REVENUE RULE 94-41

1994-1 C.B. 181, 1994-26 I.R.B. 5.

Internal Revenue Service
Revenue Ruling

VALUATION OF A REMAINDER INTEREST IN PROPERTY TRANSFERRED TO A NEW POOLED INCOME FUND UNDER SECTION 642(C)(5)

Published: June 27, 1994

§642.--Special Rules for Credits and Deductions, 26 CFR 1.642(c)-6: Valuation of a remainder interest in property transferred to a pooled income fund.
(See Also Sections 170, 2055, 2522; 1.170A-6, 20.2055-2, 25.2522(c)-3.

Valuation of a remainder interest in property transferred to a new pooled income fund under section 642(c)(5). A cumulative list of the deemed rates of return computed under section 7520 of the Code is provided for transfers to new pooled income funds that have been in existence for less than 3 taxable years.

This revenue ruling provides a cumulative list of the deemed rates of return computed under s 7520 of the Internal Revenue Code for pooled income funds (PIFs) described in s 642(c)(5) that have been in existence for less than 3 taxable years immediately preceding the taxable year in which a transfer is made to the PIF.

Section 5031 of the Technical and Miscellaneous Revenue Act of 1988, 1988-3 C.B. 9, 328, enacted s 7520, which, for income, estate, gift, and generation- skipping transfer tax purposes, revised the method for valuing annuities, interests for life or terms of years, and remainder or reversionary interests created after April 30, 1989. Under s 7520, the value of those interests is determined by using an interest rate (rounded to the nearest 2/10ths of 1 percent) equal to 120 percent of the applicable federal mid-term rate under s 1274(d)(1) for the month in which the valuation date falls and life contingencies in mortality tables prescribed in the regulations.

Section 1.642(c)-6(e)(2) of the Income Tax Regulations provides that the present value of an income interest in property transferred to a PIF is computed on the basis of life contingencies prescribed under s 20.2031-7(d)(6) of the Estate Tax Regulations and an interest rate equal to the highest yearly rate of return of the PIF for the 3 taxable years immediately preceding the taxable year in which the transfer to the PIF is made. A deemed rate of return must be used for any transfer to a new PIF until the PIF has been in existence for 3 taxable years and can compute its highest rate of return for the 3 taxable years immediately preceding the taxable year in which the transfer to the PIF is made. See s 1.642(c)-6(e)(2)(ii).

In the case of a transfer to a new PIF after November 30, 1983, and before May 1, 1989, the deemed rate of return is 9 percent. If a transfer is made to a new PIF after April 30, 1989, the deemed rate of return is the interest rate (rounded to the nearest 2/10ths of 1 percent) that is 1 percent less than the highest annual average of the monthly s 7520 rates for the 3 calendar years immediately preceding the calendar year in which the transfer to the PIF is made.

Table 1 illustrates how the deemed rate of return for transfers to new PIFs in 1994 is computed. Table 2 lists the rates for transfers to new PIFs in 1994 and the rates for transfers to new PIFs in each of the past 5 calendar years.

Rev.Rul. 94-41 Table 1

Computation of Deemed Rate of Return for Transfers to New Pooled Income Funds in 1994
The interest rates for each month in the three columns below are the rates prescribed by s 7520 for those months.

Rev.Rul. 94-41 Table 2

Deemed Rates of Return for Transfers to New Pooled Income Funds Time of Transfer Deemed Rate of Return

DRAFTING INFORMATION

The principal author of this revenue ruling is William L. Blodgett of the Office of Assistant Chief Counsel (Pass-throughs and Special Industries). For further information regarding this revenue ruling contact William L. Blodgett on (202) 622-3090 (not a toll-free call).

Rev. Rul. 94-41, 1994-1 C.B. 181, 1994-26 I.R.B. 5.