Clark v. Comm'r of Internal Revenue
| Decision Date | 28 October 1975 |
| Docket Number | 3296-73.,Docket Nos. 3253-73 |
| Citation | 65 T.C. 127 |
| Parties | ARTHUR W. CLARK, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTVIRGINIA CLARK v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
John H. Gerlach, for the petitioners.
Michael W. Ford, for the respondent.
Held: 1. Gifts of Arthur W. Clark's principal interests in Clifford trusts to the income beneficiaries thereof were not gifts of future interests and therefore were eligible for the annual gift tax exclusion of $3,000 per donee provided by sec. 2503(b), I.R.C. 1954.
2. Petitioners' failure to prove Virginia Clark's consent to gift-splitting precludes half of Arthur W. Clark's 1964 gifts from being considered as having been made by her under the gift-splitting provisions of sec. 2513, I.R.C. 1954.
3. Respondent is not barred by the statute of limitations or estopped from redetermining the amount of gifts made during tax years before 1967, for which the statute of limitations has expired, in computing the amount of taxable gifts made in 1967 and later tax years, for which the statute of limitations has not expired. WILES, Judge:Respondent determined gift tax deficiencies for petitioners as follows:
TABULAR OR GRAPHIC MATERIAL SET AT THIS POINT IS NOT DISPLAYABLE
The cases were consolidated for trial. After settlement of some issues, the remaining issues are:
(1) Whether gifts of Arthur W. Clark's principal interests in Clifford trusts 1 to the income beneficiaries thereof were gifts of future interests and thus ineligible for the annual gift tax exclusion of $3,000 per donee provided by section 2503(b);2
(2) Whether petitioners' failure to prove Virginia Clark's consent to gift-splitting precludes half of Arthur W. Clark's 1964 gifts from being considered as having been made by her under the gift-splitting provisions of section 2513; and
(3) Whether respondent is barred by the statute of limitations or estopped from redetermining the amount of gifts made during tax years before 1967, for which the statute of limitations has expired, in computing the amount of taxable gifts made in 1967 and later tax years, for which the statute of limitations has not expired.
Some facts were stipulated and are found accordingly.
Arthur W. Clark and Virginia Clark, husband and wife,3 were residents of Wisconsin Rapids, Wis., at all times material herein. Arthur W. Clark filed Federal gift tax returns with the District Director of Internal Revenue, Milwaukee, Wis., in 1954, 1955, 1957, and 1962 through 1969. Virginia Clark filed Federal gift tax returns with the same District Director for 1967, 1968, and 1969.
Arthur W. Clark has two sons: Arthur S. Clark, born on April 9, 1935, and Robert W. Clark, born on February 27, 1941.
Arthur W. Clark created two Clifford trusts on March 13, 1957. The trusts were drafted by Charles E. Prieve, his tax attorney. The purpose of the trusts was to take income out of the high brackets of his taxable income, the typical purpose of a Clifford trust. William B. Zellmer was trustee4 of both trusts and Arthur S. Clark and Robert W. Clark were the respective income beneficiaries thereof. Terms of the trusts were almost identical; the relevant portions of the Arthur S. Clark trust were as follows:
Trust Agreement
1. The Donor, for value received, gives, delivers, assigns, transfers and sets over to the Trustee in trust for the uses and purposes hereinafter prescribed, the certificates of Common Stock of Central Wisconsin Motor Transport Company, an Illinois Corporation, as set forth upon Exhibit ‘A’ hereto attached.
6. The Trustee shall apply for the use and benefit of the Beneficiary, or distribute directly to such Beneficiary, all of the income of the trust estate at convenient intervals, but not less than annually. Any income received, accrued or unpaid to the Beneficiary at the time of the termination of this trust estate, shall be distributed to Arthur S. Clark (or Robert W. Clark), or his executor or administrator.
7. Upon the termination of this trust estate, all of the principal, but not income, then held by the Trustee shall be distributed to the Donor if he is alive. In the event that the Donor has not survived to the date of termination, the principal * * * (shall be distributed to Frances T. Clark, or Robert W. Clark, or Arthur S. Clark, or the sons' heirs, depending upon who survives to the termination date.)
10. * * * The Trustee shall have full power to hold securities in his own name or in the name of a nominee. * * *
13. This trust shall terminate on March 31, 1967, or upon the death of the Beneficiary, whichever is the first to occur. Upon such termination, the principal shall be distributed as provided in Paragraph 7 hereof, and any undistributed income shall be paid over as provided in Paragraph 6.
