1986 U.S. Tax Ct. LEXIS 81">*81
In 1940, H entered into a land contract to purchase ranch land in Florida. Over the next 4 years, H and his wife, W, each contributed indeterminate amounts of money to pay the installments of the purchase price of the ranch land and to acquire an adjacent parcel of ranch land. H took title to both parcels in his name alone. In 1978, H and W deeded the ranch land to a newly formed corporation, J, except for three small plots deeded as gifts to their sons and their wives. In return for the ranch, H and W each received 43.7 percent of the stock in J. The three sons of H and W contributed cattle and depreciable assets to J, and in return, each son received 4.2 percent of the corporate stock. In 1979, 1980, and 1981, H and W made gifts of minority stock interests in J to each of their sons. At the time of each gift of stock, the parties to the gift executed a gift adjustment agreement which provided that if it were finally determined for Federal gift tax purposes that the fair market value of the stock exceeded or was less than the value ascribed to the stock in the agreement, the number of shares given would be decreased or increased1986 U.S. Tax Ct. LEXIS 81">*82 so that the total value of the gift would equal the amount fixed in the agreement.
1. H did not make a gift to W of the J stock that she received upon the contribution of the ranch to the corporation because W was the beneficial owner of an undivided one-half interest in the ranch by virtue of a resulting trust.
2. The number of acres of land given to the sons and their wives is determined.
3. The fair market value of the gifts of J stock as of the date of each gift in 1979 through 1981 is determined. In valuing the gifts of stock, discounts for lack of control and lack of marketability are warranted, even though all of the corporation's stock is owned by members of a single family.
4. The gift adjustment agreements do not affect the gift taxes otherwise due on the gifts of stock.
87 T.C. 78">*79 The Commissioner determined deficiencies in the petitioners' Federal gift taxes as follows:
Petitioner | 12/31/78 | 12/31/79 | 12/31/80 | 3/31/81 |
Charles W. Ward | $ 201,802.14 | $ 99,276.29 | $ 11,997 | $ 14,920.34 |
Virginia P. Ward | 39,090.00 | 9,882 | 11,271.70 |
1986 U.S. Tax Ct. LEXIS 81">*86 The issues for decision are: (1) Whether Charles W. Ward made a gift to his wife, Virginia P. Ward, of 437 shares of stock in J-Seven Ranch, Inc. (J-Seven), in 1978, and if so, the value of such shares; (2) the number of acres of land given to the petitioners' sons and their wives in 1978; (3) the fair market values of gifts of stock in J-Seven made by the petitioners to their sons in 1979, 1980, and 1981; and (4) if the fair market values of such gifts of stock are greater than was reported on the petitioners' gift tax returns, whether agreements executed by the petitioners and their sons at the time of the gifts providing in such event for a reduction of the number of shares given, so as to avoid gift tax liability, are effective for Federal gift tax purposes.
FINDINGS OF FACT
Some of the facts have been stipulated, and those facts are so found.
The petitioners, Charles W. and Virginia P. Ward, husband and wife, maintained their residence in Florida1 at the time they filed their petition in this case. Mr. and Mrs. Ward each filed Federal gift tax returns for the calendar quarters ending December 31, 1978, December 31, 1979, December 31, 1980, and March 31, 1981, with the Internal1986 U.S. Tax Ct. LEXIS 81">*87 Revenue Service Center, Atlanta, Georgia. We shall refer to a calendar quarter by the calendar year of which it is a part.
Mr. and Mrs. Ward were married on September 13, 1939. They have five children: Virginia, Charles, Jr., Mary, William, and John.
87 T.C. 78">*80 When they were first married, the petitioners rented a home in Fort Myers, Florida, for $ 35 per month. Since then, they have always resided in Fort Myers, eventually buying a home sometime after 1944. Fort Myers is located in Lee County.
Mr. Ward, an attorney, was appointed County Judge of Lee County on March 1, 1939, and he remained in that office through at least 1944. The judicial appointment was a full-time position, requiring that Mr. Ward be at the county1986 U.S. Tax Ct. LEXIS 81">*88 courthouse from 9 a.m. to 5 p.m. on weekdays and from 9 a.m. to 1 p.m. on Saturdays. Mr. Ward's income from his position as County Judge ranged from about $ 3,000 to $ 4,000 per year. Mrs. Ward was unemployed at the time of the petitioners' marriage in September 1939. Sometime after the Japanese attack on Pearl Harbor in December 1941, she went to work for her father. Her father had been awarded a contract to build a railroad from Fort Myers to the Buckingham Gunnery School east of Fort Myers, and he employed Mrs. Ward to prepare his payroll and to perform other bookkeeping tasks. The record does not establish how much her father paid Mrs. Ward, but it was more than was customary for the type of work because Mrs. Ward worked long hours and on weekends when necessary and because he knew that Mr. and Mrs. Ward were in need of the extra income. Mrs. Ward stopped working for her father sometime before the birth of her son Charles, Jr., on February 14, 1944.
At the time of their marriage, the petitioners had no assets other than some cattle owned by Mr. Ward. Mr. Ward was raised on a farm and has always been interested in cattle. Sometime before he married, Mr. Ward purchased 251986 U.S. Tax Ct. LEXIS 81">*89 head of cattle, which he ran on open range land in Collier County, Florida, together with cattle owned by his brother, David Elmer Ward. In November 1940, Mr. Ward borrowed money from the Lee County Bank in order to buy an additional 200 head of cattle. These 200 head of cattle were kept on ranch land leased from the Florida Land & Timber Co. (FLT) and located in Hendry County, Florida.
On December 21, 1940, Mr. Ward (as Wilson Ward) entered into a contract with FLT for the purchase of the 87 T.C. 78">*81 Hendry County land (the land contract). Under the contract, FLT agreed to sell Mr. Ward:
Sections Nineteen (19), Twenty (20), Twenty-one (21), Twenty-eight (28), Twenty-nine (29), Thirty (30), Thirty-one (31) and Thirty-two (32), Township Forty-six (46) South, Range Thirty-three (33) East, totaling eight (8) sections, all in Hendry County, Florida, subject to existing roads and easements for roads.
The eight sections contained approximately 5,120 acres. Mr. Ward agreed to pay FLT $ 7,680 (plus interest) for the land, payable in installments of principal as follows:
Date | Principal payment | |
Upon execution of the contract | $ 2,560 | |
Feb. 24, 1942 | 1,706 | |
Feb. 24, 1943 | 1,707 | |
Feb. 24, 1944 | 1,707 |
1986 U.S. Tax Ct. LEXIS 81">*90 The principal balance due was subject to interest at a rate of 5 percent per annum from February 24, 1941, payable on August 24, 1941, and semiannually thereafter, until the principal was fully paid.
