Dillingham v. Comm'r of Internal Revenue (In re Estate of Dillingham)
| Decision Date | 25 June 1987 |
| Docket Number | 22369-85.,Docket No. 22368-85 |
| Parties | ESTATE OF ELIZABETH C. DILLINGHAM, DECEASED, DAN L. DILLINGHAM AND TOM B. DILLINGHAM, CO-EXECUTORS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
The decedent delivered checks in the amount of $3,000 each to six different individual donees in 1980. In 1981, the donees presented the checks to the drawee bank for payment and the checks were paid. HELD, the payment of the checks in 1981 did not relate back to the delivery of the checks in 1980 for purposes of determining when the gifts were complete under secs. 2501 and 2511, I.R.C. 1954, because petitioner failed to prove UNCONDITIONAL delivery of the checks to the donees. FURTHER HELD, the decedent did not part with ‘dominion and control‘ over the property which was the subject of the gifts for purposes of sec. 25.2511-2(b), Gift Tax Regs., until payment of the checks by the decedent's bank during 1981. Julian P. Kornfeld, Clarke L. Randall, and Kristen G. Juras, for the petitioner.
David G. Hendricks, for the respondent.
Respondent determined a deficiency in petitioner's Federal gift tax for the calendar quarter ended December 31, 1980, in the amount of $70,841.04 and an addition to tax pursuant to section 6651(a) 1 in the amount of $17,710.26. Respondent also determined a deficiency in petitioner's Federal estate tax in the amount of $369,644.05.
After concessions, the sole issue to be decided is whether a noncharitable gift made by check is complete for Federal gift and estate tax purposes when the check is delivered to the donee.
These cases were submitted fully stipulated. The stipulation of facts and attached exhibits are incorporated herein by reference.
Petitioner is the estate of Elizabeth C. Dillingham, deceased. See Estate of McElroy v. Commissioner, 82 T.C. 509, 510 (1984). (Elizabeth C. Dillingham is hereinafter referred to as the ‘decedent.‘) The decedent's estate is represented by Dan L. Dillingham and Tom B. Dillingham, co-executors, who were residents of Enid, Oklahoma, at the time the petitions in these cases were filed. The decedent was a resident of Enid, Oklahoma, on June 7, 1981, the date of her death.
On or about December 24, 1980, the decedent delivered six checks in the following amounts to the following six individuals (the six checks are hereinafter collectively referred to as ‘the checks‘ and the six individuals are hereinafter collectively referred to as ‘the donees‘):
On or about January 28, 1981, the donees presented the checks to the drawee bank for payment and the checks were paid.
On or about January 28, 1981, the decedent delivered an additional check in the amount of $3,000 to each of the donees (these six additional checks are hereinafter collectively referred to as ‘the additional checks‘). On or about January 28, 1981, the donees presented the additional checks to the drawee bank for payment and the additional checks were paid.
With respect to the gift tax deficiency, the parties have agreed that if the delivery of the checks constituted gifts in 1980, the gifts qualify for the annual exclusion in the amount of $3,000 per donee pursuant to section 2503(b). Conversely, if the delivery of the checks constituted gifts in 1981, the gifts do not qualify for the annual exclusion.
With respect to the estate tax deficiency, the parties have agreed that if the delivery of the checks constituted gifts in 1980, (1) petitioner has not omitted $36,000 (the sum of the checks and the additional checks) from the decedent's gross estate, (2) the six year period of limitations on assessment and collection under section 6501(e)(2) is not applicable in the instant case, and (3) the assessment of the estate tax deficiency determined by respondent in the statutory notice of deficiency is barred by the three year period of limitations under section 6501(a). Conversely, if the delivery of the checks constituted gifts in 1981, (1) $36,000 was omitted from the decedent's gross estate, (2) the six year period of limitations on assessment and collection under section 6501(e)(2) is applicable in the instant case, and (3) the assessment of the estate tax deficiency determined by respondent in the statutory notice of deficiency is not barred by that period of limitations.
