Court Opinion

ID: 4484417
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:44.742694+00
Date Added: 2024-06-11T14:53:45.687296
License: Public Domain

Goffe, /., concurring: Dr. May is undoubedly entitled to deduct the rentals paid to the trust in 1973. However, I arrive at this conclusion in quite a different manner than does the majority. Those reading the majority’s opinion are no doubt confused by its treatment of the “independent trustee” requirement. It first announces that the independence of the trustee is an important consideration; it then makes the critical finding that the trustees in the instant case were independent of Dr. May; and, finally, it announces that “we need not decide whether an independent trustee is required in every gift-leaseback case.” (Majority opinion at p. 15.) To the extent that such treatment implies that the trustees in the present case must be independent of Dr. May as a prerequisite to his deduction of the rental payments, I disagree. Where, as here, the grantors have transferred away their entire right, title, and interest in the trust property, my analysis of the applicable statute and relevant case law leads me to the inescapable conclusion that the independence of the trustees is irrelevant except in cases where the reasonableness of the rental paid is disputed. The misplaced emphasis on the independence of the trustees which is implicit in the majority opinion and explicit in the opinions of the dissenters is merely the end of a long slide down a slippery slope onto which we inadvertently stepped years ago. This case presents a golden opportunity to set forth a coherent treatment of gift-leaseback transactions. However, in order to explain where we should go, we must understand from whence we have come. Before I delve into the evolution of the jurisprudence of the tax treatment of gift-leaseback transaction, we should concisely identify the issue with which we are here concerned — the deductibility under section 162(a)(3) of the rentals paid by a grantor (here Dr. May) to a trust to which he transferred the property which he is leasing. We have not been asked to determine which taxpayer, i.e., petitioners, the income beneficiaries, or the trust, is taxable on the income of the trust. Therefore, the only statutory standard which we must analyze in order to decide whether the rentals paid are deductible is section 162, specifically section 162(a)(3), which provides: SEC. 162. TRADE OR BUSINESS EXPENSES. (a) In General. —There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including— sfe % :Jc ‡ (3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. Under the statutory language, several tests must be met to ensure deduction of rentals paid. A recent decision outlines those tests, as follows: Congress has expressly provided for the deduction of rental expenses where: (1) the payments are required to be made for the continued use or possession of the property; (2) the continued use or possession of the property is for purposes of the trade or business; (3) the taxpayer has not taken and is not taking title to the property; and (4) the taxpayer has no equity in the property. [Quinlivan v. Commissioner, 599 F.2d 269, 272 (8th Cir. 1979), affg. a Memorandum Opinion of this Court, cert. denied 444 U.S. 996 (1979).] As one can see from close inspection, all of the above-listed tests originate in the statutory language, as well they should. I point out this fact because I have determined, after an exhaustive review of the relevant case law, that some confusion1 concerning the tax treatment of gift-leaseback transactions has arisen because of the creation of an independent test that is not grounded in the relevant statutory language. This Court’s most recent decision concerning a gift-leaseback transaction is Lerner v. Commissioner, 71 T.C. 290 (1978). Therein was stated a four-part test for determining the deducti-bility of the rentals paid in a gift-leaseback situation. The requirements are: (1) The grantor must not retain substantially the same control over the property that he had before he made the gift; (2) The leaseback should normally be in writing and must require payment of a reasonable rental; (3) The leaseback (as distinguished from the gift) must have a bona fide business purpose; and (4) The grantor must not possess a disqualifying equity in the property within the meaning of section 162(a)(3). This statement of the prevailing tests in the gift-leaseback area was not newly fashioned by us in Lerner v. Commissioner, supra. It was a mere restatement of the applicable requirements first set forth in Mathews v. Commissioner, 61 T.C. 12 (1973), revd. 520 F.2d 323 (5th Cir. 1975). This Court has adhered to those standards up to the present time (Serbousek v. Commissioner, T.C. Memo. 1977-105; Quinlivan v. Commissioner, T.C. Memo. 1978-70), except when the Golsen 2 rule has forced us to ignore them, e.g., Butler v. Commissioner, 65 T.C. 327 (1975). After close inspection of the origins of the four-part Mathews test, I see no need to abandon any portion of those standards. However, a clarification of some parts of that test does seem to be merited in light of the aforementioned confusion that currently permeates this area of the tax law. The origins and interpretation of three of the four Mathews standards are reasonably clear. I will here briefly analyze those three tests, which include the second, third, and fourth standards listed above.3  Test 2. The Leaseback Should Normally Be in Writing and Must Require Payment of a Reasonable Rental The meaning of this test (actually two tests) is self-evident. The requirement