The land contract entitled Mr. Ward to possession of the property on February 24, 1941, and thereafter so long as he performed the obligations of the contract. The land contract further provided that:
It is further agreed and understood that the party of the first part [FLT], under date of December 21, 1940, is to execute a deed to Wilson Ward and David Elmer Ward, and, subject to the conditions and reservations hereinbefore stated, deliver such deed promptly to the First National Bank in Fort Myers, Florida, in escrow.
* * * *
But if all said sums of money, interest and taxes are paid, as aforesaid, promptly at the times aforesaid, and all agreements on the part of the said party of the second part [Wilson Ward] have been complied with, the party of the first part will, on receiving all said money and interest, and upon the surrender of the duplicate of this contract, execute and deliver or cause to be executed and delivered, to said second party, his heirs or assigns, a good and sufficient1986 U.S. Tax Ct. LEXIS 81">*91 warranty deed, conveying said premises in fee simple * * *
The land contract provided that David Elmer Ward was to be a grantee in the escrow deed because he was considering joining in the purchase so as to have a place to run his cattle; but shortly thereafter, he purchased land elsewhere 87 T.C. 78">*82 in Hendry County and decided not to join in the purchase from FLT. FLT never placed a deed in escrow.
Mr. Ward consulted his wife before he entered into the land contract with FLT. They agreed that the land ought to be purchased. Mr. Ward paid the $ 2,560 downpayment on the land. After Mrs. Ward began working in 1942, her wages and those of Mr. Ward were deposited in a joint bank account. Proceeds from the sale of cattle belonging to one or the other or both of them were also deposited into their joint bank account. The petitioners paid the installments of principal and interest payments due FLT with money drawn from their joint account. They did not keep a record of the amounts each contributed to the account or to the purchase from FLT.
After the petitioners paid the last installment of principal and interest due FLT, the president of FLT, on March 24, 1944, executed a deed conveying1986 U.S. Tax Ct. LEXIS 81">*92 to Wilson Ward (the petitioner, Charles W. Ward) a fee simple interest in the eight sections of land described in the land contract. In such deed, FLT retained all oil, gas, and mineral rights to the land, contrary to the terms of the land contract. On November 24, 1944, the president of FLT executed a corrected deed wherein the provision concerning oil, gas, and mineral rights conformed to the land contract. In both deeds, Mr. Ward was the sole grantee. Mr. Ward had both deeds recorded in the public records of Hendry County.
On October 7, 1942, Marion C. and Helen M. Ryan (the Ryan sisters) conveyed section 33 of Township 46 South, Range 33 East, Hendry County, to Mr. Ward, as sole grantee. Section 33 was adjacent to the eight sections of land purchased from FLT. The deed was prepared at the direction of Mr. Ward and recorded on October 29, 1942. Mr. Ward paid $ 1,152 for the property, using funds drawn from the petitioners' joint bank account.
The nine sections of land purchased from FLT and the Ryan sisters (the ranch) contained a total of about 5,712 acres, or almost 9 square miles of land. The ranch was situated about 20 miles southwest of Clewiston and about 55 miles1986 U.S. Tax Ct. LEXIS 81">*93 southeast of Fort Myers. The land was suitable primarily for cattle ranching. From 1941 until the incorporation of the ranch in 1978, the petitioners have maintained 87 T.C. 78">*83 cattle on the land. Their sons have also run cattle on the ranch.
The petitioners have always felt that they were co-equal owners of the ranch because they both contributed money toward its purchase and because they both worked on the ranch. During the years when the property was being purchased and both Mr. and Mrs. Ward were employed in Fort Myers, they went to the ranch to check on the cattle only on weekends. In subsequent years, Mrs. Ward continued to help with the ranch by cooking for ranch crews, carrying supplies between Fort Myers and the ranch, and occasionally helping with the cattle.
Mr. Ward prepared a deed conveying a one-half interest in the ranch to Mrs. Ward; an executed copy of the deed has not been located, and Mrs. Ward does not recall receiving the deed. The deed was never recorded. An unexecuted copy of the deed, entitled "Special Deed" and dated March 23, 1943, recites, in part, as follows:
Witnesseth: That the said party of the first part [Charles Wilson Ward], for and in consideration1986 U.S. Tax Ct. LEXIS 81">*94 of the sum of One and No/00 ($ 1.00) dollars and the other considerations hereafter set forth, does hereby convey and transfer to his wife, the said party of the second part [Virginia Powell Ward], her heirs and assigns forever, the title to an undivided One-half (1/2) interest in the following described lands, situate, lying and being in Hendry County, State of Florida, to-wit:
Sections 19, 20, 21, 28, 29, 30, 31, 32 and 33 of Township 46 South, Range 33 East, less easements for road right-of-way.
These lands were purchased by the said party of the first part and the said party of the second part with their joint monies and the deed from Florida Land and Timber Company and the deed from Marion C. Ryan and Helen M. Ryan should have been made and executed to both of said parties.
This deed is given directly from husband to wife for the purpose as shown and not to avoid the collection of any just debt or other obligation of either of the said parties hereto.
The wife, party of the second part, does not execute this deed for the purpose of relinquishing her dower rights in said lands as the interest therein created by this deed is greater than said dower.
The names of the grantor (Charles1986 U.S. Tax Ct. LEXIS 81">*95 Wilson Ward), two witnesses, and a notary public are typed in the appropriate places at the bottom of the copy of the unexecuted deed. The deed is obviously old; certain holes in, and marks on 87 T.C. 78">*84 the face of, the deed appear to have been caused by either the decomposition of the paper or water damage.
On October 17, 1978, Mr. and Mrs. Ward joined in giving portions of the ranch to their sons and their wives. Charles, Jr., and his wife, Frenda, received a rectangular parcel of land, measuring 800 feet by 484 feet, located in section 28. Such parcel contained 387,200 square feet, or 8.9 acres, of land. (There are 43,560 square feet in an acre, 640 acres in a section, and 36 sections in a township. Webster's Third New International Dictionary (1981).) William and his wife, Barbara, received a rectangular parcel in section 20, measuring 1,000 feet by 435.6 feet and containing 435,600 square feet, or 10 acres, of land. John, who was unmarried, received land described as follows:
The south one-half (S 1/2) of the northwest quarter (NW 1/4) and the north one-half (N 1/2) of the southeast quarter (SE 1/4) of the northwest quarter (NW 1/4) of the southwest quarter (SW 1/4) of1986 U.S. Tax Ct. LEXIS 81">*96 Section 28, Township 46 South, Range 33 East[.]
