Example. The M Corporation, the employer of A, a deceased employee who died November 30, 1954, makes payments in 1955 to the beneficiaries of A as follows: $5,000 to W, A's widow, $2,000 to B, the son of A, and $3,000 to C, the daughter of A. No other amounts are paid by any other employer of A to his estate or beneficiaries. By application of the apportionment rule stated above, W, the widow, will exclude $2,500 ($5,000/$10,000, or one-half, of $5,000); B, the son, will exclude $1,000 ($2,000/$10,000, or one-fifth, of $5,000); and C, the daughter, will exclude $1,500 ($3,000/$10,000, or three-tenths, of $5,000).
or
For purposes of subdivision (iii) of this subparagraph, any amount paid in discharge of an obligation which arose solely because of the existence of a particular fact or circumstance subsequent to the employee's death shall not be considered an amount paid in lieu of amounts described in subdivision (i) or (ii) of this subparagraph. Subdivision (iii) of this subparagraph shall apply, however, to the extent indicated therein, to amounts payable without regard to any such contingency (to the extent that such amounts are equal to or less than those described in subdivision (i) and (ii) of this subparagraph which are not paid). See paragraph (e)(1)(iii)(b) of this section for rules with respect to finding the present value of an annuity immediately before the employee's death.
However, the amount that is excludable under section 101(b) by reason of this subparagraph shall not exceed an amount which bears the same ratio to the amount which would be includible in the payee's gross income if it were not for the second sentence of section 101(b)(2)(B) and this subparagraph, as the amount contributed by the employer for the annuity contract that was excludable from the deceased employee's gross income under paragraph (b) of § 1.403(b)-1 bears to the total amount contributed by the employer for the annuity contract. See section 101(b)(2)(B)(iii). For purposes of this subparagraph, a "total payment" means a payment of the balance to the credit of an employee with respect to all "section 403(b) annuities" purchased by the employer which becomes payable to the payee by reason of the employee's death, either before or after separation from the service. An annuity contract will be regarded as a "section 403(b) annuity" if any amount contributed (or considered as contributed under paragraph (b)(2) of § 1.403(b)-1 ) by the employer for such contract was excludable from the employee's gross income under paragraph (b) of § 1.403(b)-1 . Under this definition, therefore, an annuity contract may be regarded as a "section 403(b) annuity" even though some of the employer's contributions for the contract were not excludable from the employee's gross income under paragraph (b) of § 1.403(b)-1 because, for example, the employer was not an exempt organization when such contributions were paid. For purposes of computing the ratio described in this subdivision in such a case, the total amount contributed by the employer for the contract includes the amounts contributed by the employer when it was not an exempt organization.
(a) Amount includible in gross income without regard to second sentence of section 101(b)(2)(B) ($6,000 minus $2,000 contributed for contract by A) | $4,000 |
(b) Total employer contributions for the contract | $3,000 |
(c) Amount of employer contributions for the contract that was excludable under paragraph (b) of § 1.403(b)-1 | $3,000 |
(d) Percent of total employer contributions for the contract that were excludable under paragraph (b) of § 1.403(b)-1 ((c) ÷ (b)) | 100% |
(e) Amount to which section 101(b) exclusion applies ((d) * (a)) | $4,000 |
(a) Amount includible in gross income without regard to second sentence of section 101(b)(2)(B) ($6,000 minus $2,000 contributed for contract by A and $1,000 of X Organization's contributions includible in A's gross income) | $3,000 |
(b) Total employer contributions for the contract | $3,000 |
(c) Amount of employer contributions for the contract that was excludable under paragraph (b) of § 1.403(b)-1 | $2,000 |
(d) Percent of total employer contributions for the contract that were excludable under paragraph (b) of § 1.403(b)-1 ((c) ÷ (b)) | 67% |
(e) Amount to which section 101(b) exclusion applies ((d) * (a)) | $2,000 |
(a) Amount of "total payment" with respect to which A had a forfeitable right at time of death. (1/2 * $6,000) | $3,000 |
(b) Amount includible in gross income without regard to second sentence of section 101(b)(2)(B) (1/2 * $6,000 less $600 includible in B's gross income for year when his rights changed to nonforfeitable rights) | $2,400 |
(c) Total employer contributions for the contract (1/2 of cash surrender value of contract on date B's rights changed to nonforfeitable rights) | $2,500 |
(d) Amount of employer contributions for the contract that was excludable under paragraph (b) of § 1.403(b)-1 | $1,500 |
(e) Percent of total employer contributions for the contract that were excludable under paragraph (b) of § 1.403(b)-1 ((d) ÷ (c)) | 60% |
(f) Amount to which section 101(b) exclusion applies by reason of the second sentence of section 101(b)(2)(B) ((e) * (b)) | $1,440 |
(g) Total amount to which section 101(b) exclusion applies ((a) + (f)) | $4,440 |
26 C.F.R. §1.101-2