¹See Sec. 2512(b) and Regs. Sec. 25.2512-8.

²For income tax purposes, under Sec. 1015(a), the property's basis is the donor's basis; if subsequently sold by the donee at a loss, the property's basis is the lesser of the donor's basis or the property's FMV on the date of the gift. This basis may be further adjusted under Sec. 1015(d)(6) for any transfer taxes attributable to the net appreciation in the gifted property.

³See Fernie Laughinghouse, 80 TC 425 (1983).

⁴See Beulah B. Crane, 331 US 1 (1947).

⁵See Est. of Aaron Levine, 634 F2d 12 (2d Cir. 1980), aff'g 72 TC 780 (1979).

⁶See Bernard Madorin, 84 TC 667 (1985)

⁷See Rev. Rul. 81-163, 1981-1 CB 433.

⁸In determining the value of the donor's annuity interest in the CRAT, the following formula must be used: present value of annuity interest 5 [(1 2 remainder factor)/Sec. 7520 rate] 3 annual annuity. The remainder factor is based on Table S of Regs. Sec. 1.642(c)-6(e), assuming the donor is age 50 and the Sec. 7520 rate is seven percent.

⁹See IRS Letter Ruling 9329017 (4/26/93).

¹⁰See Sarah H. Harrison, 17 TC 1350 (1952), acq., 1952-2 CB 2.

¹¹See Rev. Rul. 75-72, 1975-1 CB 310. This formula does not apply if the calculation produces a change in tax bracket; the ruling illustrates the computation required.

¹²See Victor P. Diedrich, 457 US 191 (1982).

¹³In determining the value of W's qualifying life income interest in the trust, the value of the remainder interest must first be determined. This value is based on Table S of Regs. Sec. 20.2031-7(d)(7). If, on the date of the gift, W is 60 years old and the Sec. 7520 rate is eight percent, the value of S's remainder interest would be 26.7940% of the value of the trust assets.

¹⁴IRS Letter Ruling 9736001 (5/21/97).

¹⁵See Regs. Secs. 1.1015-2(a)(2), -1(b), 1.1014-4(a)(1) and -5(a)(3).

¹⁶IRS Letter Ruling 9308021 (11/25/92).

¹⁷If the disqualifying disposition had been a sale, in addition to the $500 compensation income, D would recognize $300 (100 3 ($28 2 $25)) of capital gain.

¹⁸See IRS Letter Ruling 9308021, note 16 supra.

¹⁹See Sec. 83(a) and Regs. Sec. 1.83-7(a).

²⁰The same rules apply as those governing a non-arm's-length disposition of restricted property; see Regs. Sec. 1.83-1(c).

²¹See IRS Letter Rulings 9952012 (9/22/99) and 9927002 (3/19/99).

²²See Rev. Rul. 98-21, 1998-1 CB 975.