading Commission (Parts 1--199)
II Securities and Exchange Commission (Parts 200--399)
IV Department of the Treasury (Parts 400--499)
Title 18--Conservation of Power and Water Resources
I Federal Energy Regulatory Commission, Department of
Energy (Parts 1--399)
III Delaware River Basin Commission (Parts 400--499)
VI Water Resources Council (Parts 700--799)
VIII Susquehanna River Basin Commission (Parts 800--899)
XIII Tennessee Valley Authority (Parts 1300--1399)
Title 19--Customs Duties
I U.S. Customs and Border Protection, Department of
Homeland Security; Department of the Treasury
(Parts 0--199)
II United States International Trade Commission (Parts
200--299)
III International Trade Administration, Department of
Commerce (Parts 300--399)
IV U.S. Immigration and Customs Enforcement, Department
of Homeland Security (Parts 400--599)
Title 20--Employees' Benefits
I Office of Workers' Compensation Programs, Department
of Labor (Parts 1--199)
II Railroad Retirement Board (Parts 200--399)
III Social Security Administration (Parts 400--499)
IV Employees' Compensation Appeals Board, Department of
Labor (Parts 500--599)
[[Page 641]]
V Employment and Training Administration, Department of
Labor (Parts 600--699)
VI Office of Workers' Compensation Programs, Department
of Labor (Parts 700--799)
VII Benefits Review Board, Department of Labor (Parts
800--899)
VIII Joint Board for the Enrollment of Actuaries (Parts
900--999)
IX Office of the Assistant Secretary for Veterans'
Employment and Training Service, Department of
Labor (Parts 1000--1099)
Title 21--Food and Drugs
I Food and Drug Administration, Department of Health and
Human Services (Parts 1--1299)
II Drug Enforcement Administration, Department of Justice
(Parts 1300--1399)
III Office of National Drug Control Policy (Parts 1400--
1499)
Title 22--Foreign Relations
I Department of State (Parts 1--199)
II Agency for International Development (Parts 200--299)
III Peace Corps (Parts 300--399)
IV International Joint Commission, United States and
Canada (Parts 400--499)
V Broadcasting Board of Governors (Parts 500--599)
VII Overseas Private Investment Corporation (Parts 700--
799)
IX Foreign Service Grievance Board (Parts 900--999)
X Inter-American Foundation (Parts 1000--1099)
XI International Boundary and Water Commission, United
States and Mexico, United States Section (Parts
1100--1199)
XII United States International Development Cooperation
Agency (Parts 1200--1299)
XIII Millennium Challenge Corporation (Parts 1300--1399)
XIV Foreign Service Labor Relations Board; Federal Labor
Relations Authority; General Counsel of the
Federal Labor Relations Authority; and the Foreign
Service Impasse Disputes Panel (Parts 1400--1499)
XV African Development Foundation (Parts 1500--1599)
XVI Japan-United States Friendship Commission (Parts
1600--1699)
XVII United States Institute of Peace (Parts 1700--1799)
Title 23--Highways
I Federal Highway Administration, Department of
Transportation (Parts 1--999)
II National Highway Traffic Safety Administration and
Federal Highway Administration, Department of
Transportation (Parts 1200--1299)
[[Page 642]]
III National Highway Traffic Safety Administration,
Department of Transportation (Parts 1300--1399)
Title 24--Housing and Urban Development
Subtitle A--Office of the Secretary, Department of
Housing and Urban Development (Parts 0--99)
Subtitle B--Regulations Relating to Housing and Urban
Development
I Office of Assistant Secretary for Equal Opportunity,
Department of Housing and Urban Development (Parts
100--199)
II Office of Assistant Secretary for Housing-Federal
Housing Commissioner, Department of Housing and
Urban Development (Parts 200--299)
III Government National Mortgage Association, Department
of Housing and Urban Development (Parts 300--399)
IV Office of Housing and Office of Multifamily Housing
Assistance Restructuring, Department of Housing
and Urban Development (Parts 400--499)
V Office of Assistant Secretary for Community Planning
and Development, Department of Housing and Urban
Development (Parts 500--599)
VI Office of Assistant Secretary for Community Planning
and Development, Department of Housing and Urban
Development (Parts 600--699) [Reserved]
VII Office of the Secretary, Department of Housing and
Urban Development (Housing Assistance Programs and
Public and Indian Housing Programs) (Parts 700--
799)
VIII Office of the Assistant Secretary for Housing--Federal
Housing Commissioner, Department of Housing and
Urban Development (Section 8 Housing Assistance
Programs, Section 202 Direct Loan Program, Section
202 Supportive Housing for the Elderly Program and
Section 811 Supportive Housing for Persons With
Disabilities Program) (Parts 800--899)
IX Office of Assistant Secretary for Public and Indian
Housing, Department of Housing and Urban
Development (Parts 900--1699)
X Office of Assistant Secretary for Housing--Federal
Housing Commissioner, Department of Housing and
Urban Development (Interstate Land Sales
Registration Program) (Parts 1700--1799)
XII Office of Inspector General, Department of Housing and
Urban Development (Parts 2000--2099)
XV Emergency Mortgage Insurance and Loan Programs,
Department of Housing and Urban Development (Parts
2700--2799) [Reserved]
XX Office of Assistant Secretary for Housing--Federal
Housing Commissioner, Department of Housing and
Urban Development (Parts 3200--3899)
XXIV Board of Directors of the HOPE for Homeowners Program
(Parts 4000--4099) [Reserved]
XXV Neighborhood Reinvestment Corporation (Parts 4100--
4199)
[[Page 643]]
Title 25--Indians
I Bureau of Indian Affairs, Department of the Interior
(Parts 1--299)
II Indian Arts and Crafts Board, Department of the
Interior (Parts 300--399)
III National Indian Gaming Commission, Department of the
Interior (Parts 500--599)
IV Office of Navajo and Hopi Indian Relocation (Parts
700--799)
V Bureau of Indian Affairs, Department of the Interior,
and Indian Health Service, Department of Health
and Human Services (Part 900)
VI Office of the Assistant Secretary-Indian Affairs,
Department of the Interior (Parts 1000--1199)
VII Office of the Special Trustee for American Indians,
Department of the Interior (Parts 1200--1299)
Title 26--Internal Revenue
I Internal Revenue Service, Department of the Treasury
(Parts 1--End)
Title 27--Alcohol, Tobacco Products and Firearms
I Alcohol and Tobacco Tax and Trade Bureau, Department
of the Treasury (Parts 1--399)
II Bureau of Alcohol, Tobacco, Firearms, and Explosives,
Department of Justice (Parts 400--699)
Title 28--Judicial Administration
I Department of Justice (Parts 0--299)
III Federal Prison Industries, Inc., Department of Justice
(Parts 300--399)
V Bureau of Prisons, Department of Justice (Parts 500--
599)
VI Offices of Independent Counsel, Department of Justice
(Parts 600--699)
VII Office of Independent Counsel (Parts 700--799)
VIII Court Services and Offender Supervision Agency for the
District of Columbia (Parts 800--899)
IX National Crime Prevention and Privacy Compact Council
(Parts 900--999)
XI Department of Justice and Department of State (Parts
1100--1199)
Title 29--Labor
Subtitle A--Office of the Secretary of Labor (Parts
0--99)
Subtitle B--Regulations Relating to Labor
I National Labor Relations Board (Parts 100--199)
[[Page 644]]
II Office of Labor-Management Standards, Department of
Labor (Parts 200--299)
III National Railroad Adjustment Board (Parts 300--399)
IV Office of Labor-Management Standards, Department of
Labor (Parts 400--499)
V Wage and Hour Division, Department of Labor (Parts
500--899)
IX Construction Industry Collective Bargaining Commission
(Parts 900--999)
X National Mediation Board (Parts 1200--1299)
XII Federal Mediation and Conciliation Service (Parts
1400--1499)
XIV Equal Employment Opportunity Commission (Parts 1600--
1699)
XVII Occupational Safety and Health Administration,
Department of Labor (Parts 1900--1999)
XX Occupational Safety and Health Review Commission
(Parts 2200--2499)
XXV Employee Benefits Security Administration, Department
of Labor (Parts 2500--2599)
XXVII Federal Mine Safety and Health Review Commission
(Parts 2700--2799)
XL Pension Benefit Guaranty Corporation (Parts 4000--
4999)
Title 30--Mineral Resources
I Mine Safety and Health Administration, Department of
Labor (Parts 1--199)
II Bureau of Safety and Environmental Enforcement,
Department of the Interior (Parts 200--299)
IV Geological Survey, Department of the Interior (Parts
400--499)
V Bureau of Ocean Energy Management, Department of the
Interior (Parts 500--599)
VII Office of Surface Mining Reclamation and Enforcement,
Department of the Interior (Parts 700--999)
XII Office of Natural Resources Revenue, Department of the
Interior (Parts 1200--1299)
Title 31--Money and Finance: Treasury
Subtitle A--Office of the Secretary of the Treasury
(Parts 0--50)
Subtitle B--Regulations Relating to Money and Finance
I Monetary Offices, Department of the Treasury (Parts
51--199)
II Fiscal Service, Department of the Treasury (Parts
200--399)
IV Secret Service, Department of the Treasury (Parts
400--499)
V Office of Foreign Assets Control, Department of the
Treasury (Parts 500--599)
VI Bureau of Engraving and Printing, Department of the
Treasury (Parts 600--699)
VII Federal Law Enforcement Training Center, Department of
the Treasury (Parts 700--799)
[[Page 645]]
VIII Office of International Investment, Department of the
Treasury (Parts 800--899)
IX Federal Claims Collection Standards (Department of the
Treasury--Department of Justice) (Parts 900--999)
X Financial Crimes Enforcement Network, Department of
the Treasury (Parts 1000--1099)
Title 32--National Defense
Subtitle A--Department of Defense
I Office of the Secretary of Defense (Parts 1--399)
V Department of the Army (Parts 400--699)
VI Department of the Navy (Parts 700--799)
VII Department of the Air Force (Parts 800--1099)
Subtitle B--Other Regulations Relating to National
Defense
XII Defense Logistics Agency (Parts 1200--1299)
XVI Selective Service System (Parts 1600--1699)
XVII Office of the Director of National Intelligence (Parts
1700--1799)
XVIII National Counterintelligence Center (Parts 1800--1899)
XIX Central Intelligence Agency (Parts 1900--1999)
XX Information Security Oversight Office, National
Archives and Records Administration (Parts 2000--
2099)
XXI National Security Council (Parts 2100--2199)
XXIV Office of Science and Technology Policy (Parts 2400--
2499)
XXVII Office for Micronesian Status Negotiations (Parts
2700--2799)
XXVIII Office of the Vice President of the United States
(Parts 2800--2899)
Title 33--Navigation and Navigable Waters
I Coast Guard, Department of Homeland Security (Parts
1--199)
II Corps of Engineers, Department of the Army (Parts
200--399)
IV Saint Lawrence Seaway Development Corporation,
Department of Transportation (Parts 400--499)
Title 34--Education
Subtitle A--Office of the Secretary, Department of
Education (Parts 1--99)
Subtitle B--Regulations of the Offices of the
Department of Education
I Office for Civil Rights, Department of Education
(Parts 100--199)
II Office of Elementary and Secondary Education,
Department of Education (Parts 200--299)
III Office of Special Education and Rehabilitative
Services, Department of Education (Parts 300--399)
[[Page 646]]
IV Office of Career, Technical and Adult Education,
Department of Education (Parts 400--499)
V Office of Bilingual Education and Minority Languages
Affairs, Department of Education (Parts 500--599)
[Reserved]
VI Office of Postsecondary Education, Department of
Education (Parts 600--699)
VII Office of Educational Research and Improvement,
Department of Education (Parts 700--799)
[Reserved]
Subtitle C--Regulations Relating to Education
XI [Reserved]
XII National Council on Disability (Parts 1200--1299)
Title 35 [Reserved]
Title 36--Parks, Forests, and Public Property
I National Park Service, Department of the Interior
(Parts 1--199)
II Forest Service, Department of Agriculture (Parts 200--
299)
III Corps of Engineers, Department of the Army (Parts
300--399)
IV American Battle Monuments Commission (Parts 400--499)
V Smithsonian Institution (Parts 500--599)
VI [Reserved]
VII Library of Congress (Parts 700--799)
VIII Advisory Council on Historic Preservation (Parts 800--
899)
IX Pennsylvania Avenue Development Corporation (Parts
900--999)
X Presidio Trust (Parts 1000--1099)
XI Architectural and Transportation Barriers Compliance
Board (Parts 1100--1199)
XII National Archives and Records Administration (Parts
1200--1299)
XV Oklahoma City National Memorial Trust (Parts 1500--
1599)
XVI Morris K. Udall Scholarship and Excellence in National
Environmental Policy Foundation (Parts 1600--1699)
Title 37--Patents, Trademarks, and Copyrights
I United States Patent and Trademark Office, Department
of Commerce (Parts 1--199)
II U.S. Copyright Office, Library of Congress (Parts
200--299)
III Copyright Royalty Board, Library of Congress (Parts
300--399)
IV Assistant Secretary for Technology Policy, Department
of Commerce (Parts 400--599)
Title 38--Pensions, Bonuses, and Veterans' Relief
I Department of Veterans Affairs (Parts 0--199)
II Armed Forces Retirement Home (Parts 200--299)
[[Page 647]]
Title 39--Postal Service
I United States Postal Service (Parts 1--999)
III Postal Regulatory Commission (Parts 3000--3099)
Title 40--Protection of Environment
I Environmental Protection Agency (Parts 1--1099)
IV Environmental Protection Agency and Department of
Justice (Parts 1400--1499)
V Council on Environmental Quality (Parts 1500--1599)
VI Chemical Safety and Hazard Investigation Board (Parts
1600--1699)
VII Environmental Protection Agency and Department of
Defense; Uniform National Discharge Standards for
Vessels of the Armed Forces (Parts 1700--1799)
VIII Gulf Coast Ecosystem Restoration Council (Parts 1800--
1899)
Title 41--Public Contracts and Property Management
Subtitle A--Federal Procurement Regulations System
[Note]
Subtitle B--Other Provisions Relating to Public
Contracts
50 Public Contracts, Department of Labor (Parts 50-1--50-
999)
51 Committee for Purchase From People Who Are Blind or
Severely Disabled (Parts 51-1--51-99)
60 Office of Federal Contract Compliance Programs, Equal
Employment Opportunity, Department of Labor (Parts
60-1--60-999)
61 Office of the Assistant Secretary for Veterans'
Employment and Training Service, Department of
Labor (Parts 61-1--61-999)
62--100 [Reserved]
Subtitle C--Federal Property Management Regulations
System
101 Federal Property Management Regulations (Parts 101-1--
101-99)
102 Federal Management Regulation (Parts 102-1--102-299)
103--104 [Reserved]
105 General Services Administration (Parts 105-1--105-999)
109 Department of Energy Property Management Regulations
(Parts 109-1--109-99)
114 Department of the Interior (Parts 114-1--114-99)
115 Environmental Protection Agency (Parts 115-1--115-99)
128 Department of Justice (Parts 128-1--128-99)
129--200 [Reserved]
Subtitle D--Other Provisions Relating to Property
Management [Reserved]
Subtitle E--Federal Information Resources Management
Regulations System [Reserved]
Subtitle F--Federal Travel Regulation System
300 General (Parts 300-1--300-99)
301 Temporary Duty (TDY) Travel Allowances (Parts 301-1--
301-99)
[[Page 648]]
302 Relocation Allowances (Parts 302-1--302-99)
303 Payment of Expenses Connected with the Death of
Certain Employees (Part 303-1--303-99)
304 Payment of Travel Expenses from a Non-Federal Source
(Parts 304-1--304-99)
Title 42--Public Health
I Public Health Service, Department of Health and Human
Services (Parts 1--199)
IV Centers for Medicare & Medicaid Services, Department
of Health and Human Services (Parts 400--599)
V Office of Inspector General-Health Care, Department of
Health and Human Services (Parts 1000--1999)
Title 43--Public Lands: Interior
Subtitle A--Office of the Secretary of the Interior
(Parts 1--199)
Subtitle B--Regulations Relating to Public Lands
I Bureau of Reclamation, Department of the Interior
(Parts 400--999)
II Bureau of Land Management, Department of the Interior
(Parts 1000--9999)
III Utah Reclamation Mitigation and Conservation
Commission (Parts 10000--10099)
Title 44--Emergency Management and Assistance
I Federal Emergency Management Agency, Department of
Homeland Security (Parts 0--399)
IV Department of Commerce and Department of
Transportation (Parts 400--499)
Title 45--Public Welfare
Subtitle A--Department of Health and Human Services
