internal_revenue_service number release date index number -------------------------- ----------------------------- ----------------------------- -------------------------- ------------------------------------ ------------ ------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------ telephone number -------------------- refer reply to cc intl b02 plr-109668-10 date date legend taxpayer qsub1 qsub2 qsub3 qsub4 qsub5 qsub6 fc1 fc2 fc3 fc4 fc5 fc6 fc7 fc8 fc9 fc10 fc11 fc12 ----------------------------- ---------------------- -------------------------------------- ----------------------- -------------------------------- ----------------------- ----------------------------- ---------------------- ----------------------------- ----------------------- ------------------------ ----------------------- --------------------------- ----------------------- --------------------------------------------- -------------------------------------------- ------------------------------------------- ------------------- ---------------------- -------------------- ------------------------------------------ ----------------------------- --------------------------------------------------------- ----------------------------- ----------------------------------- ---------------------------------- plr-109668-10 fc13 fc14 fc15 fp state v ----------------- ---------------------------- ------------------- ---------------------------- ------------------ country w country x country y country z -------------------------- ---------------- --------- --------------------- b c d e date1 date2 year1 year2 year3 year4 ------ ------ ------- ------- ------------------ ------------------- ------- ------- ------- ------- service provider1 service provider2 accounting firm --------------------------------------------- ----------------------------------------------------- ---------------------------------------- dear ------------------- this is in response to a letter dated date submitted by your authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for taxpayer to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to taxpayer’s investment in fc8 the ruling contained in this letter is based upon information and representations submitted on behalf of taxpayer by its authorized representatives and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such plr-109668-10 material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts taxpayer is a corporation organized under the laws of state v that is a subchapter_s_corporation within the meaning of code sec_1361 taxpayer owns directly and indirectly six corporations that are each a qualified_subchapter_s_subsidiary within the meaning of code sec_1361 and that are disregarded as separate from taxpayer for u s tax purposes specifically taxpayer wholly owns qsub1 which in turn wholly owns qsub2 qsub2 wholly owns each of qsub3 and qsub4 in turn qsub3 wholly owns qsub5 and qsub4 wholly owns qsub6 during year1 through qsub5 taxpayer acquired a b percent interest in fp a partnership formed under the laws of country w also during year1 fp and other investors including taxpayer through qsub6 formed fc1 a company formed under the laws of country x taxpayer’s total ownership_interest in fc1 taking into account its interest through both fp and qsub6 was approximately c percent fc1 owned d percent of fc2 a company formed under the laws of country x fc2 wholly owned fc3 a company formed under the laws of country x which in turn wholly owned fc4 a company formed under the laws of country y on date1 fc3 fully liquidated into fc2 subsequently fc2 was the sole owner of fc4 fc4 directly and indirectly wholly owned the following subsidiaries i fc5 a company formed under the laws of country y ii fc6 a company formed under the laws of country y iii fc7 a company formed under the laws of country y iv fc8 a company formed under the laws of country y v fc9 a company formed under the laws of country y vi fc10 a company formed under the laws of country y vii fc11 a company formed under the laws of country y viii fc12 a company formed under the laws of country z ix fc13 a company formed under the laws of country y x fc14 a company formed under the laws of country y and xi fc15 a company formed under the laws of country y collectively subsidiaries each of the subsidiaries owned real_property which it leased to unrelated persons and upon which it collected rental income the majority of leases entered into by the subsidiaries were so-called triple-net leases whereby the lessee generally was responsible for the maintenance and operation of the property no subsidiary held any assets other than real_property nor earned any income other than rental income in year1 fc2’s ownership of fc4 was diluted by e percent as part of an initial_public_offering on date2 fp and qsub6 sold the remaining portion of their interests in fc4 and indirectly the subsidiaries to an unrelated party plr-109668-10 in accordance with its partnership_agreement fp was required to provide sufficient detail to its u s investors to enable such investors to prepare their u s tax returns including any information required with respect to a foreign_corporation that was a passive_foreign_investment_company