26 C.F.R. § 1.691(d)-1
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This special value is used for the purpose of determining the net value for estate tax purposes (see section 691(c)(2)(B) and paragraph (a)(1) of § 1.691(c)-1 ) and for the purpose of determining the portion of estate tax attributable to the survivor's annuity (see paragraph (a) of § 1.691(c)-1 ).
Example. H and W file their income tax returns on the calendar year basis. H dies on July 15, 1955, on which date W is 70 years of age. On August 1, 1955, W receives a monthly payment under a joint and survivor annuity contract. W's life expectancy determined as of the date of H's death is 15 years as determined from Table I in § 1.72-9 ; thus her life expectancy ends on July 14, 1970. Under the provisions of section 691(d), her life expectancy period begins as of July 1, 1955, and ends as of December 31, 1970, thus giving her a life expectancy period of 151/2 years.
| Amount of annuity payments per year (12 * $1,000) | $12,000 | |
| Life expectancy of H and W as of the annuity starting date (see section 72(c)(3)(A) and Table II of § 1.72-9 (male, age 70; female, age 67)) | 19.7 | |
| Expected return as of the annuity starting date, January 1, 1954 ($12,000 * 19.7 as determined under section 72(c)(3)(A) and paragraph (b) of § 1.72-5 ) | $236,400 | |
| Investment in the contract as of the annuity starting date, Jan. 1, 1954 (see section 72(c)(1) and paragraph (a) of § 1.72-6 ) | $203,800 | |
| Exclusion ratio (203,800/236,400 as determined under section 72(b) and § 1.72-4 ) (percent) | 86.2 | |
| Exclusion per year under section 72 ($12,000 * 86.2 percent) | $10,344 | |
| Excludable during W's life expectancy period ($10,344 * 15) | $155,160 | |
| Value of annuity at the date of H's death | $159,000 | |
| Total amount excludable from W's gross income under section 72 during W's life expectancy period (see subparagraph (2) of this example) | $155,160 | |
| Excess | $3,840 | |
| Ratio which value of annuity for estate tax purposes bears to value of annuity at date of H's death (119,250/159,000) (percent) | 75 | |
| Value for estate tax purposes (75 percent of $3,840) | $2,880 | |
This amount ($2,880) is included in the items of income under section 691(a)(1) for the purpose of determining the estate tax attributable to each item under section 691(c)(1)(A). The estate tax determined to be attributable to the item of $2,880 is then allowed as a deduction to W over her 15-year life expectancy period (see example 2 of this paragraph).
Assume, in addition to the facts contained in example 1 of this paragraph, that H was an attorney and was entitled at the date of his death to a fee for services rendered in a case not completed at the time of his death, which fee was valued at $1,000, and to accrued bond interest, which was valued at $500. Taking into consideration the annuity payments of example 1, valued at $2,880, a total of $4,380 was included in his gross estate in respect of income described in section 691(a)(1). There were deducted as claims against his estate $280 for business expenses for which his estate was liable and $100 for taxes accrued on certain property which he owned. In all, $380 was deducted for claims which represent amounts described in section 691(b) which are allowable as deductions to his estate or to the beneficiaries of his estate. His gross estate was $404,250 and considering deductions of $15,000, a marital deduction of $119,250 (assuming the annuity to be the only qualifying gift) and an exemption of $60,000, his taxable estate amounted to $210,000. The estate tax on this amount is $53,700 from which is subtracted a $175 credit for State death taxes, leaving an estate tax liability of $53,525. W may deduct, in computing her taxable income during each year of her 15-year life expectancy period, $14.73 on account of the estate tax attributable to the value for estate tax purposes of that portion of the annuity payments considered income in respect of a decedent, computed as follows:
| (1)(i) Value of income described in section 691(a)(1) included in computing gross estate | $4,380.00 | |
| (ii) Deductions in computing gross estate for claims representing deductions described in section 691(b) | 380.00 | |
| (iii) Net value of items described in section 691(a) (1) | 4,000.00 | |
| (2)(i) Estate tax | 53,525.00 | |
| (ii) Less: estate tax computed without including $4,000 (item (1) (iii)) in gross estate and by reducing marital deduction by $2,880 (portion of item (1)(iii) allowed as a marital deduction) | 53,189.00 | |
| (iii) Portion of estate tax attributable to net value of income items | 336.00 | |
| (3)(i) Value in gross estate of income attributable to annuity payments | 2,880.00 | |
| (ii) Value in gross estate of all income items described in section 691(a)(1) (item (1)(i)) | 4,380.00 | |
| (iii) Part of estate tax attributable to annuity income (2,880/4,380 of $336) | 220.93 | |
| (iv) Deduction each year on account of estate tax attributable to annuity income ($220.93 ÷ 15 (life expectancy period)) | 14.73 | |
26 C.F.R. §1.691(d)-1