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III. Arguments of the Parties
Petitioners contend that they correctly valued the gifted
interest in determining their respective taxable gifts.
Petitioners contend in the alternative that, if we determine an
increased value for the gifted interest, then, by operation of
the formula clause in the assignment agreement, they are entitled
to an identical increase in the amount of their aggregate
charitable contribution deduction under section 2522, resulting
in no additional gift tax due.4 Petitioners also contend that,
under net gift principles enunciated in Rev. Rul. 75-72, supra,
and Estate of Sachs v. Commissioner, supra, they properly reduced
their respective taxable gifts by the actuarial value of the
children’s contingent obligation, under the terms of the
assignment agreement, to pay additional estate tax under section
2035(c).
Respondent contends that petitioners undervalued the gifted
interest by mischaracterizing the assignment and applying
excessive discounts. Respondent also contends that the formula
clause in the assignment agreement, designed to neutralize the
tax effect of any upward adjustment to the valuation of the
gifted interest, is ineffectual. Finally, respondent contends
that petitioners improperly reduced the amount of their taxable
4 Consistent with that argument, petitioners have preserved
their right to claim an increased charitable contribution
deduction under sec. 170 on an amended income tax return for
1996. Petitioners’ 1996 income tax liability is not before us.
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