within the meaning of code sec_1297 pfic to do this fp retained service provider1 to provide tax and administrative services including the preparation of u s tax-related documents service provider1 was known to be a leader in providing such services to the private equity industry following the takeover of service provider1 by service provider2 in year2 fp retained service provider2 as a tax and administrative service provider fp retained service provider2 on the basis that service provider2 employed experienced tax specialists who were qualified_tax professionals such qualified_tax professionals were responsible for preparing and distributing information regarding the u s tax consequences of an investment in fp and indirectly in fc1 fc2 fc3 fc4 and the subsidiaries collectively fcs service provider2 prepared k-1 equivalents for fp’s investors for the year1 and year2 tax years during the time that service provider2 prepared fp’s k-1 equivalents service provider2 had access to both income statement and balance_sheet information relating to the fcs however service provider2 failed to identify fc8 as a pfic and failed to advise fp or consequently taxpayer of the pfic status of fc8 and the possibility of making a qef election with respect to fc8 it was not until year4 when fp retained accounting firm to prepare its k-1 equivalents and provide relevant u s tax information to its u s investors with respect to its year3 tax_year that it was discovered that fc8 was a pfic taxpayer has submitted an affidavit under penalties of perjury describing the events that led to the failure to make the qef election with respect to fc8 by the election due_date including the role of service provider2 taxpayer represents that service provider2 prepared and distributed fp’s k-1 equivalents which contained the u s tax consequences of an investment in fp and indirectly fc8 taxpayer also submitted an affidavit from an advisor to fp that was responsible for engaging service provider2 corroborating the representations made by taxpayer taxpayer represents that the pfic status of fc8 has not been raised by the irs on audit for any of the taxable years ruling requested taxpayer requests the consent of the commissioner to make a retroactive qef election with respect to fc8 for year1 under sec_1_1295-3 law plr-109668-10 code sec_1295 provides that a pfic will be treated as a qef with respect to a taxpayer if an election by the taxpayer under code sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under code sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc8 for year1 provided that taxpayer complies with the rules under treas plr-109668-10 reg sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as specifically set forth above no opinion is expressed or implied concerning the u s tax consequences of the facts described above under any other provision of the code this private_letter_ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jeffery g mitchell special counsel international


t c memo united_states tax_court estate of suzanne w cullison deceased j greg cullison personal representative petitioner v commissioner of internal revenue respondent docket no filed date james powers for petitioner rick v hosler for respondent memorandum findings_of_fact and opinion parr judge respondent determined a deficiency in federal gift_tax against petitioner for of dollar_figure and a deficiency in federal estate_tax of dollar_figure after concessions the issues for decision are whether suzanne w cullison decedent transferred four parcels of farmland totaling approximately acres to her grandchildren in late rather than on date we hold the transfer occurred on date the fair_market_value of the farmland as of the date of its transfer by decedent to her grandchildren we find it was dollar_figure the value of the private_annuity the grandchildren agreed to pay decedent in exchange for the farmland we find it was dollar_figure whether the private_annuity transaction qualifies as a transaction in the ordinary course of business under sec_25_2512-8 gift_tax regs we hold that it does not all section references are to the internal_revenue_code in effect either at the date of transfer or the date of decedent's death whichever is applicable and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated findings_of_fact some of the facts and certain documents have been stipulated for trial pursuant to rule and are found accordingly we incorporate the parties' stipulations in this opinion by reference decedent a resident of phoenix arizona died on date decedent was survived by her son and only child jerry cullison jerry and her four grandchildren j gregory cullison greg janet l o'mara janet kimberly ann cullison kimberly and lori ann cullison lori greg and janet are the children of jerry and his first wife lori is jerry's daughter by his second wife and kimberly is his daughter by his third wife when the petition herein was filed greg the personal representative of decedent's_estate resided in arizona since the 1960's decedent had owned four parcels of farmland totaling approximately acres outside wellton arizona a farming community in yuma county each parcel is situated in the wellton-mohawk