We have concluded that such description conveyed 10 acres of land to John.
The petitioners intended to give each son 10 acres of land, and the sons thought that they had each received 10 acres; but, through some error of description or calculation, Charles, Jr., actually received only 8.9 acres. Charles, Jr., discovered that he had received only 8.9 acres in 1979, when a property tax bill arrived. Sometime thereafter, he told his father of the mistake. As of the time of trial, nothing had been done to correct the mistake.
In September 1978, the petitioners and their sons formed J-Seven Ranch, Inc., to provide for an orderly transfer of the ranch from the petitioners to their sons and to ensure that the cattle business would continue as a single economic unit after the petitioners' deaths. J-Seven was capitalized in December 1978; Mr. and Mrs. Ward, as co-grantors, deeded the ranch (less the three parcels previously conveyed to their sons and their wives) to the corporation, and each of their sons contributed 400 head of cattle and certain depreciable assets to the corporation. No cash was contributed to J-Seven. The ranch, as1986 U.S. Tax Ct. LEXIS 81">*97 deeded to J-Seven, contained 5,683.1 acres, or 1.1 acres more than intended, due to the mistake in the deed to Charles, Jr.
87 T.C. 78">*85 J-Seven had 7,500 authorized shares of stock, of which 1,000 shares were issued and outstanding during the years in issue. When the corporation was formed, shares were issued to the following persons in the listed amounts:
Name | Shares |
Charles W. Ward | 437 |
Virginia P. Ward | 437 |
Charles, Jr | 42 |
William | 42 |
John | 42 |
On March 10, 1979, J-Seven and its five stockholders entered into a stock purchase agreement, which recited in pertinent part as follows:
ARTICLE I
1.
2.
3.
* * * *
5.
* * * *
ARTICLE II
1.
2.
3.
4.
* * *
* * * *
ARTICLE III
1.
2.
ARTICLE IV
1.
* * * *
8.
In accordance with Article III of the stock purchase agreement, the stockholders of J-Seven, on March 10, 1979, executed a certificate of value, which fixed the price of the corporation's stock at $ 2,000 per share for purposes of the agreement. The stockholders have not executed another certificate of value since that time. There have been no sales of, or attempts to sell, any of the shares of stock of J-Seven through 1984.
On December 28, 1979, each of the petitioners gave to each of their three sons 25 shares of stock in J-Seven. At the time of such gifts, the petitioners and their sons executed an agreement (the gift adjustment agreement) that stated, in pertinent part:
1.
2.
On December 31, 1980, each petitioner made a gift of 4 shares of stock in J-Seven to each son, and on January 15, 1981, each petitioner made a gift of 5 additional shares to each son. At both times, the petitioners and their sons executed an agreement identical to the gift adjustment agreement of December 1979, with the exception that the acknowledged value of the gifted shares differed: the December 1980 agreement recited a value per share of $ 2,300 and a value per gift of 4 shares of $ 9,200; the January 1981 agreement recited a value per share of $ 2,300 and a value per gift of 5 shares of $ 11,500.
As of December 31 of each year, the outstanding shares of J-Seven stock were owned as follows:
1978 | 1979 | 1980 | 1981 | |
Charles W. Ward | 437 | 362 | 350 | 335 |
Virginia P. Ward | 437 | 362 | 350 | 335 |
Charles Jr. | 42 | 92 | 100 | 110 |
William | 42 | 92 | 100 | 110 |
John | 42 | 92 | 100 | 110 |
Each share of stock outstanding was entitled to one vote and to dividends when and as declared by the corporation's board of directors. 1986 U.S. Tax Ct. LEXIS 81">*105 During the years in issue, all five stockholders were directors of the corporation, and the corporate officers were Mr. Ward (president), Mrs. Ward (secretary-treasurer), and Charles, Jr. (vice president).
J-Seven is a "cow and calf" ranch business; the cows owned by the corporation are bred to bulls, and all resulting calves are sold within the year unless retained to replace lost or sold breeding stock. All 1,200 of the cattle contributed to J-Seven upon incorporation were breeding cows, and J-Seven owned 1,200 breeding cows throughout the years in issue. A breeding cow is kept, often for 10 or more years, to 87 T.C. 78">*89 produce calves, whereas a beef cow is raised for slaughter. The breeding cows owned by J-Seven were cross-bred (i.e., not purebred) and of inferior quality, being classified as Florida range or scrub cows. Few cattlemen would purchase such cows for breeding purposes because they prefer more highly bred cows; if sold for slaughter (beef) purposes, such cows would be classed as "canner or low-cutter" grade, rather than as the higher grades (from highest to lowest) of "choice," "good," "commercial," "utility," and "cutter." The J-Seven cows weighed from 600 to 7001986 U.S. Tax Ct. LEXIS 81">*106 pounds each and had a breeding percentage of 50 percent, 2 which was below the Florida average of 85 percent.
During 1979 through 1981, J-Seven was an electing small business corporation for Federal income tax purposes. The corporation reported net income (after depreciation) of $ 24,507 in 1979, $ 14,126 in 1980, and $ 10,723.89 in 1981. In 1980 and 1981, J-Seven paid Charles, Jr., and William $ 15,000 each as compensation for operating the ranch, and such amounts were deducted in computing the corporation's net profit. In 1981, D & W Farms paid Mr. and Mrs. Ward $ 9,000 to rent a parcel of the land owned by J-Seven; Mr. and Mrs. Ward reported the rent as income on their individual tax return for 1981, but the corporation did not report such rent as income.
