of the gift), the aggregate amount to be paid within a year is first multiplied by the figure in column 2 of Table I opposite the number of years in column 1 nearest the age of the individual whose life measures the duration of the annuity. The product so obtained is then multiplied by whichever of the following factors is appropriate:

1.0087 for semiannual payments,
1.0130 for quarterly payments,
1.0159 for monthly payments,
1.0171 for weekly payments.

If the annuity is payable at the end of semiannual, quarterly, monthly, or weekly periods for a definite number of years the aggregate amount to be paid within a year is first multiplied by the figure in column 2 of Table II opposite the number of years in column 1 representing the duration of the annuity. The product so obtained is then multiplied by whichever of the above factors is appropriate. The application of this subparagraph may be illustrated by the following example:

Example. The facts are the same as those contained in example (1) set forth in subparagraph (1) above, except that the annuity is payable semiannually. The aggregate annual amount, $10,000, is multiplied by the factor 17.6853, and the product multiplied by 1.0087. The value of the gift is, therefore, $178,391.62 ($10,000 × 17.6853 X 1.0087).

(3) Payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods. (1) If the first payment of an annuity for the life of an individual is due at the beginning of the annual or other payment period rather than at the end (as for example if the first payment is to be made immediately after the date of the gift), the value of the annuity is the sum of (a) the first payment plus (b) the present value of a similar annuity, the first payment of which is not to be made until the end of the payment period, determined as provided in subparagraph (1) or (2) of this paragraph. The application of this subdivision may be illustrated by the following example:

Example. The donee is made the beneficiary for life of an annuity of $50 a month from the income of a trust, subject to the right reserved by the donor to cause the annuity to be paid for his own benefit or for the benefit of another. On the day a payment is due, the donor relinquishes his reserved power. The donee is then 50 years of age. The value of the gift is $50 plus the product of $50 × 12× 14.8486 (see Table I) X1.0159, or $9,100.82.

(ii) If the first payment of an annuity for a definite number of years is due at the beginning of the annual or other payment period, the applicable factor is the product of the factor shown in Table II multiplied by whichever of the following factors is appropriate:

1.0350 for annual payments,
1.0262 for semiannual payments,
1.0218 for quarterly payments,
1.0189 for monthly payments, or
1.0177 for weekly payments.

The application of this subdivision may be illustrated by the following example:

Example. The donee is the beneficiary of an annuity of $50 a month, subject to a reserved right in the donor to cause the annuity or the cash value thereof to be paid for his own benefit or the benefit of another. On the day a payment is due, the donor relinquishes the power. There are 300 payments to be made covering a period of 25 years, including the payment due. The value of the gift is the product of $50 × 12 X 16.4815 (factor for 25 years, Table II) X1.0189, or $10,075.80.

(c) Life estates and terms for years. If the interest to be valued is the right of a person for his life, or for the life of another person, to receive the income of certain property or to use nonincomeproducing property, the value of the interest is the value of the property multiplied by the figure in column 3 of Table I opposite the number of years nearest to the actual age of the measuring life. If the interest to be valued is the right to receive income of property or to use nonincome-producing property for a term of years, column 3 of Table II is used. The application of this paragraph may be illustrated by the following example:

Example. The donor, who during his life is entitled to receive the income from property worth $50,000, makes a gift of such interest. The donor is 31 years old on the date of the gift. The value of the gift is $35,534 ($50,000 × 0.71068).

(d) Remainders or reversionary interests. If the interest to be valued is a remainder or reversionary interest subject to a life estate, the value of the interest should be obtained by multiplying the value of the property at the date of the gift by the figure in column 4 of Table I opposite the number of years nearest the age of the life tenant. If the remainder or reversion is to take effect at the end of a term of years, column 4 of Table II should be used. The application of this paragraph may be illustrated by the following example:

Example. The donor transfers by gift property worth $50,000 which he is entitled to receive upon the death of his brother, to whom the income for life has been bequeathed. The brother at the date of the gift is 31 years of age. By reference to Table I, it is found that the figure in column 4 opposite age 31 is 0.28932. The value of the gift is, therefore, $14,466 ($50,000×0.28932).

