Court Opinion

ID: 4616764
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:35:09.151188+00
Date Added: 2024-06-11T07:55:10.764096
License: Public Domain

BLANCHE S. ROSS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  STELLA S. JANNOTTA, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  FRANK V. SKIFF, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Ross v. CommissionerDocket Nos. 51171-51173.United States Board of Tax Appeals28 B.T.A. 39; 1933 BTA LEXIS 1196; May 5, 1933, Promulgated *1196  Upon the evidence, held, that a gift of certain bonds was made in 1920 and not in 1925, as determined by the respondent.  E. Barrett Prettyman, Esq., and Preston B. Kavanagh, Esq., for the petitioners.  Bernard D. Hathcock, Esq., for the respondent.  SMITH *40  These proceedings, involving a single issue, were consolidated for hearing.  The respondent has proposed for assessment against each of the petitioners, as transferees under section 316 of the Revenue Act of 1926, the sum of $29,243.31, plus a penalty of $7,310.83, plus interest.  The principal amount of $29,243.31 represents a Federal gift tax computed upon a gift of certain securities of a value of approximately $750,000, which the respondent contends was made to the several petitioners by their father, the transferor, in 1925.  The petitioners contend that the gift of the securities, or of others for which they were exchanged, was made to them in 1920 and that the gift is therefore not subject to the gift tax.  The penalty of $7,310.83, representing 25 percent of the gift tax, was imposed for failure of the transferor to file a return within the required statutory period. *1197  The respondent now concedes that the petitioners are not liable for the penalty.  FINDINGS OF FACT.  The petitioners are the daughters and son of Vernon W. Skiff, who died April 29, 1926, a resident of Oak Park, Illinois, a suburb of Chicago.  They are also residuary legatees and transferees of the decedent's estate.  The decedent's wife, the mother of the petitioners, died in 1919.  Soon afterwards, the decedent and his son, Frank V. Skiff, and one of his daughters, Stella S. Jannotta, went to Florida to spend the rest of the winter season.  Sometims in February or March, the decedent began to talk about disposing of all of his property.  He told his son and daughter that he wanted to make a few gifts to charity and to friends and then to give all of his remaining property to his three children.  His estate at that time amounted to approximately $1,000,000.  The decedent was then an old man and his eyesight was failing.  He said that he wanted to be relieved of all of the responsibility of looking after his property and to give it to his children during his lifetime.  His children sought to dissuade him from this purpose.  They were all independent financially and had no immediate*1198  need for his property.  They were especially anxious that their father should keep enough of his property for his own wants and for whatever gifts he might care to make.  The decedent returned to his home in Oak Park in May 1920, and the discussions with his children regarding the disposition of his property were resumed there.  His two daughters also lived in Oak Park and spent much of their time with him.  His son Frank lived at Milburn, New Jersey, but visited the decedent several times each year.  *41  Sometime in the spring of 1920, it was agreed between the decedent and his children that he would divide approximately $750,000 of his property, consisting mostly of bonds, equally among them, the children, and would retain the balance of approximately $250,000 for his own uses, and that to insure the decedent sufficient funds for his personal wants the petitioners would keep his bank account at between $25,000 and $40,000 for the rest of his life.  The decedent's bonds were kept in a large safe deposit box at the First National Bank of Chicago which he and his son, Frank V. Skiff, had used jointly for a number of years.  Each of them had a key to the box.  Pursuant to*1199  the plan agreed upon, the decedent and Frank V. Skiff went together to the safe deposit box and, at the decedent's direction, Frank V. Skiff selected from the entire lot approximately $750,000 face value of tax exempt bonds, which the decedent said were to be divided equally among his three children.  Frank V. Skiff then made a list of the bonds, one copy of which he gave to his business partner and brother-in-law, Frank Ross, the husband of petitioner Blanche S. Ross, wrapped the bonds in a separate bundle and put them back in the box with other securities.  The decedent's eyesight at that time was so defective that he could not have selected the bonds himself.  After this transaction the decedent gave his key to the safe deposit box to his son, Frank V. Skiff.  