(Parts 1--199)
Subtitle B--Regulations Relating to Public Welfare
II Office of Family Assistance (Assistance Programs),
Administration for Children and Families,
Department of Health and Human Services (Parts
200--299)
III Office of Child Support Enforcement (Child Support
Enforcement Program), Administration for Children
and Families, Department of Health and Human
Services (Parts 300--399)
IV Office of Refugee Resettlement, Administration for
Children and Families, Department of Health and
Human Services (Parts 400--499)
V Foreign Claims Settlement Commission of the United
States, Department of Justice (Parts 500--599)
[[Page 649]]
VI National Science Foundation (Parts 600--699)
VII Commission on Civil Rights (Parts 700--799)
VIII Office of Personnel Management (Parts 800--899)
IX Denali Commission (Parts 900--999)
X Office of Community Services, Administration for
Children and Families, Department of Health and
Human Services (Parts 1000--1099)
XI National Foundation on the Arts and the Humanities
(Parts 1100--1199)
XII Corporation for National and Community Service (Parts
1200--1299)
XIII Administration for Children and Families, Department
of Health and Human Services (Parts 1300--1399)
XVI Legal Services Corporation (Parts 1600--1699)
XVII National Commission on Libraries and Information
Science (Parts 1700--1799)
XVIII Harry S. Truman Scholarship Foundation (Parts 1800--
1899)
XXI Commission on Fine Arts (Parts 2100--2199)
XXIII Arctic Research Commission (Part 2301)
XXIV James Madison Memorial Fellowship Foundation (Parts
2400--2499)
XXV Corporation for National and Community Service (Parts
2500--2599)
Title 46--Shipping
I Coast Guard, Department of Homeland Security (Parts
1--199)
II Maritime Administration, Department of Transportation
(Parts 200--399)
III Coast Guard (Great Lakes Pilotage), Department of
Homeland Security (Parts 400--499)
IV Federal Maritime Commission (Parts 500--599)
Title 47--Telecommunication
I Federal Communications Commission (Parts 0--199)
II Office of Science and Technology Policy and National
Security Council (Parts 200--299)
III National Telecommunications and Information
Administration, Department of Commerce (Parts
300--399)
IV National Telecommunications and Information
Administration, Department of Commerce, and
National Highway Traffic Safety Administration,
Department of Transportation (Parts 400--499)
Title 48--Federal Acquisition Regulations System
1 Federal Acquisition Regulation (Parts 1--99)
[[Page 650]]
2 Defense Acquisition Regulations System, Department of
Defense (Parts 200--299)
3 Health and Human Services (Parts 300--399)
4 Department of Agriculture (Parts 400--499)
5 General Services Administration (Parts 500--599)
6 Department of State (Parts 600--699)
7 Agency for International Development (Parts 700--799)
8 Department of Veterans Affairs (Parts 800--899)
9 Department of Energy (Parts 900--999)
10 Department of the Treasury (Parts 1000--1099)
12 Department of Transportation (Parts 1200--1299)
13 Department of Commerce (Parts 1300--1399)
14 Department of the Interior (Parts 1400--1499)
15 Environmental Protection Agency (Parts 1500--1599)
16 Office of Personnel Management, Federal Employees
Health Benefits Acquisition Regulation (Parts
1600--1699)
17 Office of Personnel Management (Parts 1700--1799)
18 National Aeronautics and Space Administration (Parts
1800--1899)
19 Broadcasting Board of Governors (Parts 1900--1999)
20 Nuclear Regulatory Commission (Parts 2000--2099)
21 Office of Personnel Management, Federal Employees
Group Life Insurance Federal Acquisition
Regulation (Parts 2100--2199)
23 Social Security Administration (Parts 2300--2399)
24 Department of Housing and Urban Development (Parts
2400--2499)
25 National Science Foundation (Parts 2500--2599)
28 Department of Justice (Parts 2800--2899)
29 Department of Labor (Parts 2900--2999)
30 Department of Homeland Security, Homeland Security
Acquisition Regulation (HSAR) (Parts 3000--3099)
34 Department of Education Acquisition Regulation (Parts
3400--3499)
51 Department of the Army Acquisition Regulations (Parts
5100--5199)
52 Department of the Navy Acquisition Regulations (Parts
5200--5299)
53 Department of the Air Force Federal Acquisition
Regulation Supplement (Parts 5300--5399)
[Reserved]
54 Defense Logistics Agency, Department of Defense (Parts
5400--5499)
57 African Development Foundation (Parts 5700--5799)
61 Civilian Board of Contract Appeals, General Services
Administration (Parts 6100--6199)
63 Department of Transportation Board of Contract Appeals
(Parts 6300--6399)
[[Page 651]]
99 Cost Accounting Standards Board, Office of Federal
Procurement Policy, Office of Management and
Budget (Parts 9900--9999)
Title 49--Transportation
Subtitle A--Office of the Secretary of Transportation
(Parts 1--99)
Subtitle B--Other Regulations Relating to
Transportation
I Pipeline and Hazardous Materials Safety
Administration, Department of Transportation
(Parts 100--199)
II Federal Railroad Administration, Department of
Transportation (Parts 200--299)
III Federal Motor Carrier Safety Administration,
Department of Transportation (Parts 300--399)
IV Coast Guard, Department of Homeland Security (Parts
400--499)
V National Highway Traffic Safety Administration,
Department of Transportation (Parts 500--599)
VI Federal Transit Administration, Department of
Transportation (Parts 600--699)
VII National Railroad Passenger Corporation (AMTRAK)
(Parts 700--799)
VIII National Transportation Safety Board (Parts 800--999)
X Surface Transportation Board (Parts 1000--1399)
XI Research and Innovative Technology Administration,
Department of Transportation (Parts 1400--1499)
[Reserved]
XII Transportation Security Administration, Department of
Homeland Security (Parts 1500--1699)
Title 50--Wildlife and Fisheries
I United States Fish and Wildlife Service, Department of
the Interior (Parts 1--199)
II National Marine Fisheries Service, National Oceanic
and Atmospheric Administration, Department of
Commerce (Parts 200--299)
III International Fishing and Related Activities (Parts
300--399)
IV Joint Regulations (United States Fish and Wildlife
Service, Department of the Interior and National
Marine Fisheries Service, National Oceanic and
Atmospheric Administration, Department of
Commerce); Endangered Species Committee
Regulations (Parts 400--499)
V Marine Mammal Commission (Parts 500--599)
VI Fishery Conservation and Management, National Oceanic
and Atmospheric Administration, Department of
Commerce (Parts 600--699)
[[Page 653]]
Alphabetical List of Agencies Appearing in the CFR
(Revised as of April 1, 2017)
CFR Title, Subtitle or
Agency Chapter
Administrative Committee of the Federal Register 1, I
Administrative Conference of the United States 1, III
Advisory Council on Historic Preservation 36, VIII
Advocacy and Outreach, Office of 7, XXV
Afghanistan Reconstruction, Special Inspector 5, LXXXIII
General for
African Development Foundation 22, XV
Federal Acquisition Regulation 48, 57
Agency for International Development 2, VII; 22, II
Federal Acquisition Regulation 48, 7
Agricultural Marketing Service 7, I, IX, X, XI
Agricultural Research Service 7, V
Agriculture Department 2, IV; 5, LXXIII
Advocacy and Outreach, Office of 7, XXV
Agricultural Marketing Service 7, I, IX, X, XI
Agricultural Research Service 7, V
Animal and Plant Health Inspection Service 7, III; 9, I
Chief Financial Officer, Office of 7, XXX
Commodity Credit Corporation 7, XIV
Economic Research Service 7, XXXVII
Energy Policy and New Uses, Office of 2, IX; 7, XXIX
Environmental Quality, Office of 7, XXXI
Farm Service Agency 7, VII, XVIII
Federal Acquisition Regulation 48, 4
Federal Crop Insurance Corporation 7, IV
Food and Nutrition Service 7, II
Food Safety and Inspection Service 9, III
Foreign Agricultural Service 7, XV
Forest Service 36, II
Grain Inspection, Packers and Stockyards 7, VIII; 9, II
Administration
Information Resources Management, Office of 7, XXVII
Inspector General, Office of 7, XXVI
National Agricultural Library 7, XLI
National Agricultural Statistics Service 7, XXXVI
National Institute of Food and Agriculture 7, XXXIV
Natural Resources Conservation Service 7, VI
Operations, Office of 7, XXVIII
Procurement and Property Management, Office of 7, XXXII
Rural Business-Cooperative Service 7, XVIII, XLII
Rural Development Administration 7, XLII
Rural Housing Service 7, XVIII, XXXV
Rural Telephone Bank 7, XVI
Rural Utilities Service 7, XVII, XVIII, XLII
Secretary of Agriculture, Office of 7, Subtitle A
Transportation, Office of 7, XXXIII
World Agricultural Outlook Board 7, XXXVIII
Air Force Department 32, VII
Federal Acquisition Regulation Supplement 48, 53
Air Transportation Stabilization Board 14, VI
Alcohol and Tobacco Tax and Trade Bureau 27, I
Alcohol, Tobacco, Firearms, and Explosives, 27, II
Bureau of
AMTRAK 49, VII
American Battle Monuments Commission 36, IV
American Indians, Office of the Special Trustee 25, VII
[[Page 654]]
Animal and Plant Health Inspection Service 7, III; 9, I
Appalachian Regional Commission 5, IX
Architectural and Transportation Barriers 36, XI
Compliance Board
Arctic Research Commission 45, XXIII
Armed Forces Retirement Home 5, XI
Army Department 32, V
Engineers, Corps of 33, II; 36, III
Federal Acquisition Regulation 48, 51
Bilingual Education and Minority Languages 34, V
Affairs, Office of
Blind or Severely Disabled, Committee for 41, 51
Purchase from People Who Are
Broadcasting Board of Governors 22, V
Federal Acquisition Regulation 48, 19
Career, Technical and Adult Education, Office of 34, IV
Census Bureau 15, I
Centers for Medicare & Medicaid Services 42, IV
Central Intelligence Agency 32, XIX
Chemical Safety and Hazardous Investigation 40, VI
Board
Chief Financial Officer, Office of 7, XXX
Child Support Enforcement, Office of 45, III
Children and Families, Administration for 45, II, III, IV, X, XIII
Civil Rights, Commission on 5, LXVIII; 45, VII
Civil Rights, Office for 34, I
Council of the Inspectors General on Integrity 5, XCVIII
and Efficiency
Court Services and Offender Supervision Agency 5, LXX
for the District of Columbia
Coast Guard 33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage) 46, III
Commerce Department 2, XIII; 44, IV; 50, VI
Census Bureau 15, I
Economic Analysis, Bureau of 15, VIII
Economic Development Administration 13, III
Emergency Management and Assistance 44, IV
Federal Acquisition Regulation 48, 13
Foreign-Trade Zones Board 15, IV
Industry and Security, Bureau of 15, VII
International Trade Administration 15, III; 19, III
National Institute of Standards and Technology 15, II
National Marine Fisheries Service 50, II, IV
National Oceanic and Atmospheric 15, IX; 50, II, III, IV,
Administration VI
National Telecommunications and Information 15, XXIII; 47, III, IV
Administration
National Weather Service 15, IX
Patent and Trademark Office, United States 37, I
Productivity, Technology and Innovation, 37, IV
Assistant Secretary for
Secretary of Commerce, Office of 15, Subtitle A
Technology Administration 15, XI
Technology Policy, Assistant Secretary for 37, IV
Commercial Space Transportation 14, III
Commodity Credit Corporation 7, XIV
Commodity Futures Trading Commission 5, XLI; 17, I
Community Planning and Development, Office of 24, V, VI
Assistant Secretary for
Community Services, Office of 45, X
Comptroller of the Currency 12, I
Construction Industry Collective Bargaining 29, IX
Commission
Consumer Financial Protection Bureau 5, LXXXIV; 12, X
Consumer Product Safety Commission 5, LXXI; 16, II
Copyright Royalty Board 37, III
Corporation for National and Community Service 2, XXII; 45, XII, XXV
Cost Accounting Standards Board 48, 99
Council on Environmental Quality 40, V
Court Services and Offender Supervision Agency 5, LXX; 28, VIII
for the District of Columbia
Customs and Border Protection 19, I
Defense Contract Audit Agency 32, I
[[Page 655]]
Defense Department 2, XI; 5, XXVI; 32,
Subtitle A; 40, VII
Advanced Research Projects Agency 32, I
Air Force Department 32, VII
Army Department 32, V; 33, II; 36, III;
48, 51
Defense Acquisition Regulations System 48, 2
Defense Intelligence Agency 32, I
Defense Logistics Agency 32, I, XII; 48, 54
Engineers, Corps of 33, II; 36, III
National Imagery and Mapping Agency 32, I
Navy Department 32, VI; 48, 52
Secretary of Defense, Office of 2, XI; 32, I
Defense Contract Audit Agency 32, I
Defense Intelligence Agency 32, I
Defense Logistics Agency 32, XII; 48, 54
Defense Nuclear Facilities Safety Board 10, XVII
Delaware River Basin Commission 18, III
Denali Commission 45, IX
District of Columbia, Court Services and 5, LXX; 28, VIII
Offender Supervision Agency for the
Drug Enforcement Administration 21, II
East-West Foreign Trade Board 15, XIII
Economic Analysis, Bureau of 15, VIII
Economic Development Administration 13, III
Economic Research Service 7, XXXVII
Education, Department of 2, XXXIV; 5, LIII
Bilingual Education and Minority Languages 34, V
Affairs, Office of
Career, Technical and Adult Education, Office 34, IV
of
Civil Rights, Office for 34, I
Educational Research and Improvement, Office 34, VII
of
Elementary and Secondary Education, Office of 34, II
Federal Acquisition Regulation 48, 34
Postsecondary Education, Office of 34, VI
Secretary of Education, Office of 34, Subtitle A
Special Education and Rehabilitative Services, 34, III
Office of
Career, Technical, and Adult Education, Office 34, IV
of
Educational Research and Improvement, Office of 34, VII
Election Assistance Commission 2, LVIII; 11, II
Elementary and Secondary Education, Office of 34, II
Emergency Oil and Gas Guaranteed Loan Board 13, V
Emergency Steel Guarantee Loan Board 13, IV
Employee Benefits Security Administration 29, XXV
Employees' Compensation Appeals Board 20, IV
Employees Loyalty Board 5, V
Employment and Training Administration 20, V
Employment Standards Administration 20, VI
Endangered Species Committee 50, IV
Energy, Department of 2, IX; 5, XXIII; 10, II,
III, X
Federal Acquisition Regulation 48, 9
Federal Energy Regulatory Commission 5, XXIV; 18, I
Property Management Regulations 41, 109
Energy, Office of 7, XXIX
Engineers, Corps of 33, II; 36, III
Engraving and Printing, Bureau of 31, VI
Environmental Protection Agency 2, XV; 5, LIV; 40, I, IV,
VII
Federal Acquisition Regulation 48, 15
Property Management Regulations 41, 115
Environmental Quality, Office of 7, XXXI
Equal Employment Opportunity Commission 5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary 24, I
for
Executive Office of the President 3, I
Environmental Quality, Council on 40, V
Management and Budget, Office of 2, Subtitle A; 5, III,
LXXVII; 14, VI; 48, 99
[[Page 656]]
National Drug Control Policy, Office of 2, XXXVI; 21, III
National Security Council 32, XXI; 47, 2
Presidential Documents 3
Science and Technology Policy, Office of 32, XXIV; 47, II
Trade Representative, Office of the United 15, XX
States
Export-Import Bank of the United States 2, XXXV; 5, LII; 12, IV
Family Assistance, Office of 45, II
Farm Credit Administration 5, XXXI; 12, VI
Farm Credit System Insurance Corporation 5, XXX; 12, XIV
Farm Service Agency 7, VII, XVIII
Federal Acquisition Regulation 48, 1
Federal Aviation Administration 14, I
Commercial Space Transportation 14, III
Federal Claims Collection Standards 31, IX
Federal Communications Commission 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of 41, 60
Federal Crop Insurance Corporation 7, IV
Federal Deposit Insurance Corporation 5, XXII; 12, III
Federal Election Commission 5, XXXVII; 11, I
Federal Emergency Management Agency 44, I
Federal Employees Group Life Insurance Federal 48, 21
Acquisition Regulation
Federal Employees Health Benefits Acquisition 48, 16
Regulation
Federal Energy Regulatory Commission 5, XXIV; 18, I
Federal Financial Institutions Examination 12, XI
Council
Federal Financing Bank 12, VIII
Federal Highway Administration 23, I, II
Federal Home Loan Mortgage Corporation 1, IV
Federal Housing Enterprise Oversight Office 12, XVII
Federal Housing Finance Agency 5, LXXX; 12, XII
Federal Housing Finance Board 12, IX
Federal Labor Relations Authority 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center 31, VII
Federal Management Regulation 41, 102
Federal Maritime Commission 46, IV
Federal Mediation and Conciliation Service 29, XII
Federal Mine Safety and Health Review Commission 5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration 49, III
