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remainder of the term or until the surviving spouse’s earlier
death.
Petitioners argue that the spousal interests were qualified
interests in that they were “fixed and ascertainable interests
existing for a specified term of years, for the life of the term
holders, or for the shorter of the two.” Petitioners assert that
the GRATs operated in the same manner as the GRATs in Schott v.
Commissioner, 319 F.3d 1203 (9th Cir. 2003), revg. and remanding
T.C. Memo. 2001-110, which the Court of Appeals for the Ninth
Circuit held were qualified interests under section 2702(b).
Petitioners stress that the Court of Appeals for the Ninth
Circuit concluded in Schott that section 25.2702-2(d)(1),
Example (7), Gift Tax Regs., establishes, contrary to
respondent’s position both there and here, that a spousal
interest is not disqualified simply because it is contingent upon
a spouse’s surviving the grantor.5 Petitioners recognize that
5 Sec. 25.2702-2(d)(1), Example (6) and Example (7), Gift
Tax Regs., states:
Example (6). A transfers property to an
irrevocable trust, retaining the right to receive the
income for 10 years. Upon expiration of 10 years, the
income of the trust is payable to A’s spouse for 10
years if living. Upon expiration of the spouse’s
interest, the trust terminates and the trust corpus is
payable to A’s child. A retains the right to revoke
the spouse’s interest. Because the transfer of
property to the trust is not incomplete as to all
interests in the property (i.e., A has made a completed
gift of the remainder interest), section 2702 applies.
(continued...)
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