Court Opinion

ID: 9466277
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:10:25.590125+00
Date Added: 2024-06-11T17:39:38.372089
License: Public Domain

K. K. HALL, Circuit Judge,
dissenting:
I respectfully dissent. The only issue in this appeal is whether a gift of the present right to receive all income produced from valuable trust property, which historically has produced no income, can qualify the donor taxpayer for a per donee gift tax exclusion under I.R.C. § 2503(b), 26 U.S.C. § 2503(b) (1976). The majority holds it does not, absent some undefined proof by taxpayer that money will flow to the donees in the future, where none would have flowed in the past.
This holding is contrary to the rule of Rosen v. Commissioner, 397 F.2d 245 (4th *1082Cir. 1968), where we held that a bona fide right of income from valuable property qualifies for the exclusion regardless of its past earnings. Here, the right is given, the underlying asset is very valuable and we should apply the actuarial value set forth in the Commissioner’s tables. 26 CFR § 25.-2512 — 9.1
The gift here of family-controlled assets is similar to the gift of dividends in a family-controlled corporation which we considered in Rosen. There, no dividends had ever been voted, and the corporation’s income was accumulated for investment by the family directors, to increase the value of its stock. As in the case of the proverbial “ugly widow” who “everybody knows” will never remarry, the Commissioner argued that no dividend would ever be voted in the future since the corporation would continue to be family-controlled and ever directed toward the investment rather than distribution of income.
In this case the trust asset is valuable real property which steadily appreciates in value each year it is held without sale. It is valuable for multiple dwelling residential development; however, at the time of the gift, it was used as a family rental estate and farming operation which together did not produce enough income to meet expenses. The property produced income year after year, unlike in Rosen, but it never produced a distributable profit. If the business use of the property by the trustees were to change, its profit potential would change. If a higher yielding asset were substituted for the real property, the income potential would change.
Rosen teaches that we should not second-guess how trustees will elect to manage valuable trust assets, nor should we attempt to predict the future income of those assets on a case-by-case basis. Instead, we should turn to the actuarial valuation tables promulgated by the Commissioner.
These tables are structured to set a present worth on rights of income, the amount of which will be determined in the future. The tables index these present rights to the fair market sale value of the assets rather than to their profit histories. Implicit in such an approach is that the present value of all gifts of income should be set by the use and value of the asset to any willing purchaser. Such a theoretical user would put it to its most valuable potential use in the marketplace.
Despite the “bright line” of this policy, the Commissioner asks us to reject it in this case. As in Rosen, the Commissioner argues that the value of the donee’s gift as a whole is the gift of corpus, not the income from it. And since “everybody knows” the trustees will never decide to change the use or kind of trust assets to create income, we should consider the negative profit history of the asset as the “true” measure of its present worth — not its vast income potential. This analysis assumes that the present income-producing worth of the underlying asset will never change, either with changing economic conditions or from any decision of the trustees to change the asset’s present use or to exchange it for one with a higher yield. Rosen rejected such an approach, the policy of the tables reject it, and we should reject it.
Of course, under the Rosen analysis, our rejection of such argument by the Commissioner does not end the case since Rosen allows an exception for “extraordinary circumstances,” where the tables are not applicable. 397 F.2d at 248. This exception was not explained. Contrary to the majority’s broad-ranging analytical undertaking, I think only in “extraordinary circumstances” can we hold the tables inapplicable — if we are to follow Rosen.
Because he seeks an exception to the Rosen rule, the Commissioner bears the bur*1083den of persuasion on the issue. On the facts before us, I think the Commissioner has not carried it because neither the restrictions of the trust nor the relationship of the trustees and beneficiaries to the trust assets are so “extraordinary” that we can hold there is absolutely no potential for distributable income by the trust.
Therefore, just as I would give the proverbial widow credit for her inherent value to all possible suitors, I would reverse the district court to allow the gift tax exclusion.

. The tables apply where “the interest to be valued is the right to receive income of property or to use nonincome-producing property.” (Emphasis added) § 25.2512-9(c). Here, the Commissioner’s argument turns on a technicality since the legal basis of the gift was only a right of trust income in a partnership which owned the real estate. If the beneficiaries had been given a right of personal possession, the tables would apply by the express terms of the regulations.