Exchanges of Property for an Annuity, 61441-61445 [E6-17301]
Download as PDF
<![CDATA[
rmajette on PROD1PC67 with PROPOSALS
Federal Register / Vol. 71, No. 201 / Wednesday, October 18, 2006 / Proposed Rules
reexport in accordance with paragraph
(c) of this section, the following
requirements shall apply in addition to
(and not in lieu of) the requirements of
paragraphs (a) and (b) of this section:
(1) Bulk substances will not be
reexported in the same form as exported
from the United States, i.e., the material
must undergo further manufacturing
process. This further manufactured
material may only be reexported to a
country of ultimate consumption.
(2) Finished dosage units, if
reexported, must be in a commercial
package, properly sealed and labeled for
legitimate medical use in the country of
destination (the second country);
(3) Any proposed reexportation must
be made known to the Administration at
the time the initial DEA Form 161–r is
submitted. In addition, the following
information must also be provided
where indicated on the form:
(i) Whether the drug or preparation
will be reexported in bulk or finished
dosage units;
(ii) The product name, dosage
strength, commercial package size, and
quantity;
(iii) The name of consignee, complete
address, and expected shipment date, as
well as the name and address of the
ultimate consignee in the country to
where the substances will be
reexported.
(4) The application (DEA Form 161–
r) must also contain an affidavit that the
consignee in the country of ultimate
destination (the second country) is
authorized under the laws and
regulations of the country of ultimate
destination to receive the controlled
substances. The affidavit must also
contain the following statement, in
addition to the statements required
under paragraph (a) of this section:
(i) That the packages are labeled in
conformance with the obligations of the
United States under the Single
Convention on Narcotic Drugs, 1961, the
Convention on Psychotropic
Substances, 1971, and any amendments
to such treaties;
(ii) That the controlled substances are
to be applied exclusively to medical or
scientific uses within the country to
which reexported (the second country);
(iii) That the controlled substances
will not be further reexported from the
second country, and
(iv) That there is an actual need for
the controlled substances for medical or
scientific uses within the second
country.
(5) If the applicant proposes that the
shipment of controlled substances will
be separated into parts after it arrives in
the first country and then reexported to
more than one second country, the
VerDate Aug<31>2005
15:22 Oct 17, 2006
Jkt 211001
applicant shall so indicate on the DEA
Form 161-r, providing all the
information required in this section for
each second country.
(6) Within 30 days after the controlled
substance is exported from the United
States, the person who exported the
controlled substance shall deliver to the
Administration documentation on the
DEA Form 161-r initially completed for
the transaction certifying that such
export occurred. This documentation
shall be signed by the responsible
company official and shall include the
following information:
(i) Actual quantity shipped;
(ii) Actual date shipped; and
(iii) DEA export permit number.
(7) The controlled substance will be
reexported from the first country to the
second country (or second countries) no
later than 90 days after the controlled
substance was exported from the United
States.
(8) Shipments that have been
exported from the United States and are
refused by the consignee in the country
of destination (the second country), or
are otherwise unacceptable or
undeliverable, may be returned to the
registered exporter in the United States
upon authorization of the
Administration. In these circumstances,
the exporter in the United States shall
file a written request for the return of
the controlled substances to the United
States with a brief summary of the facts
that warrant the return, along with a
completed DEA Form 357, Application
for Import Permit, with the Drug
Enforcement Administration, Import/
Export Unit, Washington, DC 20537.
The Administration will evaluate the
request after considering all the facts as
well as the exporter’s registration status
with the Administration. If the exporter
provides sufficient documentation, the
Administration will issue an import
permit for the return of these drugs, and
the exporter can then obtain an export
permit from the country of original
importation. The substance may be
returned to the United States only after
affirmative authorization is issued in
writing by the Administration.
(e) In considering whether to grant an
application for a permit under
paragraphs (c) and (d) of this section,
the Administration shall consider
whether the applicant has previously
obtained such a permit and, if so,
whether the applicant complied fully
with the requirements of this section.
3. Section 1312.23 is proposed to be
amended by revising paragraphs (a) and
(f) to read as follows:
PO 00000
Frm 00015
Fmt 4702
Sfmt 4702
§ 1312.23
61441
Issuance of export permit.
(a) The Administration may authorize
exportation of any controlled substance
listed in Schedule I or II or any narcotic
controlled substance listed in Schedule
III or IV if he finds that such exportation
is permitted by subsections 1003(a), (b),
(c), (d), or (f) of the Act (21 U.S.C.
§ 953(a), (b), (c), (d), or (f).
*
*
*
*
*
(f) No export permit shall be issued
for the exportation, or reexportation, of
any controlled substance to any country
when the Administration has
information to show that the estimates
or assessments submitted with respect
to that country for the current period,
under the Single Convention on
Narcotic Drugs, 1961, or the Convention
on Psychotropic Substances, 1971, have
been, or, considering the quantity
proposed to be imported, will be
exceeded. If it shall appear through
subsequent advice received from the
International Narcotics Control Board of
the United Nations that the estimates or
assessments of the country of
destination have been adjusted to
permit further importation of the
controlled substance, an export permit
may then be issued if otherwise
permissible.
Dated: October 10, 2006.
Joseph T. Rannazzisi,
Deputy Assistant Administrator, Office of
Diversion Control.
[FR Doc. E6–17275 Filed 10–17–06; 8:45 am]
BILLING CODE 4410–09–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–141901–05]
RIN 1545–BE92
Exchanges of Property for an Annuity
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
AGENCY:
SUMMARY: This document contains
proposed regulations that provide
guidance on the taxation of the
exchange of property for an annuity
contract. These regulations are
necessary to outline the proper taxation
of these exchanges and will affect
participants in transactions involving
these exchanges. This document also
provides notice of public hearing.
DATES: Written or electronic comments
must be received by January 16, 2007.
E:\FR\FM\18OCP1.SGM
18OCP1
61442
Federal Register / Vol. 71, No. 201 / Wednesday, October 18, 2006 / Proposed Rules
rmajette on PROD1PC67 with PROPOSALS
Outlines of topics to be discussed at the
public hearing scheduled for February
16, 2007, at 10 a.m. must be received by
January 16, 2007.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–141901–05), room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand delivered to
CC:PA:LPD:PR (REG–141901–05),
Courier’s Desk, Internal Revenue
Service, Crystal Mall 4 Building, 1901 S.