that the leaseback be in writing is appropriately modified by the word “normally.” This requirement is not found in the statutory language of section 162(a)(3), but is rather an effort by the courts to solve a problem of proof that often arises in these cases, i.e., the existence of a binding commitment by the lessee to pay an agreed-upon rental to the lessor. As intimated by the use of the limiting modifier “normally,” the requirement of a written lease is not absolute. Brooke v. United States, 468 F.2d 1155 (9th Cir. 1972), affg. 300 F. Supp. 465 (D. Mont. 1969). If other evidence can be introduced to prove the existence of a binding lease agreement, the requirement of a written lease may be dispensed with. Where, as here, there is an undisputed rental agreement and consistently paid rentals equal to the agreed-upon amount, we, as a court, have no need of a written lease. The intransigent position of Judge Wilbur in his dissent in effect writes the word “normally” out of the Mathews test which he so fervently embraces. The other portion of this test, that of requiring the rent paid to be reasonable, finds its roots in the statutory mandate that the rent be “required.” Normally, the push and pull of the market place will ensure that a reasonable rental is agreed upon by the parties to a lease. However, when the parties to a lease are related, an inquiry into what constitutes a reasonable rental is necessary to determine whether the sum paid is in excess of what the lessee would have been required to pay had he dealt at arm’s length with the lessor. Sparks Nugget, Inc. v. Commissioner, 458 F.2d 681 (9th Cir. 1972), affg. a Memorandum Opinion of this Court, cert. denied 410 U.S. 928 (1973). This being the law, we are often forced to examine the trustee/lessor to determine whether he is independent of the grantor/lessee. However, such examination is needed only because the court must decide whether the rent paid was “required,” as that term is used in the controlling statute. Though the lack of an independent trustee may force a court to inquire into the reasonableness of the rent agreed upon, it does not result in an automatic judicial annulment of a gift-leaseback transaction under this prong of the Mathews test. In the present case, the requirements of the second prong of the Mathews test have been met. Though the parties to the lease never executed a written lease, they at all times proceeded in accordance with the terms upon which they had agreed. As stated above, the requirement of a written lease may be dispensed with if adequate proof is introduced to prove the existence of a binding lease agreement. Such proof was introduced, and I have no trouble finding the existence of a binding lease agreement. As for the requirement that the rent be reasonable, the parties stipulated that the rentals paid to the trust by Dr. May were reasonable in amount. Thus, we need not inquire, for purposes of determining the reasonableness of the rentals paid, into the independence of the trustees of the trust/lessor. Judge Wilbur, in his dissent, makes much of the fact that the parties’ stipulation did not cover the whole 10-year period of the lease. In so doing, he completely misapprehends the function of such stipulation. Under section 162(a)(3), the rentals paid must be reasonable. The only rentals in issue are those paid in 1973. Thus, for purposes of this prong of the Mathews test, we need concern ourselves only with the reasonableness of the rentals paid in 1973. I do not understand Judge Wilbur’s unwillingness to accept the stipulation of the parties on this issue. Test 3. The Leaseback (as Distinguished From the Gift) Must Have a Bona Fide Business Purpose This part of the Mathews test finds its roots directly in the statutory language which requires that the “continued use or possession” of the property be for the purposes of a trade or business. Sec. 162(a)(3). The only uncertainty that has arisen concerning the meaning of this statutory business-purpose test is whether the gift, as well as the leaseback, must have a business purpose. The content of the question would seem to provide its own answer. It seems inconsistent to contend that a gift must have a business purpose. A gift proceeds from detached and disinterested generosity. Commissioner v. Duberstein, 363 U.S. 278 (1960). I am not aware of any other area of the tax law where it has been suggested that a gift, in order to be valid, must have a business purpose. However, the U.S. Court of Appeals for the Fifth Circuit, in a series of gift-leaseback cases, has announced that the gift portion of a gift-leaseback transaction, as well as the lease portion of the transaction, must have a business purpose. Van Zandt v. Commissioner, 341 F.2d 440 (5th Cir. 1965), affg. 40 T.C. 824 (1963), cert. denied 382 U.S. 814 (1965); Mathews v. Commissioner, supra; Audano v. United States, 428 F.2d 251 (5th Cir. 1970), revg. an unreported case (N.D. Tex. 1969, 23 AFTR 2d 69-1020, 69-1 USTC par. 9354); Chace v. United States, 303 F. Supp. 513 (M.D. Fla. 1969), affd. per curiam 422 F.2d 292 (5th Cir. 1970); Furman v. Commissioner, 381 F.2d 22 (5th Cir. 1967), affg. 45 T.C. 360 (1966). The Fifth Circuit crossed the Rubicon on this issue in the Van Zandt case, based upon its reliance on and interpretation of a sale-leaseback case. Armston v. Commissioner, 188 F.2d 531 (5th Cir. 1951), affg. 12 T.C. 539 (1949). The fact that Armston was a sale-leaseback case, as opposed to a gift-leaseback case, casts doubt on the Fifth Circuit’s heavy reliance on that case in Van Zandt, a gift-leaseback case. Contrary to the Fifth Circuit’s apparent