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As Jerry was familiar with decedent's land and knowledgeable
about farmland prices in the Wellton area, he helped her and Mr.
Shadle to value each of her four parcels. In valuing decedent's
land, Jerry further considered detailed information on recent
sales of farmland in the area which he obtained from a title
company. Jerry concluded that decedent's four parcels had a
total combined market value of $1,865,500.
As a result, Mr. Shadle knew that, if decedent were to avoid
potential Federal estate and gift tax liabilities in connection
with the private annuity transaction, the private annuity payable
to her should also have a value of $1,865,500. He provided this
information to Mr. Schulte, decedent's accountant, since Mr.
Schulte would determine the annual payment the grandchildren
should make to decedent under the private annuity.
On the basis of certain information contained in Table V of
section 1.72-9, Income Tax Regs.,1 Mr. Schulte concluded that a
person decedent's age of about 81 years in late 1988 would have a
1 Although Mr. Schulte testified he used Table V in sec.
1.72-5, Income Tax Regs., he apparently meant and was referring
to Table V in sec. 1.72-9, Income Tax Regs., as there is no Table
V in sec. 1.72-5, Income Tax Regs. It is further to be noted
that Table V and other similar tables in sec. 1.72-9, Income Tax
Regs., are used in determining the exclusion ratio specified in
sec. 72(b). In general, this exclusion ratio is applied for
Federal income tax purposes in determining the portion of an
annuity payment excludable from a taxpayer's gross income as a
nontaxable return of the taxpayer's investment in the annuity
contract. See generally sec. 72(b); sec. 1.72-4(a), Income Tax
Regs. Table V thus is not directly applicable to the valuation
of annuities for Federal estate and gift tax purposes.
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