Amounts Received As An Annuity

<div class="Section1">For contracts issued after 1996, but only for tax years after 2009, a charge against the cash surrender value of an annuity contract or life insurance contract for a premium payment of a qualified long-term care contract ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="477">477</a>) that is a rider to the annuity or life insurance contract reduces the investment in the contract of the annuity or life insurance contract. This charge against the cash surrender value, however, does not cause the taxpayer to recognize gross income (because it is applied against the cost basis).<a href="#_ftn1" name="_ftnref1">¹</a> On the other hand, such charges are also not eligible for a medical expense deduction under Section&nbsp;213(a).<a href="#_ftn2" name="_ftnref2">²</a><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 72(e)(11).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 7702B(e)(2).<br /> <br /> </div></div><br />

<div class="Section1">The annuity starting date is the “first day of the first period for which an amount is received as an annuity.”<a href="#_ftn1" name="_ftnref1">¹</a> For a deferred annuity, the annuity starting date is triggered when the annuity owner elects to annuitize and begin payments; a deferred annuity contract also specifies an annuity starting date by which annuitization payments must begin, if the owner has not elected to start them prior to such date.</div><br /> <div class="Section1"><br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> The annuity starting date is important not only to determine the onset of payments themselves, but also because the exclusion ratio for taxing annuity payments under a particular contract is determined as of the annuity starting date.<br /> <br /> <hr /><br /> <br /> For an immediate annuity, the annuity starting date is generally immediate upon the purchase of the contract. For example, suppose that a person purchases an immediate annuity on July 1 providing for monthly payments beginning August 1. The annuity starting date is July 1 (the first payment is for the one month period beginning July 1). Payments under settlement options usually commence immediately rather than at the end of the month or other payment period; hence the annuity starting date is the date of the first payment.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 72(c)(4); Treas. Reg. § 1.72-4(b).<br /> <br /> </div>

<div class="Section1">If an annuity contract was purchased before August&nbsp;14, 1982 (and no additional investment was made in the contract after August&nbsp;13, 1982), the lump sum withdrawn is excludable from gross income as &ldquo;an amount not received as an annuity&rdquo; that is a return of principal received before the annuity starting date. Thus, the lump sum is subtracted from the unrecovered premium cost, and the balance is used as the investment in the contract. A new exclusion ratio ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="527">527</a>) must be computed for the annuity payments.<a href="#_ftn1" name="_ftnref1">¹</a><div class="Section1"><br /> <br /> If the lump sum withdrawn is allocable to investment in an annuity contract made after August&nbsp;13, 1982, it would appear that there will be a taxable withdrawal of interest if the cash surrender value of the contract exceeds investment in the contract ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="515">515</a>, Q <a href="javascript:void(0)" class="accordion-cross-reference" id="523">523</a>) and a new exclusion ratio must be computed given a lower anticipated expected return due to the withdrawal of a portion of contract gains (paired with the existing investment in the contract that remains).<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 1.72-11(e).<br /> <br /> </div></div><br />

<div class="Section1">Previously, the owner of an annuity or life insurance contract who wanted to annuitize a portion of a contract was required to split a contract into two and annuitize one of the resulting contracts. Splitting the contract was treated as a partial withdrawal and the owner was taxed prior to annuitization. As of 2011, that cumbersome two-step process is no longer necessary.</div><br /> <div class="Section1"><br /> <br /> This result is due to the passage of the Small Business Jobs and Credit Act of 2010 (H.R. 5297). Section 2113 of the law amended IRC Section 72(a) to permit partial annuitization of annuity, endowment, and life insurance contracts – leaving the balance unannuitized – as long as the annuitization period is for 10 years or more or is for the lives of one or more individuals.<br /> <br /> When a contract is partially annuitized: (1) each annuitized portion of the contract is treated as a separate contract; (2) for purposes of calculating the taxable portion of annuity payments from a partially annuitized contract, investment in the contract is allocated pro rata between each portion of the contract from which amounts are received as an annuity and the portion of the contract from which amounts are not received as an annuity; and (3) each separately annuitized portion of the contract will have a separate annuity start date.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> Partial annuitization is permissible for tax years beginning after December 31, 2010.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 72(aj)(2).<br /> <br /> </div>

