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In Estate of Montgomery v. Commissioner, 56 T.C. 489 (1971),
affd. 458 F.2d 616 (5th Cir. 1972), an elderly decedent, who was
otherwise uninsurable, purchased a single premium annuity and was
thereby able to obtain life insurance that he assigned to trusts.
The Court held that the arrangement was not life insurance within
the meaning of the parenthetical exception contained in section
2039, and therefore, the proceeds of the policies were includable
in decedent’s gross estate. In so holding, the Court used the
language of step transactions to find that the annuity and
insurance were part of a single investment agreement.
Daniels v. Commissioner, T.C. Memo. 1994-591, applied the
step-transaction doctrine in a gift tax case in favor of the
taxpayers to conclude that an outright gift of common stock to
children and a simultaneous exchange of some common for preferred
were parts of the same gift. As a result, the Commissioner’s
belated attempt to tax the imbalance in values on the common-
preferred exchange was barred by the statute of limitations.
My conclusion that the property to be valued for estate tax
purposes should be the property transferred to SFLP is further
supported by the decision of Citizens Bank & Trust Co. v.
Commissioner, 839 F.2d 1249 (7th Cir. 1988), affg. Northern Trust
Co. v. Commissioner, 87 T.C. 349 (1986). There, the Court of
Appeals for the Seventh Circuit held that the taxable value of a
gift is not altered by the terms of the conveyance; therefore,
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