465 U.S. 330 (1984), 82-1041, Dickman v. C.i.r.

Docket Nº:No. 82-1041.
Citation:465 U.S. 330, 104 S.Ct. 1086, 79 L.Ed.2d 343
Party Name:Esther C. DICKMAN, et al., Petitioners v. COMMISSIONER OF INTERNAL REVENUE.
Case Date:February 22, 1984
Court:United States Supreme Court
 
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Page 330

465 U.S. 330 (1984)

104 S.Ct. 1086, 79 L.Ed.2d 343

Esther C. DICKMAN, et al., Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE.

No. 82-1041.

United States Supreme Court.

Feb. 22, 1984

Argued Nov. 1, 1983.

Rehearing Denied April 16, 1984.

Syllabus[*]

SYLLABUS

Section 2501(a)(1) of the Internal Revenue Code of 1954 imposes a tax upon "the transfer of property by gift." Section 2511(a) provides that such tax shall apply whether "the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible." Petitioner wife and her husband, now deceased, made substantial interest-free demand loans to their son and a closely held family corporation. The Commissioner of Internal Revenue determined that the loans resulted in taxable gifts to the extent of the value of the use of the loaned funds, and assessed gift tax deficiencies. Petitioner wife and petitioner personal representative of her husband sought redetermination of the deficiencies in the Tax Court, which held that the loans were not subject to the gift tax. The Court of Appeals reversed.

Held: The loans in question resulted in taxable gifts of the reasonable value of the use of the money lent. Pp. 1089-1095.

(a) The language of §§ 2501(a)(1) and 2511(a) is clear and admits of only one reasonable interpretation: transfers of property by gift, by whatever means effected, are subject to the federal gift tax. The gift tax was designed to encompass all transfers of property and property rights having significant value. Pp. 1089-1090.

(b) The interest-free loan of funds is a "transfer of property by gift" within the contemplation of the Code. The transfer of cash, interest-free and repayable on demand, is a grant of the use of valuable property. And the right to use the money without charge is a valuable interest in the money lent, although the value of such interest may be reduced by virtue of its demand status. Pp. 1090-1091.

(c) Failure to impose the gift tax on interest-free loans would seriously undermine Congress' goal in enacting the gift tax as a protection against income tax avoidance by the transferor and as a supplement to the estate tax. Pp. 1091-1092.

(d) Subjecting interest-free loans to the gift tax does not impose upon the transferor a duty to invest profitably, but rather merely recognizes that certain tax consequences flow from a decision to make "a transfer of property by gift." P. 1092.

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(e) There is no merit to petitioners' contention that imposing a gift tax on interest-free loans could result in imposing the tax on routine neighborly or familial gifts, thus intruding into cherished zones of privacy. Any such administrative problems are rendered illusory by the generous exclusions, exceptions, and credits provided by the Code for gifts to both family members and others. P. 1093.

(f) Assuming, arguendo, that the Commissioner's present position represents a departure from prior administrative practice, he may, nevertheless, change an earlier interpretation of the law, even if such a change is made retroactive in effect, and even though a taxpayer may have relied to his detriment upon the Commissioner's prior position. Pp. 1093-1094.

690 F.2d 812 (CA11 1982), affirmed.

Justice Powell filed dissenting opinion in which Justice Rehnquist joined.

COUNSEL

[104 S.Ct. 1088] Frank P. Riggs argued the cause for petitioners. With him on the briefs were Guy S. Emerich, Vester T. Hughes, Jr., M. David Bryant, Jr., andKathryn G. Henkel.

Deputy Solicitor General Wallace argued the cause for respondent. With him on the brief were Solicitor General Lee, Assistant Attorney General Archer, Harriet S. Shapiro, Michael L. Paup, Jonathan S. Cohen, and Farley P. Katz.*

* Briefs of amici curiae urging reversal were filed for D'Ancona & Pflaum byByron S. Miller and Alan L. Reinstein; and for Jones, Day, Reavis & Pogue byErwin N. Griswold.

[104 S.Ct. 1088] Frank P. Riggs, Sun City Center, Fla., for petitioners.

Lawrence G. Wallace, Washington, D.C., for respondent.

OPINION

Chief Justice BURGER delivered the opinion of the Court.

We granted certiorari to resolve a conflict among the Circuits as to whether intrafamily, interest-free demand loans result in taxable gifts of the value of the use of the money lent.

