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Parties Involved:
Mary Ann Heyen
Appellant
United States of America
Appellee

Document Text:

PUBLISH 

FILED 

U · ~~ sta· +-. Court of Ap;::.b nlu=u '~~a • •• Tent.'l Circut .. 

UNITED STATES COURT OF APPEALS SEP 2 8 i991 

ROBERT L. HOECKER 

Clerk TENTH CIRCUIT 

MARY ANN HEYEN, Executrix of the Estate ) 

of Jennie Owen, deceased, ) 

) 

Plaintiff-Appellant, ) 

) 

v. ) 

) 

UNITED STATES OF AMERICA, ) 

) 

Defendant-Appellee. ) 

No. 90-3295 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF KANSAS 

(D.C. No. 88-1574-C) 

Submitted on the briefs: 

Kenneth E. Peirce and John T. Suter of Reynolds, Peirce, Forker, 

Suter & Rose, Hutchinson, Kansas, for Plaintiff-Appellant. 

Shirley D. Peterson, Assistant Attorney General, Gary R. Allen, 

Jonathan s. Cohen and Deborah Swann, Attorneys, Tax Division, 

Department of Justice, Washington, D.C., for Defendant-Appellee. 

Before SEYMOUR, EBEL, Circuit Judges, and BABCOCK,** District 

Judge. 

**Honorable Lewis T. 

District Court for 

designation. 

EBEL, Circuit Judge. 

Babcock, District Judge, United States 

the District of Colorado, sitting by 

Appellate Case: 90-3295 Document: 01019290938 Date Filed: 09/26/1991 Page: 1 
After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); lOth Cir. R. 34.1.9. The case is therefore ordered 

submitted without oral argument. 

Plaintiff, Mary Ann Heyen, executrix of the estate of her 

mother, Jennie Owen, appeals the judgment of the district court, 

entered after jury trial and the denial of motions for judgment 

notwithstanding the verdict and new trial, upholding the 

government's gift tax deficiency assessment and imposition of 

civil fraud penalties under 26 U.S.C. § 6653(b)(l), (2). The 

deficiency assessment imposed gift tax on decedent's transfer of 

shares of stock. Decedent transferred blocks of stock, each 

individually valued by her to be less than $10,000.00, to 

twenty-nine recipients. Twenty-seven of the recipients soon 

thereafter signed blank stock certificates so that the stock could 

be reissued to decedent's family. The government imposed a fraud 

penalty after concluding decedent's plan for transfer of the stock 

attempted fraudulently to evade the gift tax. 

On appeal, plaintiff argues (1) the transfers of stock by 

decedent were not subject to gift tax liability; (2) the 

government incorrectly valued the stock in the deficiency 

assessment; and (3) the evidence does not support a finding that 

plaintiff intended to evade gift taxes through a fraudulent filing 

of the gift tax return. We affirm. 

The facts in this case are, for the most part, undisputed. 

Decedent transferred 115 shares of stock in First National Bank 

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Appellate Case: 90-3295 Document: 01019290938 Date Filed: 09/26/1991 Page: 2 
and Trust of St. John to six persons. After receiving the stock 

certificates, all six signed the stock certificates in blank, and 

gave them to plaintiff or the bank. Subsequently, the bank 

cancelled the certificates and the stock was reissued to members 

of decedent's family. 

stock in St. John 

Decedent also transferred 136 shares of 

National Bank to twenty-three other persons. 

All but two of the recipients endorsed the stock certificates in 

blank, resulting in a later reissuance of the stock to members of 

decedent's family. Based on the book value per share, each of the 

twenty-nine recipients received stock valued at slightly less than 

$10,000.00, the gift tax exclusion amount. The recipients either 

did not know they were receiving a gift of stock and believed they 

were merely participating in stock transfers or had agreed before 

receiving the stock that they would endorse the stock certificates 

in order that the stock could be reissued to decedent's family. 

