Vanderbilt Law Review


Robert A. Sams

First Page



The private or noncommercial annuity may be defined as the transfer of property from an annuitant-transfer or to a person or organization (referred to as the transferee or obligor) that has not"from time to time"' issued annuity contracts, in exchange for the transferee's unsecured promise to make periodic payments of money for a fixed time or for the life of the annuitant-transferor. Prior to the issuance of Revenue Ruling 69-74,3 both the Internal Revenue Service and the courts had given the private annuity transaction favorable income tax treatment, making it an extremely useful estate planning device. In J. Darsie Lloyd, the Board of Tax Appeals applied the principle of Burnet v. Logan to a private annuity and held that an annuitant-father realizes no immediate gain when he transfers appreciated stock to his son, in exchange for the son's promise to pay his father a life annuity. Dealing with the question of when the annuitant will be required to report his gain, the court in Hill's Estatev. Maloney concluded that (1) the gain should commence to be taxed when the total payments received under the annuity contract equal the cost basis of the property transferred, and (2) the entire amount of each payment thereafter received should be taxed as capital gain until the total payments received under the contract equal the fair market value of the property at the time of the transfer.

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