interpretation of that case, I find it doubtful that Armston stands for the proposition that a bona fide transfer (gift or sale) which is undoubtedly absolute must meet a business purpose test in order to effectively transfer “real” ownership of the transferred property to the transferee. The opinion in Armston cited the lack of business purpose for the sale as a factor which led the court there to disregard the bona fides of the sale. The sale thus having been disregarded, the purported lessee was found to still own the property. As I will discuss below, one may not deduct rentals paid for the use of property in which he has a disqualifying equity. The taxpayer, having been found to constructively own such a disqualifying equity, was denied the deduction of the rentals paid. Thus, Armston v. Commissioner, supra, stands for the proposition that a sale lacking in business purpose will be disregarded, leaving the purported seller/lessee with a disqualifying equity. The Fifth Circuit in Van Zandt v. Commissioner, supra, however, extended this holding. Whereas the court in Armston v. Commissioner, supra, used the lack of business purpose in a sale transaction to deny the validity of the transfer, it used such lack of business purpose in Van Zandt v. Commissioner, supra, to deny the deductibility of rentals paid, albeit that the validity of the gift transfer was not questioned. Since, under Commissioner v. Duberstein, supra, a lack of business purpose can in no way defeat the validity of a gift, the donor of the gift cannot be deemed to have retained a disqualifying equity in the property. My determination that the lessee in a gift-leaseback transaction where there is an admittedly bona fide gift has no disqualifying equity in the leasehold is buttressed by my recollection that section 162(a)(3) itself requires only that the “use or possession” have a trade or business purpose. Coming full circle, it can be seen that such statutory language translates easily into the third Mathews requirement that only the leaseback (as opposed to the gift) must have a bona fide business purpose. I reject, as we did in Lerner v. Commissioner, supra, and in the majority opinion herein, the Fifth Circuit’s requirement that the gift have a business purpose. Test T — The Grantor Must Not Possess a Disqualifying "Equity” in the Property Within the Meaning of Sec. 162(a)(3) We can easily trace the origin of this part of the Mathews test. The statutory language of section 162(a)(3) requires that a lessee have no equity in the leased property if he is to be allowed to deduct the rentals he pays for the use of such property. Such restriction is spawned by the logical recognition that one cannot rent from himself. Thus, this arm of the Mathews test seems to involve only the simple question of whether the lessee owns the leasehold during the lease term.4  However, the grafting of a judicially originated doctrine onto the jurisprudence of gift-leaseback transactions has complicated the search for a disqualifying equity. Several courts early decided that a lack of apparent substance in the gift transfer would justify continuing to treat the donor of the transferred property as the true owner of the property. Having thus invested such donor with “real” title to the property, the courts then characterized such constructive ownership as an “equity” in the property. Therefore, the lessee, having been found to own an “equity” in the property, could not deduct the rentals paid to the trust. This is the technique discussed briefly in Armston v. Commissioner, supra. However, to fully understand the doctrine, we must trace it back to its origins. The doctrine first surfaced in Johnson v. Commissioner, 86 F.2d 710 (2d Cir. 1936), affg. 33 B.T.A. 1003 (1936). In Johnson v. Commissioner, supra, the taxpayer borrowed money from a bank and gave the money to his wife. She then put the money into trust. The trustee was empowered to lend the money to the taxpayer. The taxpayer borrowed the money, signing an interest-bearing demand note which could not be called without the wife’s consent, and immediately returned the funds to the bank, thus completing the round-trip of the funds. The taxpayer paid the periodic interest due on the “note,” which amount the trustee invested in life insurance on the taxpayer’s life. Thus, the circle was complete. The taxpayer had converted nondeductible payments for life insurance premiums into deductible interest payments. This farce was struck down by the court, not on the appropriate rationale that this device was a “sham transaction,” but on the troubling rationale that, since the wife was under a “duty” to transfer the funds into trust and, therefore, did not have present control over the funds, the taxpayer had no intention of parting with the present interest and control over the funds. That being the case, the court deemed the taxpayer to have remained the “real” owner of the funds, which holding deprived him of the right to deduct interest paid for the use of the money. Thus arose the doctrine of treating the donor of property as the continuing owner of such property for purposes of disallowing manufactured interest deductions because of his continued control over such property. In 1940, the famous case of Helvering v. Clifford, 309 U.S. 331 (1940), was decided. That case held that a donor who declared himself trustee of income-producing property which he placed into a 5-year reversionary trust for the benefit of his wife could be treated as the “real” owner of such property for purposes of deciding who was to be taxed on the income of the trust. The limited facts of the