Rev. Rul. 55-313

Advice has been requested whether any part of the amount of a `death benefit' payment made to a beneficiary under the terms of a single premium deferred annuity contract upon the death of the annuitant, the owner of the contract, prior to the due date of the first annuity payment is includible in gross income of the annuitant or of the beneficiary.

In the instant case the annuitant purchased a single premium deferred annuity contract from an insurance company. The contract provides that upon the death of the annuitant prior to the due date of the first annuity payment, if the policy is then in force, the insurance company shall pay to the beneficiary an amount equal to the consideration paid for the contract or the cash surrender value of the contract upon the date of death of the annuitant, whichever is greater.

The contract involved in the instant case does not involve any element of risk to the insurance company with respect to the death of the annuitant. Compare Helvering v. Edyth LeGierse et al., Executors, Estate of Cecile LeGierse , 312 U.S. 531, Ct. D. 1491, C.B. 1941-1, 430. On the contrary, death of the annuitant eliminates the risk to the company. Therefore, the amount of the death payment made to the beneficiary is not considered to be an amount paid by reason of the death of the insured within the meaning of section 22(b)(1) of the Internal Revenue Code of 1939.

Accordingly, it is held that the amount of the death payment made to the beneficiary is not exempt from Federal income tax, but that the excess of the amount of the death benefit payment over the amount of the consideration paid for the contract is includible in the gross income of the beneficiary in the taxable year in which received. Such excess is not includible in the gross income of the annuitant