[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR25.2512-6]

[Page 547-548]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 25_GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954--Table of Contents
 
Sec.  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

[[Page 548]]

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 annuitant 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 by the insured, who was 35 years of age 
at date of issue. The gross annual premium is $2,811. The computation 
follows:

Terminal reserve at end of tenth year.......................  $14,601.00
Terminal reserve at end of ninth year.......................   12,965.00
                                                             -----------
   Increase.................................................    1,636.00
One-third of such increase (the gift having been made four        545.33
 months following the last preceding premium due date), is..
Terminal reserve at end of ninth year                          12,965.00
                                                             -----------
Interpolated terminal reserve at date of gift...............   13,510.33
Two-thirds of gross premium ($2,811)........................    1,874.00
                                                             -----------
 Value of the gift..........................................   15,384.33


    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 open-end 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 redemption price of a share. 
In the absence of an affirmative showing of the public redemption price 
in effect at the time of the gift, the last public redemption price 
quoted by the company for the date of the gift shall be presumed to be 
the applicable public redemption price. If there is no public redemption 
price quoted by the company for the date of the gift (e.g., the date of 
the gift is a Saturday, Sunday, or holiday), the fair market value of 
the mutual fund share is the last public redemption price quoted by the 
company for the first day preceding the date of the gift for which there 
is a quotation. As used in this paragraph the term ``open-end investment 
company'' includes only a company which on the 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 December 31, 1954.

[T.D. 6680, 28 FR 10872, Oct. 10, 1963, as amended by T.D. 7319, 39 FR 
26723, July 23, 1974]