Bell St., Arlington, VA, or sent
electronically, via the IRS Internet site
at https://www.irs.gov/regs or via the
Federal eRulemaking Portal at https://
www.regulations.gov (IRS and REG–
141901–05).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
James Polfer, at (202) 622–3970;
concerning submissions of comments,
the hearing, and/or to be placed on the
building access list to attend the
hearing, Kelly Banks, at (202) 622–0392
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax
Regulations.
Section 1001 of the Internal Revenue
Code (Code) provides rules for
determining the amount of gain or loss
recognized. Gain from the sale or other
disposition of property equals the
excess of the amount realized therefrom
over the adjusted basis of the property;
loss from the sale or other disposition of
property equals the excess of the
adjusted basis of the property over the
amount realized. Section 1.1001–1(a) of
the Income Tax Regulations provides
further that the exchange of property for
other property differing materially
either in kind or in extent is treated as
income or as loss sustained. Under
section 1001(b), the amount realized
from the sale or other disposition of
property is the sum of any money
received plus the fair market value of
any property (other than money)
received. Except as otherwise provided
in the Code, the entire amount of gain
or loss on the sale or exchange of
property is recognized.
Under section 72(a), gross income
includes any amount received as an
annuity (whether for a period certain or
for the life or lives of one or more
individuals) under an annuity,
endowment, or life insurance contract.
Section 72(b) provides that gross income
does not include that part of any
amount received as an annuity which
bears the same ratio to such amount as
VerDate Aug<31>2005
15:22 Oct 17, 2006
Jkt 211001
the investment in the contract bears to
the expected return under the contract.
Under section 72(e), amounts received
under an annuity contract before the
annuity starting date are included in
gross income to the extent allocable to
income on the contract, and are
excluded from gross income to the
extent allocable to the investment in the
contract. Investment in the contract is
defined in section 72(c) as the aggregate
amount of premiums or other
consideration paid, reduced by amounts
received before the annuity starting date
that were excluded from gross income.
In Lloyd v. Commissioner, 33 B.T.A.
903 (1936), nonacq., XV–2 CB 39 (1936),
nonacq. withdrawn and acq., 1950–2 CB
3, the Board of Tax Appeals considered
the taxation of gain from a father’s sale
of property to his son for an annuity
contract. The Board concluded that the
annuity contract had no fair market
value within the meaning of the
predecessor of section 1001(b) because
of the uncertainty of payment from the
son. Because the annuity contract had
no fair market value under that
provision, the Board held that the gain
from the sale of the property was not
required to be recognized immediately
but rather would be included in income
only when the annuity payments
exceeded the property’s basis. In
reaching its holding, the Board applied
the open transaction doctrine
articulated by the Supreme Court in
Burnet v. Logan, 283 U.S. 404 (1931).
Under this doctrine, if an amount
realized from a sale cannot be
determined with certainty, the seller
recovers the basis of the property sold
before any income is realized on the
sale.
In Rev. Rul. 69–74, 1969–1 CB 43, a
father transferred a capital asset having
an adjusted basis of $20,000 and a fair
market value of $60,000 to his son in
exchange for the son’s legally
enforceable promise to pay him a life
annuity of $7,200 per year, in equal
monthly installments of $600. The
present value of the life annuity was
$47,713.08. The ruling concluded that:
(1) The father realized capital gain based
on the difference between the father’s
basis in the property and the present
value of the annuity; (2) the gain was
reported ratably over the father’s life
expectancy; (3) the investment in the
contract for purposes of computing the
exclusion ratio was the father’s basis in
the property transferred; (4) the excess
of the fair market value of the property
transferred over the present value of the
annuity was a gift from the father to the
son; and (5) the prorated capital gain
reported annually was derived from the
PO 00000
Frm 00016
Fmt 4702
Sfmt 4702
portion of each annuity payment that
was not excludible.
In Estate of Bell v. Commissioner, 60
T.C. 469 (1973), acq. in part and
nonacq. in part, 1974 WL 36039 (Jan. 8,
1974), acq., AOD No. 1979–184 (August
15, 1979), a husband and wife
transferred stock in two closely held
corporations to their son and daughter
and their spouses in exchange for an
annuity contract. The fair market value
of the stock substantially exceeded the
value of the annuity contract. The stock
transferred was placed in escrow to
secure the promise of the transferees. As
further security, the annuity agreement
provided for a cognovit judgment
against the transferees in the event of
default. Because of the secured nature of
the annuity, the tax court held that (i)
the difference between the value of the
stock and the value of the annuity
contract constituted a gift; (ii) the
difference between the adjusted basis of
the stock and the value of the annuity
contract constituted gain that was
taxable in the year of the transfer (which
was not before the court); and (iii) the
investment in the annuity contract
equaled the present value of the
annuity. Similarly, in 212 Corp. v.
Commissioner, 70 T.C. 788 (1978), the
tax court held that the entire amount of
gain realized from the exchange of
appreciated real property for an annuity
contract was fully taxable in the year of
the exchange because the annuity
contract was secured by (i) an agreement
that the annuity payments would be
considered a charge against the rents
from the property, (ii) an agreement not
to mortgage or sell the property without
written consent of the transferors, and
(iii) the authorization of a confession of
judgment against the transferee in the
event of default.
The Treasury Department and the IRS
have learned that some taxpayers are
inappropriately avoiding or deferring
gain on the exchange of highly
appreciated property for the issuance of
annuity contracts. Many of these
transactions involve private annuity
contracts issued by family members or
by business entities that are owned,
directly or indirectly, by the annuitants
themselves or by their family members.
Many of these transactions involve a
variety of mechanisms to secure the
payment of amounts due under the
annuity contracts.
The Treasury Department and the IRS
believe that neither the open transaction
approach of Lloyd v. Commissioner nor
the ratable recognition approach of Rev.
