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§ 14.3 DEFERRED PAYMENT GIFT ANNUITIES• one of the following is the case:the transferor is the only annuitant, orthe transferor and a designated survivor annuitant or annuitants arethe only annuitants. 11In other circumstances, the gain must be recognized in the year of the charitablegift annuity transaction.EXAMPLE 14.1An individual, aged 72, purchased a charitable gift annuity using appreciated property with avalue of $10,000: the annuity is $800 annually for life (8 percent return). The basis in theproperty is $5,000. The charitable contribution deduction arising from this gift is $4,888. Theannual annuity is taxable as follows: ordinary income of $447.46, capital gain (recognizedratably) of $176.27, and tax-free income of $176.27. aa This example is adapted from material provided by the Children’s Mercy Hospitals and Clinics, Kansas City, MO.§ 14.3 DEFERRED PAYMENT GIFT ANNUITIES(a) Deferred Payment Gift Annuities in GeneralFrequently, the annuity payment period begins with the creation of the annuitypayment obligation. With the charitable gift annuity planned giving transaction,however, initiation of the payment period can be postponed to a future date. Theterm usually used in this connection is deferred (rather than postponed), so thistype of arrangement is called the deferred payment charitable gift annuity.The timing of receipt of the annuity can be deferred to lower-income years(such as retirement years) to reduce income taxation of the annuity, with the giftelement of the transaction deductible in higher-income years.EXAMPLE 14.2An individual, aged 50, entered into a deferred payment charitable gift annuity contract,with the income payments to begin at age 65. The individual transferred $10,000 at the timeof execution of the contract. The charitable organization agreed to pay an annual annuity of$1,220 for life beginning at age 65. This individual obtained a charitable contributiondeduction in the year of the transaction of $6,700. The tax-free element of the annuity willbe $121. aa Id.(b) Tuition Annuity ProgramsOne contemporary use of the deferred payment charitable gift annuity is as partof a tuition annuity program. The organization that offers this program is a taxexemptcollege, school, or university; a donor designates the recipient of theannuity and may designate an alternative annuitant. As usual, the annuitant isentitled to the annuity for life; however, the annuitant has the right to sell or11 Reg. §§ 1.1011-2(a)(4)(ii), 1.1011-2(c), Example (8). 499