Aside from 1986 U.S. Tax Ct. LEXIS 81">*107 their ownership of J-Seven, the petitioners and their sons are persons of modest means. From 1976 through 1983, the petitioners' adjusted gross income, as reported on their joint income tax returns, did not exceed $ 32,110 in any year; and from 1978 through 1983, each son's adjusted gross income, as reported on his income tax return, did not exceed $ 30,155 in any year. 3
On their gift tax returns for 1978, each petitioner reported making a gift of an undivided one-half interest in each of the three parcels of land conveyed to their sons and their wives in October 1978. Mr. Ward valued each of his three reported gifts at $ 2,000, and Mrs. Ward valued each of her three reported gifts at $ 2,000. Each petitioner signed 87 T.C. 78">*90 the gift tax return of the other, consenting to have gifts made by either spouse to third parties treated as made one-half by each of them (i.e., electing split-gift 1986 U.S. Tax Ct. LEXIS 81">*108 treatment). On their gift tax returns for 1979 through 1981, each petitioner reported the gifts to the sons of J-Seven stock as follows:
Fair market | |||
Year of | Total shares | value per share | Total value |
gifts | transferred | as reported | as reported |
1979 | 75 | $ 2,000 | $ 150,000 |
1980 | 12 | 2,300 | 27,600 |
1981 | 15 | 2,300 | 34,500 |
The Commissioner issued separate notices of deficiency to the petitioners. The Commissioner determined that Mr. Ward made a gift to Mrs. Ward of the 437 shares of J-Seven stock that she received upon the incorporation of the ranch. He valued such gift as follows:
Value of assets transferred to J-Seven: | |||
Land (5,608 acres) value on 12/31/78 | $ 2,385,000 | ||
Depreciable assets | 132,233 | ||
Cattle -- 1,200 head at $ 500 per head | 600,000 | ||
Total value of 1,000 shares | 3,117,233 | ||
Per share value | $ 3,117 | ||
X437 | shares | ||
Value of gift | $ 1,362,129 |
The Commissioner also determined the fair market value of the J-Seven stock and, thus, the total amounts of each petitioner's gifts of stock in 1979 through 1981 to be as follows:
Fair market value | Total gifts of | |
Year of | per share | each petitioner |
gifts | as determined | as determined |
1979 | $ 3,700 | $ 277,500 |
1980 | 4,275 | 51,300 |
1981 | 4,287 | 64,305 |
1986 U.S. Tax Ct. LEXIS 81">*109 The Commissioner computed the total value of each petitioner's gifts in the following manner:
12/31/79 | 12/31/80 | 3/31/81 | |
Value of assets of J-Seven: | |||
Land (5,608 acres) | $ 2,945,000 | $ 3,505,000 | $ 3,505,000 |
Cash | 19,475 | 29,557 | 38,257 |
Depreciable assets | $ 137,265 | $ 141,309 | $ 143,431 |
Cattle (1,200 head at | |||
$ 500 per head) | 600,000 | 600,000 | 600,000 |
Total value of 1,000 shares | 3,701,740 | 4,275,866 | 4,286,688 |
Per-share value | 3,700 | 4,275 | 4,287 |
Total shares given | X75 | X12 | X15 |
Total value of gifts | 277,500 | 51,300 | 64,305 |
87 T.C. 78">*91 By amendment of his answer, the Commissioner further determined that: (1) Mr. Ward, alone, made gifts of land to his sons and their wives in 1978; (2) Mr. Ward gave 8.9 acres to Charles, Jr., and his wife, 10 acres to William and his wife, and 85 acres to John; and (3) the per-acre value of such land was $ 425 at the time of the gifts.
The parties now agree that J-Seven owned the following amounts of cash and that its land and depreciable assets had the following fair market values when the gifts (or alleged gift) of stock were made:
1978 | 1979 | 1980 | 1981 | |
Land | $ 425/acre | $ 500/acre | $ 525/acre | $ 525/acre |
Cash | 0 | 19,475 | 29,557 | 38,257 |
Depreciable assets | 132,233 | 137,265 | 141,309 | 143,431 |
1986 U.S. Tax Ct. LEXIS 81">*110 The parties further agree that J-Seven purchased an unknown quantity of additional land for $ 12,000 on May 7, 1980.
OPINION
The first issue for decision is whether Mr. Ward made a gift to his wife of 437 shares of stock in J-Seven when the ranch was contributed to J-Seven, and Mr. and Mrs. Ward each received 437 shares of the corporation in exchange. The resolution of such issue turns on whether Mrs. Ward had an ownership interest in the ranch despite the fact that Mr. Ward, alone, held legal title to the property. The petitioners contend that Mrs. Ward was the beneficial owner of an undivided one-half interest in the ranch by virtue of either a resulting trust, a constructive trust, or a special equity, in her favor.
The ranch was located in Florida, and the law of that State is applicable in determining what interest, if any, 87 T.C. 78">*92 Mrs. Ward may have had in the property.
Resulting and constructive trusts are implied, as opposed to express, trusts.
87 T.C. 78">*93 Florida places the 1986 U.S. Tax Ct. LEXIS 81">*113 burden of proving a resulting trust or a constructive trust on the party who seeks its enforcement, and the proof of either must be "clear and convincing."
1986 U.S. Tax Ct. LEXIS 81">*114 The circumstances surrounding the purchase of the ranch clearly indicate that Mr. and Mrs. Ward intended that Mr. Ward hold legal title to the property for the benefit of them both. At the time they married, the petitioners had no assets other than some cattle owned by Mr. Ward. The ranch was their first real estate purchase. Although Mr. Ward paid the downpayment to FLT, the subsequent installment payments due FLT and the purchase money paid to the Ryan sisters were drawn from the petitioners' joint bank account to which Mrs. Ward made material contributions. She was employed by her father for substantially the entire period during which the installments were due (February 1942 to February 1944), and she deposited her pay to the joint account. It is true that the petitioners kept no record of their respective deposits to the joint account, and it is also true that, 40 years later, Mrs. Ward cannot remember exactly how much money she earned, although she does recall that her father paid her quite well because of the long and unusual hours she worked, their family 87 T.C. 78">*94 relationship, and his knowledge of the petitioners' financial needs. The special deed to Mrs. Ward, prepared1986 U.S. Tax Ct. LEXIS 81">*115 by Mr. Ward during the course of the purchase of the ranch, furnishes additional evidence of their intention that the jointly purchased property was owned by them in equal shares. 5 The deed was prepared contemporaneously, and although it may not have been delivered, we have no reason to believe that the failure to do so was due to any disagreement over its provisions.
1986 U.S. Tax Ct. LEXIS 81">*116 The Commissioner disputes that the petitioners intended to own the ranch jointly. He argues that Mr. Ward bought the land so that he and his brother, David Elmer Ward, would have a place to run their cattle. The Commissioner points out that the land contract with FLT provided that FLT was to deliver a deed into escrow that named Mr. Ward and David Elmer Ward as co-grantees.
