Thorrez v. Comm'r of Internal Revenue
| Decision Date | 31 December 1958 |
| Docket Number | Docket No. 57321. |
| Citation | 31 T.C. 655 |
| Parties | CAMIEL THORREZ, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Phillip C. Kelly, Esq., for the petitioner.
Walter T. Hart, Esq., for the respondent.
1. Petitioner established four identical trusts for the benefit of minor grandchildren. The trustee of each trust was a parent of the beneficiaries. As each beneficiary reaches 21 years, his share of corpus is to be distributed to him. During the minority of the beneficiaries, trust income is to be accumulated and invested as part of the corpus, but if a beneficiary should need money for support or eduction, the trustee may make payments from the trust estate, in such sums as he deems advisable, to a beneficiary or his legal guardian. Held, the gifts to each trust were of future interests even though a parent of beneficiaries was the trustee; therefore, exclusions are not allowable under section 1003(b)(3), 1939 Code.
2. Petitioner filed timely in March 1952 his gift tax return for 1951, but in the return his wife did not execute the consent required by sections 1000(f)(1) (B) and (2)(B)(i), 1939 Code, to have his gifts considered as having been made by his wife to the extent of one-half. Held, petitioner is not entitled to have his gifts treated as
having been made one-half by his wife under section 1000(f)(1), even
though he attempted to file an amended gift tax return in 1954 prior to the issuance of the statutory deficiency notice. 3. Petitioner transferred in 1941 four undivided 5 per cent interests in a partnership to each of four members of his family. He reported the gifts in his 1941 gift tax return, in which he claimed and was allowed a specific exemption of $8,080.04, which was the net amount of 1941 gifts, so that no gift tax was due for 1941. The gifts were never claimed to be invalid and were never rescinded, by petitioner, but they were not recognized by the Commissioner as constituting the donees members of a partnership for income tax purposes, and petitioner was held liable for income tax on the income attributable in 1941 to each
of the 5 per cent partnership interests in Camiel Thorrez, 5 T.C. 60,affd. 155 F.2d 791. Held, the transfers of property in 1941 constituted taxable gifts, and, therefore, the amount of specific exemption claimed by petitioner in his gift tax return for 1941 and allowed by the Commissioner must be deducted from the $30,000 specific exemption claimed by him in his 1951 gift tax return under section 1004(a)(1), 1939 Code.
The Commissioner determined a deficiency in gift tax for the taxable year 1951 in the amount of $4,228.71. The questions to be decided are as follows: (1) Whether gifts in trust made in 1951 for the benefit of 10 minor grandchildren were gifts of future interests, within the meaning of section 1003(b)(3) of the 1939 Code so as to preclude total exclusions in the amount of $30,000, or were gifts of present interests in property. (2) Whether the provisions of section 1000(f)(1)(A), which permits, under certain conditions, a gift made by one spouse to be considered as made one-half by him and one-half by his spouse, are available to petitioner, since the consent of his spouse was not signified in the timely filed gift tax return for 1951. (3) Whether the petitioner must deduct the net amount of gifts which he made in 1941, to members of his family of parts of is interest in a partnership, from the specific exemption of $30,000 allowed by section 1004(a)(1), 1939 Code, as specific exemption claimed and allowed for 1941, in computing the remaining amount of the specific exemption which was available for application to petitioner's 1951 gifts.
The petitioner is a resident of Jackson, Michigan. He filed a gift tax return for 1951 with the then collector of internal revenue for the district of Michigan.
