SERVICE PUBLISHES TABLES OF ACTUARIAL FACTORS USED TO DETERMINE PRESENT VALUE OF ANNUITIES, LIFE INTERESTS, AND REMAINDER INTERESTS.

Notice 89-60

In accordance with section 7520 of the Internal Revenue Code, this notice provides tables containing actuarial factors to be used in determining the present value of an annuity, an interest for life or for a term of years, or a remainder or reversionary interest. The tables set forth in this notice apply for valuation purposes under several Code provisions including sections 170, 642, 664, 2031, 2055, 2512, 2522, and 2624. A complete set of tables will be published by the Internal Revenue Service in the near future.

BACKGROUND

Section 5031 of the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. No. 100-647, 102 Stat. 3342 (1988)) amended the Internal Revenue Code by adding section 7520. Generally, under section 7520, the value of an annuity, interest for life or for a term of years, or remainder or reversionary interest is determined under new tables that are to be prescribed by the Secretary. Section 7520 is applicable to gifts and certain other transfers made after April 30, 1989, and to estates of decedents dying after April 30, 1989. The new tables prescribed by section 7520 are to be based on an interest rate that is 120 percent of the applicable federal midterm rate for the month in which the valuation date falls and the most recent mortality experience available. Section 7520(c)(3) provides that, no later than December 31, 1989, the Service must revise existing tables to take into account the most recent mortality experience available as of the time of such revision. The Service published Notice 89-24, 1989-10 I.R.B. 16, on March 6, 1989, to provide temporary guidance to taxpayers in planning transfers that would take place after April 30, 1989. Notice 89-24 provides formulas for computing the value of transferred interests based on the appropriate applicable federal midterm interest rate and the prior mortality experience.

INTEREST RATES AND TABLES FOR TRANSFERS AFTER APRIL 30, 1989

The tables set forth below include many single life and term certain factors that are to be used for valuing interests in the case of gifts and certain other transfers taking place after April 30, 1989, and estates of decedents dying after that date. These new tables reflect the mortality experience based on the 1980 census. A complete set of tables, including two life and additional single life factors, will be published by the Service in the near future and will be available for purchase from the Superintendent of Documents, United States Government Printing Office, Washington, D.C. 20404.

The new tables contain factors that are based upon several different interest rates. The appropriate factor for any particular transaction will be based on the interest rate the Service announces monthly in a news release and publishes in a revenue ruling in the Internal Revenue Bulletin. The interest rate for a particular month is the rate that is published as 120 percent of the applicable federal midterm rate (compounded annually) in effect under section 1274(d)(1) of the Code for the month in which the valuation date falls. That rate is then rounded to the nearest two-tenths of one percent. For example, the rate that is published as 120 percent of the applicable federal midterm rate (compounded annually) for May 1989 is 11.68 percent. That rate is then rounded to the nearest two- tenths of one percent, or 11.6 percent, for purposes of section 7520 of the Code.

As stated in Notice 89-24, if an income, estate, or gift tax charitable contribution deduction is allowed for any part of the property transferred, the taxpayer may use the federal midterm rate for the month of the transfer or for either of the two months preceding the month in which the valuation date falls. For charitable contributions made in May or June 1989, if the taxpayer elects to use the federal midterm rate for either of the preceding two months, which may include March and April, the valuation factors for March and April for interests based on the lives of one or more individuals will be computed on the basis of Table 1 of United States Life Tables: 1969-71 and interest at 120 percent of the applicable federal midterm rate for March or April. Thus, the March and April actuarial factors (in the case of charitable contributions made in May or June 1989) will not be based on the new term certain factors and mortality experience. The rates equal to 120 percent of the applicable federal midterm rate for March, April, and May 1989 are:

                                              120 Percent of

1. TABLE 80CNSMT -- Mortality Table based on the 1980 census. This table supersedes Table LN, which is set forth in section 20.2031-7(f) of the Estate Tax Regulations.

2. TABLE R(1) -- Single Life Remainder Factors for determining the present worth of a remainder interest based on a single life with interest rates between 8.2 percent and 12 percent. This table supersedes Table A, which is set forth in section 20.2031-7(f) of the regulations and section 25.2512-5(f) of the Gift Tax Regulations. Any remainder factor in Table R(1) may be converted to a factor for determining the present worth of an income interest or an annuity interest based on a single life by the method set forth in Notice 89-24. The remainder factors in Table R(1) are also applicable for determining the present worth of the remainder interest in property transferred to a pooled income fund having a yearly rate of return equal to the interest rates specified in the table. Table R(1) also supersedes Table G, which is set forth in section 1.642(c)-6(d)(3) of the Income Tax Regulations.

3. TABLE K -- Adjustment factors based on timing and frequency of payments for annuities payable at the end of each interval. Table K supersedes the payout frequency factors set forth in sections 20.2031-7(b)(2) and 25.2512-5(b)(2) of the regulatlons.

4. TABLE B -- Term Certain Remainder Factors for determining the present worth of a remainder interest postponed for a term certain. This table supersedes Table B, which is set forth in sections 20.2031-7(f) and 25.2512-5(f) of the regulations. A remainder factor may be converted to factors for determining the present worth of both an income interest and an annuity interest postponed for a term of years by the method set forth in Notice 89-24.

5. TABLE U(1) - Unitrust Single Life Remainder Factors for determining the present worth of a remainder interest in property based on a single life in the case of a transfer to a charitable remainder unitrust with an adjusted payout rate ranging from 4.2 percent to 6 percent. This table supersedes Table E, which is set forth in section 1.664-4(b)(5) of the regulations.

6. TABLES F(10.2 - 12.0) - Tables of factors for computing the adjusted payout rate for certain charitable remainder unitrust valuations based on interest rates ranging from 10.2 to 12 percent.

Table D, which is not attached, is set forth in section 1.664- 4(b)(5) of the regulations, and will continue to be effective for determining the present worth of a remainder interest postponed for a term of years in a charitable remainder unitrust for transfers made after April 30, 1989.

EFFECTIVE DATE

The tables and formulas contained in this notice apply to the valuation of interests in property for income, estate, gift, and generation-skipping transfer tax purposes in the cases of decedents dying after April 30, 1989, and gifts and certain other transfers made after that date.

ADMINISTRATIVE PRONOUNCEMENT

This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure.

DRAFTING INFORMATION

The principal author of this notice is William L. Blodgett of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information about this notice, call Mr. Blodgett at (202) 377-9661 (not a toll-free call).

                             TABLE 80CNSMT