Internal Revenue Service
Revenue Ruling
Rev. Rul. 72-438
1972-2 C.B. 38
Sec. 72
Sec. 101
Sec. 170
Sec. 172
Sec. 1011
Caution: Amplified by Rev. Rul. 84-162
IRS Headnote
Revised annuity rate table to be used for valuing annuity contracts issued
after September 18, 1972, by organizations, other than insurance companies,
in exchange for money or other property; Revenue Rulings 62-137, 62-216
and 67-39 amplified.
Full Text
Rev. Rul. 72-438
Section 1. Purpose
The purpose of this Revenue Ruling is to update the rate tables contained
in Revenue Ruling 62-216, C.B. 1962-2, 30, and to add tables to be used in
the evaluation of certain types of deferred payment annuity contracts more
fully described below.
Sec. 2. Background
.01 Revenue Ruling 62-137, C.B. 1962-2, 28, holds that for purposes of
section 72 of the Internal Revenue Code of 1954, the aggregate amount of
consideration paid (investment in the contract), in the case of life
annuity contracts issued by an organization such as a corporation, trust,
fund, or foundation (other than an insurance company) which from time to
time enters into agreements to pay annuities of a specified amount to
individuals or their designees in exchange for money or other property, is
to be determined by reference to the cost of a comparable contract
purchased from an insurance company, citing Anna L. Raymond v.
Commissioner, 40 B.T.A. 244, affirmed 114 Fed. (2d) 140, certiorari denied,
311 U.S. 710.
.02 Revenue Ruling 62-137 was supplemented by Revenue Ruling 62-216, which
contains expanded tables of annuity rates.
.03 Revenue Ruling 62-216 states that the annuity rates set forth therein
are subject to change depending on market conditions, and that notice of
change will be given by publication in the Internal Revenue Bulletin.
.04 Revenue Ruling 67-39, C.B. 1967-1, 18, holds that the rates set forth
in Revenue Ruling 62-216 are to be used for estate and gift tax purposes
and for income tax purposes as well as for purposes of section 72 of the
Code, in valuing annuity contracts issued from time to time by an
organization such as a corporation, trust, fund or foundation (other than
an insurance company) in exchange for money or other property.
.05 Recently, many such organizations have begun issuing so-called deferred
payment annuity contracts in exchange for money or other property, and have
requested that tables be furnished that may be used to evaluate such
contracts for the purposes referred to above. These contracts, which
provide no guaranteed payments or refund feature, are further described in
section 8.
Sec. 3. Rates to be Used
The annuity rates set forth in the following sections shall be used instead
of the annuity rates of Revenue Ruling 62-216, above, in valuing any of the
annuity contracts described in section 2 that are issued after September
18, 1972. The rates of Revenue Ruling 62-216 continue to apply to annuity
contracts described in section 2 that were issued on or before such date,
except that deferred payment annuity contracts require a special
computation. In the case of an actual gift, the Commissioner will
ordinarily supply the computation upon request. The request must be
accompanied by a statement of the date of birth and sex of each annuitant
and by copies of the relevant instruments.
Sec. 4. Unadjusted Rates. Semiannual Basis, Ages Nearest Birthday.
.01 The annuity rates of Tables A and C of section 14 are rates for
annuities payable in equal semiannual installments, first installment 6
months from valuation date. The method of adjusting for other modes of
payment is described in section 5.
.02 Rates for single life annuities are set forth in Table A. Rates for
annuities payable during the joint lives of two male annuitants of equal
age are set forth in Table C. The use of Table C is demonstrated in section
6.
.03 For purposes of the computations described in this Revenue Ruling, the
age of a person is to be taken as the age of that person at his nearest
birthday.
Sec. 5. Adjustment for Mode of Payment
.01 First annuity payment due at once. To obtain the rate for $1.00 per
annum payable in equal installments at the beginning of each--
1 monthly period, add $0.310 to the unadjusted rate.
2 quarterly period, add $0.399 to the unadjusted rate.
3 semiannual period, add $0.532 to the unadjusted rate.
4 annual period, add $0.798 to the unadjusted rate.