The petitioner is a married person. His wife is Flavia Thorrez. Petitioner and his wife have 4 married children, 1 daughter and 3 sons; Marie Michner, Henry Thorrez, Morris Thorrez, and Albert Thorrez. As of December 31, 1951, petitioner's son, Albert Thorrez, had 5 children, Timothy, David, Mary, Bernard, and Michael; his daughter, Marie Michner, had 2 children, James and Camilla; and his sons, Henry and Morris Thorrez, had 3 children, respectively, Morris, Camiel, and Diana. The record fails to show (and is not material) the name or names of the child or children of Henry Thorrez and of Morris Thorrez. The names of petitioner's 10 grandchildren who were living on December 31, 1951, their birth dates, and their approximate ages on December 31, 1951, are as follows:
+------------------------------------------------+
¦ ¦ ¦Age at Dec. ¦
+------------------+---------------+-------------¦
¦Grandchildren ¦Date of birth ¦31, 1951 ¦
+------------------+---------------+-------------¦
¦Timothy A. Thorrez¦Sept. 19, 1944 ¦7 Years ¦
+------------------+---------------+-------------¦
¦David C. Thorrez ¦Mar. 7, 1946 ¦5 years ¦
+------------------+---------------+-------------¦
¦Mary E. Thorrez ¦May 4, 1947 ¦4 years ¦
+------------------+---------------+-------------¦
¦Bernard F. Thorrez¦May 11, 1949 ¦2 years ¦
+------------------+---------------+-------------¦
¦Michael L Thorrez ¦Aug. 31, 1951 ¦4 months ¦
+------------------+---------------+-------------¦
¦James A. Michner ¦Sept. 8, 1946 ¦5 years ¦
+------------------+---------------+-------------¦
¦Camilla A. Michner¦Apr. 2, 1945 ¦6 years ¦
+------------------+---------------+-------------¦
¦Morris P. Thorrez ¦Dec. 20, 1948 ¦3 years ¦
+------------------+---------------+-------------¦
¦Camiel Thorrez ¦Nov. 12, 1948 ¦3 years ¦
+------------------+---------------+-------------¦
¦Diana M. Thorrez ¦Aug. 20, 1950 ¦1 year ¦
+------------------------------------------------+
The above-named grandchildren of the petitioner have always been in good physical and mental health. No legal guardians have ever been appointed by any court for any of these grandchildren.
In 1951, petitioner owned interests in a partnership business, located in Jackson, Michigan, known as C. Thorrez Industries.
On December 31, 1951, petitioner created four separate trusts. Each trust was for the benefit of the child or children and of ‘any after-born children’ of one of petitioner's children. At that time all of the primary beneficiaries of the four trusts were minors. Each trust indenture was executed on December 31, 1951. The trustee of each trust was one of petitioner's children, i.e., either the father or the mother of a then-living grandchild or of grandchildren of the petitioner. The provisions of each trust indenture are identical except for the differences in the names of the individual trustees and of the then-living primary beneficiaries. For convenience, reference is made hereinafter to the trust indenture between petitioner and his son, Albert Thorrez.
On December 31, 1951, the petitioner made a transfer to each trust, at the time of the execution thereof, of a 10 per cent interest in the partnership, C. Thorrez Industries, thereby making each trust a partner. Accordingly, the original corpus of each trust consisted of a 10 per cent interest in the partnership.
The parties are agreed that the total value of the four gifts which were made in 1951 to the trusts if $61,767.04, and that the value of the property transferred to each trust is $15,441.76.
The trust indenture between petitioner and his son, Albert Thorrez, provides in material part as follows: Albert Thorrez was named the trustee. The trust is for the benefit of Albert's five minor children who were living on December 31, 1951, and ‘any after-born children’ of Albert. The donor conveyed certain property to the trustee upon the creation of the trust, and he reserved the right to transfer additional property to the trust, from time to time. The original transfer of property to the trust was irrevocable. The trustee is given broad powers of management of the trust corpus, including the powers to collect and receipt for the income of the trust estate, and to invest and reinvest the trust estate and its income in such income-producing investments as to the trustee ‘shall seem best.’ The trustee shall deliver to the donor annually a statement of the receipts and disbursements of the trust, and an inventory of the trust assets. The trustee may resign by giving written notice, 60 days in advance of the effective date. Upon the resignation or death of a trustee, the trust beneficiaries, through their guardians, shall select a successor trustee. Paragraph 4 of the trust provides as follows:
4. The Trustee shall hold said Trust Estate for the benefit of the Beneficiaries thereof in equal shares, and shall hold and dispose of the principal and income for the following uses and purposes:
(a) To pay all the expenses of administering the same, including reasonable compensation to the Trustee.
(b) During the minority of the Beneficiaries thereof, to accumulate the income therefrom and reinvest the same as part of the corpus thereof; and the income so accumulated, invested and re-invested during the minority of the Beneficiaries shall become a part of the corpus, and shall be held and disposed of as hereinafter provided for holding and disposition of the trust.
(c) To take from the Trust Estate and pay to any Beneficiary, or his or her legal guardian, such sum or sums of money as Trustee deems advisable, if, before the Beneficiary attains the age of twenty-one (21), he or she should need money for support or education and is unable to provide such money.
(d) To pay, convey and deliver over to each Beneficiary thereof his or her respective share in the corpus upon his or her attainment of the age of twenty-one (21) years.
(e) Upon the death of any Beneficiary thereof prior to the times herein...
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