Turner v. Comm'r of Internal Revenue
| Decision Date | 17 January 1968 |
| Docket Number | Docket Nos. 1019-66,1032-66. |
| Citation | 49 T.C. 356 |
| Parties | RICHARD H. AND EMILY D. TURNER, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTPAMELA T. TURNER, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Harry S. Stark, for the petitioners.
Gary F. Walker, for the respondent.
Pamela T. Turner transferred certain shares of stock on the condition that the various recipients pay the resulting gift tax liability. The individual recipients agreed by letter to this condition. Held, the donor intended and in fact made a net gift to each recipient. Held, further, the period for which the shares were held by the recipient Richard H. Turner included, pursuant to sec. 1223(2), I.R.C. 1954, the period for which the shares were held by Pamela T. Turner prior to the transfer.
Respondent determined deficiencies in the Federal income taxes of petitioners, as follows:
The sole issue in docket No. 1019-66 is whether the gain recognized by petitioners Richard H. (hereinafter referred to as Richard) and Emily D. Turner on the sale of certain shares of stock received by them in a transfer less than 6 months earlier is taxable as long- or short-term capital gain. The question involved is whether, in determining the period for which the stock was held, the petitioners can include the holding period of their transferor pursuant to section 1223(2) of the Internal Revenue Code of 1954.
The issue for determination in docket No. 1032-66 is whether a transfer by petitioner Pamela T. Turner (hereinafter referred to as Pamela) of shares of Parke, Davis & Co. stock on the condition that the various recipients pay the resulting gift tax liability was in part a sale and in part a gift which resulted in a taxable gain to Pamela. If this was a taxable transfer, the parties have agreed on brief that the gain was taxable in 1961, the year in which the transferees actually paid the amount of gift tax liability to Pamela.
Though in the notice of deficiency of docket No. 1032-66 respondent took the position that Pamela's transfer of stock was a part sale and part gift as to both individual transferees and trusts for her grandchildren, on brief he has conceded that the transfers to the trusts were in no part sales.
All of the facts have been stipulated, and the stipulation of facts, together with the exhibits attached thereto, is incorporated herein by this reference.
Richard and Emily D. Turner, husband and wife, had their legal residence at Grosse Pointe, Mich., at the time the petition herein was filed.
Pamela, an individual, had her legal residence at Grosse Pointe Farms, Mich., at the time the petition herein was filed.
The joint Federal income tax return for the year 1960 in docket No. 1019-66 and the individual Federal income tax returns for the years 1960 and 1961 in docket No. 1032-66 were timely filed with the district director of internal revenue at Detroit, Mich. Pamela also filed a gift tax return for the year 1960 with the district director of internal revenue at Detroit, Mich., and paid a gift tax of $216,928.08.
In 1913, Pamela acquired 1,950 shares of Parke, Davis & Co. common stock at a cost basis of $128 per share. As a result of stock splits and stock dividends, she owned, on July 25, 1960, a total of 70,902 shares of said stock, the cost basis of which was $3,5203 per share.