Federal Prison Industries, Inc. 28, III
Federal Procurement Policy Office 48, 99
Federal Property Management Regulations 41, 101
Federal Railroad Administration 49, II
Federal Register, Administrative Committee of 1, I
Federal Register, Office of 1, II
Federal Reserve System 12, II
Board of Governors 5, LVIII
Federal Retirement Thrift Investment Board 5, VI, LXXVI
Federal Service Impasses Panel 5, XIV
Federal Trade Commission 5, XLVII; 16, I
Federal Transit Administration 49, VI
Federal Travel Regulation System 41, Subtitle F
Financial Crimes Enforcement Network 31, X
Financial Research Office 12, XVI
Financial Stability Oversight Council 12, XIII
Fine Arts, Commission on 45, XXI
Fiscal Service 31, II
Fish and Wildlife Service, United States 50, I, IV
Food and Drug Administration 21, I
Food and Nutrition Service 7, II
Food Safety and Inspection Service 9, III
Foreign Agricultural Service 7, XV
Foreign Assets Control, Office of 31, V
Foreign Claims Settlement Commission of the 45, V
United States
Foreign Service Grievance Board 22, IX
Foreign Service Impasse Disputes Panel 22, XIV
Foreign Service Labor Relations Board 22, XIV
Foreign-Trade Zones Board 15, IV
[[Page 657]]
Forest Service 36, II
General Services Administration 5, LVII; 41, 105
Contract Appeals, Board of 48, 61
Federal Acquisition Regulation 48, 5
Federal Management Regulation 41, 102
Federal Property Management Regulations 41, 101
Federal Travel Regulation System 41, Subtitle F
General 41, 300
Payment From a Non-Federal Source for Travel 41, 304
Expenses
Payment of Expenses Connected With the Death 41, 303
of Certain Employees
Relocation Allowances 41, 302
Temporary Duty (TDY) Travel Allowances 41, 301
Geological Survey 30, IV
Government Accountability Office 4, I
Government Ethics, Office of 5, XVI
Government National Mortgage Association 24, III
Grain Inspection, Packers and Stockyards 7, VIII; 9, II
Administration
Gulf Coast Ecosystem Restoration Council 2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation 45, XVIII
Health and Human Services, Department of 2, III; 5, XLV; 45,
Subtitle A
Centers for Medicare & Medicaid Services 42, IV
Child Support Enforcement, Office of 45, III
Children and Families, Administration for 45, II, III, IV, X, XIII
Community Services, Office of 45, X
Family Assistance, Office of 45, II
Federal Acquisition Regulation 48, 3
Food and Drug Administration 21, I
Indian Health Service 25, V
Inspector General (Health Care), Office of 42, V
Public Health Service 42, I
Refugee Resettlement, Office of 45, IV
Homeland Security, Department of 2, XXX; 5, XXXVI; 6, I; 8,
I
Coast Guard 33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage) 46, III
Customs and Border Protection 19, I
Federal Emergency Management Agency 44, I
Human Resources Management and Labor Relations 5, XCVII
Systems
Immigration and Customs Enforcement Bureau 19, IV
Transportation Security Administration 49, XII
HOPE for Homeowners Program, Board of Directors 24, XXIV
of
Housing and Urban Development, Department of 2, XXIV; 5, LXV; 24,
Subtitle B
Community Planning and Development, Office of 24, V, VI
Assistant Secretary for
Equal Opportunity, Office of Assistant 24, I
Secretary for
Federal Acquisition Regulation 48, 24
Federal Housing Enterprise Oversight, Office 12, XVII
of
Government National Mortgage Association 24, III
Housing--Federal Housing Commissioner, Office 24, II, VIII, X, XX
of Assistant Secretary for
Housing, Office of, and Multifamily Housing 24, IV
Assistance Restructuring, Office of
Inspector General, Office of 24, XII
Public and Indian Housing, Office of Assistant 24, IX
Secretary for
Secretary, Office of 24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of 24, II, VIII, X, XX
Assistant Secretary for
Housing, Office of, and Multifamily Housing 24, IV
Assistance Restructuring, Office of
Immigration and Customs Enforcement Bureau 19, IV
Immigration Review, Executive Office for 8, V
Independent Counsel, Office of 28, VII
Independent Counsel, Offices of 28, VI
[[Page 658]]
Indian Affairs, Bureau of 25, I, V
Indian Affairs, Office of the Assistant 25, VI
Secretary
Indian Arts and Crafts Board 25, II
Indian Health Service 25, V
Industry and Security, Bureau of 15, VII
Information Resources Management, Office of 7, XXVII
Information Security Oversight Office, National 32, XX
Archives and Records Administration
Inspector General
Agriculture Department 7, XXVI
Health and Human Services Department 42, V
Housing and Urban Development Department 24, XII, XV
Institute of Peace, United States 22, XVII
Inter-American Foundation 5, LXIII; 22, X
Interior Department 2, XIV
American Indians, Office of the Special 25, VII
Trustee
Endangered Species Committee 50, IV
Federal Acquisition Regulation 48, 14
Federal Property Management Regulations System 41, 114
Fish and Wildlife Service, United States 50, I, IV
Geological Survey 30, IV
Indian Affairs, Bureau of 25, I, V
Indian Affairs, Office of the Assistant 25, VI
Secretary
Indian Arts and Crafts Board 25, II
Land Management, Bureau of 43, II
National Indian Gaming Commission 25, III
National Park Service 36, I
Natural Resource Revenue, Office of 30, XII
Ocean Energy Management, Bureau of 30, V
Reclamation, Bureau of 43, I
Safety and Enforcement Bureau, Bureau of 30, II
Secretary of the Interior, Office of 2, XIV; 43, Subtitle A
Surface Mining Reclamation and Enforcement, 30, VII
Office of
Internal Revenue Service 26, I
International Boundary and Water Commission, 22, XI
United States and Mexico, United States
Section
International Development, United States Agency 22, II
for
Federal Acquisition Regulation 48, 7
International Development Cooperation Agency, 22, XII
United States
International Joint Commission, United States 22, IV
and Canada
International Organizations Employees Loyalty 5, V
Board
International Trade Administration 15, III; 19, III
International Trade Commission, United States 19, II
Interstate Commerce Commission 5, XL
Investment Security, Office of 31, VIII
James Madison Memorial Fellowship Foundation 45, XXIV
Japan-United States Friendship Commission 22, XVI
Joint Board for the Enrollment of Actuaries 20, VIII
Justice Department 2, XXVIII; 5, XXVIII; 28,
I, XI; 40, IV
Alcohol, Tobacco, Firearms, and Explosives, 27, II
Bureau of
Drug Enforcement Administration 21, II
Federal Acquisition Regulation 48, 28
Federal Claims Collection Standards 31, IX
Federal Prison Industries, Inc. 28, III
Foreign Claims Settlement Commission of the 45, V
United States
Immigration Review, Executive Office for 8, V
Independent Counsel, Offices of 28, VI
Prisons, Bureau of 28, V
Property Management Regulations 41, 128
Labor Department 2, XXIX; 5, XLII
Employee Benefits Security Administration 29, XXV
Employees' Compensation Appeals Board 20, IV
Employment and Training Administration 20, V
Employment Standards Administration 20, VI
[[Page 659]]
Federal Acquisition Regulation 48, 29
Federal Contract Compliance Programs, Office 41, 60
of
Federal Procurement Regulations System 41, 50
Labor-Management Standards, Office of 29, II, IV
Mine Safety and Health Administration 30, I
Occupational Safety and Health Administration 29, XVII
Public Contracts 41, 50
Secretary of Labor, Office of 29, Subtitle A
Veterans' Employment and Training Service, 41, 61; 20, IX
Office of the Assistant Secretary for
Wage and Hour Division 29, V
Workers' Compensation Programs, Office of 20, I, VII
Labor-Management Standards, Office of 29, II, IV
Land Management, Bureau of 43, II
Legal Services Corporation 45, XVI
Library of Congress 36, VII
Copyright Royalty Board 37, III
U.S. Copyright Office 37, II
Local Television Loan Guarantee Board 7, XX
Management and Budget, Office of 5, III, LXXVII; 14, VI;
48, 99
Marine Mammal Commission 50, V
Maritime Administration 46, II
Merit Systems Protection Board 5, II, LXIV
Micronesian Status Negotiations, Office for 32, XXVII
Military Compensation and Retirement 5, XCIX
Modernization Commission
Millennium Challenge Corporation 22, XIII
Mine Safety and Health Administration 30, I
Minority Business Development Agency 15, XIV
Miscellaneous Agencies 1, IV
Monetary Offices 31, I
Morris K. Udall Scholarship and Excellence in 36, XVI
National Environmental Policy Foundation
Museum and Library Services, Institute of 2, XXXI
National Aeronautics and Space Administration 2, XVIII; 5, LIX; 14, V
Federal Acquisition Regulation 48, 18
National Agricultural Library 7, XLI
National Agricultural Statistics Service 7, XXXVI
National and Community Service, Corporation for 2, XXII; 45, XII, XXV
National Archives and Records Administration 2, XXVI; 5, LXVI; 36, XII
Information Security Oversight Office 32, XX
National Capital Planning Commission 1, IV
National Commission for Employment Policy 1, IV
National Commission on Libraries and Information 45, XVII
Science
National Council on Disability 5, C; 34, XII
National Counterintelligence Center 32, XVIII
National Credit Union Administration 5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact 28, IX
Council
National Drug Control Policy, Office of 2, XXXVI; 21, III
National Endowment for the Arts 2, XXXII
National Endowment for the Humanities 2, XXXIII
National Foundation on the Arts and the 45, XI
Humanities
National Geospatial-Intelligence Agency 32, I
National Highway Traffic Safety Administration 23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency 32, I
National Indian Gaming Commission 25, III
National Institute of Food and Agriculture 7, XXXIV
National Institute of Standards and Technology 15, II
National Intelligence, Office of Director of 5, IV; 32, XVII
National Labor Relations Board 5, LXI; 29, I
National Marine Fisheries Service 50, II, IV
National Mediation Board 29, X
National Oceanic and Atmospheric Administration 15, IX; 50, II, III, IV,
VI
National Park Service 36, I
National Railroad Adjustment Board 29, III
[[Page 660]]
National Railroad Passenger Corporation (AMTRAK) 49, VII
National Science Foundation 2, XXV; 5, XLIII; 45, VI
Federal Acquisition Regulation 48, 25
National Security Council 32, XXI
National Security Council and Office of Science 47, II
and Technology Policy
National Telecommunications and Information 15, XXIII; 47, III, IV
Administration
National Transportation Safety Board 49, VIII
Natural Resources Conservation Service 7, VI
Natural Resource Revenue, Office of 30, XII
Navajo and Hopi Indian Relocation, Office of 25, IV
Navy Department 32, VI
Federal Acquisition Regulation 48, 52
Neighborhood Reinvestment Corporation 24, XXV
Northeast Interstate Low-Level Radioactive Waste 10, XVIII
Commission
Nuclear Regulatory Commission 2, XX; 5, XLVIII; 10, I
Federal Acquisition Regulation 48, 20
Occupational Safety and Health Administration 29, XVII
Occupational Safety and Health Review Commission 29, XX
Ocean Energy Management, Bureau of 30, V
Oklahoma City National Memorial Trust 36, XV
Operations Office 7, XXVIII
Overseas Private Investment Corporation 5, XXXIII; 22, VII
Patent and Trademark Office, United States 37, I
Payment From a Non-Federal Source for Travel 41, 304
Expenses
Payment of Expenses Connected With the Death of 41, 303
Certain Employees
Peace Corps 2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation 36, IX
Pension Benefit Guaranty Corporation 29, XL
Personnel Management, Office of 5, I, XXXV; 5, IV; 45,
VIII
Human Resources Management and Labor Relations 5, XCVII
Systems, Department of Homeland Security
Federal Acquisition Regulation 48, 17
Federal Employees Group Life Insurance Federal 48, 21
Acquisition Regulation
Federal Employees Health Benefits Acquisition 48, 16
Regulation
Pipeline and Hazardous Materials Safety 49, I
Administration
Postal Regulatory Commission 5, XLVI; 39, III
Postal Service, United States 5, LX; 39, I
Postsecondary Education, Office of 34, VI
President's Commission on White House 1, IV
Fellowships
Presidential Documents 3
Presidio Trust 36, X
Prisons, Bureau of 28, V
Privacy and Civil Liberties Oversight Board 6, X
Procurement and Property Management, Office of 7, XXXII
Productivity, Technology and Innovation, 37, IV
Assistant Secretary
Public Contracts, Department of Labor 41, 50
Public and Indian Housing, Office of Assistant 24, IX
Secretary for
Public Health Service 42, I
Railroad Retirement Board 20, II
Reclamation, Bureau of 43, I
Refugee Resettlement, Office of 45, IV
Relocation Allowances 41, 302
Research and Innovative Technology 49, XI
Administration
Rural Business-Cooperative Service 7, XVIII, XLII
Rural Development Administration 7, XLII
Rural Housing Service 7, XVIII, XXXV
Rural Telephone Bank 7, XVI
Rural Utilities Service 7, XVII, XVIII, XLII
Safety and Environmental Enforcement, Bureau of 30, II
Saint Lawrence Seaway Development Corporation 33, IV
[[Page 661]]
Science and Technology Policy, Office of 32, XXIV
Science and Technology Policy, Office of, and 47, II
National Security Council
Secret Service 31, IV
Securities and Exchange Commission 5, XXXIV; 17, II
Selective Service System 32, XVI
Small Business Administration 2, XXVII; 13, I
Smithsonian Institution 36, V
Social Security Administration 2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States 5, XI
Special Counsel, Office of 5, VIII
Special Education and Rehabilitative Services, 34, III
Office of
State Department 2, VI; 22, I; 28, XI
Federal Acquisition Regulation 48, 6
Surface Mining Reclamation and Enforcement, 30, VII
Office of
Surface Transportation Board 49, X
Susquehanna River Basin Commission 18, VIII
Technology Administration 15, XI
Technology Policy, Assistant Secretary for 37, IV
Tennessee Valley Authority 5, LXIX; 18, XIII
Thrift Supervision Office, Department of the 12, V
Treasury
Trade Representative, United States, Office of 15, XX
Transportation, Department of 2, XII; 5, L
Commercial Space Transportation 14, III
Contract Appeals, Board of 48, 63
Emergency Management and Assistance 44, IV
Federal Acquisition Regulation 48, 12
Federal Aviation Administration 14, I
Federal Highway Administration 23, I, II
Federal Motor Carrier Safety Administration 49, III
Federal Railroad Administration 49, II
Federal Transit Administration 49, VI
Maritime Administration 46, II
National Highway Traffic Safety Administration 23, II, III; 47, IV; 49, V
Pipeline and Hazardous Materials Safety 49, I
Administration
Saint Lawrence Seaway Development Corporation 33, IV
Secretary of Transportation, Office of 14, II; 49, Subtitle A
Transportation Statistics Bureau 49, XI
Transportation, Office of 7, XXXIII
Transportation Security Administration 49, XII
Transportation Statistics Bureau 49, XI
Travel Allowances, Temporary Duty (TDY) 41, 301
Treasury Department 2, X;5, XXI; 12, XV; 17,
IV; 31, IX
Alcohol and Tobacco Tax and Trade Bureau 27, I
Community Development Financial Institutions 12, XVIII
Fund
Comptroller of the Currency 12, I
Customs and Border Protection 19, I
Engraving and Printing, Bureau of 31, VI
Federal Acquisition Regulation 48, 10
Federal Claims Collection Standards 31, IX
Federal Law Enforcement Training Center 31, VII
Financial Crimes Enforcement Network 31, X
Fiscal Service 31, II
Foreign Assets Control, Office of 31, V
Internal Revenue Service 26, I
Investment Security, Office of 31, VIII
Monetary Offices 31, I
Secret Service 31, IV
Secretary of the Treasury, Office of 31, Subtitle A
Thrift Supervision, Office of 12, V
Truman, Harry S. Scholarship Foundation 45, XVIII
United States and Canada, International Joint 22, IV
Commission
United States and Mexico, International Boundary 22, XI
and Water Commission, United States Section
U.S. Copyright Office 37, II
Utah Reclamation Mitigation and Conservation 43, III
Commission
[[Page 662]]
Veterans Affairs Department 2, VIII; 38, I
Federal Acquisition Regulation 48, 8
Veterans' Employment and Training Service, 41, 61; 20, IX
Office of the Assistant Secretary for
Vice President of the United States, Office of 32, XXVIII
Wage and Hour Division 29, V
Water Resources Council 18, VI
Workers' Compensation Programs, Office of 20, I, VII
World Agricultural Outlook Board 7, XXXVIII
[[Page 663]]
Table of OMB Control Numbers
The OMB control numbers for chapter I of title 26 were consolidated into
Secs. 601.9000 and 602.101 at 50 FR 10221, Mar. 14, 1985. At 61 FR
58008, Nov. 12, 1996, Sec. 601.9000 was removed. Section 602.101 is
reprinted below for the convenience of the user.