drainage district and receives water from the colorado river for irrigation decedent and her then husband who had been a professor in the agricultural education department of arizona university and later served as the state of arizona's director of agricultural education had started acquiring farmland in the wellton area about shortly before water from the colorado river was first provided to the area upon the wellton-mohawk drainage project's completion the four parcels of farmland involved in the instant case were acquired by decedent and her husband at various times during the 1960's following their divorce in decedent became the sole owner of the four parcels although her family has been farming in the wellton area since both decedent and her husband before and after their divorce had continued to reside for most of the year in phoenix decedent's husband hired individuals to farm some of their land and he and decedent also rented out some of their farmland in shortly after his graduation from college jerry moved to wellton to farm some of their land full time at some point a family_partnership among decedent her husband and their son was established to farm this land after the divorce in jerry continued to farm some of the four parcels of land in issue pursuant to a family_partnership arrangement he had with decedent in addition jerry eventually acquired farmland of his own in the wellton area later shortly after his graduation from college in about greg joined jerry in his wellton farming operations for to months by greg had moved to wellton to farm full time originally decedent had planned to leave a larger portion of her estate in her will to her grandchildren greg and janet than she planned to leave to her two other grandchildren kimberly and lori she felt closer to greg and janet because she had cared for them for months following their mother's death decedent's last will and testament a holographic will which she executed on date reflects her testamentary plan for this unequal disposition of her estate among her four grandchildren with respect to the four parcels of farmland involved in the instant case the will generally provided that two of the parcels would be given to greg one parcel would be given to janet and one parcel would be given to lori in the will decedent further stated that she expected any land to remain in the family if any heir wishes to sell his or her land the other heirs are to be given an option to buy it at current market price ultimately the above holographic will provisions concerning the four parcels never became operative because of certain discussions that took place between jerry and decedent in their discussions sometime after decedent's execution of the date holographic will jerry persuaded her to treat her grandchildren greg janet kimberly and lori equally jerry told decedent that if she implemented her testamentary plan to treat the grandchildren unequally he would remedy any disparity by leaving more of his own property to those who received less from her as a result of his first wife's death in the early 1960's jerry became acquainted with steve shadle an attorney practicing in yuma county who specializes in estate work and estate_planning over the years mr shadle had also performed occasional legal work for decedent and her former husband in early decedent consulted with mr shadle and vince schulte a certified_public_accountant practicing in yuma county who previously had done some accounting and tax work for the family decedent had been considering selling her four parcels of farmland to her grandchildren on an installment basis during his meeting with decedent jerry and mr schulte mr shadle raised and further discussed with them the alternative possibility of decedent's selling the four parcels to her grandchildren in exchange for a private_annuity although decedent initially had been contemplating selling a separate parcel to each grandchild she was concerned that one or more of them might later decide to sell their land to outside parties of decedent's grandchildren only greg intended to farm the four parcels decedent thus also indicated to mr shadle that she wanted those of her grandchildren still keeping their parcels to have an option to purchase the land of any grandchild wanting to sell mr shadle then proposed to decedent that the four parcels be sold by decedent to her four grandchildren jointly in exchange for a private_annuity from them but the land immediately be contributed to a family_partnership the grandchildren would establish to manage and farm the land under this proposed family_partnership agreement the grandchildren would each be granted reciprocal rights to purchase the partnership's land in the event the partnership terminated during decedent advised mr shadle that she wished to proceed with the above plan she further instructed him to tell her grandchildren that her sale of the four parcels to them would be conditioned upon their agreeing to contribute the land to the family_partnership mr shadle would help them organize and establish in connection with helping decedent to effectuate the private_annuity transaction mr shadle needed to obtain valuations of the four parcels