Court Opinion

ID: 4330238
Source: CourtListenerOpinion
Date Created: 2018-11-13 23:33:37.242093+00
Date Added: 2024-06-11T14:47:10.716948
License: Public Domain

105 T.C. No. 23

                    UNITED STATES TAX COURT

 WALTER R. RIPLEY, DONEE-TRANSFEREE OF MILDRED M. RIPLEY, DONOR,
AND
MELYNDA H. RIPLEY, DONEE-TRANSFEREE OF MILDRED M. RIPLEY, DONOR,
   Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

    Docket No. 26209-93.                     Filed November 8, 1995.

         In 1983 the donor made gifts of parcels of real
    estate valued at $93,300 to Ps, husband and wife, as
    tenants in common. During the same year the donor made
    gifts of other parcels of real estate to a different
    donee. Controversy arose between the donor and R as to
    the valuation of the gifts to the other donee. As a
    result of the donor's timely consents, the 3-year
    period of limitations for assessment, sec. 6501(a),
    I.R.C., was extended to Apr. 18, 1990. On Feb. 9,
    1990--68 days prior to expiration of the extended
    period--R sent the donor a notice of gift tax
    deficiency. On Feb. 25, 1992, a stipulated decision
    was entered by this Court based upon a computation that
    left intact the $93,300 valuation of the gifts to Ps
    but significantly increased the value of the gifts to
                               - 2 -

     the other donee, resulting in a gift tax deficiency
     substantially in excess of $93,300.
          1. Held, (a) since, pursuant to sec. 6503(a)(1),
     I.R.C., the limitations period for assessment (as
     extended) against the donor was suspended upon the
     issuance of the notice of deficiency until the decision
     of this Court became final and for 60 days thereafter,
     and (b) since, pursuant to secs. 7481(a)(1) and 7483,
     I.R.C., the decision became final upon the expiration
     of the 90-day period without the filing of an appeal,
     even though a stipulated decision, (c) the period of
     limitations for assessment against the donor was
     therefore extended 90 days plus 60 days, a total of 150
     days, notwithstanding the donor's waiver of the sec.
     6213(a), I.R.C., restrictions on assessment. (d)
     Moreover, the 68 days that the period for assessment
     was suspended by the issuance of the notice of
     deficiency must be "tacked on" to the 150 days--a total
     of 218 days from Feb. 28, 1992, or until Oct. 1, 1992.
     (e) Accordingly, since, pursuant to sec. 6901(c),
     I.R.C., the period for assessment against the initial
     transferee extends for 1 year the period of limitations
     for assessment against the transferor, the period of
     assessment against Ps extended to Oct. 1, 1993. The
     notices of transferee liability to Ps, issued on Sept.
     17, 1993, were therefore timely.
          2. Held further, the gift tax lien imposed by
     sec. 6324(b), I.R.C., is not an encumbrance which
     reduces the value of the gifts in Ps' hands, for which
     they are liable as transferees.

     G. Nelson Mackey, Jr., for petitioners.

     Scott Anderson, for respondent.

                              OPINION

     RAUM, Judge:   Respondent issued notices of donee/transferee

liability to petitioners, each in the amount of $93,300.   At

issue is:   (1) Whether the period of limitations for assessment
                                 - 3 -

of transferee liability prescribed by section 6901(c)(1)1

expired, and (2) the amount of petitioners' transferee liability

under section 6324(b).

     The liability at issue results from gifts made by Mildred M.

Ripley (donor) in 1983 to her son, petitioner Walter R. Ripley

and petitioner Melynda H. Ripley, Walter's wife.    At the time the

joint petition in this case was filed, petitioners resided in

Greenville, Virginia.

     On December 30, 1983, the donor made a gift to petitioners,

as tenants in common, of two parcels of real estate located in

Jacksonville, Florida, which then had a total value of $93,300.

Petitioners thus became transferees of the donor, as defined in

section 6901(h).   That same year, the donor made another gift of

real property to her son Joseph.

