Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 63-76

1963-1 C.B. 23

Sec. 101

IRS Headnote

An employee-participant in a qualified employee's pension trust terminated his services with his employer. He received a distribution of the entire amount standing to his credit in the trust. The distribution was partly in cash and partly in retirement income, endowment, and other life insurance contracts. The contracts were not converted to eliminate the insurance emements and the entire cash value thereof was included in the employee's gross income. He died and the insurance proceeds have since been paid to his beneficiary. Held , proceeds received by the beneficiary under the contracts, by reason of the death of the insured-employee, are excludable from gross income.

Full Text

Rev. Rul. 63-76

Advice has been requested as to the taxability of amounts received by a beneficiary under a retirement income, endowment, or other life insurance contract upon the death of the insured, where such contract had been distributed to the insured from a qualified employees' pension trust upon termination of his services with his employer.

An employees' pension plan, established by a corporation, had been held to meet the qualifications of section 401(a) of the Internal Revenue Code of 1954 and the trust, forming a part thereof, was exempt from tax under section 501(a) of the Code.

An employee-participant in the plan, upon termination of service with the corporation, received, a distribution of the total amount standing to his credit in the trust. The distribution was made partly in the form of cash and partly in retirement income, endowment, and other life insurance contracts. He took no action with respect to conversion of these contracts so as to eliminate any insurance element. Thus, the contracts continued in force on a premium-paying basis or on a paid-up basis. He died and the insurance proceeds have since been paid to his beneficiary.

Since the insurance contracts were not irrevocably converted, within 60 days after the distribution of the contracts, into a contract or contracts under which no part of any proceeds payable on death at any time would be excludable from gross income under section 101(a) of the Code, the entire cash value of the contracts was included in gross income of the employee in accordance with section 1.402(a)-1(a)(2) of the Income Tax Regulations.

With respect to amounts receivable under the contracts, by beneficiaries upon the death of the insured participant, section 101(a) of the Code provides, in part, that with certain exceptions (which are not relevant to this case) gross income does not include amounts received under a life insurance contract, whether in a single sum or otherwise, if such amounts are paid by reason of the death of the insured.

Accordingly, it is held that the proceeds received by the beneficiary under the contracts herein considered, by reason of the death of the insured-employee, are excludable from gross income.

With respect to proceeds of a life insurance policy held under an agreement to pay interest thereon, see section 101(c) of the Code and the regulations under those provisions. With respect to proceeds of a life insurance policy paid at a date later than death, see section 101(d) of the Code and the regulations under those provisions.