Document: 465 U.S. 330 104 S.Ct. 1086 79 L.Ed.2d 343 Esther C. DICKMAN, et al., Petitionersv.COMMISSIONER OF INTERNAL REVENUE. No. 82-1041. Argued Nov. 1, 1983. Decided Feb. 22, 1984. Rehearing Denied April 16, See 466 945, 1932. Syllabus Held: The loans in question resulted taxable gifts of the reasonable value use money lent. Pp. 333-344. (a) language §§ 2501(a)(1) and 2511(a) is clear admits only one interpretation: transfers property by gift, whatever means effected, are subject to federal gift tax. tax was designed encompass all rights having significant value. 333-335. (b) interest-free loan funds a "transfer gift" within contemplation Code. transfer cash, repayable on demand, grant valuable property. And right without charge interest lent, although such may be reduced virtue its demand status. 335-338. (c) Failure impose would seriously undermine Congress' goal enacting as protection against income avoidance transferor supplement estate 338-339. (d) Subjecting does not upon duty invest profitably, but rather merely recognizes that certain consequences flow from decision make "a gift." 339-340. (e) There no merit petitioners' contention imposing could result routine neighborly or familial gifts, thus intruding into cherished zones privacy. Any administrative problems rendered illusory generous exclusions, exceptions, credits provided Code for both family members others. 340-342. (f) Assuming, arguendo, Commissioner's present position represents departure prior practice, he may, nevertheless, change an earlier interpretation law, even if made retroactive effect, though taxpayer have relied his detriment position. 342-343. 690 F.2d 812 (CA11 1982), affirmed. Justice Powell filed dissenting opinion which Rehnquist joined. Frank P. Riggs, Sun City Center, Fla., petitioners. Lawrence G. Wallace, Washington, D.C., respondent. Chief BURGER delivered Court. 1 We granted certiorari resolve conflict among Circuits whether intrafamily, 2 * A. 3 Paul Dickman were husband wife; Lyle their son. Paul, Esther, Lyle, Lyle's wife children owners Artesian Farm, Inc. (Artesian), closely held Florida corporation. Between 1971 1976, loaned substantial sums Artesian. Over this 5-year interval, outstanding balances varied $144,715 $342,915; with regard Paul's Artesian, ranged $207,875 $669,733. During same period, $226,130 $68,651 With two evidenced notes bearing interest.1 4 died leaving gross purposes $3,464,011. Commissioner Internal Revenue audited Dickman's determined extent funds.2 then issued statutory notices deficiency Dickman.3 5 estate, petitioners here, sought redetermination deficiencies Tax Reaffirming Crown v. Commissioner, 67 T.C. 1060 (1977), aff'd, 585 234 (CA7 1978), Court concluded do gifts. 41 TCM 620, 623 (1980), ¶ 80,575 P-H Memo TC, at 2428. Because payable it Id., 624, B 6 United States Appeals Eleventh Circuit reversed, holding gratuitous give rise liability. 812, 819 (1982). Reviewing history provisions 1954 (Code), 26 U.S.C. § 2501 seq., Congress intended broadest most comprehensive coverage possible. court reasoned making constitutes meaning 2501(a)(1), accordingly In so holding, squarely rejected contrary adopted Seventh (1978). conflict, 459 1199, 103 1181, 75 429 (1983); we affirm. II 7 purports reach any Section imposes "the highlights broad sweep imposed 2501, providing pertinent part: 8 these statutes 9 Committee Reports accompanying Act 1932, ch. 209, 47 Stat. 169, established scheme taxation, plain statute Among other things, state: 10 "The terms 'property,' 'transfer,' 'gift,' 'indirectly' used sense; term 'property' reaching every species protected law exchangeable 11 words 'transfer . gift' 'whether direct indirect' cover comprehend transactions whereby, that, donatively passed conferred another, regardless device employed accomplishment." H.R.Rep. 708, 72d Cong., 1st Sess., 27-28 (1932); S.Rep. 665, 39 (1932). 12 reflects legislative history; value.4 13 On several occasions, has acknowledged expansive provisions. Wemyss, 324 303, 306, 65 652, 654, 89 L.Ed. 958 (1945), explained 14 also noted "is enough include property, however conceptual contingent," Smith Shaughnessy, 318 176, 180, 63 545, 547, 87 (1943), "to kind type gift," Robinette Helvering, 184, 187, 540, 542, 700 (1943). Thus, decisions reinforce view should applied broadly effectuate intent Congress. 15 asserting seek principal amount loan, assertedly results receiving using incurring corresponding obligation pay along loan's repayment.5 Is property" intendment 2501(a)(1)? 