Rev. Rul. 80-82

1980-1 C.B. 209, 1980-12 I.R.B. 13.

                       Internal Revenue Service
                                 Revenue Ruling

    TRANSFER OF ANNUITY PAYMENTS; INCIDENT TO AGREEMENT IN CONTEMPLATION OF
                                    DIVORCE

                           Published: March 24, 1980

Section 2516.--Certain Property Settlements, 26 CFR 25.2516-1: Certain property settlements.

(Also Sections 2043, 2512; 20.2043-1, 25.2512-8.)

  Transfer of annuity payments; incident to agreement in contemplation of divorce. A retired federal employee, in contemplation of a divorce, entered into a written property settlement agreement providing that, after the divorce, the ex-spouse would receive one-half of the employee's annuity payments under the U.S. Civil Service Retirement System. Within two years thereafter, a divorce court that had no power to alter the agreement incorporated it into a divorce decree. The employee did not make a gift to the ex-spouse, because the transfer is deemed to be made for full and adequate consideration in money or money's worth under section 2516.

ISSUE

  Has a retired federal employee made a gift of the portion of the United States Civil Service Retirement annuity that is to be paid by the Civil Service Commission to the spouse pursuant to an agreement executed in contemplation of a divorce, under the circumstances described below?

FACTS

  G, a retired federal employee, is receiving annuity payments under the United States Civil Service Retirement System.  In May 1979, G and A, G's spouse, entered into a written property settlement agreement in contemplation of their obtaining a divorce. The agreement provides, in part, that after the divorce becomes final, A will receive one-half of G's annuity payments.  In August 1979, G and A were divorced by the final decree of a court in State X.  Under the laws of State X the divorce court had no power to alter the settlement agreement, but it did incorporate the settlement agreement into the divorce decree. Thereafter, upon application to the Civil Service Commission, A began to receive one-half of G's annuity payments.

LAW AND ANALYSIS

  Section 2511 of the Internal Revenue Code states that the federal gift tax is applicable whether a gift is in trust or otherwise, whether direct or indirect, and whether the transferred property is real or personal, tangible or intangible.

  Section 2512(b) of the Code provides that if property is transferred for less than an adequate and full consideration in money or money's worth, then the amount of the gift is the amount by which the value of the transferred property exceeds the value of the consideration received.

  Section 2043(b) of the Code, an estate tax provision, requires that a relinquishment of dower or curtesy, or of a statutory estate created in lieu thereof, or 'of other marital rights' in the decedent's estate, shall not be considered to any extent a consideration in money or money's worth.  This provision was held applicable to the definition of 'consideration in money or money's worth' for gift tax purposes, as well as for estate tax purposes, by the Supreme Court in Merrill v. Fahs, 324 U.S. 308 (1945), 1945 C.B. 418.  See also section 25.2512-8 of the Gift Tax Regulations.

  Therefore, the release by a spouse of marital property rights cannot serve as consideration in money or money's worth for gift tax purposes. However, the release of the right to support constitutes consideration in money or money's worth.  See Rev. Rul. 68-379, 1968-2 C.B. 414.

  Section 2516 of the Code provides that if a married couple executes a written agreement with respect to their 'marital and property rights' and if a divorce is obtained within two years thereafter, all transfers made under the agreement to the donor's spouse in settlement of the spouse's marital or property rights shall be deemed, for gift tax purposes, to be made for full and adequate consideration in money or money's worth.

  Subsection (j) of 5 U.S.C. section 8345, added by Pub. L. No. 95-366, 92 Stat. 600 (1978), authorizes the Civil Service Commission to make payments, which would otherwise be payable to a retired federal employee, to another person if and to the extent expressly provided for in the terms of any court decree of, or any court order or court-approved property settlement incident to, divorce, annulment or legal separation.  Section 8345(j)(3) defines a court as any court of any state or the District of Columbia.

  In the present situation, G and A were divorced within two years after executing the property settlement agreement.  The payments

of one-half of G's annuity to A by the Civil Service Commission are deemed to be made for full and adequate consideration in money or money's worth under section 2516 of the Code.  Therefore, the payments to A are exempt from gift tax.

  If G and A had not obtained a divorce within two years after executing the property settlement agreement, G would have made a gift to A to the extent that the present value of the payments to be made to A under the agreement exceeds the present value of the support rights relinquished by A.  See Situation 1 in Rev. Rul. 77-314, 1977-2 C.B. 349.

HOLDING

  G has not made a gift to A of the portion of G's Civil Service Retirement annuity that is payable to A pursuant to a property settlement agreement executed within two years prior to divorce, because the transfer is deemed to be made for full and adequate consideration in money or money's worth under section 2516 of the Code.

Rev. Rul. 80-82, 1980-1 C.B. 209, 1980-12 I.R.B. 13.