65 T.C. 126">*127 Respondent determined gift tax deficiencies for petitioners as follows:

The cases were consolidated for trial. After settlement of some issues, the remaining issues are:

(1) Whether gifts of Arthur W. Clark's principal interests in Clifford trusts ¹ to the income beneficiaries thereof were gifts of future interests and thus ineligible for the annual gift tax exclusion of $ 3,000 per donee provided by section 2503(b); ²

(2) Whether petitioners' failure to prove Virginia Clark's consent to gift-splitting precludes half of Arthur W. Clark's 1964 gifts from being considered1975 U.S. Tax Ct. LEXIS 46">*50 as having been made by her under the gift-splitting provisions of section 2513; and

(3) Whether respondent is barred by the statute of limitations or estopped from redetermining the amount of gifts made during tax years before 1967, for which the statute of limitations has expired, in computing the amount of taxable gifts made in 1967 and later tax years, for which the statute of limitations has not expired.

FINDINGS OF FACT

Some facts were stipulated and are found accordingly.

Arthur W. Clark and Virginia Clark, husband and wife, ³ were residents of Wisconsin Rapids, Wis., at all times material herein. Arthur W. Clark filed Federal gift tax returns with the District Director of Internal Revenue, Milwaukee, Wis., 1975 U.S. Tax Ct. LEXIS 46">*51 in 1954, 1955, 65 T.C. 126">*128 1957, and 1962 through 1969. Virginia Clark filed Federal gift tax returns with the same District Director for 1967, 1968, and 1969.

Arthur W. Clark has two sons: Arthur S. Clark, born on April 9, 1935, and Robert W. Clark, born on February 27, 1941.

Arthur W. Clark created two Clifford trusts on March 13, 1957. The trusts were drafted by Charles E. Prieve, his tax attorney. The purpose of the trusts was to take income out of the high brackets of his taxable income, the typical purpose of a Clifford trust. William B. Zellmer was trustee ⁴ of both trusts and Arthur S. Clark and Robert W. Clark were the respective income beneficiaries thereof. Terms of the trusts were almost identical; the relevant portions of the Arthur S. Clark trust were as follows:

Trust Agreement

* * *

1. The Donor, for value received, gives, delivers, assigns, transfers and sets over to the Trustee 1975 U.S. Tax Ct. LEXIS 46">*52 in trust for the uses and purposes hereinafter prescribed, the certificates of Common Stock of Central Wisconsin Motor Transport Company, an Illinois Corporation, as set forth upon Exhibit 'A' hereto attached.

* * *

Income Distribution

6. The Trustee shall apply for the use and benefit of the Beneficiary, or distribute directly to such Beneficiary, all of the income of the trust estate at convenient intervals, but not less than annually. Any income received, accrued or unpaid to the Beneficiary at the time of the termination of this trust estate, shall be distributed to Arthur S. Clark [or Robert W. Clark], or his executor or administrator.

Distribution of Principal

7. Upon the termination of this trust estate, all of the principal, but not income, then held by the Trustee shall be distributed to the Donor if he is alive. In the event that the Donor has not survived to the date of termination, the principal * * * [shall be distributed to Frances T. Clark, or Robert W. Clark, or Arthur S. Clark, or the sons' heirs, depending upon who survives to the termination date.]

* * *

Trustee's Powers

10. * * * The Trustee shall have full power to hold securities in his own name or in the name1975 U.S. Tax Ct. LEXIS 46">*53 of a nominee. * * *

* * *

65 T.C. 126">*129 Termination of Trust

13. This trust shall terminate on March 31, 1967, or upon the death of the Beneficiary, whichever is the first to occur. Upon such termination, the principal shall be distributed as provided in Paragraph 7 hereof, and any undistributed income shall be paid over as provided in Paragraph 6.

* * *

Exhibit 'A'

March 13, 1957 -- 20,000 Shares of Central Wisconsin Motor Transport Company Common Stock (in the name of A. Stephen Clark [or R. Wayne Clark]) Cert. No. C 1879

The trust agreement contained no provision for amendment or modification of the trust.

