Audrey J. Walton - Page 23

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          3(b)(1)(i), Gift Tax Regs., that the annuity amount “be payable             
          to (or for the benefit of) the holder of the annuity interest for           
          each taxable year of the term.”                                             
               Lastly, we observe that the legislative history indicates              
          section 2702 was to draw upon the rules for valuing split-                  
          interest gifts to charity under section 664.  Section 664 deals             
          with charitable remainder annuity trusts and unitrusts for which            
          a tax deduction is available.  Yet under this statute, respondent           
          apparently acknowledges that an annuity payable for a term of               
          years to an individual or the individual’s estate is valued as a            
          fixed-term interest.  Section 1.664-2(c), Income Tax Regs.,                 
          provides that the present value of an annuity is to be computed             
          in accordance with regulations promulgated under section 2031.              
          Such regulations, in turn, contain the following example:                   
               Example 4.  Annuity payable for a term of years.  The                  
               decedent, or the decedent’s estate, was entitled to                    
               receive an annuity of $10,000 a year payable in equal                  
               quarterly installments at the end of each quarter                      
               throughout a term certain.  At the time of the                         
               decedent’s death, the section 7520 rate was 9.8                        
               percent.  A quarterly payment had just been made prior                 
               to the decedent’s death and payments were to continue                  
               for 5 more years.  Under Table B in � 20.2031-7(d)(6)                  
               for the interest rate of 9.8 percent, the factor for                   
               the present value of a remainder interest due after a                  
               term of 5 years is .626597.  Converting the factor to                  
               an annuity factor, as described in paragraph                           
               (d)(2)(iv)(A) of this section, the factor for the                      
               present value of an annuity for a term of 5 years is                   
               3.8102.  The adjustment factor from Table K in �                       
               20.2031-7(d)(6) at an interest rate of 9.8 percent for                 
               quarterly annuity payments made at the end of the                      
               period is 1.0360.  The present value of the annuity is,                
               therefore, $39,473.67 ($10,000 x 3.8102 x 1.0360).                     

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