Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 78-15

1978-1 C.B. 289

IRS Headnote

Gross estate; death benefit under employment contract. A decedent, who entered into an employment contract that provided that if death occurred during the term of the contract the employer would pay a death benefit to the decedent's spouse and that if the spouse predeceased the decedent the death benefit was to be paid to the decedent's estate, effected a transfer under section 2037 of the Code and retained a reversionary interest in the death benefit the value of which is includible in the decedent's gross estate.

Full Text

Rev. Rul. 78-15

On September 27, 1972, the decedent, A, entered into an employment contract with X Corporation. The contract provided that, in consideration of A's performance of services, the corporation would pay a death benefit of a stated amount to the decedent's spouse, B, provided A was in the employment of X Corporation at the time of death. If B predeceased A, the death benefit was to be paid to A's estate.

Upon A's death, the death benefit was paid to B pursuant to the terms of the contract. The value of A's reversionary interest in the death benefit payment, immediately before A's death, exceeded 5 percent of the value of the payment. See Rev. Rul. 76-178, 1976-1 C.B. 273 for a discussion of the principles applicable in valuing a reversionary interest for purposes of section 2037 of the Internal Revenue Code of 1954.

Revenue Ruling 76-304, 1976-2 C.B. 269, holds that the transfer requirements of section 2038(a)(1) of the Code are satisfied where the decedent, by entering into an employment contract, procures the transfer by the decedent's employer of a death benefit to the decedent's surviving spouse in return for the performance of services by the decedent during the course of employment.

The discussion contained in Rev. Rul. 76-304 pertaining to section 2038(a)(1) is equally applicable to a transfer of a death benefit made in conjunction with an employment contract where the inclusion of the death benefit is sought under section 2037 of the Code. See Estate of Bogley v. United States, 514 F.2d 1027 (Ct. Cl. 1975).

Held, by entering into the employment contract, A has effected a transfer within the purview of section 2037 of the Code. B had to survive A, in order to receive the payment that was the subject of the transfer. Further, A retained a reversionary interest in the death benefit payment and the value of the reversionary interest immediately before A's death exceeded 5 percent of the payment. The value of the death benefit is therefore includible in A's gross estate under section 2037 of the Code.