Audrey J. Walton - Page 20

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          context is it possible for a donor to create strictly an annuity            
          for a term of years and a noncontingent remainder.  Hence, it is            
          only that kind of situation which respondent claims is sanctioned           
          by the mention of an annuity “for a specified term of years” in             
          section 25.2702-3(d)(3), Gift Tax Regs., with the result that               
          there exists no inconsistency between Example 5 and such                    
          regulatory section.                                                         
               In response to this latter argument, we would simply point             
          out that the statute does not contemplate a transfer of the lead            
          annuity to a perpetual-life entity.  See secs. 2702(e),                     
          2704(c)(2) (defining “member of the family” for purposes of                 
          bringing a transaction within the section 2702 rules).  We                  
          therefore turn to respondent’s broader contentions regarding                
          Example 5’s consistency with the underlying purpose of section              
          2702.  On this issue, we conclude that the annuities here are               
          more akin to the fixed-term interests cited with approval in the            
          legislative history than to the reversionary interests identified           
          as leading to undervaluation.  We base our conclusions on the               
          statutory text, on the above-quoted policy concerns, and on the             
          comparable situation in the section 664 context (dealing with               
          valuation of split-interest gifts to charity), to which the                 
          legislative history alludes.                                                

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