Staley v. Commissioner of Internal Revenue
Decision Date | 17 July 1943 |
Docket Number | No. 10606.,10606. |
Citation | 136 F.2d 368 |
Parties | STALEY v. COMMISSIONER OF INTERNAL REVENUE. |
Court | U.S. Court of Appeals — Fifth Circuit |
Charles C. Le Forgee, of Decatur, Ill., for petitioner.
Joseph M. Jones, Sewall Key, and J. Louis Monarch, Sp. Assts. to the Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and J. P. Wenchel, Chief Counsel, and Bernard D. Daniels, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.
Before HUTCHESON, HOLMES, and WALLER, Circuit Judges.
This petition brings for review a decision of the Board of Tax Appeals sustaining a deficiency assessment made with respect to the 1935 fiduciary income tax return of the executor of the A. E. Staley estate. The question for decision is whether the sum of $150,000, which was paid to Staley during the tax year from the income of certain trust estates created by him, was income or was a return of capital.
In 1934 Staley, who was chairman of the board of the A. E. Staley Manufacturing Company and owned over 80% of its common stock, created a trust for each of his five children and conveyed to each trust 6,000 shares of common stock and 2,000 shares of preferred stock of the corporation. It was Staley's intention to make an outright gift of the securities, but he discovered that the sum of the gift taxes to be incurred in connection with the gifts would exceed by approximately $150,000 the amount of cash he would have to pay such taxes. After considering several means by which he could secure this additional sum, he decided upon a plan to have each of the five trusts pay over to him, out of the trust income earned prior to the next succeeding tax-payment date, all of such income remaining after paying the operating expenses and trustee's fees, but such payment not to exceed $30,000. In the event that the income of the respective trusts should be inadequate to pay the full $30,000 prior to March 15, 1935, it was provided that such deficiencies should be made up out of the trust income earned thereafter.
This purpose was accomplished by inserting in each trust instrument a provision reciting that the use benefits under the trust were conveyed in consideration of the sum of $30,000, to be paid to the donor as mentioned. It is petitioner's contention that, by reason of this provision, the conveyances were not gifts but were sales of the securities for a purchase price of $150,000.
It is significant that in the trust instrument Staley referred to himself as the donor, and that, as found by the Board, he knew at the time the trusts were created that sufficient dividends would be declared upon the stock within the five months intervening before the succeeding March 15th to cover the $30,000 payments to him for each trust. The trusts were created on October 18, 1934, and the entire $150,000 in fact was paid over to the donor by March 4, 1935. Moreover, Staley filed a gift-tax return in connection with the transaction, paying a tax computed upon the full value of the securities transferred less the value of the withheld right to receive $150,000 of the income.
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