The decedent's daughters had agreed to and were aware of what was done in respect of the division of the bonds and understood that thereafter they each owned a one-third interest in the $750,000 face value of bonds which had been set aside.  They understood and agreed also that the bonds were all to remain in the custody of their brother, Frank V. Skiff.  They had always left the management and control of their business affairs*1200  to their father and brother.  The bonds all remained in the safe deposit box until 1925.  During the intervening period, Frank V. Skiff, upon his visits to Chicago, which occurred usually at intervals of not longer than six months, would clip the coupons on all of the bonds, sometimes several months in advance, and deposit them in his father's bank account at the First National Bank.  On one or two occasions when, due to illness or other causes, he was unable to come to Chicago, the coupons were clipped and so deposited by a Mr. Hagerman, secretary to Frank Ross.  On these occasions Frank V. Skiff would either leave a key to the safe deposit box with Ross or send one from his home in New Jersey.  It was necessary in that case for the decedent to accompany Mr. Hagerman, since the safe deposit box still remained in the joint names of the decedent and Frank V. Skiff.  Between 1920 and 1925 some of the bonds became due and were exchanged for other bonds and some were sold and others purchased *42  to replace them, the face value of the total amount remaining practically unchanged.  All of the exchanges, sales, and purchases of bonds were made by Frank V. Skiff personally.  All*1201  of the proceeds from the sales were deposited in the decedent's bank account and other bonds were purchased with checks signed by the decedent.  Sometime after 1920 the decedent made a number of gifts out of his own funds and the bonds, other than those set aside for his children, which he had retained in his safe deposit box.  Among them was a gift of $100,000 to found a hospital at his old home in Newton, Iowa, which gift was later augmented by a bequest of $50,000, a gift of $30,000 to Charles P. Coffin, of De Soto, Kansas, and a gift of $10,000 to each of his five grandchildren.  In 1925, the petitioners, Frank V. Skiff, who was then visiting in Chicago, Blanche S. Ross, and Stella S. Jannotta, all went together to the safe deposit box and divided up the $750,000 of bonds, each taking possession of and removing his or her share.  The decedent, Vernon W. Skiff, was not present but knew that this was being done.  On or about May 17, 1928, Blanche S. Ross, executrix of the decedent's estate, at the direction of an internal revenue agent and under protest, filed a gift tax return which contained a lost of the bonds which the petitioners divided among themselves in 1925 and upon*1202  which the respondent computed a deficiency.  The return bears the following notation: This return is being filed by the undersigned representative of said Vernon W. Skiff, deceased, at the request of representatives of the Bureau of Internal Revenue, who insist that the property above described constituted a gift in 1925 and as such was subject to a gift tax.  The undersigned hereby emphatically denies that said property is subject to a gift tax for the following reasons: 1.  The property was indeed the subject-matter of a gift from decedent to his children, but the gift was executed prior to January 1, 1924, and was therefore not subject to a gift tax.  2.  The gift tax provisions of the Revenue Act of 1924 are unconstitutional and void and of no validity as far as any gift tax on the property in question is concerned.  In filing this return, therefore, the undersigned does not in any way admit that any gift tax is due but is merely complying with the request of the Bureau of Internal Revenue to file a return giving certain information which the Bureau desires, and inasmuch as the undersigned denies that any tax whatever is due, she has intentionally left Schedule G blank, *1203  and her action in leaving it blank does not imply any authority to the Bureau of Internal Revenue to fill in the blanks.  OPINION.  SMITH: The only question for determination in these proceedings is whether the gift of bonds to the petitioners, upon which the respondent has computed the gift tax of $29,243.31, took place in 1925 as the respondent has determined, and is therefore subject to the gift *43  tax provisions of the Revenue Act of 1924, sections 319 to 324, inclusive, as amended by section 324(a) of the 1926 Act, or whether the gift was made in 1920 as the petitioners contend, prior to the effective date of any Federal gift tax law.  The petitioners admit that they each received assets from the decedent's estate as residuary legatees and transferees thereof in excess of the deficiency and penalty proposed, and that they are liable severally as transferees for the deficiency herein if the gift in question was made in 1925 as the respondent has determined.  