Interpolated Terminal Reserve

(1) Rev. Rul. 59-195 — Interpolated Terminal Reserve. Rev. Rul. 59-195, 1959-1 C.B. 18, addressed the determination of the fair market value of a policy in a situation in which an employer sold to an employee a life insurance contract on which premiums were still due. The revenue ruling held that, for purposes of computing the employee’s taxable gain in the year of the purchase, the value of the contract should be determined using the approach of § 25.2512-6 of the Gift Tax Regulations. Under that regulation, the value of a life insurance contract that has been in force for some time and on which further premium payments are to be made is not its cash surrender value, but, rather, the interpolated terminal reserve as of the date of sale plus the proportionate part of any employer-paid unearned premiums. Section 25.2512-6 also provides that if “because of the unusual nature of the contract such approximation is not reasonably close to the full value, this method may not be used.” Thus, this method is appropriate only where the reserve reflects the value of all of the relevant features of the policy.

Estate & Tax: Code Topics

§2501(a) transfer of property by gift
§2511(a) elaborates on what is a "gift"
§2503(e) qualified statutory exemptions: payment of medical expenses or tuition; property settlements in conjunction with divorce; qualified disclaimers.
§2513 gift-splitting provision (13k, 26k for 2011)
§2516 divorce litigation exemption
§2518 disclaimers

The Unified Transfer Tax System

It was mandated by the Tax Reform Act of 1976, and combined the separate estate and gift tax systems into one unified transfer tax system; also includes the generation-skipping transfer tax. Any post-1976 taxable gifts are called adjusted taxable gifts, and are included in the donor's death tax base.

§102 excludes gifts from income purpose to prevent tax on transfers. 

Estate & Gift

Estate & gift taxes are addressed in title 26, subtitle B of the US IRC. Specifically, chapter 12 covers the gift tax. Here's an overview:

                Subchapter A Determination of Tax Liability §§2501-2505

§2501 Imposition of tax.
                §2502 Rate of tax.
                §2503 Taxable gifts.
                §2504 Taxable gifts for preceding calendar periods.
                §2505 Unified credit against gift tax.                                       

Subchapter B Transfers §§2511-2519

§2511 Transfers in general.
§2512 Valuation of gifts.
§2513 Gift by husband or wife to third party.
§2514 Powers of appointment.
§2515 Treatment of generation-skipping transfer tax.
§2515 Tenancies by the entirety in real property. [Repealed]
§2515A Tenancies by the entirety in personal property. [Repealed]
§2516 Certain property settlements.
§2517 Certain annuities under qualified plans. [Repealed]
§2518 Disclaimers.
§2519 Dispositions of certain life estates.

                Subchapter C Deductions §§2522-2524
                        §2521 Specific exemption. [Repealed]

                        §2522 Charitable and similar gifts.
                        §2523 Gift to spouse.
                        §2524 Extent of deductions.

   

§351 Tax Consequences to Transferree Corporation

Corporations recognize no gain or loss when they issue their own stock in exchange for property or services.. They do not recognize G/L when they exchange their own debt instruments for property or services. However, they do recognize gain when transferring appreciated property as part of a §351 exchange.


A corp that acquires property in exchange for its stock in a transaction that is taxable to the transferor takes a current cost (FMV) basis in the property. But if the exchange meets the requirements for nonrecognition treatment under §351 the basis in property is computed thus: start with the transferors' adjust basis, add the gain recognized by the transferor, and subtract the reduction for loss property. This yields the transferee corp's basis in property acquired.


Section 362(e)(2) prevents "double losses" from being generated by shareholders who transfer loss property to a corporation. So we cannot aggregate built-in losses.