Crane v. Comm'r of Internal Revenue, Docket Nos. 4784-65

• Decision Date: 17 November 1967
• Docket Number: 4785-65.,Docket Nos. 4784-65
• Citation: 49 T.C. 85
• Parties: DOROTHY V. CRANE, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTDONALD V. CRANE, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

49 T.C. 85

DOROTHY V. CRANE, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENTDONALD V. CRANE, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 4784-65

4785-65.

Tax Court of the United States.

Filed November 17, 1967.

Paul R. Hodgson, for the petitioners.

G. Phil Harney, for the respondent.

Held: In determining when and what gifts were made—

1. When Donald established savings accounts in the name of himself and one of his children, he remained the owner of the funds in the account;

2. When Donald established savings accounts in the name of Dorothy and one of their children, Dorothy and the child each acquired ownership of one-half of the account;

3. When Donald purchased real estate taking title in himself and Dorothy and used the funds in the accounts in the name of Dorothy and the children to provide part of the purchase price, the property was not held in a constructive or resulting trust for the children, but Dorothy did provide part of the purchase price;

4. When Donald and Dorothy transferred the property to express trusts for the family, each made a gift of his interest in the property valued at $62,000; and

5. Dorothy forfeited her interest in insurance policies which were purchased with family earnings while community property law was in effect.

SIMPSON, Judge:

The respondent determined a deficiency in gift tax for the petitioner Donald V. Crane of $258.48 for the calendar year 1954 and an addition to the tax under section 6651(a) of the Internal Revenue Code of 1954¹ of $64.62. By amended answer, the respondent increased for 1954 the deficiency for Donald V. Crane to the total amount of $398.15 and the addition to the tax to the total amount of $99.54. For the calendar year 1959, the respondent determined deficiencies in gift tax for the petitioner Donald V. Crane of $16,290.47 and for the petitioner Dorothy V. Crane of $10,695.

The issues for decision are whether the petitioners made a gift of land in 1954 or in 1959, whether the donees of the land contributed any part of the purchase price so as to reduce the value of the gift, and what was the value of the land at the time the gift was made. There is a further issue regarding the transfer in 1959 of insurance policies from Donald to Dorothy, and that issue is whether Dorothy, by virtue of the Oklahoma community property law, had any interest in the policies before the transfer so as to reduce the value of the gift.

FINDINGS OF FACT

Some of the facts were stipulated, and those facts are so found.

The petitioners are individuals who were legal residents of Tulsa, Okla., at the time the petitions were filed in this case. The petitioners were husband and wife during the period 1944 through 1960. Petitioner Donald V. Crane filed a U.S. gift tax return on August 5, 1965, for the calendar year 1954, and a gift tax return on April 6, 1960, for the calendar year 1959, with the district director of internal revenue, Oklahoma City, Okla. Petitioner Dorothy V. Crane filed a timely U.S. gift tax return for the calendar year 1959 with the district director of internal revenue, Oklahoma City, Okla.

In his gift tax return for the year 1954, Donald reported a gift valued at $6,250 to Dorothy of the net equity in a 25-acre tract of land in Tulsa County, Okla. (the 25-acre tract); a gift valued at $1,311.28 to Dorothy of the mortgage payments on the 25-acre tract from June to December 1954; a gift valued at $14,000 to Dorothy of an undivided one-half interest in a 160-acre tract of land in Tulsa County, Okla (the 160-acre tract); and a gift valued at $14,000 of an undivided one-half interest in the 160-acre tract to a constructive trust for the benefit of the petitioners' three children, Patricia Ann Crane, Michael Jay Crane, and Stephen Donald Crane.

In his gift tax return for the year 1959, Donald reported only gifts of various insurance policies to Dorothy and to Donna Williams. In Dorothy's gift tax return for the year 1959, she included a gift to the Dorothy V. Crane Family Trusts valued at $38,000, consisting of her undivided one-half interest in the 160-acre tract.

The Dorothy V. Crane Family Trusts were created on August 20, 1959, for the benefit of Patricia Ann Crane, Michael Jay Crane, and Stephen Donald Crane. On the same date, Donald created the Donald V. Crane Family Trusts for the benefit of Dorothy, Patricia Ann Crane, Michael Jay Crane, and Stephen Donald Crane. Donald and Dorothy each transferred their respective interests in the 160-acre tract to the trusts by quitclaim deeds, which were recorded in Tulsa County, Okla., on September 1, 1959.

