Opinion
Docket No. 22111.
1950-03-1
WILLIAM H. BOARD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Herman M. Buck, Esq., for the petitioner. A. W. Dickinson, Esq., for the respondent.
Transfer of property by petitioner to his wife and children held of facts an unconditional gift subject to gift tax, notwithstanding donees' subsequent reconveyance after advice to donor that his purpose of escaping estate tax had failed. Herman M. Buck, Esq., for the petitioner. A. W. Dickinson, Esq., for the respondent.
This proceeding involves a deficiency in gift tax for the year 1945 in the amount of $256.56. The issue is whether petitioner made a completed gift of certain property.
FINDINGS OF FACT.
Petitioner, a resident of Fayette County, Pennsylvania, filed his return for the period involved with the collector for the twenty-third district of Pennsylvania.
At all times material hereto petitioner was married to Mae H. Board, and had three children, William Houston Board, Jr., Charles Luther Board, and Margaret Elaine Board.
On March 3, 1937, petitioner acquired an undivided one-half interest in real property consisting of a three-story brick building known as ‘Hotel Royal,‘ and land pertaining thereto, situated in Front Royal, Virginia, and hereinafter referred to as the ‘Hotel Royal‘ property.
Petitioner accumulated real estate over a period of years. In 1945 petitioner became concerned regarding the possible Federal estate tax on his property. Petitioner conferred with an attorney with the view to reducing the size of his taxable estate. Petitioner told his counsel that he desired to give some property to his children, but that he wanted at all times to control the property and the income. His attorney advised petitioner that real property would not be included in his gross estate if petitioner transferred the real estate to himself and his wife for life, with remainder to his children. Petitioner discussed the problem with all the members of his family except Charles Luther Board, who was in the armed services. The family agreed that if petitioner concluded it would save estate taxes, then he should make the conveyance. Petitioner concluded that such a conveyance would reduce his estate tax.
On December 28, 1945, petitioner signed and acknowledged a deed conveying his interest in the ‘Hotel Royal‘ property to himself and his wife for their lives and/or the life of the survivor, with remainder over to his three children. All of the members of the family except Charles Luther Board were informed and accepted the gift at that time, and the latter was informed and accepted the gift in February, 1946. The deed was recorded on January 5, 1946, in the office of the circuit court clerk of Warren County, Virginia. The deed remained in petitioner's files. Petitioner filed a gift tax return for 1945 reporting the gifts to his three children. Each of the three children filed a donee's information return for 1945.
During the year 1947 petitioner became concerned regarding the transfer and he consulted other attorneys. On June 27, 1947, petitioner was advised by counsel that the prior transfer was not effective for the purpose of removing that property from his gross estate. Petitioner so informed his family.
On September 8, 1947, petitioner's three children signed, acknowledged, and delivered a deed purporting to convey their interest in the ‘Hotel Royal‘ to petitioner and his wife. Subsequently petitioner discovered that his wife had not reconveyed her interest. On October 1, 1948, petitioner's wife signed, acknowledged, and delivered a deed to petitioner purporting to convey her interest in the ‘Hotel Royal‘ property. Both deeds were recorded in the office of the circuit court clerk of Warren County, Virginia.