Mr. Ward originally requested that David Elmer Ward be a co-grantee of the escrow deed because his brother then was thinking of joining in the purchase, but his brother was not a party to the land contract. Mr. Ward supplied the downpayment, and only he was contractually obligated to purchase the property. As it turned out, David Elmer Ward purchased other land shortly thereafter, and he never made any contributions toward the purchase from FLT. Instead, Mr. and Mrs. Ward paid the installments due FLT. In light of all the circumstances, these subsequent joint contributions support the inference that Mr. and Mrs. Ward then intended that Mr. Ward take legal title for their mutual benefit upon fulfillment of the contract. In this connection, we observe that a resulting trust arises, if at all, "at the instant1986 U.S. Tax Ct. LEXIS 81">*117 the deed is taken and the legal title vests in the grantee"; the alleged beneficiary "must have paid his share of the purchase price, or bound himself to the grantor by an absolute obligation to pay it. No oral agreement, and no payments made after the title is taken, will create a 87 T.C. 78">*95 resulting trust."
"It is well settled today that a resulting trust may arise when only a part of the purchase price has been paid by one person and title is taken in the name of another." 5 A. Scott,
In
The law is established to the effect that a person claiming a resulting1986 U.S. Tax Ct. LEXIS 81">*119 trust must show that he paid
Since
It is often said that a resulting trust does not arise in favor of one who merely makes a "general" or "indefinite" contribution to the purchase price. If A has made contributions from time to time to a fund to which B also contributes, and no account is kept as to the contributions made by each, and the whole fund is used by B in purchasing property, it is held that no resulting trust arises. * * * If there is no 1986 U.S. Tax Ct. LEXIS 81">*120 evidence as to the amounts contributed it is, of course, impossible to prove what shares the contributors are entitled to. In a few cases the court has cut the knot by holding that where the amounts contributed cannot be ascertained the contributors are entitled to the property in equal shares. At any rate, the indefinite character of A's contributions tends to show that it was not the understanding of the parties that he was to receive any interest in the property purchased. * * * The presumption of a gift or loan arising from the indefinite character of the contributions should be a rebuttable presumption. [5 A. Scott,
However, equity may loosen the proof required to establish a resulting trust where the contributors are husband and wife:
In the case of a purchase of a matrimonial home the usual rules as to a resulting trust are much relaxed. This is especially the case where the spouses are of quite moderate means, and are not likely to make any written or even oral agreement as to the beneficial ownership of the home, and where both have small savings or both are employed, and both contribute to the family support.
It is often1986 U.S. Tax Ct. LEXIS 81">*121 a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labor to the various expenses of the household. It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase.
Although many of the cases involve the purchase of the matrimonial home, similar considerations are applicable to the purchase of other land or even to the purchase of personal property during the period of the marriage.
The title may be taken in the name of the husband alone, or in the name of the wife alone, or in their joint names; and the reason for doing so may have nothing to do with the question of who is to have the beneficial interest, a question which later becomes important when one of them dies, or they separate or are divorced.
[5 A. Scott, Trusts 31-32 (Supp. 1985); fn. ref. omitted.]
87 T.C. 78">*97 Were the highest court of Florida now confronted with the question, we are convinced that the court would relax the standards for a resulting trust if the contributors were married. We1986 U.S. Tax Ct. LEXIS 81">*122 are persuaded thus by that court's recognition, in similar factual circumstances, of a "special equity" in divorce settlements.
A "special equity" appears to be the functional equivalent of a resulting trust in marriage dissolution cases. A special equity is "a vested interest in property brought into the marriage or acquired during the marriage because of contribution of services or funds over and above normal marital duties."
In the case before us, we are convinced that Mr. and Mrs. Ward contributed jointly toward the purchase of the ranch with the intent and understanding that they would own the ranch jointly. That Mrs. Ward cannot now establish the exact amount of her financial contribution does not negate the inference of a resulting trust from the circumstances surrounding the purchase. Accordingly, we hold that Mrs. Ward1986 U.S. Tax Ct. LEXIS 81">*125 was the owner of an undivided one-half interest in the ranch before it was conveyed to J-Seven and, therefore, that Mr. Ward made no gift to her when she received 437 shares upon its contribution to J-Seven.
The next issue for decision is the number of acres of land given by the petitioners to their son, John, and to their son, Charles, Jr., and his wife, Frenda, in 1978. The Commissioner maintains that John received 85 acres and that Charles, Jr., and Frenda received 8.9 acres. The Commissioner bears the burden of proof on this issue, having raised it for the first time by amendment of his answer.
1986 U.S. Tax Ct. LEXIS 81">*126 Reading the description of the land conveyed to John, the Commissioner has come to the understandable, but nonetheless incorrect, conclusion that John received 85 rather than 10 acres of land. The parcel was described as follows:
The south one-half (S 1/2) of the northwest quarter (NW 1/4) and the north one-half (N 1/2) of the southeast quarter (SE 1/4) of the northwest quarter (NW 1/4) of the southwest quarter (SW 1/4) of Section 28, Township 46 South, Range 33 East[.]
87 T.C. 78">*99 As we read such description, all of the statements following "the north one-half (N 1/2) of the southeast quarter (SE 1/4)" pertain to both the "south one-half" and the "north one-half" previously described. Thus, John received the south one-half of the northwest quarter and the north one-half of the southeast quarter, where both such half-quarters are located in the northwest quarter of the southwest quarter of section 28. Since a section contains 640 acres, one-half of a quarter, of a quarter, of a quarter, of a section contains 5 acres, and two such halves contain a total of 10 acres. To find that the parcel described contains 85 acres, one would have to read the description as conveying the south1986 U.S. Tax Ct. LEXIS 81">*127 one-half of the northwest quarter of section 28 (or one-half of 160 acres, or 80 acres) plus the north one-half of the southeast quarter of the northwest quarter of the southwest quarter of section 28 (or 5 acres). Such reading would require that commas be inserted so that the description would read:
The south one-half (S 1/2) of the northwest quarter (NW 1/4), and the north one-half (N 1/2) of the southeast quarter (SE 1/4) of the northwest quarter (NW 1/4) of the southwest quarter (SW 1/4), of Section 28, Township 46 South, Range 33 East.
Although there may be some ambiguity in the description as written, its meaning becomes clear when considered in the light of the petitioners' and John's understanding that he was to receive 10 acres.
There was some testimony to the effect that the Hendry County tax assessor's office interpreted the deed to John as conveying 85 acres of land. If so, the assessor's office labors under the same misinterpretation as does the Commissioner, but such mistake does not alter the legal effect of the deed, which was to convey only 10 acres.