.02 First annuity payment due at the end of 1, 3, 6, or 12 months. To
obtain the rate for $1.00 per annum payable in equal installments at the
end of each--
1 monthly period, add $0.222 to the unadjusted rate.
2 quarterly period, add $0.133 to the unadjusted rate.
3 semiannual period, use the unadjusted rate.
4 annual period, subtract $0.266 from the unadjusted rate.
Sec. 6. Joint Life Annuity (Two Lives)
.01 A necessary step in the computation of a joint and survivor annuity
rate is to determine a joint life annuity rate. This step utilizes Table B
and C of section 14 in the following manner:
1 If one or both of the annuitants is female, substitute for each female
annuitant a male annuitant 4 years younger; that is, subtract 4 years from
the age of each female annuitant. Tables B and C are then used with male
ages only, either actual or substituted.
2 An "equivalent equal age" corresponding to any two male ages can be
determined by means of Table B. This age will consist of a whole number and
a decimal. Straight line interpolation between two adjacent premiums in
Table C will then give a value, corresponding to the "equivalent equal
age," which is the joint life annuity rate required. Example 1. The joint
life annuity rate for a male annuitant aged 65 and a female annuitant aged
60 is $9.042, obtained as follows:
Actual ages 65M 60F
Subtract 4 years from age of each
female annuitant -- 4
--- ---
Male ages 65M 56M
Differences in male ages: 9
Addition to younger age for a
difference in age of 9 years
(See Table B) 5.596
-------
Equivalent equal age 61.596M
Integral ages below and above
61.596M: 61M, 62M
Joint life annuity rates from
Table C:
2 lives both aged 61M $9.212
2 lives both aged 62M 8.927
-------
Decrease for 1 year of age $0.285
Times fractional part of equi-
valent equal age X 0.596
Decrease for 0.596 of a year
of age $0.170
Above rate, 2 lives both aged 61M $9.212
Decrease for 0.596 of a year of age 0.170
-------
Joint life annuity rate, 2 lives
aged 61.596M $9.042
Use same rate for 2 lives aged 65M
and 56M $9.042
Use same rate for 2 lives aged 65M
and 60F $9.042
Example 2. The joint life annuity rate for two female annuitants aged 69
and 60 is also $9.042 because their substitute ages, 4 years less than
their actual ages, are 65M and 56M. See Example 1.
Sec. 7. Joint and Survivor Annuity (Two Lives)
.01 The rate for a joint and survivor annuity is determined as follows:
1. Find the sum of the two single life rates from Table A that are
separately applicable to the annuitants.
2. Compute the joint life annuity rate for the two annuitants, using
Tables B and C and the method described in section 6.
3. Subtract the second result from the first to obtain the required joint
and survivor annuity rate.
Example 3. The rate for an annuity of $1.00 per annum payable during the
joint lives and the life of the survivor of a male annuitant aged 65 and a
female annuitant aged 60 is $13.452, obtained as follows:
Single life rate, age 65M, Table A $10.104
Single life rate, age 60F, Table A 12.390
-------
$22.494
Less: Joint life annuity rate, ages
65M and 60F (see Example 1) 9.042
-------
Required joint and survivor annuity rate $13.452
Accordingly, the value determined from the present tables of a joint and
survivor annuity providing payments of $500 each at the end of each 6 month
period while at least one of the two annuitants survives is $1,000 times
13.452 or $13,452.
Example 4. Because of the 4-year age differential discussed in section 6,
the same joint and survivor rate applies in all of the following cases:
Age and sex of the annuitants Joint and survivor annuity rate
65M:60F (Example 3) $13.452
69F:60F 13.452
65M:56M 13.452
69F:56M 13.452
Sec. 8. Deferred Payment Annuities. The Starting Anniversary
.01 An annuity agreement may provide a deferred payment annuity, that is,
an annuity that commences more than one year from the date of purchase. The
annuities discussed herein include a deferred payment single life annuity,
where all obligation under the agreement ceases on the death of a
designated annuitant; a deferred payment joint life annuity, where the
obligation ceases on the first death among two designated annuitants; and a
deferred payment joint and survivor annuity, where the obligation ceases on
the last death among two designated annuitants.