16 little difficulty accepting theory property—in case money—is itself legally protectible interest. Of aggregate associated interest, perhaps highest order. One put succinctly: 17 " 'Property' more than just physical thing—the land, bricks, mortar—it sum powers incident ownership thing. It tangible intangible. Property composed constituent elements thing exclusion others essential beneficial. Without ." Passailaigue States, 224 F.Supp. 682, 686 (MD Ga.1963) (emphasis original).6 18 What transferred here cash indefinite period time. An analogous real under tenancy will, long been recognized right. E.g., Restatement (Second) 1.6 (1977); Thompson, Commentaries Modern Law Real 1020 (J. Grimes ed. 1980). For example, parent who grants child rent-free, commercial rental $8,000 month clearly $100,000 similarly Its uncertain tenure reduce value, status either instance, when owner another object, identifiable changed hands. 19 much rent-free consisting land buildings. case, there measurable economic transferred. found what can produce; measure interest—"rent" funds. assume fixed especially prolonged greater defy common human experience say intrafamily accommodation; status, surely eliminated. 20 This context right: 21 "It virtually self-evident extending credit time equivalent giving discount equal purchase price time." Catalano, Target Sales, Inc., 446 643, 648, 100 1925, 64 580 (1980) (per curiam ). 22 Against background, money. Just will cognizable personal plainly right, readily reference current rates; vast banking industry positive evidence reality. Accordingly, conclude statutes.7 C 23 Our fully consistent major statute: enacted existing laws. 28; 40; see Cong.Rec. 3119-3120, 8095-8096 (1924); Harriss, Legislative History Federal Gift Taxation, Taxes 531, 536 (1940). goal. 24 A no-interest creates benefits lender quite apart advantages borrower. individual high bracket income-producing lower bracket, thereby reducing high-bracket expense, ultimately, taxpayers Government. taxation minimizes potential loss fisc generated mechanism transferor. effectuates desire enable avoid future liability earnings property—rent, dividends—became part transferor's estate. Imposing bolsters preventing diminution fashion. III 25 Petitioners contend equitable considerations require loans. support position, advance policy arguments; none withstands studied analysis. first argument accepted Commissioner: 27 "[O]ur system recognize unrealized accumulations wealth continuously profit. opportunity cost letting one's remain idle suffering unwise investment because profit wise investment." T.C., 1063-1064. 28 argue, simply possibility lent might enhanced had never made. 29 misses mark. certainly true requires fashion, demands rent tax, squander money, conceal mattress, otherwise waste failing it. Such acts consumption nothing lending excise property; allowing dollars lie involves transfer. If chooses however, instead someone else, event occurred. That himself consumed wasted result. Contrary assertion, favor taxability profitably invest; rather, inevitably 2501(a)(1). 30 next attack breadth Carried logical extreme, rationale elevate commonplace proverbial cup sugar neighbor lunch colleague. urge untenable intrusion Government privacy, particularly where involved. 31 laws parents provide minor offspring necessities conveniences life; questions often arise, necessities, quantities attract attention taxing authorities. Generally, legal terminates majority. Nonetheless, uncommon adult things cars vacation cottages, basis relationship. focus Service traditional matters. When levies deal case. 32 Moreover, provides liberally others; limits prescribed exemptions, entirely free. First, 2503(e) Code, (1982 ed.), amounts paid behalf tuition qualified educational institution medical care considered "transfer[s] statutes. More significantly, 2503(b) annual computation $10,000 per year, donee; provision allows up annually each number persons, liability.8 "split 2513(a), effectively enables object bounty $20,000 year further enhances ability free consequences.9 Finally, during exceed exclusion, until unified 2505 exhausted.10 These absorb sorts de minimis envision render perceive "parade horribles." 33 allowed assert practice. rests fact 1966, construed regulations authorize levying F.2d, 241; Johnson 254 73 (ND Tex.1966). From they argue manifestly unfair permit challenged here. 34 Even notion certain,11 well effect. Dixon 381 68, 72-75, 85 1301, 1304-1306, 223 (1965); Automobile Club Michigan 353 183-184, 77 707, 709-710, 746 (1957). rule applies supra, U.S., 73, S.Ct., 1304. particular soon authorizes interpretation.12 Bob Jones University 461 574, 2017, 76 157 (1983). "taxpayer reliance" unavailing.13 IV 35 As noted, 341-342, exclusions great majority taxpayers. power similar loans, responsibility, judicial one. Until occurs, bound protect systems Cf. Diedrich 457 191, 199, 102 2414, 2419, 72 777 36 hold, therefore, shown record lent.14 judgment 37 Affirmed. 