Bucholz v. Commissioner

Naomi Towle Bucholz, Petitioner, et al., * v. Commissioner of Internal Revenue, Respondent Bucholz v. Commissioner Docket Nos. 14225, 14226, 14227, 14228 United States Tax Court 13 T.C. 201; 1949 U.S. Tax Ct. LEXIS 109; August 12, 1949, Promulgated *109 Decisions will be entered under Rule 50. The mere transfer of shares of stock on the books of the corporation, without any delivery of the new certificates and without any intention on the part of the transferor to make present gifts of the shares, held, not to evidence completed gifts. Clarence T. Spier, Esq., and William C. Spire, Esq., for the petitioners. George E. Gibson, Esq., for the respondent. LeMire, Judge. LeMIRE *201 The respondent has determined a gift tax deficiency for 1942 of $ 17,963.33 against Naomi Towle Bucholz, Docket No. 14225, the donor, hereinafter referred to as the petitioner. The other three petitioners, the alleged donees, are before us in these proceedings as transferees. The proceedings were consolidated for hearing. The question in issue is whether the petitioner made gifts of shares of stock in 1942 to her two minor children, petitioners in Docket Nos. 14227 and 14228. The statute of limitations, admittedly, had barred the assessment of the deficiency against the donor at the time the notice of deficiency was sent to her. The donees admit, however, that they are liable as transferees and donees for any gift tax that *110 may be determined against the donor by reason of the alleged gifts here in controversy. The facts are partially stipulated and we incorporate the written stipulation in our findings of fact by reference. FINDINGS OF FACT. Naomi Towle Bucholz is and was at all times here material a resident of Omaha, Nebraska. The other petitioners, hereinafter sometimes referred to collectively as the donees, are her children. Prior to December 24, 1942, the petitioner was the owner of 360 shares of the common stock of Towle Realty Co., represented by certificate No. 37, for 50 shares; certificate No. 38, for 250 shares, and certificate No. 50, for 60 shares. Towle Realty Co. is a Nebraska corporation, the stock of which is closely held by members of the Towle*202 family. Petitioner's father was president of the company in 1942. Petitioner was and still is a director. In December 1942 the petitioner decided to give all of her Towle Realty Co. stock to her three children. She so informed her cousin, Edwin S. Towle, who was then an officer of the company, and asked him to prepare three certificates of 120 shares each in the names of the three children. Edwin had the certificates prepared *111 and had the following entry made in the stock book record: December 24, 1942, transferred the following: Certificate No. 37, April 15-'30, 50 shares; Certificate No. 38, April 15, 1930, 250 shares; Certificate No. 50, May 4, 1932, 60 shares; total shares, 360, now in name of Naomi T. Bucholz, duly canceled and attached herein and re-issued to the following: Frederick T. Bucholz, Certificate No. 55, 120 shares; Naomi K. Bucholz, Certificate No. 56, 120 shares; John W. Bucholz, Certificate No. 57, 120 shares, same as canceled above and dated December 24, 1942. Edwin was not instructed to, and did not at that time, deliver the new certificates to the donees or remove them from the stock record book. The petitioner's father, John W. Towle, who was then president of the company, learned of the intended gifts sometime in December 1942. He told the petitioner that he thought it very unwise for her to give any of the stock to her minor children. He voiced no objection to the gift to the petitioner's son, Frederick Towle Bucholz, who was then over 21 years of age, and was in training in the armed services. The petitioner's other two children were both minors. The petitioner's father was*112 ill at the time and had been told that he had only a few months to live. He died in May 1943. The petitioner did not want to oppose his wishes in regard to the gifts to the minor children and accordingly made no further move to complete those gifts. In January 1943 the petitioner instructed Edwin to send certificate No. 55, for 120 shares of the stock, to the Omaha National Bank for her son, Frederick. The bank was handling his business affairs under a power of attorney while he was in training. At the same time the petitioner told Edwin that she was undecided about the gifts to the two minor children and instructed him to hold those certificates until further notice. The delivery of Frederick's certificate was made to the bank according to the petitioner's instructions and that gift was thus completed. It is stipulated that the value of the shares at that time was $ 200 each. In March 1943 the petitioner filed a gift tax return for 1942 in which she reported, along with other gifts not here in controversy, gifts of 120 shares of Towle Realty Co. stock to each of her three children. The stock was valued in the return at $ 50 per share. The return was prepared by counsel, who*113 advised petitioner that the gifts to the minor children would have to be reported in 1942. The petitioner did not *203 inform him that the certificates had not been delivered to the minor children and that she was undecided whether she would complete the gifts to them. On or about the same time the same attorney prepared and filed donee returns for each of the three children, in which each reported receipt of a