Thursday April 25, 2024

Rev. Rul. 80-281

GiftLaw Note:

ISSUE

Is a gift tax charitable deduction allowable under section 2522 of the Internal Revenue Code, where a donor purchases an annuity from a charitable organization under the circumstances described below?

FACTS

On January 1, 1980, A purchased an annuity from N, a charitable organization described in sections 170(c) and 2522(a) of the Internal Revenue Code. Under the agreement A paid 100x dollars in return for an annuity of 5x dollars, payable in equal quarterly installments for A's life. The annuity is payable out of the general funds of N charity. The value of the annuity received was less than 100x dollars.

LAW AND ANALYSIS

Section 2511 of the Internal Revenue Code provides that the gift tax applies whether the transfer is in trust or otherwise, and whether the gift is direct or indirect.

Section 2512(b) of the Code provides that where property is transferred for less than adequate and full consideration in money or money's worth, the amount by which the value of the property exceeds the value of the consideration received shall be deemed a gift.

Section 2522 of the Code provides a gift tax charitable deduction for the value of property transferred to charities described in section 2522(a).

Section 2522(c)(2) of the Code provides that where a donor transfers a remainder interest in property to a charitable organization and has retained an interest in the same property, no deduction is allowed for the interest passing to charity unless it is in a qualified form (charitable remainder annuity trust, charitable remainder unitrust or a pooled income fund).

In the instant case, A has made a gift to N charity, to the extent that the value of the property transferred by A exceeds the present value of the annuity received. The annuity rates to be used in determining the present value of A's annuity are set forth in Rev. Rul. 72-438, 1972-2 C.B. 38.

Here, the annuity is payable out of the general funds of N charity, rather than the specific 100x dollars transferred by A. Thus, A has not retained any interest in the 100x dollars transferred to N. Therefore, the provisions of section 2522(c) are not applicable, and a deduction is allowable under section 2522(a) of the Code. See also section 1.170A-1(d) of the Income Tax Regulations.

HOLDING

Under section 2522(a) of the Code, a gift tax charitable deduction is allowable. The deduction is equal to the amount by which the value of the property transferred by A (100x dollars) exceeds the present value of the annuity received by A.