We turn now to the gift of land to Charles, Jr., and Frenda: it is indisputable that the parcel described contained1986 U.S. Tax Ct. LEXIS 81">*128 8.9 rather than 10 acres of land. That they received less than 10 acres was due to a mistake either in drafting or calculation. The petitioners ask that we find that they made a gift of 10 acres because, under Florida law, the parties can voluntarily execute a corrected deed or the petitioners could obtain a judicial reformation of the deed. However, "not even judicial reformation can operate to change the 87 T.C. 78">*100 federal tax consequences of a completed transaction."
Accordingly, we conclude that the petitioners together made gifts of 10 acres to John, 10 acres to William and his wife, Barbara, and 8.9 acres to Charles, Jr., and Frenda. The parties now agree that the land had a fair market value of $ 425 per acre in 1978 rather than the $ 400 per acre reported on the petitioners' gift tax returns.
The third issue for decision is the value of the shares of J-Seven stock given by the petitioners to their sons in 1979, 1980, and 1981. The gift tax is imposed "on the transfer of property by gift."
In determining the value of unlisted stocks, actual arm's-length sales of such stock in the1986 U.S. Tax Ct. LEXIS 81">*131 normal course of business within a reasonable time before or after the valuation date are the best criteria of market value.
the good will of the business; the economic outlook in the particular industry; the company's position in the industry and its management; the degree of the control of the business represented by the block of stock to be valued; and the values of securities of corporations engaged in the same or similar lines of business which are listed on a stock exchange. However, the weight to be accorded such comparisons or any other evidentiary factors considered in the determination1986 U.S. Tax Ct. LEXIS 81">*132 of a value depends upon the facts of each case.
The petitioners contend that the valuation of the J-Seven stock should be based, in part, on the liquidation value of the corporation's assets and the value placed on the shares in the stockholders' stock purchase agreement, but that greater weight should be given the corporation's earnings and dividend-paying capacity. The Commissioner maintains that the stock valuation should be based solely on the value of the corporation's assets, without any reduction for liquidation costs (i.e., real estate sales commissions and income taxes due on the sale) and without any discounts for lack of control or lack of marketability.
Both parties' expert witnesses valued the stock of J-Seven by reference to the value of the corporation's 87 T.C. 78">*102 underlying assets alone. Both experts reviewed the corporation's income tax returns and, based on the information contained therein, concluded that the stock could not be valued properly using an income capitalization method because the corporation's return on its admittedly valuable assets was exceedingly low. In the words of the petitioners' expert, an income capitalization1986 U.S. Tax Ct. LEXIS 81">*133 approach would place a "[ridiculously] low" value on the stock. The experts agreed that the corporation's value lay in its assets, not in its earning power as an operating ranch.
Where there is an ongoing business such as we have in this case, courts generally have refused to treat either asset value or earnings power as the
The petitioners and their sons were actively involved in the ranching business long before J-Seven was incorporated. Neither they nor the corporation has engaged in the business of selling the ranch's underlying assets. In fact, the corporation was formed because the petitioners wanted to pass the cattle business on to their sons, intact. There is no evidence that the corporation intended to liquidate, and there was no power to liquidate attendant to the minority 87 T.C. 78">*103 interests given to the sons during the years in issue. Under these circumstances, the earnings power of the corporation is a factor to be considered in valuing the stock given1986 U.S. Tax Ct. LEXIS 81">*135 to the sons. However, in light of the tremendous disparity between the corporation's value as an operating company and its value as an investment holding company, we think such factor is adequately taken into account by reducing the stock's value, as determined under a net asset value method, by a minority discount. A minority discount reflects the minority shareholder's inability to compel a liquidation and, thus, to receive a pro rata share of the corporation's net asset value.
The only corporate assets the value of which are in dispute are the 1,200 breeding cows owned by the corporation on the date of each gift of stock. The Commissioner determined that each cow had a value of $ 500 on the date of each gift. He argues that the cows must be valued at the price they would fetch if sold for breeding purposes. The cows were mixed-breed, low-quality, Florida range cattle. We are persuaded that such cows, while usable for breeding, could not be sold for such purpose because of their inferior quality. Charles, Jr., testified that the sales prices reported in the "Florida Livestock Market Report" (published1986 U.S. Tax Ct. LEXIS 81">*136 weekly by the Florida Department of Agricultural and Consumer Services) for slaughter cows rated "canner and low-cutter" were consistent with, if not a little higher than, the amount J-Seven received when it sold its breeding cows. According to the "Florida Livestock Market Report," cows of such quality sold for 35 to 44 cents per pound in mid-December 1979, 30 to 38 cents per pound in early December 1980, and 30 to 37 cents per pound in mid-January 1981. Based on an average weight of 650 pounds per cow, we find that the 1,200 J-Seven cows had a fair market value of $ 260 each in December 1979 and $ 221 each in December 1980 and January 1981.
The petitioners contend that, in arriving at the corporation's net asset value, adjustments should be made to reflect costs that would be incurred if its assets were liquidated. They seek adjustments for the expenses of selling the real estate (including sales commission) and the 87 T.C. 78">*104 income taxes that would be recognized by the corporation or its shareholders upon liquidation. We disagree with this argument. J-Seven is not in the business of selling its assets piecemeal, and as the petitioners themselves have argued, there is no evidence1986 U.S. Tax Ct. LEXIS 81">*137 that the liquidation of the entire corporation is imminent or even contemplated. Under such circumstances, "We need not assume that conversion into cash is the only use available to an owner, for property which we know would cost him market value to replace."
1986 U.S. Tax Ct. LEXIS 81">*138 Since the parties now agree on the fair market value of the land, the cash, and the depreciable assets owned by J-Seven, and since we have now found the values of the cows, we find that J-Seven had a net asset value (the corporation had no liabilities) and a net asset value per share on the dates of the gifts, as follows:
Net | Net asset | |
Date of gift | asset value | value per share |
Dec. 28, 1979 | $ 3,310,290 | $ 3,310 |
Dec. 31, 1980 | 3,431,693 | 3,432 |
Jan. 15, 1981 | 3,442,515 | 3,443 |
However, this finding does not end the matter because we must still determine whether the stock purchase agreement affected the value of the shares and what, if any, discounts for lack of control and lack of marketability are applicable.
