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“contingent” interest of her estate to receive the annuity
payments in the event of her death prior to expiration of the 2-
year trust term, and (3) the remainder interest granted to her
daughter. Of these three, it is respondent’s position that only
the first interest, but not the second, constitutes a qualified
retained interest within the meaning of section 2702 and the
regulations promulgated thereunder. Respondent particularly
relies upon section 25.2702-3(e), Example (5), Gift Tax Regs.
(hereinafter Example 5), as a valid interpretation of the statute
and as governing the issues involved in this case.
Hence, according to respondent, only the value of an annuity
payable for the shorter of 2 years or the period ending upon
petitioner’s death may be subtracted from the fair market value
of the stock in calculating the value of the taxable gift made by
reason of petitioner’s establishment of the GRAT’s. Respondent
concludes that the present value of the retained qualified
interest in each GRAT was $96,178,501.88 and the taxable gift
$3,821,522.12 (consisting of the estate’s contingent interest of
$2,938,000.00 and the remainder interest of $883,522.12).
Conversely, petitioner maintains that for valuation purposes
under section 2702, each GRAT is properly characterized as
creating only two separate interests: (1) A retained annuity
payable for a fixed term of 2 years, and (2) a remainder interest
in favor of her daughter. Petitioner further asserts that the
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