Audrey J. Walton - Page 25

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          and an invalid extension of section 27022, and we need not reach            
          the issue of whether it was adopted in violation of the                     
          Administrative Procedures Act.  Accordingly, the qualified                  
          interest retained by petitioner in each GRAT here is an annuity             
          payable for a specified term of 2 years.                                    
               C.  The Actuarial Value of the Qualified Interests                     
               Having decided the nature and extent of the qualified                  
          interests retained by petitioner, we say a few words regarding              
          the calculation of their actuarial value.  In compliance with               
          section 2702(a)(2)(B), these interests are to be valued under               
          section 7520.  There appears, however, to be some disagreement              
          between the parties as to the mechanics of this computation.                
          They seem to differ with respect to how properly to account for             
          the timing of the payments and the partial years involved where a           
          GRAT is established other than on January 1.  Because we believe            

               2 We note that sec. 25.2702-3(e), Example (5), Gift Tax                
          Regs. (hereinafter Example 5), was cited and its alleged                    
          underlying rationale was alluded to in support of our holding in            
          Cook v. Commissioner, 115 T.C. 15 (2000).  In that case, neither            
          party challenged the validity of any regulations promulgated                
          under sec. 2702, and it is not the typical practice of this Court           
          to raise such issues sua sponte.  Suffice it to say at this point           
          that we would have reached the same result absent any reliance on           
          Example 5.  The spousal interests at issue there were in fact               
          contingent in a sense violative of the policy behind sec. 2702.             
          They would never take effect if the spouse were to predecease the           
          grantor, and any value attributable thereto would pass to the               
          donee.  The statute does not sanction treatment of such interests           
          as qualified.                                                               

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