The initial corpus of each trust was thus 20,000 shares of the common stock of Central Wisconsin Motor Transport Co., the name of which was later changed to CW Transport, Inc. (hereinafter CW). To fund the trusts, Arthur W. Clark surrendered a certificate for 63,100 CW shares to the CW stock transfer agent on March1975 U.S. Tax Ct. LEXIS 46">*54 13, 1957. On that same date, a certificate for 20,000 CW shares was issued in the name of A. Stephen Clark and a certificate for 20,000 CW shares was issued in the name of R. Wayne Clark. The remaining 23,100 CW shares were returned to Arthur W. Clark.

Robert W. Clark and R. Wayne Clark are the same individual; Arthur S. Clark and A. Stephen Clark are the same individual. The respective certificates for 20,000 shares of CW stock were issued in the names of A. Stephen Clark and R. Wayne Clark to signify that such shares were being held as nominees for the trustee. On March 13, 1957, Arthur S. Clark and Robert W. Clark executed statements declaring that CW stock transferred to them was issued to them as nominees for the trustee and that they were subject to the direction and control of the trustee. CW stock constituted the sole corpus of each trust at all times.

Arthur W. Clark's 1957 gift tax return reported the values of [ILLEGIBLE WORD] income interests in the full 10-year terms of the trusts as gifts.

On June 19, 1959, a 5-percent stock dividend was declared by CW. Stock certificates for 1,000 shares of CW stock were 65 T.C. 126">*130 accordingly issued to A. Stephen Clark and R. 1975 U.S. Tax Ct. LEXIS 46">*55 Wayne Clark as nominees for the trustee.

In 1962, sometime before December, Arthur W. Clark asked Charles E. Prieve, his tax attorney, if some CW shares held by the trusts could be given to his sons. Prieve advised him that stock could be given out of the trusts under Wisconsin law. Arthur W. Clark accordingly executed a deed of gift during each of the years 1962 through 1967 which conveyed his "reversionary interest" ⁵1975 U.S. Tax Ct. LEXIS 46">*56 in some CW shares held in each trust to the beneficiary thereof. For each year for each trust, an interest in enough CW shares was conveyed to make the value of each gift just less than $ 6,000. ⁶ Arthur W. Clark's gift tax returns for those years claimed an annual donee exclusion of $ 3,000 for each gift, and an annual donee exclusion of $ 3,000 was claimed on behalf of Virginia Clark under the gift-splitting provisions of section 2513. Accordingly, the gift tax returns showed no tax due on these gifts.

All deeds of gift were identical, except for the number of CW shares, the date, and the witnesses and trustee involved. The text of the 1962 deed of gift to Arthur S. Clark is as follows:

December 21, 1962

TO:

William B. Zellmer, Trustee

U/A Dated March 13, 1957

Arthur W. Clark, Donor

Arthur S. Clark, Beneficiary

DEED OF GIFT

Under the above described Trust Agreement, which was executed on March 13, 1957, wherein you are the Trustee, I, Arthur W. Clark, am entitled to receive back the entire principal held by you on March 31, 1967.

65 T.C. 126">*131 Paragraph 13 of the Trust Agreement, which provides for the termination on March 31, 1967, also provides that upon the death of the Beneficiary, Arthur S. Clark, the trust will also terminate and all of the principal in1975 U.S. Tax Ct. LEXIS 46">*57 the hands of the Trustee is to be distributed to me.

By this Deed of Gift, I, Arthur W. Clark, for myself and my heirs, hereby give, demise and release to Arthur S. Clark all of my right, title and interest in and to the reversionary interest which I have under Paragraph 7 of the Trust Agreement in 585 shares of the common stock of Central Wisconsin Motor Transport Company held by you. You are hereby released of any and all liability and accountability to me, the Donor, and to the trust estate with respect to these 585 shares given to Arthur S. Clark.

In the event that the 585 shares of stock, to which this Deed of Gift refers, have not been transferred to the Donee prior to his death, those shares shall be transferred to his executor or administrator as a part of his probate estate.

In Witness Whereof, I have hereunto set my hand and seal this 21st day of December, 1962. [Signatures followed.]

Arthur W. Clark's gift tax returns for 1962 to 1967 describe each gift as a "reversionary interest," just as each deed of gift did.