The petitioners urge that the fair market value of the J-Seven stock was depressed by the existence of the stock 87 T.C. 78">*105 purchase agreement. They do not maintain that the value of the stock was limited to $ 2,000 a share, the price set forth in the certificate of value executed on March 10, 1979, and they offer no evidence to demonstrate how much the value of the stock was affected by the stock purchase agreement. The Commissioner argues that the fair 1986 U.S. Tax Ct. LEXIS 81">*139 market value of the stock was not reduced at all by the stock purchase agreement.
A stockholder agreement granting fellow stockholders and the corporation a right of first refusal in any lifetime sale of shares and requiring that the corporation repurchase the shares at death, at a price fixed in the agreement, is not determinative of the fair market value of the shares for gift tax purposes.
Upon examination of the terms of the J-Seven stock purchase agreement, we hold that its restrictions depressed the value of the shares only minimally. The restrictions had little, if any, effect on the 1986 U.S. Tax Ct. LEXIS 81">*140 value of the shares because the price fixed in the certificate of value was effective for only 2 years. Thereafter, the parties would have to agree to a new price or have the stock independently appraised, either of which would likely result in a price approximating the stock's current fair market value. Although the price was fixed at $ 2,000 when the petitioners made the gifts of shares to their sons, there was no indication that the sons intended to sell the shares before the $ 2,000 price lapsed in March 1981. Moreover, even at the times of the gifts, the stock might have been sold for more than $ 2,000 a share if the other stockholders and the corporation were unable to purchase stock offered to them under the stock purchase agreement. However, because the stock could not be given away without the written consent of the other stockholders, and because the shares would remain subject to the restrictions in the hands of any donee or purchaser, the 87 T.C. 78">*106 value of the stock was depressed to some small extent, and accordingly, some allowance will be made for such effect.
The shares given by the petitioners to each of their sons represented minority interests in the corporation. 1986 U.S. Tax Ct. LEXIS 81">*141 Relying on the testimony and report of their expert, the petitioners contend that the value of the shares must be discounted by 33 1/3 percent to reflect lack of control over the corporation (a minority discount) and lack of marketability. The Commissioner contends that no minority discount or lack of marketability discount is warranted where family members control a corportion, as in the present case. He argues that the shares represented an interest in pooled "'family assets,' rather than an interest in a viable corporation where control and marketability are key elements. Further, under these circumstances, the possibility of transfer of the business to nonfamily members was extremely remote. There was clearly a ready market for an individual's shares either in the corporation or in the shareholders."
The courts have long recognized that the shares of stock of a corporation which represent a minority interest are usually worth less than a proportionate share of the value of the assets of the corporation.
In
We endorsed and relied on the reasoning of
Although
In
The petitioners' expert applied a minority discount of 33 1/3 percent; he chose 33 1/3 percent because that was the average minority discount allowed by various courts in recent years. Taking into account the low earnings power of the corporation, the restrictions imposed by the stock purchase agreement, and the limited marketability of the stock, we are convinced that the expert's discount is altogether justified. Consequently, we find and hold that the fair market value of the stock given by the petitioners to their sons was as follows:
Fair market | |
Year of gifts | value per share |
1979 | $ 2,207 |
1980 | 2,288 |
1981 | 2,295 |
The final issue for decision is whether the gift adjustment agreement executed on December 28, 1979, is effective to avoid the gift taxes otherwise due in 1979, 1980, and 1981. 9 The petitioners contend that the gift adjustment agreement reflects their intent to give each son a certain "value of 87 T.C. 78">*110 property" 1986 U.S. Tax Ct. LEXIS 81">*149 ($ 50,000), rather than a specific number of shares (25 shares), and that the number of shares reported on their gift tax returns was merely "representative of the value" which they intended to give. They argue that the gift adjustment agreement is similar to the price adjustment agreement upheld in
1986 U.S. Tax Ct. LEXIS 81">*150
The gift tax is imposed only when the transfer of property is complete. The regulations provide:
As to any property, or part thereof or interest therein, of which the donor has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another, the gift is complete. But if upon a transfer of property (whether in trust or otherwise) the donor reserves any power over its disposition, the gift may be wholly incomplete, or may be partially complete and partially incomplete, depending on all the facts in the particular case.
See
Under the gift adjustment agreement, the petitioners each conveyed 25 shares of J-Seven stock to each son but reserved the power to revoke a part of each gift if it is "finally determined for Federal gift tax purposes" that the fair market value of each share exceeds $ 2,000. 10 At the time the gifts were 1986 U.S. Tax Ct. LEXIS 81">*151 made, the petitioners did not possess a presently exercisable right to revoke the gifts in whole or in part. Their power to revoke is contingent upon something over which they have no control. The language of the contingency is ambiguous: it may refer to a determination 87 T.C. 78">*111 by the Commissioner, a decision of this Court, a District Court, or the Claims Court, or the outcome on appeal. But, in any event, the power to revest is dependent upon the actions and decisions of third parties. In fact, at the time of the gifts, there was no assurance that the contingency would ever come about because there was no guarantee that the Commissioner would choose to examine the petitioners' gift tax returns.
1986 U.S. Tax Ct. LEXIS 81">*152 Although the rule has been attacked on theoretical grounds, 11 it is settled that if the power retained by the donor is exercisable only upon the occurrence of an event over which he has no control, or only with the concurrence of someone having an interest in the property adverse to his, the reserved power does not amount to dominion and control over the property, and there is a completed gift.
1986 U.S. Tax Ct. LEXIS 81">*154 In
Eleventh: The settlor is advised by counsel and satisfied that the present transfer is not subject to Federal gift tax. However, in the event it should be determined by final judgment or order of a competent federal court of last resort that any part of the transfer in trust hereunder is subject to gift tax, it is agreed by all the parties hereto that in that event the excess property hereby transferred which is decreed by such court to be subject to gift tax, shall automatically be deemed not to be included in the conveyance in trust hereunder and shall remain the sole property of Frederic W. Procter free from the trust hereby created. [
1986 U.S. Tax Ct. LEXIS 81">*155
The taxpayer contended that, under this clause, the gift did not become effective to the extent it would give rise to a gift tax.