It was decedent's wish in transferring the stock that gift taxes 

be avoided. 

Decedent died nine months after the transfers. Plaintiff 

filed a gift tax return excluding the transfers of stock. The IRS 

audited the return and issued a deficiency assessment of 

$57,672.05 and a civil fraud penalty of $28,836.03. After paying 

the amounts and receiving an administrative denial of her claim 

for refund, plaintiff filed an action in district court seeking 

refund. The district court held a jury trial, and the jury found 

in favor of the government. 

Plaintiff thereafter filed a motion for judgment 

notwithstanding the verdict or, in the alternative, for a new 

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Appellate Case: 90-3295 Document: 01019290938 Date Filed: 09/26/1991 Page: 3 
trial. With the exception of granting a remittitur with regard to 

the two transfers of stock which were retained by the recipients 

and which were not passed back to decedent's family members, the 

district court denied the motions. Heyen v. United States, 731 

F. Supp. 1488, 1493-94 (D. Kan. 1990). 

We review de novo the district court's order denying judgment 

notwithstanding the verdict, applying the same standard applied by 

the district court. Guilfoyle ex rel. Wild v. Missouri, Kan., & 

Tex. R.R., 812 F.2d 1290, 1292 (lOth Cir. 1987). The district 

court errs in denying the motion "only if the evidence points but 

one way and is susceptible to no reasonable inferences supporting 

the party for whom the jury found; we must construe the evidence 

and inferences most favorably to the nonmoving party." Zimmerman 

v. First Fed. Sav. & Loan Ass'n, 848 F.2d 1047, 1051 (lOth Cir. 

1988). We will not weigh the evidence, judge the credibility of 

the witnesses, or substitute our judgment for that of the jury. 

Lucas v. Dover Corp., Norris Div., 857 F.2d 1397, 1400 (lOth Cir. 

1988) . 

We review the district court's decision denying a new trial 

for an abuse of discretion. Patty Precision Prods. Co. v. Brown & 

Sharpe Mfg. Co., 846 F.2d 1247, 1251 (lOth Cir. 1988). We will 

not "make a determination of the sufficiency or weight of the 

evidence. " 

I. 

Plaintiff argues that the stock transferred by decedent is 

not subject to gift tax liability. Plaintiff first contends that 

decedent did not make a gift of the stock to family members. 

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Appellate Case: 90-3295 Document: 01019290938 Date Filed: 09/26/1991 Page: 4 
Rather, plaintiff submits that decedent made separate gifts to the 

intermediate stock recipients, who 

retransfer of the stock to decedent's 

voluntarily 

family members. 

permitted 

Because 

decedent allegedly relinquished control over the stock to the 

intermediate recipients, plaintiff maintains the transfer to the 

decedent's family members was not subject to the gift tax. 

A gift tax will be imposed on any transfers of property by 

gift. 26 u.s.c. § 2501(a)(1). The tax applies to any transfer, 

whether direct or indirect, if the gift value is greater than the 

statutory exclusion amount of $10,000.00. Id. at §§ 2503(b), 

2511(a). The language of the gift tax statutes clearly provides 

that "transfers of property by gift, by whatever means effected, 

are subject to the federal gift tax." Dickman v. Commissioner, 

465 u.s. 330, 334 (1984); see also Estate of Lang v. Commissioner, 

64 T.C. 404, 412 (1975)("Congress intended to use the term 'gift' 

in its broadest and most comprehensive sense in the gift tax 

area."). In order for a gift to be complete, the donor must 

relinquish dominion and control over the property. 26 C.F.R. 

§ 25.2511-2(b). When the property gifted is stock, the gift is 

completed when the stock is delivered or is transferred on the 

books of the corporation into the name of the donee. Id. at 

§ 25.2511-2(h). 

Although plaintiff does not dispute the general statutory and 

regulatory language regarding gifts, she cites to 26 C.F.R. 