     On her gift tax return for 1983, filed in 1984, she reported

the value of the property given to petitioners as $93,300, and

the value of the property given to Joseph as $84,139.    On

examination, the IRS took the position that the value of the

property given to Joseph should be substantially increased.

     Within the 3-year limitations period prescribed by section

6501(a), the donor and respondent signed a Form 872, Consent to

Extend the Time to Assess Tax.    Subsequent timely consent

     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect at the time of the donor's
gifts.
                                - 4 -

agreements further extended the assessment period until April 18,

1990.    The donor and the IRS were unable to resolve their

differences, and on February 9, 1990--68 days prior to the April

18, 1990 expiration of the extended assessment period--respondent

sent the donor a notice of gift tax deficiency in the amount of

$467,183.    She timely filed a petition with this Court, and the

case was placed on the Court's docket.    On February 25, 1992, a

stipulated decision was entered settling the donor's liability at

$239,124.    The $93,300 value of the property transferred to

petitioners was not changed by this decision.    Pursuant to the

decision, the donor waived the restrictions of section 6213(a),

which prohibits assessment and collection of the deficiency until

the decision of the Tax Court becomes final.    (More hereinafter

about when the decision becomes "final".)

     The Commissioner assessed the additional gift tax against

the donor on April 7, 1992.    On September 17, 1993, a notice of

donee/transferee liability was issued to each petitioner for

$93,300 of the donor's unpaid gift taxes.2

     2
       The IRS also attempted to collect the gift taxes from
Joseph Ripley. On Sept. 2, 1993, the IRS mailed Joseph, as a
donee of Mildred Ripley, a notice of intention to levy listing
tax and interest due in the amount of $654,973.04. On Sept. 17,
1993, the Commissioner mailed to Joseph a notice of transferee
liability for the donor's unpaid gift tax in the amount of
$651,047.40. The IRS attempted to enforce its lien by serving
Joseph with notices of levy and notices of seizure for two
parcels of real estate in Florida on Dec. 17, 1993. Joseph moved
to restrain assessment and collection until his petition for
redetermination was heard. In Ripley v. Commissioner, 102 T.C.
                                                   (continued...)
                               - 5 -

1.   Timeliness of Notices of Donee/Transferee Liability

     Petitioners argue that the Commissioner issued the notices

of donee/transferee liability after the limitations period

expired.   We hold that the notices were timely.

     Section 6901(a)(1)(A)(iii) provides that the liability of a

transferee of property shall be assessed and collected in the

same manner and subject to the same limitations as the liability

of the donor.   In accordance with section 6901(c), the period of

limitations for assessment against an initial transferee "shall

be * * * within 1 year after the expiration of the period of

limitation for assessment against the transferor".   And section

6901(h) defines "transferee" as including a donee.   Moreover,

petitioners have already stipulated that they are transferees.

Therefore, the period of limitations for assessment applicable to

petitioners expired 1 year after the expiration of the donor's

limitations period.   In order to decide whether an assessment

     2
      (...continued)
654 (1994), this Court denied Joseph's motion and held that IRS
collection efforts pursuant to sec. 6324(b) are not otherwise
subject to the normal deficiency procedures set forth in secs.
6211 through 6216.

     Joseph's petition for redetermination is currently set for
trial in Richmond, Virginia, on Jan. 22, 1996. Of course, if
Joseph is found to be liable as a donee/transferee, and if he
pays the amount so determined, petitioners herein might be
relieved of liability of all or at least a portion of the $93,300
for which we have found them liable, depending upon how much
Joseph pays.

     Also, we do not express any view as to the rights of
petitioners and Joseph inter sese.
                              - 6 -

against petitioners was barred by limitations, we must first

determine when the donor's period of limitations expired.

     Section 6501(a) provides generally that assessments of tax

must be made within 3 years after the taxpayer files a return.

Pursuant to section 6501(c)(4), this 3-year period may be

extended by the consent in writing of the Secretary and the

taxpayer, and the expiration period thus extended may be further

extended by subsequent timely agreements in writing.   In this

case, the donor and the Commissioner entered into valid

successive consent agreements (Forms 872) extending the

assessment period to April 18, 1990.