38 POWELL, whom REHNQUIST joins, dissenting. Court's today rejects longstanding principle stead new anomalous law. action best left Congress.1 40 Service's attempts assess taxes relatively development field 1932.2 years—a third century—the IRS enforced intimation consequences. pursued 1966 Tex.).3 District large 77. did appeal decision. Indeed, waited seven years announce nonacquiescence outcome Rev.Rul. 73-61, 1973-1 Cum.Bull. 408. 1977, raised issue before 1060. Relying court's relative novelty refused earned borrowed 1063. affirmed review He promptly nonacquiescence. 42 reiterated 1980 sub judice. Not 1982, reversed belated 2501(a)(1).4 18-year attempted settle controversy through legislation.5 43 like forms complex area, frequent amendment underlying statute. basically self-assessment, complexities uncertainties area heavy burden conscientiously try adhere dictates Courts conscious effort minimize refraining destabilize understanding 44 above chronology illustrates, long-standing supported inaction opinion, significance. principle, commentators suggested loans,6 counselors integral parts minimization plans.7 my view, reliance justified. 45 Despite justified reliance, subjects potentially taxation. adverse effects substantial. Many important plan sell business son, send daughter school, elderly parent. plans revamped easily. addition, recipients help taxpayers/lenders immediate repayment. invested assets borrowers spent result, event, assessment avoided lawfully anticipated light over 34-year span attach significance lack success past attempting Appeals' fundamentally unwilling add imprimatur. 46 doubt courts forum consideration ramifications body equipped determine rules govern. Byrum, 408 125, 135, 92 2382, 2389, 238 (1972); Brown, 380 563, 579, 1162, 1170, (1965). implies decided involve "transfer" use-value bases "plain language" argument. states: [§§ ] interpretation. Ante, 334. states 1932 "make plain" "transfers" those involved singularly curious saying (1932 1966)—despite intention Congress—the slept States. inactivity suit instituted appeal,8 hardly said diligent correct "plainly" instructed him do. Interestingly, 1982 three far plain. apparent discerning preferable course await directive Nevertheless, Court, deferring resolution serious field, adopts open-ended 2501(a) advanced 1982. 48 troublesome scope reading limit "We interest." 336. Under theory, arise wide range situations involving unrecompensed Examples home age minority lives parents, self-support her child. Taken car brief event. 49 friends homes spare bedrooms imposition valuation holding. difficult place outright items Those difficulties multiply valued varying lengths simplest case—where cash—valuation arise. cases belatedly today, different methods determining rate establish money.9 generate problems. 50 downplays "assum[ing] matters [as homes]." 341. concludes Code's "generous perceive." 342. chosen turn back 51 aware abuse interpretation, "assume[s]" exercise way. assumption likely afford comfort lawyers accountants advise them. acting utmost goodwill, confronted dilemma. holds mandates, intended, "gift property." 334 supplied). No discretion given read "all" "any" interests seems identifies discretion, undertook confer I am ever "assumed" enforced—not according letter—but reasonably. 52 answer concerns exceptions exemptions "illusory." Although donee shield many cannot know exceeded assigned falls definition. particular, approaching dollar applicable must concerned Once file return, listing describing gift. IRC 6019(1) ed.); Treas.Reg. 25.6019-4. 53 Nor suffice payment "lifetime exemption." Regardless availability offsetting credit, go process valuing intra-family filing return. taxpayer's reduction lessens available offset death. short, net create before, legal, accounting, return nightmares 54 fails discuss anomalies today's expressly excluded purposes. 102. imputed respect lender. many, most, cases, specifically income. liability, borrower unable exclude commensurate Also, reasoning, charity entails loaned. Ordinarily, deductible 170 2522. regulations, deduction taxes. 2522(c); 1.170A-7(d). while 55 None outlined insurmountable. They involve, delicate issues addressed forum.10 Instead recognizing practice attaching responsible legislating policy, now decide guidance. ill-advised inequitable.11 exception "open account" demand; parties agreed identical notes. 