Heyen v. U.S., 90-3295

• Decision Date: 26 September 1991
• Docket Number: No. 90-3295,90-3295
• Citation: 945 F.2d 359
• Parties: -6044, 91-2 USTC P 60,085 Mary Ann HEYEN, Executrix of the Estate of Jennie Owen, deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 359

945 F.2d 359

68 A.F.T.R.2d 91-6044, 91-2 USTC P 60,085

Mary Ann HEYEN, Executrix of the Estate of Jennie Owen deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 90-3295.

United States Court of Appeals Tenth Circuit.

Sept. 26, 1991.

Kenneth E. Peirce and John T. Suter of Reynolds, Peirce, Forker, Suter & Rose, Hutchinson, Kan., for plaintiff-appellant.

Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, Jonathan S. Cohen and Deborah Swann, Attys., Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellee.

Before SEYMOUR and EBEL, Circuit Judges, and BABCOCK, ^* District Judge.

EBEL, Circuit Judge.

After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a); 10th Cir.R. 34.1.9. The case is therefore ordered submitted without oral argument.

Plaintiff, Mary Ann Heyen, executrix of the estate of her mother, Jennie Owen, appeals the judgment of the district court, entered after jury trial and the denial of motions for judgment notwithstanding the verdict and new trial, upholding the government's gift tax deficiency assessment and imposition of civil fraud penalties under 26 U.S.C. § 6653(b)(1), (2). The deficiency assessment imposed gift tax on decedent's transfer of shares of stock. Decedent transferred blocks of stock, each individually valued by her to be less than $10,000.00, to twenty-nine recipients. Twenty-seven of the recipients soon thereafter signed blank stock certificates so that the stock could be reissued to decedent's family. The government imposed a fraud penalty after concluding decedent's plan for transfer of the stock attempted fraudulently to evade the gift tax.

On appeal, plaintiff argues (1) the transfers of stock by decedent were not subject to gift tax liability; (2) the government incorrectly valued the stock in the deficiency assessment; and (3) the evidence does not support a finding that plaintiff intended to evade gift taxes through a fraudulent filing of the gift tax return. We affirm.

The facts in this case are, for the most part, undisputed. Decedent transferred 115 shares of stock in First National Bank and Trust of St. John to six persons. After receiving the stock certificates, all six signed the stock certificates in blank, and gave them to plaintiff or the bank. Subsequently, the bank cancelled the certificates and the stock was reissued to members of decedent's family. Decedent also transferred 136 shares of stock in St. John National Bank to twenty-three other persons. All but two of the recipients endorsed the stock certificates in blank, resulting in a later reissuance of the stock to members of decedent's family. Based on the book value per share, each of the twenty-nine recipients received stock valued at slightly less than $10,000.00, the gift tax exclusion amount. The recipients either did not know they were receiving a gift of stock and believed they were merely participating in stock transfers or had agreed before receiving the stock that they would endorse the stock certificates in order that the stock could be reissued to decedent's family. It was decedent's wish in transferring the stock that gift taxes be avoided.

Decedent died nine months after the transfers. Plaintiff filed a gift tax return excluding the transfers of stock. The IRS audited the return and issued a deficiency assessment of $57,672.05 and a civil fraud penalty of $28,836.03. After paying the amounts and receiving an administrative denial of her claim for refund, plaintiff filed an action in district court seeking refund. The district court held a jury trial, and the jury found in favor of the government.

Plaintiff thereafter filed a motion for judgment notwithstanding the verdict or, in the alternative, for a new trial. With the exception of granting a remittitur with regard to the two transfers of stock which were retained by the recipients and which were not passed back to decedent's family members, the district court denied the motions. Heyen v. United States, 731 F.Supp. 1488, 1493-94 (D.Kan.1990).

We review de novo the district court's order denying judgment notwithstanding the verdict, applying the same standard applied by the district court. Guilfoyle ex rel. Wild v. Missouri, Kan., & Tex. R.R., 812 F.2d 1290, 1292 (10th Cir.1987). The district court errs in denying the motion "only if the evidence points but one way and is susceptible to no reasonable inferences supporting the party for whom the jury found; we must construe the evidence and inferences most favorably to the nonmoving party." Zimmerman v. First Fed. Sav. & Loan Ass'n, 848 F.2d 1047, 1051 (10th Cir.1988). We will not weigh the evidence, judge the credibility of the witnesses, or substitute our judgment for that of the jury. Lucas v. Dover Corp., Norris Div., 857 F.2d 1397, 1400 (10th Cir.1988).