Rul. 69–74 clearly reflects the income of
the transferor of property in exchange
for an annuity contract. Contrary to the
premise underlying these authorities, an
E:\FR\FM\18OCP1.SGM
18OCP1
Federal Register / Vol. 71, No. 201 / Wednesday, October 18, 2006 / Proposed Rules
rmajette on PROD1PC67 with PROPOSALS
annuity contract—whether secured or
unsecured—may be valued at the time
it is received in exchange for property.
See generally section 7520 (requiring
the use of tables to value any annuity
contract for federal income tax
purposes, except for purposes of any
provision specified in regulations);
§ 1.1001–1(a) (‘‘The fair market value of
property is a question of fact, but only
in rare and unusual circumstances will
property be considered to have no fair
market value.’’). The Treasury
Department and the IRS believe that the
transferors should be taxed in a
consistent manner regardless of whether
they exchange property for an annuity
or sell that property and use the
proceeds to purchase an annuity.
Explanation of Provisions
These proposed amendments provide
that, if an annuity contract is received
in exchange for property (other than
money), (i) the amount realized
attributable to the annuity contract is
the fair market value (as determined
under section 7520) of the annuity
contract at the time of the exchange; (ii)
the entire amount of the gain or loss, if
any, is recognized at the time of the
exchange, regardless of the taxpayer’s
method of accounting; and (iii) for
purposes of determining the initial
investment in the annuity contract
under section 72(c)(1), the aggregate
amount of premiums or other
consideration paid for the annuity
contract equals the amount realized
attributable to the annuity contract (the
fair market value of the annuity
contract). Thus, in situations where the
fair market value of the property
exchanged equals the fair market value
of the annuity contract received, the
investment in the annuity contract
equals the fair market value of the
property exchanged for the annuity
contract.
In order to apply the proposed
regulations to an exchange of property
for an annuity contract, taxpayers will
need to determine the fair market value
of the annuity contract as determined
under section 7520. In the case of an
exchange of property for an annuity
contract that is in part a sale and in part
a gift, the proposed regulations apply
the same rules that apply to any other
such exchange under section 1001.
The proposed regulations provide
that, for purposes of determining the
investment in the annuity contract
under section 72(c)(1), the aggregate
amount of premiums or other
consideration paid for the annuity
contract is the portion of the amount
realized on the exchange that is
attributable to the annuity contract
VerDate Aug<31>2005
15:22 Oct 17, 2006
Jkt 211001
(which is the fair market value of the
annuity contract at the time of the
exchange). This rule is intended to
ensure that no portion of the gain or loss
on the exchange is duplicated or
omitted by the application of section 72
in the years after the exchange. The
annuitant’s investment in the contract
would be reduced in subsequent years
under section 72(c)(1)(B) for amounts
already received under the contract
subsequent to the exchange and
excluded from gross income when
received as a return of the annuitant’s
investment in the contract.
The proposed regulations do not
distinguish between secured and
unsecured annuity contracts, or between
annuity contracts issued by an
insurance company subject to tax under
subchapter L and those issued by a
taxpayer that is not an insurance
company. Instead, the proposed
regulations provide a single set of rules
that leave the transferor and transferee
in the same position before tax as if the
transferor had sold the property for cash
and used the proceeds to purchase an
annuity contract. The same rules would
apply whether the exchange produces a
gain or loss. The regulations do not,
however, prevent the application of
other provisions, such as section 267, to
limit deductible losses in the case of
some exchanges. The proposed
regulations apply to exchanges of
property for an annuity contract,
regardless of whether the property is
exchanged for a newly issued annuity
contract or whether the property is
exchanged for an already existing
annuity contract.
Existing regulations in § 1.1011–2
govern the tax treatment of an exchange
of property that constitutes a bargain
sale to a charitable organization
(including an exchange of property for
a charitable gift annuity). Example 8 in
section 2(c) of those regulations
provides that any gain on such an
exchange is reported ratably, rather than
entirely in the year of the exchange.
This notice of proposed rulemaking
does not propose to change the existing
regulations in § 1.1011–2. However,
comments are requested as to whether a
change should be made in the future to
conform the tax treatment of exchanges
governed by § 1.1011–2 to the tax
treatment prescribed in these proposed
regulations.
The Treasury Department and the IRS
are aware that property is sometimes
exchanged for an annuity contract,
including a private annuity contract, for
valid, non-tax reasons related to estate
planning and succession planning for
closely held businesses. The proposed
regulations are not intended to frustrate
PO 00000
Frm 00017
Fmt 4702
Sfmt 4702
61443
these transactions, but will ensure that
income from the transactions is
accounted for in the appropriate
periods. In section 453, Congress set
forth rules permitting the deferral of
income from a transaction that qualifies
as an installment sale. Taxpayers retain
the ability to structure transactions as
installment sales within the meaning of
section 453(b), provided the other
requirements of section 453 are met.
The Treasury Department and IRS
request comments as to the
circumstances, if any, in which an
exchange of property for an annuity
contract should be treated as an
installment sale, and as to any changes
to the regulations under section 453 that
might be advisable with regard to those
circumstances.
Proposed Effective Date
The Treasury Department and the IRS
propose § 1.1001–1(j) to be effective
generally for exchanges of property for
an annuity contract after October 18,
2006. Thus, the regulations would not
apply to amounts received after October
18, 2006 under annuity contracts that
were received in exchange for property
before that date. For a limited class of
transactions, however, § 1.1001–1(j) is
proposed to be effective for exchanges of
property for an annuity contract after
April 18, 2007.
The Treasury Department and the IRS
propose § 1.72–6(e) to be effective
generally for annuity contracts received
in such exchanges after October 18,
2006. For a limited class of transactions,
however, § 1.72–6(e) is proposed to be
effective for annuity contracts received
in exchange for property after April 18,
2007. The Treasury Department and the
IRS also propose to declare Rev. Rul.
69–74 obsolete effective
contemporaneously with the effective
date of these regulations. Thus, the
obsolescence would be effective April
18, 2007 for exchanges described in
§ 1.1001–1(j)(2)(ii) and § 1.72–6(e)(2)(ii),
and effective October 18, 2006 for all
other exchanges of property for an
annuity contract.
