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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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