We review the district court's decision denying a new trial for an abuse of discretion. Patty Precision Prods. Co. v. Brown & Sharpe Mfg. Co., 846 F.2d 1247, 1251 (10th Cir.1988). We will not "make a determination of the sufficiency or weight of the evidence...." Id.

I.

Plaintiff argues that the stock transferred by decedent is not subject to gift tax liability. Plaintiff first contends that decedent did not make a gift of the stock to family members. Rather, plaintiff submits that decedent made separate gifts to the intermediate stock recipients, who voluntarily permitted retransfer of the stock to decedent's family members. Because decedent allegedly relinquished control over the stock to the intermediate recipients, plaintiff maintains the transfer to the decedent's family members was not subject to the gift tax.

A gift tax will be imposed on any transfers of property by gift. 26 U.S.C. § 2501(a)(1). The tax applies to any transfer, whether direct or indirect, if the gift value is greater than the statutory exclusion amount of $10,000.00. Id. at §§ 2503(b), 2511(a). The language of the gift tax statutes clearly provides that "transfers of property by gift, by whatever means effected, are subject to the federal gift tax." Dickman v. Commissioner, 465 U.S. 330, 334, 104 S.Ct. 1086, 1089, 79 L.Ed.2d 343 (1984); see also Estate of Lang v. Commissioner, 64 T.C. 404, 412 (1975) ("Congress intended to use the term 'gift' in its broadest and most comprehensive sense in the gift tax area."). In order for a gift to be complete, the donor must relinquish dominion and control over the property. 26 C.F.R. § 25.2511-2(b). When the property gifted is stock, the gift is completed when the stock is delivered or is transferred on the books of the corporation into the name of the donee. Id. at § 25.2511-2(h).

Although plaintiff does not dispute the general statutory and regulatory language regarding gifts, she cites to 26 C.F.R. § 25.2511-1(g)(1) as support for her contention that contrary to jury instructions 16 and 17, decedent's intent in making the stock transfers was irrelevant. Section 25.2511-1(g)(1) provides, in relevant part, that:

Donative intent on the part of the transferor is not an essential element in the application of the gift tax to the transfer. The application of the tax is based on the objective facts of the transfer and the circumstances under which it is made, rather than on the subjective motives of the donor.

We agree with the district court's determination that the regulation does not preclude consideration of the decedent's donative intent and subjective motives in determining whether decedent made a gift subject to the gift tax. Heyen, 731 F.Supp. at 1490. Although an absence of proof of donative intent will not necessarily prevent a transfer from being subject to gift tax, Commissioner v. Wemyss, 324 U.S. 303, 306, 65 S.Ct. 652, 654, 89 L.Ed. 958 (1945), when donative intent is present, it suggests there has been a gift. Decedent's initial transfer of stock to nonfamily members is not determinative. Section 25.2511-1(g)(1) does not preclude consideration of decedent's actual intent to transfer the stock to family members, and section 2511(a) requires consideration of whether decedent made an indirect transfer. The evidence at trial indicated decedent intended to transfer the stock to her family rather than to the intermediate recipients. The intermediary recipients only received the stock certificates and signed them in blank so that the stock could be reissued to a member of decedent's family. Decedent merely used those recipients to create gift tax exclusions to avoid paying gift tax on indirect gifts to the actual family member beneficiaries.

Plaintiff further contends that instructions 16 and 17 improperly required the jury to consider that the substance of the transaction, rather than its form, controlled the determination of whether there was a taxable gift. Plaintiff asserts that substance over form analysis applies only to income tax cases.

Contrary to plaintiff's argument, substance over form analysis applies to gift tax, as well as to income tax, cases. See Chanin v. United States, 393 F.2d 972, 978-80, 183 Ct.Cl. 840 (1968); Vose v. Commissioner, 284 F.2d 65, 68-69 (1st Cir.1960). Actual donees of gift property must be identified, despite the naming by a donor of a beneficiary. See Helvering v. Hutchings, 312 U.S. 393, 61 S.Ct. 653, 85 L.Ed. 909 (1941) (annual gift tax exclusion applied to beneficiaries of trust, not trust); Schultz v. United States, 493 F.2d 1225 (4th Cir.1974) (gifts to children of reciprocal donors treated as gifts to children of donor); Johnson v. Commissioner, 86 F.2d 710 (2d Cir.1936) (intermediary "gift" rejected as sham). Accordingly, the district court did not erroneously instruct the jury.

Plaintiff additionally contends that the transfers of the stock by decedent were not subject to gift tax because decedent relinquished control over the stock to the intermediate recipients...