Charitable Gift Annuities – Nonprofit
Standard Mail
Revised January 2006
PS-294 (703.1.6)
This Customer
Support Ruling discusses the eligibility of charitable gift
annuities (CGA) advertisements in mailings at the Nonprofit Standard
Mail (nonprofit) rates of postage.
Prior to 1997, the
Postal Service ruled that CGAs were not mailable at nonprofit rates,
because they were ineligible insurance advertisements under
Domestic Mail Manual (DMM) 703.1.6.4b. Since 1997, however, the
Postal Service has changed its position regarding CGAs, as follows.
As background, the
Postal Service determinations are based on DMM rules that implement
Public Law 101-509, dated November 5, 1990—the Treasury, Postal
Service, and General Government Appropriations Act for
1991—including the addition of new subsection (j) to 39 U.S.C.
3626. These provisions, among other things, restrict the mailing of
material at the nonprofit rates if it contains advertising for
insurance policies.
DMM 703.1.6.4b,
prohibits advertisements for any insurance policy, unless the
organization promoting the purchase of such policy is authorized to
mail at the nonprofit rates at the entry post office; the policy is
designed for and primarily promoted to the members, donors,
supporters, or beneficiaries of that organization; and the coverage
provided by the policies is not generally otherwise commercially
available, as explained in DMM 703.1.6.5a.
Under DMM
703.1.6.5a, the term, “not generally otherwise commercially
available,” applies to the actual coverage stated in an insurance
policy, without regard to the amount of the premiums, the
underwriting practices, or the financial condition of the insurer.
When comparisons are made with other policies, consideration is
given to policy coverage benefits, limitations, and exclusions, and
to the availability of coverage to the targeted category of
recipients. When insurance policy coverages are compared for
determining whether coverage in a policy offered by an organization
is not generally otherwise commercially available, the comparison is
based on the specific characteristics of the recipients of the
mailpiece (e.g., geographic location or demographic
characteristics).
CGAs are generally
used by nonprofit organizations that are exempt from the payment of
federal income tax under section 501(c)(3) of the Internal Revenue
Code to raise funds through planned giving programs. Although the
specific terms of CGAs may differ, as a general matter, the
contributor receives an immediate tax deduction for a portion of the
amount transferred to the nonprofit organization, along with the
right to annuity payments. These payments are less than the
contributor would receive if the same amount was given to an insurer
to purchase an annuity.
In the course of
determining the eligibility of CGA solicitations for the nonprofit
rates, two key questions must be asked: are they advertisements and,
if so, are they advertisements for insurance coverage that is not
generally otherwise commercially available?
With respect to the
first question, CGA solicitations are deemed to be advertisements.
An argument has been made that such solicitations are not
advertisements, but merely seek donations. This argument also
asserts that the contributor does not receive anything in return for
his or her payment, but simply is retaining the life interest in
property while giving the remainder to the nonprofit organization.
However, while the
receipt of the annuity may not be the donor’s primary objective in
transferring money to the nonprofit, the fact that the contributor
does convey money to the nonprofit and receives an annuity in return
(albeit an annuity with a lower present value than the amount sent
to the charity) cannot be ignored. A 1987 Congressional report
states that, “A charitable gift annuity is an annuity issued by a
tax-exempt organization...in exchange for a charitable contribution
by the purchaser.” This supports a determination to treat CGA
solicitations as advertisements. It can also be noted that the
Postal Service has consistently treated analogous transactions, for
example, back end premiums, as advertisements.
With respect to the
second question, as discussed above, the solicitation for a CGA is
an advertisement for an annuity and annuities are found to be
insurance. Therefore, the final issue is whether the advertisements
for CGAs come within the exception provided in the three-part test
in DMM 703.1.6.4b. Assuming the first and second factors of DMM
703.1.6.4b are met, the deciding factor is whether the coverage “is
not generally otherwise commercially available.”
An argument can be
made that CGAs are commercially available, since they are annuities
and annuities are generally commercially available. The fact that
CGAs are more expensive than other annuities (the value of the
annuity payment is less than the value of the annuity payments that
would be received if the same purchase price were to be paid to an
insurer) does not require a different conclusion, since the Postal
Service does not consider price differential in determining
“commercial availability.”
However, there is
substantial evidence that CGAs are different from “commercially
available” insurance in a number of other regulatory contexts, as a
matter of both federal and state law. Given these consistent
expressions of legislative intent, it is reasonable to hold CGAs to
be “not generally otherwise commercially available” for postal
purposes as well. Accordingly, CGA solicitations (assuming the
issuer is an authorized nonprofit organization) meet the exceptions
in DMM 703.1.6.4b and (assuming there is no other disqualifying
basis) may be mailed at the Nonprofit Standard Mail rates.
(Signed)
Sherry Suggs Manager
Mailing Standards
United States Postal Service Washington DC 20260-3436 |