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CFR > Title 26 - Internal Revenue > CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY > SUBCHAPTER A—INCOME TAX (Parts 1–19) > PART 1—INCOME TAXES > 1.6664-4—Reasonable cause and good faith exception to section 6662 penalties.

CFR

1.6664-4—Reasonable cause and good faith exception to section 6662 penalties.

(a) Rules for determining present value. For purposes of sections 170, 2055, 2106, and 2522, the fair market value of a remainder interest in a charitable remainder unitrust (as described in § 1.664-3) is its present value determined under paragraph (d) of this section. The present value determined under this section shall be computed on the basis of—
(1) [Reserved] For further guidance, see § 1.664-4T(a)(1).
(2) Interest at the section 7520 rate in the case of transfers for which the valuation date is after April 30, 1989, or 10 percent in the case of transfers to charitable remainder unitrusts made after November 30, 1983, for which the valuation date is before May 1, 1989. See § 20.2031-7A (a) through (c) of this chapter, whichever is applicable, for transfers for which the valuation date is before December 1, 1983; and
(3) The assumption that the amount described in § 1.664-3(a)(1) (i )(a) is distributed in accordance with the payout sequence described in the governing instrument. If the governing instrument does not prescribe when the distribution is made during the period for which the payment is made, for purposes of this section, the distribution is considered payable on the first day of the period for which the payment is made.
(b) Actuarial Computations by the Internal Revenue Service. The regulations in this and in related sections provide tables of actuarial factors and examples that illustrate the use of the tables in determining the value of remainder interests in property. Section 1.7520-1(c)(2) refers to government publications that provide additional tables of factors and examples of computations for more complex situations. If the computation requires the use of a factor that is not provided in this section, the Commissioner may supply the factor upon a request for a ruling. A request for a ruling must be accompanied by a recitation of the facts including the date of birth of each measuring life, and copies of the relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (See § 601.601(d)(2)(ii) (b) of this chapter) and include payment of the required user fee. If the Commissioner furnishes the factor, a copy of the letter supplying the factor should be attached to the tax return in which the deduction is claimed. If the Commissioner does not furnish the factor, the taxpayer must furnish a factor computed in accordance with the principles set forth in this section.
(c) Statement supporting deduction required. Any claim for a deduction on any return for the value of a remainder interest in a charitable remainder unitrust must be supported by a full statement attached to the return showing the computation of the present value of such interest.
(d) through (e)(2) [Reserved] For further guidance, see § 1.664-4T(d) through (e)(2).
(3) Adjusted payout rate. For transfers for which the valuation date is after April 30, 1989, the adjusted payout rate is determined by using the appropriate Table F in paragraph (e)(6) of this section, for the section 7520 interest rate applicable to the transfer. If the interest rate is between 4.2 and 14 percent, see paragraph (e)(6) of this section. If the interest rate is below 4.2 percent or greater than 14 percent, see paragraph (b) of this section. The adjusted payout rate is determined by multiplying the fixed percentage described in § 1.664-3(a)(1)(i) (a) by the factor describing the payout sequence of the trust and the number of months by which the valuation date for the first full taxable year of the trust precedes the first payout date for such taxable year. If the governing instrument does not prescribe when the distribution or distributions shall be made during the taxable year of the trust, see paragraph (a) of this section. In the case of a trust having a payout sequence for which no figures have been provided by the appropriate table, and in the case of a trust that determines the fair market value of the trust assets by taking the average of valuations on more than one date during the taxable year, see paragraph (b) of this section.
