Estate of Norman D. Weeden, Deceased, William F. Weeden v. Commissioner of Internal Revenue

The Commissioner of Internal Revenue Service (Commissioner) appeals from the Decision of the Tax Court, entered on December 12, 1979, which held that Norman Weeden realized no income as a result of the transfer of property to his nephews, conditioned on their payment of the resulting gift taxes.

We note jurisdiction and reverse.

FACTS

In 1968, Weeden gave 12,075 shares of stock in Weeden & Co., a stock brokerage business, to his four nephews, on the written condition that they pay the resulting gift taxes. On January 24,1969, each nephew paid his share of the federal and state gift taxes. After an audit, the total federal tax paid by the four donees amounted to approximately $91,911.00.

In May, 1970, Weeden died. At the time of his death, the stock had a fair market value of $422,625.00, and the decedent’s basis in the stock was $7,404.00. Weeden had not reported any income in connection with the transfer of the stock on either his 1968 or 1969 federal income tax returns. The Commissioner determined that the transfers resulted in $42,253.00 of income to Weeden, taxable in the year the gift taxes were paid (1969), and issued a deficiency notice for that year. On appeal, the Tax…