On May 12, 1954, Donald and Dorothy purchased the 25-acre tract for their own use and investment. Donald and Dorothy purchased the 160-acre tract on July 9, 1954, for $38,000. Title was first taken in Dorothy's name, but it was later transferred to both Donald and Dorothy. Their purpose in acquiring the 160-acre tract was to provide an investment to be used for the education of their children. Donald used the same bank account to deposit the funds used for the purchase of the 160-acre tract and the purchase of the 25-acre tract.

In 1954, Donald and Dorothy had a number of savings accounts at a savings and loan association in Ponca City, Okla. The accounts were in the names and had balances on June 30, 1954, as follows:

+-----------------------------------------------------------------------------+
                ¦                                                             ¦Balance        ¦
                +-------------------------------------------------------------+---------------¦
                ¦Account                                                      ¦June 30, 1954  ¦
                +-------------------------------------------------------------+---------------¦
                ¦Donald V. or Dorothy V. Crane                                ¦$1,839.37      ¦
                +-------------------------------------------------------------+---------------¦
                ¦Patricia Ann or Donald Crane                                 ¦2,580.77       ¦
                +-------------------------------------------------------------+---------------¦
                ¦Michael J. or Donald V. Crane                                ¦641.56         ¦
                +-------------------------------------------------------------+---------------¦
                ¦Donald V. or Stephen D. Crane                                ¦784.48         ¦
                +-------------------------------------------------------------+---------------¦
                ¦Donald V. Crane                                              ¦1,000.31       ¦
                +-------------------------------------------------------------+---------------¦
                ¦Dorothy V. Crane or Patricia Crane                           ¦6,352.66       ¦
                +-------------------------------------------------------------+---------------¦
                ¦Dorothy V. or Michael J. Crane                               ¦2,181.24       ¦
                +-------------------------------------------------------------+---------------¦
                ¦Mrs. Dorothy V. Crane                                        ¦2,179.35       ¦
                +-------------------------------------------------------------+---------------¦
                ¦Mrs. Dorothy V. Crane or Stephen D. Crane (investment        ¦3,000.00       ¦
                ¦certificate)                                                 ¦               ¦
                +-----------------------------------------------------------------------------+
                

Donald furnished all of the funds that went into all these savings accounts. Donald and Dorothy could withdraw funds from any of the savings accounts that were in their respective names.

The 25-acre tract was purchased by Donald with funds obtained from the sale of stock. The tract was mortgaged, and Donald made payments on the mortgage out of his earnings. The 160-acre tract was purchased in part with funds obtained from the above savings accounts and proceeds from the cancellation of certain life insurance policies. One of these life insurance policies, on the life of Stephen Donald Crane, was purchased on June 30, 1946, for a single premium of $3,990.

In 1959, Donald transferred to Dorothy insurance policies on his life that had a value at the date of transfer of $18,122.51. Until this transfer, Donald had the right to change the beneficiaries and ownership. Donald, from 1945 through 1959, paid out of his earnings the annual premiums on six of the life insurance policies that were transferred in 1959 to Dorothy. The cash surrender value of the six policies in 1949, the fourth year of their existence, was $2,227.

Effective in 1949, Oklahoma repealed its community property law. The repealing act provided that the husband and wife could enter into a recordable agreement within 1 year of the effective date of the repealing act setting forth, or altering, the rights acquired by either of them during the community property period. (Okla. Laws 1949, sec. 2, p. 229; Okla. Stat. Ann. tit. 32, sec. 83.) The petitioners did not enter into such an agreement.

The 160-acre tract is generally level land with a slope of approximately 25 feet from south to north. The tract in 1959 was a considerable distance from the nearest housing development, and water and sewer services to the tract were at that time unavailable. The tract was situated next to a cemetery.

A creek ran diagonally across a part of the 160-acre tract. At least since 1942, there has been a dam across the creek on the property just north of the tract that caused water to stand for the most part of every year in the part of the creek that ran across the tract. Drainage in connection with the tract was insufficient in 1959 and affected the value of the land. The fair market value of the 160-acre tract on August 20, 1959, was $800 per acre.

Neither petitioner has used any part of his lifetime specific exemption for any year other than 1954 or 1959.

The issues in this case involve two transfers of property— the life insurance policies that Donald transferred to Dorothy in 1959, and the transfer of the 160-acre tract. The issue with regard to the transfer of the insurance policies is whether Dorothy, by virtue of...