Lester Crown v. Commissioner of Internal Revenue

30, 1978. Nov. Denied WOOD, Before SPRECHER and Circuit

Judges, PELT, and VAN Senior District Judge.* WOOD, Jr., HARLINGTON Circuit Judge. primary question presented in

appeal is whether a taxpayer who lends money to his children and other family close members in the form no-interest loans * Pelt, Judge The Honorable Robert Van States Senior United District for the District of Nebras- ka, by designation. sitting open on demand payable accounts must sioner theorized that the loans involved the computation gifts in the include transfer of a valuable property right to the during particular year tax the value of equal trusts to the market rate of interest foregone the interest on the indebtedness charged on similar loans. After the matter outstanding during year. The tax was by Court, heard the Tax a decision was taxpayer’s argu- 31, court ruled favor of the filed on March holding that the ment that no taxable occurred. We appellee subject could not be to the gift tax affirm. on proportionate his share of partner- ship’s outstanding loans because the making As the relevant facts have been set out in of non-interest-bearing loans under these opinion the Tax Court’s in this case report- circumstances is not a taxable event. (1977), at 67 T.C. 1060 we only ed need There were three dissenters. This court briefly Appellee summarize them here. jurisdiction over the Commissioner’sappeal equal partner along an with his two broth- 7482(a) under Section of the Internal Reve- Areljay Company, ers in Not Incorporated nue Code of 7482(a). U.S.C. § (“Areljay”). during Prior to and Ar- eljay totaling made loans approximately The Commissioner begins his argument million to a series of 24 trusts that $18 had finding in these loans with the been established for the benefit of the chil- proposition that the granting of a loan over dren and other close relatives of the period three of time at less than the true eco- brothers. The loans were made to enable nomic rate of interest bestows an economic acquire the trusts to interests another benefit recipient. on the As with any pro- investment partnership known as Henry ductive asset ability to employ that (Not Company Incorporated) Crown and productive asset in activity gives rise to (“HC Inc.”). Not Approximately 13% “income” in an economic sense.1 When the trusts’ Areljay indebtedness to was rep- money is loaned at zero interest over a by payable taxa- assets, an income split up his estate would to taxable

ducing property producing in- into smaller tax bracket high larger the amount of income grown in a ble No-inter- brackets. in lower taxable Note Taxation of Inter- comes earned. See Gift Moreover, where that.3 just do Loans, est loans est-Free 19 Stan.L.Rev. demand, maker on payable are the loans which (1967). Appellee’s counter-argument, result to achieve is able the loans of majority in the Tax accepted by losing access of inconvenience without Court, is that arise. The the need should principal to recognize does not system our income tax is to the estate regard situation or accumulations of earnings unrealized the time-value Because of complex. more any obli- taxpayer wealth and no loan is made money, when a continuously invest his gation to term, person estate of the for a definite cost profit. opportunity for a The in that is reduced making the loans letting either one’s remain idle or promise pay to off value economic an unwise invest- suffering a loss from than the value is less in the future the loan merely ment is not because a loaned out.4 money which was been made from a wise profit could have thing that the same suggests investment. in the case at bar. the loans true of (1977) (emphasis 67 T.C. out, since However, appellee points as the original). the loans to be require could the estate system taxpay- It is true that under our demand, to there is no reason repaid any duty to cultivate the er is not under promise to the fair value of expect that (or labor) capital his and will not fruits of substantially less than would be repay as if he had when he hasn’t. be taxed loans.5 This fact led the face amount However, in a by actively placing others district court in and the Tax Court below capital, position enjoy the fruits of his F.Supp. Johnson v. United “real- taxpayer vicariously in a sense decision (N.D.Tex.1966) only reported —the potential the economic thereof.6 Per- at bar —to con- izes” all fours with the case enjoy the economic bene- government’s mitting interest in tax- others that the clude apparently an administrative Taxation, the IRS has made History of Federal Taxes Gift offering of his determination that a donor’s free subject personal not tax. services is any express 3. We do not mean to view with Lowndes, McCord, Federal Kramer Estate & contention, regard to the Commissioner’s Taxes, 1974), And 26.1 ed. and what § Gift part appeal, of this the loans this case judicial question there is on the little Areljay gave constructive rise to income to the effect, see, g., is to the same e. Comm’r of partners taxable under the income tax. Hogle, 165 F.2d 352 Internal Revenue although the situation maturity ap- 4. As the date of of the loan analogous regard in an labor promise proaches, the fair market value of the sense, policy consid- economic a different set pay things being equal, All other increases. suggested are involved. It has been erations maturity at the date the market value that: equal. the face value of the note would be opportunities rela- for deflection of the might be some difference because of 5. There clearly appear tive income tax burdens promissor, lack of credit worthiness of the distinguish loans from anticipation practical or because there is an justify backstop services and use of delays procuring payment. There is no evi- potential gift tax to loss to the minimize dence of either in this case. omitted.) (Footnotes federal fisc. McCord, supra argument might 26.15 at 6. A similar be made with re- spect personal services. to donations corpus as one means of asset can seen considered occur.8 fits of H.Rep.No. 708, the asset’s economic exerting Cong., Sess., control over 72d 1st as a theoretical might serve potential. Treasury Regulations on Gift Tax such as those distinguishing gifts (1954 Code), 25.2511-l(e), 2(f), basis 25.2512- where the here from situations 5(c). involved properties productive lets his lie It is not enough for Commissioner to However, whatever the val- totally fallow. good policy demonstrate that there are rea- policy this consideration as factor ue of taxing sons for interest-free demand loans favoring the of loans such as gift taxation and that to fail to so will do lead to incon- case, the present in the instant Com- those sistent tax treatment of transactions consti- has not able to missioner been tuting practical alternatives. He must also authority suggesting congressional that the show taxation of such loans is estate tax purpose protecting the within the contemplation of the tax gifts to with the use of diminish concerned statute. The attempts taxpayer’s potential estate as well as his carry respect by his burden in this relying one. actual 2512(b) Code, on Sections 2501 and of the points out that a The Commissioner also 2512(b). U.S.C. 2501 and No statutory to tax the use of interest-free de- failure language or statements in the legislative loans with the mand would be inconsistent history have dealing been cited specifically practical treatment of other alterna- tax Instead, with interest-free loans.9 reliance for the an economic bene- tives transfer of placed general on the broad sweep of appellee to another. The has conceded fit these statutory sections. Section 2501 im- the loans been had made poses gift tax on “transfer proper- term, gift might definite a taxable for a ty by gift” by taxpayer during made the Similarly, taxpayer if the have occurred.7 year. 2512(b) provides: Section to a trust money had contributed the made 2512. gifts. § Valuation of duration, for a then the irrevocable certain (b) Where property is transferred for of the income present discounted value in- less than an adequate and full considera- payable to the beneficiaries would terest tion money’s worth, in money or then the been considered a taxable to the amount by which the value proper- of the the the time that trust was ty exceeded the value of the considera- established. Treasury Regulations tion gift, shall be deemed and shall be (1954 Code), 25.2511-l(e) Tax (26 Gift computing included in the amount of C.F.R.). analogous More the situation of gifts made the during year. calendar repayable no-interest demand is