(e) Actuarial computations by the Internal Revenue Service. If the interest to be valued is dependent upon the continuation, or termination of more than one life, or there is a term certain concurrent with one or more lives, or if the retained interest of the donor is conditioned upon survivorship, a special factor is necessary. The factor is to be computed upon the basis of the Makehamized mortality table appearing as Table 38 of United States Life Table and Actuarial Tables 1939-41, published by the United States Department of Commerce, Bureau of the Census, and interest at the rate of 32 percent a year, compounded annually. Many such factors may be found in, or readily computed with the use of the tables contained in, a pamphlet entitled "Actuarial Values for Estate and Gift Tax." This phamplet may be purchased from the Superintendent of Documents, United States Government Printing Office, Washington, D.C. 20402. However, if a special factor is required in the case of an actual gift, the Commissioner will furnish the factor to the donor upon request. The request must be accompanied by a statement of the date of birth of each person, the duration of whose life may affect the value of the interest, and by copies of the relevant nstruments.

(f) The following tables shall be used in the application of the provisions of this section:

TABLE I

Table, single life, 31⁄2 percent, showing the present worth of an annuity, of a life interest, and of a remainder interest)

§ 25.2512-6 Valuation of certain life insurance and annuity contracts; valuation of shares in an open-end investment company.

(a) Valuation of certain life insurance and annuity contracts. The value of a life insurance contract or of a contract for the payment of an annuity issued by a company regularly engaged in the selling of contracts of that character is established through the sale of the particular contract by the company, or through the sale by the company of comparable contracts. As valuation of an insurance policy through sale of comparable contracts is not readily ascertainable when the gift is of a contract which has been in force for some time and on which further premium payments are to be made, the value may be approximated by adding to the interpolated terminal reserve at the date of the gift the proportionate part of the gross premium last paid before the date of the gift which covers the period extending beyond that date. If, however, because of the unusual nature of the contract such approximation is not reasonably close to the full value, this method may not be used. The following examples, so far as relating to life insurance contracts, are of gifts of such contracts on which there are no accrued dividends or outstanding indebtedness.

Example (1). A donor purchases from a life insurance company for the benefit of another a life insurance contract or a contract for the payment of an annuity. The value of the gift is the cost of the contract.

Example (2). An annultant purchased from a life insurance company a single payment annuity contract by the terms of which he was entitled to receive payments of $1,200 annually for the duration of his life. Five years subsequent to such purchase, and when of the age of 50 years, he gratuitously assigns the contract. The value of the gift is the amount which the company would charge for an annuity contract providing for the payment of $1,200 annually for the life of a person 50 years of age.

Example (3). A donor owning a life insurance policy on which no further payments are to be made to the company (e.g., a single premium policy or paid-up policy) makes a gift of the contract. The value of the gift is the amount which the company would charge for a single premium contract of the same specified amount on the life of a person of the age of the insured.

Example (4). A gift is made four months after the last premium due date of an ordinary life insurance policy issued nine years and four months prior to the gift thereof

Example (5). A donor purchases from a life insurance company for $15,198, a joint and survivor annuity contract which provides for the payment of $60 a month to the donor during his lifetime, and then to his sister for such time as she may survive him. The premium which would have been charged by the company for an annuity of $60 monthly payable during the life of the donor alone is $10,690. The value of the gift is $4,508 ($15,198 less $10,690).

(b) Valuation of shares in an openend investment company. (1) The fair market value of a share in an open-end investment company (commonly known as a “mutual fund”) is the public offering price of a share, adjusted for any reduction in price available to the public in acquiring the number of shares included in the particular gift. In the absence of an affirmative showing of the public offering price in effect at the time of the gift, the last public offering price quoted by the company for the date of he gift shall be presumed to be the applicable public offering price. If there s no public offering price quoted by the company for the date of the gift (e.g., the date of the gift is a Saturday, SunHay, or holiday), the fair market value of the mutual fund share is the last pubic offering price quoted by the company for the first day preceding the date of he gift for which there is a quotation, adjusted for any reduction in price available to the public in acquiring the numper of shares included in the particular gift. As used in this paragraph, the erm "open-end investment company" ncludes only a company which on the

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date of the gift was engaged in offering its shares to the public in the capacity of an open-end investment company.

(2) The provisions of this paragraph shall apply with respect to gifts made after October 10, 1963.

[T.D. 6680, 28 FR. 10872, Oct. 10, 1963] § 25.2512-7 Effect of excise tax.

If jewelry, furs or other property, the purchase of which is subject to an excise tax, is purchased at retail by a taxpayer and made the subject of gifts within a reasonable time after purchase, the purchase price, including the excise tax, is considered to be the fair market value of the property on the date of the gift, in the absence of evidence that the market price of similar articles has increased or decreased in the meantime. Under other circumstances, the excise tax is taken into account in determining the fair market value of property to the extent, and only to the extent, that it affects the price at which the property would change hands between a willing buyer and a willing seller, as provided in § 25.2512-1.

