Page 155 - Virtual Currencies

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
reason. Generally, this method serves to sup- Interest rate. The applicable interest rate var- death benefit) and there was no insurance ele-
port the value determined from other methods. ies. It is announced monthly in a news release ment when it was transferred to the charity, the
When the replacement cost method is applied and published in the Internal Revenue Bulletin policy is treated as an annuity contract.
to improved realty, the land and improvements as a Revenue Ruling. The interest rate to use is
are valued separately. under the heading “Rate Under Section 7520” Partial Interest in Property
for a given month and year. You can call the Not in Trust
The replacement cost of a building is figured IRS office at 800-829-1040 to obtain this rate.
by considering the materials, the quality of
workmanship, and the number of square feet or Actuarial tables. You need to refer to actua- Generally, no deduction is allowed for a charita-
cubic feet in the building. This cost represents rial tables to determine a qualified interest in the ble contribution, not made in trust, of less than
the total cost of labor and material, overhead, form of an annuity, any interest for life or a term your entire interest in property. However, this
and profit. After the replacement cost has been of years, or any remainder interest to a charita- does not apply to a transfer of less than your
figured, consideration must be given to the fol- ble organization. entire interest if it is a transfer of:
lowing factors. Use the valuation tables set forth in IRS Pub • A remainder interest in your personal resi-
• Physical deterioration—the wear and tear 1457, Actuarial Valuations, Version 3A; and dence or farm,
on the building itself. Pub 1458, Actuarial Valuations, Version 3B. • An undivided part of your entire interest in
• Functional obsolescence—usually in older Both of these publications provide tables con- property, or
buildings with, for example, inadequate taining actuarial factors to be used in determin- • A qualified conservation contribution.
lighting, plumbing, or heating; small rooms; ing the present value of an annuity, an interest
or a poor floor plan. for life or a term of years, or a remainder or re- Remainder Interest in Real
• Economic obsolescence—outside forces versionary interest. For qualified charitable Property
causing the whole area to become less de- transfers, you can use the factor for the month
sirable. in which you made the contribution or for either The amount of the deduction for a donation of a
of the 2 months preceding that month. remainder interest in real property is the FMV of
Interest in a Business Pub. 1457 also contains actuarial factors for the remainder interest at the time of the contri-
computing the value of a remainder interest in a bution. To determine this value, you must know
The FMV of any interest in a closely held busi- charitable remainder annuity trust and a pooled the FMV of the property on the date of the con-
income fund. Pub. 1458 contains the factors for
tribution. Multiply this value by the appropriate
ness (whether a sole proprietorship or a busi- valuing the remainder interest in a charitable re- factor. Pubs. 1457 and 1458 contain these fac-
ness taxed as a corporation or partnership) is mainder unitrust. You can download Pubs 1457 tors.
the amount that a willing buyer would pay for and 1458 from IRS.gov. Tables containing ac-
the interest to a willing seller after consideration tuarial factors for transfers to pooled income You must make an adjustment for deprecia-
of all relevant factors. Because of the many fac- funds may also be found in Regulations section tion or depletion using the factors shown in Pub.
tors to be considered in determining the FMV of 1.642(c)-6(e)(6), transfers to charitable remain- 1459, Actuarial Valuations, Version 3C. You
an interest in a closely held business, the help der unitrusts in Regulations section 1.664-4(e), can use the factors for the month in which you
of experts is usually required. Such a determi- and other transfers in Regulations section made the contribution or for either of the 2
nation requires the consideration of all available 20.2031-7(d)(6). months preceding that month. See on Annui-
financial data, as well as all relevant factors af- ties, Interests for Life or Terms of Years, Re-
fecting FMV. The following factors, although not Special factors. If you need a special factor mainders, and Reversions, earlier. You can
all-inclusive, may be helpful. for an actual transaction, you can request a let- download Pub. 1459 from IRS.gov.
• The business's net worth and prospective ter ruling. Be sure to include the date of birth of
earning power. each person the duration of whose life may af- For this purpose, the term “depreciable
• The nature and history of the business. fect the value of the interest. Also include cop- property” means any property subject to wear
• The economic outlook of the industry in ies of the relevant instruments. The IRS and tear or obsolescence, even if not used in a
which the business operates. charges a user fee for providing special factors. trade or business or for the production of in-
• The business's position in the industry, its For more information about requesting a rul- come.
competitors, and its management.
• The FMV of assets of the business includ- ing, see Revenue Procedure 2022-1 (or annual If the remainder interest includes both de-
update).
ing goodwill, if applicable. preciable and nondepreciable property, for ex-
• The value of interests in businesses en- For information on the circumstances under ample, a house and land, the FMV must be allo-
gaged in the same or similar industries. which a charitable deduction may be allowed cated between each kind of property at the time
for the donation of a partial interest in property
You should keep complete financial and not in trust, see Partial Interest in Property Not of the contribution. This rule also applies to a
other information on which the valuation is in Trust, later. gift of a remainder interest that includes prop-
based. This includes copies of reports of exami- erty that is part depletable and part not depleta-
nations of the business made by accountants, Certain Life Insurance and ble. Take into account depreciation or depletion
engineers, or any technical experts on or close Annuity Contracts only for the property that is subject to deprecia-
to the valuation date. tion or depletion.
For more information, see Regulations sec-
Annuities, Interests for Life The value of an annuity contract or a life insur- tion 1.170A-12.
ance policy issued by a company regularly en-
or Terms of Years, gaged in the sale of such contracts or policies is
Remainders, and Reversions the amount that company would charge for a Undivided Part of Your Entire
comparable contract. Interest
The value of these kinds of property is their But if the donee of a life insurance policy
present value, except in the case of annuities may reasonably be expected to cash the policy A contribution of an undivided part of your entire
under contracts issued by companies regularly rather than hold it as an investment, then the interest in property must consist of a part of
engaged in their sale. The valuation of these FMV is the cash surrender value rather than the each and every substantial interest or right you
commercial annuity contracts and of insurance replacement cost. own in the property. It must extend over the en-
policies is discussed later under Certain Life In- tire term of your interest in the property. For ex-
surance and Annuity Contracts. If an annuity is payable under a combination ample, you are entitled to the income from cer-
annuity contract and life insurance policy (for tain property for your life (life estate) and you
To determine present value, you must know example, a retirement income policy with a contribute 20% of that life estate to a qualified
the applicable interest rate and use actuarial ta- organization. You can claim a deduction for the
bles. contribution if you do not have any other
Publication 561 (January 2023) Page 7