In his brief, the respondent concedes that in accordance with Law Opinion 1091, Cumulative Bulletin I-1, p. 442, and*1204 General Counsel Memorandum 9162, Internal Revenue Bulletin of April 20, 1931, the petitioners are not liable for the proposed penalty.  The respondent asserts in his brief that the evidence failed to establish that there was a delivery of the subject matter of the gift; that is, the $750,000 in bonds, in 1920; that the decedent continued to exercise dominion and control over the bonds until 1925, when they were divided among the petitioners and removed from the safe deposit box; and that the gift was not completed until that time.  The essential elements of a valid gift inter vivos are: (1) An intention on the part of the donor to make the gift; (2) delivery by the donor of the subject matter of the gift; and (3) acceptance of the gift by the donee.  In Edson v. Lucas, 40 Fed.(2d) 398, 404, the rule is stated as follows: * * * There must be a donor competent to make the gift, a clear and unmistakable intention on his part to make it, a donee capable of taking the gift, a conveyance, assignment, or transfer sufficient to vest the legal title in the donee, without power of revocation at the will of the donor, and a relinquishment of dominion*1205  and control of the subject matter of the gift by delivery to the donee.  * * * See also Parrott v. Noel, 8 Fed.(2d) 368; Blair v. Rosseter, 33 Fed.(2d) 286; Adams v. Hagerott, 34 Fed.(2d) 899; Mary Katherine Dulin,25 B.T.A. 1259">25 B.T.A. 1259. On several occasions prior to or during 1920, the decedent expressed an intention to give all or the greater part of his property to his three children, the petitioners.  This intention was also clearly manifest by his acts in going to the safe deposit box with his son, one of the donees, and helping him to select and segregate certain of his bonds for the purpose of the gift and then giving his son custody of his, the decedent's, key to the box.  There can be no doubt of the intention on the part of the donor to make the gift in 1920. We are also of the opinion that the facts show a valid delivery of the subject matter of the gift to the donees in 1920.  At the time of the alleged gift in 1920, the decedent and Frank V. Skiff went to the safe deposit box together and at the direction of the decedent, *44  Frank V. Skiff selected the $750,000 tax exempt bonds, which*1206  the decedent instructed him to divide "one-third to each of the children." Frank V. Skiff then wrapped the bonds in a separate bundle and put them back in the box with other securities belonging to him and the decedent.  This, we think, constituted an actual delivery of the $750,000 of bonds by the donor to Frank V. Skiff.  At that time, or soon afterwards, the decedent gave the custody of his key to the safe deposit to Frank V. Skiff.  In Hagemann v. Hagemann,204 Ill. 378">204 Ill. 378; 68 N.E. 381">68 N.E. 381, it was said: * * * Michael was given a key to the box containing the said notes.  This alone has been held to be a good symbolical delivery.  Stephenson's, Adm'r v. King,81 Ky. 425">81 Ky. 425, 50 Am. Rep. 173">50 Am.Rep. 173; Telford v. Patton,144 Ill. 611">144 Ill. 611, 33 N.E. 1119">33 N.E. 1119. * * * See also Beaumont v. Beaumont,152 Fed. 55. The delivery to Frank V. Skiff, one of the donees, of all of the bonds, including those for himself and his sisters, constituted a valid delivery to each of them of their respective shares, and this is also true of the acceptance by him, in respect of which Frank V. Skiff became an agent or trustee for the*1207  other donees.  Smith v. Commissioner, 59 Fed.(2d) 534; Trubey v. Pease,240 Ill. 513">240 Ill. 513; 88 N.E. 1005">88 N.E. 1005; Taylor v. Harmison,179 Ill. 137">179 Ill. 137; 53 N.E. 584">53 N.E. 584; Gordon v. Adams,127 Ill. 223">127 Ill. 223; 19 N.E. 557">19 N.E. 557. In Smith v. Commissioner, supra, the court said: In cases of gifts, delivery to the actual donee is not necessary; it may be made to a third person for the benefit of donee, and in such event the third person becomes a trustee for the donee.  In the instant case the stock was delivered to the custody of Earl F. Smith for the benefit of all children, including himself, and that constitutes a delivery to the donee.  Martin v. McCullough, Adm.,136 Ind. 331">136 Ind. 331; Grissom v. Sternberger,10 F.(2d) 764; Owen v. Commissioner of Internal Revenue,53 F.(2d) 329. Also, in Trubey v. Pease, supra, the court said: * * * The law is well settled that title to personal property by gift may be passed by delivery of it by the owner to another as trustee for the donee.  In such case delivery*1208  to the trustee is deemed, in law, delivery to the donee, and divests the donor of all control over, or right or title in, the property, and the gift is irrevocable.  * * * If, as the respondent contends, the decedent still had access to the safe deposit box after the alleged gift in 1920 and might have removed the bonds if he had so desired, this does not render the gift invalid.  