§ 25.2511-1(g)(1) as support for her contention that contrary to 

jury instructions 16 and 17, decedent's intent in making the stock 

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Appellate Case: 90-3295 Document: 01019290938 Date Filed: 09/26/1991 Page: 5 
transfers was irrelevant. Section 25.2511-1(g)(1) provides, in 

relevant part, that: 

Donative intent on the part of the transferor is not an 

essential element in the application of the gift tax to 

the transfer. The application of the tax is based on 

the objective facts of the transfer and the 

circumstances under which it is made, rather than on the 

subjective motives of the donor. 

We agree with the district court's determination that the 

regulation does not preclude consideration of the decedent's 

donative intent and subjective motives in determining whether 

decedent made a gift subject to the gift tax. Heyen, 731 F. Supp. 

at 1490. Although an absence of proof of donative intent will not 

necessarily prevent a transfer from being subject to gift tax, 

Commissioner v. Wemyss, 324 u.s. 303, 306 (1945), when donative 

intent is present, it suggests there has been a gift. Decedent's 

initial transfer of stock to nonfamily members is not 

determinative. Section 25.2511-1(g)(1) does not preclude 

consideration of decedent's actual intent to transfer the stock to 

family members, and section 2511(a) requires consideration of 

whether decedent made an indirect transfer. The evidence at trial 

indicated decedent intended to transfer the stock to her family 

rather than to the intermediate recipients. The intermediary 

recipients only received the stock certificates and signed them in 

blank so that the stock could be reissued to a member of 

decedent's family. Decedent merely used those recipients to 

create gift tax exclusions to avoid paying gift tax on indirect 

gifts to the actual family member beneficiaries. 

Plaintiff further contends that instructions 16 and 17 

improperly required the jury to consider that the substance of the 

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Appellate Case: 90-3295 Document: 01019290938 Date Filed: 09/26/1991 Page: 6 
transaction, rather than its form, controlled the determination of 

whether there was a taxable gift. Plaintiff asserts that 

substance over form analysis applies only to income tax cases. 

Contrary to plaintiff's argument, substance over form 

analysis applies to gift tax, as well as to income tax, cases. 

See Chanin v. United States, 393 F.2d 972, 978-80 (Ct. Cl. 1968); 

Vase v. Commissioner, 284 F.2d 65, 68-69 (1st Cir. 1960). Actual 

donees of gift property must be identified, despite the naming by 

a donor of a beneficiary. See Helvering v. Hutchings, 312 u.s. 

393 (1941)(annual gift tax exclusion applied to beneficiaries of 

trust, not trust); Schultz v. United States, 493 F.2d 1225 (4th 

Cir. 1974)(gifts to children of reciprocal donors treated as gifts 

to children of donor); Johnson v. Commissioner, 86 F.2d 710 (2d 

Cir. 1936)(intermediary "gift" rejected as sham). Accordingly, 

the district court did not erroneously instruct the jury. 

Plaintiff additionally contends that the transfers of the 

stock by decedent were not subject to gift tax because decedent 

relinquished control over the stock to the intermediate recipients 

as required by section 25.2511-2(b) and (h). To support her 

contention, plaintiff points to evidence establishing that two of 

such recipients kept the stock given to them without permitting 

retransfer to decedent's family, and she asserts that other 

recipients could have kept the stock as well had they decided to 

do so. Also, plaintiff maintains that the district court's 

determination that it erroneously permitted the jury to consider 

the two transfers that were not reconveyed to family members 

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Appellate Case: 90-3295 Document: 01019290938 Date Filed: 09/26/1991 Page: 7 
proves, as a matter of law, that all of the transfers were not 

subject to the gift tax. 

The district court granted remittitur as to the two transfers 

only after holding that those two recipients had retained the 

shares transferred to them. Heyen v. United States, 731 F. Supp. 

at 1493. The district court did not determine that the other 

intermediate recipients also could have retained or did retain the 

stock. 

