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The legislative history of section 2055(e)(3) indicates that
Congress intended a more liberal reformation rule for trusts
where the creator had made a bona fide attempt to comply with the
provisions of the 1969 Act (i.e., the requirements of section
2055(e)(2)), and a more exacting rule (namely, commencement of a
judicial proceeding within 90 days after the due date of the
estate tax return) for trusts where the creator had not evidenced
any intent to comply with the 1969 Act.
The committee believes that these [reformation] rules will
permit the correction of major, obvious defects (such as
where the "income" interest is not expressed as an annuity
interest or a unitrust interest) so long as the taxpayer
initiates reformation proceedings before audit, while
allowing the correction of minor defects (such as defects in
determining the correct payout in short taxable years, in
years of additional contributions, etc.) upon audit so long
as there was a good faith attempt to comply with the 1969
Act rules (i.e., the payout is basically expressed as an
annuity interest or a unitrust interest). * * * [H. Rept.
98-432 (Part 2), at 1517 (1984); S. Rept. 98-169 (Vol. 1),
at 732 (1984).]
Thus, where the payout to the noncharitable beneficiaries has
been "basically expressed as an annuity interest or a unitrust
interest"–-that is, as specified dollar amounts or as a fixed
percentage of the fair market value of the trust property, in
accordance with section 2055(e)(3)(C)(ii)–-then a reformation may
be effected even after an audit has commenced. H. Rept. 98-432
(Part 2), supra at 1517; S. Rept. 98-169 (Vol. 1), supra at 732;
see also Estate of Hall v. Commissioner, 93 T.C. 745, 753-754
(1989), affd. without published opinion 941 F.2d 1209 (6th Cir.
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