In Beaumont v. Beaumont, supra, the court said: * * * The possession and control of the bonds was exclusive, and not the less so in legal contemplation that the donor had also a key to their place of deposit, and could, in violation of their rights accruing from his gift, have carried them away.  * * * It is sufficient for the facts of his case to say, if the donor, with the clearly expressed intention of making a gift, make an actual delivery into the hands *45  of the donee, the fact that the donor has lawful access to the depository of the thing given, does not invalidate the gift, if the donee has also the same access to said depository, and has such control over the thing given, that he may remove it at any time he chooses to do so.  * * * *1209  See also Smith v. Commissioner, supra, and cases therein cited; Hagemann v. Hagemann, supra;Martin v. Martin,170 Ill. 18">170 Ill. 18; 48 N.E. 694">48 N.E. 694; Gilkinson v. Third Ave, R. Co.,63 N.Y.S. 792">63 N.Y.S. 792; Hynes v. White,190 Pac. 836. It has been held also that a gift is valid even where the subject matter of the gift remains in the depository of the donor after the gift is made if it is removed before revocation by the donor.  Muir v. Gregory,168 Fed. 641. All of the bonds in question here were removed by the donees in 1925 with the knowledge and approval of the donor and there is no indication that the donor ever undertook to revoke the gift.  The respondent in his brief stresses the facts that the interest or proceeds derived from the coupons which were clipped from the bonds from 1920 to 1925 were deposited to the credit of the donor, and that during that period numerous changes were made in the bonds by exchanges, purchases and sales, all of which were handled through the donor's bank account.  We do not believe, however, that these matters in any way affect*1210  the validity of the gift.  The reason for depositing the coupons in the decedent's account was satisfactorily explained by the witnesses, the donees.  It was in accordance with their prior arrangement to keep a substantial amount in the donor's bank account to meet any needs or wants that he might have during his lifetime.  The evidence is not clear as to whether the donees agreed to the arrangement among themselves voluntarily, or whether it was a condition subsequent imposed by the donor.  Assuming, however, that the latter was the case, the gift of the bonds themselves would not be affected.  The retention by a donor of the interest from a fund or income from property or even a life estate in the subject matter of the gift does not render the gift invalid.  Smith v. Commissioner, supra;Edson v. Lucas, supra;Beaumont v. Beaumont, supra;Miller v. Western College of Toledo,177 Ill. 280">177 Ill. 280; 52 N.E. 432">52 N.E. 432. In Smith v. Commissioner, supra, the court said: * * * There was, however, a clear and unmistakable intention on the part of decedent to make a present gift to his*1211  children, and he described to them in detail how he intended to make the delivery, that is to say, by placing the amount of stock intended for each child in a separate envelope with such child's name placed thereon, and depositing the same in his son's lock box at the bank, there were no reservations whatever as to title, dominion, or revocation, except that he retained the right to the dividends during his life, if he so chose.  That reservation was merely a limitation on the quantity of the contemplated gift, and in no way affected its validity.  Edson v. Lucas, supra.*46 All of the sales and exchanges of the bonds were made by Frank V. Skiff and were cleared for convenience through the decedent's bank account.  Assuming, most favorably to the respondent's contention, that in these transactions Frank V. Skiff acted as agent for the donor rather than as agent or trustee for the donees, still the gift would not be rendered invalid, for it is apparent that these things were necessary for the protection of the donees and were in no sense inimical to their interests.  *1212 Smith v. Commissioner, supra;Edson v. Lucas, supra.The only material fact shown by the evidence which in any way supports the respondent's position that the gift of the bonds was made in 1925 is that the petitioners in that year all went to the safe deposit box and removed the bonds, each then taking actual possession of his or her share.  This was not done at that time by direction of the donor or by reason of any new authority granted by him, although he was aware of what was being done and was agreeable to it.  We are convinced that the petitioners at their own pleasure might have divided and removed the bonds at any time after the decedent and Frank V. Skiff had segregated them in 1920.  We are of the opinion that bonds of the face value of $750,000 were given to the petitioners in 1920 and not in 1925.  Judgment of no liability as transferees will be entered for the petitioners.