Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-1

1973-1 C.B. 117

Sec. 170

IRS Headnote

The amount paid in excess of the value of an annuity purchased from a charitable organization is not deductible as a charitable contribution if the transferor retains the power to require repayment of the entire amount prior to the annuity commencement date.

Full Text

Rev. Rul. 73-1

Advice has been requested concerning the deductibility of an amount paid to a charitable organization under the circumstances described below.

In 1971, an individual taxpayer purchased an annuity from a charitable organization described in section 170(c) of the Internal Revenue Code of 1954, contributions to which are deductible. Under the agreement, the taxpayer paid 10x dollars to the charity in 1971 and received an annuity for his life, with the initial payment to commence in 1989. The agreement further provides that the taxpayer may, at any time prior to the annuity commencement date, elect to terminate the agreement and be repaid the 10x dollars. The value of the annuity at the time the agreement was entered into was 6x dollars and the excess payment of 4x dollars was designated by the taxpayer as a charitable contribution.

With respect to contributions paid in taxable years beginning after December 31, 1969, section 170 of the Internal Revenue Code allows as a deduction any charitable contribution payment of which is made within the taxable year.

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

Section 1.170A-1(e) of the regulations provides, in part, with respect to transfers subject to a condition or power, that if as of the date of a gift a transfer for charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible. Section 1.170A-1(e) further provides that if an interest in property passes to, or is vested in, charity on the date of the gift and the interest would be defeated by the subsequent performance of some act or the happening of some event, the possibility of occurrence of which appears on the date of the gift to be so remote as to be negligible, the deduction is allowable.

In the instant case, since the payment to the charitable organization is subject to the taxpayer's power to require that the entire amount transferred be repaid to him at any time prior to 1989, there is more than a remote possibility that the charitable transfer will not become effective. Accordingly, no charitable contribution deduction is allowable to the taxpayer under section 170 of the Code.