[Federal Register Volume 66, Number 4 (Friday, January 5, 2001)]
[Rules and Regulations]
[Pages 1040-1044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-254]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 20, and 25

[TD 8923]
RIN 1545-AX74


Lifetime Charitable Lead Trusts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the 
definitions of a guaranteed annuity interest and a unitrust interest 
for purposes of the income, gift, and estate tax charitable deductions. 
The regulations affect taxpayers who make transfers to charitable lead 
trusts. The regulations restrict the permissible terms for charitable 
lead trusts and are necessary to ensure that the amount the taxpayer 
claims as a charitable deduction reasonably correlates to the amount 
ultimately passing to the charitable organization.

DATES: Effective Dates: These regulations are effective January 5, 
2001.
    Applicability Dates: For dates of applicability of these 
regulations, see Secs. 1.170A-6(e), 20.2055-2(e)(3)(iii), and 
25.2522(c)-3(e).

FOR FURTHER INFORMATION CONTACT: Scott S. Landes at (202) 622-3090.

SUPPLEMENTARY INFORMATION:

Background

    On April 5, 2000, the IRS published in the Federal Register (65 FR 
17835) a notice of proposed rulemaking (REG-100291-00) relating to the 
permissible terms for charitable guaranteed annuity interests and 
unitrust interests. This document adopts final regulations with respect 
to the notice of proposed rulemaking. Written comments were received 
with respect to the proposed regulations, but no public hearing was 
requested or held. A summary of the principal comments received is 
provided below.
    In general, in order to qualify as a guaranteed annuity interest or 
unitrust interest for purposes of the income, estate, and gift tax 
charitable deductions under sections 170(c), 2055(e)(2), and 
2522(c)(2), respectively, the permissible term for the charitable lead 
interest must be either a specified term of years, or the life or lives 
of individuals living at the date of the transfer. The proposed 
regulations limit the individuals who may be used as measuring lives to 
the donor, the donor's spouse, and a lineal ancestor of all the 
remainder beneficiaries. This proposed limitation is intended to 
eliminate abusive schemes utilizing seriously ill individuals, who are 
unrelated to the grantor or the remainder beneficiaries, as measuring 
lives for charitable lead trusts.
    Commentators argued that by limiting the class of individuals who 
can be used as measuring lives in a charitable lead trust, the 
regulations preclude the use of these trusts in certain nonabusive 
situations. In response to these comments, several changes were made to 
the final regulations to provide a greater degree of flexibility for 
selecting a measuring life.
    The final regulations expand the class of permissible measuring 
lives to include an individual who, with respect to all noncharitable 
remainder beneficiaries, is either a lineal ancestor or the spouse of a 
lineal ancestor of those beneficiaries. Thus, remainder beneficiaries 
can include step-children and step-grandchildren of the individual who 
is the measuring life, and charitable organizations (described in 
section 170, 2055, or 2522).
    The final regulations also provide that a trust will satisfy the 
requirement that all noncharitable remainder beneficiaries are lineal 
descendants of the individual who is the measuring life, or that 
individual's spouse, if there is less than a 15% probability that 
individuals who are not lineal descendants will receive any trust 
corpus. This probability must be computed at the date of transfer to 
the trust taking into consideration the interests of all individuals 
living at that time. This change will afford drafters the flexibility 
to provide for alternative remainder beneficiaries in the event the 
primary remainder beneficiary and his or her descendants predecease the 
individual who is the measuring life for the term of the charitable 
interest.
    The application of the probability test may be illustrated by 
assuming a grantor establishes a charitable lead annuity trust (CLAT) 
that provides for the