the establishment intended of a revocable trust. statute to payments comprehend There income “cover and benefi- all transactions are ciary grantor whereby considered from the . the extent . . . during years the calendar property received. If the or a is dona- terminates, power revoke tively passed upon another, to or conferred Although important 7. the Commissioner characterized the 8. The between a distinction revoca- petitioner’s argument ble trust concession at oral as be- interest-free demand loan is case, beneficiary ing taxability, given a concession that in the former as to in fact only already produced capital, present appellee the income conceded that dis- while in the latter the borrower receives value of a term counted loan would capital opportunity productively. to use the may less than its face amount. possible to characterize the differential as a attempts Although petitioner distin- 2512(b) gift under Section Internal Reve- guish open account loans in between the Comm’r, v. nue Code. See Blackburn 20 T.C. notes, case and evidenced demand we those (1953); v. Mason United 513 F.2d present equivalent pur- find them to be question yet The has not poses. loans of Both forms involved decided. been repayable provision with no on demand and of interest. “money’s worth” than the employed means or device loaned.

regardless H.Rep.No. 72d accomplishment.” presents The Commissioner in its no evidence in (1932); S.Rep.No. Cong., 1st support Sess. proposition, of the latter but reprint- Cong., 1st both 72d Sess. promise repay is to 2) 476, (Part 1939-1 Cum.Bull. ed in the loan at some indefinite time in the every was to “reach kind and purpose The and that given future the time-value of Robinette v. by gift.” transfer type of money this must be worth less than its face 184, 187, 63 Helvering, 318 U.S. Although value. be true in the (1943).10 enacting In 87 L.Ed. 700 repayment abstract in that instantaneous 2512, Congress dis- predecessor to Section impossible, from a realistic of view with the common law test of “dona- pensed the value at the time the loan is extended exter- tive intent” in favor of “workable repayment is both unknown language “The nal test.” and unknowable. Commissioner has statute, person- . . real or ‘property produced any showing evidence al, intangible,’ enough tangible or broad systematically repaid.12 the loan will be The most that “transfer,” “property,” The terms can be said is that the eventual value of the “gift,” “indirectly” are used in the in of a expressed present ble value.15 Even if the standing during period the in which interest theoretical exist- ence the possibility of of an sought exchangeable imputed. is to be There is no basis conceded, value were as assumption. discussed for this above the imputation of interest subsequent time times, At of characterizing other instead periods seriously is deficient as a measure an “unequal exchange,” the as the of that as value of time the of the loan.16 suggest seems to that there Commissioner outright gift right”— an “property is of a A third variant of the Commission right namely, money the to the for an use er’s the abandons idea that the period. indefinite a property To use real gift occurs at the time the of of making the $1,000 example, itself, money right 14. For if a lender makes a but the to sum use a of “proper” loan and the interest rate repayment. until the lender demands It 10%, noteworthy is the would IRS formula he is also that at common law a ten- having gift ancy transferred, $100 as of treated made a each at will if terminates Thus, year outstanding. exchangeable the loan remains if the therefore has value. See Re- years, outstanding (Second) loan remains for 20 he will statement Landlord and Tenant 1.6. $2,000, having gifts totaling be treated as made Appellee cites number of cases in whereas which he have been taxed on rejected $1,000 attempt courts the gift principal IRS’s to tax as a he had made a of the payments However, series of place. paradox received virtue of the first the is one of right, an earlier transferred of favor the nominal rather than real In the case of values. right taxation paid of the value outright immediately, at itself the the the tax is irrevocably See, g., time it paid transferred. e. while loan is under the the tax at various Comm’r, Revenue, Galt v. of points Internal 216 F.2d in the future. Because of the time-value (7th 1954), denied, 41 present Cir. cert. money, 348 U.S. 75 value of the two alterna- (1955). However, S.Ct. 99 L.Ed. 743 tives be about the same. distinguishable case is since the itself, course, Money exchangeable transferred was revocable. See posited McCord, supra, here value. interest § 26.10. (N.D.Tex.1966), although squarely contrary view that to in favor loan as, position. the Commissioner’s The Tax time, completed only it is begins also noted that the courts have con the lender continues Court extent to the rejected repayment. sistently attempts the IRS’s to im demanding from refrain to pute recipients income occurring continu- as view of Dean, Simpson loans. J. the loan is interest-free period ously during T.C. 1083 v. United’ harmony with the Com- 35 Saunders outstanding is in F.Supp. rev’d on other measuring the formula missioner’s (9th 1971); bring- grounds, 450 F.2d 1047 Cir. Jo timing amount Sons, Commissioner, seph Lupowitz Inc. v. argu- version of Commissioner’s ing this fact, tax statute 497 F.2d 862 Cir. In courts aegis ment under stretching generally inhospitable been certain amount of involves a attempts the mere use of Commissioner’s to make the To characterize the latter. property right granting of interest-free a transfer of low-interest property as event, concept express of what consti- loans a taxable absent an implies broader regulation. statute or right under courts refused tutes a recognized.17 give been to the Commissioner’s efforts laws than has heretofore impute theo- of the Commissioner’s interest on interest-free or low-in application equivalent is the terest loans between related business enti ry to case at bar constructively promulgated re- ties until the viewing appellee Regulation as IRS newly granted interest 1.482-2 under ceiving hypothetical authority. Compare which he then construc- Tennessee-Arkansas Gravel loaned Co. v. Revenue, This rais- Commissioner of Internal tively transfers to the borrower. 