Clifford case should be noted. First, the case dealt only with the question of who should be taxed on the trust’s income. Second, the property was to revert to the grantor at the end of the trust term. Finally, the trustee was not independent of the grantor. The difficulty in applying such a judicial doctrine was later recognized, and now, the whole area of income attribution of short-term trusts has been codified. Secs. 671-679. The Tax Court, in two subsequent cases, made the judicial leap whereby the rationale of Johnson v. Commissioner, supra, and the limited holding of Helvering v. Clifford, supra, were meshed to form the doctrine with which we now are confronted, i.e., that a grantor of a trust over which he retains substantial control will be treated as the owner of the property in that trust, thereby giving him an “equity” in such property that will suffice to deny him any deductions for rentals paid for the use of such property. In Skemp v. Commissioner, 8 T.C. 415 (1947), revd. 168 F.2d 598 (7th Cir. 1948), and Brown v. Commissioner, 12 T.C. 1095 (1949), revd. 180 F.2d 926 (3d Cir. 1950), the taxpayer gave property to a trust which was to pay its income to specified family members for a term certain. Upon the termination of the trust, the property was to go to designated beneficiaries (not the grantor). The taxpayers/grantors then leased the property back from the trustee, who was deemed to be independent. In both cases, the Tax Court denied the taxpayers’ attempts to deduct the rentals paid, reasoning that since the leaseback was entered into simultaneously with the transfer of the property into trust, there was no passing of a present interest in the transferred property. The Johnson case was cited in both opinions as justification for such treatment. Both decisions were reversed by the appropriate courts of appeals. Skemp v. Commissioner, 168 F.2d 598 (7th Cir. 1948); Brown v. Commissioner, 180 F.2d 926 (3d Cir. 1950). The Seventh Circuit upheld the form of the transaction, pointing out that the Clifford, rationale does not apply in these cases. To the Commissioner’s complaint that the situation giving rise to the deduction was caused voluntarily by the taxpayer, the court sagely replied, “while the taxpayer voluntarily created the situation which required the payments of rent, the fact remains that the situation created did require the payments. In this case we have a valid, irrevocable trust, wholly divesting the taxpayer of any interest in the trust property, and an agreement by the taxpayer to pay the trustee a reasonable rental under a valid lease.” Skemp v. Commissioner, supra at 600. Likewise, the court rejected the Commissioner’s argument that there was no change in the taxpayer’s economic status, stating, “Nor can we agree with the Commissioner that there was no change in the taxpayer’s economic status. He had irrevocably divested himself of all title and right to the property and could occupy it only upon payment of rent.” Skemp v. Commissioner, supra at 600. The Third Circuit, in Brown v. Commissioner, supra, also upheld the bona fides of the transaction. Citing Skemp, it rejected the Commissioner’s arguments in the same manner as did the court in Skemp. Furthermore, it found the fact that the rentals had been prearranged to be insignificant. Into this judicial maelstrom also came the 1949 holding of this Court in Armston v. Commissioner, supra, which, as pointed out above, was a sale-leaseback case. In Armston, the transfer into trust (a purported sale) was disregarded for purposes of attributing to the donor/lessee a disqualifying equity in the property. This decision and the Tax Court’s decision in Brown v. Commissioner, supra, were both accompanied by heavy dissents. In 1963, this Court was again faced with the question of the deductibility of rentals in a gift-leaseback situation. Van Zandt v. Commissioner, 40 T.C. 824 (1963). However, that case was distinguishable from the Skemp and Brown cases in two important ways. First, the trustee in Van Zandt was the grantor, whereas the trustees in Skemp and Brown were independent. Second, the trust involved in Van Zandt was a 10-year Clifford trust, under the terms of which the property transferred to the trust would revert to the grantor after 10 years. In Skemp and Brown, the remainder interests in the trust property were transferred outright to the grantor’s children. The Tax Court highlighted the fact that the trustees in Skemp and Brown had been independent, whereas the trustee in the case before it was not, and cited this independence as the determinative factor as to why the appellate courts in Skemp and Brown allowed the rental deductions sought in those cases. Then, the Court proceeded to cite Johnson, Clifford, and Armston and implicitly held that the transfer by gift had no economic reality. Therefore, under the old Johnson rationale, the Court apparently reasoned that the grantor/lessee had a disqualifying equity in the leased property and denied the deduction. This decision was affirmed by the Fifth Circuit in the above-discussed opinion wherein it announced its rule that the gift portion of the transaction, along with the leaseback, must have a business purpose. Van Zandt v. Commissioner, 341 F.2d 440 (5th Cir. 1965), cert. denied 382 U.S. 814 (1965). With the Tax Court’s decision in the Van Zandt case came a new emphasis on determining whether the trustee was independent of the grantor. As above stated, this emphasis arose from the implication by the Court in Van Zandt that the controlling distinction between Skemp/Brown and Van Zandt was the presence or absence of an independent