Mills

This is a petition by the Commissioner of Internal Revenue for review of decisions of the Tax Court of the United States holding that the Commissioner erred in determining deficiencies in respondent Mills’ federal gift tax returns for the tax years 1943, 1944 and 1945. The returns set forth an agreement between taxpayer and his wife by which the income determined as a gift by the Commissioner was the separate property of each and that the transaction was upon a full consideration in money’s worth.

The Tax Court held that a division of the community property between respondent and his wife converting' such property into the separate property of each did not constitute a gift within the meaning of Sections 1000(a) and (d) of the Internal Revenue Code. In so holding the Tax Court invalidated Section 86.2(c) of Treasury Regulations 108 insofar as Section 86.2 purported to reach such transactions. The Commissioner here contends that Congress intended Section 1000(d) to reach inter-spousal divisions of community property.

In Rickenberg v. Commissioner, 9 Cir., 177 F.2d 114 , certiorari denied 338 U.S. 949 , 70 S.Ct. 487 , a case involving the estate tax, this court held that an…