1940), previously, discussed F.2d with B. Forman problem, es Co. being imposed Revenue, on what the v. Commissioner of whether a tax Internal (2d Cir.), denied, rather than what he F.2d 1144 could have done cert. lender finding a taxable is also- did. A 32 L.Ed.2d 817 equivalent saying regulation the lender had a That embodied the same basic from the borrow- principle to receive interest that the espoused courts, forgave. he then provided er—which “indebtedness” but for a “safe harbor” “right” respect has a to with taxpayer’s It is true that lender choice of legally empow- he charge interest in that interest rate. The courts also refused to provi- impute But absent a contract ered do so. income in connection with there providing legal otherwise is no sion installment sales until Con interest, pay the borrower to obligation gress See, added Section 483 to the Code. a might application which occasion the g., Clay Brown, e. (1961), B. 37 T.C. 461 approach. aff’d, cancellation of indebtedness (9th 1963), aff’d, 325 F.2d 313 Cir. 380 McCord, supra, 26.12. , 85 14 L.Ed.2d 75 1162 States, Pretzer v. United 61-1 prece The Commissioner cites little ¶ (Ariz.1961). USTC 9477 When support interpretation. in of his dent problem, dealt with the it gave recogni also Commissioner, v. 20 T.C. 204 Blackburn tion to the principle espoused by basic States, (1953), v. Mason United 513 F.2d 25 Commissioner, but applicability limited its 1975), (7th and Commissioner v. Ed Cir. by excluding sales of types certain of assets wards, (7th 1943), consti 135 F.2d 574 Cir. year and transactions of less than one or subsump support tute indirect $3,000. involving less than tion of interest-free term loans within the “unequal exchange” approach Adoption of Section position Commissioner’s 2512(b). directly by judicial case case construction States, here, F.Supp. Johnson v. United would involve the courts the difficult consistently meaning within the It is of interest that the IRS has of the charitable contribu- prop- provisions use of maintained that a donation of the tion of the Internal Revenue Code. convey- 33; erty “legally See I.T. is not a enforceable 1948-2 Cum.Bull. Rev.Rul. “property” ance” does not constitute a 1970-2 Cum.Bull. 62. 70— Nipple an appropriate interest Wisconsin determining Fabricating task v. Corp. Commissioner, imputation. statutory The lack of F.2d rate 1978), majority as the guidelines question opinion regulatory the Tax recognized, a Court make it difficult for the Commissioner would also only recently begun particular to assert that to know advance whether the mak- ing of non-interest bearing loans is give gift, to a taxable and if a taxa- loan would rise event, though ble even so, statutory as to au- uncertainty in what amount. This support thorities offered in of that comply position it valuation would make difficult have been in existence since the creation of reporting provisions with the of Section tax laws. When the Commission- 6019(a) the Code. A “safe harbor” in position er’s on the same issue involved acceptable minimum interest rate form of a the ease at bar was squarely rejected by the desirable, provided such as that might States, court in Johnson v. United Regulation 1.482-2. F.Supp. (N.D.Tex.1966), appeal judi- problem adopting Another Moreover, taken. the Commissioner’s non- urged by the cial construction Commission- acquiescence in that decision was not made potential broad extremely er is the reach public years later, until seven years six af- implic- that would be at least principles alleged ter now before us were itly same recognized. reasoning made. 73-61, See Rev.Rul. 1973-1 Cum. of a taxable when finding leads to Bull. 408.19 Until that time there was no by parent million is loaned to his $18 administrative or judicial authority sug- purposes children for investment would find gesting that interest-free demand loans where a father lends thousand give would rise to a taxable graduating college dollars to his son from conclusion, In although sympa- we are get established, until he can or even where thetic to the Commissioner’s desire to fill in an office worker lends a employee fellow loophole what be a significant in the next payday.” reasoning “until $10 Similar laws, a number of theoretical and might presence find the aof when a practical problems make it undesirable neighbor your borrows lawnmower fails judicial by Accord, do so construction. to return it immediately, or when out-of- Note, 9 Rut.-Cam.L.J. We town guests provided night’s lodging are express no view as to pro- here whether a by going friends instead to hotel.18 As spective regulation making such loans taxa- 483, might in Section be desirable to set whether, ble would be valid or on the other out a clear exempting set of rules from hand, problem best left taxation certain types property and/or Congress. transactions below some threshold duration or dollar value. The judgment of the Tax Court is AFFIRMED.