PART 602_OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT--Table of Contents
Sec. 602.101 OMB Control numbers.
(a) Purpose. This part collects and displays the control numbers
assigned to collections of information in Internal Revenue Service
regulations by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1980. The Internal Revenue Service intends
that this part comply with the requirements of Secs. 1320.7(f), 1320.12,
1320.13, and 1320.14 of 5 CFR part 1320 (OMB regulations implementing
the Paperwork Reduction Act), for the display of control numbers
assigned by OMB to collections of information in Internal Revenue
Service regulations. This part does not display control numbers assigned
by the Office of Management and Budget to collections of information of
the Bureau of Alcohol, Tobacco, and Firearms.
(b) Display.
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
1.1(h)-1(e)................................................ 1545-1654
1.23-5..................................................... 1545-0074
1.25-1T.................................................... 1545-0922
1545-0930
1.25-2T.................................................... 1545-0922
1545-0930
1.25-3T.................................................... 1545-0922
1545-0930
1.25-4T.................................................... 1545-0922
1.25-5T.................................................... 1545-0922
1.25-6T.................................................... 1545-0922
1.25-7T.................................................... 1545-0922
1.25-8T.................................................... 1545-0922
1.25A-1.................................................... 1545-1630
1.28-1..................................................... 1545-0619
1.31-2..................................................... 1545-0074
1.32-2..................................................... 1545-0074
1.32-3..................................................... 1545-1575
1.36B-5.................................................... 1545-2232
1.37-1..................................................... 1545-0074
1.37-3..................................................... 1545-0074
1.41-2..................................................... 1545-0619
1.41-3..................................................... 1545-0619
1.41-4A.................................................... 1545-0074
1.41-4 (b) and (c)......................................... 1545-0074
1.41-8(b).................................................. 1545-1625
1.41-8(d).................................................. 1545-0732
1.41-9..................................................... 1545-0619
1.42-1T.................................................... 1545-0984
1545-0988
1.42-2..................................................... 1545-1005
1.42-5..................................................... 1545-1357
1.42-6..................................................... 1545-1102
1.42-8..................................................... 1545-1102
1.42-10.................................................... 1545-1102
1.42-13.................................................... 1545-1357
1.42-14.................................................... 1545-1423
1.42-17.................................................... 1545-1357
1.42-18.................................................... 1545-2088
1.43-3(a)(3)............................................... 1545-1292
1.43-3(b)(3)............................................... 1545-1292
1.44B-1.................................................... 1545-0219
1.45D-1.................................................... 1545-1765
1.45G-1.................................................... 1545-2031
1.46-1..................................................... 1545-0123
1545-0155
1.46-3..................................................... 1545-0155
1.46-4..................................................... 1545-0155
1.46-5..................................................... 1545-0155
1.46-6..................................................... 1545-0155
1.46-8..................................................... 1545-0155
1.46-9..................................................... 1545-0155
1.46-10.................................................... 1545-0118
1.46-11.................................................... 1545-0155
1.47-1..................................................... 1545-0155
1545-0166
1.47-3..................................................... 1545-0155
1545-0166
1.47-4..................................................... 1545-0123
1.47-5..................................................... 1545-0092
1.47-6..................................................... 1545-0099
1.48-3..................................................... 1545-0155
1.48-4..................................................... 1545-0155
1545-0808
1.48-5..................................................... 1545-0155
1.48-6..................................................... 1545-0155
1.48-12.................................................... 1545-0155
1545-1783
1.50A-1.................................................... 1545-0895
1.50A-2.................................................... 1545-0895
1.50A-3.................................................... 1545-0895
1.50A-4.................................................... 1545-0895
1.50A-5.................................................... 1545-0895
1.50A-6.................................................... 1545-0895
1.50A-7.................................................... 1545-0895
1.50B-1.................................................... 1545-0895
1.50B-2.................................................... 1545-0895
1.50B-3.................................................... 1545-0895
[[Page 664]]
1.50B-4.................................................... 1545-0895
1.50B-5.................................................... 1545-0895
1.51-1..................................................... 1545-0219
1545-0241
1545-0244
1545-0797
1.52-2..................................................... 1545-0219
1.52-3..................................................... 1545-0219
1.56-1..................................................... 1545-0123
1.56(g)-1.................................................. 1545-1233
1.56A-1.................................................... 1545-0227
1.56A-2.................................................... 1545-0227
1.56A-3.................................................... 1545-0227
1.56A-4.................................................... 1545-0227
1.56A-5.................................................... 1545-0227
1.57-5..................................................... 1545-0227
1.58-1..................................................... 1545-0175
1.58-9(c)(5)(iii)(B)....................................... 1545-1093
1.58-9(e)(3)............................................... 1545-1093
1.59-1..................................................... 1545-1903
1.61-2..................................................... 1545-0771
1.61-2T.................................................... 1545-0771
1.61-4..................................................... 1545-0187
1.61-15.................................................... 1545-0074
1.62-2..................................................... 1545-1148
1.63-1..................................................... 1545-0074
1.66-4..................................................... 1545-1770
1.67-2T.................................................... 1545-0110
1.67-3..................................................... 1545-1018
1.67-3T.................................................... 1545-0118
1.71-1T.................................................... 1545-0074
1.72-4..................................................... 1545-0074
1.72-6..................................................... 1545-0074
1.72-9..................................................... 1545-0074
1.72-17.................................................... 1545-0074
1.72-17A................................................... 1545-0074
1.72-18.................................................... 1545-0074
1.74-1..................................................... 1545-1100
1.79-2..................................................... 1545-0074
1.79-3..................................................... 1545-0074
1.83-2..................................................... 1545-0074
1.83-5..................................................... 1545-0074
1.83-6..................................................... 1545-1448
1.103-10................................................... 1545-0123
1545-0940
1.103-15AT................................................. 1545-0720
1.103-18................................................... 1545-1226
1.103(n)-2T................................................ 1545-0874
1.103(n)-4T................................................ 1545-0874
1.103A-2................................................... 1545-0720
1.105-4.................................................... 1545-0074
1.105-5.................................................... 1545-0074
1.105-6.................................................... 1545-0074
1.108-4.................................................... 1545-1539
1.108-5.................................................... 1545-1421
1.108-7.................................................... 1545-2155
1.108(i)-1................................................. 1545-2147
1.108(i)-2................................................. 1545-2147
1.110-1.................................................... 1545-1661
1.117-5.................................................... 1545-0869
1.118-2.................................................... 1545-1639
1.119-1.................................................... 1545-0067
1.120-3.................................................... 1545-0057
1.121-1.................................................... 1545-0072
1.121-2.................................................... 1545-0072
1.121-3.................................................... 1545-0072
1.121-4.................................................... 1545-0072
1545-0091
1.121-5.................................................... 1545-0072
1.127-2.................................................... 1545-0768
1.132-1T................................................... 1545-0771
1.132-2.................................................... 1545-0771
1.132-2T................................................... 1545-0771
1.132-5.................................................... 1545-0771
1.132-5T................................................... 1545-0771
1545-1098
1.132-9(b)................................................. 1545-1676
1.141-1.................................................... 1545-1451
1.141-12................................................... 1545-1451
1.142-2.................................................... 1545-1451
1.142(f)(4)-1.............................................. 1545-1730
1.148-0.................................................... 1545-1098
1.148-1.................................................... 1545-1098
1.148-2.................................................... 1545-1098
1545-1347
1.148-3.................................................... 1545-1098
1545-1347
1.148-4.................................................... 1545-1098
1545-1347
1.148-5.................................................... 1545-1098
1545-1490
1.148-6.................................................... 1545-1098
1545-1451
1.148-7.................................................... 1545-1098
1545-1347
1.148-8.................................................... 1545-1098
1.148-11................................................... 1545-1098
1545-1347
1.149(e)-1................................................. 1545-0720
1.150-1.................................................... 1545-1347
1.151-1.................................................... 1545-0074
1.152-3.................................................... 1545-0071
1545-1783
1.152-4.................................................... 1545-0074
1.152-4T................................................... 1545-0074
1.162-1.................................................... 1545-0139
1.162-2.................................................... 1545-0139
1.162-3.................................................... 1545-0139
1.162-4.................................................... 1545-0139
1.162-5.................................................... 1545-0139
1.162-6.................................................... 1545-0139
1.162-7.................................................... 1545-0139
1.162-8.................................................... 1545-0139
1.162-9.................................................... 1545-0139
1.162-10................................................... 1545-0139
1.162-11................................................... 1545-0139
1.162-12................................................... 1545-0139
1.162-13................................................... 1545-0139
1.162-14................................................... 1545-0139
1.162-15................................................... 1545-0139
1.162-16................................................... 1545-0139
1.162-17................................................... 1545-0139
1.162-18................................................... 1545-0139
1.162-19................................................... 1545-0139
1.162-20................................................... 1545-0139
1.162-24................................................... 1545-2115
1.162-27................................................... 1545-1466
1.163-5.................................................... 1545-0786
1545-1132
1.163-8T................................................... 1545-0995
1.163-10T.................................................. 1545-0074
1.163-13................................................... 1545-1491
1.163(d)-1................................................. 1545-1421
1.165-1.................................................... 1545-0177
1.165-2.................................................... 1545-0177
1.165-3.................................................... 1545-0177
1.165-4.................................................... 1545-0177
1.165-5.................................................... 1545-0177
1.165-6.................................................... 1545-0177
1.165-7.................................................... 1545-0177
1.165-8.................................................... 1545-0177
1.165-9.................................................... 1545-0177
1.165-10................................................... 1545-0177
1.165-11................................................... 1545-0074
[[Page 665]]
1545-0177
1545-0786
1.165-12................................................... 1545-0786
1.166-1.................................................... 1545-0123
1.166-2.................................................... 1545-1254
1.166-4.................................................... 1545-0123
1.166-10................................................... 1545-0123
1.167(a)-5T................................................ 1545-1021
1.167(a)-7................................................. 1545-0172
1.167(a)-11................................................ 1545-0152
1545-0172
1.167(a)-12................................................ 1545-0172
1.167(d)-1................................................. 1545-0172
1.167(e)-1................................................. 1545-0172
1.167(f)-11................................................ 1545-0172
1.167(l)-1................................................. 1545-0172
1.168(d)-1................................................. 1545-1146
1.168(f)(8)-1T............................................. 1545-0923
1.168(i)-1................................................. 1545-1331
1.168-5.................................................... 1545-0172
1.169-4.................................................... 1545-0172
1.170-1.................................................... 1545-0074
1.170-2.................................................... 1545-0074
1.170-3.................................................... 1545-0123
1.170A-1................................................... 1545-0074
1.170A-2................................................... 1545-0074
1.170A-4(A)(b)............................................. 1545-0123
1.170A-8................................................... 1545-0074
1.170A-9................................................... 1545-0052
1545-0074
1.170A-11.................................................. 1545-0074
1545-0123
1545-1868
1.170A-12.................................................. 1545-0020
1545-0074
1.170A-13.................................................. 1545-0074
1545-0754
1545-0908
1545-1431
1.170A-13(f)............................................... 1545-1464
1.170A-14.................................................. 1545-0763
1.171-4.................................................... 1545-1491
1.171-5.................................................... 1545-1491
1.172-1.................................................... 1545-0172
1.172-13................................................... 1545-0863
1.173-1.................................................... 1545-0172
1.174-3.................................................... 1545-0152
1.174-4.................................................... 1545-0152
1.175-3.................................................... 1545-0187
1.175-6.................................................... 1545-0152
1.177-1.................................................... 1545-0172
1.179-2.................................................... 1545-1201
1.179-3.................................................... 1545-1201
1.179-5.................................................... 1545-0172
1545-1201
1.179B-1T.................................................. 1545-2076
1.179C-1................................................... 1545-2103
1.179C-1T.................................................. 1545-2103
1.180-2.................................................... 1545-0074
1.181-1.................................................... 1545-2059
1.181-2.................................................... 1545-2059
1.181-3.................................................... 1545-2059
1.182-6.................................................... 1545-0074
1.183-1.................................................... 1545-0195
1.183-2.................................................... 1545-0195
1.183-3.................................................... 1545-0195
1.183-4.................................................... 1545-0195
1.190-3.................................................... 1545-0074
1.194-2.................................................... 1545-0735
1.194-4.................................................... 1545-0735
1.195-1.................................................... 1545-1582
1.197-1T................................................... 1545-1425
1.197-2.................................................... 1545-1671
1.199-6.................................................... 1545-1966
1.213-1.................................................... 1545-0074
1.215-1T................................................... 1545-0074
1.217-2.................................................... 1545-0182
1.243-3.................................................... 1545-0123
1.243-4.................................................... 1545-0123
1.243-5.................................................... 1545-0123
1.248-1.................................................... 1545-0172
1.261-1.................................................... 1545-1041
1.263(a)-1................................................. 1545-2248
1.263(a)-3................................................. 1545-2248
1.263(a)-5................................................. 1545-1870
1.263(e)-1................................................. 1545-0123
1.263A-1................................................... 1545-0987
1.263A-1T.................................................. 1545-0187
1.263A-2................................................... 1545-0987
1.263A-3................................................... 1545-0987
1.263A-8(b)(2)(iii)........................................ 1545-1265
1.263A-9(d)(1)............................................. 1545-1265
1.263A-9(f)(1)(ii)......................................... 1545-1265
1.263A-9(f)(2)(iv)......................................... 1545-1265
1.263A-9(g)(2)(iv)(C)...................................... 1545-1265
1.263A-9(g)(3)(iv)......................................... 1545-1265
1.265-1.................................................... 1545-0074
1.265-2.................................................... 1545-0123
1.266-1.................................................... 1545-0123
1.267(f)-1................................................. 1545-0885
1.268-1.................................................... 1545-0184
1.274-1.................................................... 1545-0139
1.274-2.................................................... 1545-0139
1.274-3.................................................... 1545-0139
1.274-4.................................................... 1545-0139
1.274-5.................................................... 1545-0771
1.274-5A................................................... 1545-0139
1545-0771
1.274-5T................................................... 1545-0074
1545-0172
1545-0771
1.274-6.................................................... 1545-0139
1545-0771
1.274-6T................................................... 1545-0074
1545-0771
1.274-7.................................................... 1545-0139
1.274-8.................................................... 1545-0139
1.279-6.................................................... 1545-0123
1.280C-4................................................... 1545-1155
1.280F-3T.................................................. 1545-0074
1.280G-1................................................... 1545-1851
1.281-4.................................................... 1545-0123
1.302-4.................................................... 1545-0074
