Hutchings v. Commissioner of Internal Revenue

HUTCHESON, Circuit Judge. Petitioner, having a donative intent toward her seven children, transferred to two of them in trust for the seven, property valued at $144,970.34. The- Commissioner allowed a specific exemption of $50,000, and on the theory that the donation was one, to the trustees and not seven, one to each of the beneficiaries, allowed the donor one $5,000 exemption instead of the seven she claimed. The Board sustained the Commissioner’s determination. Petitioner’s appeal presents the single question whether, for the purpose of the $5,000 gift tax exclusion, allowed under Section 504(b), Revenue Act of 1932/26 U.S.C.A. Int.Rev.Acts, the gifts in trust should be treated as seven gifts, that is to each of the beneficiaries his proportionate part of the whole fund, or one gift, the whole of the fund to the trustees. Petitioner is in the extremely fortunate position of being able to point out that every Circuit Court of Appeals and every District Court which has passed on the question,1 has held that the objects of the donative intent in such cases and therefore the recipients of the gifts, are the beneficiaries, not the trustees, who are the mere instruments for carrying out the intent, and that the Board itself has in later cases, taken this same view.2 She invites us to join the procession and to make it, except for respondent, unanimous. Respondent, standing his ground though deserted and alone, insists that all of the cited rulings and decisions are wrong, and appealing to our pride of opinion, invokes our independent judgment. We have examined and considered the question, both independently and in the light of the reasons advanced for and against respondent’s determination and the Board’s approval of it. We think it plain that wrongly based on the supposed but not the real purport and effect of Commissioner v. Wells, 7 Cir., 88 F.2d 339; Commissioner v. Krebs, 3 Cir., 90 F.2d 880, the conclusion of the Commissioner and the Board finds support neither in the language of the statute nor in the decisions the Board relies on. Whatever of confusion and of apprehension as to its opening a loop hole for gift tax evasions, has arisen from a misconstruction of the effect of the holding in the Wells case, has been dissipated by the decisions cited in Note 1 and by Section 505 of the Revenue Act of 1938, 26 U.S.C.A. Int.Rev.Acts, which a? to transfers in trust, takes away the exclusion entirely. While not directly in point, these cases correctly construed, in effect support the view of petitioner that the gift is not to the trustees, but a present one to the beneficiaries, whether accomplished by the creation of one or more trusts. The case for petitioner’s view is well and strongly put in Welch v. Davidson and in Rhein-strom v. Commissioner, supra. We can add nothing. The decision of the Board is reversed and the cause is remanded for a determination of the deficiency in accordance herewith. Reversed and remanded. Footnotes [1] Davidson v. Welch, D.C., 22 F.Supp. 726; McBrier v. Com’r, 3 Cir., 108 F.2d 967; Rheinstrom v. Com’r, 8 Cir., 105 F.2d 642, 124 A.L.R. 861; Robertson v. Nee, 8 Cir., 105 F.2d 651; Ryerson v. United States, D.C., 28 F.Supp. 265; Welch v. Davidson, 1 Cir., 102 F.2d 100. [2] Rubinstein v. Com’r, 41 B.T.A., 220; Winterbotham v. Com’r, 41 B.T.A. —, decided Feb. 7, 1940.