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3. Docket No. 3130-03
On October 25, 1996, Focardi transferred 817,500 shares of
Great Bay stock into a trust (Focardi 2-year GRAT) named
“Nina M. Focardi Two Year GRAT”. On the same day, Focardi
transferred 817,500 shares of Great Bay stock into a trust
(Focardi 4-year GRAT) named “Nina M. Focardi Four Year GRAT”.
The terms of the instruments establishing the Focardi 2-year GRAT
and the Focardi 4-year GRAT (collectively, Focardi GRATs) were
identical in all material regards except for the annuity term and
the percentage used to calculate the amount of the first annuity
payment.
On April 14, 1997 and 1998, Focardi filed a Form 709 for
1996 and 1997, respectively, reporting that her October 25, 1996,
transfer was a gift for Federal gift tax purposes. On the 1996
return, Focardi calculated the value of that gift by reducing the
value of her transferred shares by the actuarially determined
value of a 2-life annuity under section 7520; i.e., the present
value of the annuity payable until the earlier of (1) the end of
the applicable 2- or 4-year term or (2) the deaths of both
decedent and Focardi. On the 1997 return, Focardi reported gifts
from prior periods inclusive of the taxable gifts reported on her
Form 709 for 1996.
Respondent determined that Focardi’s gift tax for 1996 must
be calculated by reducing the value of Focardi’s transferred
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