1.305-3.................................................... 1545-0123
1.305-5.................................................... 1545-1438
1.307-2.................................................... 1545-0074
1.312-15................................................... 1545-0172
1.316-1.................................................... 1545-0123
1.331-1.................................................... 1545-0074
1.332-4.................................................... 1545-0123
1.332-6.................................................... 1545-2019
1.336-2.................................................... 1545-2125
1.336-4.................................................... 1545-2125
1.337(d)-1................................................. 1545-1160
1.337(d)-2................................................. 1545-1160
1545-1774
1.337(d)-4................................................. 1545-1633
1.337(d)-5................................................. 1545-1672
1.337(d)-6................................................. 1545-1672
1.337(d)-7................................................. 1545-1672
1.338-2.................................................... 1545-1658
1.338-5.................................................... 1545-1658
1.338-10................................................... 1545-1658
1.338-11................................................... 1545-1990
[[Page 666]]
1.338(h)(10)-1............................................. 1545-1658
1.338(i)-1................................................. 1545-1990
1.341-7.................................................... 1545-0123
1.351-3.................................................... 1545-2019
1.355-5.................................................... 1545-2019
1.362-2.................................................... 1545-0123
1.362-4.................................................... 1545-2247
1.367(a)-1T................................................ 1545-0026
1.367(a)-2T................................................ 1545-0026
1.367(a)-3................................................. 1545-0026
1545-1478
1.367(a)-3T................................................ 1545-2183
1.367(a)-6T................................................ 1545-0026
1.367(a)-7................................................. 1545-2183
1.367(a)-7T................................................ 1545-2183
1.367(a)-8................................................. 1545-1271
1545-2056
1545-2183
1.367(b)-1................................................. 1545-1271
1.367(b)-3T................................................ 1545-1666
1.367(d)-1T................................................ 1545-0026
1.367(e)-1................................................. 1545-1487
1.367(e)-2................................................. 1545-1487
1.368-1.................................................... 1545-1691
1.368-3.................................................... 1545-2019
1.371-1.................................................... 1545-0123
1.371-2.................................................... 1545-0123
1.374-3.................................................... 1545-0123
1.381(b)-1................................................. 1545-0123
1.381(c)(4)-1.............................................. 1545-0123
1545-0152
1545-0879
1.381(c)(5)-1.............................................. 1545-0123
1545-0152
1.381(c)(6)-1.............................................. 1545-0123
1545-0152
1.381(c)(8)-1.............................................. 1545-0123
1.381(c)(10)-1............................................. 1545-0123
1.381(c)(11)-1(k).......................................... 1545-0123
1.381(c)(13)-1............................................. 1545-0123
1.381(c)(17)-1............................................. 1545-0045
1.381(c)(22)-1............................................. 1545-1990
1.381(c)(25)-1............................................. 1545-0045
1.382-1T................................................... 1545-0123
1.382-2.................................................... 1545-0123
1.382-2T................................................... 1545-0123
1.382-3.................................................... 1545-1281
1545-1345
1.382-4.................................................... 1545-1120
1.382-6.................................................... 1545-1381
1.382-8.................................................... 1545-1434
1.382-9.................................................... 1545-1120
1545-1260
1545-1275
1545-1324
1.382-11................................................... 1545-2019
1.382-91................................................... 1545-1260
1545-1324
1.383-1.................................................... 1545-0074
1545-1120
1.401-1.................................................... 1545-0020
1545-0197
1545-0200
1545-0534
1545-0710
1.401(a)-11................................................ 1545-0710
1.401(a)-20................................................ 1545-0928
1.401(a)-31................................................ 1545-1341
1.401(a)-50................................................ 1545-0710
1.401(a)(9)-1.............................................. 1545-1573
1.401(a)(9)-3.............................................. 1545-1466
1.401(a)(9)-4.............................................. 1545-1573
1.401(a)(9)-6.............................................. 1545-2234
1.401(a)(31)-1............................................. 1545-1341
1.401(b)-1................................................. 1545-0197
1.401(f)-1................................................. 1545-0710
1.401(k)-1................................................. 1545-1039
1545-1069
1545-1669
1545-1930
1.401(k)-2................................................. 1545-1669
1.401(k)-3................................................. 1545-1669
1.401(k)-4................................................. 1545-1669
1.401(m)-3................................................. 1545-1699
1.401-12(n)................................................ 1545-0806
1.401-14................................................... 1545-0710
1.402(c)-2................................................. 1545-1341
1.402(f)-1................................................. 1545-1341
1545-1632
1.402A-1................................................... 1545-1992
1.403(b)-1................................................. 1545-0710
1.403(b)-3................................................. 1545-0996
1.403(b)-7................................................. 1545-1341
1.403(b)-10................................................ 1545-2068
1.404(a)-4................................................. 1545-0710
1.404(a)-12................................................ 1545-0710
1.404A-2................................................... 1545-0123
1.404A-6................................................... 1545-0123
1.408-2.................................................... 1545-0390
1.408-5.................................................... 1545-0747
1.408-6.................................................... 1545-0203
1545-0390
1.408-7.................................................... 1545-0119
1.408(q)-1................................................. 1545-1841
1.408A-2................................................... 1545-1616
1.408A-4................................................... 1545-1616
1.408A-5................................................... 1545-1616
1.408A-7................................................... 1545-1616
1.410(a)-2................................................. 1545-0710
1.410(d)-1................................................. 1545-0710
1.411(a)-11................................................ 1545-1471
1545-1632
1.411(d)-4................................................. 1545-1545
1.411(d)-6................................................. 1545-1477
1.412(b)-5................................................. 1545-0710
1.412(c)(1)-2.............................................. 1545-0710
1.412(c)(2)-1.............................................. 1545-0710
1.412(c)(3)-2.............................................. 1545-0710
1.414(c)-5................................................. 1545-0797
1.414(r)-1................................................. 1545-1221
1.415-2.................................................... 1545-0710
1.415-6.................................................... 1545-0710
1.417(a)(3)-1.............................................. 1545-0928
1.417(e)-1................................................. 1545-1471
1545-1724
1.417(e)-1T................................................ 1545-1471
1.419A(f)(6)-1............................................. 1545-1795
1.422-1.................................................... 1545-0820
1.430(f)-1................................................. 1545-2095
1.430(g)-1................................................. 1545-2095
1.430(h)(2)-1.............................................. 1545-2095
1.432(e)(9)-1T............................................. 1545-2260
1.436-1.................................................... 1545-2095
1.441-2.................................................... 1545-1748
1.442-1.................................................... 1545-0074
1545-0123
1545-0134
1545-0152
1545-0820
1545-1748
1.443-1.................................................... 1545-0123
1.444-3T................................................... 1545-1036
1.444-4.................................................... 1545-1591
1.446-1.................................................... 1545-0074
[[Page 667]]
1545-0152
1.446-4(d)................................................. 1545-1412
1.448-1(g)................................................. 1545-0152
1.448-1(h)................................................. 1545-0152
1.448-1(i)................................................. 1545-0152
1.448-2.................................................... 1545-1855
1.448-2T................................................... 1545-0152
1545-1855
1.451-1.................................................... 1545-0091
1.451-4.................................................... 1545-0123
1.451-5.................................................... 1545-0074
1.451-6.................................................... 1545-0074
1.451-7.................................................... 1545-0074
1.453-1.................................................... 1545-0152
1.453-2.................................................... 1545-0152
1.453-8.................................................... 1545-0152
1545-0228
1.453-10................................................... 1545-0152
1.453A-1................................................... 1545-0152
1545-1134
1.453A-2................................................... 1545-0152
1545-1134
1.453A-3................................................... 1545-0963
1.454-1.................................................... 1545-0074
1.455-2.................................................... 1545-0152
1.455-6.................................................... 1545-0123
1.456-2.................................................... 1545-0123
1.456-6.................................................... 1545-0123
1.456-7.................................................... 1545-0123
1.457-8.................................................... 1545-1580
1.458-1.................................................... 1545-0879
1.458-2.................................................... 1545-0152
1.460-1.................................................... 1545-1650
1.460-6.................................................... 1545-1031
1545-1572
1545-1732
1.461-1.................................................... 1545-0074
1.461-2.................................................... 1545-0096
1.461-4.................................................... 1545-0917
1.461-5.................................................... 1545-0917
1.463-1T................................................... 1545-0916
1.465-1T................................................... 1545-0712
1.466-1T................................................... 1545-0152
1.466-4.................................................... 1545-0152
1.468A-3................................................... 1545-1269
1545-1378
1545-1511
1.468A-3(h), 1.468A-7, and 1.468A-8(d)..................... 1545-2091
1.468A-4................................................... 1545-0954
1.468A-7................................................... 1545-0954
1545-1511
1.468A-8................................................... 1545-1269
1.468B-1................................................... 1545-1631
1.468B-1(j)................................................ 1545-1299
1.468B-2(k)................................................ 1545-1299
1.468B-2(l)................................................ 1545-1299
1.468B-3(b)................................................ 1545-1299
1.468B-3(e)................................................ 1545-1299
1.468B-5(b)................................................ 1545-1299
1.468B-9................................................... 1545-1631
1.469-1.................................................... 1545-1008
1.469-2T................................................... 1545-0712
1545-1091
1.469-4T................................................... 1545-0985
1545-1037
1.469-7.................................................... 1545-1244
1.471-2.................................................... 1545-0123
1.471-5.................................................... 1545-0123
1.471-6.................................................... 1545-0123
1.471-8.................................................... 1545-0123
1.471-11................................................... 1545-0123
1545-0152
1.472-1.................................................... 1545-0042
1545-0152
1.472-2.................................................... 1545-0152
1.472-3.................................................... 1545-0042
1.472-5.................................................... 1545-0152
1.472-8.................................................... 1545-0028
1545-0042
1545-1767
1.475(a)-4................................................. 1545-1945
1.475(b)-4................................................. 1545-1496
1.481-4.................................................... 1545-0152
1.481-5.................................................... 1545-0152
1.482-1.................................................... 1545-1364
1.482-4.................................................... 1545-1364
1.482-7.................................................... 1545-1364
1545-1794
1.482-9(b)................................................. 1545-2149
1.501(a)-1................................................. 1545-0056
1545-0057
1.501(c)(3)-1.............................................. 1545-0056
1.501(c)(9)-5.............................................. 1545-0047
1.501(c)(17)-3............................................. 1545-0047
1.501(e)-1................................................. 1545-0814
1.501(r)-3................................................. 1545-0047
1.501(r)-4................................................. 1545-0047
1.501(r)-6................................................. 1545-0047
1.503(c)-1................................................. 1545-0047
1545-0052
1.505(c)-1T................................................ 1545-0916
1.506-1T................................................... 1545-2268
1.507-1.................................................... 1545-0052
1.507-2.................................................... 1545-0052
1.508-1.................................................... 1545-0052
1545-0056
1.509(a)-3................................................. 1545-0047
1.509(a)-4................................................. 1545-2157
1.509(a)-5................................................. 1545-0047
1.509(c)-1................................................. 1545-0052
1.512(a)-1................................................. 1545-0687
1.512(a)-4................................................. 1545-0047
1545-0687
1.521-1.................................................... 1545-0051
1545-0058
1.527-2.................................................... 1545-0129
1.527-5.................................................... 1545-0129
1.527-6.................................................... 1545-0129
1.527-9.................................................... 1545-0129
1.528-8.................................................... 1545-0127
1.533-2.................................................... 1545-0123
1.534-2.................................................... 1545-0123
1.542-3.................................................... 1545-0123
1.545-2.................................................... 1545-0123
1.545-3.................................................... 1545-0123
1.547-2.................................................... 1545-0045
1545-0123
1.547-3.................................................... 1545-0123
1.551-4.................................................... 1545-0074
1.552-3.................................................... 1545-0099
1.552-4.................................................... 1545-0099
1.552-5.................................................... 1545-0099
1.556-2.................................................... 1545-0704
1.561-1.................................................... 1545-0044
1.561-2.................................................... 1545-0123
1.562-3.................................................... 1545-0123
1.563-2.................................................... 1545-0123
1.564-1.................................................... 1545-0123
1.565-1.................................................... 1545-0043
1545-0123
1.565-2.................................................... 1545-0043
1.565-3.................................................... 1545-0043
1.565-5.................................................... 1545-0043
1.565-6.................................................... 1545-0043
[[Page 668]]
1.585-1.................................................... 1545-0123
1.585-3.................................................... 1545-0123
1.585-8.................................................... 1545-1290
1.586-2.................................................... 1545-0123
1.593-1.................................................... 1545-0123
1.593-6.................................................... 1545-0123
1.593-6A................................................... 1545-0123
1.593-7.................................................... 1545-0123
1.595-1.................................................... 1545-0123
1.597-2.................................................... 1545-1300
1.597-4.................................................... 1545-1300
1.597-6.................................................... 1545-1300
1.597-7.................................................... 1545-1300
1.611-2.................................................... 1545-0099
1.611-3.................................................... 1545-0007
1545-0099
1545-1784
1.612-4.................................................... 1545-0074
1.612-5.................................................... 1545-0099
1.613-3.................................................... 1545-0099
1.613-4.................................................... 1545-0099
1.613-6.................................................... 1545-0099
1.613-7.................................................... 1545-0099
1.613A-3................................................... 1545-0919
1.613A-3(e)................................................ 1545-1251
1.613A-3(l)................................................ 1545-0919
1.613A-5................................................... 1545-0099
1.613A-6................................................... 1545-0099
1.614-2.................................................... 1545-0099
1.614-3.................................................... 1545-0099
1.614-5.................................................... 1545-0099
1.614-6.................................................... 1545-0099
1.614-8.................................................... 1545-0099
1.617-1.................................................... 1545-0099
1.617-3.................................................... 1545-0099
1.617-4.................................................... 1545-0099
1.631-1.................................................... 1545-0007
1.631-2.................................................... 1545-0007
1.641(b)-2................................................. 1545-0092
1.642(c)-1................................................. 1545-0092
1.642(c)-2................................................. 1545-0092
1.642(c)-5................................................. 1545-0074
1.642(c)-6................................................. 1545-0020
1545-0074
1545-0092
1.642(g)-1................................................. 1545-0092
1.642(i)-1................................................. 1545-0092
1.645-1.................................................... 1545-1578
1.663(b)-2................................................. 1545-0092
1.664-1.................................................... 1545-0196
1.664-1(a)(7).............................................. 1545-1536
1.664-1(c)................................................. 1545-2101
1.664-2.................................................... 1545-0196
1.664-3.................................................... 1545-0196
1.664-4.................................................... 1545-0020
1545-0196
1.665(a)-0A through
1.665(g)-2A................................................ 1545-0192
1.666(d)-1A................................................ 1545-0092
1.671-4.................................................... 1545-1442
1.671-5.................................................... 1545-1540
1.701-1.................................................... 1545-0099
1.702-1.................................................... 1545-0074
1.703-1.................................................... 1545-0099
1.704-2.................................................... 1545-1090
1.706-1.................................................... 1545-0074