On July 25, 1960, Pamela made the following transfers of Parke, Davis stock to the following persons, subject to each person paying a share of the gift tax thereon as determined by Pamela's tax counsel:
+-----------------------------------------------------------------------------+
¦ ¦No. of ¦
+--------------------------------------------------------------------+--------¦
¦ ¦shares ¦
+--------------------------------------------------------------------+--------¦
¦Ernest T. Turner, R.F.D. 1, Syosset, Long Island, N.Y. ¦4,820 ¦
+--------------------------------------------------------------------+--------¦
¦Richard, 33 Henrie Lane, Grosse Pointe, Mich ¦4,700 ¦
+--------------------------------------------------------------------+--------¦
¦Pamela T. McClelland, 40 Beacon Hill Road, Grosse Pointe Farms, Mich¦820 ¦
+--------------------------------------------------------------------+--------¦
¦James F. McClelland, Jr., and Pamela T. McClelland, as trustees for ¦2,000 ¦
¦the benefit of Pamela K. McClelland ¦ ¦
+--------------------------------------------------------------------+--------¦
¦James F. McClelland, Jr., and Pamela T. McClelland, as trustees for ¦2,000 ¦
¦the benefit of James F. McClelland, III ¦ ¦
+--------------------------------------------------------------------+--------¦
¦William C. McMillan, as trustee for the benefit of Barbara J. Turner¦1,160 ¦
¦(trustee's address: 1344 Free Press Building, Detroit, Mich ¦ ¦
+--------------------------------------------------------------------+--------¦
¦William C. McMillan, as trustee for the benefit of Thomas C. Turner ¦1,160 ¦
+--------------------------------------------------------------------+--------¦
¦William C. McMillan, as trustee for the benefit of Olga S. Turner ¦1,160 ¦
+--------------------------------------------------------------------+--------¦
¦William C. McMillan, as trustee for the benefit of Timothy T. Turner¦1,160 ¦
+--------------------------------------------------------------------+--------¦
¦Total ¦18,980 ¦
+-----------------------------------------------------------------------------+
Prior to the transfer, each transferee signed a letter prepared by Pamela's counsel stating, inter alia, that—
We have further been informed that this gift is being made subject to my paying the gift tax on same. This letter can be taken as my acceptance of the proposed condition of the gift, and I agree to accept as my share of the gift tax an amount which is computed by your tax counsel.
The letters signed by the individual transferees, Ernest T. Turner and Richard, were dated June 29, 1960. The letter signed by the individual transferee, Pamela T. McClelland, was dated June 30, 1960. With regard to the trust transferees, the respective trustees, in a schedule attached to the trust agreements, agreed to pay all Federal gift taxes on the above transfers out of the corpora of said trusts in equal shares, without personal liability on the part of the trustee. Each of the trust agreements was dated July 25, 1960.
In the period January 1, 1961, through April 15, 1961, Pamela received from the following transferees the following checks in payment of their computed shares of the gift tax liability as computed by Pamela's counsel:
+-----------------------------------------------------------------------------+
¦ ¦Amount ¦
+------------------------------------------------------------------+----------¦
¦Ernest T. Turner ¦$43,787.38¦
+------------------------------------------------------------------+----------¦
¦Richard ¦42,697.24 ¦
+------------------------------------------------------------------+----------¦
¦Pamela T. McClelland ¦7,449.31 ¦
+------------------------------------------------------------------+----------¦
¦James F. McClelland Jr., and Pamela T. McClelland, trustees for ¦18,196.04 ¦
¦Pamela K. McClelland ¦ ¦
+------------------------------------------------------------------+----------¦
¦James F. McClelland, Jr., and Pamela T. McClelland, trustees for ¦18,169.04 ¦
¦James F. McClelland, III ¦ ¦
+------------------------------------------------------------------+----------¦
¦William C. McMillan, trustee for Barbara J. Turner ¦10,538.04 ¦
+------------------------------------------------------------------+----------¦
¦William C. McMillan, trustee for Thomas C. Turner ¦10,538.04 ¦
+------------------------------------------------------------------+----------¦
¦William C. McMillan, trustee for Olga S. Turner ¦10,538.04 ¦
+------------------------------------------------------------------+----------¦
¦William C. McMillan, trustee for Timothy T. Turner ¦10,538.04 ¦
+------------------------------------------------------------------+----------¦
¦Total ¦172,424.17¦
+-----------------------------------------------------------------------------+
The difference between the amount of the gift tax paid by Pamela of $216,928.08 and the $172,424.17 received from the transferees was $44,503.91, the amount of the gift tax attributable to a separate transfer to a transferee who did not assume a share of the gift tax liability.
Each of the transferees raised the funds for payment of the gift tax as follows:
+--------------------------------------------------------------------+
¦Ernest T. Turner: ¦ ¦Amount ¦...To continue reading
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