     However, section 6503(a)(1) suspends the 3-year section

6501(a) limitations period (as extended) upon the issuance of a

statutory notice of deficiency.   Section 6503(a)(1) provides in

pertinent part:

     The running of the period of limitations provided in
     section 6501 * * * shall (after the mailing of the
     notice under section 6212(a)) be suspended for the
     period during which the Secretary is prohibited from
     making the assessment or from collecting by levy or a
     proceeding in court (and in any event, if a proceeding
     in respect of the deficiency is placed on the docket of
     the Tax Court, until the decision of the Tax Court
     becomes final), and for 60 days thereafter. [Emphasis
     added.]
                                - 7 -

     As provided by section 7481(a)(1),3 a decision of the Tax

Court becomes "final" when the period for appeal expires without

the filing of an appeal.    And, pursuant to section 7483, the

period for appeal ends 90 days after a decision is entered in the

Tax Court.    Moreover, it has been uniformly held in a number of

cases where the issue has been analyzed that the 90-day period is

applicable even in the case of a stipulated decision.    Pesko v.

United States, 918 F.2d 1581 (Fed. Cir. 1990); Sherry Frontenac,

Inc. v. United States, 868 F.2d 420 (11th Cir. 1989); Security

Indus. Ins. Co. v. United States, 830 F.2d 581 (5th Cir. 1987);

Lansburgh v. United States, 699 F. Supp. 279 (S.D. Fla. 1988);

Becker Bros., Inc. v. United States, 61 AFTR 2d 88-1147, 88-1

USTC par. 9262 (C.D. Ill. 1988).

     Accordingly, since the decision in the donor's case was

entered February 25, 1992, it became final 90 days thereafter.

And, pursuant to section 6503(a)(1), the running of the section

6501 period of limitations was further suspended for that 90 days

plus 60 days after the 90 days, or a total of 150 days from

February 25, 1992, the day that the stipulated decision was

     3
         Sec. 7481(a)(1) provides:

          (a) Reviewable Decisions.--Except as provided in
     subsections (b), (c), and (d), the decision of the Tax
     Court shall become final--

                 (1) Timely notice of appeal not filed.--Upon
            the expiration of the time allowed for filing a
            notice of appeal, if no such notice has been duly
            filed within such time; * * *
                                - 8 -

entered.   Also, at the time of the issuance of the deficiency

notice (February 9, 1990), there remained unexpired 68 days of

the section 6501 period of limitations, which had been extended

to April 18, 1990.   That remaining period of 68 days was

suspended by the issuance of the deficiency notice, and should

therefore be further added to the 150-day suspension provided by

section 6503(a)(1), for a total of 218 days.   Such addition of

the unexpired 68 days to the period of suspension is firmly

supported by established law.   It has long been held that it is

appropriate to add or "tack on" the days remaining when the

limitations period was interrupted or suspended by the issuance

of a deficiency notice.   McClamma v. Commissioner, 76 T.C. 754,

758 (1981); see also Bales v. Commissioner, 22 T.C. 355, 359

(1954) (quoting Olds & Whipple v. United States, 86 Ct. Cl. 705,

22 F. Supp. 809, 819 (1938) (interpreting section 277(b) of the

1926 Revenue Act, the predecessor of section 6503(a)(1):     "We

think the language of the statute is not reasonably susceptible

to any other construction.   It plainly states that the running of

the statute of limitation shall be suspended and this can only

mean that when the period of suspension ceases the limitation

period again commences to run.")).

     With the addition of the 68 days to the 150 days, the

limitations period for assessment against the donor expired no

earlier than October 1, 1992.   Since, pursuant to section

6901(c), the limitations period for assessment of the transferees
                                 - 9 -

extended for 1 year after that date, the period for assessment of

petitioners as transferees expired no earlier than 1 year after

October 1, 1992, namely, October 1, 1993.     Because the

Commissioner issued the notices of transferee liability on

September 17, 1993, the limitations period against petitioners

had not expired, and the notices were timely.