In both regulations, the effective date
is delayed for six months for
transactions in which (i) the issuer of
the annuity contract is an individual;
(ii) the obligations under the annuity
contract are not secured, either directly
or indirectly; and (iii) the property
transferred in the exchange is not
subsequently sold or otherwise disposed
of by the transferee during the two-year
period beginning on the date of the
exchange. The Treasury Department and
the IRS believe that the later proposed
effective date for these transactions
provides ample notice of the proposed
E:\FR\FM\18OCP1.SGM
18OCP1
61444
Federal Register / Vol. 71, No. 201 / Wednesday, October 18, 2006 / Proposed Rules
rules for taxpayers currently planning
transactions that present the least
opportunity for abuse.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a
significant regulatory action as defined
in Executive Order 12866. Therefore, a
regulatory assessment is not required. It
is hereby certified that these regulations
will not have a significant economic
impact on a substantial number of small
entities. Accordingly, a regulation
flexibility analysis is not required. This
certification is based on the fact that
typically only natural persons within
the meaning of section 72(u) exchange
property for an annuity contract. In
addition, these regulations do not
impose new reporting, recordkeeping, or
other compliance requirements on
taxpayers. Pursuant to section 7805(f) of
the Code, the notice of proposed
rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small business.
rmajette on PROD1PC67 with PROPOSALS
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
written (a signed original and eight (8)
copies) or electronic comments that are
timely submitted to the IRS. In addition
to comments on the proposed
regulations more generally, the Treasury
Department and the IRS specifically
request comments on (i) the clarity of
the proposed regulations and how they
can be made easier to understand; (ii)
what guidance, if any, is needed in
addition to Rev. Rul. 55–119, 1955–1 CB
352, see § 601.601(d)(2), on the
treatment of the issuer of an annuity
contract that is not taxed under the
provisions of subchapter L of the Code;
(iii) whether any changes to § 1.1011–2
(concerning a bargain sale to a
charitable organization in exchange for
an annuity contract), conforming those
regulations to the proposed regulations,
would be appropriate; (iv)
circumstances (and corresponding
changes to the regulations under section
453, if any) in which it might be
appropriate to treat an exchange of
property for an annuity contract as an
installment sale; (v) circumstances, if
any, in which the fair market value of
an annuity contract for purposes of
§ 1.1001–1(j) should be determined
other than by tables promulgated under
the authority of section 7520; and (vi)
additional transactions, if any, for
which the six month delayed effective
date would be appropriate. All
VerDate Aug<31>2005
15:22 Oct 17, 2006
Jkt 211001
comments will be available for public
inspection and copying.
A public hearing has been scheduled
for February 16, 2007, at 10 a.m., in the
auditorium, Internal Revenue Service,
New Carrollton Building, 5000 Ellin
Road, Lanham, MD 20706. All visitors
must present photo identification to
enter the building. Because of access
restrictions, visitors will not be
admitted beyond the immediate
entrance area lobby more than 30
minutes before the hearing starts. For
information about having your name
placed on the access list to attend the
hearing, see the FOR FURTHER
INFORMATION CONTACT portion of this
preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons who wish to present oral
comments at the hearing must submit
written comments by January 16, 2007,
and submit an outline of the topics to
be discussed and the time to be devoted
to each topic (a signed original and eight
(8) copies) by that same date.
A period of 10 minutes will be
allotted to each person making
comments. An agenda showing the
scheduling of the speakers will be
prepared after the deadline for receiving
outlines has passed. Copies of the
agenda will be available free of charge
at the hearing.
Drafting Information
The principal author of these
proposed regulations is James Polfer,
Office of the Associate Chief Counsel
(Financial Institutions and Products),
Internal Revenue Service.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendment to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAX
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In § 1.72–6, paragraph (e) is
added to read as follows:
§ 1.72–6
Investment in the contract.
*
*
*
*
*
(e) Certain annuity contracts received
in exchange for property—(1) In general.
If an annuity contract is received in an
exchange subject to § 1.1001–1(j), the
aggregate amount of premiums or other
consideration paid for the contract
PO 00000
Frm 00018
Fmt 4702
Sfmt 4702
equals the amount realized attributable
to the annuity contract, determined
according to § 1.1001–1(j).
(2) Effective date—(i) In general.
Except as provided in paragraph
(e)(2)(ii), this paragraph (e) is applicable
for annuity contracts received after
October 18, 2006 in an exchange subject
to § 1.1001–1(j).
(ii) This paragraph (e) is applicable for
annuity contracts received after April
18, 2007 in an exchange subject to
§ 1.1001–1(j) if the following conditions
are met—
(A) The issuer of the annuity contract
is an individual;
(B) The obligations under the annuity
contract are not secured, either directly
or indirectly; and
(C) The property transferred in
exchange for the annuity contract is not
subsequently sold or otherwise disposed
of by the transferee during the two-year
period beginning on the date of the
exchange. For purposes of this
provision, a disposition includes
without limitation a transfer to a trust
(whether a grantor trust, a revocable
trust, or any other trust) or to any other
entity even if solely owned by the
transferor.
Par. 3. In § 1.1001–1, paragraphs (h),
(i) and (j) are added to read as follows:
§ 1.1001–1
Computation of gain or loss.
*
*
*
*
*
(h) [Reserved.]
(i) [Reserved.]
(j) Certain annuity contracts received
in exchange for property—(1) In general.
If an annuity contract (other than an
annuity contract that either is a debt
instrument subject to sections 1271
through 1275, or is received from a
charitable organization in a bargain sale
governed by § 1.1011–2) is received in
exchange for property, receipt of the
contract shall be treated as a receipt of
property in an amount equal to the fair
market value of the contract, whether or
not the contract is the equivalent of
cash. The amount realized attributable
to the annuity contract is the fair market
value of the annuity contract at the time
of the exchange, determined under
section 7520. For the timing of the
recognition of gain or loss, if any, see
§ 1.451–1(a). In the case of a transfer in
part a sale and in part a gift, see
paragraph (e) of this section. In the case
of an annuity contract that is a debt
instrument subject to sections 1271
through 1275, see paragraph (g) of this
section. In the case of a bargain sale to
a charitable organization, see § 1.1011–
2.
(2) Effective date—(i) In general.
