125 / May a charitable contribution deduction be taken for a gift of the annuity portion of a split-life contract?

The IRS has ruled that a gift to charity of the annuity portion of a split-life contract is not deductible because it is a gift of less than the donor’s entire interest in property.¹ The IRS reasoned that the donor, prior to making the gift, exercised the right to purchase the annual term insurance and, thus, the donor had retained a right in the property. Furthermore, the donor’s subsequent annual cash contributions equal to the annuity premiums were treated by the IRS as given in exchange for the charity’s continued election to allow the donor to renew the term life insurance. Thus, the donor continued to retain the right to purchase the annual term insurance. Because the donor retained a right, the donor’s gift of the annuity portion was of less than the donor’s entire interest in the property.² The ruling did not clearly deal with the deduction of the annual cash contributions and some commentators believe they might be deductible. However, the reasoning of the IRS – that the annual contributions were in exchange for the continued right to renew the term insurance – suggests that the donor’s entire interest in the cash contributions was not given.

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1. See IRC § 170(f)(3).

2. Rev. Rul. 76-1, 1976-1 CB 57.