Charitable Gift Annuity Assumptions

[Kathleen Reynolds]

#3086

For capital gains calculations, the program assumes that the gift annuity is not assignable and that the donor is the annuitant. This results in the gain being reportable over the donor’s life expectancy. If the donor is not the annuitant, the capital gain must be reported in the year of the transfer.

For a deferred gift annuity, the capital gain would not be reportable until payments start if the donor is the annuitant. At that time, the capital gain would be reportable over the donor’s life expectancy using the expected return multiple in effect will be the current one. If the donor is not the annuitant, the capital gain must be reported in the year of the transfer. When the Transfer Date, the amount of the first payment is added to determine the Present Value of the Annuity. If the first payment is not prorated and occurs before the normal interval, the program increases the Present Value of the Annuity by the difference between the actual first payment and what would have been the prorated amount.

The expected return multiple is required to be adjusted in certain cases. This adjustment factor is used when the payment is not monthly.Teitell’s material refers to this factor as the Table 9 value and the Committee on Gift Annuities materials refers to it as their Schedule 3A value. These adjustment factors are the same as found in Treas. Reg. §1.72-5(a)(2)(i). The regulations base the selection of the adjustment factor on number of whole months from the annuity starting date to the first payment date. If this is read literally, one might argue that a period from February 1 to April 1 is two full months, but that a period from February 1 to March 31 is only one full month. However, in the gift annuities area, the position taken is that both of these periods comprise two full months. Therefore, the program measures full months by allowing one month less a day to qualify as a full month.

The program performs a deferred annuity calculation when the first payment date is more than one year after the transfer date. It performs the immediate annuity calculation when the First Payment Date is no more than one normal interval (as measured in full months) after the Transfer Date. This leaves a gray area where the program will not perform a calculation. Therefore, the program will not calculate in the following cases: semiannual payments where the First Payment Date is not less than 7 full months after the Transfer Date, quarterly payments where the First Payment Date is not less than 4 full months after the Transfer Date, and monthly payments where the First Payment Date is not less than 2 full months after the Transfer Date.

Several calculations depend on the age of a person on some given date. As per IRS rules, the age is based on the age as of the nearest birthday. The program uses the age of the birthday within 183 days. If two birthdays fall within 183 days, the program uses the later one.

In prorating the first payment for short interval periods, the program bases the proration on actual days. Other methods of proration are equally valid.

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