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Section 25.2703-1(d), Gift Tax Regs., uses the following example
to illustrate that a lease constitutes a restriction on the use
of property under section 2703:
Example (1). T dies in 1992 owning title to
Blackacre. In 1991, T and T’s child entered into a
lease with respect to Blackacre. At the time the lease
was entered into, the terms of the lease were not
comparable to leases of similar property entered into
among unrelated parties. The lease is a restriction on
the use of the property that is disregarded in valuing
the property for Federal estate tax purposes.
The estate contends that, prior to decedent’s death,
decedent granted oral options to Edwards and Carson that extended
the duration of the existing leases on the ranch properties and
that these oral options, as memorialized in the postdeath leases,
were a restriction on the sale or use of the properties at
decedent’s date of death that reduced the value of decedent’s
interest in the ranches for estate tax purposes. The estate
asserts that the oral lease options were valid and enforceable
under Texas law on the date of decedent’s death.
Respondent contends that decedent did not grant her children
the oral options, as memorialized in the postdeath leases, that
extended and modified the existing leases on the Sinton Ranch and
Cotulla Ranch. Respondent argues: (1) The estate has presented
no evidence that the oral options were granted by decedent;
(2) the oral options are contrary to decedent’s practice of
executing written leases with her children; and (3) the lease
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Last modified: May 25, 2011