.02 For the purpose of valuing deferred payment annuities, it is
convenient to make use of a date called the "starting anniversary." The
starting anniversary of a deferred payment annuity is the anniversary of
the date of purchase that coincides with (or next precedes, if none
coincides with) the due date of the first annuity payment.
Sec. 9. Deferred Payment Single Life Annuity. Discounting the Rate at the
Starting Anniversary
.01 The rate at the starting anniversary for a deferred payment single
life annuity is the rate from Table A based on the attained age of the
annuitant at the starting anniversary and adjusted for mode of payment in
accordance with section 5.
.02 The rate described in section 9.01 is then discounted by multiplying
it by the quotient obtained by dividing (1) the D-factor opposite the
attained age of the annuitant at the starting anniversary by (2) the
D-factor opposite the age of the annuitant at the date of purchase. The
discounted rate so obtained is the rate at date of purchase.
Example 5. A man at age 55 purchases a deferred payment life annuity on
his own life that is to pay $1,200 per annum in equal semiannual
installments, first installment payable 10 years hence. The rate for the
annuity at date of purchase is $5.292, determined as follows:
(1) Age of annuitant at starting anniversary 65M
(2) Rate from Table A, age 65M $10.104
(3) Adjustment for semiannual installments,
first installment due at once (see section 5) + 0.532
(4) Rate at starting anniversary $10.636
(5) Age at starting anniversary 65M
(6) Age at date of purchase 55M
(7) D-factor, age 65M (Table D) 185,700.6
(8) D-factor, age 55M (Table D) 373,221.4
(9) Quotient: (7) divided by (8) 0.497562
(10) Rate at date of purchase: (4) times (9) $5.292
Based on the rate at date of purchase, the value of the annuity at date of
purchase is $1,200 X 5.292 or $6,350.40.
Example 6. The facts are the same as in Example 5, except that the annuity
of $1,200 per annum is payable in equal monthly installments, first
installment payable 10 years and 1 month hence. The rate for the annuity at
date of purchase is $5.138, determined as follows:
(1) Age of annuitant at starting anniversary 65M
(2) Rate from Table A, age 65M $10.104
(3) Adjustment for monthly installments,
1st installment due 1 month hence (see section 5) + 0.222
--------
(4) Rate at starting anniversary $10.326
(5) Age at starting anniversary 65M
(6) Age at date of purchase 55M
(7) D-factor, age 65M (Table D) 185,700.6
(8) D-factor, age 55M (Table D) 373,221.4
(9) Quotient: (7) divided by (8) 0.497562
(10) Rate at date of purchase: (4) times (9) $5.138
Based on the rate at date of purchase, the value of the annuity at date of
purchase is $1,200 X 5.138 or $6,165.60.
Sec. 10. Deferred Payment Joint Life Annuity (Two Lives). Discounting the
Rate at the Starting Anniversary
.01 The rate at the starting anniversary for a deferred payment joint life
annuity (two lives) is the joint life annuity rate (1) determined in
accordance with section 6 on the basis of the attained ages of the
annuitants at the starting anniversary, and (2) adjusted for mode of
payment in accordance with section 5.
.02 The rate described in section 10.01 is then discounted by multiplying
it by the product of two quotients. The first quotient is (1) the D-factor
in Table D opposite the attained age of the first annuitant at the starting
anniversary divided by (2) the D-factor opposite the age of such annuitant
at the date of purchase. The second quotient is (1) the 1-factor in Table D
opposite the attained age of the second annuitant at the starting
anniversary divided by (2) the 1-factor opposite the age of such annuitant
at the date of purchase. Either annuitant may be selected as the first
annuitant; the product of the two quotients will not be affected. The
discounted rate so obtained is the rate at date of purchase.