<div class="Section1">Generally speaking, expected return is the total amount that the annuitant or annuitants can expect to receive over the annuitization period of the contract.<div class="Section1"><br /> <br /> The expected return of a variable contract cannot be known in advance. Therefore, the calculation of the amount excludable from each year&rsquo;s annuity payment does not employ the &ldquo;exclusion ratio&rdquo; used with fixed annuities. Instead, with a variable contract, the investment in the contract is divided over the period across which annuity payments will persist ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="550">550</a>).<br /> <br /> </div></div><br />

<div class="Section1">If an annuity is a life annuity with a refund or period-certain guarantee, a special adjustment must be made to the investment in the contract (whether premium cost or other cost). The value of the refund or period-certain guarantee (as determined by use of a prescribed annuity table, Table III or Table VII, or a formula, depending on when the investment in the contract was made) must be subtracted from the investment in the contract. It is this adjusted investment in the contract that is used in the exclusion ratio ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="537">537</a>, Q <a href="javascript:void(0)" class="accordion-cross-reference" id="541">541</a>).<a href="#_ftn1" name="_ftnref1">¹</a><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1.</a>&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 72(c)(2); Treas. Reg. &sect; 1.72-7.<br /> <br /> </div></div><br />

<div class="Section1">A temporary life annuity is one that provides for fixed payments until the death of the annuitant or until the expiration of a specified number of years, whichever occurs earlier. The basic annuity rule ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="527">527</a>) applies. That is, the investment in the contract is divided by the expected return under the contract to find the portion of each payment that can be excluded from gross income (the exclusion ratio). Expected return is determined by multiplying one year&rsquo;s annuity payments by the multiple in Table IV or Table VIII of the IRS Annuity Tables for the annuitant&rsquo;s age (as of the annuity starting date) and sex (if applicable) and the whole number of years in the specified period.<a href="#_ftn1" name="_ftnref1">¹</a> Tables IV and VIII can be found in Treasury Regulation Section&nbsp;1.72-9.<div class="Section1"><br /> <br /> The penalty tax of IRC Section&nbsp;72(q) may be imposed on the taxable portion of payments received under the contract unless one of the exceptions listed in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="523">523</a> is met.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 1.72-5(a)(3).<br /> <br /> </div></div><br />

<div class="Section1">If an annuitant under a life annuity payout with a refund feature dies and there is value remaining in the refund feature, the taxation of payments to the beneficiary under the refund feature depends on whether that beneficiary elects a new payout arrangement.</div><br /> <div class="Section1"><br /> <br /> If proceeds under the refund feature are taken by the beneficiary either as a lump sum or in accordance with the annuity payout option under which the annuitant’s payments were calculated, proceeds will be excludable from income until the total amount the beneficiary receives, when added to the amounts received tax-free by the annuitant, is equal to the annuitant’s “investment in the contract,” unadjusted for the value of the refund feature.<a href="#_ftn1" name="_ftnref1">¹</a> This “FIFO” (first-in, first-out) basis-first treatment of beneficiary payments is different than the income/gains-first treatment applying to “amounts not received as an annuity” and from the “regular annuity rules” treatment that normally applies to annuitized payments.<br /> <br /> If the total payments thus made to the beneficiary are less than the annuitant’s investment in the contract and the annuitant’s annuity starting date was after July 1, 1986, the beneficiary may take an income tax deduction for any such unrecovered investment.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     Treas. Reg. § 1.72-11(c).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     IRC § 72(b)(3)(A).<br /> <br /> </div>

