Audrey J. Walton - Page 8

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          interest for each taxable year of the term.”  Sec. 25.2702-                 
          3(b)(1)(i), Gift Tax Regs.  In this context, a “fixed amount” is            
          either a stated dollar amount or a fixed fraction or percentage             
          (not to exceed 120 percent of the fixed fraction or percentage              
          payable in the preceding year) of the initial fair market value             
          of the property transferred to the trust as finally determined              
          for Federal tax purposes.  Sec. 25.2702-3(b)(1)(ii), Gift Tax               
          Regs.  In either case, the fixed amount must be payable                     
          periodically but not less frequently than annually.  See id.                
               Paragraph (d) of section 25.2702-3, Gift Tax Regs., then               
          adds the following requirement dealing with the term of the                 
          annuity interest:  “The governing instrument must fix the term of           
          the annuity or unitrust interest.  The term must be for the life            
          of the term holder, for a specified term of years, or for the               
          shorter (but not the longer) of those periods.”  Sec. 25.2702-              
          3(d)(3), Gift Tax Regs.  Furthermore, the trust instrument must             
          also prohibit distributions from the trust to or for the benefit            
          of any person other than the holder of the qualified annuity                
          interest during the term of the qualified interest.  See sec.               
          25.2702-3(d)(2), Gift Tax Regs.                                             
          II.  Contentions of the Parties                                             
               Respondent contends that in establishing each GRAT,                    
          petitioner created three separate and distinct interests:  (1)              
          The annuity payable to her during her lifetime, (2) the                     

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