     Petitioners argue that the limitations period for assessment

against the donor ended on the date the assessment was made,

April 7, 1992.   Petitioners focus on the donor's waiver of the

section 6213(a) restrictions on assessment.     They contend that

the waiver put an end to the suspension of the period of

limitations.

     This argument has been considered and rejected by other

courts.   In Sherry Frontenac, Inc. v. United States, 868 F.2d 420

(11th Cir. 1989), the taxpayers asserted that their waiver of the

prohibition against assessment pursuant to section 6213(a)

removed the 90-day appeal period provided in sections 7481(a) and

7483.   Id. at 423.   In an opinion with which we agree, the

Eleventh Circuit held that the waiver under section 6213(a) did

not have any effect upon the date when the orders became final

under sections 7481(a) and 7483.     Id.   The U.S. Claims Court

followed this decision in Pesko v. United States, 19 Cl. Ct. 687,

689 (1990) ("the waiver had no impact on the availability to the

IRS of the entire 150-day tolling period"), affd. 918 F.2d 1581

(Fed. Cir. 1990).     We follow Pesko and Sherry Frontenac.
                              - 10 -

     Petitioners rely upon Elizalde v. Commissioner, T.C. Memo.

1984-243, a case that is distinguishable.   In the first place,

the transferee prevailed there on the ground that she was not

liable as a transferee wholly apart from any issue relating to

limitations.   Second, even in respect of limitations the Court's

analysis of the problem did not take into account what we regard

as the controlling final parenthetical "in any event" clause in

section 6503(a)(1), posing a serious question whether the point

was ever properly presented to the Court by the parties.

Moreover, the Court ultimately held that the period of

limitations had not expired, and it was therefore not necessary

in that case to consider whether the period of limitations was

extended for 90 days after the entry of the stipulated decision

prior to the addition of the 60 days, as we have done here--a

matter that is of critical significance in this case.    Finally,

Elizalde was distinguished in a well-reasoned opinion by Judge

Friedman of the Federal Circuit in Pesko v. United States, 918

F.2d at 1583-1584.   We do not find it necessary to comment

further on Elizalde.

     Petitioners make other arguments concerning the expiration

date of the limitations period.   They focus on the consent

agreement, which provides in pertinent part:

          (1) The amount of any Federal Gift (Form 709) tax
     due on any return(s) made by or for the above
     taxpayer(s) for the period(s) ended December 31, 1983
     may be assessed at any time on or before April 18,
     1990. However, if a notice of deficiency in tax for
                              - 11 -

     any such period(s) is sent to the taxpayer(s) on or
     before that date, then the time for assessing the tax
     shall be further extended by the number of days the
     assessment was previously prohibited, plus 60 days.

          (2) This agreement ends on the earlier of the above
     expiration date or the assessment date of an increase in the
     above tax that reflects the final determination of tax and
     the final administrative appeals consideration. * * *

Petitioners argue first that the expiration date under paragraph

(1) is April 26, 1992.   Starting from the February 25, 1992,

stipulated decision, they add 60 days from the last sentence of

paragraph (1).   They contend that the donor's waiver of the

prohibition against assessment under section 6213(a) terminated

the suspension of the limitations period.   The addition of this

60 days brings the last day of the limitations period to April

26, 1992.   With the addition of the 68-day tacking period, the

last day of the limitations period is brought to July 4, 1992.

     Paragraph (2), however, provides that the limitations period

expired on the earlier of the paragraph (1) expiration date, July

4, 1992, as figured above, or "the assessment date * * * that

reflects the final determination of tax and the final

administrative appeals consideration."   Petitioners reason that

the latter date is April 7, 1992, the date the IRS made the

assessment based on the stipulated decision entered by this

Court.   Because the earlier of July 4, 1992, and April 7, 1992,

is April 7, 1992, petitioners argue that the limitations period

for assessment against the donor expired on April 7, 1992, and

that the 1-year extension of the limitations period against
                                - 12 -

transferees expired on April 7, 1993.    Sec. 6901(c)(1).   Since

the notices of donee/transferee liability were not issued to

petitioners until September 17, 1993, petitioners contend that

the notices were untimely.

