Metzger v. Comm'r of Internal Revenue (In re Estate of Metzger)

• Decision Date: 23 March 1993
• Docket Number: No. 4952–91.,4952–91.
• Citation: 100 T.C. 204,100 T.C. No. 14
• Parties: ESTATE OF Albert F. METZGER, Deceased, John A. Metzger and Z. Townsend Parks, Jr., Personal Representatives, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

100 T.C. 204

100 T.C. No. 14

ESTATE OF Albert F. METZGER, Deceased, John A. Metzger and Z. Townsend Parks, Jr., Personal Representatives, Petitioner,

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 4952–91.

United States Tax Court

March 23, 1993.

Luther B. Ditch, Towson, MD, for petitioner.

Clare J. Brooks, Baltimore, MD, for respondent.

HAMBLEN, Chief Judge:

Respondent determined a deficiency of $11,701 in the Federal estate tax of the Estate of Albert F. Metzger (petitioner).¹ This case is presently before the Court on cross-motions for partial summary judgment pursuant to Rule 121.

After concessions, the sole remaining issue for decision is whether Albert F. Metzger made taxable gifts of $20,000 during his lifetime. Central to this issue is the question of whether noncharitable gifts made by check and drawn by an attorney-in-fact on behalf of the donor are complete as of the date the checks are deposited by the donees. We must first decide whether the donor relinquished dominion and control of the funds represented by the checks upon delivery of the checks to the donees. If we resolve this first question in the negative, we must decide whether the transfers should nonetheless be treated as completed gifts upon the delivery and deposit of the checks under the so-called relation-back doctrine.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated herein by this reference.

Albert F. Metzger (Albert or decedent) died on May 29, 1987. At the time of his death, Albert was domiciled in the State of Maryland. On June 8, 1987, the Register of Wills for Baltimore County, Maryland, appointed John A. Metzger and Z. Townsend Parks, Jr., personal representatives of the Estate of Albert F. Metzger. John A. Metzger (John), decedent's son, resided in Freeland, Maryland, at the time of filing the petition for redetermination.

Albert intended to make gifts to his heirs and their spouses. On August 16, 1985, Albert executed a power of attorney appointing John his attorney-in-fact. Paragraph 8 of the power of attorney grants John the authority:

To convey, transfer, assign, give, or otherwise dispose of, prior to my death, any property, real or personal, tangible or intangible, for no consideration to my heirs, legatees, and their spouses.

In addition, paragraph 9 of the power of attorney states that John has the authority:

Generally, to say, act, transact, determine, accomplish and finish all matters and things whatsoever relating to my affairs as fully, amply and effectually, to all intents and purposes, as I, if present, ought or might personally do, although the matter should require more special authority than is hereby conferred; and I hereby ratify and confirm all and whatsoever the said agent or attorney or his substitute shall lawfully do or cause to be done in and about the premises, by virtue of these presents.

On December 14, 1985, John drew four checks against Albert's personal checking account at Equitable Bank, N.A. The checks were made payable to the individual donees and in the amounts as follows:

+-----------------------------+
                ¦¦Donee              ¦¦Amount ¦
                ++-------------------++-------¦
                ¦¦William F. Metzger ¦¦$10,000¦
                ++-------------------++-------¦
                ¦¦Suzanne S. Metzger ¦¦10,000 ¦
                ++-------------------++-------¦
                ¦¦John A. Metzger    ¦¦10,000 ¦
                ++-------------------++-------¦
                ¦¦Shirley A. Metzger ¦¦10,000 ¦
                +-----------------------------+
                

Shirley A. Metzger (Shirley) is John's wife.² The check payable to Shirley was delivered to her on or before December 31, 1985, the date John and Shirley deposited their checks into a joint savings account at Commonwealth National Bank in New Freedom, Pennsylvania. These checks did not clear Equitable Bank, N.A. (drawee bank), until January 2, 1986. There were, at all times pertinent hereto, sufficient funds on deposit in Albert's account to pay the checks issued to John and Shirley.

In 1986, John drew another set of checks payable to the same four donees in the same amounts. All of these checks were cashed in 1986.

On February 24, 1988, John filed a Federal estate tax return (Form 706) on behalf of decedent's estate. In completing the estate tax return, John reported that decedent did not make any taxable gifts during his lifetime.

