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§ 17.3 CHARITABLE GIVING AND INSURANCElife insurance policy to a charitable organization, when the donor has paid thepremium, gives rise to a charitable contribution deduction, 8 with the amount ofthe deduction equal to the amount of the premium. 9 An exception to this rule isderived from the fact that a disposition of the insurance policy would not be atransaction generating long-term capital gain, so the charitable deduction cannotbe greater than the donor’s basis in the policy. 10 It was held that, when valuing apaid-up life insurance policy that was contributed to a charitable organization,but was subject to a substantial loan, the proper valuation is the cash surrendervalue of the policy on the date it was contributed. 11 In so holding, the court wasinfluenced by the fact that no party had any interest in maintaining the lifeinsurance policy as an investment.Second, an individual may own an insurance policy on which premium paymentsare still being made. The charitable deduction for a gift of a policy in thisinstance is an amount equal to the “interpolated terminal reserve value” of thepolicy at the date of the sale, plus the proportionate part of any premium paidby the donor prior to the date of the gift which is applicable to a period subsequentto the date of the gift. 12 As in the prior situation, the deduction in anyevent cannot exceed an amount equal to the donor’s basis in the property. Whenall other requisite conditions are met, a charitable deduction is available for theremaining premium payments.In the third of these situations, the insurance policy that is donated is a newone. Thus, there is no charitable deduction for the gift of the policy but, as in theprevious circumstance, there is a charitable deduction for the premium paymentsas made.If the donor of a life insurance policy retains any incidents of ownership inthe policy during lifetime, he or she is not permitted to deduct, for federalincome tax purposes, the cost of the premiums as a charitable gift. 13 For example,the IRS ruled that the irrevocable assignment of the cash surrender value ofa life insurance policy to a college, with the donor retaining the right to designatethe beneficiary and to assign the balance of the policy, whether the policy ispaid up and the college is given possession or the policy is not fully paid up andthe donor retains possession, constituted a charitable contribution of a partialinterest for which a deduction is not allowable. 14 Incidents of ownership, in thiscontext, means the right of the insured, or of his or her estate, to the economicbenefits of the policy and includes the following:• Power to change the beneficiary• Power to surrender the policy• Power to cancel the policy• Power to assign the policy8 Priv. Ltr. Rul. 200209020.9 Rev. Rul. 58-372, 1958-2 C.B. 99.10 See § 4.4.11 Tuttle v. United States, 436 F.2d 69 (2d Cir. 1970).12 Reg. § 25.2512-6(a); Rev. Rul. 59-195, 1959-1 C.B. 18.13 This is because the gift would be of a nondeductible partial interest. See § 9.23.14 Rev. Rul. 76-143, 1976-1 C.B. 63. 531