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SECTION 1.72-1. INTRODUCTION.
(a) GENERAL PRINCIPLE.
Section 72 prescribes rules relating to the inclusion in gross income of amounts
received under a life insurance, endowment, or annuity contract unless such
amounts are specifically excluded from gross income under other provisions of
Chapter 1 of the Code. In general, these rules provide that amounts subject to
the provisions of section 72 are includible in the gross income of the recipient
except to the extent that they are considered to represent a reduction or return
of premiums or other consideration paid.
(b) AMOUNTS TO BE CONSIDERED AS A RETURN OF PREMIUMS.
For the purpose of determining the extent to which amounts received represent a
reduction or return of premiums or other consideration paid, the provisions of
section 72 distinguish between "amounts received as an annuity" and "amounts not
received as an annuity". In general, "amounts received as an annuity" are
amounts which are payable at regular intervals over a period of more than one
full year from the date on which they are deemed to begin, provided the total of
the amounts so payable or the period for which they are to be paid can be
determined as of that date. See paragraph (b)(2) and (3) of Section 1.72-2. Any
other amounts to which the provisions of section 72 apply are considered to be
"amounts not received as an annuity". See Section 1.72-11.
(c) "AMOUNTS RECEIVED
AS AN ANNUITY."
(1) In the case of "amounts
received as an annuity" (other than certain employees' annuities described in
section 72(d) and in Section 1.72-13), a proportionate part of each amount so
received is considered to represent a return of premiums or other consideration
paid. The proportionate part of each annuity payment which is thus excludable
from gross income is determined by the ratio which the investment in the
contract as of the date on which the annuity is deemed to begin bears to the
expected return under the contract as of that date.
See Section 1.72-4.
(2) In the case of employees'
annuities of the type described in
section 72(d), no amount received as an annuity in a taxable year to which the
Internal Revenue Code of 1954 applies is includible in the gross income of a
recipient until the aggregate of all amounts received thereunder and excluded
from gross income under the applicable income tax law exceeds the consideration
contributed (or deemed contributed) by the
employee under Section 1.72-8. Thereafter, all amounts so received are
includible in the gross income of the recipient. See Section 1.72-13.
(d)
"AMOUNTS NOT RECEIVED AS AN ANNUITY".
In the case of "amounts not received as an annuity", if such amounts are
received after an annuity has begun and during its continuance, amounts so
received are generally includible in the gross income of the recipient. Amounts
not received as an annuity which are received at any other time are generally
includible in the
gross income of the recipient only to the extent that such amounts, when added
to all amounts previously received under the contract which were excludable from
the gross income of the recipient under the income tax law applicable at the
time of receipt, exceed the premiums or other consideration paid (see Section
1.72-11). However, if the aggregate of premiums or other consideration paid for
the contract includes amounts for which a deduction was allowed under section
404 as contributions on behalf of an owner-employee, the amounts received under
the circumstances of the preceding sentence shall be includible in gross income
until the amount so included equals the amount for which the deduction was so
allowed. See paragraph (b) of Section 1.72-17.
(e)
CLASSIFICATION OF RECIPIENTS.
For the purpose of the regulations under section 72, a recipient shall be
considered an "annuitant" if he receives amounts under an annuity contract
during the period that the annuity payments are to continue, whether for a term
certain or during the continuing life or lives of the person or persons whose
lives measure the duration of such annuity. However, a recipient shall be
considered a "beneficiary" rather than an "annuitant" if the amounts he receives
under a contract are received after the term of the annuity for a life or lives
has expired and such amounts are paid by reason of the fact that the contract
guarantees that payments of some minimum amount or for some minimum period shall
be made. For special rules with respect to beneficiaries, see paragraphs
(a)(1)(iii) and (c) of Section 1.72-11.
[TD 6500,
25 FR 11402, Nov. 26, 1960, as amended by TD 6676, 28 FR 10134, Sept. 17, 1963]
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