decedent would sell to her grandchildren and the private_annuity the grandchildren would promise to pay her in exchange for the land as an experienced estate planner mr shadle believed that there should be no potential federal estate and gift_tax liabilities on decedent's part from the private_annuity transaction if the value of the private_annuity decedent received equaled the value of the land she transferred to her grandchildren before advising decedent with respect to the private_annuity transaction in issue mr shadle had helped other clients to arrange between and private_annuity transactions these earlier private_annuity transactions mostly involved certain ranch properties in these earlier transactions either a big six accounting firm or the client's accountant had determined the annual payment to be made under each of the private annuities as jerry was familiar with decedent's land and knowledgeable about farmland prices in the wellton area he helped her and mr shadle to value each of her four parcels in valuing decedent's land jerry further considered detailed information on recent sales of farmland in the area which he obtained from a title company jerry concluded that decedent's four parcels had a total combined market_value of dollar_figure as a result mr shadle knew that if decedent were to avoid potential federal estate and gift_tax liabilities in connection with the private_annuity transaction the private_annuity payable to her should also have a value of dollar_figure he provided this information to mr schulte decedent's accountant since mr schulte would determine the annual payment the grandchildren should make to decedent under the private_annuity on the basis of certain information contained in table v of sec_1_72-9 income_tax regs mr schulte concluded that a person decedent's age of about years in late would have a although mr schulte testified he used table v in sec_1_72-5 income_tax regs he apparently meant and was referring to table v in sec_1_72-9 income_tax regs as there is no table v in sec_1_72-5 income_tax regs it is further to be noted that table v and other similar tables in sec_1_72-9 income_tax regs are used in determining the exclusion_ratio specified in sec_72 in general this exclusion_ratio is applied for federal_income_tax purposes in determining the portion of an annuity_payment excludable from a taxpayer's gross_income as a nontaxable return of the taxpayer's investment in the annuity_contract see generally sec_72 sec_1_72-4 income_tax regs table v thus is not directly applicable to the valuation of annuities for federal estate and gift_tax purposes life expectancy of years mr schulte further concluded that it would be appropriate to use a 9-percent interest rate factor in connection with the private_annuity arrangement involving decedent as he believed percent to be a slightly higher interest rate than the prevailing interest rate currently charged on land sale contracts in arizona he then consulted a loan amortization table to learn what annual loan payment would have to be made to amortize over years a dollar_figure loan paying percent interest per annum the amortization table he consulted however provided no information with respect to a loan for an 9-year term as a result mr schulte examined the information the table provided concerning a similar 9-year-term loan from that information he computed that an annual loan payment of dollar_figure would be required to amortize a dollar_figure loan over years mr schulte thus concluded and advised mr shadle that dollar_figure should be the annual payment made to decedent by her grandchildren under the private_annuity decedent greg janet kimberly and lori entered into an annuity agreement pursuant to which decedent would convey to each grandchild an undivided one-fourth interest in her four parcels of farmland in exchange for the four grandchildren's agreeing to pay dollar_figure to decedent on september of each year during her life beginning date this annuity agreement which had been drafted by mr shadle states that the agreement was being entered into by decedent greg janet kimberly and lori on date the agreement further states that all of the parties thereto agreed that the fair_market_value of decedent's land was dollar_figure decedent signed the annuity agreement on date with her signature to the document being acknowledged before a notary public on that same date her grandchildren's respective signatures to the annuity agreement are stated to have been acknowledged by them to mr shadle acting as a notary public on date mr schulte had performed similar work in connection with the creation and establishment of private annuities by two other clients during his engagement by decedent however mr schulte was not aware of the recent enactment of sec_7520 whose provisions concerning the valuation of private annuities would be effective for transactions occurring after date although mr schulte subscribed to and received a weekly federal_income_tax service he did not subscribe to a federal estate and gift_tax service the annuity agreement provided that decedent would transfer to the grandchildren all of her interest in the four parcels by warranty deed and that