Knox v. Commissioner of Internal Revenue

• Decision Date: 08 October 1937
• Docket Number: Docket No. 82450.
• Citation: 36 BTA 630
• Parties: SEYMOUR H. KNOX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

36 B.T.A. 630 (1937)

SEYMOUR H. KNOX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 82450.

Board of Tax Appeals.

Promulgated October 8, 1937.

Ralph M. Andrews, Esq., for the petitioner.

Ralph F. Staubley, Esq., for the respondent.

OPINION.

ARNOLD:

Respondent has determined a deficiency in gift tax under the Revenue Act of 1932 in the amount of $950. The facts are stipulated as follows:

1. Seymour H. Knox, the petitioner herein, is and at all times material was a resident of the City of Buffalo, New York.

2. On December 26, 1934, petitioner entered into an agreement of trust with The Marine Trust Company of Buffalo, a trust company incorporated under the laws of the State of New York, with its principal office in the City of Buffalo, New York, and himself, as trustees, a true and correct copy of which agreement of trust is attached hereto, designated Exhibit "A" and hereby made part hereof.

3. Seymour H. Knox, III, one of petitioner's children referred to in Article "FIRST" of said agreement of trust (Exhibit "A"), was born on March 9, 1926, and Northrup R. Knox, the other of Grantor's children referred to in said Article "FIRST", was born on December 24, 1928. Both of said children are now living.

4. On December 26, 1934, pursuant to paragraph "FIRST" of the agreement of trust (Exhibit "A"), petitioner assigned, transferred and delivered to the trustees, without any valuable consideration whatsoever, and the trustees accepted, certificates representing the securities described in said agreement of trust, which, on the date of said transfer, had an aggregate fair market value of $583,470.00. The trustees throughout the balance of the calendar year 1934 and thereafter have continued to hold the property so transferred to them or the proceeds thereof subject to the terms of the agreement of trust dated December 26, 1934 (Exhibit "A").

5. Petitioner made no gift or gifts within the calendar year 1934 other than the transfer of securities on December 26, 1934, above described, and petitioner made no other gifts between June 6, 1932, and December 31, 1933, both dates inclusive.

6. Thereafter and on or about March 15, 1935, petitioner duly filed with the Collector of Internal Revenue at Buffalo, New York, a gift tax return, in which he reported total gifts within the year 1934 of $583,470.00. In determining net taxable gifts in his return, petitioner deducted an amount of $10,000.00, upon the ground that the transfer of securities on December 26, 1934, constituted a gift of a present interest to each of his two children, and further deducted the specific exemption of $50,000.00, leaving net taxable gifts for the year 1934 of $523,470.00. Petitioner reported a tax of $37,854.65 on said return.

7. Thereafter in his final determination dated September 17, 1935, the Commissioner disallowed the exclusions of $10,000.00 upon the ground that "no exclusions are allowed as the trustees may, in their discretion, accumulate the income, and beneficiaries do not have an unrestricted present right to the immediate use of the income or corpus of the trust."

Section 2 of the trust agreement is as follows:

SECOND: The Trustees shall take and hold the securities so assigned, transferred and delivered to them, together with such additional property as may hereafter from time to time be delivered to them by the Grantor, and shall invest and from time to time reinvest the same and collect the income, issues and profits arising from the property from time to time constituting the trust fund, and, from time to time during the continuance of this trust, shall pay over the net income to or for the benefit of the Grantor's children (including any child or children of his born after the date of this instrument) and the lawful issue of any deceased child or children of the Grantor, in equal shares, per stirpes and not per capita, with the right to the Trustees in their discretion to accumulate income for the benefit of the Grantor's children, or either of them, in being at the date of this instrument, during minority, paying over any such accumulations to the child for whose benefit the same were accumulated upon his arrival at the age of twenty-one years, or the sooner termination of this trust. The birth of any child or children of the Grantor after the date of this instrument shall not require the redistribution of any income theretofore received by the Trustees, such afterborn child or children, as to the income of the trust, to be entitled...