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 Rev. Rul. 77-88

1977-1 C.B. 266

Section 1402

IRS Headnote

Exemption; member of religious sect. A member of a religious sect opposed to acceptance of benefits of any private or public insurance who purchases a retirement annuity from an insurance company is not eligible for exemption from self-employment tax under section 1402(g) of the Code.

Full Text

Rev. Rul. 77-88

Advice has been requested whether the exemption from self-employment tax provided in section 1402(g)(1) of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954) is available under the circumstances described below.

A is a self-employed individual and has applied for exemption from self-employment taxes as a member of a religious sect the tenets and teachings of which are opposed to the acceptance of the benefits of any private or public insurance that makes payments in the event of death, disability, old age, or retirement, or makes payments toward the cost of medical care.

A purchased an annuity from an insurance company that will provide periodic payments to A upon retirement and has asked whether this action will affect A's eligibility for the exemption from self-employment tax under section 1402(g)(1) of the Act.

Section 1402(g)(1) of the Act provides that an individual may apply for exemption from self-employment tax if the individual is a member of a recognized religious sect and is an adherent of established tenets or teachings of the sect by reason of which the member is conscientiously opposed to acceptance of the benefits of any private or public insurance that makes payments in the event of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care.

Rev. Rul. 68-188, 1968-1 C.B. 387, holds that in order to qualify for the exemption, a member of a religious sect must, by reason of its tenets or teachings, be conscientiously opposed to the acceptance of the benefits of any insurance, whether public or private.

An annuity that makes periodic payments upon retirement is a risk spreading device, the cost of which depends on the life expectancy of the intended recipient, who may receive more or less than the initial cost. The function of an annuity is to guarantee, or insure, the payment of a fixed amount per year for the remaining life of the recipient.

Since A purchased the annuity from the insurance company and secured the benefits of insurance, A is not eligible for the exemption from self-employment tax under section 1402(g)(1) of the Self-Employment Contributions Act of 1954.