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Howe v. United States.

April 25, 1944

HOWE
v.
UNITED STATES.



Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; William H. Holly, Judge.

Author: Major

Before SPARKS, MAJOR, and MINTON, Circuit Judges.

MAJOR, Circuit Judge.

This is an appeal from a District Court judgment favorable to plaintiff, entered June 25, 1943, in a suit for the recovery of a gift tax for 1937 assessed against and paid under protest by plaintiff's testatrix. In 1935 plaintiff's testatrix created a trust for the benefit of her seven children and in 1937 transferred additional property to this trust, which she reported on her gift tax return at a valuation of $33,500. She claimed seven exclusions, totaling $35,000, thereby showing no gift tax liability. The sole question for decision is whether the gifts to the donor's seven children were of "future interest" as contemplated by Sec. 504(b) of the Revenue Act of 1932, 47 Stat. 169, 26 U.S.C.A.Int. Rev. Acts, page 585, and Treasury Regulation 79 (1936 Ed.) promulgated in conformity therewith.

As a matter of fact, there are only six exclusions involved in this suit for the reason that the Commissioner originally allowed one exclusion. Because of the decision in Helvering v. Hutchings, 312 U.S. 393, 61 S. Ct. 653, 85 L. Ed. 909, it became apparent that the donor was either entitled to seven exclusions or none. The Commissioner then took the position that the gifts were of "future interest" and that the donor was entitled to no exclusions. In the meantime, the statute of limitations had run as to the exclusion allowed, precluding any assessment as to such. We point out this situation because it is stressed by plaintiff, although it has little, if any, significance and certainly has no bearing on the merits of the question for decision.

The statutory provision in question provides:

"In the case of gifts (other than of future interest in property) made to any person by the donor during the calendar year, the first $5,000 of such gifts * * * shall not * * * be included in the total amount of gifts made during such year."

The Treasury Regulation defines "future interests" as those "which are limited to commence in use, possession, or enjoyment at some future date or time."

While the record does not disclose to a certainty, we think it is fair to assume that the property placed in trust during the year in question consisted largely and perhaps entirely of real estate, and the trust is designated by plaintiff as a "liquidating trust." The general purpose as stated is "to conserve the assets while present circumstances render it difficult or impracticable to distribute them and to place the assets as rapidly as practicable in condition for liquidation and distribution." In the language of the trust agreement, the trustees are given the "broadest possible power in holding, management and sale of the property." By an instrument attached to the trust, such powers are described in great detail, including the power and authority "to improve, manage, protect and subdivide said premises or any part thereof, to dedicate parks, streets, highways or alleys and to vacate any subdivision or part thereof, and to resubdivide said property as often as desired, to contract to sell, to grant options to purchase, to sell on any terms, * * * to donate, to dedicate, to mortgage, pledge or otherwise encumber said property, or any part thereof, to lease said property," and many other powers of similar purport.

Paragraph 4 provides:

"Before binding the trust in any building program or other similar enterprise that may reasonably be expected to involve a total expenditure of over Three Thousand Dollars ($3,000.00), the Trustees shall give to each of the Beneficiaries ten (10) days' notice in writing of the nature of the proposal and in case a majority of the beneficiaries express in writing their disapproval within said ten (10) days, the Trustees shall not proceed therewith."

Paragraph 8 provides:

"The Trustees shall render to the Beneficiaries at least as often as once per year, written accounts showing assets received, income and disbursements, together with general information ...


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