     Respondent argues, and we have held above, that the decision

of the Tax Court does not become final until the appeal period in

sections 7481(a) and 7483 has expired, even when the decision is

a stipulated one.    Petitioners respond that the "final

determination of tax" language does not depend on the finality of

the Tax Court decision.   Form 872 is designed to ensure

assessment of tax.   Once the Commissioner made the assessment,

they argue, regardless of the status of the case under sections

7481(a) and 7483, there was no longer any need to extend the time

to assess, and therefore the limitations period in the agreement

would logically end upon assessment.

     Although petitioners' position appears superficially to be

sound, a closer examination of the problem leads to the opposite

conclusion.   A nearly identical argument was presented and

rejected in a carefully reasoned opinion in Lansburgh v. United

States, 699 F. Supp. 279 (S.D. Fla. 1988).     There, the taxpayers

had entered into a consent agreement with the IRS, Form 872-A,

Special Consent to Extend the Time to Assess Tax.     Id. at 281.

The parties reached a settlement, and a stipulated decision was

entered by this Court.    Id.   The Court held that section 6503(a)

made the assessment timely because section 6503(a) applied to all
                                - 13 -

the limitations periods under section 6501, including those

extended by agreement pursuant to section 6501(c)(4), stating (at

283):

     any extension agreement which gives rise to a
     prohibition against assessment is subject to Section
     6503(a). Whenever the taxpayer and the IRS extend the
     limitations period for assessment to a point in time
     triggered by the sending of a notice of deficiency, the
     Government has the benefit of the suspension contained
     in Section 6503(a), and if a notice of deficiency is in
     fact sent, thereby triggering a period of prohibition
     against assessment, the taxpayer cannot rely on any
     contrary clause in the extension agreement to
     eviscerate Section 6503(a)'s protection. Moreover, if
     the taxpayer files for a redetermination of deficiency
     in the Tax Court, the second parenthetical provision of
     Section 6503(a) operates to further suspend the
     limitations period until 60 days after the decision of
     the Tax Court becomes final. * * * [Emphasis added.]

        The same result had been reached in an alternative holding

in Ramirez v. United States, 210 Ct. Cl. 537, 538 F.2d 888, 893

(1976), where the Court stated:

     Since the agreement entered into between the parties
     was clearly done under authority of section 6501(c)(4),
     the extended contractual period of limitation was as
     much a "period of limitations provided for in section
     6501" as was the otherwise controlling general 3-year
     period provided for in section 6501(a). Consequently,
     upon the mailing of the notice of deficiency by the
     government, section 6503(a)(1), on its own suspended
     the extended contractual period of limitation for the
     same 150 days and, without the aid of the automatic
     extension proviso in the agreement, the assessment
     would have been timely in any case. [Fn. ref.
     omitted.]

     We agree with the analysis in Ramirez and Lansburgh and

reach the same result here.     Although the consent agreement would

apparently on its face result in the expiration of the assessment
                                - 14 -

period on April 7, 1992, we find that the Form 872 executed in

this case is an extension agreement as described in section

6501(c)(4).   As such, the agreement is independently subject to

the application of section 6503(a)(1), which suspends the running

of the limitations period "until the decision of the Tax Court

becomes final and for 60 days thereafter."    As described in

detail above, the limitations period of the donor would expire no

earlier than October 1, 1992.    According to section 6901(c)(1),

the 1-year extension for assessment against a transferee would

expire no earlier than October 1, 1993.    Because the notice of

donee/transferee liability to each petitioner was issued on

September 17, 1993, each notice was timely.