gift of 120 shares of Towle Realty Co. stock. About March 29, 1943, the petitioner advised Edwin that she had decided not to complete the gifts to the minor children. She was given access to the stock record and by her own hand canceled the certificates which Edwin had prepared for the two minor children. At the same time she surrendered to Edwin her certificate, No. 38, for 250 shares, for cancellation and was issued a new certificate, No. 58, for the 130 shares which remained after the transfer of 120 shares to the bank for Frederick. This left petitioner with certificate No. 37, for 50 shares; certificate No. 50, for 60 shares, and certificate No. 58, for 130 shares, or a total of 240 shares. In 1947 the petitioner received a dividend on the Towle Realty Co. shares*114 of $ 2 per share, which she reported in her return for that year. In May 1948 she sold 65 shares each to two cousins. These shares were transferred from her certificate No. 58, for 130 shares, which was issued to her in 1943. After her decision not to make the gifts to the minor children, the petitioner, on the advice of counsel, did not file an amended gift tax return for 1942, because the total value of the gifts reported in her return for that year were not in excess of her statutory exemptions. After the receipt of the respondent's deficiency notice for that year, in which the value of the gifts was greatly increased, she did file an amended return and paid thereon a gift tax of $ 5,600 in respect of the uncontested gifts made in that year. The respondent increased the value of petitioner's 1942 gifts, including those of the Towle Realty Co. shares here in controversy, from $ 49,688, as reported, to $ 160,525. OPINION. The question here presented is whether there were completed gifts by the petitioner of the Towle Realty Co. stock to her two minor children in 1942. The petitioner admits that there was a valid gift of 120 shares of the stock to her son, Frederick, but contends*115 that there were no completed gifts of a like number of shares to each of her two minor children, Naomi and John. We think that the evidence supports the petitioners' contention that there were no completed gifts of the Towle Realty Co. shares to the minor children in 1942. To have a valid gift there must be not only an intention on the part of the donor to make the gift, but also an unconditional delivery of the subject matter of the gift to the donee. *204 In Lunsford Richardson, 39 B. T. A. 927, we said that: It is well settled that before there can be a completed gift the donor must surrender dominion and control of the subject matter of it. Edson v. Lucas, 40 Fed. (2d) 398; Allen-West Commission Co. v. Grumbles, 129 Fed. 287; Delight Ward Merner, 32 B. T. A. 658; 79 Fed. (2d) 985; Adolph Weil, 31 B. T. A. 899; 82 Fed. (2d) 561; certiorari denied, 299 U.S. 552; Jackson v. Commissioner, 64 Fed. (2d) 359;*116 Dulin v. Commissioner, 70 Fed. (2d) 828. The "delivery" must be as perfect as the nature of the property and the circumstances and surroundings of the parties will reasonably permit. * * * See also Ralph R. Anderson, 5 T. C. 443; affd., 164 Fed. (2d) 870; certiorari denied, 334 U.S. 819. There are cases which hold that under some circumstances a valid delivery of corporate stock may be effectuated by transfer of the shares on the books of the corporation, such as Marshall v. Commissioner, 57 Fed. (2d) 633; Lawton v. Commissioner, 164 Fed. (2d) 380, cited by the respondent in his brief. See also the discussion and cases cited in Kathryn Lammerding, 40 B. T. A. 589. In those cases, however, in addition to the transfer of the shares on the books of the corporations, there were present other circumstances which weighed in the determination that the gifts were completed. In Weil v. Commissioner, 82 Fed. (2d) 561, affirming 31 B. T. A. 899;*117 certiorari denied, 299 U.S. 552, the court said: * * * If the donor intends to give, and even goes so far as to transfer stock on the books of the company, but intends first to do something else and retains control of the transferred stock for that purpose, there is no completed gift. * * * It appears that the petitioner here contemplated making gifts of an equal number of the Towle Realty Co. shares to all three of her children and that in anticipation of these gifts she instructed her cousin, Edwin S. Towle, who had custody of the books of the corporation, to prepare certificates for such transfer. However, the evidence is that she did not intend at any time to make a present transfer of the shares to the minor children. She made no attempt to deliver the certificates or other evidence of the gifts to the children herself and did not instruct Edwin to do so. She did instruct him to deliver the certificate for 120 shares to Frederick, which he did, but at the same time she told him that she was undecided about the gifts to the two minor children and instructed him to hold those certificates until further notice from her. Edwin was in no sense a trustee*118 for the minor children. In these circumstances, we think that the transfer of the shares on the books of the corporation can not be accepted as a delivery of them to the donees and as completed gifts of such shares. Decisions will be entered under Rule 50. Footnotes *. Proceedings of the following petitioners are consolidated herewith: Frederick Towle Bucholz; John Wilhelm Bucholz; and Naomi Kingsbury Bucholz Farquhar.↩