Opinion ID: 75742
Heading Depth: 1
Heading Rank: 1

Heading: gift of land

Text: 3 We agree with the Tax Court that the gift in this case was an indirect gift of land, and not partnership interests, for several reasons. First, the taxpayer himself initially reported the gift as one of land. 2 Shepherd's 1991 gift tax return listed the gift as two undivided 25 percent interests in a Leased Fee Estate without assigning any discount amount. His first petition for review in the Tax Court also referred to the total gift as an undivided one-half interest in the acreage. 4 Second, and even more significantly, the Tax Court correctly interpreted the undisputed sequence of events here to conclude that Shepherd's sons already held their partnership interests when their father's deed of land became effective. Initially, Shepherd owned more than 9,000 acres of land subject to a long-term timber lease. On August 1, 1991, he executed an agreement intended to create the Shepherd Family Partnership, of which he would be the managing partner and 50 percent owner. Each son would have a 25 percent ownership interest. On August 1, Shepherd and his wife 3 also executed two deeds transferring 100 percent of their interest in the land to this partnership. Shepherd's sons did not sign the partnership agreement until August 2. 5 As the Tax Court correctly observed, the Shepherd Family Partnership did not come into existence under Alabama law until August 2 when Shepherd's sons signed the partnership agreement. See Ala.Code § 10-8-2 (1994) (recognizing only association of two or more persons as valid partnership). Until that signing, there could be no donee capable of taking the gift or acceptance of the gift by the donee, both of which must occur for a gift to be legally complete. Estate of Whitt v. Commissioner, 751 F.2d 1548, 1560-61 (11th Cir.1985). Thus, the deed of land to the partnership dated August 1 was not effective until after the partnership had sprung to life on August 2. 6 Because the creation of the partnership (and its interests) necessarily preceded the effectiveness of the deed, [w]hatever interests [Shepherd's] sons acquired in this property they obtained by virtue of their status as partners in the partnership. 115 T.C. at 387. And gifts to a partnership, like gifts to a corporation, are deemed to be indirect gifts to the stakeholders to the extent of their proportionate interests in the entity. See 26 C.F.R. § 25.2511-1(h)(1). Thus, instead of completing a gift of land to a preexisting partnership in which the sons were not partners and then establishing the partnership interests of his sons (which would result in a gift of a partnership interest), Shepherd created a partnership in which his sons held established shares 4 and then gave the partnership a taxable gift of land (making it an indirect gift of land to his sons). 7 Third, the dissent, while not disputing these facts, contends that (1) Shepherd's intent was to give his sons a partnership interest in family property, (2) he simply utilized fewer steps in his attempt to create his sons' partnership interests than if he had created a valid partnership with a second partner and then transferred the shares of the partnership to his sons, and (3) elevating form over substance here would compel the unnecessary resort to the advise of tax lawyers prior to effectuating a simple transaction. 8 These arguments ignore that Shepherd himself reported the gift as land and also misperceive the crucial import of facts in both tax planning and the adjudication of tax disputes. See Frank Lyon Co. v. United States, 435 U.S. 561, 576, 98 S.Ct. 1291, 55 L.Ed.2d 550 (1978) ([A]s the Court has said in the past, a transaction must be given its effect in accord with what actually occurred and not in accord with what might have occurred.); Don E. Williams Co. v. Commissioner, 429 U.S. 569, 579-80, 97 S.Ct. 850, 51 L.Ed.2d 48 (1977) (stating that while a taxpayer is free to organize his affairs as he chooses, nevertheless, once having done so, he must accept the tax consequences of his choice, whether contemplated or not, ... and may not enjoy the benefit of some other route he might have chosen to follow but did not and finding that clear facts prevented taxpayer's recharacterization of the events for tax purposes and request to indulge in speculating how the transaction might have been recast with a different tax result) (quoting Commissioner v. National Alfalfa Dehydrating, 417 U.S. 134, 149, 94 S.Ct. 2129, 40 L.Ed.2d 717 (1974)). 5