<div class="Section1">A market value adjusted (MVA) annuity is an annuity issued pursuant to a contract that allows the carrier to adjust the product’s cash surrender value upward or downward if the client chooses to surrender the product before maturity. The adjustment is calculated based on the difference between the interest rate guaranteed under the particular contract and the then-prevailing market interest rates.</div><br /> <div class="Section1"><br /> <br /> Generally, if the prevailing interest rate at the time of surrender is higher than the contract’s guaranteed rate, the taxpayer’s cash surrender value will be adjusted downward. On the other hand, if rates move lower than the rate guaranteed under the contract, the taxpayer can receive a surrender value that may be more than the original investment—the surrender value will be increased to reflect the higher annuity rate.<br /> <br /> As with other fixed annuities, if a taxpayer purchases a fixed MVA annuity and holds it for the duration of the product’s guarantee period—which may be as short as three years or upwards of 15 years—the product simply pays the guaranteed rate.<br /> <br /> In recent years, the prevailing interest rates have been so low that annuity carriers have only been able to offer products with similarly low guaranteed interest rates, so there was very little difference to be realized with MVA annuities. Because interest rates on some investments—including many of those commonly held by the carriers themselves—have begun to creep higher, carriers have likewise started to offer higher rates on certain products.<br /> <br /> This rise in interest rates, whether fleeting or long-term, allows taxpayers to lock in a higher rate on their annuity product—in some cases, for a period that is as short as three to five years. If rates begin to drop and the taxpayer chooses to surrender the product, he or she can take advantage of the MVA feature.<br /> <br /> Further, annuity carriers often offer taxpayers higher interest rates with MVA annuities than with other annuity products because the taxpayer bears the interest rate risk; therefore, even if interest rates remain relatively stable during the guarantee period and the taxpayer holds the product to maturity, he or she may have locked in a higher interest rate than would be available with similarly conservative investment products.<br /> <br /> </div>

