product so obtained is then multiplied by whichever of the above factors is appropriate. The application of this subparagraph may be illustrated by the following example:

Example. The facts are the same as those contained in example (1) set forth in subparagraph (1) of this paragraph, except that the annuity is payable semiannually. The aggregate annual amount, $10,000, is multiplied by the factor 17.6853, and the product multiplied by 1.0087. The present value of the annuity at the date of the decedent's death is, therefore, $178,391.62 ($10,000 X 17.6853 X 1.0087).

(3) Payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods. (i) If the first payment of an annuity for the life of an individual is due at the beginning of the annual or other payment period rather than at the end (as, for example, if the first payment is to be made immediately after the decedent's death), the value of the annuity is the sum of (a) the first payment plus (b) the present value of a similar annuity, the first payment of which is not to be made until the end of the payment period, determined as provided in subparagraph (1) or (2) of this paragraph. The application of this subdivision may be illustrated by the following example:

Example. The decedent was entitled to receive an annuity of $50 a month during the life of another. The decedent died on a day the payment was due. At the date of the decedent's death, the person whose life measures the duration of the annuity was 50 years of age. The value of the annuity at the date of the decedent's death is $50 plus the product of $50 X 12 X 14.8486 (see Table I) X 1.0159 (see subparagraph (2) of this paragraph), or $9,100.82.

(ii) If the first payment of an annuity for a definite number of years is due at the beginning of the annual or other payment period, the applicable factor is the product of the factor shown in Table II multiplied by whichever of the following factors is appropriate:

1.0350 for annual payments, 1.0262 for semiannual payments, 1.0218 for quarterly payments, 1.0189 for monthly payments, 1.0177 for weekly payments.

The application of this subdivision may be illustrated by the following example: Example. The decedent was the beneficlary of an annuity of $50 a month. the day a payment was due, the decedent died. There were 300 payments to be made, including the payment due. The value of

On

the annuity as of the date of decedent's death is the product of $50 × 12 × 16.4815 (see Table II) X1.0189, or $10,075.80.

(c) Life estates and terms for years. If the interest to be valued is the right of a person for his life, or for the life of another person, to receive the income of certain property or to use nonincomeproducing property, the value of the interest is the value of the property multiplied by the figure in column 3 of Table I opposite the number of years nearest to the actual age of the measuring life. If the interest to be valued is the right to receive income of property or to use nonincome-producing property for a term of years, column 3 of Table II is used. The application of this paragraph may be illustrated by the following example:

Example. The decedent or his estate was entitled to receive the income from a fund of $50,000 during the life of his elder brother. Upon the brother's death, the remainder is to go to X. The brother was 31 years 5 months old at the time of decedent's death. By reference to Table I, the figure in column 3 opposite 31 years is found to be 0.71068. The present value of decedent's interest is, therefore, $35,534 ($50,000 0.71068).

(d) Remainders or reversionary interests. If a decedent had, at the time of his death, a remainder or a reversionary interest in property to take effect after an estate for the life of another, the present value of his interest is obtained by multiplying the value of the property by the figure in column 4 of Table I opposite the number of years nearest to the actual age of the person whose life measures the preceding estate. If the remainder or reversion is to take effect at the end of a term for years, column 4 of Table II is used. The application of this paragraph may be illustrated by the following example:

Example. The decedent was entitled to receive certain property worth $50,000 upon the death of his elder brother, to whom the income was bequeathed for life. At the time of the decedent's death, the elder brother was 31 years months old. By reference to Table I, the figure in column 4 opposite 31 years is found to be 0.28932. The present value of the remainder interest at the date of decedent's death is, therefore, $14,466 ($50,000 X 0.28932).

(e) Actuarial computations by the Internal Revenue Service. If the valuation of the interest involved is dependent upon the continuation or the termination of more than one life or upon a term

certain concurrent with one or more lives, a special factor must be used. The factor is to be computed upon the basis of the Makehamized mortality table appearing as Table 38 of United States Life Tables and Actuarial Tables 1939-1941, published by the United States Department of Commerce, Bureau of Census, and interest at the rate of 32 percent a year, annually. Many such compounded factors may be found in, or readily computed with the use of the tables contained in, a pamphlet entitled "Actuarial Values for Estate and Gift Tax." This pamphlet may be purchased from the Superintendent of Documents, United States Government Printing Office, Washington 25, D. C. However, if a special factor is required in the case of an actual decedent, the Commissioner will furnish the factor to the executor upon request. The request must be accompanied by a statement of the date of birth of each person, the duration of whose life may affect the value of the interest, and by copies of the relevant instruments.

