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designation as the successor annuitant, then the terms of the
trust agreement are to be applied as if the spouse had
predeceased the grantor.
Petitioners’ Gift Tax Returns
Each petitioner timely filed a Federal gift tax return for
the taxable years 1993 and 1995. Each petitioner reported the
value of the transfers to their respective GRAT’s by subtracting
from the value of the transferred property the value of an
annuity based on two lives successively; i.e., the value of a
stream of fixed annual payments for the shorter of either a term
of years (5 years for both of the 1993 GRAT’s and Mrs. Cook’s
1995 GRAT, and 3 years for Mr. Cook’s 1995 GRAT) or a period
ending upon the death of the last to die of the grantor and the
grantor’s spouse.
The Notices of Deficiency
Respondent issued notices of deficiency to Mrs. Cook for the
taxable years 1993 and 1995 determining deficiencies in Federal
gift taxes in the amounts of $2,789,609 and $4,850,271,
respectively. Respondent issued notices of deficiency to Mr.
Cook for the taxable years 1993 and 1995 determining deficiencies
in Federal gift taxes in the amounts of $3,271,125 and
$4,446,282, respectively. A portion of the deficiency for each
year and for each petitioner is attributable to respondent’s
analysis of the retained annuity in each trust, and a
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