(4) Period is a term of years. If the period described in § 1.664-3(a)(5) is a term of years, the factor that is used in determining the present value of the remainder interest for transfers for which the valuation date is after November 30, 1983, is the factor under the appropriate adjusted payout rate in Table D of paragraph (e)(6) of this section corresponding to the number of years in the term. If the adjusted payout rate is an amount that is between adjusted payout rates for which factors are provided in Table D, a linear interpolation must be made. The present value of the remainder interest is determined by multiplying the net fair market value (as of the appropriate valuation date) of the property placed in trust by the factor determined under this paragraph. For purposes of this section, the valuation date is, in the case of an inter vivos transfer, the date on which the property is transferred to the trust by the donor. However, if an election is made under section 7520 and § 1.7520-2(b) to compute the present value of the charitable interest by use of the interest rate component for either of the 2 months preceding the month in which the date of transfer falls, the month so elected is the valuation date for purposes of determining the interest rate and mortality tables. In the case of a testamentary transfer under section 2055, 2106, or 2624, the valuation date is the date of death, unless the alternate valuation date is elected under section 2032, in which event, and within the limitations set forth in section 2032 and the regulations thereunder, the valuation date is the alternate valuation date. If the decedent's estate elects the alternate valuation date under section 2032 and also elects, under section 7520 and § 1.7520-2(b), to use the interest rate component for one of the 2 months preceding the alternate valuation date, the month so elected is the valuation date for purposes of determining the interest rate and mortality tables. The application of this paragraph (e)(4) may be illustrated by the following example:

Code of Federal Regulations

Example. D transfers $100,000 to a charitable remainder unitrust on January 1. The trust instrument requires that the trust pay 8 percent of the fair market value of the trust assets as of January 1st for a term of 12 years to D in quarterly payments (March 31, June 30, September 30, and December 31). The section 7520 rate for January (the month that the transfer occurred) is 9.6 percent. Under Table F(9.6) in paragraph (e)(6) of this section, the appropriate adjustment factor is .944628 for quarterly payments payable at the end of each quarter. The adjusted payout rate is 7.557 (8%× .944628). Based on the remainder factors in Table D in paragraph (e)(6) of this section, the present value of the remainder interest is $38,950.30, computed as follows:
Factor at 7.4 percent for 12 years .397495
Factor at 7.6 percent for 12 years .387314
Difference .010181
Interpolation adjustment: [Please see PDF for Formula: ER12JN00.002 ]
Factor at 7.4 percent for 12 years .397495
Less: Interpolation adjustment .007992
Interpolated factor .389503
Present value of remainder interest: ($100,000×.389503)..........$38,950.30
(5) [Reserved] For further guidance, see § 1.664-4T(e)(5).
(6) Actuarial Table D and F (4.2 through 14.0) for transfers for which the valuation date is after April 30, 1989. For transfers for which the valuation date is after April 30, 1989, the present value of a charitable remainder unitrust interest that is dependent upon a term of years is determined by using the section 7520 rate and the tables in this paragraph (e)(6). For transfers for which the valuation date is on or after May 1, 2009, where the present value of a charitable remainder unitrust interest is dependent on the termination of a life interest, see § 1.664-4T(e)(5). See, however, § 1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). Many actuarial factors not contained in the following tables are contained in Internal Revenue Service Publication 1458, “Actuarial Valuations Version 3B” (2009). This publication will be available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at http://www.irs.gov.