Except as provided in paragraph
(j)(2)(ii), this paragraph (j) is effective for
E:\FR\FM\18OCP1.SGM
18OCP1
Federal Register / Vol. 71, No. 201 / Wednesday, October 18, 2006 / Proposed Rules
exchanges of property for an annuity
contract (other than an annuity contract
that either is a debt instrument subject
to sections 1271 through 1275, or is
received from a charitable organization
in a bargain sale governed by § 1.1011–
2) after October 18, 2006.
(ii) This paragraph (j) is effective for
exchanges of property for an annuity
contract (other than an annuity contract
that either is a debt instrument subject
to sections 1271 through 1275, or is
received from a charitable organization
in a bargain sale governed by § 1.1011–
2) after April 18, 2006 if the following
conditions are met—
(A) The issuer of the annuity contract
is an individual;
(B) The obligations under the annuity
contract are not secured, either directly
or indirectly; and
(C) The property transferred in
exchange for the annuity contract is not
subsequently sold or otherwise disposed
of by the transferee during the two-year
period beginning on the date of the
exchange. For purposes of this
provision, a disposition includes
without limitation a transfer to a trust
(whether a grantor trust, a revocable
trust, or any other trust) or to any other
entity even if solely owned by the
transferor.
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. E6–17301 Filed 10–17–06; 8:45 am]
BILLING CODE 4830–01–P
GENERAL SERVICES
ADMINISTRATION
[FMR Case 2004–102–1; Docket 2006–0001;
Sequence 3]
RIN 3090–AH93
Federal Management Regulation;
Disposition of Personal Property
Office of Governmentwide
Policy, General Services Administration
(GSA).
ACTION: Proposed rule; reopening of
comment period.
rmajette on PROD1PC67 with PROPOSALS
AGENCY:
SUMMARY: The General Services
Administration is reopening the
comment period for the subject
proposed rule. The proposed rule
pertains to amending the Federal
Management Regulation (FMR) by
revising coverage on personal property
and moving it into Subchapter B of the
FMR. A proposed rule was published in
the Federal Register on September 12,
2006 (71 FR 53646).
15:22 Oct 17, 2006
Submit comments
identified by FMR case 2004–102–1 by
any of the following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Search for any
document by first selecting the proper
document types and selecting ‘‘General
Services Administration’’ as the agency
of choice. At the ‘‘Keyword’’ prompt,
type in the FMR case number (for
example, FMR Case 2006–102–1) and
click on the ‘‘Submit’’ button. You may
also search for any document by
clicking on the ‘‘Advanced search/
document search’’ tab at the top of the
screen, selecting from the agency field
‘‘General Services Administration’’, and
typing the FMR case number in the
keyword field. Select the ‘‘Submit’’
button.
• Fax: 202–501–4067.
• Mail: General Services
Administration, Regulatory Secretariat
(VIR), 1800 F Street, NW., Room 4035,
ATTN: Laurieann Duarte, Washington,
DC 20405.
Instructions: Please submit comments
only and cite FMR case 2004–102–1 in
all correspondence related to this case.
All comments received will be posted
without change to https://
www.regulations.gov, including any
personal information provided.
ADDRESSES:
Mr.
Robert Holcombe, Office of
Governmentwide Policy, Personal
Property Management Policy, at (202)
501–3828, or e-mail at
robert.holcombe@gsa.gov, for
clarification of content. For information
pertaining to status or publication
schedules, contact the Regulatory
Secretariat at (202) 501–4755, Room
4035, GS Building, Washington, DC,
20405. Please cite FMR case 2004–102–
1.
FOR FURTHER INFORMATION CONTACT:
41 CFR Part 102–35
VerDate Aug<31>2005
Interested parties should submit
comments in writing on or before
November 17, 2006 to be considered in
the formulation of a final rule.
DATES:
Jkt 211001
Dated: October 12, 2006.
Russ H. Pentz,
Assistant Deputy Associate Administrator.
[FR Doc. E6–17340 Filed 10–17–06; 8:45 am]
BILLING CODE 6820–14–S
PO 00000
Frm 00019
Fmt 4702
Sfmt 4702
61445
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Part 423
[CMS–4119–P]
RIN # 0938–AO58
Medicare Program; Medicare Part D
Data
Centers for Medicare &
Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
AGENCY:
SUMMARY: This proposed rule would
allow the Secretary to use the claims
information that is now being collected
for Part D payment purposes for other
research, analysis, reporting, and public
health functions. The Secretary needs to
use this data because other publicly
available data are not, in and of
themselves, sufficient for the studies
and operations that the Secretary needs
to undertake as part of the Department
of Health and Human Service’s
obligation to oversee the Medicare
program, protect the public health, and
respond to Congressional mandates.
DATES: To be assured consideration,
comments must be received at one of
the addresses provided below, no later
than 5 p.m. on December 18, 2006.
ADDRESSES: In commenting, please refer
to file code CMS–4119–P. Because of
staff and resource limitations, we cannot
accept comments by facsimile (FAX)
transmission.
You may submit comments in one of
four ways (no duplicates, please):
1. Electronically. You may submit
electronic comments on specific issues
in this regulation to https://
www.cms.hhs.gov/eRulemaking. Click
on the link ‘‘Submit electronic
comments on CMS regulations with an
open comment period.’’ (Attachments
should be in Microsoft Word,
WordPerfect, or Excel; however, we
prefer Microsoft Word.)
2. By regular mail. You may mail
written comments (one original and two
copies) to the following address only:
Centers for Medicare & Medicaid
Services, Department of Health and
Human Services, Attention: CMS–4119–
P, P.O. Box 8017, Baltimore, MD 21244–
8017.
Please allow sufficient time for mailed
comments to be received before the
close of the comment period.
3. By express or overnight mail. You
may send written comments (one
original and two copies) to the following
address only: Centers for Medicare &
E:\FR\FM\18OCP1.SGM
18OCP1
]]>Agencies
[Federal Register Volume 71, Number 201 (Wednesday, October 18, 2006)]
[Proposed Rules]
[Pages 61441-61445]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-17301]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-141901-05]
RIN 1545-BE92
Exchanges of Property for an Annuity
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations that provide
guidance on the taxation of the exchange of property for an annuity
contract. These regulations are necessary to outline the proper
taxation of these exchanges and will affect participants in
transactions involving these exchanges. This document also provides
notice of public hearing.