1545-0099
1545-0134
1.706-1T................................................... 1545-0099
1.706-4(f)................................................. 1545-0123
1.707-3(c)(2).............................................. 1545-1243
1.707-5(a)(7)(ii).......................................... 1545-1243
1.707-6(c)................................................. 1545-1243
1.707-8.................................................... 1545-1243
1.708-1.................................................... 1545-0099
1.732-1.................................................... 1545-0099
1545-1588
1.736-1.................................................... 1545-0074
1.743-1.................................................... 1545-0074
1545-1588
1.751-1.................................................... 1545-0074
1545-0099
1545-0941
1.752-2.................................................... 1545-1905
1.752-5.................................................... 1545-1090
1.752-7.................................................... 1545-1843
1.754-1.................................................... 1545-0099
1.755-1.................................................... 1545-0099
1.761-2.................................................... 1545-1338
1.801-1.................................................... 1545-0123
1545-0128
1.801-3.................................................... 1545-0123
1.801-5.................................................... 1545-0128
1.801-8.................................................... 1545-0128
1.804-4.................................................... 1545-0128
1.811-2.................................................... 1545-0128
1.812-2.................................................... 1545-0128
1.815-6.................................................... 1545-0128
1.818-4.................................................... 1545-0128
1.818-5.................................................... 1545-0128
1.818-8.................................................... 1545-0128
1.819-2.................................................... 1545-0128
1.821-1.................................................... 1545-1027
1.821-3.................................................... 1545-1027
1.821-4.................................................... 1545-1027
1.822-5.................................................... 1545-1027
1.822-6.................................................... 1545-1027
1.822-8.................................................... 1545-1027
1.822-9.................................................... 1545-1027
1.823-2.................................................... 1545-1027
1.823-5.................................................... 1545-1027
1.823-6.................................................... 1545-1027
1.825-1.................................................... 1545-1027
1.826-1.................................................... 1545-1027
1.826-2.................................................... 1545-1027
1.826-3.................................................... 1545-1027
1.826-4.................................................... 1545-1027
1.826-6.................................................... 1545-1027
1.831-3.................................................... 1545-0123
1.831-4.................................................... 1545-0123
1.832-4.................................................... 1545-1227
1.832-5.................................................... 1545-0123
1.848-2(g)(8).............................................. 1545-1287
1.848-2(h)(3).............................................. 1545-1287
1.848-2(i)(4).............................................. 1545-1287
1.851-2.................................................... 1545-1010
1.851-4.................................................... 1545-0123
1.852-1.................................................... 1545-0123
1.852-4.................................................... 1545-0123
1545-0145
1.852-6.................................................... 1545-0123
1545-0144
1.852-7.................................................... 1545-0074
1.852-9.................................................... 1545-0074
1545-0123
1545-0144
1545-0145
1545-1783
1.852-11................................................... 1545-1094
1.853-3.................................................... 1545-2035
1.853-4.................................................... 1545-2035
1.854-2.................................................... 1545-0123
1.855-1.................................................... 1545-0123
1.856-2.................................................... 1545-0123
[[Page 669]]
1545-1004
1.856-6.................................................... 1545-0123
1.856-7.................................................... 1545-0123
1.856-8.................................................... 1545-0123
1.857-8.................................................... 1545-0123
1.857-9.................................................... 1545-0074
1.858-1.................................................... 1545-0123
1.860-2.................................................... 1545-0045
1.860-4.................................................... 1545-0045
1545-1054
1545-1057
1.860E-1................................................... 1545-1675
1.860E-2(a)(5)............................................. 1545-1276
1.860E-2(a)(7)............................................. 1545-1276
1.860E-2(b)(2)............................................. 1545-1276
1.860G-2................................................... 1545-2110
1.861-2.................................................... 1545-0089
1.861-3.................................................... 1545-0089
1.861-4.................................................... 1545-1900
1.861-8.................................................... 1545-0126
1.861-8(e)(6) and (g)...................................... 1545-1224
1.861-9T................................................... 1545-0121
1545-1072
1.861-18................................................... 1545-1594
1.863-1.................................................... 1545-1476
1.863-3.................................................... 1545-1476
1545-1556
1.863-3A................................................... 1545-0126
1.863-4.................................................... 1545-0126
1.863-7.................................................... 1545-0132
1.863-8.................................................... 1545-1718
1.863-9.................................................... 1545-1718
1.864-4.................................................... 1545-0126
1.871-1.................................................... 1545-0096
1.871-6.................................................... 1545-0795
1.871-7.................................................... 1545-0089
1.871-10................................................... 1545-0089
1545-0165
1.874-1.................................................... 1545-0089
1.881-4.................................................... 1545-1440
1.882-4.................................................... 1545-0126
1.883-0.................................................... 1545-1677
1.883-1.................................................... 1545-1677
1.883-2.................................................... 1545-1677
1.883-3.................................................... 1545-1677
1.883-4.................................................... 1545-1677
1.883-5.................................................... 1545-1677
1.884-0.................................................... 1545-1070
1.884-1.................................................... 1545-1070
1.884-2.................................................... 1545-1070
1.884-2T................................................... 1545-0126
1545-1070
1.884-4.................................................... 1545-1070
1.884-5.................................................... 1545-1070
1.892-1T................................................... 1545-1053
1.892-2T................................................... 1545-1053
1.892-3T................................................... 1545-1053
1.892-4T................................................... 1545-1053
1.892-5T................................................... 1545-1053
1.892-6T................................................... 1545-1053
1.892-7T................................................... 1545-1053
1.897-2.................................................... 1545-0123
1545-0902
1.897-3.................................................... 1545-0123
1.897-5T................................................... 1545-0902
1.897-6T................................................... 1545-0902
1.901-2.................................................... 1545-0746
1.901-2A................................................... 1545-0746
1.901-3.................................................... 1545-0122
1.902-1.................................................... 1545-0122
1545-1458
1.904-1.................................................... 1545-0121
1545-0122
1.904-2.................................................... 1545-0121
1545-0122
1.904-3.................................................... 1545-0121
1.904-4.................................................... 1545-0121
1.904-5.................................................... 1545-0121
1.904-7.................................................... 1545-2104
1.904-7T................................................... 1545-2104
1.904(f)-1................................................. 1545-0121
1545-0122
1.904(f)-2................................................. 1545-0121
1.904(f)-3................................................. 1545-0121
1.904(f)-4................................................. 1545-0121
1.904(f)-5................................................. 1545-0121
1.904(f)-6................................................. 1545-0121
1.904(f)-7................................................. 1545-1127
1.905-2.................................................... 1545-0122
1.905-3T................................................... 1545-1056
1.905-4T................................................... 1545-1056
1.905-5T................................................... 1545-1056
1.911-1.................................................... 1545-0067
1545-0070
1.911-2.................................................... 1545-0067
1545-0070
1.911-3.................................................... 1545-0067
1545-0070
1.911-4.................................................... 1545-0067
1545-0070
1.911-5.................................................... 1545-0067
1545-0070
1.911-6.................................................... 1545-0067
1545-0070
1.911-7.................................................... 1545-0067
1545-0070
1.913-13................................................... 1545-0067
1.921-1T................................................... 1545-0190
1545-0884
1545-0935
1545-0939
1.921-2.................................................... 1545-0884
1.921-3T................................................... 1545-0935
1.923-1T................................................... 1545-0935
1.924(a)-1T................................................ 1545-0935
1.925(a)-1T................................................ 1545-0935
1.925(b)-1T................................................ 1545-0935
1.926(a)-1T................................................ 1545-0935
1.927(a)-1T................................................ 1545-0935
1.927(b)-1T................................................ 1545-0935
1.927(d)-1................................................. 1545-0884
1.927(d)-2T................................................ 1545-0935
1.927(e)-1T................................................ 1545-0935
1.927(e)-2T................................................ 1545-0935
1.927(f)-1................................................. 1545-0884
1.931-1.................................................... 1545-0074
1545-0123
1.934-1.................................................... 1545-0782
1.935-1.................................................... 1545-0074
1545-0087
1545-0803
1.936-1.................................................... 1545-0215
1545-0217
1.936-4.................................................... 1545-0215
1.936-5.................................................... 1545-0704
1.936-6.................................................... 1545-0215
1.936-7.................................................... 1545-0215
1.936-10(c)................................................ 1545-1138
1.937-1.................................................... 1545-1930
1.952-2.................................................... 1545-0126
1.953-2.................................................... 1545-0126
1.954-1.................................................... 1545-1068
1.954-2.................................................... 1545-1068
1.955-2.................................................... 1545-0123
[[Page 670]]
1.955-3.................................................... 1545-0123
1.955A-2................................................... 1545-0755
1.955A-3................................................... 1545-0755
1.956-1.................................................... 1545-0704
1.956-2.................................................... 1545-0704
1.959-1.................................................... 1545-0704
1.959-2.................................................... 1545-0704
1.960-1.................................................... 1545-0122
1.962-2.................................................... 1545-0704
1.962-3.................................................... 1545-0704
1.962-4.................................................... 1545-0704
1.964-1.................................................... 1545-0126
1545-0704
1545-1072
1545-2104
1.964-3.................................................... 1545-0126
1.970-2.................................................... 1545-0126
1.985-2.................................................... 1545-1051
1545-1131
1.985-3.................................................... 1545-1051
1.987-1.................................................... 1545-2265
1.987-3.................................................... 1545-2265
1.987-9.................................................... 1545-2265
1.987-10................................................... 1545-2265
1.988-0.................................................... 1545-1131
1.988-1.................................................... 1545-1131
1.988-2.................................................... 1545-1131
1.988-3.................................................... 1545-1131
1.988-4.................................................... 1545-1131
1.988-5.................................................... 1545-1131
1.988-6.................................................... 1545-1831
1.992-1.................................................... 1545-0190
1545-0938
1.992-2.................................................... 1545-0190
1545-0884
1545-0938
1.992-3.................................................... 1545-0190
1545-0938
1.992-4.................................................... 1545-0190
1545-0938
1.993-3.................................................... 1545-0938
1.993-4.................................................... 1545-0938
1.994-1.................................................... 1545-0938
1.995-5.................................................... 1545-0938
1.1001-1................................................... 1545-1902
1.1012-1................................................... 1545-0074
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1.1033(a)-2................................................ 1545-0184
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1.1503(d)-1................................................ 1545-1946
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1.6015(a)-1................................................ 1545-0087
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1.6662-4(e) and (f)........................................ 1545-0889
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6a.103A-2.................................................. 1545-0123
1545-0720
6a.103A-3.................................................. 1545-0720
7.465-1.................................................... 1545-0712
7.465-2.................................................... 1545-0712
7.465-3.................................................... 1545-0712
7.465-4.................................................... 1545-0712
7.465-5.................................................... 1545-0712
7.936-1.................................................... 1545-0217
7.999-1.................................................... 1545-0216
7.6039A-1.................................................. 1545-0015
7.6041-1................................................... 1545-0115
11.410-1................................................... 1545-0710
11.412(c)-7................................................ 1545-0710
11.412(c)-11............................................... 1545-0710
12.7....................................................... 1545-0190
12.8....................................................... 1545-0191
12.9....................................................... 1545-0195
14a.422A-1................................................. 1545-0123
15A.453-1.................................................. 1545-0228
16.3-1..................................................... 1545-0159
16A.126-2.................................................. 1545-0074
16A.1255-1................................................. 1545-0184
16A.1255-2................................................. 1545-0184
18.1371-1.................................................. 1545-0130
18.1378-1.................................................. 1545-0130
18.1379-1.................................................. 1545-0130
18.1379-2.................................................. 1545-0130
20.2010-2.................................................. 1545-0015
20.2011-1.................................................. 1545-0015
20.2014-5.................................................. 1545-0015
1545-0260
20.2014-6.................................................. 1545-0015
20.2016-1.................................................. 1545-0015
20.2031-2.................................................. 1545-0015
20.2031-3.................................................. 1545-0015
20.2031-4.................................................. 1545-0015
20.2031-6.................................................. 1545-0015
20.2031-7.................................................. 1545-0020
20.2031-10................................................. 1545-0015
20.2032-1.................................................. 1545-0015
20.2032A-3................................................. 1545-0015
20.2032A-4................................................. 1545-0015
20.2032A-8................................................. 1545-0015
20.2039-4.................................................. 1545-0015
20.2051-1.................................................. 1545-0015
20.2053-3.................................................. 1545-0015
20.2053-9.................................................. 1545-0015
20.2053-10................................................. 1545-0015
20.2055-1.................................................. 1545-0015
20.2055-2.................................................. 1545-0015
1545-0092
20.2055-3.................................................. 1545-0015
20.2056(b)-4............................................... 1545-0015
20.2056(b)-7............................................... 1545-0015
1545-1612
20.2056A-2................................................. 1545-1443
20.2056A-3................................................. 1545-1360
20.2056A-4................................................. 1545-1360
20.2056A-10................................................ 1545-1360
20.2106-1.................................................. 1545-0015
20.2106-2.................................................. 1545-0015
20.2204-1.................................................. 1545-0015
20.2204-2.................................................. 1545-0015
20.6001-1.................................................. 1545-0015
20.6011-1.................................................. 1545-0015
20.6018-1.................................................. 1545-0015
[[Page 675]]
1545-0531
20.6018-2.................................................. 1545-0015
20.6018-3.................................................. 1545-0015
20.6018-4.................................................. 1545-0015
1545-0022
20.6036-2.................................................. 1545-0015
20.6060-1(a)(1)............................................ 1545-1231
20.6061-1.................................................. 1545-0015
20.6065-1.................................................. 1545-0015
20.6075-1.................................................. 1545-0015
20.6081-1.................................................. 1545-0015
1545-0181
1545-1707
20.6091-1.................................................. 1545-0015
20.6107-1.................................................. 1545-1231
20.6161-1.................................................. 1545-0015
1545-0181
20.6161-2.................................................. 1545-0015
1545-0181
20.6163-1.................................................. 1545-0015
20.6166-1.................................................. 1545-0181
20.6166A-1................................................. 1545-0015
20.6166A-3................................................. 1545-0015
20.6324A-1................................................. 1545-0754
20.7520-1.................................................. 1545-1343
20.7520-2.................................................. 1545-1343
20.7520-3.................................................. 1545-1343
20.7520-4.................................................. 1545-1343
22.0....................................................... 1545-0015
25.2511-2.................................................. 1545-0020
