TAXATION - FEDERAL GIFT TAX - INTEGRATION WITH INCOME TAX

Authors

Katherine Kempfer, University of Michigan Law SchoolFollow

Abstract

Beck in 1935 created an irrevocable funded insurance trust of $172,000 in securities together with seven policies of insurance on his life. The income from the securities was to be applied to pay the premiums on the policies and any surplus was to be distributed to his wife and daughter. At grantor's death the proceeds of the policies were to be added to the corpus of the trust and all income was to go to the same beneficiaries for life with remainders over. There was no possibility of reverter in the grantor and no right to alter, modify or revoke the trust in any way, except to substitute a different trustee. Nor did the grantor reserve any power over the policies. In his gift tax return for 1935, Beck reported the value of the securities and of the policies and deducted therefrom $48,026.65, the capitalized value of the income necessary to pay the insurance premiums during his life expectancy. He argued that he was required to include that much of the trust income in his taxable income and that it would be inconsistent to tax the same payments as income and as a gift and therefore Congress must have intended to exempt this portion from the gift tax. The Commissioner of Internal Revenue found a deficiency in the gift tax, but the Board of Tax Appeals expunged it. Held, reversing the Board of Tax Appeals, the entire corpus of the trust is subject to gift tax. There was no Congressional intent completely to integrate the gift, estate, and income taxes. The same transaction may be a completed gift for one purpose and incomplete for another. Commissioner v. Beck's Estate, (C. C. A. 2d, 1942) 129 F. (2d) 243.

Recommended Citation

Katherine Kempfer, TAXATION - FEDERAL GIFT TAX - INTEGRATION WITH INCOME TAX, 41 Mich. L. Rev. 512 (1942).
Available at: https://repository.law.umich.edu/mlr/vol41/iss3/11