Mrs. Kincaid, however, reported only the gifts to her sons and grandchildren of the Class B and preferred stock that followed her transfer of the ranch to the corporation and ignored the fact that, even before this was accomplished, she had made a taxable gift. See Chanin v. United States, 393 F.2d 972, 979 (Ct.Cl. 1968); Heringer v. Commissioner, 235 F.2d 149, 152-53 (9th Cir.) (the gift tax should not apply to the interest retained), cert. denied, 352 U.S. 927, 77 S.Ct. 225, 1 L.Ed.2d 162 (1956). The Government performs the following calculation yielding a slightly different result:
Additionally, parallel to the developments in the trust area and incorporating many of the same principles, a line of cases has addressed the related situation where transfers of property are made to an entity with preexisting interest-holders. See, e.g., Stinson Estate v. United States, 214 F.3d 846 (7th Cir.2000); Chanin v. United States, 183 Ct.Cl. 840, 393 F.2d 972 (1968). In both scenarios, the gift in question takes the form of an indirect gift of the underlying property to the beneficiaries of the trust or to those holding interests in the entity.
Additionally, parallel to the developments in the trust area and incorporating many of the same principles, a line of cases has addressed the related situation where transfers of property are made to an entity with preexisting interest-holders. See, e.g.,Stinson Estate v. United States, 214 F.3d 846 (7th Cir. 2000); Chanin v. United States, 183 Ct. Cl. 840, 393 F.2d 972 (1968). In both scenarios, the gift in question takes the form of an indirect gift of the underlying property to the beneficiaries of the trust or to those holding interests in the entity.
โ In Chanin v. United States, 393 F.2d 972 (Ct. Cl. 1968), stock of a closely held corporation was given to another closely held corporation. In finding that the shareholders of the second corporation received gifts of future interests, the Court of Claims explained
Substance over form analysis applies equally to gift tax cases. See, e.g., Heyen v. United States, 945 F.2d 359, 363 (10th Cir. 1991); Chanin v. United States, 183 Ct.Cl. 840, 393 F.2d 972, 979-80 (Ct.Cl. 1968). It is impliedly included in the gift tax statute itself โ including indirect transfers within the definition of a taxable gift. See I.R.C. ยง 2511(a).
A postponement of the enjoyment of the property or a condition attached to the possession of the property makes the gift a gift of a future interest. The court in Chanin v. United States, 393 F.2d 972 (Ct.Cl. 1968), also found that a gift to a corporation, though it was, in fact, a gift to the shareholders, was a gift of a future interest. The donees did not have an immediate right to use the property in the absence of liquidation or some joint action of a majority of the shareholders.
Contrary to plaintiff's argument, substance over form analysis applies to gift tax, as well as to income tax, cases. See Chanin v. United States, 393 F.2d 972, 978-80, 183 Ct.Cl. 840 (1968); Vose v. Commissioner, 284 F.2d 65, 68-69 (1st Cir. 1960). Actual donees of gift property must be identified, despite the naming by a donor of a beneficiary.
The only present right the donees of the beneficial shares in the McClure land trust received was the right to make a further transfer of their interests, which transfer carries along with it all of the restrictions imposed on the original beneficiaries. It has long been recognized that every future interest, which is not subject to prohibitions on alienation, has some present value deriving from the right of the owner to transfer the interest, but that acceptance of the right of the donee to dispose of his interest as indicia of a present interest would unduly restrict the statutory meaning of "future interest." Chanin v. United States, 393 F.2d 972, 977, 183 Ct.Cl. 840, 850 (1968). The right to sell the interest, standing alone, does not characterize a gift as a present interest.
On the authority of Ryerson v. United States, 312 U.S. 405, 61 S.Ct. 656, 85 L.Ed. 917 (1941), and Howe v. United States, 7 Cir., 1944, 142 F.2d 310, the Tax Court held that the disbursement of income and corpus conditional on (1) unanimous agreement of the twenty beneficiaries, or (2) majority approval of the beneficiaries and majority approval of the directors of a local bank constituted "future interests in property" within the meaning of ยง 2503(b), I.R.C. 1954. Since the receipt of income is contingent upon an event, the language in Chanin v. United States, 1968, 393 F.2d 972, 183 Ct.Cl. 840 is applicable: "Unless the donee is entitled unconditionally to present use, possession, or enjoyment of property transferred, gift is one of future interest for which no gift tax exclusion is operable". [Emphasis added]
It must be remembered, however, that the general partner is owned by petitioners and that its president is Mr. Price, who engineered the gifts of partnership interests to his children in the first instance. If the possibility of a donor's agreeing to buy back a gift sufficed to establish a present interest in the donee, little would remain of the present interest requirement and its statutory purpose would be subverted if not entirely defeated. Cf. Chanin v. United States, 183 Ct. Cl. 840, 850, 393 F.2d 972, 977 (1968) (rejecting the proposition that an annual exclusion should be allowed "in every case in which the donee received a future interest in property, which was marketable, thus doing violence to the well recognized statutory purpose"). Petitioners contend that the donees enjoyed a present interest in the transferred property because they were able to use the Schedules K-1, Partner's Share of Income, Credits, Deductions, Etc., that the partnership issued to them each year as evidence of their own personal assets, thereby enhancing their "financial borrowing ability."