On June 15, 1965, a 40-percent stock dividend was declared by CW. Stock certificates for 8,400 shares (40 percent times 21,000 shares) of CW stock were accordingly1975 U.S. Tax Ct. LEXIS 46">*58 issued in the names of A. Stephen Clark and R. Wayne Clark as nominees for the trustee.

On October 5, 1966, separate blocks of 3,610 CW shares were transferred from the names of A. Stephen Clark and R. Wayne Clark to the names of Arthur S. Clark and Robert W. Clark. The blocks represented shares included in the deeds of gift for 1962 through 1966, together with the 1965 stock dividend on those shares.

Fiduciary income tax returns filed by the trustee for each trust during 1957 through 1967 reported dividends received by the trusts on CW stock. Except for the 1963 Robert W. Clark trust return, the trustee did not reduce the number of shares of CW stock on which dividends were reported by the number of shares for which the donor had conveyed his "reversionary interest."

Each trust expired, in accordance with its terms, on March 31, 1967.

On August 24, 1967, Arthur W. Clark created two more Clifford trusts, naming Richard J. Lawless and Charles E. Prieve as cotrustees of each trust. Arthur S. Clark and Robert W. Clark were again the respective beneficiaries. Both trust agreements were again drafted by Prieve. The initial corpus of each trust of 10,000 CW shares was issued in the1975 U.S. Tax Ct. LEXIS 46">*59 names of A. Stephen Clark and R. Wayne Clark to again signify that the shares were being 65 T.C. 126">*132 held as nominees for the trustees. CW stock again was the sole corpus of the trusts.

The terms of the 1967 trusts were identical, with certain exceptions irrelevant here, to those of the 1957 trusts. Each trust was to terminate on the earlier of September 30, 1977, or the beneficiary's death.

Arthur W. Clark's 1967 gift tax return reported as gifts the income interests in the 1967 trusts.

On October 3, 1968, CW declared a 20-percent stock dividend. Stock certificates for 2,000 CW shares were accordingly issued in the names of A. Stephen Clark and R. Wayne Clark as nominees for the trustees.

During 1968 and 1969, Arthur W. Clark executed two deeds of gift each year which named Arthur S. Clark and Robert W. Clark as respective donees. The terms were identical to those of the deeds executed in connection with the 1957 trusts, with the following addition:

I hereby release you as Trustees of any and all liability which you may have to me as Donor of the above described trust in the event that you transfer the shares herein given to the Beneficiary or any of the shares to which I have 1975 U.S. Tax Ct. LEXIS 46">*60 previously released my reversionary interest.

Arthur W. Clark's 1968 and 1969 gift tax returns reported gifts of his "reversionary interest" in 1,000 CW shares for each beneficiary for each of those years. Each return claimed one annual gift tax exclusion of $ 3,000 per donee.

On January 5, 1971, the CW stock transfer agent transferred 2,000 shares from the name of R. Wayne Clark to the name of Robert W. Clark and 2,000 shares from the name of A. Stephen Clark to the name of Arthur S. Clark. The shares transferred represented those included in the 1968 and 1969 deeds of gift.

Fiduciary income tax returns filed for each trust for 1968 and 1969 did not reduce the number of CW shares on which dividends were reported by the number of shares to which Arthur W. Clark had conveyed his principal interests.

Virginia Clark signed the "consent of spouse" declaration, or her signature was somewhere ⁷ on each of Arthur W. Clark's gift tax returns for 1962 through 1969, with the exception of 1964. The relevant part of the 1964 gift tax return in issue is:

65 T.C. 126">*133 B. Gifts of husband and wife to third parties. -- Do you consent to have the gifts made by both you and your spouse to third 1975 U.S. Tax Ct. LEXIS 46">*61 parties during the calendar year considered as having been made one-half by each of you? Yes (X) No ( ) (See section 7 of instructions)

If the answer is "Yes" the following information must be furnished and the consent shown below signed by your spouse.