trustee. The other distinction, which I think was very significant, was the fact that Skemp and Brown involved trusts where the grantor did not own the remainder interest in the trust, whereas Van Zandt involved a Clifford trust wherein the reversion was vested in the grantor. This second distinction has been largely ignored by the courts. However, this distinction was recently pointed out in Goodman v. Commissioner, 74 T.C. 684 (1980). After the Van Zandt case, it was widely thought that a new requirement had been superimposed on the statutory language of section 162(a)(3), i.e., that the trustee of the trust to which the property was transferred must be independent of the grantor. However, in 1968, the Tax Court presciently pointed out that the independence of the trustee is relevant only in the context of determining whether the taxpayer/grantor/lessee has retained a disqualifying equity in the leased property. Penn v. Commissioner, 51 T.C. 144 (1968). Accord, Goodman v. Commissioner, supra. There, we stated explicitly that the courts were using a Clifford -type rationale to determine who was the true owner of the transferred property for purposes of section 162(a)(3). With this revelation before us, we can see the relevance of the independent trustee. A trust that has a trustee who is independent of the grantor is distinguishable (as pointed out by the majority) from a reversionary Clifford trust, thus rendering the principles of that case inapposite. Thus, the existence of the independent trustee provides evidence that the gift transfer has substance since the grantor no longer has substantially the same control over the property that he had before. The question that arises is this: Is the presence of an independent trustee necessary in every gift-leaseback transaction? If that factor were the only one that could take the transaction out of the teeth of the Clifford doctrine as it has been applied, the answer would be yes. However, the second distinguishing factor mentioned above should equally suffice to negate the applicability of the Clifford rationale, especially if it also accomplishes the goal of providing evidence that the gift transfer has substance in that the grantor no longer has substantially the same control over the property that he had before. That second distinction is the location of the reversion/remainder interest in the trust property. It would seem that the transfer by the grantor of the remainder interest in the property to someone other than himself should suffice to distinguish the transaction from the Clifford case and prove the bona fides of the transfer. Indeed, in Penn v. Commissioner, supra, we pointed out as significant the entrance of a “new independent owner” onto the scene in Skemp and Brown, though the reference in that opinion was to the independent trustee. Significantly, the next major decision in this area of the tax law is a Ninth Circuit case, Brooke v. United States, 468 F.2d 1155 (9th Cir. 1972). Though I do not believe that any Ninth Circuit case is sufficiently on point to require application of the Golsen rule, we should be sensitive to pronouncements from that circuit, inasmuch as this case would be appealable to that circuit. In Brooke v. United States, supra, the taxpayer gave the property upon which he conducted his medical practice outright to his minor children. He was then appointed as the guardian of the children and leased the property to himself at a reasonable rent. The Ninth Circuit upheld his deduction for the rentals paid. The court said, “The fundamental issue presented involves the sufficiency of the property interest transferred.” Brooke v. United States, supra at 1157.5 It concluded that the transfer was absolute. That being the case, the court easily distinguished it from the two cases urged by the Commissioner as controlling, Helvering v. Clifford, and Van Zandt v. Commissioner, supra, both of which involved reversion trusts. On the basis of the facts and the holding, one would think that the Ninth Circuit had embraced the principle that the absence of a reversion to the grantor suffices to validate the sufficiency of the property interest transferred, even in the absence of an independent trustee. However, the precedential value of the case, for that proposition, is weakened by a latter portion of the opinion. In a sentence that is pointedly noncommital concerning the necessity of an independent trustee, the court refers to that supposed requirement: “Many decisions pivot on the issue of the independence of the trustee.” Brooke v. United States, supra at 1157. Having recognized that the presence of an independent trustee is often perceived as crucial, the court develops some independence for the grantor/guardian in Brooke, citing Montana’s extensive court supervision over guardianships. The dissent in Brooke points out that the majority’s opinion “adds further inconsistency to an area of tax law that is already fraught with too much semantical confusion.” Brooke v. United States, supra at 1159 (Ely, J., dissenting). In 1973, the Tax Court faced this issue again in Mathews v. Commissioner, 61 T.C. 12 (1973), which involved a Clifford -type trust with a reversionary interest to the grantor and with an independent trustee. The grantor then leased back the transferred property at a reasonable rent. The Court allowed his sought rental deduction. As discussed above, it was in Mathews v. Commissioner, supra, that the four tests which we are examining were synthesized and stated. I have alluded to and examined the second, third, and fourth tests (as numbered in Lerner v. Commissioner, 71 T.C. 290 (1978)) and have found that they all have their origin in the statutory language of section 162(a)(3). I further hinted that the statutory origin of the first requirement is not so clear. The first prong of the Mathews test states that “The grantor must not retain substantially the same control over the property that he had before he made the gift.” Mathews v. Commissioner, supra at 18. The Court cited Penn v. Commissioner, supra, as the precedent for that statement. However, I previously noted that Penn clarified the fact that all of the Clifford, Johnson, and Armston considerations were relevant only in determining whether the taxpayer had a disqualifying equity in the rented property under section 162(a)(3). Thus, this first prong of the Mathews test should not be considered as an independent test, but rather as a factor to be considered under the fourth prong of the Mathews test, i.e., whether the grantor has a disqualifying equity in the rented property within the meaning of section 162(a)(3). That this assessment of the function of this first prong of the Mathews test is correct is evidenced by the fact that this portion of the test has often been cited as the prong requiring an independent trustee. Mathews v. Commissioner, supra at 18; Lerner v. Commissioner, supra at 302. As with the independent trustee requirement to which it has been equated, the requirement of a substantial change in the grantor’s control over the property is relevant only in the search for a disqualifying equity. Returning to the holding in Mathews, we can see that the existence of an independent trustee provided sufficient distinction from the Clifford doctrine and sufficient substance to the transfer to enable the Court there to uphold the bona fides of the gift transfer. As we have seen, once that is accomplished, the rental deductions will invariably be allowed, absent an unreasonable rental figure. The Court in Mathews did not mention the possibility that the location of the reversion/remainder interest in the property might provide another ground upon which to distinguish the fact situation there in issue from the Clifford case or provide another proof of the bona fides of the transfer. One might think that this possible argument was neglected because Mathews involved a reversionary, Clifford trust, thereby mooting the argument. However, on May 23 of the last taxable year in issue in Mathews, the taxpayers/grantors/lessees, who were calendar year taxpayers, transferred their reversionary interests to an irrevocable trust for the benefit of their children. Since the Government did not challenge the deductibility of the rentals paid after the relinquishment of the reversion, the Court discreetly avoided mentioning the possible significance of this transfer in its opinion. On appeal, the Fifth Circuit (which reversed the Tax Court based on the Van Zandt v. Commissioner, supra, requirement that the gift have a business purpose) pointed out the possible significance of the location of the reversion. Mathews v. Commissioner, 520 F.2d 323, 324 n. 6 (5th Cir. 1975). The court, in the same footnote, distinguished its holding in Mathews from the holding in Brooke v. United States, supra, on the basis of the location of the reversionary interest and pointed out that the Government did not challenge the arrangement in Mathews after relinquishment of the reversion. Other than Butler v. Commissioner, 65 T.C. 327 (1975), in which the rental deduction was denied solely because the Golsen rule required our adherence to the business-purpose test of the Fifth Circuit, and Perry v. United States, 520 F.2d 235 (4th Cir. 1975), revg. 376 F. Supp. 15 (E.D. N.C. 1974), cert. denied 423 U.S. 1052 (1976), in which the Fourth Circuit seems to have adopted the same test, there were no significant post-Mathews cases in the gift-leaseback area until our 1978 decision in Lerner v. Commissioner, 71 T.C. 290 (1978). In Lerner v. Commissioner, supra, the gift transfer was made to a reversionary Clifford trust with an independent trustee. The transaction was slightly different from the normal gift-leaseback transaction in that the lessee was the grantor’s wholly owned professional corporation, instead of the grantor himself. In granting the corporation the deduction, we there emphasized that the statutory language of section 162(a)(3) is the sole standard by which to judge the availability of the rental deduction. The significance of a grantor’s irrevocable relinquishment of the reversion/remainder interest in the property was again not before the Court in Lerner v. Commissioner, supra. Turning to the facts before us, I see a gift-leaseback transaction that resembles Skemp, Brown, and Brooke, more than it does Van Zandt, Mathews, or Lerner, because the reversionary interest in the case before us has been irrevocably transferred away from the grantor/lessee, Dr. May. The Clifford doctrine, which was never intended to deal with gift-leaseback questions in the first place, is clearly inapplicable here because it applies only to reversionary trusts. Furthermore, the transfer of the reversionary interest supplies adequate substance to the transfer. The Fifth Circuit, in Mathews v. Commissioner, supra, graphically described the need for substance in tax transactions: In deciding the federal questions of income tax law, we must examine transactions with substance rather than form in mind. If we stood at the top of the world and looked down on this transaction — ignoring the flyspeck of legal title under state law — we would see the same state of affairs the day after the trust was created that we saw the day before. [Mathews