[[Page 1041]]

annuity to be paid to a charity for the life of A who is age 75 on the 
date the CLAT is created. On A's death, the corpus is to pass to A's 
only child, B, age 50 on the date the CLAT is created. If B predeceases 
A, the corpus is to pass to B's issue then living and if B has no 
living issue at that time, then to A's heirs at law (which class could 
include A's siblings, uncles, aunts, nieces and nephews). B has no 
living children on the date the CLAT is created. Based on the current 
applicable Life Table contained in Sec. 20.2031-7 of the Estate Tax 
Regulations (Life Table 90CM), the probability that B will predecease 
A, and the trust will pass to individuals who are not lineal 
descendants of A is 10.462%, taking into account the interests of 
remainder beneficiaries living at the time the trust was created. Since 
the probability that any trust corpus will pass to beneficiaries who 
are not lineal descendants of A is less than 15%, the CLAT will satisfy 
the requirement that all noncharitable remainder beneficiaries are 
lineal descendants of A or A's spouse.
    Several commentators identified hypothetical situations where an 
individual who is either unrelated to the remainder beneficiaries, or a 
remote family member, could be used as a measuring life to achieve an 
estate planning objective. The commentators suggested three alternative 
standards that would expand the class of permissible measuring lives. 
None of these suggestions has been adopted.
    First, one commentator suggested that the regulations allow a 
charitable lead trust to use as a measuring life an ancestor of any 
remainder beneficiary rather than an ancestor of all remainder 
beneficiaries. Under the suggested standard, the charitable lead trust 
could provide a nominal remainder interest for descendants of the 
measuring life, with the balance passing to the grantor's family 
members. Thus, the standard would do little to prevent the abuse the 
regulations are intended to address.
    Second, one commentator suggested that the regulations provide that 
an individual is a permissible measuring life if all remainder 
beneficiaries are natural objects of the individual's bounty. However, 
the determination of whether a person is the natural object of one's 
bounty requires an inquiry into facts that may be difficult to 
ascertain or verify. Such a subjective standard would create 
uncertainty and would be difficult to administer.
    Third, one commentator suggested that if the charitable interest is 
payable for the life of an individual, then the trust must require 
that, in the event the individual fails to survive to a normal life 
expectancy, a guaranteed lump sum will be paid to charity (determined 
actuarially), that will make up for the shortfall in the charitable 
annuity. A provision requiring such a payment in the event of the 
premature death of the measuring life would be complex and inconsistent 
with the valuation rules of section 7520. In addition, this requirement 
would in substance convert a life interest to a term of years interest 
and in some cases allow that term interest to be commuted. Thus, such a 
requirement may conflict with other rules prohibiting commutation or 
prepayment of the charitable lead interest.
    In summary, the Treasury Department and the IRS acknowledge that 
there may be situations in which the grantor, for a valid estate 
planning objective, may desire to use an individual as a measuring life 
who does not satisfy the criteria in the regulations (for example, 
where a remainder beneficiary is dependent on a nonfamily member for 
support and the trust corpus is intended to provide that support after 
the death of the nonfamily member). However, the Treasury Department 
and the IRS believe that in these situations the grantor's objectives 
can be satisfied through the use of other permissible estate planning 
techniques. In situations where a charitable lead trust is utilized, 
the Treasury Department and the IRS believe that the final regulations 
allow adequate flexibility for achieving legitimate estate planning 
objectives while providing reasonable safeguards to preclude abusive 
arrangements.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 
6) do not apply to these regulations, and therefore, a Regulatory 
Flexibility Analysis is not required. Pursuant to section 7805(f) of 
the Internal Revenue Code, the notice of proposed rulemaking preceding 
these regulations was submitted to the Small Business Administration 
for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Scott S. Landes, 
Office of the Chief Counsel, IRS. Other personnel from the IRS and the 
Treasury Department participated in their development.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1, 20, and 25 are amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
an entry in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.170A-6 also issued under 26 U.S.C. 170(f)(4); 26 
U.S.C. 642(c)(5). * * *


    Par. 2. Section 1.170A-6 is amended as follows:
    1. Paragraph (c)(2)(i)(A) is amended as follows:
    a. In the first sentence, the comma is removed.
    b. In the second sentence, the language ``of years'' is added after 
the word ``term'', the language ``an individual or individuals'' is 
removed, and ``certain individuals'' is added in its place.
    c. The third sentence is removed, and six new sentences are added 
in its place.
    d. In the penultimate sentence, the language ``of years'' is added 
after the word ``term'', the language ``an individual'' is removed, and 
``the donor'' is added in its place.
    2. Paragraph (c)(2)(ii)(A) is amended as follows:
    a. In the fifth sentence, the language ``of years'' is added after 
the word ``term'', ``an individual or individuals'' is removed, and 
``certain individuals'' is added in its place.
    b. The last sentence is removed, and six new sentences are added in 
its place.
    3. Paragraph (e) is amended by adding four sentences to the end of 
the paragraph.
    4. The authority citation at the end of the section is removed.
    The additions read as follows:


Sec. 1.170A-6  Charitable contributions in trust.

