Court Opinion

ID: 6932552
Source: CourtListenerOpinion
Date Created: 2022-07-24 00:11:33.511162+00
Date Added: 2024-06-11T16:07:16.284014
License: Public Domain

LUTTIG, Circuit Judge,
dissenting:
In language that could not be clearer, section 25.2511-2 of the Internal Revenue Service’s gift tax regulations provides that a gift of property is not complete, and therefore not excludable under 26 U.S.C. § 2503(b), until “the donor has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another.” 26 C.F.R. § 25.2511-2(b); see also id. § 25.2511-2(c) (“A gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title to the property in himself_”). Thus, under the regulations, “[t]he relinquishment or termination of a power to change the beneficiaries of transferred property ... is regarded as the event that completes the gift and causes the tax to apply.” Id. § 25.2511-2(f).
Despite this unambiguous language, the majority holds that checks delivered in December 1985, but not honored by the drawee bank until January 1986, can be excluded as a 1985 gift, even though the drawer con-cededly retained the power to stop payment of the checks and direct the funds to other beneficiaries until the checks were honored. *124Compare Estate of Gagliardi v. Commissioner, 89 T.C. 1207, 1213, 1987 WL 257913 (1987) (“[W]e have not found any state that recognizes delivery of a check to be a completed gift of the underlying funds.”). Acknowledging that the drawer’s gift was not excludable until 1986 under the express terms of section 25.2511-2, the majority rests its decision on yet another “limited extension” of the so-called “relation-back” doctrine:
[Ajpplying Maryland law, Albert Metzger did not completely relinquish dominion and control of the funds given to his son and daughter-in-law until January 2, 1986, when the check was accepted by his bank and his account was debited. Therefore, under § 25.2511-2(b) the gift was not completed until 1986.
[However,] [i]n such a limited circumstance, where noneharitable gifts are deposited at the end of December and presented for payment shortly after their delivery but are not honored by the drawee bank until after the New Year’s holiday ... the gifts should relate back to the date of deposit.
Ante at 121, 123.
The relation-back doctrine was created out of whole cloth by the Tax Court in 1949. See Estate of Spiegel v. Commissioner, 12 T.C. 524, 1949 WL 182 (1949). Since its creation, the doctrine has been applied (or not) by the Tax Court, the Internal Revenue Service, and other federal, courts based upon nothing more than perceived necessities of policy and equity in particular cases, as the majority’s canvassing of these opinions reveals. Id. at 529 (adopting doctrine for charitable contributions in income tax context; indulging fiction that donor “made a conditional payment of charitable contributions [in 1942] which, upon the presentation and payment of the checks [in 1943], became absolute and related back to the time when the checks were delivered”); Estate of Belcher v. Commissioner, 83 T.C. 227, 232, 1984 WL 15603 (1984) (extending doctrine to charitable contributions in estate tax context; “policy considerations” weigh against “the inclusion [in the gross estate] of outstanding checks issued in good faith by the decedent to charitable donees prior to his' death but cashed after his death”); Estate of Dillingham v. Commissioner, 88 T.C. 1569,1574-75, 1987 WL 31366 (1987), aff'd, 903 F.2d 760 (10th Cir.1990) (rejecting application of doctrine to nonchari-table gifts in estate tax context; noting, though, that Belcher*s concern of a secret agreement between donor and donee, that cheeks would not be cashed until donor’s death, not implicated); Estate of Dillingham v. Commissioner, 903 F.2d 760, 764-65 (10th Cir.1990) (noting that potential for fraud exists where checks were distributed in one year and cashed on same day in late January of following year); McCarthy v. United States, 806 F.2d 129, 132 (7th Cir.1986) (rejecting extension of doctrine to noneharitable gifts in estate tax context; no “practical considerations,” such as offsetting deduction, support extension of doctrine to noncharita-ble gifts and extension of doctrine would encourage tax avoidance); Estate of Gagliardi v. Commissioner, 89 T.C. 1207, 1212-13, 1987 WL 257913 (1987) (rejecting extension of doctrine to noneharitable gift checks written before, but cashed after, decedent’s death because policy considerations of Belcher did not support extension).
The majority’s opinion is paradigmatic of this policy-driven decisionmaking, basing its decision that the doctrine should apply in this case on its conclusion that there is “no danger of a scheme to avoid estate taxes” of a kind that prompted rejection of the doctrine by the Tax Court and the Tenth Circuit in Dillingham. See ante at 123; see also id. at 122 (accepting the “wisdom” of McCarthy’s and Gagliardi’s rejection of doctrine where checks were not cashed until after donor’s death, given potential for tax avoidance).