v. Commissioner, 520 F.2d 323, 325 (5th Cir. 1975).] Where a grantor transfers ownership of property for a limited time to a non-independent trustee, thereby retaining perpetual control and eventual ownership of the property, the transfer is without substance, and he has retained a disqualifying equity in the property.6 However, where the existence of an independent trustee removes the property from the grantor’s perpetual control, or where the transfer of a reversion removes the property from his eventual ownership, the transfer of the property has substance, and the gift has effectively placed the “real” ownership into a “new, independent owner.” Penn v. Commissioner, supra at 154. Since, in the latter situation, the grantor will not be deemed to be the owner of the property transferred, he will not own, either legally or constructively, a disqualifying equity in the property. If the ensuing lease has a business purpose, and the rentals agreed to thereunder are “required,” such rentals should be deductible under the plain language of section 162(a)(3).7  However, it is at this point that the analytical error undergird-ing the majority and dissenting opinions surfaces. The majority takes this first prong of the Mathews test, elevates it to an independent test (though it has relevance only in the search for a disqualifying equity), equates it with a need for an independent trustee, and then finds that the trustee is independent. Although the majority’s subsequent statements concerning the need for independent trustees in this factual context casts welcome doubt on the way in which this prong of the Mathews test has been utilized, I cannot ignore the fact that the majority’s finding regarding the independence of the trustees implies that such a finding was necessary. Similarly, the dissenters deem the independence of the trustees to be an absolute prerequisite to the allowance of the rental deduction here sought. Both positions ignore the basic facts that: (1) The requirement of an independent trustee is not in the controlling statute; (2) the independent trustee requirement arose only in factual situations that are analogous to Clifford trust situations and, there, only to ensure that the “real ownership” of the transferred property no longer remained in the hands of the grantor/lessee; and (3) the present situation, where the grantor has transferred not only the term interest but also the reversion/remainder, is not analogous to the Clifford trust situations and, therefore, does not need the extra validation of the transfer that is provided in the Clifford trust situation by the existence of an independent trustee. Since I would decide that petitioners’ irrevocable transfer to their children of the remainder interest in the property provides sufficient substance to validate the gift transfer, the independence of the trustees would possibly be relevant only in the context of determining whether the agreed-upon rental was “required.” Normally, we would be forced to decide if the trustees were independent enough of Dr. May to bargain at arm’s length over the appropriate rental figure of the leased property. If we were to deem the parties to be sufficiently independent of each other, then the rental agreed upon by the parties to the lease would be per se “required.” If they were not deemed to be sufficiently independent of each other to ensure arm’s-length bargaining, we would, under the holding of Sparks Nugget, Inc. v. Commissioner, 458 F.2d 631 (9th Cir. 1972), cert. denied 410 U.S. 928 (1973), be forced to determine whether the agreed-upon rental was reasonable and, therefore, “required” under section 162(a)(3). However, we need not decide whether the trustees were independent of Dr. May because the parties to this controversy stipulated that the rentals paid were reasonable. Such stipulation conclusively characterizes the rentals as “required,” as that term is used in section 162(a)(3). The general rules for the deduction of rentals paid are found in section 162(a)(3). Quinlivan v. Commissioner, 599 F.2d 269 (8th Cir. 1979), cert. denied 444 U.S. 996 (1979). The Mathews tests, as clarified in this concurrence, can assist the courts in determining whether those statutory requirements for the deduction of rentals paid have been met. However, the approach implicit in the majority opinion and explicit in the opinion of the dissenters requires us to make a finding concerning the trustees’ independence even where, as here, such independence is irrelevant to the search for a disqualifying equity. When the issue before us is the reasonableness of rentals charged and paid by related parties, we will always be forced to determine the independence of the parties in order to determine whether the rent was “required,” as that term is used in section 162(a)(3). But, when the reasonableness of the rent is not at issue, and where the transfer of the reversion/remainder ensures that the grantor has no disqualifying equity in the leased property, we should not add the independent trustee test to the list of requirements that the lessee must meet in order to deduct the rentals paid or incurred. To do so adds a factual question soluble only by the courts, and attempts by the parties involved (taxpayers and the Treasury) to get a judicial resolution of this issue only exacerbates our already burgeoning caseload. Furthermore, it is questionable whether we can provide any consistent, concrete guidelines to explain the quantum and quality of independence needed in these kinds of cases. Even here, the majority finds the trustees to be so independent that it need not pass on the necessity for such independence; while Judge Wilbur, at two different places in his dissent, has this to say about the independence of the trustees: His [Mr. Gross’] performance was not independent by any stretch of the imagination. ******* How the majority can conclude that he was an independent trustee is beyond me. Though I am inclined to agree with the majority on this issue, the important point is that we need not decide it under these facts. If we insist on inviting litigation over this issue, the embarrassing inconsistencies which will surely follow are the deserved fruits of our folly. Irwin and Wiles, JJ., agree with this concurring opinion.   