Commissioner of Internal Revenue v. Wells, 5974.

• Decision Date: 22 February 1937
• Docket Number: No. 5974.,5974.
• Citation: 88 F.2d 339
• Parties: COMMISSIONER OF INTERNAL REVENUE v. WELLS.
• Court: U.S. Court of Appeals — Seventh Circuit

88 F.2d 339 (1937)

COMMISSIONER OF INTERNAL REVENUE v. WELLS.

No. 5974.

Circuit Court of Appeals, Seventh Circuit.

February 22, 1937.

Maurice J. Mahoney, of Washington, D. C., Robert H. Jackson, Asst. Atty. Gen., and J. Louis Monarch and L. W. Post, Sp. Assts. to Atty. Gen., for petitioner.

George D. Smith, of Chicago, Ill., and Thomas M. Wilkins, of Washington, D. C., for respondent.

Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.

SPARKS, Circuit Judge.

This review involves an alleged deficiency in gift tax under the Revenue Act of 1932. The facts as found by the Board of Tax Appeals are not disputed.

The taxpayer is an individual, a citizen and resident of the United States. On December 27, 1933, he created three irrevocable trusts, one for each of his three minor children. Thereafter, within that calendar year, he transferred, without valuable consideration, to each of the three trusts, share and share alike, his entire right, title, and interest in and to certain shares of corporate stock of an aggregate value of $103,803. Certificates representing the shares were delivered to the trustee and accepted by her during the calendar year of 1933.

Each of the trust instruments directed the trustee to collect the income from the trust corpus, and after paying expenses, taxes, and the like, to accumulate the remainder of the income until the child named therein should attain the age of twenty-one years, or should die before that time. Upon reaching the age of twenty-one years each child was to receive the trust income until he reached the age of thirty, or until the death of his mother, who was trustee, whichever event occurred first, and then he was to receive the corpus. In the event of the death of any child before the time of distribution of the trust created for him, the corpus was to go to his issue, or in default of issue, to the other children of the taxpayer.

In his tax return for that year the taxpayer reported these gifts in the aggregate sum as stated, and deducted therefrom $5,000 for each trust, and the specific exemption of $50,000, leaving a net taxable amount of $38,803. The Commissioner disallowed the deduction of $15,000 on the ground that the gifts were of future interests. Upon taxpayer's petition for a re-determination, the Board held that the gifts were not of future interests, and that there was no deficiency. It is this decision that the Commissioner seeks to review.

The sections of the Revenue Act of 1932 which are here pertinent are as follows:

"Sec. 501.

"(a) For the calendar year 1932 and each calendar year thereafter a tax, computed as provided in section 502 section 551, shall be imposed upon the transfer during such calendar year by any individual, resident, or non-resident, of property by gift.

"(b) The 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." 26 U.S.C.A. § 550.

"Sec. 504.

"(a) General definition. The term `net gifts' means the total amount of gifts made during the calendar year, less the deductions provided in section 505 section 554.

"(b) Gifts less than $5,000. In the case of gifts (other than of future interests in property) made to any person by the donor during the calendar year, the first $5,000 of such gifts to such person shall not, for the purposes of subsection (a), be included in the total amount of gifts made during such year." 26 U.S.C.A. § 553.

"Sec. 1111. (a) When used in this Act —

"(1) The term `person' means an individual, a trust or estate, a partnership, or a corporation." 47 Stat. 289.

The applicable regulations of the Treasury Department under this Act, promulgated in 1933, are found in Articles 10 and 11 of Regulations 79 and...