decedent would have no further interest in the land after the date date of the annuity agreement and decedent's delivery of the warranty deed to the grandchildren the annuity agreement further provided that the land decedent transferred would not be security for the annuity payments due from the grandchildren to decedent the agreement also provided that each grandchild's undivided one-fourth interest in the four parcels was to be that grandchild's sole and separate_property on date decedent by warranty deed conveyed to each of her grandchildren an undivided one-fourth interest in the four parcels the warranty deed was executed by decedent on date and was recorded by the grandchildren on date decedent's four grandchildren entered into their cullison enterprises partnership_agreement partnership_agreement on date the partnership_agreement provided that the partnership would commence on date the partnership's stated purpose was to own manage or perform work on any farms or agricultural lands the partnership_agreement restricted the partners' ability to sell their interests in the partnership to third parties in addition upon the partnership's liquidation any partner would have the right to bid on the partnership's assets and the bid would have to be accepted unless an outsider's bid on the assets was at least percent higher on date janet's husband executed a consent of spouse pursuant to which he agreed to abide by the terms of the partnership_agreement on date decedent's grandchildren by warranty deed conveyed to their cullison enterprises partnership the land decedent had transferred to them this warranty deed which had been executed by them on date was recorded by them on date from late until date decedent continued to be the land's sole owner decedent was entitled to the rents payable by tenants for their use of the land until that date and she was also liable for any real_property_taxes imposed covering the period of her ownership up until that date from date through date decedent's grandchildren never made any of the annual payments they owed to decedent pursuant to the annuity agreement decedent died on date when she wa sec_84 years and months old neither decedent nor petitioner ever filed any federal gift_tax returns during the examination of petitioner's estate_tax_return the internal_revenue_service irs estate_tax examiner asked mr shadle who was petitioner's attorney to obtain and provide him with an appraisal report concerning the value of the land decedent had transferred to her grandchildren as a result mr shadle retained the services of a qualified real_estate appraiser in yuma county and directed him to value the land as of date because that was the effective date of the annuity agreement in his report dated date this appraiser concluded that the land had a fair_market_value of dollar_figure as of date in the notice_of_deficiency dated date respondent among other things determined that decedent's transfer of the land was a gift subject_to gift_tax the date notice_of_deficiency stated in pertinent part gift of real_property in yuma county az your transfer of yuma county arizona real_property with a value of dollar_figure to kimberly ann cullison janet l o'mara j gregory cullison and lori ann cullison was a gift_for federal gift_tax purposes accordingly your total gifts for are increased by dollar_figure alternatively if it is determined that your transfer of the yuma county arizona real_property was a bona_fide transfer in exchange for a private lifetime annuity then the excess of the fair_market_value of the real_property transferred over the present_value of the annuity constitutes a gift_for federal gift_tax purposes the value_of_the_gift is computed as follows fair_market_value of yuma co real_property dollar_figure present_value of private lifetime annuity big_number big_number value of gift respondent no longer contends that the entire transfer was a gift see infra note in the notice_of_deficiency dated date respondent determined among other things that in calculating petitioner's estate_tax liability adjusted_taxable_gifts should be increased as a result of decedent's gift of land to her grandchildren in its petition seeking review of the above two notices of deficiency petitioner maintained that decedent had transferred the land to her grandchildren on or about date the petition alleged in pertinent part facts upon which petitioner relies as the basis of petitioner's case are as follows b on or about date the decedent being then a single woman entered into an agreement with her four grandchildren pursuant to which she transferred to them farming property of substantial value c in consideration of the foregoing transfer of ownership the four children contemporaneously agreed to pay on the first day of september beginning with the year an annuity_payment of dollar_figure for as long as decedent might live d the transfer of real_estate was a transfer for full and adequate_consideration and was not a taxable gift opinion sec_2001 imposes an estate_tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states the tax imposed is equal to the excess of the tentative_tax on the sum of the amount of the taxable_estate and the amount