DATES: Written or electronic comments must be received by January 16,
2007.
[[Page 61442]]
Outlines of topics to be discussed at the public hearing scheduled for
February 16, 2007, at 10 a.m. must be received by January 16, 2007.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-141901-05), room
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered to CC:PA:LPD:PR
(REG-141901-05), Courier's Desk, Internal Revenue Service, Crystal Mall
4 Building, 1901 S. Bell St., Arlington, VA, or sent electronically,
via the IRS Internet site at https://www.irs.gov/regs or via the Federal
eRulemaking Portal at https://www.regulations.gov (IRS and REG-141901-
05).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
James Polfer, at (202) 622-3970; concerning submissions of comments,
the hearing, and/or to be placed on the building access list to attend
the hearing, Kelly Banks, at (202) 622-0392 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Income Tax
Regulations.
Section 1001 of the Internal Revenue Code (Code) provides rules for
determining the amount of gain or loss recognized. Gain from the sale
or other disposition of property equals the excess of the amount
realized therefrom over the adjusted basis of the property; loss from
the sale or other disposition of property equals the excess of the
adjusted basis of the property over the amount realized. Section
1.1001-1(a) of the Income Tax Regulations provides further that the
exchange of property for other property differing materially either in
kind or in extent is treated as income or as loss sustained. Under
section 1001(b), the amount realized from the sale or other disposition
of property is the sum of any money received plus the fair market value
of any property (other than money) received. Except as otherwise
provided in the Code, the entire amount of gain or loss on the sale or
exchange of property is recognized.
Under section 72(a), gross income includes any amount received as
an annuity (whether for a period certain or for the life or lives of
one or more individuals) under an annuity, endowment, or life insurance
contract. Section 72(b) provides that gross income does not include
that part of any amount received as an annuity which bears the same
ratio to such amount as the investment in the contract bears to the
expected return under the contract. Under section 72(e), amounts
received under an annuity contract before the annuity starting date are
included in gross income to the extent allocable to income on the
contract, and are excluded from gross income to the extent allocable to
the investment in the contract. Investment in the contract is defined
in section 72(c) as the aggregate amount of premiums or other
consideration paid, reduced by amounts received before the annuity
starting date that were excluded from gross income.
In Lloyd v. Commissioner, 33 B.T.A. 903 (1936), nonacq., XV-2 CB 39
(1936), nonacq. withdrawn and acq., 1950-2 CB 3, the Board of Tax
Appeals considered the taxation of gain from a father's sale of
property to his son for an annuity contract. The Board concluded that
the annuity contract had no fair market value within the meaning of the
predecessor of section 1001(b) because of the uncertainty of payment
from the son. Because the annuity contract had no fair market value
under that provision, the Board held that the gain from the sale of the
property was not required to be recognized immediately but rather would
be included in income only when the annuity payments exceeded the
property's basis. In reaching its holding, the Board applied the open
transaction doctrine articulated by the Supreme Court in Burnet v.
Logan, 283 U.S. 404 (1931). Under this doctrine, if an amount realized
from a sale cannot be determined with certainty, the seller recovers
the basis of the property sold before any income is realized on the
sale.
In Rev. Rul. 69-74, 1969-1 CB 43, a father transferred a capital
asset having an adjusted basis of $20,000 and a fair market value of
$60,000 to his son in exchange for the son's legally enforceable
promise to pay him a life annuity of $7,200 per year, in equal monthly
installments of $600. The present value of the life annuity was
$47,713.08. The ruling concluded that: (1) The father realized capital
gain based on the difference between the father's basis in the property
and the present value of the annuity; (2) the gain was reported ratably
over the father's life expectancy; (3) the investment in the contract
for purposes of computing the exclusion ratio was the father's basis in
the property transferred; (4) the excess of the fair market value of
the property transferred over the present value of the annuity was a
gift from the father to the son; and (5) the prorated capital gain
reported annually was derived from the portion of each annuity payment
that was not excludible.
In Estate of Bell v. Commissioner, 60 T.C. 469 (1973), acq. in part
and nonacq. in part, 1974 WL 36039 (Jan. 8, 1974), acq., AOD No. 1979-
184 (August 15, 1979), a husband and wife transferred stock in two
closely held corporations to their son and daughter and their spouses
in exchange for an annuity contract. The fair market value of the stock
substantially exceeded the value of the annuity contract. The stock
transferred was placed in escrow to secure the promise of the
transferees. As further security, the annuity agreement provided for a
cognovit judgment against the transferees in the event of default.
Because of the secured nature of the annuity, the tax court held that
(i) the difference between the value of the stock and the value of the
annuity contract constituted a gift; (ii) the difference between the
adjusted basis of the stock and the value of the annuity contract
constituted gain that was taxable in the year of the transfer (which
was not before the court); and (iii) the investment in the annuity
contract equaled the present value of the annuity. Similarly, in 212
Corp. v. Commissioner, 70 T.C. 788 (1978), the tax court held that the
entire amount of gain realized from the exchange of appreciated real
property for an annuity contract was fully taxable in the year of the
exchange because the annuity contract was secured by (i) an agreement
that the annuity payments would be considered a charge against the
rents from the property, (ii) an agreement not to mortgage or sell the
property without written consent of the transferors, and (iii) the
authorization of a confession of judgment against the transferee in the
event of default.
The Treasury Department and the IRS have learned that some
taxpayers are inappropriately avoiding or deferring gain on the
exchange of highly appreciated property for the issuance of annuity
contracts. Many of these transactions involve private annuity contracts
issued by family members or by business entities that are owned,
directly or indirectly, by the annuitants themselves or by their family
members. Many of these transactions involve a variety of mechanisms to
secure the payment of amounts due under the annuity contracts.
The Treasury Department and the IRS believe that neither the open
transaction approach of Lloyd v. Commissioner nor the ratable
recognition approach of Rev. Rul. 69-74 clearly reflects the income of
the transferor of property in exchange for an annuity contract.
