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SUPPLEMENTAL MEMORANDUM OPINION
HAMBLEN, Judge: This matter is before the Court on remand
from the U.S. Court of Appeals for the Fifth Circuit. Estate of
McLendon v. Commissioner, 77 F.3d 477 (5th Cir. 1995), revg. in
part and remanding without published opinion T.C. Memo. 1993-459.
All relevant findings of fact set forth in our prior Memorandum
Opinion in this case are incorporated herein by this reference.
(Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect on the date of Gordon B.
McLendon's death. Rule references are to the Tax Court Rules of
Practice and Procedure.)
Background
Respondent determined that the Estate of Gordon B. McLendon
is liable for deficiencies in Federal gift and estate taxes
arising from a private annuity agreement that Gordon B. McLendon
(decedent) entered into on March 5, 1986, approximately 6 months
prior to his death from esophageal cancer. The disputed private
annuity agreement was based on decedent's promise to transfer a
remainder interest in certain of his assets to his son and a
trust created for the benefit of his three daughters (the
obligors) in consideration for the obligors' promise to pay
decedent $250,000 at the time of the execution of the agreement
along with an additional amount to be paid to the decedent in the
form of an annuity. The details of the private annuity agreement
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