Summary
finding that brothers planned to avoid gift taxes through repeated reciprocal gifts to each others' children
Summary of this case from McCord v. Comm'r of Internal RevenueOpinion
No. 73-1406.
Argued November 5, 1973.
Decided March 11, 1974.
Gilbert Hahn, Jr., Washington, D.C. (Daniel G. Grove, Mark B. Sandground and Amram, Hahn Sandground, Washington, D.C., on brief) for appellant.
Ann Belanger, Atty., Tax Div., U.S. Dept. of Justice (Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks and Jonathan S. Cohen, Attys., Tax Div., U.S. Dept. of Justice, and Brian P. Gettings, U.S. Atty., on brief) for appellee.
Appeal from the District Court for the Eastern District of Virginia.
On February 17, 1965, the taxpayer gave forty-four shares of Jersey Shore Steel Company, a closely held corporation, to each of his three children, and to each of the three children of his brother, Charles. On the same day, Charles gave the same number of shares to each of his children and to each child of the taxpayer. Similar reciprocal transactions were effected on February 4, 1966, and February 14, 1967.
The taxpayer claimed an annual $3,000 exclusion with respect to each year for each of the nephews and nieces. This claim was disallowed upon the basis that the primary purpose of the reciprocal transactions was for each brother to effect enlarged gifts to his own children.
Relying on United States v. Estate of Grace, 395 U.S. 316, 89 S.Ct. 1730, 23 L.Ed.2d 332 (1969), the district court held that "actual intent" was "immaterial" and that the only issue was the "nature and operative effect of the transfers themselves." Thereupon, he directed a verdict for the government.
We need not reach the issue of whether this rule of Grace applies with equal force in the area of indirect gifts, for we hold that, on the facts of this case, a reasonable jury could have concluded only that the taxpayer intended to benefit his children, rather than those of his brother, by the gifts in question.
Affirmed.