Hiatt v. Commissioner

MARY J. HIATT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hiatt v. Commissioner Docket No. 27081. United States Board of Tax Appeals 22 B.T.A. 1245; 1931 BTA LEXIS 1979; April 21, 1931, Promulgated *1979 Where a mother makes a valid transfer of leasehold interests in her land to her daughters and the daughters later sell such interests, the income resulting from such sales is not taxable to her. H. L. Washington, Esq., for the petitioner. W. Frank Gibbs, Esq., for the respondent. LANSDON *1245 The respondent has asserted a deficiency in income tax for the year 1922 in the amount of $15,124.12. The only issue is whether profits realized from the sale of certain oil and gas leases on land owned in fee by the petitioner should be included in her gross income for the taxable year. *1246 FINDINGS OF FACT. The petitioner is an individual residing at Winfield, Kans. On the death of her husband, Jesse W. Hiatt, prior to the taxable year, she became the sole owner as legatee under a will of certain lands in Cowley County, Kansas, known as the Hiatt Ranch. The petitioner executed a commercial oil and gas lease on October 15, 1922, to Lulu B. Hiatt, covering lot 13 in 7-31-5, Cowley County, Kansas, which was recorded in Book 24, page 370. This oil and gas lease was sold by Lulu B. Hiatt to the Selby Oil & Gas Company for $10,450 and*1980 Lulu B. Hiatt delivered title to the purchaser by executing an assignment of the oil and gas lease on November 7, 1922, which was recorded in Book 25, page 573. The entire proceeds from this sale were reported as income by Lulu B. Hiatt in her income tax return for the year 1922. The lease had no value on October 15, 1922. The petitioner executed a commercial oil and gas lease to Nora A. Hiatt, her daughter, on lots 10 and 23 in 18-31-8, Cowley County, Kansas, which was recorded by the register of deeds in Book 24, page 425. This lease was sold by Nora A. Hiatt to the Hull Company for $24,000. Nora A. Hiatt delivered title to the purchaser by an assignment dated the 27th day of November, 1922, which was recorded in Book 27, page 108. The entire proceeds from this sale were reported by Nora A. Hiatt in her income tax return for the year 1922. This lease had no value on November 1, 1922. The petitioner, on November 1, 1922, executed a commercial oil and gas lease to Nora A. Hiatt on the south half of the northwest quarter of 8-31-8, Cowley County, Kansas, which was recorded in Book 24, page 477. This lease was sold to the White Eagle Oil & Refining Company for $4,000 by*1981 Nora A. Hiatt. She delivered title of the purchase by an assignment dated the 5th day of December, 1922, and recorded by the register of deeds for Cowley County, Kansas, in Book 27, page 88. The entire proceeds from this sale were reported by Nora A. Hiatt in her income tax return for the year 1922. The petitioner, on the 1st day of November, 1922, executed a commercial oil and gas lease to Nora A. Hiatt covering the southwest quarter of the northeast quarter of 11-31-7, Cowley County, Kansas, which was recorded by the register of deeds in Book 24, page 369. This lease was sold to the White Eagle Oil & Refining Company for $5,000 by Nora A. Hiatt, who delivered title to the purchaser by assignment dated the 7th day of November, 1922, which was recorded by the register of deeds for Cowley County, Kansas, in book 25, *1247 page 599. The entire proceeds from this sale were reported by Nora A. Hiatt in her income-tax return for the year 1922. The petitioner, on October 25, 1922, executed a commercial oil and gas lease to Nora A. Hiatt, on lot 8 in 7-31-8, Cowley County, Kansas, which was recorded by the register of deeds in Book 24, page 328. This lease was sold to the*1982 National Refining Company for $5,000 by Nora A. Hiatt, who delivered title to the purchaser by an assignment dated the 13th day of November, 1922, and recorded by the register of deeds in Book 27, age 50. The entire proceeds from this sale were reported by Nora A. Hiatt in her income tax return for the year 1922. All of the leases executed as above set out and in evidence here as petitioner's exhibits were delivered to the lessees and by them duly recorded as provided by law. The respondent admits that at the time these leases were made all were of merely nominal value. Upon audit of petitioner's return for the taxable year, the respondent added to her income the amount of $48,850 representing the sales price of the several leases as set forth above and determined the deficiency here in controversy. OPINION. LANSDON: The respondent has determined the deficiency here involved on the theory that the leases in question were the property of this petitioner and that, therefore, any income resulting from the sales thereof is taxable to her. The petitioner contends that by the execution of certain instruments in the form of oil and gas leases to her daughters prior to the sale*1983 of such leases to operating companies her daughters Nora A. Hiatt and Lulu B. Hiatt became the absolute owners of such leases and, therefore, the recipients of any income resulting from the sales thereof. Lulu B. and Nora A. Hiatt are the daughters of the petitioner and each was more than 21 years of age at the dates material here. Under the laws of Kansas each was competent to enter into a binding contract with her mother. The leases in controversy are in the ordinary form of oil and gas leases used in Kansas and evidence the customary considerations as their basis. In the circumstances here the consideration recited in the instruments under the laws of Kansas is presumed to be adequate. Revised Statutes of Kansas, ch. 16, sec. 107; . The assignments conform to the trade custom of the oil business and the laws of Kansas. If the subject matter of the various transfers was an interest in real estate, all legal requirements *1248 have been satisfied. There is an evidentiary writing, reciting consideration, and each instrument has been recorded in the books of the county in which the property is located. The presumption*1984 of delivery raised by such registration is sufficient to establish the fact of transfer unless it is rebutted by proof. ; ; ; . If nothing more than personal property was involved, proffer, acceptance and delivery is amply evidenced by the instruments in question and the assignments thereof to operating companies by petitioner's daughters. In the light of evidence here it is hardly necessary to discuss the respondent's contention that there was no valid gift of the properties in question. There are many decided cases in the reports of the Kansas Supreme Court affirming the validity and the irrevocability of gifts made in similar circumstances. In the case of ; , the Court said: Where a father executes a deed for valuable lands to his daughter as a gift and delivers it unconditionally to his son for her, the acceptance of the deed will be presumed, and it will ordinarily take effect from the time of the delivery to the son. This rule is very generally applied*1985 in cases of voluntary gifts and advancements by parents to their children. * * * The same rule has been applied in this state to the case of delivery and acceptance of a chattel mortgage. Citing . In , the Board held that profit from the sale of a lease assigned by a husband to his wife resulted in no taxable income to the husband. That decision is controlling in the circumstances herein. Cf. ; and . The material evidence adduced at the hearing consists of copies of the five leases in question and the assignments thereof by lessees to the operating companies, all duly certified by the register of deeds of Cowley County, Kansas, as true copies of the instruments recorded in the books of that office. Counsel for respondent concedes that identification of such documents so certified is complete, but contends that they are not admissible, or, if admissible, are not competent to prove the transfers therein set forth. Unless impeached by adverse testimony, *1986 we think such evidence is competent and material for the purposes for which it was offered. Decision will be entered under Rule 50.