<div class="Section1">The computation outlined in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="537">537</a> is for a straight life annuity (without a refund or period-certain guarantee). The exclusion ratio for a single life refund or period-certain guarantee is determined in the same way, but the investment in the contract first must be adjusted by subtracting the value of the refund or period-certain guarantee. The value of the refund or period-certain guarantee is computed by the following steps:<div class="Section1"><br /> <blockquote>(1)&nbsp;&nbsp;&nbsp;&nbsp; Determine the duration of the guaranteed amount (number of years necessary for the total guaranteed return to be fully paid). In the case of a period-certain life annuity, the duration of the guaranteed amount, in years, is known (e.g., 10, 15, or 20 &ldquo;years certain&rdquo;). To find the duration of the guaranteed amount, in years, for a cash or installment refund life annuity, divide the total guaranteed amount by the amount of one year&rsquo;s annuity payments, and round the quotient to the nearest whole number of years.<br /> <br /> (2)&nbsp;&nbsp;&nbsp;&nbsp; Find the factor in Table III or VII (whichever is applicable, depending on when the investment is made in the contract) under the whole number of years (as determined above) and the age and (if applicable) the sex of the annuitant. This Table III or Table VII factor is the&nbsp;percentage value of the refund or period-certain guarantee.<br /> <br /> (3)&nbsp;&nbsp;&nbsp;&nbsp; Apply the applicable Table III or Table VII&nbsp;percentage to the smaller of (a) the investment in the contract, or (b) the total guaranteed return under the contract. The result is the present value of the refund or period-certain guarantee.<br /> <br /> (4)&nbsp;&nbsp;&nbsp;&nbsp; Subtract the present value of the refund or period-certain guarantee from the investment in the contract. The remainder is the adjusted investment in the contract to be used in the exclusion ratio.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> <em>Example 3:</em> On January&nbsp;1, 2025, a husband, age 65, purchases for $21,053 an immediate installment refund annuity that pays $100 a month for life. The contract provides that in the event the husband does not live long enough to recover the full purchase price, payments will be made to his spouse until the total payments under the contract equal the purchase price. The investment in the contract is adjusted for the purpose of determining the exclusion ratio as follows:</blockquote><br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td width="400">Unadjusted investment in the contract</td><br /> <td style="text-align: right;" width="67">$21,053</td><br /> </tr><br /> <tr><br /> <td width="400">Amount to be received annually</td><br /> <td style="text-align: right;" width="67">$1,200</td><br /> </tr><br /> <tr><br /> <td width="400">Duration of guaranteed amount ($21,053 &divide; $1,200)</td><br /> <td style="text-align: right;" width="67">17.5 yrs.</td><br /> </tr><br /> <tr><br /> <td width="400">Rounded to nearest whole number of years</td><br /> <td style="text-align: right;" width="67">18</td><br /> </tr><br /> <tr><br /> <td width="400">Percentage value of guaranteed refund (Table VII for age 65 and 18 years)</td><br /> <td style="text-align: right;" width="67">15%</td><br /> </tr><br /> <tr><br /> <td width="400">Value of refund feature rounded to nearest dollar (15% of $21,053)</td><br /> <td style="text-align: right;" width="67">$3,158</td><br /> </tr><br /> <tr><br /> <td width="400">Adjusted investment in the contract ($21,053 &ndash; $3,158)</td><br /> <td style="text-align: right;" width="67">$17,895</td><br /> </tr><br /> </tbody><br /> </table><br /> <blockquote><em>Example 4:</em> Assume the contract in Example 3 was purchased as a deferred annuity, the pre-July&nbsp;1986 investment in the contract is $10,000, and the post-June&nbsp;1986 investment in the contract is $11,053. If the annuitant elects to compute a separate exclusion&nbsp;percentage for the pre-July&nbsp;1986 and the post-June&nbsp;1986 amounts, separate computations must be performed to determine the adjusted investment in the contract. The pre-July&nbsp;1986 investment in the contract and the post-June&nbsp;1986 investment in the contract are adjusted for the purpose of determining the exclusion ratios in the following manner:</blockquote><br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td colspan="3" width="470">Pre-July&nbsp;1986 adjustment:</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Unadjusted investment in the contract</td><br /> <td style="text-align: right;" width="69">$10,000</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Allocable part of amount to be received annually</td><br /> <td width="69"></td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">(($10,000 &divide; $21,053) &times; $1,200)</td><br /> <td style="text-align: right;" width="69">$570</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Duration of guaranteed amount ($10,000 &divide; $570)</td><br /> <td style="text-align: right;" width="69">17.5 yrs.</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Rounded to nearest whole number of years</td><br /> <td style="text-align: right;" width="69">18</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Percentage in Table III for age 65 and 18 years</td><br /> <td style="text-align: right;" width="69">30%</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Present value of refund feature rounded to nearest dollar</td><br /> <td width="69"></td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">(30% of $10,000)</td><br /> <td style="text-align: right;" width="69">$3,000</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Adjusted pre-July&nbsp;1986 investment in the contract ($10,000 &ndash; $3,000)</td><br /> <td style="text-align: right;" width="69">$7,000</td><br /> </tr><br /> <tr><br /> <td colspan="3" width="470">Post-June&nbsp;1986 adjustment:</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Unadjusted investment in the contract</td><br /> <td style="text-align: right;" width="69">$11,053</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Allocable part of amount to be received annually</td><br /> <td width="69"></td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">(($11,053 &divide; $21,053) &times; $1,200)</td><br /> <td style="text-align: right;" width="69">$630</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Duration of guaranteed amount ($11,053 &divide; $630)</td><br /> <td style="text-align: right;" width="69">17.5 yrs.