Example 7. Two annuitants, a man aged 55 and a woman aged 50, purchase a
deferred payment joint life annuity that is to pay $1,200 per annum in
equal semiannual installments while both of them are living, first
installment payable 10 years hence. The rate for the annuity at date of
purchase is $4.522, determined as follows:
(1) Ages of annuitants at starting anniversary 65M:60F
(2) Joint life annuity rate, ages 65M and 60F
(see Example 1) $9.042
(3) Adjustment for semiannual payments, 1st
payment due at once (see section 5) + 0.532
-------
(4) Rate at starting anniversary $9.574
(5) First annuitant's age at starting anniversary 65M
(6) First annuitant's age at purchase 55M
(7) D-factor, age 65M 185,700.6
(8) D-factor, age 55M 373,221.4
(9) Quotient: (7) divided by (8) 0.497562
(10) Second annuitant's age at starting
anniversary 60F
(11) Second annuitant's age at purchase 50F
(12) 1-factor, age 60F 9,128,516
(13) 1-factor, age 50F 9,616,151
(14) Quotient: (12) divided by (13) 0.949290
(15) Product of quotients: (9) times (14) 0.472331
(16) Rate at date of purchase: (4) times (15) $4.522
Based on the rate at date of purchase, the value of the annuity at date of
purchase is $1,200 X 4.522 or $5,426.40.
Sec. 11. Deferred Payment Joint and Survivor Annuity (Two Lives)
The rate at date of purchase for a deferred payment joint and survivor
annuity (two lives) is equal to--
(1) the rate at date of purchase for a deferred payment single life
annuity on the life of the first annuitant
plus
(2) the rate at date of purchase for a deferred payment single life
annuity on the life of the second annuitant
minus
(3) the rate at date of purchase for a deferred payment joint life annuity
on the lives of both of the annuitants.
Rates (1) and (2) are determined by the method of section 9. Rate (3) is
determined by the method of section 10.
Example 8. Two annuitants, a man aged 55 and a woman aged 50, purchase a
deferred payment joint and survivor annuity that is to pay $1,200 per annum
in equal semiannual installments while at least one of them is living,
first installment payable 10 years hence. The rate for the annuity at date
of purchase is $7.620, determined as follows: (1) Rate at date of purchase
for deferred payment life annuity, one life, age 55M, semi- annual
installments, 1st installment 10 years hence (from Example 5) $5.292
(2) Rate at date of purchase for deferred payment life annuity, one life,
age 50F, semi- annual installments, 1st installment 10 years hence
(computed by method of section 9) $6.850
(3) Rate at date of purchase for deferred payment joint life annuity, two
lives, ages 55M and 50F, semiannual installments, 1st installment 10 years
hence (from Example 7) $4.522
(4) Rate at date of purchase for deferred payment joint and survivor
annuity: (1) plus (2) minus (3) $7.620
Based on the foregoing, the value of the given annuity at date of purchase
is $1,200 X 7.620 or $9,144.00.
Sec. 12. Rates Subject to Change
Tables A, B, C, and D are subject to change depending upon market
conditions. Notice of change will be given by publication in the Internal
Revenue Bulletin.
Sec. 13. Effect on Other Documents
Revenue Ruling 62-137, Revenue Ruling 62-216, and Revenue Ruling 67-39 are
amplified.