Contrary to the premise underlying these authorities, an
[[Page 61443]]
annuity contract--whether secured or unsecured--may be valued at the
time it is received in exchange for property. See generally section
7520 (requiring the use of tables to value any annuity contract for
federal income tax purposes, except for purposes of any provision
specified in regulations); Sec. 1.1001-1(a) (``The fair market value
of property is a question of fact, but only in rare and unusual
circumstances will property be considered to have no fair market
value.''). The Treasury Department and the IRS believe that the
transferors should be taxed in a consistent manner regardless of
whether they exchange property for an annuity or sell that property and
use the proceeds to purchase an annuity.
Explanation of Provisions
These proposed amendments provide that, if an annuity contract is
received in exchange for property (other than money), (i) the amount
realized attributable to the annuity contract is the fair market value
(as determined under section 7520) of the annuity contract at the time
of the exchange; (ii) the entire amount of the gain or loss, if any, is
recognized at the time of the exchange, regardless of the taxpayer's
method of accounting; and (iii) for purposes of determining the initial
investment in the annuity contract under section 72(c)(1), the
aggregate amount of premiums or other consideration paid for the
annuity contract equals the amount realized attributable to the annuity
contract (the fair market value of the annuity contract). Thus, in
situations where the fair market value of the property exchanged equals
the fair market value of the annuity contract received, the investment
in the annuity contract equals the fair market value of the property
exchanged for the annuity contract.
In order to apply the proposed regulations to an exchange of
property for an annuity contract, taxpayers will need to determine the
fair market value of the annuity contract as determined under section
7520. In the case of an exchange of property for an annuity contract
that is in part a sale and in part a gift, the proposed regulations
apply the same rules that apply to any other such exchange under
section 1001.
The proposed regulations provide that, for purposes of determining
the investment in the annuity contract under section 72(c)(1), the
aggregate amount of premiums or other consideration paid for the
annuity contract is the portion of the amount realized on the exchange
that is attributable to the annuity contract (which is the fair market
value of the annuity contract at the time of the exchange). This rule
is intended to ensure that no portion of the gain or loss on the
exchange is duplicated or omitted by the application of section 72 in
the years after the exchange. The annuitant's investment in the
contract would be reduced in subsequent years under section 72(c)(1)(B)
for amounts already received under the contract subsequent to the
exchange and excluded from gross income when received as a return of
the annuitant's investment in the contract.
The proposed regulations do not distinguish between secured and
unsecured annuity contracts, or between annuity contracts issued by an
insurance company subject to tax under subchapter L and those issued by
a taxpayer that is not an insurance company. Instead, the proposed
regulations provide a single set of rules that leave the transferor and
transferee in the same position before tax as if the transferor had
sold the property for cash and used the proceeds to purchase an annuity
contract. The same rules would apply whether the exchange produces a
gain or loss. The regulations do not, however, prevent the application
of other provisions, such as section 267, to limit deductible losses in
the case of some exchanges. The proposed regulations apply to exchanges
of property for an annuity contract, regardless of whether the property
is exchanged for a newly issued annuity contract or whether the
property is exchanged for an already existing annuity contract.
Existing regulations in Sec. 1.1011-2 govern the tax treatment of
an exchange of property that constitutes a bargain sale to a charitable
organization (including an exchange of property for a charitable gift
annuity). Example 8 in section 2(c) of those regulations provides that
any gain on such an exchange is reported ratably, rather than entirely
in the year of the exchange. This notice of proposed rulemaking does
not propose to change the existing regulations in Sec. 1.1011-2.
However, comments are requested as to whether a change should be made
in the future to conform the tax treatment of exchanges governed by
Sec. 1.1011-2 to the tax treatment prescribed in these proposed
regulations.
The Treasury Department and the IRS are aware that property is
sometimes exchanged for an annuity contract, including a private
annuity contract, for valid, non-tax reasons related to estate planning
and succession planning for closely held businesses. The proposed
regulations are not intended to frustrate these transactions, but will
ensure that income from the transactions is accounted for in the
appropriate periods. In section 453, Congress set forth rules
permitting the deferral of income from a transaction that qualifies as
an installment sale. Taxpayers retain the ability to structure
transactions as installment sales within the meaning of section 453(b),
provided the other requirements of section 453 are met. The Treasury
Department and IRS request comments as to the circumstances, if any, in
which an exchange of property for an annuity contract should be treated
as an installment sale, and as to any changes to the regulations under
section 453 that might be advisable with regard to those circumstances.
Proposed Effective Date
The Treasury Department and the IRS propose Sec. 1.1001-1(j) to be
effective generally for exchanges of property for an annuity contract
after October 18, 2006. Thus, the regulations would not apply to
amounts received after October 18, 2006 under annuity contracts that
were received in exchange for property before that date. For a limited
class of transactions, however, Sec. 1.1001-1(j) is proposed to be
effective for exchanges of property for an annuity contract after April
18, 2007.
The Treasury Department and the IRS propose Sec. 1.72-6(e) to be
effective generally for annuity contracts received in such exchanges
after October 18, 2006. For a limited class of transactions, however,
Sec. 1.72-6(e) is proposed to be effective for annuity contracts
received in exchange for property after April 18, 2007. The Treasury
Department and the IRS also propose to declare Rev. Rul. 69-74 obsolete
effective contemporaneously with the effective date of these
regulations. Thus, the obsolescence would be effective April 18, 2007
for exchanges described in Sec. 1.1001-1(j)(2)(ii) and Sec. 1.72-
6(e)(2)(ii), and effective October 18, 2006 for all other exchanges of
property for an annuity contract.