</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Rounded to nearest whole number of years</td><br /> <td style="text-align: right;" width="69">18</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Percentage in Table VII for age 65 and 18 years</td><br /> <td style="text-align: right;" width="69">15%</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Present value of refund feature rounded to nearest dollar)</td><br /> <td width="69"></td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">(15% of $11,053)</td><br /> <td style="text-align: right;" width="69">$1,658</td><br /> </tr><br /> <tr><br /> <td width="11"></td><br /> <td width="389">Adjusted post-June&nbsp;1986 investment in the contract ($11,053 &ndash; $1,658)</td><br /> <td style="text-align: right;" width="69">$9,395</td><br /> </tr><br /> </tbody><br /> </table><br /> <blockquote>Once the investment in the contract has been adjusted by subtracting the value of the refund or period-certain guarantee, an exclusion ratio is determined in the same way as for a straight life annuity. The expected return is computed, then the adjusted investment in the contract is divided by expected return. Taking the two examples above, the exclusion ratio for each contract is determined as follows.<br /> <br /> <em>Example (3)</em> above.</blockquote><br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td width="400">Investment in the contract (adjusted for refund guarantee)</td><br /> <td style="text-align: right;" width="67">$17,895</td><br /> </tr><br /> <tr><br /> <td width="400">One year&rsquo;s guaranteed annuity payments (12 &times; $100)</td><br /> <td style="text-align: right;" width="67">$1,200</td><br /> </tr><br /> <tr><br /> <td width="400">Life expectancy from Table V, age 65</td><br /> <td style="text-align: right;" width="67">20 yrs.</td><br /> </tr><br /> <tr><br /> <td width="400">Expected return (20 &times; $1,200)</td><br /> <td style="text-align: right;" width="67">$24,000</td><br /> </tr><br /> <tr><br /> <td width="400">Exclusion ratio ($17,895 &divide; $24,000)</td><br /> <td style="text-align: right;" width="67">74.6%</td><br /> </tr><br /> <tr><br /> <td width="400">Amount excludable from gross income each year in which 12</td><br /> <td width="67"></td><br /> </tr><br /> <tr><br /> <td width="400">payments are received (74.6% of $1,200)*</td><br /> <td style="text-align: right;" width="67">$895.20</td><br /> </tr><br /> <tr><br /> <td width="400">Amount includable in gross income ($1,200 &ndash; $895.20)*</td><br /> <td style="text-align: right;" width="67">$304.80</td><br /> </tr><br /> </tbody><br /> </table><br /> <blockquote>* Since the annuity starting date is after December&nbsp;31, 1986, the total amount excludable is limited to the investment in the contract; after that has been recovered, the remaining amounts received are includable in income. However, if the annuity has a refund or guarantee feature, the value of the refund or guarantee feature is not subtracted when calculating the unrecovered investment.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <em>Example (4)</em> above.</blockquote><br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td width="400">Pre-July&nbsp;1986 investment in the contract (adjusted for period certain</td><br /> <td width="67"></td><br /> </tr><br /> <tr><br /> <td width="400">guarantee)</td><br /> <td style="text-align: right;" width="67">$7,000</td><br /> </tr><br /> <tr><br /> <td width="400">One year&rsquo;s guaranteed annuity payments (12 &times; $100)</td><br /> <td style="text-align: right;" width="67">$1,200</td><br /> </tr><br /> <tr><br /> <td width="400">Life expectancy from Table I, male age 65</td><br /> <td style="text-align: right;" width="67">15 yrs.</td><br /> </tr><br /> <tr><br /> <td width="400">Expected return (15 &times; $1,200)</td><br /> <td style="text-align: right;" width="67">$18,000</td><br /> </tr><br /> <tr><br /> <td width="400">Exclusion ratio ($7,000 &divide; $18,000)</td><br /> <td style="text-align: right;" width="67">38.9%</td><br /> </tr><br /> <tr><br /> <td colspan="2" width="467"></td><br /> </tr><br /> <tr><br /> <td width="400">Post-June&nbsp;1986 investment in the contract (adjusted for period certain</td><br /> <td width="67"></td><br /> </tr><br /> <tr><br /> <td width="400">guarantee)</td><br /> <td style="text-align: right;" width="67">$9,395</td><br /> </tr><br /> <tr><br /> <td width="400">One year&rsquo;s guaranteed annuity payments (12 &times; $100)</td><br /> <td style="text-align: right;" width="67">$1,200</td><br /> </tr><br /> <tr><br /> <td width="400">Life expectancy from Table V, age 65</td><br /> <td style="text-align: right;" width="67">20 yrs.</td><br /> </tr><br /> <tr><br /> <td width="400">Expected return (20 &times; $1,200)</td><br /> <td style="text-align: right;" width="67">$24,000</td><br /> </tr><br /> <tr><br /> <td width="400">Exclusion ratio ($9,395 &divide; $24,000)</td><br /> <td style="text-align: right;" width="67">39.1%</td><br /> </tr><br /> <tr><br /> <td width="400">Sum of pre-July and post-June&nbsp;1986 ratios</td><br /> <td style="text-align: right;" width="67">78%</td><br /> </tr><br /> <tr><br /> <td width="400">Amount excludable from gross income each year in which 12 payments</td><br /> <td width="67"></td><br /> </tr><br /> <tr><br /> <td width="400">are received (78% of $1,200)*</td><br /> <td style="text-align: right;" width="67">$936</td><br /> </tr><br /> <tr><br /> <td width="400">Amount includable in gross income ($1,200 &ndash; 936)*</td><br /> <td style="text-align: right;" width="67">$264</td><br /> </tr><br /> </tbody><br /> </table><br /> <blockquote>* Since the annuity starting date is after December&nbsp;31, 1986, the total amount excludable is limited to the investment in the contract; after that has been recovered, the remaining amounts received are includable in income.</blockquote><br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 1.72-7(b).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 72(b)(4).<br /> <br /> </div></div><br />