623, n. 80,595 247, 4. memorialized note years, characterization matter dispute. substance id., TC 2428, declined issue, suggesting consider remand. 814, 1982). purposes, shall refer multiplied end quarter rates ranging six percent nine annum. taken 6621 1954, 6621, 6601 underpayments asserted $42,212.91 $41,109.78 Dickman. reflected history, 61 61, defines "all source derived." interpreted except reach. See, e.g., Glenshaw Glass Co., 348 426, 473, 99 483 (1955). Similarly, "[s]ubject limitations contained chapter," 2511(a). absent express provisions, meeting requirements treatment understood two-step approach transactions. basic components: arm's-length borrower, pays fair followed 234, 240 1978). Barker Publishers' Paper 78 N.H. 571, 573, 757, 758 (1918) ("In final analysis, consists use"); 5, p. 1980) ("The beneficial quality attribute property"). occurs "connotes discrete, affirmative act whereby person conveys something person, continuous series minute failures loaned." Brief 22. decline adopt construction order relinquish dominion control 25.2511-2(b), CFR 25.2511-2(b) At moment made, control; terminate transferee's calling loan. passes repayment, pass transferee, becomes complete. ibid.; 69-347, 1969-1 227; 69-346, 227. realized, 819, relinquished become relevant connection loans; not, alter periods $3,000 donee. 441(a) Economic Recovery 1981, Pub.L. 97-34, 95 319, amended raising after December 31, 1981. elect treat spouse one-half spouse. Simply put, effect "gift-splitting" double donor. some states, course, community achieve generally Lowndes, R. Kramer, & J. McCord, Estate 35.1 (3d 1974). former 2521 lifetime exemption $30,000 taxpayer. 2001(b)(3) Reform 94-455, 90 1849, replaced credit. modified scheduled increase 1987; time, total $192,800, $600,000 2505(b), 2505(b) ed.). Treasury Regulations implementing always language. Treas.Regs. 79, Art. (1933); (1936); 108, 86.2(a) regulation presently force preceding five decades; provides: indirectly gratuitously employed, constitute tax." 25.2511-1(c), 25.2511-1(c) embodied indicates allegedly novel assertion regarding well-established foundation. explanation dearth pre-1966 presenting precise probably economic; low prevailed recent diminished attractiveness tax-planning likelihood exclusion. Petitioners' detrimental fail additional reason. between 1976. litigated Six later, 408, formally announced approximately half derived 6621. 2, supra. address question, remanded method valued. 820, 11. therefore presented us. note, need produce revenue; sufficient yield secured reliably ascertained. (1972), stated: "Courts properly reluctant depart far-reaching re-examination, better define precisely conduct consequences." 2389. 169. code 2511(a), remained unchanged since original enactment 501 provided: "(a) calendar thereafter computed section 502, individual, resident nonresident, "(b) apply trust otherwise, indirect, personal, find "reasonable foundation" 25.2511-1(c). 343, relies made" contemplating flaw explicitly intent: "A incomplete instance donor reserves revest title himself." 25.2511-2(c) added). sections originated 1933 regulations. Arts. (1933). met impute Each absence congressional subject. Hardee 708 661 (CA Fed.1983); Parks (CA6 1982); Baker 677 (CA2 Grenspun, 670 123 (CA9 Beaton 664 315 (CA1 1981); Martin 649 1133 (CA5 Suttle 625 1127 (CA4 eight separate occasions. 172; 1978, 95-600, 2763; 1520; Amendments 1974, 93-625, 88 2108; Excise, Estate, Adjustment 1970, 91-614, 84 1836; 1969, 91-172, 83 487; Foreign Investors 89-809, 80 1539; 89-365, 32. presumed interpretations statute, amending Acts altered courts' Edwards, Planning Opportunities Does CA-7's No-Gift-Tax Holding Open Up?, J.Tax. 168, (1979); Mitchell, Interest-Free Loans: Planning, A.B.A.J. 634, 636 Taicher, How Use Loans Family Practical Accountant (Sept. 1978); Cooper, Voluntary Tax? New Perspectives Sophisticated Avoidance, Colum.L.Rev. 161, 186 Tidwell, Lester Points Way Reduction 1976 Act, 651, 655 (1977). indication role played tax-free firms amicus briefs themselves 346, Johnson, delayed deciding nonacquiescence, Circuit's Crown. Tex.1966), apparently specified annuities, life estates, remainders, reversions. 76; 25.2512-5. circumstances. 1061. due refunds urged yet recently docketed LaRosa 29632-82. LaRosa, arrived outstanding. monthly "expert" estimated market considering creditworthiness borrowers. annualized basis, 12.5% 31.1%. addressing "loophole" closed. addition disagreement 2501(a), application unfair. early 1973. spanned assessed taxes, way knowing discretion. Central Illinois Public Co. 435 21, 34, 98 917, 924, 82 (1978) (BRENNAN, J., concurring).

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