Rev. Rul. 70-243
Rev. Rul. 70-243; 1970-1 C.B. 107
- Cross-Reference
26 CFR 1.403(b)-1: Taxability of beneficiary under annuity purchased
by a section 501(c)(3) organization or public school. - LanguageEnglish
- Tax Analysts Electronic Citationnot available
Obsoleted by Rev. Rul. 2009-18 Superseded by Rev. Rul. 84-149
Rev. Rul. 70-243
Advice has been requested with regard to the computation of the exclusion allowance provided for under section 403(b) of the Internal Revenue Code of 1954 when an annuity contract is purchased under the circumstances described below.
A teacher was employed by a public school on January 1, 1967, at an annual salary of $10,000. He entered into a salary reduction agreement reducing his salary by 10 percent ($1,000). Under the agreement, the employer must contribute $1,000 for the purchase of an annuity contract for the teacher. During each of the years 1967, 1968, and 1969, the employer contributed an amount equal to 18 percent of the employee's salary (before the reduction) to a qualified pension trust and 10 percent (before the reduction) to purchase the annuity contract.
Section 403(b)(2) of the Code provides that the exclusion allowance for any employee for the taxable year is an amount equal to the excess, if any, of (A) the amount determined by multiplying (i) 20 percent of his includible compensation by (ii) the number of years of service (with the present employer), over (B) the aggregate of the amounts contributed by the employer for annuity contracts and excludable from the gross income of the employee for any prior taxable year.
Section 1.403(b)-1(d)(3) of the Income Tax Regulations provides that in computing the aggregate of the amounts which have been contributed by an employer for annuity contracts for an employee and which were excludable from the gross income of the employee for any taxable year prior to the taxable year for which the exclusion allowance is being determined, there shall be included all contributions made by the employer for the benefit of the employee which, under section 402(a) or section 403(a) of the Code, were excludable from the employee's gross income for any such prior taxable year by reason of being contributions under a qualified plan.
The amount of the premiums for the annuity contract that is excludable from the teacher's gross income is computed in the manner shown below:
1967
(1) Amount contributed by employer for the annuity
contract in 1967 ___________________________________ $1,000
(2) Amount contributed by employer in years prior to
1967 under the qualified plan (employee not
employed by this employer in such prior years) _____ None
(3) Includible compensation ($10,000 - $1,000) _________ $9,000
(4) 20% x includible compensation ______________________ $1,800
(5) Number of years of service _________________________ 1
(6) Item (4) x item (5) ________________________________ $1,800
(7) Employer's contributions excludable in prior
taxable years_______________________________________ None
(8) Amount excludable from employee's gross income
under section 403(b) of the Code for 1967; lesser
of either (1) or ((6)-(7)) _________________________ $1,000
(9) Amount includible in employee's gross income for
1967 ((1)-(8)) _____________________________________ None
1968
(10) Amount contributed by employer for the annuity
contract in 1968 __________________________________ $1,000
(11) Amount contributed by employer in prior years
under the qualified plan (excludable from
employee's gross income under section 402(a) of
the Code) _________________________________________ $1,800
(12) Includible Compensation ($10,000 - $1,000) ________ $9,000
(13) 20% x includible compensation _____________________ $1,800
(14) Number of years of service ________________________ 2
(15) Item (13) x item (14) _____________________________ $3,600
(16) Employer's contributions excludable in prior
taxable years ((8) + (11)) ________________________ $2,800
(17) Amount excludable from employee's gross income
under section 403(b) of the Code for 1968; lesser
of either (10) or ((15)-(16)) _____________________ $800
(18) Amount includible in employee's gross income for
1968 ((10)-17)) ____________________________________ $200
1969
(19) Amount contributed by employer for the annuity
contract in 1969 __________________________________ $1,000
(20) Amount contributed by employer in prior years
under a qualified plan (excludable from the
employee's gross income under section 402(a) of
the Code) _________________________________________ $3,600
(21) Amount contributed by employer in prior years for
annuity contract and excludable from the
employee's gross income under section 403(b) of
the Code ((8) + (17))______________________________ $1,800
(22) Includible compensation ($10,000 - $1,000) ________ $9,000
(23) 20% x includible compensation _____________________ $1,800
(24) Number of years of service ________________________ 3
(25) Item (23) x item (24) _____________________________ $5,400
(26) Employers contributions excludable in prior
taxable years ((20) + (21)) _______________________ $5,400
(27) Amount excludable from employee's gross income
under section 403(b) of the Code for 1969; lesser
of either (19) or ((25)-(26)) _____________________ None
(28) Amount includible in employee's gross income for
1969 ((19)-(27)) __________________________________ $1,000
- Cross-Reference
26 CFR 1.403(b)-1: Taxability of beneficiary under annuity purchased
by a section 501(c)(3) organization or public school. - LanguageEnglish
- Tax Analysts Electronic Citationnot available
