Irwin S. Chanin v. The United States. Henry I. Chanin v. The United States. Sylvia Chanin v. The United States

DAVIS, Judge

(concurring):

I join the court’s opinion but wish to add, as part of my views, the portion of Commissioner Hogenson’s opinion which the majority of the court has deleted. After the second quotation from Heringer v. Commissioner of Internal Reveune, 235 F.2d 149 (9th Cir.), cert. denied, 352 U.S. 927 , 77 S.Ct. 225 , *982 1 L.Ed.2d 162 (1956), under the heading “Amount of Gifts by Henry,” the commissioner said:

“The defendant’s objection to the above method of computation of Henry’s gift is that section 2512(b) provides in effect that Henry’s transfer is deemed a gift, subject to the gift tax, to the extent that the value of the property he transferred exceeded the consideration he received for it. Relying on Commissioner of Internal Revenue v. McLean, 127 F.2d 942 (5th Cir. 1942), defendant asserts that the burden of proving consideration for his transfer is on Henry, and that he failed to prove consideration for two reasons: (1) He has not shown to what extent the concurrent transfers by him and Irwin resulted in financial benefit to him; and (2) there is no showing that Henry’s transfer was induced by the financial benefit resulting to him from Irwin’s concurrent transfer to the corporation. Defendant relies on Drybrough v. United States, 208 F.Supp. 279 (W.D.Ky.1962), in which the court held that the value of capital stock in a closely held corporation, there being no market sales of such stock, was to be determined upon consideration of all relevant factors, such as earning capacity, anticipated profits, book value, and dividend yield. After consideration of expert testimony, the court determined the value of such stock by discounting by 35 percent the fair market value of the real estate comprising the sole .assets of the corporation. Defendant contends that it is erroneous as a matter of law to assume that an increase in the book value of any Green Acres stockholder’s share resulted in a direct financial benefit to him in that amount, i. e., necessarily caused a proportionate increase in the value of a minority stockholder’s share. Relying on Commissioner of Internal Revenue v. McLean, supra, defendant contends that it is also erroneous to assume that any benefit received by one donor because of a concurrent transfer of another is automatically consideration for his transfer, arguing that for one transfer to be in consideration for another, more is required than that the two transfers be concurrent. Defendant would have this court hold that the total amount of Henry’s gift by reason of his transfer was at least $36,-501.69, the amount stated by Henry to be such in his 1958 gift tax return, which amount the Internal Revenue service accepted in assessing Henry’s gift tax deficiency only on the basis of disallowing donee exclusions. In fact, in accordance with defendant’s theory, Henry would have been charged with the total value of his gifts ($50,347.15) if he had been assessed properly.

“In Commissioner v. McLean, supra, taxpayer and his wife simultaneously made transfers of property in trust to each other for life with remainder to their daughter. The court held that both transfers were gifts, rejecting taxpayer’s argument that the transfers were in consideration of each other, and stated:

The issues were submitted to the Board on a stipulation to which was attached the transfers in trust which are in question here. Neither in the transfers nor in the stipulation is there any statement that the transfer by petitioner was in consideration of the transfer by his wife or vice versa. Nor is there any evidence from any source that the transfers in trust were other than donative in intent and in effect. Taxpayer may not by merely pointing to the fact that: the trusts were created at the same time; were in equal amounts; and contained reciprocal provisions, claim a discharge of the burden resting on him to show that the transfers were made in consideration of each other. The Board well said: “If any agreement existed between the petitioners for the creation of the trusts and for the transfers, that fact would be best known to them and they should have proved it,” and we are therefore in agreement with the ruling that the 1933 and 1934 transfers were not upon consid *983 eration but were donative, * * *. [ 127 F.2d at 943 ]

If it must be concluded that the McLean case establishes a rule that in all cases of concurrent gifts there must be bargained-for consideration which must be proved by a positive showing of negotiations between the concurrent donors, then the Heringer case, supra, is deemed to be in direct conflict, and the latter is accepted as the better precedent. However, under the facts in the McLean case, there is obviously a strong inference that the taxpayer and his wife, .as concurrent transferors, by virtue of the husband-wife-daughter relationship and other circumstances involved, had donative intents as to all of the trust property. The court really held in effect that taxpayer failed to discharge his burden of proof, i. e., rebut the inference of donative intent by affirmative proof to support taxpayer’s bald assertion that the donors had bargained for the cross transfers. In any event, the rationale of the Heringer case provides a reasonable and realistic test under circumstances comparable to those existing in subject cases, an objective standard (simultaneous receipt of economic benefits) as opposed to inquiry into the nebulous area of subjective motivation. Moreover, under the circumstances involved in these cases, this standard conforms with the statutory purpose that the gift tax is supplementary to the estate tax, i. e., persons are prevented from depleting their estates tax-free by making gifts during their lives. 6 In these cases, the transfers were of the full and entire title to the donated stock, whereas in McLean , the taxpayer and his wife transferred equal but substantial amounts of property to each other for the life of the grantee, with remainders over to their daughter, and taxpayer could quite possibly have avoided both gift and estate taxes on the property transferred by him, if mutuality of consideration had been established. Where a transferor of all title to gift property has received an economic benefit, to that extent he has not depleted his estate. Irwin and Henry made reciprocal transfers, and each knew at the time of his transfer that the other was also making a transfer, and each knew that his interest was increased in the donee corporation by the concurrent transfers in proportion to the stock ownership of each. Justice indeed would have to be fanciful to ignore such realistic facts.”

This discussion is not only pertinent to our decision in this case but it also bears on Michael Grace Executor, et al. v. United States, Ct.Cl., 393 F.2d 939 , decided today.

NICHOLS, Judge, joins in the foregoing concurring opinion.

“6. Estate of Sanford v. Commissioner, supra, [308 U.S.] at 44 [ 60 S.Ct. 51 ]; Magill, The Federal Gift Tax, 40 Col.L. Rev. 773 (1940); Warren, Correlation of Gift and Estate Taxes, 55 Harv.L. Rev. 1 (1941).”