The Internal Revenue Service wants to change the tax treatment of trades of property for annuities.
The proposed regulations, “Exchanges of Property for an Annuity,” apply the same rule to exchanges for both private annuities and commercial annuities.
“A decades-old IRS ruling generally postpones tax on the exchange of appreciated property for a private annuity, a result inconsistent with the tax treatment of exchanges for commercial annuities or other kinds of property,” IRS officials say in an announcement of the proposed regulations.
Officials at the IRS and the U.S. Treasury Department, the parent of the IRS, believe the ruling is based on outmoded doctrines and assumptions, including an assumption that the value of a private annuity contract could not be determined for federal income tax purposes, officials say.
Moreover, “the Treasury Department and the IRS have learned that the ruling has been relied upon inappropriately in a number of transactions that are designed to avoid U.S. income tax,” officials say.
The proposed regulations will not affect charitable gift annuities or transactions completed before Oct. 18, and the effective date will be postponed to April 18, 2007, for “some transactions that pose the least likelihood of abuse,” officials say.
Under the provisions of the proposed regulations, “if an annuity contract is received in exchange for property (other than money):
1. The amount realized attributable to the annuity contract is the fair market value of the annuity contract at the time of the exchange.