of adjusted_taxable_gifts over the amount of tax which would have been payable as a gift_tax with respect to gifts made by a decedent after date sec_2001 the term adjusted_taxable_gifts means the total amount of taxable_gifts within the meaning of sec_2503 made by a decedent after date other than gifts which are included in the gross_estate of the decedent sec_2001 sec_2503 defines taxable_gifts as the total_amount_of_gifts made during a calendar_year less certain statutory deductions thus decedent's transfer of her farmland constitutes an adjusted taxable gift within the meaning of sec_2001 only if it is also a taxable gift within the meaning of sec_2503 see 87_tc_653 sec_2501 imposes a tax on property transferred by gift sec_2501 see also sec_2511 if property is transferred for less than adequate_and_full_consideration in money_or_money's_worth the amount by which the value of the property exceeds the value of the consideration is deemed a gift sec_2512 324_us_303 in commissioner v wemyss supra pincite the supreme court interpreted sec_2512 as dispensing with the test of donative_intent in favor of a much more workable external test that where 'property is transferred for less than an adequate and full consideration' then the excess 'shall for the purpose of gift_tax be deemed a gift' thus the federal gift_tax provisions reach further than the common_law concept of gifts and embrace sales and other exchanges of property where the value of the property transferred exceeds the value of the consideration received sec_25_2512-8 gift_tax regs as a result in determining whether the private_annuity transaction in the instant case is subject_to gift_tax we must determine the value of decedent's land and the value of the private_annuity ie the consideration decedent received transfers of property in the ordinary course of business however are not subject_to gift_tax sec_25_2512-8 gift_tax regs to qualify the transaction must be bona_fide at arm's length and free from donative_intent id see 82_tc_239 affd without respondent no longer contends as was originally determined in the date notice_of_deficiency that no private_annuity in fact was payable to decedent on its estate_tax_return petitioner included in decedent's gross_estate the two outstanding annuity payments owed to decedent by her grandchildren the parties have now further stipulated that the gross_estate is to be increased by an additional dollar_figure to reflect the accrued interest owed on these annuity payments published opinion 786_f2d_1174 9th cir see also 641_f2d_864 10th cir affg 71_tc_252 as we further noted in harwood v commissioner supra pincite transactions within a family group are subject_to special scrutiny and the presumption is that a transfer between family members is a gift sec_7520 generally requires with certain exceptions not applicable here the value of any annuity interest for life or term of years remainder or reversionary_interest to be determined under tables or formulas prescribed by the secretary in regulations thereunder each such valuation under sec_7520 is to consist of an interest rate component rounded to the nearest percent equal to percent of the federal midterm rate in effect under sec_1274 for the month in which the valuation_date falls and a mortality component reflecting the most recent mortality data from the u s census updated every years sec_7520 and c sec_20_7520-1 b i estate_tax regs sec_25_7520-1 b i gift_tax regs section which was enacted on date as part of the technical_and_miscellaneous_revenue_act_of_1988 tamra publaw_100_647 sec a 102_stat_3342 is effective for transactions with valuation dates after date tamra sec c 102_stat_3369 generally the valuation_date for gift_tax purposes is the date upon which the gift is made sec_25_7520-1 gift_tax regs in the instant case petitioner contends that the private_annuity payable to decedent is not to be valued under sec_7520 because the private_annuity transaction occurred before the date effective date of sec_7520 petitioner maintains that the transaction took place in late when the before the enactment of sec_7520 the estate and gift_tax regulations long had contained actuarial_tables to assist in the computation of the fair_market_value of annuities life estates terms for years remainders and reversions although use of these tables was not statutorily mandated they were provided as an administrative necessity and their general use was approved by the courts 252_us_547 83_tc_932 as a result these administrative actuarial_tables were regularly applied in valuing contingent property interests given that they afford a reasonable norm and some degree of certainty in ascertaining the value of property and the consequent tax_liabilities of beneficiaries thereof 443_f2d_116 5th cir indeed as the u s court_of_appeals for the ninth circuit noted in 480_f2d_171 9th cir quoting 63_fsupp_73 affg 54_tc_493 the commissioner's administrative tables were to be used unless their use would produce 'a result substantially at variance with the facts ' annuity agreement was allegedly signed by both decedent and her grandchildren rather than on the agreement's stated entry date of date respondent on the other hand