Sec. 14. Tables
Table A
Single Life Annuity Rates
($1.00 per annum in semiannual installments)
Rate
------------------------
Age Male Female
0 17.546 ______
1 17.573 ______
2 17.569 ______
3 17.555 ______
4 17.538 17.546
5 17.519 17.573
6 17.498 17.569
7 17.475 17.555
8 17.450 17.538
9 17.424 17.519
10 17.396 17.498
11 17.366 17.475
12 17.335 17.450
13 17.302 17.424
14 17.267 17.396
15 17.230 17.366
16 17.191 17.335
17 17.150 17.302
18 17.107 17.267
19 17.061 17.230
20 17.013 17.191
21 16.962 17.150
22 16.908 17.107
23 16.852 17.061
24 16.792 17.013
25 16.729 16.962
26 16.663 16.908
27 16.593 16.852
28 16.520 16.792
29 16.442 16.729
30 16.361 16.663
31 16.275 16.593
32 16.185 16.520
33 16.091 16.442
34 15.991 16.361
35 15.887 16.275
36 15.777 16.185
37 15.662 16.091
38 15.541 15.991
39 15.414 15.887
40 15.281 15.777
41 15.142 15.662
42 14.996 15.541
43 14.844 15.414
44 14.687 15.281
45 14.524 15.142
46 14.356 14.996
47 14.182 14.844
48 14.004 14.687
49 13.820 14.524
50 13.632 14.356
51 13.438 14.182
52 13.239 14.004
53 13.035 13.820
54 12.826 13.632
55 12.611 13.438
56 12.390 13.239
57 12.164 13.035
58 11.931 12.826
59 11.691 12.611
60 11.444 12.390
61 11.190 12.164
62 10.928 11.931
63 10.660 11.691
64 10.385 11.444
65 10.104 11.190
66 9.816 10.928
67 9.522 10.660
68 9.224 10.385
69 8.920 10.104
70 8.612 9.816
71 8.301 9.522
72 7.987 9.224
73 7.670 8.920
74 7.353 8.612
75 7.034 8.301
76 6.716 7.987
77 6.399 7.670
78 6.084 7.353
79 5.773 7.034
80 5.466 6.716
81 5.164 6.399
82 4.868 6.084
83 4.578 5.773
84 4.296 5.466
85 4.023 5.164
86 3.759 4.868
87 3.505 4.578
88 3.263 4.296
89 3.033 4.023
90 2.818 3.759
91 2.620 3.505
92 2.431 3.263
93 2.251 3.033
94 2.080 2.818
95 1.918 2.620
96 1.766 2.431
97 1.622 2.251
98 1.488 2.080
99 1.362 1.918
100 1.244 1.766
101 1.135 1.622
102 1.033 1.488
103 .936 1.362
104 .842 1.244
105 .739 1.135
106 .591 1.033
107 _____ .936
108 _____ .842
109 _____ .739
110 _____ .591
Table B
Uniform Seniority Table
Two male lives
--------------------------------------------------
Difference in age Addition to younger age
1 .514
2 1.057
3 1.626
4 2.224
5 2.848
6 3.499
7 4.174
8 4.873
9 5.596
10 6.342
11 7.107
12 7.892
13 8.696
14 9.517
15 10.354
16 11.206
17 12.071
18 12.949
19 13.839
20 14.739
21 15.649
22 16.568
23 17.495
24 18.429
25 19.369
26 20.316
27 21.268
28 22.225
29 23.187
30 24.152
31 25.121
32 26.093
33 27.068
34 28.046
35 29.026
36 30.008
37 30.992
38 31.977
39 32.965
40 33.953
41 34.943
42 35.934
43 36.926
44 37.918
45 38.912
46 39.906
47 40.900
48 41.896
49 42.891
50 43.888
51 44.885
52 45.882
53 46.879
54 47.876
55 48.875
56 49.872
57 50.871
58 51.869
59 52.868
60 53.867
Table C
Joint Life Annuity Rates
Two Male Lives
($1.00 per annum in semiannual installments)
Equal Ages (Male)
Age Rate
0 17.259
1 17.322
2 17.323
3 17.306
4 17.283
5 17.257
6 17.228
7 17.195
8 17.160
9 17.123
10 17.083
11 17.041
12 16.996
13 16.949
14 16.900
15 16.847
16 16.792
17 16.734
18 16.673
19 16.608
20 16.540
21 16.468
22 16.393
23 16.314
24 16.230
25 16.142
26 16.050
27 15.953
28 15.851
29 15.744
30 15.631
31 15.513
32 15.390
33 15.260
34 15.124
