Briggs v. Comm'r of Internal Revenue

• Decision Date: 29 September 1960
• Docket Number: Docket No. 73242.
• Citation: 34 T.C. 1132
• Parties: BEATRICE B. BRIGGS, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

34 T.C. 1132

BEATRICE B. BRIGGS, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 73242.

Tax Court of the United States.

Filed September 29, 1960.

Walter L. Nossaman, Esq., and Joseph L. Wyatt, Jr., Esq., for the petitioner.

L. Justin Goldner, Esq., for the respondent.

Held, gifts of stock to infant donees under guardianship, were gifts of present interests in property.

OPINION.

TIETJENS, Judge:

The petitioner contests a deficiency of $5,255.81 in gift tax for 1954, based on a determination by the Commissioner that gifts of stock made by petitioner to nine minor donees under guardianship were gifts of future interests in property rather than present interests.

All of the facts are stipulated and the stipulation of facts together with the pertinent exhibits are incorporated herein by reference.

Petitioner permanently resides in Naples, Florida, where she resided during the taxable year 1954. Her gift tax return for that year was filed with the director of internal revenue at Jacksonville, Florida.

The gifts in question consisted of shares of corporate stock of the Outboard Marine & Manufacturing Company and were made by the petitioner and her husband by deed of gift to already-appointed guardians of the minor donees. During 1954 the minor donees resided in California and Illinois with their respective parents.

Each gift made to the children in California was made ‘subject to terms and conditions of the order of the Superior Court for Los Angeles County in the matter of your guardianship’ made by the court authorizing the donee's guardian to accept the gifts. The gift made to the minor donee residing in Illinois was made subject to the same conditions, specified in the deed of gift itself. The conditions attached to each gift were stated as follows:

1. That each gift is made subject to all gift taxes thereon. The Donee shall pay all such taxes imposed upon the Donor (Stephen F. Briggs or Beatrice B. Briggs, as the case may be) by reason of such gift, or shall reimburse the Donor therefor, without interest. Such payment or reimbursement shall be made only out of the corpus of the donated property, or out of other property of the Donee, and in no case out of income from the donated property.

2. That your Guardian shall be authorized but not required to use or expend any part of the donated property or of the income therefrom, or both, for your support, maintenance and education; any income not used for the purposes mentioned to be invested for your benefit.

3. That your Guardian shall in no case be required to convert the donated shares of stock into any other form of holding, but is authorized to retain such shares as long as in your Guardian's judgment retention is in the best interests of yourself, as Donee.

The parents of each beneficiary were at the time of the gift and thereafter fully willing and able to provide adequately for the maintenance, education, and support of each of the beneficiaries. Petitioner was aware of this fact and expected that state of affairs to continue, but she recognized the possibility that future needs or misfortunes might arise which could alter that state of affairs.

At the time of the gifts in question and thereafter during the minority of the minor donees, the respective fathers of each of the donees served as their respective guardians, duly appointed by an appropriate court, and accounts and reports of each of the guardianship estates have been filed and approved by these courts without any appeal from any of these accounts.

These accounts and reports indicate that dividends from the donated stock were received by the guardians and that disbursements were made from each of the guardianship estates, including cash distributions to the minors themselves (sometimes referred to as ‘allowances'), payments of the minors' income and gift taxes, and various types of insurance premiums, and in some cases, payments of private school tuition and expenses, dental expenses, airplane fare and bus fare, clothing and other wearing apparel, summer camp, court costs, automobiles, purchase of investments, bank charges, and miscellaneous expenses not otherwise identified in the accounts.

When any of the minors reached age 21, his or her guardianship was terminated and the estate was delivered to him or her, including the gift property here involved.

The gifts were made in 1954 at a time when section 1003(b)(3) of the Internal Revenue Code of 1939 was applicable. If the gifts were of future rather than present interests in property, the petitioner is not entitled to the annual $3,000 gift tax exclusion for each of the gifts in 1954.

The Commissioner's argument is summarized as follows: The California law, as well as that of Illinois, prevents parents of minors (who in this case are also legal guardians) from using the estates of their minor children or the income therefrom for the support, maintenance, and education of their children, unless the estates of the parents are insufficient to support the children in accordance with their station in life. In other words, the Commissioner argues, the minor donees did not at the time of the gifts ‘receive the unqualified and immediate right then to the use and enjoyment * * * of the donated property and the income therefrom.’

We think the Commissioner's argument cuts too deep. The so-called condition, set forth as paragraph 2 above, to which our attention is directed, is not, in our opinion, a restriction on the use of the gifts themselves or their income which transforms what otherwise would be a gift of a present interest in the property into a future interest. The purpose of the condition was just what the petitioner contends it was; i.e., to remove the restriction imposed by State law, which permits the use of a minor's estate for the minor's support, maintenance, and education only if the parents are unable themselves to provide for such needs from their own estates. See Cal. Prob. Code secs. 1502, 1503, 1054, and Ill. Ann. Stat. ch. 68, sec. 52(a) (Smith-Hurd). ¹ It was a provision designed to free the guardians from these limitations of State law and not a restriction on the present use of the gift property imposed by the donor. As a matter of fact, the provision had the effect of removing a limitation and not of imposing one on the immediate use of the property for the minors' benefit.

That the guardians so interpreted the ‘condition’ of the gifts is shown by the character of the expenditures made and reports filed with and approved by the appropriate courts. They ranged from allowances, to automobiles, clothing, airplane and bus fare, and tuition. And this without any showing that these were items ‘more expensive than his father can reasonably afford’ which would justify dipping into the minor's estate under California Probate Code section 1504.

Some of the difficulty in this case arises from the fact that the donees are infants represented by guardians. This, however, does not necessarily convert the gift of a present interest into a future interest. As indicated in the Commissioner's brief: It was stated in Fondren v. Commissioner, 324 U.S. 499 (1944), that ‘The statute in this respect purports to make no distinction between gifts to minors and gifts to adults. If there is deferment in either case the exemption is denied.’ In Revenue Ruling 54-400, 1954-2 C.B. 319, it was stated that:

An unqualified and unrestricted gift to a minor, with or without the appointment of a legal guardian, is a gift of a present interest; and disabilities placed upon...