contends that the private_annuity is to be valued under sec_7520 because the transaction occurred on date respondent points out that the grandchildren's signatures to the annuity agreement are stated to have been notarized before mr shadle a notary and decedent's attorney on date according to respondent the testimony petitioner offered concerning the grandchildren's alleged late execution of the annuity agreement is not credible and should not be accepted by the court in light of the convincing other evidence of record we essentially agree with respondent the record reflects that although decedent signed the annuity agreement in late she retained title to and was the owner of the land until date indeed during his testimony mr shadle acknowledged that he had drafted the annuity agreement and had written in by hand the date entry date specified in the contract document certainly by late decedent had already decided to sell her land to her grandchildren pursuant to the planned private_annuity transaction and she and her advisers were engaged in preparing to make the sale however even if we were to accept which we do not petitioner's offered testimony concerning the grandchildren's alleged signing of the annuity agreement in late there would only at best have been an executory agreement on decedent's part to transfer her land to them an executory agreement to sell is not a sale see 6_tc_1166 affd per curiam 162_f2d_199 3d cir moreover petitioner's own petition asserted that the transaction occurred on or about date not in late as petitioner now contends we hold that decedent's transfer of the land in connection with the private_annuity transaction occurred on date after the effective date of sec_7520 see sec_25_2511-2 gift_tax regs providing that for gift_tax purposes a gift is made on the date upon which we would note that if the transaction had taken place in late as petitioner contends the annuity then should have been valued under the applicable estate and gift_tax regulations in effect for transfers made after date but before date see t d 1984_1_cb_40 sec_20_2031-7a table a estate_tax regs sec_25_2512-5a and ii i gift_tax regs if decedent's accountant had valued decedent's annuity pursuant to the pertinent actuarial table see table a in sec_20_2031-7a estate_tax regs provided under the regulations in effect in late then he presumably would have computed a value for the annuity of at most dollar_figure dollar_figure multiplied by that dollar_figure value is even lower than the dollar_figure value respondent has computed for the annuity pursuant to sec_7520 in the date notice_of_deficiency further decedent's tax advisers should have been aware of the estate and gift_tax regulations in effect in as those regulations including table a were originally issued in well before the time when decedent and they were planning the annuity transaction see t d c b pincite the gift is complete see also sec_25_7520-1 gift_tax regs with respect to the value of the four parcels decedent transferred petitioner contends that the land had a fair_market_value of dollar_figure whereas respondent contends the land's fair_market_value was dollar_figure no expert testimony was offered by the parties respondent relies heavily upon the appraisal report that petitioner obtained and provided to the estate_tax examiner in that appraisal report the real_estate appraiser concluded that the fair_market_value of decedent's land was dollar_figure as of date jerry however testified that the land was worth only dollar_figure as two of the parcels were worth somewhat less than the real_estate appraiser had estimated jerry explained that the appraiser had failed to take into account the significant portions of sand on these two parcels and the thinner topsoil layers making them less suitable for certain crops we found jerry's testimony to be credible as he was familiar with decedent's land had considerable experience in farming and was knowledgeable about farmland prices in the wellton arizona area in addition we would note that the appraisal report though prepared by a qualified real_estate appraiser was expressly stated to be only a preliminary valuation of the four parcels we hold that decedent's land had a fair_market_value of dollar_figure as of date with respect to the private_annuity petitioner contends that the annuity as of date had a value of dollar_figure and that the accountant hired to determine the annual payment decedent was to receive employed a reasonable and proper procedure in valuing the annuity at dollar_figure petitioner maintains that respondent's dollar_figure valuation of the annuity is somehow suspect and that the valuation methodology respondent employed is not in fact required by sec_7520 and the regulations thereunder we disagree following the enactment of sec_7520 on date the irs published temporary guidance to taxpayers for transfers occurring after date that would be subject_to sec_7520 notice_89_24 1989_1_cb_660 published on date sets forth the formulas for computing the present_value of an annuity on the basis of the appropriate applicable federal midterm rate and the prior mortality experience notice_89_60 1989_1_cb_700 published on date provides tables