Courts and commentators have mentioned the confusion existing in this area of the tax law. See Brooke v. United States, 468 F.2d 1155, 1159 (9th Cir. 1972) (Ely, J., dissenting); “Tax Court Again Allows Rent Deduction in Trust-Leaseback Arrangement,” 50 J. Tax. 107 (Feb. 1979); and, most recently, J. Canfield, “Clifford Trusts: A New View Towards Leaseback Deductions,” 43 Alb. L. Rev. 585 (1979), wherein the author states, “The issue of whether a grantor may deduct such rental payments has led to frequent litigation and inconsistent judicial decisions.”    Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971), cert. denied 404 U.S. 940 (1971).    I am numbering the four Mathews tests as they were numbered by this Court in Lerner v. Commissioner, 71 T.C. 290 (1978).    A lessee’s ownership of the reversion after the expiration of the lease term is not a disqualifying equity. Mathews v. Commissioner, 61 T.C. 12, 20 (1973).    Judge Wilbur’s dissent conveniently overlooks this critical statement of the fundamental issue in Brooke v. United, States, supra, in his analysis thereof.    Realistically, such a situation, where the trustee controls property which he will eventually own outright, approaches a merger of estates. Restrained only by the beneficial income interests of beneficiaries who are usually his minor children, such a trustee has the power and, especially, has the motive to deal with the property in such a way as to benefit the remainderman, himself, at the expense of the income beneficiaries. He would have an increased motivation to reclassify income as corpus, where he was so empowered to do so, and thereby benefit himself upon the trust’s termination.    As an aside, I would note that Judge Simpson’s conclusion that the trust did not own the trust property until Sept. 20, 1973, simply is not supported by the controlling law or the evidence. The crux of Judge Simpson’s dissent on this matter is that, in order to effectuate a present transfer of property in California, the property must be transferred in a writing executed by the transferor which evidences an intent to transfer the property (Cal. Civ. Code Ann. sec. 1091 (West 1954)), but that the declaration of trust, which petitioners contend meets those requirements, evidences no such intent. Respondent contends, and Judge Simpson agrees, that the following language from the trust declaration is evidence that it was not the instrument by which petitioners intended to transfer their title to the trust property to the cotrustees: “The Trustors have delivered to Trustees, without any consideration on their part, all their right, title and interest in and to the [trust] property.” The contention is that, by using the phrase “have delivered” in their trust declaration, petitioners displayed their belief that a document other than the trust declaration had been used to transfer the property to the cotrustees; therefor, argues respondent, petitioners could not have intended that the trust declaration be the conveyancing instrument. However, such verbal nitpicking will not prevent an instrument which shows a clear intent to presently convey an interest in property from doing so. Keogh v. Noble, 136 Cal. 153, 68 P. 579 (Cal. 1902); Del Giorgio v. Powers, 27 Cal. App. 2d 668, 81 P.2d 1006 (1938). The trust instrument before us clearly evidences the petitioners’ intention to convey, on Jan. 15,1971, all of their right, title, and interest in the property transferred, such intention being shown by the following provisions in the trust instrument: “Section 2.2 By this instrument Trustors, and each of them, relinquish, absolutely and forever, all their possession of, or enjoyment of, or right to income from, the trust property. [[Image here]] “Section 2.4 Trustors, and each of them, expressly renounce for themselves, and for their states, any and all interest, either vested or contingent, including any reversionary interests or possibility of reverter, in the income or corpus of the Trusts.” Judge Simpson’s citation of two “contract for sale” cases (In re Goetz’s Estate, 13 Cal. App. 198, 109 P. 145 (1910), and Roberts v. Abbott, 48 Cal. App. 779, 192 P. 345 (1920)) in support of his position is hardly persuasive. Contracts for sale are, by definition, promises to convey at a future date. Such instruments are hardly analogous to a trust instrument which contains such clear indications of intent to make a present conveyance as does the one before us. Of course, most importantly, it is clear that the question of intent is a question of fact (Follmer v. Rohrer, 158 Cal. 755, 112 P. 544 (Cal. 1910); Kelly v. Bank of America National Trust & Savings Assn., 112 Cal. App. 2d 388, 246 P.2d 92 (1952)), and the holding of the majority on this issue necessarily constitutes a finding of fact that the requisite intent was evidenced in the trust declaration. I defer to and accept that finding and, therefore, believe that the property was transferred in toto to the trust prior to 1973.