[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.72-1]

[Page 141-142]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.72-1  Introduction.

    (a) General principle. Section 72 prescribes rules relating to the 
inclusion in gross income of amounts received under a life insurance, 
endowment, or annuity contract unless such amounts are specifically 
excluded from gross income under other provisions of Chapter 1 of the 
Code. In general, these rules provide that amounts subject to the 
provisions of section 72 are includible in the gross income of the 
recipient except to the extent that they are considered to represent a 
reduction or return of premiums or other consideration paid.
    (b) Amounts to be considered as a return of premiums. For the 
purpose of determining the extent to which amounts received represent a 
reduction or return of premiums or other consideration paid, the 
provisions of section 72 distinguish between ``amounts received as an 
annuity'' and ``amounts not received as an annuity''. In general, 
``amounts received as an annuity'' are amounts which are payable at 
regular intervals over a period of more than one full year from the date 
on which they are deemed to begin, provided the total of the amounts so 
payable or the period for which they are to be paid can be determined as 
of that date. See paragraph (b) (2) and (3) of Sec. 1.72-2. Any other 
amounts to which the provisions of section 72 apply are considered to be 
``amounts not received as an annuity''. See Sec. 1.72-11.
    (c) ``Amounts received as an annuity.'' (1) In the case of ``amounts 
received as an annuity'' (other than certain employees' annuities 
described in section 72(d) and in Sec. 1.72-13), a proportionate part 
of each amount so received is considered to represent a return of 
premiums or other consideration paid. The proportionate part of each 
annuity payment which is thus excludable from gross income is determined 
by the ratio which the investment in the contract as of the date on 
which the annuity is deemed to begin bears to the expected return under 
the contract as of that date. See Sec. 1.72-4.
    (2) In the case of employees' annuities of the type described in 
section 72(d), no amount received as an annuity in a taxable year to 
which the Internal Revenue Code of 1954 applies is includible in the 
gross income of a recipient until the aggregate of all amounts received 
thereunder and excluded from gross income under the applicable income 
tax law exceeds the consideration contributed (or deemed contributed) by 
the employee under Sec. 1.72-8. Thereafter, all amounts so received are 
includible in the gross income of the recipient. See Sec. 1.72-13.
    (d) ``Amounts not received as an annuity''. In the case of ``amounts 
not received as an annuity'', if such amounts are received after an 
annuity has begun and during its continuance, amounts so received are 
generally includible in the gross income of the recipient. Amounts not 
received as an annuity which are received at any other time are 
generally includible in the gross income of the recipient only to the 
extent that such amounts, when added to all amounts previously received 
under the contract which were excludable from the gross income of the 
recipient under the income tax law applicable at the time of receipt, 
exceed the premiums or other consideration paid (see Sec. 1.72-11). 
However, if the aggregate of premiums or other consideration paid for

[[Page 142]]

the contract includes amounts for which a deduction was allowed under 
section 404 as contributions on behalf of an owner-employee, the amounts 
received under the circumstances of the preceding sentence shall be 
includible in gross income until the amount so included equals the 
amount for which the deduction was so allowed. See paragraph (b) of 
Sec. 1.72-17.
    (e) Classification of recipients. For the purpose of the regulations 
under section 72, a recipient shall be considered an ``annuitant'' if he 
receives amounts under an annuity contract during the period that the 
annuity payments are to continue, whether for a term certain or during 
the continuing life or lives of the person or persons whose lives 
measure the duration of such annuity. However, a recipient shall be 
considered a ``beneficiary'' rather than an ``annuitant'' if the amounts 
he receives under a contract are received after the term of the annuity 
for a life or lives has expired and such amounts are paid by reason of 
the fact that the contract guarantees that payments of some minimum 
amount or for some minimum period shall be made. For special rules with 
respect to beneficiaries, see paragraphs (a)(1)(iii) and (c) of Sec. 
1.72-11.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6676, 28 FR 
10134, Sept. 17, 1963]