* * * * *
    (c) * * *
    (2) * * *
    (i) * * * (A) * * * Only one or more of the following individuals 
may be used as measuring lives: the donor, the donor's spouse, and an 
individual who, with respect to all remainder beneficiaries (other than 
charitable organizations described in section 170, 2055, or 2522), is 
either a lineal ancestor or the spouse of a lineal ancestor of those 
beneficiaries. A trust will satisfy the requirement that all 
noncharitable remainder beneficiaries are lineal descendants of the 
individual who is the measuring life, or that individual's

[[Page 1042]]

spouse, if there is less than a 15% probability that individuals who 
are not lineal descendants will receive any trust corpus. This 
probability must be computed, based on the current applicable Life 
Table contained in Sec. 20.2031-7, at the time property is transferred 
to the trust taking into account the interests of all primary and 
contingent remainder beneficiaries who are living at that time. An 
interest payable for a specified term of years can qualify as a 
guaranteed annuity interest even if the governing instrument contains a 
savings clause intended to ensure compliance with a rule against 
perpetuities. The savings clause must utilize a period for vesting of 
21 years after the deaths of measuring lives who are selected to 
maximize, rather than limit, the term of the trust. The rule in this 
paragraph that a charitable interest may be payable for the life or 
lives of only certain specified individuals does not apply in the case 
of a charitable guaranteed annuity interest payable under a charitable 
remainder trust described in section 664. * * *
* * * * *
    (ii) * * * (A) * * * Only one or more of the following individuals 
may be used as measuring lives: the donor, the donor's spouse, and an 
individual who, with respect to all remainder beneficiaries (other than 
charitable organizations described in section 170, 2055, or 2522), is 
either a lineal ancestor or the spouse of a lineal ancestor of those 
beneficiaries. A trust will satisfy the requirement that all 
noncharitable remainder beneficiaries are lineal descendants of the 
individual who is the measuring life, or that individual's spouse, if 
there is less than a 15% probability that individuals who are not 
lineal descendants will receive any trust corpus. This probability must 
be computed, based on the current applicable Life Table contained in 
Sec. 20.2031-7, at the time property is transferred to the trust taking 
into account the interests of all primary and contingent remainder 
beneficiaries who are living at that time. An interest payable for a 
specified term of years can qualify as a unitrust interest even if the 
governing instrument contains a savings clause intended to ensure 
compliance with a rule against perpetuities. The savings clause must 
utilize a period for vesting of 21 years after the deaths of measuring 
lives who are selected to maximize, rather than limit, the term of the 
trust. The rule in this paragraph that a charitable interest may be 
payable for the life or lives of only certain specified individuals 
does not apply in the case of a charitable unitrust interest payable 
under a charitable remainder trust described in section 664.
* * * * *
    (e) Effective date. * * * In addition, the rule in paragraphs 
(c)(2)(i)(A) and (ii)(A) of this section that guaranteed annuity 
interests and unitrust interests, respectively, may be payable for a 
specified term of years or for the life or lives of only certain 
individuals applies to transfers made on or after April 4, 2000. If a 
transfer is made to a trust on or after April 4, 2000 that uses an 
individual other than one permitted in paragraphs (c)(2)(i)(A) and 
(ii)(A) of this section, the trust may be reformed to satisfy this 
rule. As an alternative to reformation, rescission may be available for 
a transfer made on or before March 6, 2001. See Sec. 25.2522(c)-3(e) of 
this chapter for the requirements concerning reformation or possible 
rescission of these interests.

PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 
1954

    Par. 3. The authority citation for part 20 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 4. Section 20.2055-2 is amended as follows:
    1. Paragraph (e)(2)(vi) (a) is amended as follows:
    a. In the third sentence, the language ``of years'' is added after 
the word ``term'', the language ``an individual or individuals'' is 
removed, and ``certain individuals'' is added in its place.
    b. The fourth sentence is removed, and six new sentences are added 
in its place.
    c. In the penultimate sentence, the language ``of years'' is added 
after the word ``term'', the language ``an individual'' is removed, and 
``the decedent's spouse'' is added in its place.
    2. Paragraph (e)(2)(vii)(a) is amended as follows:
    a. In the sixth sentence, the language ``of years'' is added after 
the word ``term'', the language ``of an individual or individuals'' is 
removed, and ``of certain individuals'' is added in its place.
    b. The last sentence is removed, and six new sentences are added in 
its place.
    3. Paragraph (e)(3) is amended as follows:
    a. The period at the end of paragraph (e)(3)(ii)(c) is removed, a 
comma is added and the word ``and'' is added after the comma.
    b. A new paragraph (e)(3)(iii) is added.
    The additions read as follows:


Sec. 20.2055-2  Transfers not exclusively for charitable purposes.

* * * * *
    (e) * * *
    (2) * * *
    (vi) * * * (a) * * * Only one or more of the following individuals 
may be used as measuring lives: the decedent's spouse, and an 
individual who, with respect to all remainder beneficiaries (other than 
charitable organizations described in section 170, 2055, or 2522), is 
either a lineal ancestor or the spouse of a lineal ancestor of those 
beneficiaries. A trust will satisfy the requirement that all 
noncharitable remainder beneficiaries are lineal descendants of the 
individual who is the measuring life, or that individual's spouse, if 
there is less than a 15% probability that individuals who are not 
lineal descendants will receive any trust corpus. This probability must 
be computed, based on the current applicable Life Table contained in 
Sec. 20.2031-7, as of the date of the decedent's death taking into 
account the interests of all primary and contingent remainder 
beneficiaries who are living at that time. An interest payable for a 
specified term of years can qualify as a guaranteed annuity interest 
even if the governing instrument contains a savings clause intended to 
ensure compliance with a rule against perpetuities. The savings clause 
must utilize a period for vesting of 21 years after the deaths of 
measuring lives who are selected to maximize, rather than limit, the 
term of the trust. The rule in this paragraph that a charitable 
interest may be payable for the life or lives of only certain specified 
individuals does not apply in the case of a charitable guaranteed 
annuity interest payable under a charitable remainder trust described 
in section 664. * * *
* * * * *
    (vii) * * * (a) * * * Only one or more of the following individuals 
may be used as measuring lives: the decedent's spouse, and an 
individual who, with respect to all remainder beneficiaries (other than 
charitable organizations described in section 170, 2055, or 2522), is 
either a lineal ancestor or the spouse of a lineal ancestor of those 
beneficiaries. A trust will satisfy the requirement that all 
noncharitable remainder beneficiaries are lineal descendants of the 
individual who is the measuring life, or that individual's spouse, if 
there is less than a 15% probability that individuals who are not 
lineal descendants will receive any trust corpus. This probability must 
be computed, based on the current applicable Life Table contained in

[[Page 1043]]