2.   The Amount of Petitioners' Transferee Liability

      Having concluded that the Commissioner's assessment is not

barred by the statute of limitations, we turn to the amount owed

by petitioners.   The donor entered into a stipulated decision

which found a deficiency in gift tax for 1983 in the amount of

$239,124.   Section 6324(b), however, limits the liability of a

donee to the value of the gift received.    The Commissioner

accordingly issued to each petitioner a notice of

donee/transferee liability in the amount of $93,300.4

Petitioners argue that their liability should be reduced by the

amount of gift tax they now will be required to pay.

      4
       There is no dispute between the parties that the value of
the property transferred to petitioners was $93,300.
                               - 15 -

     The language of section 6324(b) is relatively

straightforward.   It establishes personal liability on the part

of the donee for unpaid gift tax, but limits that liability to

the value of the gift received.

     Petitioners contend that their subsequent liability for

unpaid gift tax results in an encumbrance on the property

transferred.   They go on to argue that such an encumbrance should

be taken into account to reduce the value of the gift received.

We do not agree.

     While it is well established that an encumbrance on the

property transferred, such as a mortgage, will be taken into

account when valuing the property, that is not the situation

here.   In the case of a mortgage, the gift in substance is the

gift of the equity in the property.     However, in this case there

was no encumbrance on the property when it was transferred.

Petitioners were subject to no liability until the donor failed

to pay the gift tax rightfully owed.

     True, section 6324(b) places a lien on the transferred

property unless the gift tax is paid, but that lien is not an

encumbrance that reduces the value of the gift.    The value of the

gift is measured by the fair market value of the property

transferred.   Sec. 2512.   Fair market value is the price at which

property would change hands between a willing buyer and a willing

seller, neither being under any compulsion to buy or sell and

both knowing the relevant facts.   Sec. 25.2512-1, Gift Tax Regs.
                                - 16 -

And section 6324(b) specifically provides that "Any part of * * *

the gift transferred by the donee * * * to a purchaser * * *

shall be divested of the lien imposed by this subsection".    The

purchaser takes title free and clear of the lien.    Thus, the gift

tax lien would not be likely to affect the amount a buyer would

be willing to pay for the property in light of the unambiguously

explicit language of the statute just quoted above.    The

liability of the donee is unlike an encumbrance such as a

mortgage.    A mortgage attaches to the property at the time of

transfer, thereby reducing its value, and is properly taken into

account when valuing the gift.    Donee liability, in contrast,

does not reduce the value of the property when given, and should

not be taken into account when valuing the gift.

     We also note that the gift tax is a tax on the donor's

making of a gift, and is "'measured by the value of the property

passing from the donor'."     Robinette v. Helvering, 318 U.S. 184,

186 (1943) (quoting Treasury Reg. 79, art. 3).    The value of the

gift is its value in the hands of the donor, not the donee.

Goodman v. Commissioner, 156 F.2d 218, 219 (2d Cir. 1946), affg.

4 T.C. 191 (1944); Rohmer v. Commissioner, 21 T.C. 1099, 1105

(1954).     Thus, that value is not "necessarily determined by the

measure of enrichment resulting to the donee from the transfer".

Sec. 25.2511-2(a), Gift Tax Regs.    Petitioners cannot use their

subsequent liability for unpaid gift tax to reduce the value of

the gift.     See Rohmer v. Commissioner, supra at 1106 (withholding
                             - 17 -

payments to be paid from gift proceeds do not reduce value of

gift); Rev. Rul. 81-230, 1981-2 C.B. 186 (value of gift not

reduced for additional tax that could subsequently be imposed

under section 2032A(c)).

     This Court has previously addressed this argument.   In Gray

v. Commissioner, a Memorandum Opinion of this Court dated June 7,

1944, 3 T.C.M. (CCH) 552, 555, 44 P-H Memo T.C. par. 44,203 at

646, it was stated:

