Stone v. Stone
| Decision Date | 13 October 1947 |
| Docket Number | 79.,Nos. 78,s. 78 |
| Citation | 29 N.W.2d 271,319 Mich. 194 |
| Parties | STONE v. STONE et al. STONE et al. v. STONE et al. |
| Court | Michigan Supreme Court |
OPINION TEXT STARTS HERE Appeal from Circuit Court, Wayne County, in Chancery; Frank B. Ferguson, Judge.
Consolidated suits by Arthur T. Stone against Beverly Ann Stone, a minor, and Grace M. Stone, guardian of the Property of said minor, and by Grace M. Stone and Arthur T. Stone against Ronald Arthur Stone, a minor, and Arthur T. Stone, guardian of the property of said minor to have transfers, which were made without consideration, declared a nullity because induced by mistake of fact and law, and because of failure of family plan upon which the transfers were predicated. From decree for plaintiffs, the defendants, by their guardian ad litem, appeal.
Affirmed.
Before the Entire Bench.
Stanley E. Beattie, of Detroit, for plaintiffs-appellees.
Frederick Colombo, of Detroit, for appellants.
Plaintiffs are husband and wife and the parents of 11 year old twin children, Beverly Ann and Ronald Arthur Stone, defendants herein. On October 31, 1942, each of the plaintiffs owned an undivided half interest in a manufacturing business, as copartners, and on that date they transferred a quarter interest to each of the children, making them co-partners with the parents, each parent and child thereafter owning a quarter interest. The transfers were made for the purpose of lawfully minimizing income tax, the parents having been advised by competent tax consultants that a separate return might be filed for the income of each of the four partners, thus avoiding the higher tax brackets theretofore encountered. Separate returns were filed for each of the four co-partners for the remainder of 1942 and 1943. There-after the supreme court of the United States, in Commissioner of Internal Revenue v. Tower, 327 U.S. 280, 66 S.Ct. 532, 90 L.Ed. 670, 164 A.L.R. 1135, held that, in the case of an alleged partnership between a husband and wife in which the husband managed and controlled the business and the wife contributed no services thereto, no genuine partnership existed within the meaning of the federal tax laws and that the husband earned the entire income and should be taxed on it. In the light of that decision the commissioner of internal revenue determined that the entire income of the partnership here involved must be returned by the father, plaintiff Arthur T. Stone. Plaintiffs concede the correctness of this determination. For the last two months of 1942 and the year 1943 each child had paid a ‘consolidated’ tax of $94,070.71. Under the determination of the commissioner of internal revenue not only should this tax upon the partnership income of each child and of the wife have been paid by the father, but, in addition, he is now required to pay an increased income tax, net after allowance for refund to the wife and two children, of $10,905.56 because of the necessity of including the entire partnership income in his own revised return. The consequences of requiring the father to pay the income tax on the entire income of a partnership in the earnings of which he has but a one quarter interest can readily be imagined. The purpose of the transfers has failed utterly. Plaintiffs brought these suits praying, inter alia, that the transfers, which were made without consideration, be declared a nullity because induced by mistake of fact and law and because of the failure of the family plan upon which the transfers were predicated. From decrees for plaintiffs the defendants appeal.
Defendants state the question involved as follows:
‘Where a parent transfers an undivided share in a family partnership to his minor child under the mistaken belief that income accruing therefrom to the child may be separately returned on the child's federal income tax return, and where the transfer is motivated entirely by this plan for lawful minimization of income tax and the child's guardian accepts the transfer on this assumption, and where subsequently by subsequent decision of the supreme court of the United States the parent is required to report the child's income as his own-may the parent have decree in equity re-vesting in him the property so transferred to the child and the proceeds, fruits and avails thereof?’
It is the position of defendants that (§) ‘a court of equity will not set aside transfers, conveyances, gifts or other legal transactions because of a mistake of law, pure and simple’ and that (2) ‘a completed and absolute gift is irrevocable to the donor.’
In support of the second proposition defendants...
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Thorrez v. Comm'r of Internal Revenue
...the donor received advice that his purpose of escaping estate tax had failed, which is not the situation here. Cf., also, Stone v. Stone, 319 Mich. 194, 29 N.W.2d 271; and Lowry v. Kavanagh, 322 Mich. 532, 34 N.W.2d 60. Petitioner argues that the specific exemption should not be charged wit......
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