35 14.981
36 14.832
37 14.676
38 14.513
39 14.342
40 14.164
41 13.977
42 13.783
43 13.583
44 13.376
45 13.163
46 12.946
47 12.724
48 12.498
49 12.268
50 12.034
51 11.797
52 11.556
53 11.312
54 11.064
55 10.813
56 10.558
57 10.298
58 10.034
59 9.766
60 9.492
61 9.212
62 8.927
63 8.638
64 8.345
65 8.047
66 7.747
67 7.444
68 7.140
69 6.835
70 6.529
71 6.224
72 5.921
73 5.620
74 5.322
75 5.028
76 4.739
77 4.456
78 4.180
79 3.911
80 3.651
81 3.400
82 3.158
83 2.926
84 2.704
85 2.493
86 2.292
87 2.103
88 1.926
89 1.762
90 1.611
91 1.478
92 1.354
93 1.238
94 1.130
95 1.030
96 .938
97 .853
98 .776
99 .705
100 .641
101 .584
102 .532
103 .486
104 .446
105 .410
106 .371
107 0.000
Table D
Values of 1x and Dx
Age
---------------------
Male Female 1x Dx
0 4 10000000 10000000
1 5 9970500 9406132
2 6 9958994 8863469
3 7 9952541 8356345
4 8 9947346 7879229
5 9 9942790 7429831
6 10 9938684 7006380
7 11 9934868 6607254
8 12 9931242 6230984
9 13 9927706 5876193
10 14 9924211 5541627
11 15 9920708 5226105
12 16 9917146 4928517
13 17 9913506 4647838
14 18 9909798 4383113
15 19 9906003 4133428
16 20 9902120 3897932
17 21 9898139 3675816
18 22 9894041 3466315
19 23 9889826 3268716
20 24 9885474 3082337
21 25 9880966 2906539
22 26 9876292 2740721
23 27 9871433 2584314
24 28 9866369 2436781
25 29 9861090 2297620
26 30 9855558 2166350
27 31 9849753 2042523
28 32 9843646 1925713
29 33 9837208 1815523
30 34 9830410 1711573
31 35 9823204 1613508
32 36 9815552 1520992
33 37 9807415 1433708
34 38 9798726 1351357
35 39 9789447 1273658
36 40 9779501 1200343
37 41 9768832 1131164
38 42 9757373 1065884
39 43 9745030 1004279
40 44 9731709 946138.0
41 45 9717316 891262.9
42 46 9701564 839451.1
43 47 9683985 790500.0
44 48 9664162 744228.2
45 49 9641673 700468.3
46 50 9616151 659069.9
47 51 9587254 619895.6
48 52 9554657 582818.8
49 53 9518053 547722.7
50 54 9477192 514501.2
51 55 9431815 483054.5
52 56 9381572 453284.2
53 57 9326371 425110.5
54 58 9265862 398445.7
55 59 9200028 373221.4
56 60 9128516 349358.8
57 61 9051344 326797.5
58 62 8968153 305466.0
59 63 8879010 285311.0
60 64 8783534 266267.0
61 65 8681803 248286.0
62 66 8572959 231295.5
63 67 8456410 215236.8
64 68 8331551 200055.5
65 69 8197746 185700.6
66 70 8054335 172124.5
67 71 7900272 159275.5
68 72 7734848 147113.6
69 73 7557349 135601.6
70 74 7367100 124705.6
71 75 7163459 114394.8
72 76 6945310 104633.2
73 77 6712128 95396.4
74 78 6463517 86663.2
75 79 6199256 78415.1
76 80 5919353 70636.4
77 81 5623338 63305.7
78 82 5311777 56413.4
79 83 4985639 49952.5
80 84 4646356 43918.1
81 85 4295872 38306.8
82 86 3936681 33116.9
83 87 3571845 28346.9
84 88 3205002 23995.8
85 89 2840295 20061.6
86 90 2482307 16540.6
87 91 2135909 13426.8
88 92 1806067 10710.7
89 93 1497594 8378.61
90 94 1214884 6412.20
91 95 961599 4788.07
92 96 743131 3490.81
93 97 559331 2478.70
94 98 408893 1709.46
95 99 289448 1141.60
96 100 197741 735.76
97 101 129892 455.95
98 102 81706 270.57
99 103 48995 153.06
100 104 27868 82.13
101 105 14954 41.58
102 106 7524 19.74
103 107 3526 8.73
104 108 1528 3.57
105 109 607 1.34
106 110 219 .46
107 111 71 .14
108 112 0 0.00
