Audrey J. Walton - Page 10

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          former, in its entirety, is a qualified interest within the                 
          meaning of the statute.  Accordingly, it is petitioner’s position           
          that the retained interest to be subtracted in computing the                
          amount of the taxable gift occasioned by each GRAT is to be                 
          valued as a simple 2-year term annuity, without regard to any               
          mortality factor.  Using this method, petitioner calculates the             
          retained annuity as having a value of $99,993,828.90, such that             
          each GRAT effected a gift of $6,195.10.                                     
               To the extent that Example 5 would appear to suggest                   
          otherwise, petitioner avers that the example is an invalid and              
          unreasonable interpretation of section 2702.  Petitioner argues             
          that the example is unsupported by statutory language or                    
          legislative history and is inconsistent with other regulations              
          and examples, especially section 25.2702-3(d)(3), Gift Tax Regs.            
          In the alternative, petitioner claims that even if Example 5 is a           
          permissible interpretation of the statute on substantive grounds,           
          it is procedurally invalid as issued in violation of the notice             
          and comment provisions of the Administrative Procedures Act, 5              
          U.S.C. sec. 553 (1994).                                                     
          III.  Application                                                           
               As pertinent here, section 2702 provides a facially simple             
          formula for valuation:  (Value of property transferred in trust)            
          - (value of any qualified interest retained by the grantor) =               
          value of gift.  Applying this formula, however, requires                    

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