1. Name of spouse: Virginia Clark

* * *

CONSENT OF SPOUSE

I consent to have the gifts made by both me and my spouse to third parties during the calendar year considered as having been made one-half by each of us. Date   Signature of spouse   

Virginia Clark's signature does not appear anywhere on this return; no evidence was presented to explain that omission. Also, no evidence whatever was presented to show that she did indeed consent to gift-splitting for 1964, except that she signed the "consent of spouse" declaration on an amended 1964 gift tax return filed by1975 U.S. Tax Ct. LEXIS 46">*62 Arthur W. Clark on July 31, 1973, after the statutory notice of deficiency had been issued in this case.

Besides signing the "consent of spouse" declaration on Arthur W. Clark's gift tax returns for 1967, 1968, and 1969, Virginia Clark filed her own gift tax returns for those years. On them she claimed an annual gift tax exclusion of $ 3,000 per donee for the interests conveyed by Arthur W. Clark's deeds of gift in those years.

Virginia Clark did not file Federal gift tax returns for 1962 through 1966. Respondent thus assessed deficiencies against her for 1962, 1963, 1965, and 1966 for her share of the gifts of principal interests made by Arthur W. Clark during those years, on the grounds that her failure to file gift tax returns for those years prevented the statute of limitations from running. 1964 was excluded because of her failure to sign Arthur W. Clark's gift tax return for that year.

Although it was necessary for the beneficiaries to sign any stocks transferred by the transfer agent, no evidence was introduced to show that either beneficiary had signed any stock transfer forms or any other written documents in connection with any deeds of gift.

No petition was ever made1975 U.S. Tax Ct. LEXIS 46">*63 to any Wisconsin court to terminate, revoke, or modify any of the trusts.

65 T.C. 126">*134 OPINION

The first issue is whether Arthur W. Clark's gifts of principal interests in stocks he had earlier conveyed to four Clifford trusts to the income beneficiaries thereof constituted gifts of future interests. Section 2503(b) allows an annual gift tax exclusion of $ 3,000 per donee, but "gifts of future interests in property" do not qualify. ⁸ Petitioners contend the gifts were not gifts of future interests, while respondent claims the contrary is true.

Section 25.2503-3(a), Gift Tax Regs., defines "future1975 U.S. Tax Ct. LEXIS 46">*64 interests" as follows:

"Future interest" is a legal term, and includes reversions, remainders, and other interests or estates, whether vested or contingent, and whether or not supported by a particular interest or estate, which are limited to commence in use, possession, or enjoyment at some future date or time. * * *

This definition, or its similarly worded predecessor, has been approved repeatedly. Commissioner v. Disston, 325 U.S. 442">325 U.S. 442, 325 U.S. 442">446 (1945); Fondren v. Commissioner, 324 U.S. 18">324 U.S. 18, 324 U.S. 18">20 (1945); Ryerson v. United States, 312 U.S. 405">312 U.S. 405, 312 U.S. 405">409 (1941); United States v. Pelzer, 312 U.S. 399">312 U.S. 399, 312 U.S. 399">403 (1941); Jacob W. Blasdel, 58 T.C. 1014">58 T.C. 1014, 58 T.C. 1014">1017 (1972), affd. 478 F.2d 226 (5th Cir. 1973); Frank T. Quatman, 54 T.C. 339">54 T.C. 339, 54 T.C. 339">341 (1970). We therefore must determine whether Arthur S. Clark and Robert W. Clark, the trust income beneficiaries, were entitled to enjoy the interests transferred immediately upon execution of the deeds of gift.

Although the regulation's definition is controlling1975 U.S. Tax Ct. LEXIS 46">*65 as to whether an interest is a "future interest" within the meaning of section 2503(b), State law determines what interest actually was conveyed. We accordingly must look to the terms of the trusts, 324 U.S. 18">Fondren v. Commissioner, supra at 21, and Wisconsin law to determine whether the beneficiaries had the right to present enjoyment of the interests conveyed.

The trust agreement reserved no power of termination, modification, or amendment. Petitioners accordingly have advanced several arguments to support their claim that the income beneficiaries were entitled under Wisconsin law to all 65 T.C. 126">*135 rights in and full possession of the shares of stock described in the deeds of gift immediately following execution of those deeds.