25.2512-2.................................................. 1545-0020
25.2512-3.................................................. 1545-0020
25.2512-5.................................................. 1545-0020
25.2512-9.................................................. 1545-0020
25.2513-1.................................................. 1545-0020
25.2513-2.................................................. 1545-0020
1545-0021
25.2513-3.................................................. 1545-0020
25.2518-2.................................................. 1545-0959
25.2522(a)-1............................................... 1545-0196
25.2522(c)-3............................................... 1545-0020
1545-0196
25.2523(a)-1............................................... 1545-0020
1545-0196
25.2523(f)-1............................................... 1545-0015
25.2701-2.................................................. 1545-1241
25.2701-4.................................................. 1545-1241
25.2701-5.................................................. 1545-1273
25.2702-5.................................................. 1545-1485
25.2702-6.................................................. 1545-1273
25.6001-1.................................................. 1545-0020
1545-0022
25.6011-1.................................................. 1545-0020
25.6019-1.................................................. 1545-0020
25.6019-2.................................................. 1545-0020
25.6019-3.................................................. 1545-0020
25.6019-4.................................................. 1545-0020
25.6060-1(a)(1)............................................ 1545-1231
25.6061-1.................................................. 1545-0020
25.6065-1.................................................. 1545-0020
25.6075-1.................................................. 1545-0020
25.6081-1.................................................. 1545-0020
25.6091-1.................................................. 1545-0020
25.6091-2.................................................. 1545-0020
25.6107-1.................................................. 1545-1231
25.6151-1.................................................. 1545-0020
25.6161-1.................................................. 1545-0020
25.7520-1.................................................. 1545-1343
25.7520-2.................................................. 1545-1343
25.7520-3.................................................. 1545-1343
25.7520-4.................................................. 1545-1343
26.2601-1.................................................. 1545-0985
26.2632-1.................................................. 1545-0985
1545-1892
26.2642-1.................................................. 1545-0985
26.2642-2.................................................. 1545-0985
26.2642-3.................................................. 1545-0985
26.2642-4.................................................. 1545-0985
26.2642-6.................................................. 1545-1902
26.2652-2.................................................. 1545-0985
26.2654-1.................................................. 1545-1902
26.2662-1.................................................. 1545-0015
1545-0985
26.2662-2.................................................. 1545-0985
26.6060-1(a)(1)............................................ 1545-1231
26.6107-1.................................................. 1545-1231
31.3102-3.................................................. 1545-0029
1545-0059
1545-0065
31.3121(b)(19)-1........................................... 1545-0029
31.3121(d)-1............................................... 1545-0004
31.3121(i)-1............................................... 1545-0034
31.3121(k)-4............................................... 1545-0137
31.3121(r)-1............................................... 1545-0029
31.3121(s)-1............................................... 1545-0029
31.3121(v)(2)-1............................................ 1545-1643
31.3302(a)-2............................................... 1545-0028
31.3302(a)-3............................................... 1545-0028
31.3302(b)-2............................................... 1545-0028
31.3302(e)-1............................................... 1545-0028
31.3306(c)(18)-1........................................... 1545-0029
31.3401(a)-1............................................... 1545-0029
31.3401(a)(6).............................................. 1545-1484
31.3401(a)(6)-1............................................ 1545-0029
1545-0096
1545-0795
31.3401(a)(7)-1............................................ 1545-0029
31.3401(a)(8)(A)-1 ........................................ 1545-0029
1545-0666
31.3401(a)(8)(C)-1 ........................................ 1545-0029
31.3401(a)(15)-1........................................... 1545-0182
31.3401(c)-1............................................... 1545-0004
31.3402(b)-1............................................... 1545-0010
31.3402(c)-1............................................... 1545-0010
31.3402(f)(1)-1............................................ 1545-0010
31.3402(f)(2)-1............................................ 1545-0010
1545-0410
31.3402(f)(3)-1............................................ 1545-0010
31.3402(f)(4)-1............................................ 1545-0010
31.3402(f)(4)-2............................................ 1545-0010
31.3402(f)(5)-1............................................ 1545-0010
1545-1435
31.3402(h)(1)-1............................................ 1545-0029
31.3402(h)(3)-1............................................ 1545-0010
1545-0029
31.3402(h)(4)-1............................................ 1545-0010
31.3402(i)-(1)............................................. 1545-0010
31.3402(i)-(2)............................................. 1545-0010
31.3402(k)-1............................................... 1545-0065
31.3402(l)-(1)............................................. 1545-0010
31.3402(m)-(1)............................................. 1545-0010
31.3402(n)-(1)............................................. 1545-0010
31.3402(o)-2............................................... 1545-0415
31.3402(o)-3............................................... 1545-0008
1545-0010
1545-0415
1545-0717
31.3402(p)-1............................................... 1545-0415
1545-0717
31.3402(q)-1............................................... 1545-0238
1545-0239
31.3404-1.................................................. 1545-0029
31.3405(c)-1............................................... 1545-1341
31.3406(a)-1............................................... 1545-0112
[[Page 676]]
31.3406(a)-2............................................... 1545-0112
31.3406(a)-3............................................... 1545-0112
31.3406(a)-4............................................... 1545-0112
31.3406(b)(2)-1............................................ 1545-0112
31.3406(b)(2)-2............................................ 1545-0112
31.3406(b)(2)-3............................................ 1545-0112
31.3406(b)(2)-4............................................ 1545-0112
31.3406(b)(2)-5............................................ 1545-0112
31.3406(b)(3)-1............................................ 1545-0112
31.3406(b)(3)-2............................................ 1545-0112
31.3406(b)(3)-3............................................ 1545-0112
31.3406(b)(3)-4............................................ 1545-0112
31.3406(b)(4)-1............................................ 1545-0112
31.3406(c)-1............................................... 1545-0112
31.3406(d)-1............................................... 1545-0112
31.3406(d)-2............................................... 1545-0112
31.3406(d)-3............................................... 1545-0112
31.3406(d)-4............................................... 1545-0112
31.3406(d)-5............................................... 1545-0112
31.3406(e)-1............................................... 1545-0112
31.3406(f)-1............................................... 1545-0112
31.3406(g)-1............................................... 1545-0096
1545-0112
1545-1819
31.3406(g)-2............................................... 1545-0112
31.3406(g)-3............................................... 1545-0112
31.3406(h)-1............................................... 1545-0112
31.3406(h)-2............................................... 1545-0112
31.3406(h)-3............................................... 1545-0112
31.3406(i)-1............................................... 1545-0112
31.3501(a)-1T.............................................. 1545-0771
31.3503-1.................................................. 1545-0024
31.3504-1.................................................. 1545-0029
31.6001-1.................................................. 1545-0798
31.6001-2.................................................. 1545-0034
1545-0798
31.6001-3.................................................. 1545-0798
31.6001-4.................................................. 1545-0028
31.6001-5.................................................. 1545-0798
31.6001-6.................................................. 1545-0029
1459-0798
31.6011(a)-1............................................... 1545-0029
1545-0034
1545-0035
1545-0059
1545-0074
1545-0256
1545-0718
1545-2097
31.6011(a)-2............................................... 1545-0001
1545-0002
31.6011(a)-3............................................... 1545-0028
31.6011(a)-3A.............................................. 1545-0955
31.6011(a)-4............................................... 1545-0034
1545-0035
1545-0718
1545-1413
1545-2097
31.6011(a)-5............................................... 1545-0028
1545-0718
1545-2097
31.6011(a)-6............................................... 1545-0028
31.6011(a)-7............................................... 1545-0074
31.6011(a)-8............................................... 1545-0028
31.6011(a)-9............................................... 1545-0028
31.6011(a)-10.............................................. 1545-0112
31.6011(b)-1............................................... 1545-0003
31.6011(b)-2............................................... 1545-0029
31.6051-1.................................................. 1545-0008
1545-0182
1545-0458
1545-1729
31.6051-2.................................................. 1545-0008
31.6051-3.................................................. 1545-0008
31.6053-1.................................................. 1545-0029
1545-0062
1545-0064
1545-0065
1545-1603
31.6053-2.................................................. 1545-0008
31.6053-3.................................................. 1545-0065
1545-0714
31.6053-4.................................................. 1545-0065
1545-1603
31.6060-1(a)(1)............................................ 1545-1231
31.6065(a)-1............................................... 1545-0029
31.6071(a)-1............................................... 1545-0001
1545-0028
1545-0029
31.6071(a)-1A.............................................. 1545-0955
31.6081(a)-1............................................... 1545-0008
1545-0028
31.6091-1.................................................. 1545-0028
1545-0029
31.6107-1.................................................. 1545-1231
31.6157-1.................................................. 1545-0955
31.6205-1.................................................. 1545-0029
1545-2097
31.6301(c)-1AT............................................. 1545-0035
1545-0112
1545-0257
31.6302-1.................................................. 1545-1413
31.6302-2.................................................. 1545-1413
31.6302-3.................................................. 1545-1413
31.6302-4.................................................. 1545-1413
31.6302(c)-2............................................... 1545-0001
1545-0257
31.6302(c)-2A.............................................. 1545-0955
31.6302(c)-3............................................... 1545-0257
31.6402(a)-2............................................... 1545-0256
1545-2097
31.6413(a)-1............................................... 1545-0029
1545-2097
31.6413(a)-2............................................... 1545-0029
1545-0256
1545-2097
31.6413(c)-1............................................... 1545-0029
1545-0171
31.6414-1.................................................. 1545-0029
1545-2097
32.1....................................................... 1545-0029
1545-0415
32.2....................................................... 1545-0029
35a.3406-2................................................. 1545-0112
35a.9999-5................................................. 1545-0029
36.3121(l)(1)-1............................................ 1545-0137
36.3121(l)(1)-2............................................ 1545-0137
36.3121(l)(3)-1............................................ 1545-0123
36.3121(1)(7)-1............................................ 1545-0123
36.3121(1)(10)-1........................................... 1545-0029
36.3121(1)(10)-3........................................... 1545-0029
36.3121(1)(10)-4........................................... 1545-0257
40.6060-1(a)(1)............................................ 1545-1231
40.6107-1.................................................. 1545-1231
40.6302(c)-3(b)(2)(ii)..................................... 1545-1296
40.6302(c)-3(b)(2)(iii).................................... 1545-1296
40.6302(c)-3(e)............................................ 1545-1296
40.6302(c)-3(f)(2)(ii)..................................... 1545-1296
41.4481-1.................................................. 1545-0143
41.4481-2.................................................. 1545-0143
41.4483-3.................................................. 1545-0143
41.6001-1.................................................. 1545-0143
41.6001-2.................................................. 1545-0143
41.6001-3.................................................. 1545-0143
[[Page 677]]
41.6060-1(a)(1)............................................ 1545-1231
41.6071(a)-1............................................... 1545-0143
41.6081(a)-1............................................... 1545-0143
41.6091-1.................................................. 1545-0143
41.6107-1.................................................. 1545-1231
41.6109-1.................................................. 1545-0143
41.6151(a)-1............................................... 1545-0143
41.6156-1.................................................. 1545-0143
41.6161(a)(1)-1............................................ 1545-0143
44.4401-1.................................................. 1545-0235
44.4403-1.................................................. 1545-0235
44.4412-1.................................................. 1545-0236
44.4901-1.................................................. 1545-0236
44.4905-1.................................................. 1545-0236
44.4905-2.................................................. 1545-0236
44.6001-1.................................................. 1545-0235
44.6011(a)-1............................................... 1545-0235
1545-0236
44.6060-1(a)(1)............................................ 1545-1231
44.6071-1.................................................. 1545-0235
44.6091-1.................................................. 1545-0235
44.6107-1.................................................. 1545-1231
44.6151-1.................................................. 1545-0235
44.6419-1.................................................. 1545-0235
44.6419-2.................................................. 1545-0235
46.4371-4.................................................. 1545-0023
46.4374-1.................................................. 1545-0023
46.4375-1.................................................. 1545-2238
46.4376-1.................................................. 1545-2238
46.4701-1.................................................. 1545-0023
1545-0257
48.4041-4.................................................. 1545-0023
48.4041-5.................................................. 1545-0023
48.4041-6.................................................. 1545-0023
48.4041-7.................................................. 1545-0023
48.4041-9.................................................. 1545-0023
48.4041-10................................................. 1545-0023
48.4041-11................................................. 1545-0023
48.4041-12................................................. 1545-0023
48.4041-13................................................. 1545-0023
48.4041-18................................................. 1545-0023
48.4041-19................................................. 1545-0023
48.4041-20................................................. 1545-0023
48.4041-21................................................. 1545-1270
48.4042-2.................................................. 1545-0023
48.4052-1.................................................. 1545-1418
48.4061(a)-1............................................... 1545-0023
48.4061(a)-2............................................... 1545-0023
48.4061(b)-3............................................... 1545-0023
48.4064-1.................................................. 1545-0014
1545-0242
48.4071-1.................................................. 1545-0023
48.4073-1.................................................. 1545-0023
48.4073-3.................................................. 1545-0023
1545-1074
1545-1087
48.4081-2.................................................. 1545-1270
1545-1418
48.4081-3.................................................. 1545-1270
1545-1418
1545-1897
48.4081-4(b)(2)(ii)........................................ 1545-1270
48.4081-4(b)(3)(i)......................................... 1545-1270
48.4081-4(c)............................................... 1545-1270
48.4081-6(c)(1)(ii)........................................ 1545-1270
48.4081-7.................................................. 1545-1270
1545-1418
48.4082-1T................................................. 1545-1418
48.4082-2.................................................. 1545-1418
48.4082-6.................................................. 1545-1418
48.4082-7.................................................. 1545-1418
48.4091-3.................................................. 1545-1418
48.4101-1.................................................. 1545-1418
48.4101-1T................................................. 1545-1418
48.4101-2.................................................. 1545-1418
48.4161(a)-1............................................... 1545-0723
48.4161(a)-2............................................... 1545-0723
48.4161(a)-3............................................... 1545-0723
48.4161(b)-1............................................... 1545-0723
48.4216(a)-2............................................... 1545-0023
48.4216(a)-3............................................... 1545-0023
48.4216(c)-1............................................... 1545-0023
48.4221-1.................................................. 1545-0023
48.4221-2.................................................. 1545-0023
48.4221-3.................................................. 1545-0023
48.4221-4.................................................. 1545-0023
48.4221-5.................................................. 1545-0023
48.4221-6.................................................. 1545-0023
48.4221-7.................................................. 1545-0023
48.4222(a)-1............................................... 1545-0014
1545-0023
48.4223-1.................................................. 1545-0023
1545-0257
1545-0723
48.6302(c)-1............................................... 1545-0023
1545-0257
48.6412-1.................................................. 1545-0723
48.6416(a)-1............................................... 1545-0023
1545-0723
48.6416(a)-2............................................... 1545-0723
48.6416(a)-3............................................... 1545-0723
48.6416(b)(1)-1............................................ 1545-0723
48.6416(b)(1)-2............................................ 1545-0723
48.6416(b)(1)-3............................................ 1545-0723
48.6416(b)(1)-4............................................ 1545-0723
48.6416(b)(2)-1............................................ 1545-0723
48.6416(b)(2)-2............................................ 1545-0723
48.6416(b)(2)-3............................................ 1545-0723
1545-1087
48.6416(b)(2)-4............................................ 1545-0723
48.6416(b)(3)-1............................................ 1545-0723
48.6416(b)(3)-2............................................ 1545-0723
48.6416(b)(3)-3............................................ 1545-0723
48.6416(b)(4)-1............................................ 1545-0723
48.6416(b)(5)-1............................................ 1545-0723
48.6416(c)-1............................................... 1545-0723
48.6416(e)-1............................................... 1545-0023
1545-0723
48.6416(f)-1............................................... 1545-0023
1545-0723
48.6416(g)-1............................................... 1545-0723
48.6416(h)-1............................................... 1545-0723
48.6420(c)-2............................................... 1545-0023
48.6420(f)-1............................................... 1545-0023
48.6420-1.................................................. 1545-0162
1545-0723
48.6420-2.................................................. 1545-0162
1545-0723
48.6420-3.................................................. 1545-0162
1545-0723
48.6420-4.................................................. 1545-0162
1545-0723
48.6420-5.................................................. 1545-0162
1545-0723
48.6420-6.................................................. 1545-0162
1545-0723
48.6421-0.................................................. 1545-0162
1545-0723
48.6421-1.................................................. 1545-0162
