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With respect to the text itself, the short answer is that an
annuity for a specified term of years is consistent with the
section 2702(b) definition of a qualified interest; a contingent
reversion is not.
As regards policy, permitting reduction to gift value for
reversionary interests was resulting in arbitrary and abusive
elimination of value which was intended to, and typically did,
pass to the donee. Donors were subtracting the full actuarial
value of a reversionary interest in the trust corpus and were not
merely treating their retained interests as an annuity for a
fixed term of years. Although we acknowledge that, in the case
of a reversion, at least the equivalent of the term annuity’s
value would be payable to the grantor or the grantor’s estate in
all events, Congress was entitled to require that interests be
cast in one of three specified forms to receive the favorable
treatment afforded qualified interests. Accordingly, the
Commissioner is equally justified in assigning a zero value to
reversionary interests outside the scope of the statutory
definition and refusing to consider whether such interests can
have the practical effect of a different form of interest not
chosen by the grantor. See sec. 25.2702-3(e), Example (1), Gift
Tax Regs.
In contrast, there exists no rationale for refusing to take
into account for valuation purposes a retained interest of which
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