I

A

Paul and Esther Dickman were husband and wife; Lyle Dickman was their son. Paul, Esther, Lyle, and Lyle's wife

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and children were the owners of Artesian Farm, Inc. (Artesian), a closely held Florida corporation. Between 1971 and 1976, Paul and Esther loaned substantial sums to Lyle and Artesian. Over this 5-year interval, the outstanding balances for the loans from Paul to Lyle varied from $144,715 to $342,915; with regard to Paul's loans to Artesian, the outstanding balances ranged from $207,875 to $669,733. During the same period, Esther loaned $226,130 to Lyle and $68,651 to Artesian. With two exceptions, all the loans were evidenced by demand notes bearing no interest. 1

Paul Dickman died in 1976, leaving a gross estate for federal estate tax purposes of $3,464,011. The Commissioner of Internal Revenue audited Paul Dickman's estate and determined that the loans to Lyle and Artesian resulted in taxable gifts to the extent of the value of the use of the loaned funds. 2 The Commissioner then issued statutory notices of gift tax deficiency both to Paul Dickman's estate and to Esther Dickman. 3

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Esther Dickman and the estate, petitioners here, sought redetermination of the deficiencies in the Tax Court. Reaffirming its earlier decision in Crown v. Commissioner, 67 T.C. 1060 (1977), aff'd, 585 F.2d 234 (CA7 1978), the Tax Court concluded that intrafamily, interest-free demand loans do not result in taxable gifts. 41 TCM 620, 623 (1980), ¶ 80,575 P-H Memo TC, at 2428. Because the Tax Court determined that all the loans to Lyle and Artesian were made payable on demand, it held that the loans were not subject to the federal gift tax. Id., at 624, ¶ 80,575 P-H Memo [104 S.Ct. 1089] TC, at 2428.

B

The United States Court of Appeals for the Eleventh Circuit reversed, holding that gratuitous interest-free demand loans give rise to gift tax liability. 690 F.2d 812, 819 (1982). Reviewing the language and history of the gift tax provisions of the Internal Revenue Code of 1954 (Code), 26 U.S.C. § 2501et seq., the Court of Appeals concluded that Congress intended the gift tax to have the broadest and most comprehensive coverage possible. The court reasoned that the making of an interest-free demand loan constitutes a "transfer of property by gift" within the meaning of 26 U.S.C. § 2501(a)(1), and accordingly is subject to the gift tax provisions of the Code. In so holding, the Court of Appeals squarely rejected the contrary position adopted by the United States Court of Appeals for the Seventh Circuit in Crown v. Commissioner, 585 F.2d 234 (1978). We granted certiorari to resolve this conflict, 459 U.S. 1199, 103 S.Ct. 1181, 75 L.Ed.2d 429 (1983); we affirm.

II

A

The statutory language of the federal gift tax provisions purports to reach any gratuitous transfer of any interest in property. Section 2501(a)(1) of the Code imposes a tax upon "the transfer of property by gift." Section 2511(a) highlights

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the broad sweep of the tax imposed by § 2501, providing in pertinent part:

"Subject to the limitations contained in this chapter, the tax imposed by section 2501 shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible...."

The language of these statutes is clear and admits of but one reasonable interpretation: transfers of property by gift, by whatever means effected, are subject to the federal gift tax.

The Committee Reports accompanying the Revenue Act of 1932, ch. 209, 47 Stat. 169, which established the present scheme of federal gift taxation, make plain that Congress intended the gift tax statute to reach all gratuitous transfers of any valuable interest in property. Among other things, these Reports state:

"The terms 'property,' 'transfer,' 'gift,' and 'indirectly' are used in the broadest and most comprehensive sense; the term 'property' reaching every species of right or interest protected by law and having an exchangeable value.

"The words 'transfer ... by gift' and 'whether ... direct or indirect' are designed to cover and comprehend all transactions ... whereby, and to the extent ... that, property or a property right is donatively passed to or conferred upon another, regardless of the means or the device employed in its accomplishment." H.R.Rep. No. 708, 72d Cong., 1st Sess., 27-28 (1932); S.Rep. No. 665, 72d Cong., 1st Sess., 39 (1932).

The plain language of the statute reflects this legislative history; the gift tax was designed to encompass all transfers of property and property rights having significant value. 4

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[104 S.Ct. 1090] On several prior occasions, this Court has acknowledged the expansive sweep of the gift tax provisions. In Commissioner v. Wemyss, 324 U.S. 303, 306, 65 S.Ct. 652, 654, 89 L.Ed. 958 (1945), the Court explained that

"Congress intended to use the term 'gifts' in its broadest and most comprehensive sense ... [in order] to hit all the protean arrangements which the wit of man can devise that are not business transactions within the meaning of ordinary speech."

The Court has also noted that the language of the gift tax statute "is broad enough to...

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