Petitioners' first argument, with which we agree, is as follows: Arthur W. Clark retained the right to receive the principal (shares of CW stock) from four Clifford trusts upon termination of those trusts if he were alive at that time. He executed deeds of gift giving his right upon termination to receive some of those shares of CW stock to the income beneficiaries of the trusts. Those beneficiaries accordingly had all vested interests1975 U.S. Tax Ct. LEXIS 46">*66 in the shares described in the deeds of gift, viz., the right to receive income from the shares during the terms of the trusts and the right to receive the shares themselves upon termination. Under Wisconsin law, those interests were legally fused under the common law doctrine of merger, and the beneficiaries were considered to own those shares completely. This complete ownership legally resulted in a partial termination of each trust for those shares. Accordingly, the beneficiaries were entitled under Wisconsin law to immediate delivery of those shares. Since the beneficiaries were thus entitled to the "use, possession, or enjoyment" of the interests conveyed in the deeds of gifts immediately upon execution of those deeds, and since the gift tax is based on what the donee receives rather than what the donor parted with, the gifts amounted to gifts of present interests and thus qualified for the annual donee exclusion of $ 3,000 provided by section 2503(b).

The common law doctrine of merger is thus a cornerstone of petitioners' argument; it may be defined as follows:

A merger, at law, is defined to be where a greater estate and a less coincide and meet in one and the same person, 1975 U.S. Tax Ct. LEXIS 46">*67 in one and the same right, without any intermediate estate. The less estate is immediately annihilated, or, in the law phrase, is said to be merged -- that is, sunk or drowned -- in the greater. Thus, if there be a tenant for years, and the reversion in fee simple descends to or is purchased by him, the term of years is merged in the inheritance. * * * (Citing numerous authorities.) [27 Words & Phrases 204 (perm. ed.).]

This common law doctrine has long been recognized in Wisconsin. See Horlick v. Sidley, 241 Wis. 81">241 Wis. 81, 3 N.W.2d 710, 717 (1942); In re Fitton's Will, 218 Wis. 63">218 Wis. 63, 259 N.W. 718">259 N.W. 718, 259 N.W. 718">720 (1935); In re Hamburger's Will, 185 Wis. 270">185 Wis. 270, 201 N.W. 267">201 N.W. 267 (1924); Bauhs, "Revocation of Inter Vivos Trusts under Section 231.50 of the Wisconsin Statutes," 48 Marq. L. Rev. 376, 391 (1964). Furthermore, under Wisconsin law "The court must be 65 T.C. 126">*136 able to find some purpose of the trust that will be defeated by a merger" before it will refuse to find that a merger has occurred. In re Fitton's Will, 259 N.W. 718">259 N.W. at 720.1975 U.S. Tax Ct. LEXIS 46">*68 Accordingly, frustration of the settlor's intent would prevent a merger. Horlick v. Sidley, 3 N.W. 2d at 717; 218 Wis. 63">In re Fitton's Will, supra;185 Wis. 270">In re Hamburger's Will, supra.In this case, however, the only proven purpose of the trusts was "to take the income out of Mr. Clark's income and give it to his two sons during this ten-year period." Similarly, the purpose of the deeds of gift was to convey all of Mr. Clark's remaining principal interest in the CW stock subject to the deeds of gift. Merger and partial termination of the trusts would thus not frustrate the settlor's purpose herein, and under Wisconsin law the interests held by the beneficiaries would thus merge.

Respondent contends that partial termination by merger was prevented because the stock was in the hands of an outside trustee, or, in other words, the trustee's legal title to the stock prevented termination because there was no merger of legal and equitable interests. Wisconsin law is and has been to the contrary, however, as the Supreme Court of Wisconsin stated in Kinzer v. Bidwill, 55 Wis. 2d 749">55 Wis. 2d 749, 201 N.W.2d 9, 11 (1972):

1975 U.S. Tax Ct. LEXIS 46">*69 A trust is passive if the trustee has no active duties to perform, and in this state passive trusts have been abolished and legal title goes to the beneficiaries of the trust. [Fn. ref. omitted.]

