Benson v. Commissioner

SIMON BENSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Benson v. Commissioner Docket No. 4721. United States Board of Tax Appeals 9 B.T.A. 279; 1927 BTA LEXIS 2628; November 23, 1927, Promulgated *2628 Interest paid on a note, executed as a gift, held not to be deductible. Arthur F. Jones, C.P.A., for the petitioner. Shelby S. Faulkner, Esq., for the respondent. ARUNDELL *279 This is an appeal from the determination of a deficiency in income tax for the year 1921 in the amount of $197.71. The only issue involved is whether interest paid on a promissory note, executed and delivered by the taxpayer without legal consideration therefor and intended as a gift, is an allowable deduction from gross income. The facts were stipulated. FINDINGS OF FACT. The taxpayer, an individual having an office in Portland, Oreg., executed in favor of and delivered to his granddaughter, one Georgia Benson, a minor, a promissory note in the sum of $10,000, bearing interest at 6 per cent per annum. The dates of execution and maturity are not disclosed by the record. No legal consideration was given for the note and it was intended as a gift. During 1921 the payee accepted an interest payment of $600 on the note. This sum was deducted from the taxpayer's return of gross income for 1921 and was disallowed by the respondent. OPINION. ARUNDELL: *2629 The petitioner is willing to have us decide the issue upon his admission that no legal consideration was paid for the note and that it was intended as a gift. The courts have held that a promissory note given without a valuable consideration is a mere promise to make a gift in the future. ; ; ; . The promise to pay interest was made concurrently with the promise to pay the principal sum and is nothing more than a promise to make a future gift. The taxpayer fulfilled his promises, in part, during 1921 by making an interest payment of $600 which the payee accepted. This payment, and the acceptance thereof, was the real gift. We are unable to agree with the contention of the taxpayer that the item is deductible as interest on an indebtedness. Bouvier defines indebtedness as "The state of being in debt, without regard to the ability or inability of the party to pay the same. But to create an indebtedness there must be an actual liability to pay at the time, either to pay then or at a future time." The term is defined*2630 by Anderson in his law dictionary as "the condition of owing money; also the amount owed." In its general sense it is defined to be that which is due from one person to anotehr, whether money, goods or services; that which a person is bound to pay or perform to another. 5 Am. and Eng. Enc. of Law, 143. Being indebted is synonymous with owing. Van Winkle v. Ketcham (N.Y.), 3 Caines 323. An indebtedness is the owing of a sum of money on a contract. . None of these or other definitions, or the judicial decisions examined by us support the theory that an executory gift, which is not a contract and which the donee can not enforce, either in law or in equity, against the donor, and the donor may revoke at any time before it is perfected, creates the relationship of debtor and creditor. Reviewed by the Board. Judgment will be entered for the respondent. GREEN dissents.