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determination that the value of the annuity retained by each
grantor should be calculated based on the shorter of a fixed term
or the earlier death of the grantor.
Discussion
I. General Rules
Section 2501 imposes a tax for each calendar year on the
transfer of property by gift by any taxpayer. Pursuant to
section 2512, the value of the transferred property as of the
date of the gift “shall be considered the amount of the gift”.
Generally, where property is transferred in trust but the donor
retains an interest in such property, the value of the gift is
the value of the property transferred, less the value of the
donor’s retained interest. See sec. 25.2512-5A(e), Gift Tax
Regs.; sec. 25.2512-5T(d)(2), Temporary Gift Tax Regs., 64 Fed.
Reg. 23224 (Apr. 30, 1999). However, if the gift in trust is to
a family member (as defined in section 2704(c)(2)), the value of
the gift is determined subject to the limitations of section
2702. See id.
In the case at bar, petitioners assert that each grantor’s
retained interest is to be valued as a single annuity based on
two lives, referred to as a dual-life annuity. Respondent
asserts that each grantor’s retained interest is to be valued as
a single-life annuity. Valuation of a retained interest as a
dual-life annuity produces a greater retained value than
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