(f) The following tables shall be used in the application of the provisions of this section:

20.2031-8 Valuation of certain life insurance and annuity contracts. (a) The value of a contract for the payment of an annuity, or an insurance policy on the life of a person other than the dececent, issued by a company regularly engaged in the selling of contracts of that character is established through the sale by that company of comparable contracts. An annuity payable under a combination annuity contract and life insurance policy on the decedent's life e. g., a "retirement income" policy with death benefit) under which there was no insurance element at the time of the decedent's death (see paragraph (d) of 20.2039-1) is treated like a contract for the payment of an annuity for purposes of this section.

(b) As valuation of an insurance policy through sale of comparable contracts is not readily ascertainable when, at the date of the decedent's death, the contract has been in force for some time and further premium payments are to be made, the value may be approximated by adding to the interpolated terminal reserve at the date of the decedent's death the proportionate part of the gross premium last paid before the

date of the decedent's death which covers the period extending beyond that date. If, however, because of the unusual nature of the contract such an approximation is not reasonably close to the full value of the contract, this method may not be used.

(c) The application of this section may be illustrated by the following examples. In each case involving an insurance contract, it is assumed that there are no accrued dividends or outstanding indebtedness on the contract.

Example (1). X purchased from a life insurance company a joint and survivor annuity contract under the terms of which X was to receive payments of $1,200 annually for his life and, upon X's death, his wife was to receive payments of $1,200 annually for her life. Five years after such purchase, when his wife was 50 years of age, X died. The value of the annuity contract at the date of X's death is the amount which the company would charge for an annuity providing for the payment of $1,200 annually for the life of a female 50 years of age.

Example (2). Y died holding the incidents of ownership in a life insurance policy on the life of his wife. The policy was one on which no further payments were to be made to the company (e. g., a single premium policy or a paid-up policy). The value of the insurance policy at the date of Y's death is the amount which the company would charge for a single premium contract of the same specified amount on the life of a person of the age of the insured.

Example (3). Z died holding the incidents of ownership in a life insurance policy on the life of his wife. The policy was an ordinary life policy issued nine years and four months prior to Z's death and at a time when Z's wife was 35 years of age. The gross annual premium is $2,811 and the decedent died four months after the last premium due date. The value of the insurance policy at the date of Z's death is computed as follows:

Terminal reserve at end of tenth

year----Terminal reserve at end of ninth year---.

$14, 601.00

12,965. 00

1,636.00

$545.33

12,965.00

13, 510. 33

1,874.00

15, 384. 33

§ 20.2031-9 Valuation of other property. The valuation of any property not specifically described in §§ 20.2031-2 to 20.2031-8 is made in accordance with the general principles set forth in § 20.20311.

For example, a future interest in property not subject to valuation in accordance with the actuarial principles set forth in § 20.2031-7 is to be valued in accordance with the general principles set forth in § 20.2031-1.

§ 20.2032 Statutory provisions; alternate valuation.

SEC. 2032. Alternate valuation—(a) General. The value of the gross estate may be determined, if the executor so elects, by valuing all the property included in the gross estate as follows:

(1) In the case of property distributed, sold, exchanged, or otherwise disposed of, within 1 year after the decedent's death such property shall be valued as of the date of distribution, sale, exchange, or other disposition.

(2) In the case of property not distributed, sold, exchanged, or otherwise disposed of, within 1 year after the decedent's death such property shall be valued as of the date 1 year after the decedent's death.

(3) Any interest or estate which is affected by mere lapse of time shall be included at its value as of the time of death (instead of the later date) with adjustment for any difference in its value as of the later date not due to mere lapse of time.

(b) Special rules. No deduction under this chapter of any item shall be allowed if allowance for such item is in effect given by the alternate valuation provided by this section. Wherever in any other subsection or section of this chapter reference is made to the value of property at the time of the decedent's death, such reference shall be deemed to refer to the value of such property used in determining the value of the gross estate. In case of an election made by the executor under this section, then

(1) For purposes of the charitable deduction under section 2055 or 2106 (a) (2), any bequest, legacy, devise, or transfer enumerated therein, and

(2) For the purpose of the marital deduction under section 2056, any interest in property passing to the surviving spouse, shall be valued as of the date of the decedent's death with adjustment for any difference in value (not due to mere lapse of time or the occurrence or nonoccurrence of a contingency) of the property as of the date 1 year after the decedent's death (substituting, in the case of property distributed by the executor or trustee, or sold, exchanged, or otherwise disposed of, during such 1-year period, the date thereof).