     In the instant proceeding, however, the property
     transferred by the donor was not subject, at the time
     of transfer, to any lien, mortgage or pledge. The
     statute (section 510 Revenue Act of 1932) makes the
     donee "personally liable for such [gift] tax to the
     extent of the value of such gift." It contains no
     provision authorizing a reduction on account of any
     lien resulting from the gift. The obvious intent of
     the legislation, especially the transferee provisions
     of the statute (Sec. 526 Revenue Act of 1932), is to
     protect the revenue by providing, in effect, that one
     who receives property by gift may, if necessary, be
     required to pay all of it (but no more) over to the
     fiscus. If the construction urged upon us by the
     petitioners should be adopted it is obvious that many
     situations could arise where a donee would be permitted
     to retain a portion of the gift even though the tax, or
     a substantial portion of it, be unpaid. * * *

See also Moore v. Commissioner, 146 F.2d 824, 826 (2d Cir. 1945),

affg. 1 T.C. 14 (1942); Pitcairn v. Commissioner, a Memorandum

Opinion of this Court dated May 22, 1944, 3 T.C.M. (CCH) 584,

489-90, 44 P.H. Memo T.C. par. 44,185 at 585-86.   We reach the

same conclusion here.

     Petitioners argue that the situation before us is similar

to, and should be treated as, a "net gift" transaction.   Where a
                                - 18 -

"net gift" is made, the donor and donee agree that the donee will

bear the burden of the gift tax.     The value of the property

transferred is reduced by the amount of the gift tax paid by the

donee, resulting in the net amount transferred by gift, or the

"net gift".     The IRS has provided an algebraic formula for

determining the amount of gift tax owed on a "net gift" in Rev.

Rul. 75-72, 1975-1 C.B. 310.     It is important to keep in mind

that once the "net gift" is calculated, the full amount of the

gift tax is paid on that "net gift".

     When a "net gift" is made, a portion of the property is

transferred by gift and the remaining portion is transferred by

sale.     The Supreme Court in Diedrich v. Commissioner, 457 U.S.

191 (1982), held that the donor realizes taxable income to the

extent that the amount of the gift tax assumed by the donee

exceeds the donor's basis in the property.     Thus, the donee's

payment of the gift tax is the consideration for the amount

transferred by sale, and the balance is transferred by gift.       In

the present case, however, there was no sale of a portion of the

property to the donees.     This case does not involve a net gift,

and the amount of the gift is the total value of the property

transferred.

        Petitioners' reliance on the "net gift" concept and Rev.

Rul. 75-72, supra, shows a misunderstanding of the nature of

their liability.     Petitioners here are not liable for the tax

stemming from the transfer of property to them as the donee,
                                - 19 -

pursuant to an arrangement with the donor, would be in a "net

gift" transaction.   Petitioners are liable as transferees for the

amount of property they received by gift because the donor did

not satisfy her primary obligation for the gift tax owed.

     Had a "net gift" been made, petitioners would have paid the

resulting gift tax and the amount of the gift would have been

reduced accordingly.   However, if the donor had not paid the full

amount of gift tax owed for that period, petitioners still would

remain liable as transferees up to the full amount of the gift

pursuant to section 6324(b).    See LaFortane v. Commissioner, 29

T.C. 479, 489 (1957), affd. 263 F.2d 186, 194 (10th Cir. 1958).

The end result is that petitioners could be required to pay the

full value of the property received.     A portion would be paid as

tax (the gift tax paid for the donor as consideration for the

"net gift"), and a portion would be paid to satisfy their

transferee liability, up to the full value of the gift received.

     What petitioners argue for here is a result better than what

they could receive had a net gift been made.    In essence, what

petitioners argue is that any amount they now are required to pay

should "purchase" a portion of the property they received,

ultimately leaving them liable for less than the full value of

what was transferred to them.    Rev. Rul. 75-72, supra, provides

no support for such an argument.    Petitioners' liability herein

is their personal liability to the Government, measured by what
                                - 20 -

they received.   What they pay is not consideration for what they

received as in the case of a net gift.

     Petitioners' theory would allow them to keep a portion of

the property received from the donor at the expense of the

Treasury.   Such a result is contrary to section 6324(b).   See

Moore v. Commissioner, supra.    Petitioners are liable for the

full value of the property transferred, without any reduction.

                                          Decision will be entered

                                     for respondent.