No one even argues that the relation-back doctrine can be reconciled with the plain ■ language of section 25.2511-2. See, e.g., ante at 121-22 (we must “look beyond the regulation to consider whether its incorporation is warranted here”). Indeed, the doctrine’s express purpose is to allow tax deductions for gifts of property that would not be allowed under the IRS regulations as written.
Moreover, the doctrine would appear to be invalid, at least in the gift and estate tax *125context, under the reasoning of the Supreme Court’s decision in Estate of Sanford v. Commissioner, 308 U.S. 39, 60 S.Ct. 51, 84 L.Ed. 20 (1939). There, the Court addressed the question of whether an inter vivos transfer of property in trust, where the donor reserved to himself the power to name new beneficiaries, constituted a completed gift for purposes of the predecessor statute to 26 U.S.C. § 2501 et seq., pursuant to which the regulations at issue in this case were promulgated. The Court held that the property transfer did not constitute a completed gift until the donor “fully parted” with all dominion and control over the property. Sanford, 308 U.S. at 43-45, 60 S.Ct. at 55-56; see also Burnet v. Guggenheim, 288 U.S. 280, 286, 53 S.Ct. 369, 371, 77 L.Ed. 748 (1933) (for purposes of federal gift tax statutes, “a gift is not consummate until put beyond recall”). From the Supreme Court’s holding in Sanford that a gift in trust is not complete until all power to control disposition of any interest in the property is relinquished, it would seem to follow that the relation-back doctrine is invalid, because the doctrine deems a gift complete when the donor still possesses dominion and control over the property. See Sanford, 308 U.S. at 49, 60 S.Ct. at 58 (predecessor regulation to 26 C.F.R. § 25.2511-2 “is declaratory of the correct construction of’ the predecessor to the current gift tax statute).
Rather than acquiesce further in the ad hoc, quasi-legislative rule-making that has seduced the Tax Court, the IRS, and the federal courts of appeals alike, and which is suspect in any event under existing Supreme Court authority, I would abandon the relation-back doctrine altogether and abide by the plain language of the regulation. Unlike the majority, I find no comfort in the fact that extending the relation-back doctrine to the circumstances here is not “inconsistent with the regulations as they have been applied or inconsistent with other precedent.” Ante at 123. I also find no solace in the majority’s statement that to the extent the plain words of the regulation ■ at issue in Belcher failed to authorize relation-back, “Belcher was equally inconsistent with the regulations.” Id. at 121-22. The fact remains that in all of the above-discussed contexts the relation-back doctrine was applied in direct contravention of, and so as to circumvent, the plain language of the governing statutes and regulations.
In Spiegel, the Tax Court invoked the doctrine to avoid the statutory requirement that a “payment” be made in the year for which the corresponding deduction is sought, see 26 U.S.C. § 170(a)(1) (statute for charitable contribution income tax deductions) (formerly section 23(o) of the Internal Revenue Code); * the same court, in Belcher, resorted to the doctrine to skirt the statutory and regulatory requirement that all property in which the decedent had an “interest” be included in the decedent’s gross estate, see 26 U.S.C. §§ 2031, 2033; 26 C.F.R. § 20.2031-5; and in the Tax Court below, and now by the majority here, the doctrine has been extended to escape the reach of the controlling regulations requiring that a donor part with all dominion and control over property before his gift be considered complete, see 26 C.F.R. § 25.2511-2. As applied in these contexts, the relation-back doctrine is simply insupportable as a matter of law, even if it is sound as a matter of policy.
Applying 26 C.F.R. § 25.2511-2 as it is written and was duly promulgated, it is plain that the donor’s gifts in this ease were not complete until 1986, and therefore that they were not excludable in 1985. Because the *126Tax Court reached the contrary conclusion, I would reverse its judgment.

 The Treasury Department now, by regulation, defines ''payment” so as to include the unconditional delivery of a subsequently honored check. This regulation renders application of the doctrine in the income tax context irrelevant. See 26 C.F.R. § 1.170A-1; Rev. Rul. 54-465, 1954-2 C.B. 93; Williams v. Commissioner, 429 U.S. 569, 583, 97 S.Ct. 850, 858, 51 L.Ed.2d 48 (1977) (approving in dicta Spiegel’s interpretation of “payment”). However, the doctrine is no more defensible even in the income tax context, as the dissent in Spiegel would have held, and as the I.R.S. confirms in its insistence that its new regulation merely "deems" payment made at the time of delivery.
Whether one accepts the validity of the doctrine in the income tax context, however, there is no comparable statutory or regulatory provision in the gift or estate tax context that would either obviate the need for the doctrine or otherwise justify its application.