Sec. 20.2031-7, as of the date of the decedent's death taking into 
account the interests of all primary and contingent remainder 
beneficiaries who are living at that time. An interest payable for a 
specified term of years can qualify as a unitrust interest even if the 
governing instrument contains a savings clause intended to ensure 
compliance with a rule against perpetuities. The savings clause must 
utilize a period for vesting of 21 years after the deaths of measuring 
lives who are selected to maximize, rather than limit, the term of the 
trust. The rule in this paragraph that a charitable interest may be 
payable for the life or lives of only certain specified individuals 
does not apply in the case of a charitable unitrust interest payable 
under a charitable remainder trust described in section 664.
* * * * *
    (3) * * *
    (iii) The rule in paragraphs (e)(2)(vi)(a) and (vii)(a) of this 
section that guaranteed annuity interests or unitrust interests, 
respectively, may be payable for a specified term of years or for the 
life or lives of only certain individuals is generally effective in the 
case of transfers pursuant to wills and revocable trusts where the 
decedent dies on or after April 4, 2000. Two exceptions from the 
application of this rule in paragraphs (e)(2)(vi)(a) and (vii)(a) of 
this section are provided in the case of transfers pursuant to a will 
or revocable trust executed on or before April 4, 2000. One exception 
is for a decedent who dies on or before July 5, 2001, without having 
republished the will (or amended the trust) by codicil or otherwise. 
The other exception is for a decedent who was on April 4, 2000, under a 
mental disability to change the disposition of the decedent's property, 
and either does not regain competence to dispose of such property 
before the date of death, or dies prior to the later of: 90 days after 
the date on which the decedent first regains competence, or July 5, 
2001, without having republished the will (or amended the trust) by 
codicil or otherwise. If a guaranteed annuity interest or unitrust 
interest created pursuant to a will or revocable trust where the 
decedent dies on or after April 4, 2000, uses an individual other than 
one permitted in paragraphs (e)(2)(vi)(a) and (vii)(a) of this section, 
and the interest does not qualify for this transitional relief, the 
interest may be reformed into a lead interest payable for a specified 
term of years. The term of years is determined by taking the factor for 
valuing the annuity or unitrust interest for the named individual 
measuring life and identifying the term of years (rounded up to the 
next whole year) that corresponds to the equivalent term of years 
factor for an annuity or unitrust interest. For example, in the case of 
an annuity interest payable for the life of an individual age 40 at the 
time of the transfer, assuming an interest rate of 7.4% under section 
7520, the annuity factor from column 1 of Table S(7.4), contained in 
IRS Publication 1457, Book Aleph, for the life of an individual age 40 
is 12.0587 (Publication 1457 is available from the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402). 
Based on Table B(7.4), contained in Publication 1457, Book Aleph, the 
factor 12.0587 corresponds to a term of years between 31 and 32 years. 
Accordingly, the annuity interest must be reformed into an interest 
payable for a term of 32 years. A judicial reformation must be 
commenced prior to the later of July 5, 2001, or the date prescribed by 
section 2055(e)(3)(C)(iii). Any judicial reformation must be completed 
within a reasonable time after it is commenced. A non-judicial 
reformation is permitted if effective under state law, provided it is 
completed by the date on which a judicial reformation must be 
commenced. In the alternative, if a court, in a proceeding that is 
commenced on or before July 5, 2001, declares any transfer made 
pursuant to a will or revocable trust where the decedent dies on or 
after April 4, 2000, and on or before March 6, 2001, null and void ab 
initio, the Internal Revenue Service will treat such transfers in a 
manner similar to that described in section 2055(e)(3)(J).
* * * * *

PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

    Par. 5. The authority citation for part 25 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


    Par. 6. Section 25.2522(c)-3 is amended as follows:
    1. Paragraph (c)(2)(vi)(a) is amended as follows:
    a. In the third sentence, the language ``of years'' is added after 
the word ``term'', the language ``a named individual or individuals'' 
is removed, and ``certain individuals'' is added in its place.
    b. The fourth sentence is removed, and six new sentences are added 
in its place.
    c. In the sentence beginning ``For example, the amount'', the 
language ``of years'' is added after the word ``term'', the language 
``an individual'' is removed, and ``the donor'' is added in its place.
    2. Paragraph (c)(2)(vii)(a) is amended as follows:
    a. In the sixth sentence, the language ``of years'' is added after 
the word ``term'', the language ``an individual or individuals'' is 
removed, and ``certain individuals'' is added in its place.
    b. The last sentence is removed, and six new sentences are added in 
its place.
    3. Paragraph (e) is amended by adding nine new sentences to the end 
of the paragraph.
    The additions read as follows:


Sec. 25.2522(c)-3  Transfers not exclusively for charitable, etc., 
purposes in the case of gifts made after July 31, 1969.

