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property to be distributed to persons other than the
Grandchildren's Trusts, thereby avoiding a generation-
skipping transfer. Accordingly, as of the September
25, 1985, grandfather date, the corpus of the trust was
not irrevocably required to be distributed to the
Grandchildren’s Trusts.
Id. at 799-801 (emphasis added; fn. ref. omitted). Consistent
with the foregoing, we held the temporary regulation, which
established that a lapse of a general power of appointment would
result in a constructive addition to a trust, was a reasonable
and valid interpretation of TRA 1986 section 1433(b)(2)(A), and
the transfers to Mr. Peterson’s grandchildren were subject to GST
tax.
The taxpayer appealed this Court’s decision to the Court of
Appeals for the Second Circuit. In affirming our decision, the
Court of Appeals emphasized TRA 1986 section 1433(b)(2)(A) must
be interpreted in proper context. Peterson Marital Trust v.
Commissioner, 78 F.3d at 796, 799. The Court of Appeals observed
the exercise, release, or lapse of a general power of appointment
is viewed as “essentially identical to outright ownership” of the
underlying property by the power holder for purposes of Federal
estate and gift taxes. Id. at 799-800. Applying this
“ownership” principle consistently in the context of the GST tax,
the Court of Appeals held that a transfer of property as the
result of the lapse of a general power of appointment should be
treated as if the power holder received and then added property
to the trust within the meaning of TRA 1986 section
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