[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.403(a)-1]

[Page 408-409]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.403(a)-1  Taxability of beneficiary under a qualified annuity plan.

    (a) An employee or retired or former employee for whom an annuity 
contract is purchased by his employer is not required to include in his 
gross income the amount paid for the contract at the time such amount is 
paid, whether or not his rights to the contract are forfeitable, if the 
annuity contract is purchased under a plan which meets the requirements 
of section 404(a)(2). For purposes of the preceding sentence, it is 
immaterial whether the employer deducts the amounts paid for the 
contract under such section 404(a)(2). See Sec. 1.403(b)-1 for rules 
relating to annuity contracts which are not purchased under qualified 
plans but which are purchased by organizations described in section 
501(c)(3) and exempt under section 501(a) or which are purchased for 
employees who perform services for certain public schools.
    (b) The amounts received by or made available to any employee 
referred to in paragraph (a) of this section under such annuity contract 
shall be included in gross income of the employee for the taxable year 
in which received or made available, as provided in section 72 (relating 
to annuities), except that certain total distributions described in 
section 403(a)(2) are taxable as long-term capital gains. For the 
treatment of such total distributions, see Sec. 1.403(a)-2. However, 
for taxable years beginning before January 1, 1964, section 72(e)(3) 
(relating to the treatment of certain lump sums), as in effect before 
such date, shall not apply to such amounts. For taxable years beginning 
after December 31, 1963, such amounts may be taken into account in 
computations under sections 1301 through 1305 (relating to income 
averaging).
    (c) If upon the death of an employee or of a retired employee, the 
widow or other beneficiary of such employee is paid, in accordance with 
the terms of the annuity contract relating to the deceased employee, an 
annuity or other death benefit, the extent to which the amounts received 
by or made available to the beneficiary must be included in the 
beneficiary's income under section 403(a) shall be determined in 
accordance with the rules presented in paragraph (a)(5) of Sec. 
1.402(a)-1.
    (d) An individual contract issued after December 31, 1962, or a 
group contract, which provides incidental life insurance protection may 
be purchased under a qualified annuity plan. For the rules as to 
nontransferability of such contracts issued after December 31, 1962, see 
Sec. 1.401-9. For the rules relating to the taxation of the cost of the 
life insurance protection and the proceeds thereunder, see Sec. 1.72-
16. Section 403(a) is not applicable to premiums paid after October 26, 
1956, for individual contracts which were issued prior to

[[Page 409]]

January 1, 1963, and which provide life insurance protection.
    (e) As to inclusion of full-time life insurance salesmen within the 
class of persons considered to be employees, see section 7701(a)(20).
    (f) For purposes of this section and Sec. 1.403(a)-2, the term 
``employee'' includes a self-employed individual who is treated as an 
employee under section 401(c)(1) and paragraph (b) of Sec. 1.401-10, 
and the term ``employer'' means the person treated as the employer of 
such individual under section 401(c)(4). For the rules relating to 
annuity plans covering self-employed individuals, see section 404(a)(2) 
and Sec. Sec. 1.404(a)-8 and 1.401-10 through 1.401-13.
    (g) For the treatment of amounts paid to provide medical benefits 
described in section 401(h) as defined in Sec. 1.401-14, see paragraph 
(h) of Sec. 1.72-15.

[T.D. 6500, 25 FR 11680, Nov. 26, 1960, as amended by T.D. 6676, 28 FR 
10143, Sept. 17, 1963; T.D. 6722, 29 FR 5073, Apr. 14, 1964; T.D. 6783, 
29 FR 18359, Dec. 24, 1964; T.D. 6885, 31 FR 7801, June 2, 1966]