Cf. 218 Wis. 63">In re Fitton's Will, supra, in which the Supreme Court of Wisconsin held that a merger occurred, resulting in termination of the testamentary trust therein, where one person had acquired all equitable interests, even though the trust property was held and administered by an outside bank; and 185 Wis. 270">In re Hamburger's Will, supra, in which the Supreme Court of Wisconsin held that no merger occurred solely because frustration of the settlor's intent would result; that an outside trust company held trust corpus was not deemed significant of mention. We find this case similar in this regard. See also Holmes v. Walter, 118 Wis. 409">118 Wis. 409, 95 N.W. 380">95 N.W. 380, 95 N.W. 380">382 (1903); 50 A.L.R. 2d 1165, n. 9.

We note that Wisconsin statutory law during the years in issue on revocation of trusts is consistent with the Wisconsin cases cited above. Section 231.50, 1975 U.S. Tax Ct. LEXIS 46">*70 Wis. Stat. Ann. (1961), ⁹1975 U.S. Tax Ct. LEXIS 46">*71 provided 65 T.C. 126">*137 that a trust could be revoked, terminated, or modified by unanimous written consent of its creator and all persons in being who were beneficially interested. ¹⁰ Part 3 thereof stated that "Nothing in this section shall inhibit the revocation, termination or modification of any trust pursuant to its terms or otherwise in accordance with law." [Emphasis added.] The latter provision has been specifically interpreted as allowing, among other methods, termination of a trust by merger, and this is consistent with the strong policy and purpose behind section 231.50 favoring easier revocation of inter vivos trusts. Bauhs, "Revocation of Inter Vivos Trusts under Section 231.50 of the Wisconsin Statutes," 48 Marq. L. Rev. 376 (1964).

Following merger of interests in only some portions of a trust, the generally accepted rule is that pro tanto merger and termination of a trust occurs to the extent of merged interests. See generally 50 A.L.R. 2d 1184. We are aware of no conflict of Wisconsin law with that common law rule; furthermore, it is clear under Wisconsin law that a trust 1975 U.S. Tax Ct. LEXIS 46">*72 will be fully terminated following complete merger of all interests therein. See 55 Wis. 2d 749">Kinzer v. Bidwill, supra;In re Fitton's Will, 259 N.W. 718">259 N.W. at 720. Accordingly, we accept petitioners' contention that a merger and partial termination occurred here under Wisconsin law for that part of each trust holding the shares described in each deed of gift.

Respondent argues that, as a matter of substance over form, petitioner should not be allowed to invoke the doctrine of merger to convert what admittedly were, under the gift tax laws, future interests in the hands of Arthur W. Clark to present interests in the income beneficiaries' hands. We disagree, as "the interest upon which the gift tax is based is not that which the donor parted with, but that which the donee receives. Helvering v. 65 T.C. 126">*138 Hutchings, 312 U.S. 393">312 U.S. 393." Wisotzkey v. Commissioner, 144 F.2d 632, 636 (3d Cir. 1944), affg. a Memorandum Opinion of this Court.

Furthermore, we recognize that one person can have both a present interest in the income from property and a future interest in1975 U.S. Tax Ct. LEXIS 46">*73 the use, possession, or enjoyment of that property's corpus, Sensenbrenner v. Commissioner, 134 F.2d 883, 886 (7th Cir. 1943), affg. 46 B.T.A. 713">46 B.T.A. 713 (1942); Fisher v. Commissioner, 132 F.2d 383, 386 (9th Cir. 1942), affg. 45 B.T.A. 958">45 B.T.A. 958 (1941); that "The disposal of property in trust under an agreement deferring distribution of principal may be regarded, for Federal gift tax purposes, as a twofold transfer creating one interest in the income and another in the principal." Herrmann's Estate v. Commissioner, 235 F.2d 440, 443 (5th Cir. 1956), affg. a Memorandum Opinion of this Court; accord, Frank T. Quatman, 54 T.C. 339">54 T.C. 339, 54 T.C. 339">341 (1970); and that this distinction is maintained even where the gifts of income interest and principal are to the same person. Wisotzkey v. Commissioner, 144 F.2d 632, 636 (3d Cir. 1944), affg. a Memorandum Opinion of this Court; Charles v. Hassett, 43 F. Supp. 432">43 F. Supp. 432, 43 F. Supp. 432">435 (D.Mass. 1942). Thus, ownership of income and principal1975 U.S. Tax Ct. LEXIS 46">*74 interests in a trust does not automatically cause a merger of such interests. In the above cases and other cases cited by respondent, however, (1) trust terms or State law prevented a merger, or (2) the donor intended a separation of income and principal interests, and the rule in Wisconsin, as demonstrated earlier and elsewhere, is that merger will not be applied to terminate a trust where the donor's intent is otherwise. Wisotzkey v. Commissioner, supra at 636; Bogert, Trusts and Trustees, sec. 1003 (2d ed. 1962). The above cases are therefore clearly distinguishable.

