1.642(c)-6—Valuation of a remainder interest in property transferred to a pooled income fund.
(a) In general.
(1)
For purposes of sections 170, 2055, 2106, and 2522, the fair market value of a remainder interest in property transferred to a pooled income fund is its present value determined under paragraph (d) of this section.
(2)
The present value of a remainder interest at the time of the transfer of property to the pooled income fund is determined by computing the present value (at the time of the transfer) of the life income interest and subtracting that value from the fair market value of the transferred property on the valuation date. The fact that the income beneficiary may not receive the last income payment, as provided in paragraph (b)(7) of § 1.642(c)-5, is not taken into account for purposes of determining the value of the life income interest. For purposes of this section, the valuation date is the date on which property is transferred to the fund by the donor except that, for purposes of section 2055 or 2106, it is the alternate valuation date, if elected, under the provisions and limitations set forth in section 2032 and the regulations thereunder.
(3)
Any claim for a deduction on any return for the value of the remainder interest in property transferred to a pooled income fund must be supported by a statement attached to the return showing the computation of the present value of the interest.
(b) Actuarial computations by the Internal Revenue Service.
The regulations in this and in related sections provide tables of actuarial factors and examples that illustrate the use of the tables in determining the value of remainder interests in property. Section 1.7520-1(c)(2) refers to government publications that provide additional tables of factors and examples of computations for more complex situations. If the computation requires the use of a factor that is not provided in this section, the Commissioner may supply the factor upon a request for a ruling. A request for a ruling must be accompanied by a recitation of the facts including the pooled income fund's highest yearly rate of return for the 3 taxable years immediately preceding the date of transfer, the date of birth of each measuring life, and copies of the relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§ 601.201 and 601.601(d)(2)(ii) (b) of this chapter) and include payment of the required user fee. If the Commissioner furnishes the factor, a copy of the letter supplying the factor should be attached to the tax return in which the deduction is claimed. If the Commissioner does not furnish the factor, the taxpayer must furnish a factor computed in accordance with the principles set forth in this section.
(c) Computation of pooled income fund's yearly rate of return.
(1)
For purposes of determining the present value of the life income interest, the yearly rate of return earned by a pooled income fund for a taxable year is the percentage obtained by dividing the amount of income earned by the pooled income fund for the taxable year by an amount equal to—
(2)
The average fair market value of the property in a pooled income fund for a taxable year shall be the sum of the amounts of the fair market value of all property held by the pooled income fund on each determination date, as defined in paragraph (a)(5)(vi) of § 1.642(c)-5, of such taxable year divided by the number of determination dates in such taxable year. For such purposes the fair market value of property held by the fund shall be determined without including any income earned by the fund.
(3)
(i)
The corrective term adjustment shall be the sum of the products obtained by multiplying each income payment made by the pooled income fund within its taxable year by the percentage set forth in column (2) of the following table opposite the period within such year, set forth in column (1), which includes the date on which that payment is made:
| (1) Payment period | (2) Percentage of payment |
|---|---|
| Last week of 4th quarter | 0 |
| Balance of 4th quarter | 25 |
| Last week of 3d quarter | 25 |
| Balance of 3d quarter | 50 |
| Last week of 2d quarter | 50 |
| Balance of 2d quarter | 75 |
| Last week of 1st quarter | 75 |
| Balance of 1st quarter | 100 |
(ii)
If the taxable year of the fund consists of less than 12 months, the corrective term adjustment shall be the sum of the products obtained by multiplying each income payment made by the pooled income fund within such taxable year by the percentage obtained by subtracting from 1 a fraction the numerator of which is the number of days from the first day of such taxable year to the date of such income payment and the denominator of which is 365.
(4)
A pooled income fund's method of calculating its yearly rate of return must be supported by a full statement attached to the income tax return of the pooled income fund for each taxable year.
Code of Federal Regulations
| Date | Fair market value of property | Income payment |
|---|---|---|
| Jan. 1 | $100,000 | $1,200 |
| Apr. 1 | 105,000 | 1,200 |
| July 1 | 95,000 | 1,200 |
| Oct. 1 | 100,000 | 1,400 |
| 400,000 | 5,000 |
| Multiplication: | Product |
|---|---|
| 100%×$1,200 | $1,200 |
| 75%×$1,200 | 900 |
| 50%×$1,200 | 600 |
| 25%×$1,400 | 350 |
| Sum of products | 3,050 |
Code of Federal Regulations
| Date | Fair market value of property | Income payment |
|---|---|---|
| Jan. 1 | $125,000 | |
| Apr. 1 | 125,000 | |
| July 1 | 75,000 | |
| Oct. 1 | 75,000 | |
| Dec. 15 | $3,000 | |
| Dec. 31 | 2,000 | |
|
Code of Federal Regulations
35
|
||
| 400,000 | 5,000 | |
| Product | |
|---|---|
| Multiplication: | |
| 0%×$2,000 | |
| 25%×$3,000 | $750 |
| Sum of products | 750 |
(f) Effective/applicability dates.
This section applies after April 30, 1999, and before May 1, 2009.