The Fourth Circuit rejected the taxpayer's argument:
We do not think that the gift tax can be avoided by any such device as this. Taxpayer has made a present gift of a future interest in property. He attempts to provide that, if a federal court of last resort shall hold the gift subject to gift tax, it shall be void as to such part of the property given as is subject to the tax. This is clearly a condition subsequent and void because contrary to public policy. A contrary holding would mean that upon a decision that the gift was subject to tax, the court making such decision must hold it not a gift and therefore not subject to tax. Such holding, however, being made in a tax suit to which the donees of the property are not parties, would not be binding upon them and they might later enforce the gift notwithstanding the decision of the Tax Court. It is manifest that a condition which involves this sort of trifling with the judicial process cannot be sustained. [
87 T.C. 78">*113 The court found the condition contrary1986 U.S. Tax Ct. LEXIS 81">*156 to public policy for three reasons: (1) "it has a tendency to discourage the collection of the tax by the public officials charged with its collection, since the only effect of an attempt to enforce the tax would be to defeat the gift," (2) "the effect of the condition would be to obstruct the administration of justice by requiring the courts to pass upon a moot case," and (3) the condition is to the effect that the final judgment of a court would be neutralized because of the trust provision necessarily before the court when the judgment is rendered; that is, the condition is not to become operative until there has been a judgment that the donor is liable for the tax, but after the judgment has been rendered, it cannot become operative because the matter involved is concluded and rendered moot by the judgment.
The third reason is inapplicable here if the term "finally determined" in the gift adjustment agreement is meant to apply before there is a final decision of a court, but in any event, the first two reasons are applicable here and are highly persuasive. If a condition like that involved here is given effect for gift tax purposes, 1986 U.S. Tax Ct. LEXIS 81">*157 there is no incentive for the Commissioner to challenge the donor's valuation of the property transferred because no gift tax deficiency can result, and the Commissioner has no power to compel the donor to reclaim a portion of the property. It has been suggested that the argument that such "savings clauses" frustrate the enforcement of the gift tax is no longer valid under the unified estate and gift transfer tax system. See C. Strobel & G. Strobel II, "Savings Clauses Can Protect Against Revalued Transfers in Family Transactions,"
1986 U.S. Tax Ct. LEXIS 81">*159 Furthermore, a condition that causes a part of a gift to lapse if it is determined for Federal gift tax purposes that the value of the gift exceeds a given amount, so as to avoid a gift tax deficiency, involves the same sort of "trifling with the judicial process" condemned in
The Tenth Circuit in
87 T.C. 78">*193 The factual1986 U.S. Tax Ct. LEXIS 81">*162 findings supporting the holding in
1986 U.S. Tax Ct. LEXIS 81">*163 Accordingly, we conclude that the gift adjustment clause involved here is void as contrary to public policy and has no effect on the gift taxes otherwise due on the gifts of stock to the petitioners' sons.
1. The parties have stipulated that the petitioners resided in Clewiston, Flordia, the mailing address of J-Seven and the address stated on their gift tax returns. However, other evidence indicates that the petitioners actually resided in Fort Myers, Flordia, at the time they filed their petition.↩
2. The "breeding percentage" of a cow refers to the likelihood of its calving in each year. Thus, if a herd of cows has a breeding percentage of 50 percent, then, in each year, 1 calf is born for every 2 cows, or 600 calves for every 1,200 cows.↩
3. Charles, Jr., and William each filed a joint Federal income tax return with his wife. John filed as a single individual.↩
4. On brief, the petitioners objected to the imposition of a higher standard of proof than the standard generally applicable in this Court, a preponderance of the evidence. See
5. The Commissioner questions the reliability of the special deed because it is dated Mar. 23, 1943, and recites that the deeds from the Ryan sisters and FLT "should have been made and executed to both" Mr. and Mrs. Ward, when, in fact, FLT did not deliver a deed until Mar. 1944. (The Ryan sisters executed their deed in October 1942.) We think the apparent discrepancy is easily explained. The special deed was prepared on the basis of the land contract with FLT, which provided that FLT was to deliver a deed to Mr. Ward as sole grantee upon fulfillment of the contract. (The escrow deed to Mr. Ward and David Elmer Ward, as co-grantees, was never delivered.)↩
6. Any reference to a Rule is to the Tax Court Rules of Practice and Procedure.↩
7. The petitioners rely on
8.
9. Since we have determined that the petitioners undervalued the stock on their 1979 gift tax returns, they underpaid their gift tax in 1979 and, due to the consequent reduction in the available unified credit, in 1980 and 1981, even though they overvalued the stock on their 1980 and 1981 returns. The petitioners and their sons executed a gift adjustment agreement at the time of each gift of stock in 1979, 1980, and 1981. However, we need only decide whether the 1979 agreement is effective because its effectiveness (or lack thereof) determines whether the petitioners underpaid their gift taxes in subsequent years as well.↩
10. The gift adjustment agreement did provide for an upward adjustment in the number of shares gifted if it were finally determined for gift tax purposes that the fair market value of each share was less than $ 2,000; but we think the donees could not enforce the agreement against the donors because it was unsupported by any consideration flowing from the donees.↩
11. See Macris, "Open Valuation and the Completed Transfer: A Problem Area in Federal Gift Taxation,"
12. The estate tax imposed by sec. 2001(a) is equal to the excess (if any) of the tentative tax (computed in accordance with the rate schedule set forth in sec. 2001(c)) on the sum of the taxable estate and adjusted taxable gifts, over the aggregate amount of gift tax payable with respect to gifts made by the decedent after Dec. 31, 1976. Sec. 2001(b) (as in effect during the years in issue). For purposes of sec. 2001(b), the term "adjusted taxable gifts" means the total amount of the taxable gifts (within the meaning of sec. 2503) made by the decedent after Dec. 31, 1976, other than gifts which are includable in the gross estate of the decedent. The term "taxable gifts" means the sum of the values of the gifts made during the taxable period, less annual exclusions and less certain deductions. Sec. 2503. Sec. 2504(c) provides that, for gift tax purposes, if the valuation of a gift made in a preceding calendar year or quarter is at issue, and if the statutory period within which an assessment may be made with respect to the gift has expired and a tax has been assessed or paid for such preceding calendar year or quarter, then the value of such prior gift shall be the value that was used in computing the tax for the last preceding calendar year or quarter for which a gift tax was assessed or paid. However, there is no similar time limit on the correction of erroneously valued prior taxable gifts (adjusted taxable gifts) for estate tax purposes.↩
13. In
"We question whether the buyer's willingness to pay whatever amount the IRS determined the stock to be worth evidences an arm's-length transaction. If anything, it tends to show that the trustee did not bargain at arm's length with the trust grantor, since the trustee evidently did not care what price it paid for the stock, but cared only that no gift tax be incurred by the grantor-seller."↩