Respondent has cited three Federal tax cases to support his assertion that merger is a doctrine which is applied by courts of equity and which has no vitality in the scheme of Federal taxation. In the gift tax cases of Wisotzkey v. Commissioner, supra at 636, and Evans v. Commissioner, 198 F.2d 435, 437 (3d Cir. 1952), affg. 17 T.C. 206">17 T.C. 206 (1952), however, the Third Circuit refused to apply the doctrine of merger because of contrary trust spendthrift clauses, because legal title remained with trustees1975 U.S. Tax Ct. LEXIS 46">*75 (a doctrine which, as demonstrated above, is inapplicable herein), or because the settlor's intent was clearly otherwise, not because it felt the doctrine could not be applied in the proper circumstances. 65 T.C. 126">*139 And in the income tax case of Bell v. Harrison, 212 F.2d 253 (7th Cir. 1954), respondent's contention that merger prevented amortization of a purchased life estate by a trust's remainderman was rejected because the Court determined that amortization was the proper treatment for such an asset, not because the doctrine of merger could not be involved in a Federal tax case. Indeed, the Seventh Circuit, to which appeal would lie herein, commented on several Federal income tax cases in which that doctrine was in issue without even inferring that the doctrine was wrongfully invoked therein.

That actual transfer of shares described in the deeds of gift did not immediately follow those deeds does not prejudice petitioners' position. The fact that title to those shares did not immediately pass from the trustees to Arthur S. Clark and Robert W. Clark did not change their immediate rights thereto. Cf. Kieckhefer v. Commissioner, 189 F.2d 118 (7th Cir. 1951),1975 U.S. Tax Ct. LEXIS 46">*76 revg. 15 T.C. 111">15 T.C. 111 (1950), in which interposition of a guardian did not adversely affect minor beneficiaries' present rights to trust assets. Furthermore, there is no indication that the trustee's failure to act in immediate response to the deeds of gift and the trustee's failure to reduce the number of shares reported on the trusts' fiduciary income tax returns after each deed of gift were due to an interpretation of beneficiaries' rights inconsistent with petitioners' position. Indeed, the trustee did in fact transfer CW shares described in the deeds of gift well before termination of both the 1957 and 1967 trusts.

Finally, we are aware of no prohibition in Wisconsin law against destruction by merger of the executory interests created by alternate dispositions of the trusts' principal should Arthur W. Clark fail to survive until termination of the trusts.

We accordingly hold that the gifts of Arthur W. Clark's principal interests in the Clifford trusts to the income beneficiaries thereof did not constitute gifts of future interests because of the resulting mergers and partial terminations of those trusts under Wisconsin law; petitioners' remaining arguments1975 U.S. Tax Ct. LEXIS 46">*77 on this issue thus need not be explored.

The second issue is whether petitioners' failure to prove Virginia Clark's consent to gift-splitting precludes half of Arthur W. Clark's 1964 gifts from being considered as having been made 65 T.C. 126">*140 by her under the gift-splitting provisions of section 2513. ¹¹ Resolution of this issue affects computation of Arthur W. Clark's taxable gifts for the years in issue due to section 2502's cumulative method of computing the gift tax. Only Arthur W. Clark filed a gift tax return for 1964.

1975 U.S. Tax Ct. LEXIS 46">*78 Section 2513(a)(2) and (b)(1) required, for the years in issue, that both spouses must consent to gift-splitting and signify their consent in such manner as the Secretary's regulations prescribe. Section 25.2513-2(a), Gift Tax Regs., ¹² promulgated under section 2513(b)(1), provided for the years in question, in part, that "If only one spouse files a gift tax return within the time provided for signifying consent, the consent of both spouses shall be signified on that return." (Emphasis added.)