Petitioner contends that the gifts represented by the checks were complete in 1980 because the payment of the checks by the bank upon which they were drawn relates back to the date the checks were delivered. Respondent contends that the gifts were not complete in 1980 because there is no relation back of the payment of the checks to the date the checks were delivered, and that the decedent did not part with dominion and control over the checks in 1980 since she retained the power to stop payment on the checks.
Section 2501 2 imposes a tax on the transfer of property by gift. Section 2511 3 defines the transfers to which the gift tax applies. Section 25.2511-2(b), Gift Tax Regs., provides, in relevant part, as follows:
As to any property, or part thereof or interest therein, of which the donor has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another, the gift is complete. But if upon a transfer of property (whether in trust o[r] otherwise) the donor reserves any power over its disposition, the gift may be wholly incomplete, or may be partially complete and partially incomplete, depending upon all the facts in the particular case. Accordingly, in every case of a transfer of property subject to a reserved power, the terms of the power must be examined and its scope determined. * * *
Consistent with petitioner's contention, if the payment of the checks relates back to the delivery of the checks, the ‘transfer of property by gift‘ would have been effected in 1980, rather than in 1981. 4 Nevertheless, for reasons discussed herein, we hold that the payment of the checks does not relate back to the delivery of the checks in the context of the facts presented in these cases.
The relation back of payment of checks to the date of their delivery is commonly referred to as the relation back doctrine. The relation back doctrine was first applied by this Court to gifts in Estate of Spiegel v. Commissioner, 12 T.C. 524 (1942). In Spiegel we allowed a charitable deduction for Federal income tax purposes in calendar year 1942 where the donor delivered two checks to a charitable donee in 1942, but the checks were not cashed until 1943 (one of the checks was cashed before the donor's death and the other check was not cashed until after the donor's death). We held that payment of the checks by the drawee bank related back to the time when the checks were delivered.
The relation back doctrine was then extended to charitable contributions for Federal estate tax purposes in Estate of Belcher v. Commissioner, 83 T.C. 227 (1984), where the donor delivered checks to charities and the checks were not cashed until after the donor's death. We held that payment of the checks by the drawee bank related back to the date of delivery so as to exclude the amount from the donor's gross estate. However, we concluded with the following note of caution:
One final word. In Spiegel, we observed that Similarly, we intend our holding in this case to apply only to charitable contributions for estate tax purposes. Sufficient unto another day the question of includability of noncharitable gifts under similar circumstances. [Estate of Belcher v. Commissioner, 83 T.C. at 238-239.]
Since our decision in Belcher, Federal courts in three circuits have considered the issue whether the relation back doctrine applies to noncharitable gifts by check. McCarthy v. United States, 806 F.2d 129 (7th Cir. 1986), revg. 624 F. Supp. 763 (N.D. Ill. 1985); Bacchus v. United States, an unreported case (D.N.J. 1985, 57 AFTR2d 86-1519, 86-1 USTC par. 13,669); Cullis v. United States, an unreported case (N.D. Ohio, 57 AFTR2d 86-1510, 85-2 USTC par. 13,645). The circuit court in McCarthy and the district court in Cullis refused to extend the relation back doctrine to noncharitable gifts by check, while the district court in Bacchus did extend the doctrine to noncharitable gifts by check.
The circuit court in McCarthy voiced the following concern over extending the relation back doctrine to noncharitable gifts by check:
By issuing a check to a noncharitable donee with the understanding that it not be cashed until after his death, a decedent may effectively bequest up to $10,000 per donee, thus avoiding the estate tax consequences normally attending such transactions. Clearly, section 2035(b)(2) was never intended to operate in such a manner. Only after a donee has parted with complete dominion and control of funds does section 2035(b)(2) exempt them from the general rule that all gifts made within 3 years of death are to be included in the donor's gross estate. I.R.C. [sec.] 2035(a) (1985). [McCarthy v. United States, supra at 132.] This Court expressed a similar concern in Estate of Belcher v. Commissioner, supra at 232.
Because the checks in the present cases were...
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