Henningsen v. Commissioner (A)

WALTER F. HENNINGSEN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Henningsen v. Commissioner (A) Docket Nos. 56668, 62845. United States Board of Tax Appeals 30 B.T.A. 301; 1934 BTA LEXIS 1345; April 4, 1934, Promulgated *1345 Petitioner contracted to purchase corporate stock, pledging the stock with the vendor as security for the purchase price. He contemporaneously stated to his wife and to others that half the stock belonged to his wife, and prior to the taxable years delivered to her a letter stating that she was owner of one half the stock standing in his name. With consent of his wife, petitioner used the dividends on the stock to discharge the indebtedness for the purchase price. In the taxable years each returned as income one half the dividends. Upon discharge of the indebtedness subsequent to the taxable years the stock was delivered to petitioner, who then caused certificates for one half to be issued to his wife. Held, the gift of a one half interest in the stock was effective prior to the taxable years and petitioner was taxable on only one half of the dividends. Maurice W. Seitz, Esq., and Howard S. Bell, C.P.A., for the petitioner. Willis R. Lansford, Esq., for the respondent. ARUNDELL *302 The respondent included in petitioner's income for 1928 and 1929 dividends reported by petitioner's wife, and as a result thereof determined deficiencies*1346 in tax for those years in the respective amounts of $1,771.52 and $5,008.78. The dividends were on stock of the Northwestern Ice & Cold Storage Co. standing in petitioner's name, but which he claims was owned by himself and his wife in equal shares. FINDINGS OF FACT. The Northwestern Ice & Cold Storage Co. was incorporated in Oregon in 1923. The original stockholders were petitioner, M. W. Seitz, Jay Agnow, and a Miss McDermott. Shortly after organization it was found that the corporation required additional funds for expansion and development and a loan was secured from stockholder Agnew. As security for the loan petitioner and stockholder Seitz deposited their stock with Agnew. In 1925 petitioner contracted with Agnew and Seitz to purchase their stock in the company. He executed notes for the purchase price and agreed to leave all the stock with Agnew until paid for. In 1924, when petitioner was negotiating for the purchase of the stock of Seitz and Agnew, he informed his wife, May F. Henningsen, that one half the stock belonged to her. At about the same time he increased his life insurance, payable to his wife, for the purpose of putting her in a position to pay*1347 off the indebtedness on the stock and reduce it to possession in the event of his death. At that time he stated to his son that he had given one half his stockholdings to Mrs. Henningsen and informed him of the reason for increasing his insurance. On several occasions when petitioner and the superintendent of the company went over the list of stockholders petitioner stated that one half of the stock in his name belonged to his wife. In the early part of 1925 petitioner asked a certified public accountant to open a set of books for himself and his wife jointly. This was done and all assets, including the corporate stock, and all liabilities, *303 including liability on notes to Seitz and Agnew, were listed as accounts of "Walter F. and May F. Henningson." The books have been so kept ever since, and annual reports prepared therefrom, including balance sheets, all in the names of petitioner and his wife jointly. Petitioner's salary and dividends on the stock have been entered in the joint account. On the books of the corporation dividends were credited to petitioner and used by him to reduce his indebtedness to Seitz and Agnew. Such use of the dividends was with the*1348 knowledge and consent of Mrs. Henningsen. In 1927 petitioner wrote the following letter and gave it to his wife: Portland, Oregon, November 9, 1927. To May F. Henningsen: This will acknowledge that you are the owner of one-half of whatever interest I have or may have in the Northwestern Ice & Cold Storage Company. All of the stock representing both our interests is issued in my name. In case anything should happen to me, this is evidence that one-half of the stock I now hold, or may hereafter hold, whether it is in my name or otherwise, belongs to you. [Signed] W. F. Henningsen. Upon receiving this letter from her husband Mrs. Henningsen read it and placed it in a safe in their home, where it has since remained. In 1930 or 1931 when petitioner had liquidated his indebtedvess the stock certificates were delivered to him. He thereupon increased the capitalization of the company and, upon the exchange of the old certificates for new, separate certificates were issued to petitioner and his wife for an equal number of shares. For 1928 and 1929 petitioner and his wife filed separate returns, each reporting one half of the dividends declared by the Northwestern*1349 Ice & Cold Storage Co. For prior years they filed joint returns. OPINION. ARUNDELL: The question of whether the dividends taxed by respondent to petitioner were income to him depends upon the ownership of the stock, petitioner contending that one half of it belonged to his wife, since he had made her a gift thereof prior to the taxable years. The evidence admits of no doubt of petitioner's intention to give his wife a half interest in the stock. This he manifested in several ways - by oral statements, by the written statement of November 9, 1927, by entries in the joint account, and finally, when it came into his possession, by having one half of it issued to her. It is equally clear that there was an acceptance by the wife of all evidences of *304 the intended gift that were tendered. She received and kept the statement of November 9, 1927; she knew of petitioner's use of the dividends to reduce the indebtedness on the stock and acquiesced therein; the first time she filed a separate return she reported the dividends as her income; she received certificates for her interest when they became available through release by the creditor. *1350 Thus the only matter at all debatable is whether petitioner effectively executed his intent. "While delivery is essential, manual delivery of the thing given is no more necessary in the case of a gift than in the case of a sale. A deed of gift is as effective to pass title as a bill of sale. * * * Nor will the failure to record the gift by a transfer of the stock on the books of the corporation prevent title from passing as between the donor and the donee." . See ; , holding that: * * * The situation, relation, and circumstances of the parties and of the subject of the gift may be taken into consideration in determining the intent to give and the fact as to delivery. * * * Where the intent to bestow is obvious and clear, and the language and deportment of the donor indicate a belief upon his part that he has done all that is necessary to accomplish his purpose, they come to the aid of the act of delivery, if slight and ambiguous, but not to dispense with it as an essential element of a valid gift. * * * *1351 ; , quotes with approval Thornton on Gifts to the effect that the law takes cognizance of the close relation of husband and wife "and will construe an act to amount to a delivery where it often would not if the donor and donee were not members of the same family." The petitioner here obviously could not make manual delivery of the stock certificates prior to the taxable years, as the stock was pledged as security for an indebtedness and in the hands of the creditor. But he did deliver to the donee a written instrument declaring her to be half owner of the stock. It was not worded as artfully as would be an instrument prepared by one skilled in such matters, but, considered in the light of petitioner's intent as evidenced by his contemporaneous statements and actual delivery when the certificates came into his possession, it is our opinion that a completed gift of a one-half interest in the stock was effected prior to 1928. See . Consequently petitioner is taxable upon but one half the dividends on the stock in 1928 and 1929. Reviewed by the Board. *1352 Decision will be entered under Rule 50.