1975 U.S. Tax Ct. LEXIS 46">*79 Respondent contends that we should follow the case of Edwin L. Jones, 39 T.C. 734">39 T.C. 734 (1963), revd. 327 F.2d 98 (4th Cir. 1964). 65 T.C. 126">*141 In Jones we stated, at pages 741 and 742, that for section 2513 to be applicable two statutory conditions must be met, namely, (1) there must be the requisite consent, and (2) this consent must be signified on the return. Both this Court and the Fourth Circuit agreed that the first statutory condition of consent had been met. However, we held as to the second condition that there was no signification of consent on the return so that taxpayer's case must fail. The Fourth Circuit in overruling this Court held that consent may be signified in a reasonable manner and that upon a consideration of all of the facts in the case there was the requisite signification of consent on the return.

This case is distinguishable from Jones because we do not reach the question of what constitutes signification of consent since petitioners have failed to meet the first statutory condition of requisite consent. They have presented no evidence whatever that Virginia Clark consented to gift-splitting 1975 U.S. Tax Ct. LEXIS 46">*80 with her husband, except an amended 1964 gift tax return filed by Arthur W. Clark some 8 years late in 1973, after the statutory notice of deficiency had been issued, which we find to be of no weight.

Since consent has not been proved in this case, we hold that Arthur W. Clark is not entitled to have half of his 1964 gifts considered as having been made by Virginia Clark under section 2513.

The final issue is whether respondent is barred by the statute of limitations or estopped from recomputing the amount of gifts made by Arthur W. Clark during tax years before 1967, for which the statute of limitations has expired, in determining the amount of taxable gifts made in 1967 and later tax years, for which the statute of limitations has not expired. Our holding above denying the benefits of section 2513 for 1964 requires that this issue still be resolved, as computations in Arthur W. Clark's 1964 and subsequent gift tax returns were based on the incorrect assumption that one-half of his 1964 gifts could be treated as having been made by Virginia Clark.

The statute and regulations clearly contemplate that gifts made in earlier tax years will be taken into account in computing the amount1975 U.S. Tax Ct. LEXIS 46">*81 of taxable gifts made in later taxable years. Secs. 2502, 2504; secs. 25.2502-1, 25.2504-1, Gift Tax Regs. Furthermore, it is well settled that respondent may redetermine gifts made in prior closed years in computing the tax due for gifts made in later open years. Commissioner v. Disston, 325 U.S. 442">325 U.S. 442, 325 U.S. 442">44965 T.C. 126">*142 (1945); Fred A. Berzon, 63 T.C. 601">63 T.C. 601, 63 T.C. 601">620 (1975); Genevieve U. Gilmore, 20 T.C. 579">20 T.C. 579, 20 T.C. 579">586 (1953), revd. on other grounds 213 F.2d 520 (6th Cir. 1954). It is also well settled that "the Commissioner is not estopped to change his determination as to the legal effect of a given transaction." Gaylord v. Commissioner, 153 F.2d 408, 416 (9th Cir. 1946); accord, Estate of Thomas E. Steere, 22 T.C. 79">22 T.C. 79, 22 T.C. 79">82 (1954), affd. sub nom. Rhode Island Hospital Trust Co. v. Commissioner, 219 F.2d 923 (1st Cir. 1955).

We accordingly hold that respondent is not barred by the statute of limitations or estopped from redetermining the amount of gifts made by Arthur W. Clark during1975 U.S. Tax Ct. LEXIS 46">*82 tax years before 1967, for which the statute of limitations has expired, in determining the proper amount of taxable gifts for 1967 and later years in question.

Because of our resolution of the first issue considered, no tax is due from Virginia Clark for years for which the statute of limitations has expired, and we need not reach her contention that respondent is barred by the statute of limitations or estopped from asserting deficiencies against her for those years.

We have examined the parties' other contentions, and we find them unconvincing.

Decision will be entered under Rule 155 in docket No. 3253-73.

Decision will be entered for the petitioner in docket No. 3296-73.