of actuarial factors to be used in determining the present_value of an annuity on the basis of more recent mortality experience although final regulations under sec_7520 were not promulgated until date the regulations eventually issued provide certain transitional rules which were made retroactive to date under these transitional rules where the valuation_date is after date and before date executors or donors can rely on notice_89_24 supra or notice_89_60 supra in valuing the transferred interest sec_20_7520-4 estate_tax regs sec_25_7520-4 gift_tax regs thus contrary to petitioner's argument the valuation methodology respondent employed is specifically required by the transitional rules provided in sec_25_7520-4 gift_tax regs applying notice_89_24 supra and notice_89_60 supra respondent in the notice_of_deficiency dated date determined that the private_annuity decedent received had a value of dollar_figure in addition the record discloses that decedent's accountant did not reasonably value the annuity decedent was to receive the accountant did not follow the procedure specified in notice_89_24 supra and notice_89_60 supra as he testified that he had been unaware of the enactment of sec_7520 moreover he did not even value the annuity pursuant to the actuarial table prescribed under the estate and gift_tax regulations in effect in late which were issued in see supra note he used an interest rate of percent which he believed was a rate slightly higher than the then prevailing interest rate charged on land sales contracts in arizona notwithstanding that the actuarial_tables contained in the estate and gift_tax regulations then in effect in late when decedent's accountant apparently valued the annuity used an interest rate factor of percent see h conf rept vol ii pincite 1988_3_cb_473 thus the 9-percent interest rate the accountant used was not a reasonable interest rate as a higher rate should have been used to reflect the private annuity's unsecured nature unlike a seller under a land sale contract decedent under the private_annuity would have only an unsecured right to receive a specified annual payment during her life we hold that the private_annuity decedent received had a value of dollar_figure as of date sec_7520 sec_25_7520-4 gift_tax regs notice_89_60 supra notice_89_24 supra thus the dollar_figure worth of land decedent transferred in general in an installment land sale contract the seller retains record title to the real_property but agrees to give the buyer immediate possession and to issue later to the buyer a deed to the property upon the buyer's full payment of the purchase_price see ariz rev stat ann secs to west see also maciborski v chase serv corp ariz p 2d ariz ct app as indicated above respondent's dollar_figure valuation of the annuity is in accordance with the mandated standards of sec_7520 that is in valuing the annuity respondent employed an interest rate based on the applicable federal midterm rate and a mortality component based on more recent u s census data we would note that even under the pre- sec_7520 case law to justify a departure from respondent's administrative actuarial_tables petitioner would have had to offer among other things convincing expert actuarial testimony establishing respondent's table to be old or outmoded see estate of christ v commissioner f 2d pincite petitioner offered no such expert testimony at trial even if petitioner had offered evidence attempting to do so respondent's interest rate and mortality assumptions here which are those prescribed by sec_7520 can hardly be considered old or outmoded to her grandchildren substantially exceeded the dollar_figure value of the annuity petitioner nevertheless asserts that decedent's transfer of the land is not subject_to gift_tax because the transaction qualifies as a sale in the ordinary course of business under sec_25_2512-8 gift_tax regs we disagree transactions between family members are subject_to special scrutiny harwood v commissioner t c pincite also one of the major purposes of the gift_tax is to prevent an avoidance of estate_tax by an inter_vivos transfer of property see carson v commissioner f 2d pincite n the record reflects that no arm's-length bargaining took place between decedent and her grandchildren indeed the private_annuity transaction was structured by decedent's attorney and accountant and was devised as a substitute for decedent's earlier planned testamentary_disposition of her land to certain of her grandchildren we hold that the private_annuity transaction between decedent and her grandchildren is not a transaction in the ordinary course of business within the meaning of sec_25_2512-8 gift_tax regs see harwood v commissioner supra pincite in conclusion decedent's date sale of her farmland to her grandchildren is subject_to gift_tax as the value of the land exceeded the value of the private_annuity she received commissioner v wemyss u s pincite sec_25_2512-8 gift_tax regs in addition in computing petitioner's estate_tax liability under sec_2001 adjusted_taxable_gifts must be increased to reflect decedent's date gift to her grandchildren to reflect the foregoing and the parties' concessions decision will be entered under rule