As indicated, respondent determined a deficiency in Federal estate tax against decedent's estate. In particular, the explanation of adjustments attached to the deficiency notice states in pertinent part:

It has been determined that two taxable gifts of $10,000 cash were made prior to the decedent's death. No taxable gifts were reported on the estate tax return. Accordingly the Adjusted Taxable Gifts are increased $20,000.

OPINION

Summary judgment is appropriate “if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.” Rule 121(b); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). In light of the parties' stipulation as to the material facts in this case, we conclude that the legal issue presented is ripe for summary adjudication.

Section 2001 imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. United States Trust Co. v. Helvering, 307 U.S. 57, 60 (1939). The taxable estate is defined in section 2051 as the gross estate less deductions. Pursuant to sections 2031 and 2033, the value of the gross estate generally includes the value of all property to the extent of the interest therein of decedent at the time of his death. Estate of Jalkut v. Commissioner, 96 T.C. 675, 678 (1991). Further, under a network of statutory rules, the gross estate includes various transfers effected during the lifetime of decedent. Secs. 2035 through 2038, 2042.

Section 2035(b)(2) provides in pertinent part that the gross estate shall not include any gift to a donee made during a calendar year if the donor was not required by section 6019 to file any gift tax return for such year with respect to such gift. Section 6019(a)(1) provides that a gift tax return need not be filed if the transfer qualifies for exclusion under section 2503(b) or (e). For transfers made after December 31, 1981, section 2503(b) provides that the first $10,000 of gifts made to any person during a year are excluded in computing the total amount of gifts made during that year. Estate of Cristofani v. Commissioner, 97 T.C. 74, 78 (1991). These excluded amounts are so-called annual exclusion gifts. 5 Bittker & Lokken, Federal Taxation of Income, Estates and Gifts, par. 124.1 (2d ed. 1993).

Respondent concedes that John possessed the authority to make the transfers on Albert's behalf and that the transfers were valid and effective under relevant State law. Compare Estate of Casey v. Commissioner, 948 F.2d 895 (4th Cir.1991), revg. T.C.Memo.1989–511. Consequently, we are left to decide whether the gifts were completed in 1985 (as petitioner contends) or in 1986 (as argued by respondent). Assuming the gifts were consummated upon the delivery and deposit of the checks in December 1985, the transfers qualify for the annual exclusion of $10,000 per donee under section 2503(b). However, if the gifts were not consummated until the checks were paid in 1986, those gifts, when combined with the additional gifts made later in 1986, would exceed the annual exclusion amount and result in aggregate taxable gifts of $20,000 for 1986.

1. Dominion and Control

The regulations provide guidance as to when a gift is complete for purposes of the Federal gift tax. Section 25.2511–2(b), Gift Tax Regs., provides in relevant part as follows:

As to any property, or part thereof or interest therein, of which the donor has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another, the gift is complete. But if upon a transfer of property (whether in trust or otherwise) the donor reserves any power over its disposition, the gift may be wholly incomplete, or may be partially complete and partially incomplete, depending upon all the facts in the particular case. Accordingly, in every case of a transfer of property subject to a reserved power, the terms of the power must be examined and its scope determined. * * *

In sum, the regulation provides in pertinent part that a gift generally is complete when the donor has so parted with dominion and control as to leave him with no power to change its disposition.

Petitioner relies on language contained in the power of attorney to support its position that the gifts were perfected in December 1985, when the checks were delivered to John and Shirley and deposited to their account. In particular, petitioner directs the Court's attention to: (1) Paragraph 8 of the power of attorney, which grants John the express authority to make gifts on the principal's behalf; and (2) paragraph 9 of the power of attorney, which states that the principal expressly ratifies all lawful acts of the attorney-in-fact. Reading these two provisions together, petitioner contends that Albert could not have revoked the gifts because he could not legally stop payment on the checks.

Respondent, citing Malloy v. Smith, 265 Md. 460, 290 A.2d 486 (1972), counters that under Maryland law a gift by check is complete only after the check is presented for payment and accepted by the drawee bank. Respondent argues that a gift should not be considered complete until accepted by the drawee bank because prior to that time the gift could be revoked by virtue of insufficient funds in the particular account, through the donor's stop payment order, or as a consequence of the donor's death. While respondent does not...