1545-0723
48.6421-2.................................................. 1545-0162
1545-0723
48.6421-3.................................................. 1545-0162
1545-0723
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48.6421-4.................................................. 1545-0162
1545-0723
48.6421-5.................................................. 1545-0162
1545-0723
48.6421-6.................................................. 1545-0162
1545-0723
48.6421-7.................................................. 1545-0162
1545-0723
48.6424-0.................................................. 1545-0723
48.6424-1.................................................. 1545-0723
48.6424-2.................................................. 1545-0723
48.6424-3.................................................. 1545-0723
48.6424-4.................................................. 1545-0723
48.6424-5.................................................. 1545-0723
48.6424-6.................................................. 1545-0723
48.6427-0.................................................. 1545-0723
48.6427-1.................................................. 1545-0023
1545-0162
1545-0723
48.6427-2.................................................. 1545-0162
1545-0723
48.6427-3.................................................. 1545-0723
48.6427-4.................................................. 1545-0723
48.6427-5.................................................. 1545-0723
48.6427-8.................................................. 1545-1418
48.6427-9.................................................. 1545-1418
48.6427-10................................................. 1545-1418
48.6427-11................................................. 1545-1418
49.4251-1.................................................. 1545-1075
49.4251-2.................................................. 1545-1075
49.4251-4(d)(2)............................................ 1545-1628
49.4253-3.................................................. 1545-0023
49.4253-4.................................................. 1545-0023
49.4264(b)-1............................................... 1545-0023
1545-0224
1545-0225
1545-0226
1545-0230
1545-0257
1545-0912
49.4271-1(d)............................................... 1545-0685
49.5000B-1................................................. 1545-2177
51.2(f)(2)(ii)............................................. 1545-2209
51.7....................................................... 1545-2209
52.4682-1(b)(2)(iii)....................................... 1545-1153
52.4682-2(b)............................................... 1545-1153
1545-1361
52.4682-2(d)............................................... 1545-1153
1545-1361
52.4682-3(c)(2)............................................ 1545-1153
52.4682-3(g)............................................... 1545-1153
52.4682-4(f)............................................... 1545-0257
1545-1153
52.4682-5(d)............................................... 1545-1361
52.4682-5(f)............................................... 1545-1361
53.4940-1.................................................. 1545-0052
1545-0196
53.4942(a)-1............................................... 1545-0052
53.4942(a)-2............................................... 1545-0052
53.4942(a)-3............................................... 1545-0052
53.4942(b)-3............................................... 1545-0052
53.4945-1.................................................. 1545-0052
53.4945-4.................................................. 1545-0052
53.4945-5.................................................. 1545-0052
53.4945-6.................................................. 1545-0052
53.4947-1.................................................. 1545-0196
53.4947-2.................................................. 1545-0196
53.4948-1.................................................. 1545-0052
53.4958-6.................................................. 1545-1623
53.4961-2.................................................. 1545-0024
53.4963-1.................................................. 1545-0024
53.6001-1.................................................. 1545-0052
53.6011-1.................................................. 1545-0049
1545-0052
1545-0092
1545-0196
53.6060-1(a)(1)............................................ 1545-1231
53.6065-1.................................................. 1545-0052
53.6071-1.................................................. 1545-0049
53.6081-1.................................................. 1545-0066
1545-0148
53.6107-1.................................................. 1545-1231
53.6161-1.................................................. 1545-0575
54.4972-1.................................................. 1545-0197
54.4975-7.................................................. 1545-0575
54.4977-1T................................................. 1545-0771
54.4980B-6................................................. 1545-1581
54.4980B-7................................................. 1545-1581
54.4980B-8................................................. 1545-1581
54.4980F-1................................................. 1545-1780
54.4981A-1T................................................ 1545-0203
54.6011-1.................................................. 1545-0575
54.6011-1T................................................. 1545-0575
54.6060-1(a)(1)............................................ 1545-1231
54.6107-1.................................................. 1545-1231
54.9801-3.................................................. 1545-1537
54.9801-4.................................................. 1545-1537
54.9801-5.................................................. 1545-1537
54.9801-6.................................................. 1545-1537
54.9812-1T................................................. 1545-2165
54.9815-1251T.............................................. 1545-2178
54.9815-2711T.............................................. 1545-2179
54.9815-2712T.............................................. 1545-2180
54.9815-2714T.............................................. 1545-2172
54.9815-2715............................................... 1545-2229
54.9815-2719AT............................................. 1545-2181
54.9815-2719T.............................................. 1545-2182
55.6001-1.................................................. 1545-0123
55.6011-1.................................................. 1545-0123
1545-0999
1545-1016
55.6060-1(a)(1)............................................ 1545-1231
55.6061-1.................................................. 1545-0999
55.6071-1.................................................. 1545-0999
55.6107-1.................................................. 1545-1231
56.4911-6.................................................. 1545-0052
56.4911-7.................................................. 1545-0052
56.4911-9.................................................. 1545-0052
56.4911-10................................................. 1545-0052
56.6001-1.................................................. 1545-1049
56.6011-1.................................................. 1545-1049
56.6060-1(a)(1)............................................ 1545-1231
56.6081-1.................................................. 1545-1049
56.6107-1.................................................. 1545-1231
56.6161-1.................................................. 1545-0257
1545-1049
57.2(e)(2)(i).............................................. 1545-2249
145.4051-1................................................. 1545-0745
145.4052-1................................................. 1545-0120
1545-0745
1545-1076
145.4061-1................................................. 1545-0224
1545-0230
1545-0257
1545-0745
156.6001-1................................................. 1545-1049
156.6011-1................................................. 1545-1049
156.6060-1(a)(1)........................................... 1545-1231
156.6081-1................................................. 1545-1049
156.6107-1................................................. 1545-1231
156.6161-1................................................. 1545-1049
157.6001-1................................................. 1545-1824
157.6011-1................................................. 1545-1824
157.6060-1(a)(1)........................................... 1545-1231
[[Page 679]]
157.6081-1................................................. 1545-1824
157.6107-1................................................. 1545-1231
157.6161-1................................................. 1545-1824
301.6011-2................................................. 1545-0225
1545-0350
1545-0387
1545-0441
1545-0957
301.6011(g)-1.............................................. 1545-2079
301.6017-1................................................. 1545-0090
301.6034-1................................................. 1545-0092
301.6035-1................................................. 1545-0123
301.6036-1................................................. 1545-0013
1545-0773
301.6047-1................................................. 1545-0367
1545-0957
301.6056-1................................................. 1545-2251
301.6056-2................................................. 1545-2251
301.6057-1................................................. 1545-0710
301.6057-2................................................. 1545-0710
301.6058-1................................................. 1545-0710
301.6059-1................................................. 1545-0710
301.6103(c)-1.............................................. 1545-1816
301.6103(n)-1.............................................. 1545-1841
301.6103(p)(2)(B)-1........................................ 1545-1757
301.6104(a)-1.............................................. 1545-0495
301.6104(a)-5.............................................. 1545-0056
301.6104(a)-6.............................................. 1545-0056
301.6104(b)-1.............................................. 1545-0094
1545-0742
301.6104(d)-1.............................................. 1545-1655
301.6104(d)-2.............................................. 1545-1655
301.6104(d)-3.............................................. 1545-1655
301.6109-1................................................. 1545-0003
1545-0295
1545-0367
1545-0387
1545-0957
1545-1461
1545-2242
301.6109-3................................................. 1545-1564
301.6110-3................................................. 1545-0074
301.6110-5................................................. 1545-0074
301.6111-1T................................................ 1545-0865
1545-0881
301.6111-2................................................. 1545-0865
1545-1687
301.6112-1................................................. 1545-0865
1545-1686
301.6112-1T................................................ 1545-0865
1545-1686
301.6114-1................................................. 1545-1126
1545-1484
301.6222(a)-2.............................................. 1545-0790
301.6222(b)-1.............................................. 1545-0790
301.6222(b)-2.............................................. 1545-0790
301.6222(b)-3.............................................. 1545-0790
301.6223(b)-1.............................................. 1545-0790
301.6223(c)-1.............................................. 1545-0790
301.6223(e)-2.............................................. 1545-0790
301.6223(g)-1.............................................. 1545-0790
301.6223(h)-1.............................................. 1545-0790
301.6224(b)-1.............................................. 1545-0790
301.6224(c)-1.............................................. 1545-0790
301.6224(c)-3.............................................. 1545-0790
301.6227(c)-1.............................................. 1545-0790
301.6227(d)-1.............................................. 1545-0790
301.6229(b)-2.............................................. 1545-0790
301.6230(b)-1.............................................. 1545-0790
301.6230(e)-1.............................................. 1545-0790
301.6231(a)(1)-1........................................... 1545-0790
301.6231(a)(7)-1........................................... 1545-0790
301.6231(c)-1.............................................. 1545-0790
301.6231(c)-2.............................................. 1545-0790
301.6241-1T................................................ 1545-0130
301.6316-4................................................. 1545-0074
301.6316-5................................................. 1545-0074
301.6316-6................................................. 1545-0074
301.6316-7................................................. 1545-0029
301.6324A-1................................................ 1545-0015
301.6361-1................................................. 1545-0024
1545-0074
301.6361-2................................................. 1545-0024
301.6361-3................................................. 1545-0074
301.6402-2................................................. 1545-0024
1545-0073
1545-0091
301.6402-3................................................. 1545-0055
1545-0073
1545-0091
1545-0132
1545-1484
301.6402-5................................................. 1545-0928
301.6404-1................................................. 1545-0024
301.6404-2T................................................ 1545-0024
301.6404-3................................................. 1545-0024
301.6405-1................................................. 1545-0024
301.6501(c)-1.............................................. 1545-1241
1545-1637
301.6501(d)-1.............................................. 1545-0074
1545-0430
301.6501(o)-2.............................................. 1545-0728
301.6511(d)-1.............................................. 1545-0024
1545-0582
301.6511(d)-2.............................................. 1545-0024
1545-0582
301.6511(d)-3.............................................. 1545-0024
1545-0582
301.6652-2................................................. 1545-0092
301.6685-1................................................. 1545-0092
301.6689-1T................................................ 1545-1056
301.6707-1T................................................ 1545-0865
1545-0881
301.6708-1T................................................ 1545-0865
301.6712-1................................................. 1545-1126
301.6723-1A(d)............................................. 1545-0909
301.6903-1................................................. 1545-0013
1545-1783
301.6905-1................................................. 1545-0074
301.7001-1................................................. 1545-0123
301.7101-1................................................. 1545-1029
301.7207-1................................................. 1545-0092
301.7216-2................................................. 1545-0074
301.7216-2(o).............................................. 1545-1209
301.7425-3................................................. 1545-0854
301.7430-2(c).............................................. 1545-1356
301.7502-1................................................. 1545-1899
301.7507-8................................................. 1545-0123
301.7507-9................................................. 1545-0123
301.7513-1................................................. 1545-0429
301.7517-1................................................. 1545-0015
301.7605-1................................................. 1545-0795
301.7623-1................................................. 1545-0409
1545-1534
301.7654-1................................................. 1545-0803
301.7701-3................................................. 1545-1486
301.7701-4................................................. 1545-1465
301.7701-7................................................. 1545-1600
301.7701-16................................................ 1545-0795
301.7701(b)-1.............................................. 1545-0089
301.7701(b)-2.............................................. 1545-0089
301.7701(b)-3.............................................. 1545-0089
301.7701(b)-4.............................................. 1545-0089
301.7701(b)-5.............................................. 1545-0089
[[Page 680]]
301.7701(b)-6.............................................. 1545-0089
301.7701(b)-7.............................................. 1545-0089
1545-1126
301.7701(b)-9.............................................. 1545-0089
301.7705-1T................................................ 1545-2266
301.7705-2T................................................ 1545-2266
301.7805-1................................................. 1545-0805
301.9000-5................................................. 1545-1850
301.9001-1................................................. 1545-0220
301.9100-2................................................. 1545-1488
301.9100-3................................................. 1545-1488
301.9100-4T................................................ 1545-0016
1545-0042
1545-0074
1545-0129
1545-0172
1545-0619
301.9100-6T................................................ 1545-0872
301.9100-7T................................................ 1545-0982
301.9100-8................................................. 1545-1112
301.9100-11T............................................... 1545-0123
301.9100-12T............................................... 1545-0026
1545-0074
1545-0172
1545-1027
301.9100-14T............................................... 1545-0046
301.9100-15T............................................... 1545-0046
301.9100-16T............................................... 1545-0152
302.1-7.................................................... 1545-0024
305.7701-1................................................. 1545-0823
305.7871-1................................................. 1545-0823
404.6048-1................................................. 1545-0160
420.0-1.................................................... 1545-0710
Part 509................................................... 1545-0846
Part 513................................................... 1545-0834
Part 514................................................... 1545-0845
Part 521................................................... 1545-0848
601.104.................................................... 1545-0233
601.105.................................................... 1545-0091
601.201.................................................... 1545-0019
1545-0819
601.204.................................................... 1545-0152
601.401.................................................... 1545-0257
601.504.................................................... 1545-0150
601.601.................................................... 1545-0800
601.602.................................................... 1545-0295
1545-0387
1545-0957
601.702.................................................... 1545-0429
------------------------------------------------------------------------
(26 U.S.C. 7805)
[T.D. 8011, 50 FR 10222, Mar. 14, 1985]
Editorial Note: For Federal Register citations affecting
Sec. 602.101, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
[[Page 681]]
List of CFR Sections Affected
All changes in this volume of the Code of Federal Regulations (CFR) that
were made by documents published in the Federal Register since January
1, 2012 are enumerated in the following list. Entries indicate the
nature of the changes effected. Page numbers refer to Federal Register
pages. The user should consult the entries for chapters, parts and
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the
annual edition of the monthly List of CFR Sections Affected (LSA). The
LSA is available at www.fdsys.gov. For changes to this volume of the CFR
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The
``List of CFR Sections Affected 1986-2000'' is available at
www.fdsys.gov.
2012
26 CFR
77 FR
Page
Chapter I
1.61-21 (g)(14)(i) and (ii) revised; (g)(14)(iii) added...........45483
1.104-1 (c) revised................................................3107
2013
26 CFR
78 FR
Page
Chapter I
1.108(i)-0 Added..................................................39986
(b) correctly revised..........................................48607
1.108(i)-0T Removed...............................................39987
1.108(i)-1 Added..................................................39987
(b)(2)(iii)(D) and (c) Example 3 (ii) correctly amended........48607
1.108(i)-1T Removed...............................................39991
1.108(i)-2 Added..................................................39975
(b)(6)(i)(A)(4), (c)(3)(i)(A)(5) and (d)(2)(iii) Example 2
(ii) correctly revised.............................................49366
1.108(i)-2T Removed...............................................39984
1.108(i)-3 Added..................................................39991
1.108(i)-3T Removed...............................................39991
2014
26 CFR
79 FR
Page
Chapter I
1.67-4 Added......................................................26619
(d) revised....................................................41636
1.67-4T Removed...................................................26620
1.72-15 (a) amended; (d), (h) and (i) revised; (f) removed........26841
1.83-3 (c)(1) revised; (c)(4) Example 6, Example 7, (j)(2)
Example and (l) added; (j)(3) and (k) removed; (k)(1)
redesignated as (k)........................................10664
1.105-4 Removed...................................................26841
1.105-6 Removed...................................................26841
1.106-1 Existing text designated as (a) and amended; (b) added....26841
[[Page 682]]
1.108-7 (d)(2)(iii) and (f)(2) amended............................42677
2015
(No regulations published)
2016
26 CFR
81 FR
Page
Chapter I
1.83-2 (c) revised; (g) added.....................................48708
1.108-9 Added.....................................................37507
1.125-4T Removed; CFR correction..................................17083
2017
(Regulations published from January 1, 2017, through April 1, 2017)
26 CFR
82 FR
Page
Chapter I
1.83-4 (b)(1) amended; (d) added...................................6236