Table D—Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
Years Adjusted payout rate
4.2% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 5.8% 6.0%
1 .958000 .956000 .954000 .952000 .950000 .948000 .946000 .944000 .942000 .940000
2 .917764 .913936 .910116 .906304 .902500 .898704 .894916 .891136 .887364 .883600
3 .879218 .873723 .868251 .862801 .857375 .851971 .846591 .841232 .835897 .830584
4 .842291 .835279 .828311 .821387 .814506 .807669 .800875 .794123 .787415 .780749
5 .806915 .798527 .790209 .781960 .773781 .765670 .757627 .749652 .741745 .733904
6 .773024 .763392 .753859 .744426 .735092 .725855 .716716 .707672 .698724 .689870
7 .740557 .729802 .719182 .708694 .698337 .688111 .678013 .668042 .658198 .648478
8 .709454 .697691 .686099 .674677 .663420 .652329 .641400 .630632 .620022 .609569
9 .679657 .666993 .654539 .642292 .630249 .618408 .606765 .595317 .584061 .572995
10 .651111 .637645 .624430 .611462 .598737 .586251 .573999 .561979 .550185 .538615
11 .623764 .609589 .595706 .582112 .568800 .555766 .543003 .530508 .518275 .506298
12 .597566 .582767 .568304 .554170 .540360 .526866 .513681 .500800 .488215 .475920
13 .572469 .557125 .542162 .527570 .513342 .499469 .485942 .472755 .459898 .447365
14 .548425 .532611 .517222 .502247 .487675 .473496 .459701 .446281 .433224 .420523
15 .525391 .509177 .493430 .478139 .463291 .448875 .434878 .421289 .408097 .395292
16 .503325 .486773 .470732 .455188 .440127 .425533 .411394 .397697 .384427 .371574
17 .482185 .465355 .449079 .433339 .418120 .403405 .389179 .375426 .362131 .349280
18 .461933 .444879 .428421 .412539 .397214 .382428 .368163 .354402 .341127 .328323
19 .442532 .425304 .408714 .392737 .377354 .362542 .348282 .334555 .321342 .308624
20 .423946 .406591 .389913 .373886 .358486 .343690 .329475 .315820 .302704 .290106
Table D—Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
Years Adjusted payout rate
6.2% 6.4% 6.6% 6.8% 7.0% 7.2% 7.4% 7.6% 7.8% 8.0%
1 .938000 .936000 .934000 .932000 .930000 .928000 .926000 .924000 .922000 .920000
2 .879844 .876096 .872356 .868624 .864900 .861184 .857476 .853776 .850084 .846400
3 .825294 .820026 .814781 .809558 .804357 .799179 .794023 .788889 .783777 .778688
4 .774125 .767544 .761005 .754508 .748052 .741638 .735265 .728933 .722643 .716393
5 .726130 .718421 .710779 .703201 .695688 .688240 .680855 .673535 .666277 .659082
6 .681110 .672442 .663867 .655383 .646990 .638687 .630472 .622346 .614307 .606355
7 .638881 .629406 .620052 .610817 .601701 .592701 .583817 .575048 .566391 .557847
8 .599270 .589124 .579129 .569282 .559582 .550027 .540615 .531344 .522213 .513219
9 .562115 .551420 .540906 .530571 .520411 .510425 .500609 .490962 .481480 .472161
10 .527264 .516129 .505206 .494492 .483982 .473674 .463564 .453649 .443925 .434388
11 .494574 .483097 .471863 .460866 .450104 .439570 .429260 .419171 .409298 .399637
12 .463910 .452179 .440720 .429527 .418596 .407921 .397495 .387314 .377373 .367666
13 .435148 .423239 .411632 .400320 .389295 .378550 .368081 .357879 .347938 .338253
14 .408169 .396152 .384465 .373098 .362044 .351295 .340843 .330680 .320799 .311193
15 .382862 .370798 .359090 .347727 .336701 .326002 .315620 .305548 .295777 .286297
16 .359125 .347067 .335390 .324082 .313132 .302529 .292264 .282326 .272706 .263394
17 .336859 .324855 .313254 .302044 .291213 .280747 .270637 .260870 .251435 .242322
18 .315974 .304064 .292579 .281505 .270828 .260533 .250610 .241044 .231823 .222936
19 .296383 .284604 .273269 .262363 .251870 .241775 .232065 .222724 .213741 .205101
20 .278008 .266389 .255233 .244522 .234239 .224367 .214892 .205797 .197069 .188693
Table D—Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
Years Adjusted payout rate
8.2% 8.4% 8.6% 8.8% 9.0% 9.2% 9.4% 9.6% 9.8% 10.0%
1 .918000 .916000 .914000 .912000 .910000 .908000 .906000 .904000 .902000 .900000