March 13, 1957— 20,000 Shares of Central Wisconsin Motor Transport Company Common Stock (in the name of A. Stephen Clark (or R. Wayne Clark) Cert. No. C 1879
The trust agreement contained no provision for amendment or modification of the trust.
The initial corpus of each trust was thus 20,000 shares of the common stock of Central Wisconsin Motor Transport Co., the name of which was later changed to CW Transport, Inc. (hereinafter CW). To fund the trusts, Arthur W. Clark surrendered a certificate for 63,100 CW shares to the CW stock transfer agent on March 13, 1957. On that same date, a certificate for 20,000 CW shares was issued in the name of A. Stephen Clark and a certificate for 20,000 CW shares was issued in the name of R. Wayne Clark. The remaining 23,100 CW shares were returned to Arthur W. Clark.
Robert W. Clark and R. Wayne Clark are the same individual; Arthur S. Clark and A. Stephen Clark are the same individual. The respective certificates for 20,000 shares of CW stock were issued in the names of A. Stephen Clark and R. Wayne Clark to signify that such shares were being held as nominees for the trustee. On March 13, 1957, Arthur S. Clark and Robert W. Clark executed statements declaring that CW stock transferred to them was issued to them as nominees for the trustee and that they were subject to the direction and control of the trustee. CW stock constituted the sole corpus of each trust at all times.
Arthur W. Clark's 1957 gift tax return reported the values of the income interests in the full 10-year terms of the trusts as gifts.
On June 19, 1959, a 5-percent stock dividend was declared by CW. Stock certificates for 1,000 shares of CW stock were accordingly issued to A. Stephen Clark and R. Wayne Clark as nominees for the trustee.
In 1962, sometime before December, Arthur W. Clark asked Charles E. Prieve, his tax attorney, if some CW shares held by the trusts could be given to his sons. Prieve advised him that stock could be given out of the trusts under Wisconsin law. Arthur W. Clark accordingly executed a deed of gift during each of the years 1962 through 1967 which conveyed his ‘reversionary interest’ 5 in some CW shares held in each trust to the beneficiary thereof. For each year for each trust, an interest in enough CW shares was conveyed to make the value of each gift just less than $6,000.6 Arthur W. Clark's gift tax returns for those years claimed an annual donee exclusion of $3,000 for each gift, and an annual donee exclusion of $3,000 was claimed on behalf of Virginia Clark under the gift-splitting provisions of section 2513. Accordingly, the gift tax returns showed no tax due on these gifts.
All deeds of gift were identical, except for the number of CW shares, the date, and the witnesses and trustee involved. The text of the 1962 deed of gift to Arthur S. Clark is as follows:
William B. Zellmer, Trustee
U/A Dated March 13, 1957
Arthur W. Clark, Donor
Arthur S. Clark, Beneficiary
Under the above described Trust Agreement, which was executed on March 13, 1957, wherein you are the Trustee, I, Arthur W. Clark, am entitled to receive back the entire principal held by you on March 31, 1967.
Paragraph 13 of the Trust Agreement, which provides for the termination on March 31, 1967, also provides that upon the death of the Beneficiary, Arthur S. Clark, the trust will also terminate and all of the principal in the hands of the Trustee is to be distributed to me.
By this Deed of Gift, I, Arthur W. Clark, for myself and my heirs, hereby give, demise and release to Arthur S. Clark all of my right, title and interest in and to the reversionary interest which I have under Paragraph 7 of the Trust Agreement in 585 shares of the common stock of Central Wisconsin Motor Transport Company held by you. You are hereby released of any and all liability and accountability to me, the Donor, and to the trust estate with respect to these 585 shares given to Arthur S. Clark.
In the event that the 585 shares of stock, to which this Deed of Gift refers, have not been transferred to the Donee prior to his death, those shares shall be transferred to his executor or administrator as a part of his probate estate.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 21st day of December, 1962. (Signatures followed.)
Arthur W. Clark's gift tax returns for 1962 to 1967 describe each gift as a ‘reversionary interest,‘ just as each deed of gift did.
On June 15, 1965, a 40-percent stock dividend was declared by CW. Stock certificates for 8,400 shares (40 percent times 21,000 shares) of CW stock were accordingly issued in the names of A. Stephen Clark and R. Wayne Clark as nominees for the trustee.
On October 5, 1966, separate blocks of 3,610 CW shares were transferred from the names of A. Stephen Clark and R. Wayne Clark to the names of Arthur S. Clark and Robert W. Clark. The blocks represented shares included in the deeds of gift for 1962 through 1966, together with the 1965 stock dividend on those shares.
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