In both regulations, the effective date is delayed for six months
for transactions in which (i) the issuer of the annuity contract is an
individual; (ii) the obligations under the annuity contract are not
secured, either directly or indirectly; and (iii) the property
transferred in the exchange is not subsequently sold or otherwise
disposed of by the transferee during the two-year period beginning on
the date of the exchange. The Treasury Department and the IRS believe
that the later proposed effective date for these transactions provides
ample notice of the proposed
[[Page 61444]]
rules for taxpayers currently planning transactions that present the
least opportunity for abuse.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It is hereby
certified that these regulations will not have a significant economic
impact on a substantial number of small entities. Accordingly, a
regulation flexibility analysis is not required. This certification is
based on the fact that typically only natural persons within the
meaning of section 72(u) exchange property for an annuity contract. In
addition, these regulations do not impose new reporting, recordkeeping,
or other compliance requirements on taxpayers. Pursuant to section
7805(f) of the Code, the notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are timely submitted to the
IRS. In addition to comments on the proposed regulations more
generally, the Treasury Department and the IRS specifically request
comments on (i) the clarity of the proposed regulations and how they
can be made easier to understand; (ii) what guidance, if any, is needed
in addition to Rev. Rul. 55-119, 1955-1 CB 352, see Sec.
601.601(d)(2), on the treatment of the issuer of an annuity contract
that is not taxed under the provisions of subchapter L of the Code;
(iii) whether any changes to Sec. 1.1011-2 (concerning a bargain sale
to a charitable organization in exchange for an annuity contract),
conforming those regulations to the proposed regulations, would be
appropriate; (iv) circumstances (and corresponding changes to the
regulations under section 453, if any) in which it might be appropriate
to treat an exchange of property for an annuity contract as an
installment sale; (v) circumstances, if any, in which the fair market
value of an annuity contract for purposes of Sec. 1.1001-1(j) should
be determined other than by tables promulgated under the authority of
section 7520; and (vi) additional transactions, if any, for which the
six month delayed effective date would be appropriate. All comments
will be available for public inspection and copying.
A public hearing has been scheduled for February 16, 2007, at 10
a.m., in the auditorium, Internal Revenue Service, New Carrollton
Building, 5000 Ellin Road, Lanham, MD 20706. All visitors must present
photo identification to enter the building. Because of access
restrictions, visitors will not be admitted beyond the immediate
entrance area lobby more than 30 minutes before the hearing starts. For
information about having your name placed on the access list to attend
the hearing, see the FOR FURTHER INFORMATION CONTACT portion of this
preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons who wish to present oral comments at the hearing must
submit written comments by January 16, 2007, and submit an outline of
the topics to be discussed and the time to be devoted to each topic (a
signed original and eight (8) copies) by that same date.
A period of 10 minutes will be allotted to each person making
comments. An agenda showing the scheduling of the speakers will be
prepared after the deadline for receiving outlines has passed. Copies
of the agenda will be available free of charge at the hearing.
Drafting Information
The principal author of these proposed regulations is James Polfer,
Office of the Associate Chief Counsel (Financial Institutions and
Products), Internal Revenue Service.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendment to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAX
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In Sec. 1.72-6, paragraph (e) is added to read as follows:
Sec. 1.72-6 Investment in the contract.
* * * * *
(e) Certain annuity contracts received in exchange for property--
(1) In general. If an annuity contract is received in an exchange
subject to Sec. 1.1001-1(j), the aggregate amount of premiums or other
consideration paid for the contract equals the amount realized
attributable to the annuity contract, determined according to Sec.
1.1001-1(j).
(2) Effective date--(i) In general. Except as provided in paragraph
(e)(2)(ii), this paragraph (e) is applicable for annuity contracts
received after October 18, 2006 in an exchange subject to Sec. 1.1001-
1(j).
(ii) This paragraph (e) is applicable for annuity contracts
received after April 18, 2007 in an exchange subject to Sec. 1.1001-
1(j) if the following conditions are met--
(A) The issuer of the annuity contract is an individual;
(B) The obligations under the annuity contract are not secured,
either directly or indirectly; and
(C) The property transferred in exchange for the annuity contract
is not subsequently sold or otherwise disposed of by the transferee
during the two-year period beginning on the date of the exchange. For
purposes of this provision, a disposition includes without limitation a
transfer to a trust (whether a grantor trust, a revocable trust, or any
other trust) or to any other entity even if solely owned by the
transferor.
Par. 3. In Sec. 1.1001-1, paragraphs (h), (i) and (j) are added to
read as follows:
Sec. 1.1001-1 Computation of gain or loss.
* * * * *
(h) [Reserved.]
(i) [Reserved.]
(j) Certain annuity contracts received in exchange for property--
(1) In general. If an annuity contract (other than an annuity contract
that either is a debt instrument subject to sections 1271 through 1275,
or is received from a charitable organization in a bargain sale
governed by Sec. 1.1011-2) is received in exchange for property,
receipt of the contract shall be treated as a receipt of property in an
amount equal to the fair market value of the contract, whether or not
the contract is the equivalent of cash. The amount realized
attributable to the annuity contract is the fair market value of the
annuity contract at the time of the exchange, determined under section
7520. For the timing of the recognition of gain or loss, if any, see
Sec. 1.451-1(a). In the case of a transfer in part a sale and in part
a gift, see paragraph (e) of this section. In the case of an annuity
contract that is a debt instrument subject to sections 1271 through
1275, see paragraph (g) of this section. In the case of a bargain sale
to a charitable organization, see Sec. 1.1011-2.
(2) Effective date--(i) In general. Except as provided in paragraph
(j)(2)(ii), this paragraph (j) is effective for
[[Page 61445]]
exchanges of property for an annuity contract (other than an annuity
contract that either is a debt instrument subject to sections 1271
through 1275, or is received from a charitable organization in a
bargain sale governed by Sec. 1.1011-2) after October 18, 2006.
(ii) This paragraph (j) is effective for exchanges of property for
an annuity contract (other than an annuity contract that either is a
debt instrument subject to sections 1271 through 1275, or is received
from a charitable organization in a bargain sale governed by Sec.
1.1011-2) after April 18, 2006 if the following conditions are met--
(A) The issuer of the annuity contract is an individual;
(B) The obligations under the annuity contract are not secured,
either directly or indirectly; and
(C) The property transferred in exchange for the annuity contract
is not subsequently sold or otherwise disposed of by the transferee
during the two-year period beginning on the date of the exchange. For
purposes of this provision, a disposition includes without limitation a
transfer to a trust (whether a grantor trust, a revocable trust, or any
other trust) or to any other entity even if solely owned by the
transferor.
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E6-17301 Filed 10-17-06; 8:45 am]
BILLING CODE 4830-01-P
