[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: 26CFR1.72-13]

[Page 264-266]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.72-13  Special rule for employee contributions recoverable in 
three years.

    (a) Amounts received as an annuity. (1) Section 72(d) provides a 
special rule for the treatment of amounts received as an annuity by an 
employee (or by the beneficiary or beneficiaries of an employee) under a 
contract to which section 72 applies. This special rule is applicable 
only in the event that:
    (i) At least part of the consideration paid for the contract is 
contributed by the employer, and
    (ii) The aggregate amount receivable as an annuity under such 
contract by

[[Page 265]]

the employee (or by his beneficiary or beneficiaries if the employee 
died before any amount was received as an annuity under the contract) 
within the 3-year period beginning on the date (whether or not before 
January 1, 1954) on which an amount is first received as an annuity 
equals or exceeds the total consideration contributed (or deemed 
contributed under section 72(f) and Sec. 1.72-8) by the employee as of 
such date as reduced by all amounts previously received and excludable 
from the gross income of the recipient under the applicable income tax 
law.

In such an event, section 72(d) provides that all amounts received as an 
annuity under the contract during a taxable year to which the Code 
applies shall be excluded from gross income until the total of the 
amounts excluded under that section plus all amounts excluded under 
prior income tax laws equals or exceeds the consideration contributed 
(or deemed contributed) by the employee. The excess, if any, and all 
amounts received by any recipient thereafter (whether or not received as 
an annuity), shall be fully included in gross income. See paragraph (b) 
of this section.
    (2) If the aggregate amount receivable as an annuity under the 
contract within three years from the date on which an amount is first 
received as an annuity thereunder will not equal or exceed the 
consideration contributed (or deemed contributed) by the employee in 
accordance with the provisions of Sec. 1.72-8, computed as of such 
date, the special rule of section 72(d) shall not apply to amounts 
received as an annuity under the contract and the general rules of 
section 72 shall apply thereto.
    (3) The aggregate of the amounts receivable as an annuity within the 
prescribed 3-year period shall be the total of all annuity payments 
anticipatable by an employee (or a beneficiary or beneficiaries of an 
employee, if the employee died before any amount was received as an 
annuity) under the contract as a whole as defined in paragraph (a) of 
Sec. 1.72-2. See paragraph (a)(3) of Sec. 1.72-2 for rules for 
determining what constitutes ``the contract'' in the case of 
distributions from an employees' trust or plan.
    (4) If subparagraphs (1) and (3) of this paragraph apply to amounts 
received as an annuity under a contract, the rule prescribed in 
subparagraph (1) of this paragraph shall apply to all amounts so 
received thereunder regardless of the fact that they may be payable (i) 
to more than one beneficiary, (ii) for the same or different intervals, 
(iii) in different sums, or (iv) for a different period certain, life, 
or lives.
    (5) For purposes of section 72(d), contributions which are made with 
respect to a self-employed individual and which are allowed as a 
deduction under section 404(a) are not considered contributions by the 
employee, but such contributions are considered contributions by the 
employer. A contribution which is deemed paid in a prior taxable year 
under the provisions of section 404(a)(6) shall be considered made with 
respect to a self-employed individual if the individual on whose behalf 
the contribution is made was self-employed for the taxable year in which 
the contribution is deemed paid, whether or not such individual is self-
employed at the time the contribution is actually paid. Contributions 
with respect to a self-employed individual who is an owner-employee used 
to purchase life, accident, health, or other insurance protection for 
such owner-employee shall not be treated as consideration for the 
contract contributed by the employee in computing the employee 
contributions for purposes of section 72(d).
    (b) Amounts not received as an annuity. If the rule of paragraph (a) 
of this section applies to a contract and, after the date on which an 
annuity payment is first received, amounts are received other than as an 
annuity under such contract in a taxable year to which the Code applies, 
they shall be included in the gross income of the recipient in 
accordance with the provisions of Sec. 1.72-11. Thus, if such amounts 
are received as a dividend or a similar distribution after the date on 
which an amount is first received as an annuity under the contract, they 
shall be included in the gross income of the recipient (in accordance 
with section 72(e)(1)(A) and paragraph (b)(2) of Sec. 1.72-11. All 
other amounts not received as an annuity shall be included in the gross 
income of the recipient in accordance with the

[[Page 266]]

provisions of section 72(e)(1)(B) and paragraph (c), (d), or (f), 
whichever is applicable, of Sec. 1.72-11. See section 72(e)(2).
    (c) Amounts received after the exhaustion of employee contributions. 
(1) Amounts received under a contract to which the rule of paragraph (a) 
of this section applies (whether or not such amounts are received as an 
annuity) shall be included in the gross income of the recipient if such 
amounts are received after the date on which the aggregate of all 
amounts excluded from gross income by the recipients under section 72(d) 
and prior income tax laws equalled or exceeded the consideration 
contributed (or deemed contributed) by the employee.
    (2) If the rule of paragraph (a) of this section applies to amounts 
received by an employee (or his beneficiary or beneficiaries) under a 
joint and survivor annuity contract, payments made to a prior annuitant 
may entirely exhaust the amounts excludable from gross income. In such 
case, amounts paid to the surviving annuitant (or annuitants) shall be 
included in gross income by such recipients.
    (d) Application of section 72(d) to a contract, trust, or plan 
providing for payments in a manner described in paragraph (b)(3)(i) of 
Sec. 1.72-2. For the purpose of applying section 72(d) and this 
section, any amount received in the nature of a periodic payment under a 
contract, trust, or plan which provides for the payment of amounts in a 
manner described in paragraph (b)(3)(i) of Sec. 1.72-2 shall be 
considered an amount received as an annuity notwithstanding the 
provisions of any other section of the regulations under section 72. The 
special exclusion rule of section 72(d) and paragraph (a) of this 
section shall apply to all amounts so received if the first amount 
received, when multiplied by the number of periodic payments to be made 
within the three years beginning on the date of its receipt, results in 
an amount in excess of the aggregate premiums or other consideration 
contributed (or deemed contributed) by the employee as of that date. If 
more than one series of periodic payments is to be paid under the same 
contract, trust, or plan, all payments anticipatable, whether because 
fixed in amount or determinable in the manner described in the preceding 
sentence, shall be aggravated for the purpose of determining the 
applicability of section 72 (d) to the contract, trust, or plan as a 
whole.
    (e) Inapplicability of section 72(d) and this section. Section 72(d) 
and this section do not apply to:
    (1) Amounts received as proceeds of a life insurance contract to 
which section 101(a) applies, nor to
    (2) Amounts paid to a surviving annuitant under a joint and survivor 
annuity contract to which paragraph (b)(3) of Sec. 1.72-5 applies, nor 
to
    (3) Amounts paid to an annuitant under Chapter 73 of Title 10 of the 
United States Code with respect to which section 72(o) and Sec. 1.122-1 
apply.

See also paragraph (d) of Sec. 1.72-14.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6497, 25 FR 
10021, Oct. 20, 1960; T.D. 6676, 28 FR 10135, Sept. 17, 1963; T.D. 7043, 
35 FR 8477, June 2, 1970]