§ 25.2512-8 Transfers for insufficient

consideration.

Transfers reached by the gift tax are not confined to those only which, being without a valuable consideration, accord with the common law concept of gifts, but embrace as well sales, exchanges, and other dispositions of property for a consideration to the extent that the value of the property transferred by the donor exceeds the value in money or money's worth of the consideration given therefor. However, a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is bona fide, at arm's length, and free from any donative intent), will be considered as made for an adequate and full consideration in money or money's worth. A consideration not reducible to a value in money or money's worth, as love and affection, promise of marriage, etc., is to be wholly disregarded, and the entire value of the property transferred constitutes the amount of the gift. Similarly, a relinquishment or promised relinquishment of dower or curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the spouse's property or estate, shall not be considered to any extent a consideration “in money

or money's worth." See, however, section 2516 and the regulations thereunder with respect to certain transfers incident to a divorce.

§ 25.2512-9

Valuation of annuities, life estates, terms for years, remainders, and reversions transferred after December 31, 1970.

(a) In general. (1) (i) Except as otherwise provided in this subparagraph, the fair market value of annuities, life estates, terms for years, remainders, and reversions transferred after December 31, 1970, is their present value determined under this section. The value of annuities issued by companies regularly engaged in their sale and of insurance policies issued by companies regularly engaged in their sale is determined under § 25.2512-6. The fair market value of a remainder interest in a charitable remainder unitrust, as defined in § 1.664-3, is its present value determined under § 1.664-4. The fair market value of a life interest or term for years in a charitable remainder unitrust is the fair market value of the property as of the date of transfer less the fair market value of the remainder interest on such date determined under § 1.664-4. The fair market value of interests in a pooled income fund, as defined in § 1.642 (c)-5, is their value determined under § 1.642 (c)-6. Where the donor transfers property in trust or otherwise and retains an interest therein, the value of the gift is the value of the property transferred less the value of the donor's retained interest. If the donor assigns or relinquishes an annuity, life estate, remainder, or reversion which he holds by virtue of a transfer previously made by himself or another, the value of the gift is the value of the interest transferred. (See § 25.2512-5 with respect to the valuation of annuities, life estates, terms for years, remainders, and reversions transferred on or before Dec. 31, 1970.)

(ii) If the donor transfers in calendar year 1971 either

(a) A remainder or a reversion subject to a life interest or a term for years which was transferred by him in December of 1970, or

(b) A life interest or term for years to which is subject a remainder which was transferred by him in December of 1970,

he shall make an election. He may elect to value the interest transferred in 1971

under § 25.2512-5 as if such section ap plied to transfers made before January 1972, or he may elect to have the trans fer valued under this section. If he elect the former, he shall so value the transfe and shall indicate that he is so electin by a statement to that effect attached his return for 1971. If he elects the latter the election shall not be effective unles he declares, in a statement attached his return for 1971, that he has filed a amended gift tax return for 1970, i which he has revalued the transfer mad in December 1970 under this section a if this section applied to transfers mad after November 30, 1970.

(2) The present value of an annuity life estate, remainder or reversion deter mined under this section which is de pendent on the continuation termination of the life of one person i computed by the use of Table A(1) A(2) in paragraph (f) of this section Table A(1) is to be used when the persor upon whose life the interest is based a male and Table A(2) is to be used wher such person is a female. The presen value of an annuity, term for years, remainder or reversion dependent on term certain is computed by the use of Table B in paragraph (f) of this section If the interest to be valued is dependen upon more than one life or there is a term certain concurrent with one o more lives, see paragraph (e) of this section. For purposes of the computations described in this section, the age of a person is to be taken as the age of that person at his nearest birthday.

(3) In all examples set forth in this section, the interest is assumed to have been transferred after December 31, 1970

(b) Annuities-(1) Payable annually at end of year. If an annuity is payable annually at the end of each year during the life of an individual (as for example if the first payment is due 1 year after the date of the gift), the amount payable annually is multiplied by the figure in column 2 of Table A(1) or A(2) whichever is appropriate, opposite the number of years in column 1 nearest the age of the individual whose life measures the duration of the annuity. If the annuity is payable annually at the end of each year for a definite number of years, the amount payable annually is multiplied by the figure in column 2 of Table B opposite the number of years in column 1 representing the duration of the annuity. The application of this subpara