Although the two transfers initially were the same as the 

other transfers, the end result was not the same. Despite the 

decision of two of the recipients to keep their stock, the 

decedent's intent with regard to all of the stock was apparently 

the same. The evidence at trial showed, and the jury properly 

found, that decedent intended her family to be the ultimate 

beneficiaries of the stock. Thus, the two recipients' decisions 

to keep their stock did not change the appropriate tax treatment 

for the other stock transfers. 

Further evidence that the two transfers should be treated 

separately from the other transfers is the conduct of the St. John 

National Bank and decedent's family members. Even though the two 

recipients did not endorse the stock certificates, the bank 

treated the stock as if it had been retransferred to decedent's 

family. The bank cancelled all of the stock certificates and 

reissued the full number of decedent's shares to her family, 

apparently to carry out decedent's plan to transfer the stock to 

her family. The family received all dividends and voted all 

shares for a period of time. Sometime later it was discovered 

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Appellate Case: 90-3295 Document: 01019290938 Date Filed: 09/26/1991 Page: 8 
that the two had not signed over their shares. At that time, the 

bank changed its records to reflect that the two retained 

ownership of the shares. Such actions of the bank and the family 

are sufficient for the jury to conclude that decedent never really 

gave up control of the shares of stock to all of the recipients. 

Despite the district court's ruling regarding the remittitur 

for the retained stock, as a matter of law the jury, properly 

instructed, was not required to find for plaintiff as to all of 

the stock transferred. The district court's separate treatment of 

the two transfers does not create error as to the other transfers, 

because the time and manner of the transfers provide evidence that 

decedent intended to and did transfer the stock to her family. 

The evidence amply showed that the stock transfers were indirect 

gifts to decedent's family which were subject to the gift tax. 

II. 

Plaintiff argues the government incorrectly valued the stock 

in the deficiency assessment. Plaintiff also submits that because 

the government's expert witness incorrectly failed to consider 

minority share or marketability discounts in making his 

calculations, her expert's valuation should have been accepted. 

The value of a gift of stock is its fair market value on the 

date of the gift. 26 U.S.C. § 2512(a); 26 C.F.R. § 25.2512-2(a). 

Fair market value is the price that a willing buyer would pay a 

willing seller when neither is under pressure to buy or sell and 

both have knowledge of the relevant facts. 26 C.F.R. § 25.2512-1. 

The IRS's determination of value is presumptively correct. 

Hamm v. Commissioner, 325 F.2d 934, 937 (8th Cir. 1963), cert. 

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denied, 377 U.S. 993 (1964). Because valuation of stock is a 

question of fact, and not a matter of formula, this court has 

limited review of the fact findings. Id. at 938. 

Although plaintiff submits that the IRS's expert did not 

specifically factor certain discounts into his calculations, he 

did consider them in his evaluations. In any event, the jury did 

not accept the government's expert's valuation of the stock, which 

was in excess of book value. Instead, the jury accepted book 

value, the value used for the deficiency assessment, in reaching 

its verdict. Evidence at trial indicated that actual sales of St. 

John National Bank stock at the time of transfer were at book 

value. Additionally, the decedent and plaintiff used book value 

of the stocks of the two banks to determine the number of shares 

to be transferred to each initial recipient without exceeding the 

$10,000.00 annual gift tax exclusion. 

Because plaintiff failed to prove the deficiency assessment 

was incorrect, see Jones v. Commissioner, 903 F.2d 1301, 1303 

(lOth Cir. 1990), we will not disturb the jury's verdict. 

III. 

Plaintiff's final argument is that the evidence was 

insufficient to support the jury's finding that plaintiff intended 

to evade gift taxes by filing a fraudulent gift tax return. 

Plaintiff maintains she did not commit fraud merely because she 

filed a gift tax return that did not include the twenty-nine 

transfers of stock. 