On December 14, 1948, respondent mailed to petitioner a notice of deficiency based upon the following adjustments to his 1945 gift tax:
+-------------------------------------------------------------------+ ¦Adjustments to Total Gifts ¦Year 1945 ¦ +---------------------------------------------+---------------------¦ ¦Schedule “A” of Return ¦Returned ¦Determined¦ +---------------------------------------------+----------+----------¦ ¦Total gifts 1945 other than charitable, etc.,¦ ¦ ¦ +---------------------------------------------+----------+----------¦ ¦gifts ¦$39,000.00¦$40,744.08¦ +---------------------------------------------+----------+----------¦ ¦Less: Exclusions ¦9,000.00 ¦3,000.00 ¦ +---------------------------------------------+----------+----------¦ ¦Amount of gifts included ¦30,000.00 ¦37,744.08 ¦ +---------------------------------------------+----------+----------¦ ¦Less: Specific exemption ¦30,000.00 ¦30,000.00 ¦ +---------------------------------------------+----------+----------¦ ¦Net gifts 1945 ¦0.00 ¦7,744.08 ¦ +---------------------------------------------+----------+----------¦ ¦Net gifts for preceding years ¦0.00 ¦0.00 ¦ +---------------------------------------------+----------+----------¦ ¦Total net gifts ¦0.00 ¦7,744.08 ¦ +---------------------------------------------+----------+----------¦ ¦ ¦ ¦ ¦ +-------------------------------------------------------------------+
Explanation of Adjustments It is determined that the value of the donor's one-half interest in the Hotel Royal, Front Royal, Virginia was $54,000.00 and that the value of the gifts made in December 1945 should be computed as follows: Whole value of property owned by donor prior to gift $54,000.00 Value of Rights retained by donor 13,255.92 Total value of gifts 40,744.08 Value of property transferred to Elaine Board $7,953.66 54,000.00 x .44187 x 1/3 Value of property transferred to Charles L. Board 7,953.66 54,000.00 x .44187 x 1/3 Value of property transferred to Wm. H. Board, Jr 7,953.66 54,000.00 x .44187 x 1/3 Value of property transferred to donor's wife 16,883.10 54,000.00 - (23,860.98 above plus 13,255.92
retained by donor) $40,744.08
It is determined that only one exclusion against these gifts is allowable, namely against the gift to donor's wife, the gifts to donor's children being gifts of future interests.
These adjustments are not contested, but in the petition the error relied on is that respondent failed ‘to find that the 'gift’ of the petitioner's one-half interest in the Hotel Royal, Front Royal, Virginia, was in fact not completed and, therefore, not a gift subject to tax under the provisions of the Internal Revenue Code.‘
At the time of the conveyance under the deed of December 28, 1945, petitioner neither imposed nor intended to impose a condition upon the transferees requiring reconveyance should the transaction fail to exclude the property from petitioner's estate.
OPINION.
OPPER, Judge:
We have found the ultimate fact as requested by respondent, that the gift was not conditional when made, partly because petitioner himself so testified.
That petitioner's sons, for understandable reasons, may have acceded to his subsequent request that they agree to a reconveyance of the property, if estate tax liability had not been escaped, could not make conditional a conveyance that had already become absolute, nor render enforceable an agreement that was obviously without consideration, even though ultimately, and voluntarily, observed.
E.g., petitioner's testimony, quoted in his own reply brief (p. 2):‘I discussed it with my wife before completing, or rather, before authorizing the transfer of the property, and she agreed to it. After I had transferred the property I discussed it with the family and my sone in particular, and told him— I went over the details and told him what I was trying to accomplish— saving the estate tax— and made the gift on that condition, and if that was not accomplished I would expect the property to be transferred back to me.‘
It is said that the wife agreed to the condition in advance of the gift. But hers is the one share of the property as to which the estate tax might have been avoided. See Central National Bank of Cleveland v. United States (Ct.Cls.), 41 Fed.Supp. 239, 247; Commissioner v. Nathan's Estate (C.C.A., 7th Cir.), 159 Fed.(2d) 546. If there was a condition, and whatever its terms, there was hence as to so much of the gift a possible compliance with it, for all that appears in this record. And even if not complete fulfillment, the value of her interest, segregated from the whole, is not shown to be too small to achieve substantial realization of petitioner's purpose.
There may be many other grounds for rejecting petitioner's claim, including its doubtful legal justification, Commissioner v. Proctor (C.C.A., 4th Cir.), 142 Fed.(2d) 824; the indefinite quality of the entire transaction; and the uncertainty surrounding the outcome of any litigation which might have been instituted under applicable local law. Cf. Stone v. Stone, 319 Mich. 194; 29 N.W.(2D) 271, with Lowry v. Kavanagh, 322 Mich. 532; 34 N.W. (2D) 60. But on these subjects we need express no opinion, since petitioner's disappointed hope for estate tax relief, which is all that can be gathered with certainty from the present record, is clearly insufficient to defeat the gift tax on an absolute and completed gift. Smith v. Shaughnessy, 318 U.S. 176.
Decision will be entered for the respondent.