Patricia A. Schott - Page 2

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               The issue for decision in these consolidated cases is                  
          whether a successor annuity interest of a spouse in a retained              
          two-life annuity is a qualified interest that is subject to                 
          valuation pursuant to section 2702.  Unless otherwise indicated,            
          all section references are to the Internal Revenue Code in effect           
          on the date of the transfers, and all Rule references are to the            
          Tax Court Rules of Practice and Procedure.                                  
               The parties submitted these cases fully stipulated pursuant            
          to Rule 122.  The stipulated facts are incorporated by this                 
          reference.  At the time of the filing of the petitions in these             
          cases, petitioners resided in Los Altos, California.  Petitioners           
          owned 90 percent of the outstanding stock of SCS Development                
          Company (company), a closely held corporation that develops,                
          constructs, and sells single-family houses.                                 
               On May 31, 1994, Stephen C. Schott (Mr. Schott) created the            
          Stephen C. Schott 1994 Qualified Annuity Trust, a grantor                   
          retained annuity trust (GRAT) in which Mr. Schott was both the              
          grantor and trustee.  On that same day, Patricia A. Schott                  
          (Mrs. Schott) created the Patricia A. Schott 1994 Qualified                 
          Annuity Trust, a GRAT in which Mrs. Schott was both the grantor             
          and trustee.  Each GRAT was funded by 11,400 shares of stock in             
          the company that were valued at $5,394,929.50.                              

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