2 .842724 .839056 .835396 .831744 .828100 .824464 .820836 .817216 .813604 .810000
3 .773621 .768575 .763552 .758551 .753571 .748613 .743677 .738763 .733871 .729000
4 .710184 .704015 .697886 .691798 .685750 .679741 .673772 .667842 .661951 .656100
5 .651949 .644878 .637868 .630920 .624032 .617205 .610437 .603729 .597080 .590490
6 .598489 .590708 .583012 .575399 .567869 .560422 .553056 .545771 .538566 .531441
7 .549413 .541089 .532873 .524764 .516761 .508863 .501069 .493377 .485787 .478297
8 .504361 .495637 .487046 .478585 .470253 .462048 .453968 .446013 .438180 .430467
9 .463003 .454004 .445160 .436469 .427930 .419539 .411295 .403196 .395238 .387420
Code of Federal Regulations 177
10 .425037 .415867 .406876 .398060 .389416 .380942 .372634 .364489 .356505 .348678
11 .390184 .380934 .371885 .363031 .354369 .345895 .337606 .329498 .321567 .313811
12 .358189 .348936 .339902 .331084 .322475 .314073 .305871 .297866 .290054 .282430
13 .328817 .319625 .310671 .301949 .293453 .285178 .277119 .269271 .261628 .254187
14 .301854 .292777 .283953 .275377 .267042 .258942 .251070 .243421 .235989 .228768
15 .277102 .268184 .259533 .251144 .243008 .235119 .227469 .220053 .212862 .205891
16 .254380 .245656 .237213 .229043 .221137 .213488 .206087 .198928 .192001 .185302
17 .233521 .225021 .216813 .208887 .201235 .193847 .186715 .179830 .173185 .166772
18 .214372 .206119 .198167 .190505 .183124 .176013 .169164 .162567 .156213 .150095
19 .196794 .188805 .181125 .173741 .166643 .159820 .153262 .146960 .140904 .135085
20 .180657 .172946 .165548 .158452 .151645 .145117 .138856 .132852 .127096 .121577
Table D—Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
Years Adjusted payout rate
10.2% 10.4% 10.6% 10.8% 11.0% 11.2% 11.4% 11.6% 11.8% 12.0%
1 .898000 .896000 .894000 .892000 .890000 .888000 .886000 .884000 .882000 .880000
2 .806404 .802816 .799236 .795664 .792100 .788544 .784996 .781456 .777924 .774400
3 .724151 .719323 .714517 .709732 .704969 .700227 .695506 .690807 .686129 .681472
4 .650287 .644514 .638778 .633081 .627422 .621802 .616219 .610673 .605166 .599695
5 .583958 .577484 .571068 .564708 .558406 .552160 .545970 .539835 .533756 .527732
6 .524394 .517426 .510535 .503720 .496981 .490318 .483729 .477214 .470773 .464404
7 .470906 .463613 .456418 .449318 .442313 .435402 .428584 .421858 .415222 .408676
8 .422874 .415398 .408038 .400792 .393659 .386637 .379726 .372922 .366226 .359635
9 .379741 .372196 .364786 .357506 .350356 .343334 .336437 .329663 .323011 .316478
10 .341007 .333488 .326118 .318896 .311817 .304881 .298083 .291422 .284896 .278501
11 .306224 .298805 .291550 .284455 .277517 .270734 .264102 .257617 .251278 .245081
12 .274989 .267729 .260645 .253734 .246990 .240412 .233994 .227734 .221627 .215671
13 .246941 .239886 .233017 .226331 .219821 .213486 .207319 .201317 .195475 .189791
14 .221753 .214937 .208317 .201887 .195641 .189575 .183684 .177964 .172409 .167016
15 .199134 .192584 .186236 .180083 .174121 .168343 .162744 .157320 .152065 .146974
16 .178822 .172555 .166495 .160634 .154967 .149488 .144191 .139071 .134121 .129337
17 .160582 .154609 .148846 .143286 .137921 .132746 .127754 .122939 .118295 .113817
18 .144203 .138530 .133069 .127811 .122750 .117878 .113190 .108678 .104336 .100159
19 .129494 .124123 .118963 .114007 .109247 .104676 .100286 .096071 .092024 .088140
20 .116286 .111214 .106353 .101694 .097230 .092952 .088853 .084927 .081166 .077563
Table D—Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
Years Adjusted payout rate
12.2% 12.4% 12.6% 12.8% 13.0% 13.2% 13.4% 13.6% 13.8% 14.0%
1 .878000 .876000 .874000 .872000 .870000 .868000 .866000 .864000 .862000 .860000
2 .770884 .767376 .763876 .760384 .756900 .753424 .749956 .746496 .743044 .739600
3 .676836 .672221 .667628 .663055 .658503 .653972 .649462 .644973 .640504 .636056
4 .594262 .588866 .583507 .578184 .572898 .567648 .562434 .557256 .552114 .547008
5 .521762 .515847 .509985 .504176 .498421 .49
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