Section 6653(b) of the Internal Revenue Code permits a 

penalty for the fraudulent filing of a gift tax return. The IRS 

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bears the burden of proving fraud by clear and convincing 

evidence. Zell v. Commissioner, 763 F.2d 1139, 1142 (lOth Cir. 

1985). Fraud may never be presumed. Davis v. Commissioner, 184 

F.2d 86, 87 (lOth Cir. 1950). 

"Fraud implies bad faith, intentional wrong doing and a 

sinister motive." "Fraud means 'actual, intentional 

wrongdoing, and the intent required is the specific purpose to 

evade a tax believed to be owing.'" Zell, 763 F.2d at 1142-43 

(quoting Mitchell v. Commissioner, 118 F.2d 308, 310 (5th Cir. 

1941); Pavlic v. Commissioner, T.C. Memo. 1984-182). "The 

required state of mind is one which, 'if translated into action, 

is well calculated to cheat or deceive the government.'" Id. at 

1143 (quoting 10 Mertens, Law of Federal Income Taxation § 55.10 

at 46 (1984)). Fraud can be inferred from conduct which would 

likely have the effect of misleading or concealing. United States 

v. Walton, 909 F.2d 915, 926 (6th Cir. 1990). 

The evidence indicated that plaintiff was a sophisticated 

taxpayer. She knew of the $10,000.00 annual gift tax exclusion 

and that for a gift to be complete the donor had to relinquish 

dominion and control over the property. Plaintiff knew that 

decedent wished to avoid gift taxes and intended that the stock 

return to the family. To further decedent's plan to avoid taxes, 

plaintiff contacted various initial stock recipients to determine 

whether they would be willing to effectuate retransfer of stock to 

family members. Other initial recipients, whom she had not 

previously contacted, were asked at the time the stock was 

transferred to them to sign their names to blank stock 

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certificates to facilitate a stock transfer to family members. 

Each of the retransfers took place within a short time period 

after the initial transfers. 

Before the transfers, decedent and plaintiff admitted to the 

president of St. John National Bank that they intended to transfer 

stock to intermediate recipients, who would endorse stock 

certificates so the stock could be reissued to decedent's family. 

Also prior to the transfers, plaintiff and her accountant had an 

informal discussion about the stock transfers. When plaintiff 

indicated that the transfers were being done for estate planning 

purposes, the accountant indicated the transaction was not estate 

planning but "that there is another name for it." The jury could 

reasonably determine that plaintiff knew the other name was fraud. 

As a whole, the time and manner of the transfers and 

plaintiff's actions, along with her sophistication regarding the 

tax matters at issue, are consistent with a finding that she 

intended to evade taxes. See Laurins v. Commissioner, 889 F.2d 

910, 913 (9th Cir. 1989); Plunkett v. Commissioner, 465 F.2d 299, 

303 (7th Cir. 1972); Stoltzfus v. United States, 398 F.2d 1002, 

1005 (3rd Cir. 1968), cert. denied, 393 u.s. 1020 (1969). 

Furthermore, her implausible explanations are additional 

indications of fraud. See United States v. Walton, 909 F.2d at 

926. 

Plaintiff contends she is not liable for the fraud penalty 

because she, after allegedly disclosing everything to her 

attorney, merely relied on his advice regarding the gift tax 

return. Even if plaintiff relied on her attorney, the reliance is 

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not a defense to fraud. Cf. United States v. Boyle, 469 U.S. 241, 

250-52 (1985)(taxpayer cannot rely on attorney if taxpayer is 

competent to determine there is error); Davis v. Commissioner, 184 

F.2d at 88 (taxpayer not liable for fraud penalty when taxpayer 

was unaware return was false and taxpayer had fully disclosed all 

necessary information to tax expert). Plaintiff knew what she was 

doing, and any reliance on her attorney was not in good faith. 

See Heyen, 731 F. Supp. at 1493-94. The jury did not err in 

finding she was liable for the fraud penalty. 

The judgment of the United States District Court for the 

District of Kansas is AFFIRMED. 

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