* * * * *
    (c) * * *
    (2) * * *
    (vi) * * * (a) * * * Only one or more of the following individuals 
may be used as measuring lives: the donor, the donor's spouse, and an 
individual who, with respect to all remainder beneficiaries (other than 
charitable organizations described in section 170, 2055, or 2522), is 
either a lineal ancestor or the spouse of a lineal ancestor of those 
beneficiaries. A trust will satisfy the requirement that all 
noncharitable remainder beneficiaries are lineal descendants of the 
individual who is the measuring life, or that individual's spouse, if 
there is less than a 15% probability that individuals who are not 
lineal descendants will receive any trust corpus. This probability must 
be computed, based on the current applicable Life Table contained in 
Sec. 20.2031-7, at the time property is transferred to the trust taking 
into account the interests of all primary and contingent remainder 
beneficiaries who are living at that time. An interest payable for a 
specified term of years can qualify as a guaranteed annuity interest 
even if the governing instrument contains a savings clause intended to 
ensure compliance with a rule against perpetuities. The savings clause 
must utilize a period for vesting of 21 years after the deaths of 
measuring lives who are selected to maximize, rather than limit, the 
term of the trust. The rule in this paragraph that a charitable 
interest may be payable for the life or lives of only certain specified 
individuals does not apply in the case of a charitable guaranteed 
annuity interest payable under a charitable remainder trust described 
in section 664. * * *
* * * * *
    (vii) * * * (a) * * * Only one or more of the following individuals 
may be used as measuring lives: the donor, the donor's spouse, and an 
individual

[[Page 1044]]

who, with respect to all remainder beneficiaries (other than charitable 
organizations described in section 170, 2055, or 2522), is either a 
lineal ancestor or the spouse of a lineal ancestor of those 
beneficiaries. A trust will satisfy the requirement that all 
noncharitable remainder beneficiaries are lineal descendants of the 
individual who is the measuring life, or that individual's spouse, if 
there is less than a 15% probability that individuals who are not 
lineal descendants will receive any trust corpus. This probability must 
be computed, based on the current applicable Life Table contained in 
Sec. 20.2031-7, at the time property is transferred to the trust taking 
into account the interests of all primary and contingent remainder 
beneficiaries who are living at that time. An interest payable for a 
specified term of years can qualify as a unitrust interest even if the 
governing instrument contains a savings clause intended to ensure 
compliance with a rule against perpetuities. The savings clause must 
utilize a period for vesting of 21 years after the deaths of measuring 
lives who are selected to maximize, rather than limit, the term of the 
trust. The rule in this paragraph that a charitable interest may be 
payable for the life or lives of only certain specified individuals 
does not apply in the case of a charitable unitrust interest payable 
under a charitable remainder trust described in section 664.
* * * * *
    (e) Effective date. * * * In addition, the rule in paragraphs 
(c)(2)(vi)(a) and (vii)(a) of this section that guaranteed annuity 
interests or unitrust interests, respectively, may be payable for a 
specified term of years or for the life or lives of only certain 
individuals applies to transfers made on or after April 4, 2000. If a 
transfer is made on or after April 4, 2000, that uses an individual 
other than one permitted in paragraphs (c)(2)(vi)(a) and (vii)(a) of 
this section, the interest may be reformed into a lead interest payable 
for a specified term of years. The term of years is determined by 
taking the factor for valuing the annuity or unitrust interest for the 
named individual measuring life and identifying the term of years 
(rounded up to the next whole year) that corresponds to the equivalent 
term of years factor for an annuity or unitrust interest. For example, 
in the case of an annuity interest payable for the life of an 
individual age 40 at the time of the transfer, assuming an interest 
rate of 7.4% under section 7520, the annuity factor from column 1 of 
Table S(7.4), contained in IRS Publication 1457, Book Aleph, for the 
life of an individual age 40 is 12.0587 (Publication 1457 is available 
from the Superintendent of Documents, U.S. Government Printing Office, 
Washington, DC 20402). Based on Table B(7.4), contained in Publication 
1457, Book Aleph, the factor 12.0587 corresponds to a term of years 
between 31 and 32 years. Accordingly, the annuity interest must be 
reformed into an interest payable for a term of 32 years. A judicial 
reformation must be commenced prior to October 15th of the year 
following the year in which the transfer is made and must be completed 
within a reasonable time after it is commenced. A non-judicial 
reformation is permitted if effective under state law, provided it is 
completed by the date on which a judicial reformation must be 
commenced. In the alternative, if a court, in a proceeding that is 
commenced on or before July 5, 2001, declares any transfer, made on or 
after April 4, 2000, and on or before March 6, 2001, null and void ab 
initio, the Internal Revenue Service will treat such transfers in a 
manner similar to that described in section 2055(e)(3)(J).

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: December 20, 2000.
Jonathan Talisman,
Acting Assistant Secretary of the Treasury.
[FR Doc. 01-254 Filed 1-4-01; 8:45 am]
BILLING CODE 4830-01-U