SERVICE APPROVES OPTION TO RECEIVE CHARITABLE GIFT ANNUITY PAYMENTS PRIOR TO SCHEDULED COMMENCEMENT DATE

Full Text:

Date: January 31, 1990

Refer Reply to: CC:IT&A:03/TR-31-02828-89

LEGEND:
X = * * *

Dear * * *

This is in response to the letter of July 14, 1989, submitted on your behalf by * * * requesting a ruling on the charitable contribution deduction on the purchase of an annuity from a charitable organization.

As we understand the facts submitted, the taxpayer plans to purchase an annuity from X, a charitable organization described in section 170(c) of the Internal Revenue Code. The annuity payments to the taxpayer or the taxpayer's spouse are scheduled to begin in 1998. If the taxpayer or the taxpayer's spouse dies before the scheduled commencement date of the annuity payments, the survivor may elect to receive reduced annuity payments, commencing before 1998.

Section 1.170A-1(d) of the Income Tax Regulations provides that in the case of an annuity purchased from an organization described in section 170(c), there is allowed as a deduction the excess of the amount paid over the value at the time of the purchase of the annuity purchased.

In Rev. Rul. 73-1, 1973-1 C.B. 117, a taxpayer purchased an annuity from a section 170(c) organization for 10x dollars. The annuity agreement provided that at any time prior to the commencement date, the taxpayer could elect to terminate the agreement and be repaid the 10x dollars. The revenue ruling holds that the taxpayer's power to require the entire amount be repaid to him at any time prior to commencement of the annuity payments prevented the taxpayer from taking a charitable contribution deduction for the excess of the amount paid for the annuity over the value of the annuity at the time of purchase.

Unlike the option to revoke the annuity agreement in Rev. Rul. 73-1, the option to receive reduced annuity payments prior to the scheduled commencement date of the annuity payments does not invalidate the charitable contribution deduction provided for in section 1.170A-1(d) of the regulations since the option in this case does not revoke the gift to the charitable organization, but is merely an additional provision of the contract governing the method of payment. We are unable to rule, however, on the amount of a charitable contribution deduction, the value of the annuity, the effect of the acceleration option on the value of the annuity, and the possible consequences under section 514(c)(5) or any other section of the Internal Revenue Code.

A copy of this ruling should be attached to your federal income tax return for the tax year affected.

This ruling is directed only to the taxpayer who requested it. Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file in this office, a copy of this letter will be sent to * * *.

Sincerely yours,

Acting Assistant Chief Counsel
(Income Tax & Accounting)

By: Paul L. Lane
Senior Technician Reviewer, Branch 3