(c) Time of election. The election provided for in this section shall be exercised

by the executor on his return if filled with the time prescribed by law or before the piration of any extension of time gran pursuant to law for the filing of the retu

§ 20.2032-1 Alternate valuation—( In general. In general, section 2032 pr vides for the valuation of a deceden gross estate at a date other than the da of the decedent's death. More speci cally, if an executor elects the alterna valuation method under section 2032, t property included in the decedent's gr estate on the date of his death is valu as of whichever of the following da is applicable:

(1) Any property distributed, sold, e changed, or otherwise disposed of with one year after the decedent's death valued as of the date on which it is fi distributed, sold, exchanged, or otherw disposed of;

(2) Any property not distributed, so exchanged, or otherwise disposed within one year after the deceden death is valued as of the date one ye after the date of the decedent's deat

(3) Any property, interest, or esta which is affected by mere lapse of ti is valued as of the date of the deceden death, but adjusted for any difference its value not due to mere lapse of ti as of the date one year after the d cedent's death, or as of the date of distribution, sale, exchange, or oth disposition, whichever date first occu

(b) Method and effect of election. While it is the purpose of section 20 to permit a reduction in the amount tax that would otherwise be payable the gross estate has suffered a shrin age in its aggregate value in the ye following the decedent's death, the a ternate valuation method is not aut matic but must be elected. Furthe more, the alternate valuation meth may be elected whether or not the has been a shrinkage in the aggrega value of the estate. However, the ele tion is not effective for any purpose u less the value of the gross estate at t time of the decedent's death exceed $60,000, so that an estate tax return required to be filed under section 6018.

(2) If the alternate valuation meth under section 2032 is to be used, secti 2032 (c) requires that the executor mu so elect on the estate tax return requir under section 6018, filed within months from the date of the decedent

th or within the period of any extenI of time granted by the district dior under section 6081. In no case 7 the election be exercised, or a preis election changed, after the expira

of such time. If the election is le, it applies to all the property inled in the gross estate, and cannot applied to only a portion of the perty.

:) Meaning of “distributed, sold, exnged, or otherwise disposed of”. (1) : phrase "distributed, sold, exnged, or otherwise disposed of" comhends all possible ways by which perty ceases to form a part of the is estate. For example, money on d at the date of the decedent's death ch is thereafter used in the payment uneral expenses, or which is therer invested, falls within the term erwise disposed of." The term also udes the surrender of a stock cerate for corporate assets in complete artial liquidation of a corporation suant to section 331. The term does however, extend to transactions ch are mere changes in form. Thus, Des not include a transfer of assets

corporation in exchange for its k in a transaction with respect to ch no gain or loss would be recognizfor income tax purposes under sec351. Nor does it include an exInge of stock or securities in a oration for stock or securities in the e corporation or another corporation transaction, such as a merger, retalization, reorganization or other saction described in section 368 (a) 55, with respect to which no gain or is recognizable for income tax purs under section 354 or 355.

› Property may be "distributed" er by the executor, or by a trustee of erty included in the gross estate unsections 2035 through 2038, or sec2041. Property is considered as tributed" upon the first to occur of following:

The entry of an order or decree of ibution, if the order or decree subently becomes final;

> The segregation or separation of property from the estate or trust so it becomes unqualifiedly subject to demand or disposition of the disitee; or

(iii) The actual paying over or delivery of the property to the distributee.

(3) Property may be "sold, exchanged, or otherwise disposed of" by: (i) The executor; (ii) a trustee or other donee to whom the decedent during his lifetime transferred property included in his gross estate under sections 2035 through 2038, or section 2041; (iii) an heir or devisee to whom title to property passes directly under local law; (iv) a surviving joint tenant or tenant by the entirety; or (v) any other person. If a binding contract for the sale, exchange, or other disposition of property is entered into, the property is considered as sold, exchanged, or otherwise disposed of on the effective date of the contract, unless the contract is not subsequently carried out substantially in accordance with its terms. The effective date of a contract is normally the date it is entered into (and not the date it is consummated, or the date legal title to the property passes) unless the contract specifies a different effective date.

(d) "Included property" and "excluded property". If the executor elects the alternate valuation method under section 2032, all property interests existing at the date of decedent's death which form a part of his gross estate as determined under sections 2033 through 2044 are valued in accordance with the provisions of this section. Such property interests are referred to in this section as "included property". Furthermore, such property interests remain "included property" for the purpose of valuing the gross estate under the alternate valuation method even though they change in form during the alternate valuation period by being actually received, or disposed of, in whole or in part, by the estate. On the other hand, property earned or accrued (whether received or not) after the date of the decedent's death and during the alternate valuation period with respect to any property interest existing at the date of the decedent's death, which does not represent a form of "included property" itself or the receipt of "included property" is excluded in valuing the gross estate under the alternate valuation method. Such property is referred to in this section as "excluded property". Illustrations of