Lastly, hesitancy adopt our by result advocated the Commissioner PELT, ROBERT VAN Senior District judicial equita construction reinforced Judge, dissenting: ble considerations. See Central Illinois Public Co. Service United It is with reluctance that I note my dis- (1978) L.Ed.2d 82 judges sent. The who major- constitute the (Brennan, J., concurring). Although we ity are men of honor and competence I and recognize that the respect Commissioner has broad judgment. their The fact the that in applying discretion a ruling retroactively, was issue, Tax Court divided on this with course, problems deficiency 18. Of these kinds of 19. The notice of for the tax only taxpayer already year originally if taxpayer arise the has hit the sent the 1971 did ceiling suggest on tax exclusions and deductions that a taxable had occurred. only theory because of other transactions. It is also unlike- added after the 1973 Rev- ly impose Ruling by way the IRS would seek to a tax in enue of an amended notice. many hypothesized. Moreover, of situations before the Tax Court IRS never rely something argued be desirable to on more these loans were within the cover- age 2512(b). than the Commissioner’s discretion in area. this Section solely is only I mention This dissent not based on what I dissenting,1 judges four wrong. is or The moral sense in the views think am not alone I show that majority panel and conscience this expressed. herein dissent, trustworthy is as mine. I main- as notice the amount involved While I feel ly, Internal Revenue Code because only more than deficiency slightly is enough 2511 and are broad dollars, overall million Where Congres- cover this transaction. loans, opinion recognizes, majority as history, majority as sional related $18,000;000. I con- approximately totalled opinion, indicates that intended and of lesser magnitude, of such clude compre- tax statutes to “cover and minimis, also, embody if not de amounts . whereby . . hend all transactions being given seems is gift. That . . property and the extent you when consider the exam- me evident to donatively passed or who dissented in Judge Simpson by ple used another, upon regardless or conferred if the says, He the Tax Court. in its employed accomplish- means or device here had ment,” specifically need to there little to obtain the the borrowers arranged for loans as a taxable enumerate interest-free and institutions money from financial as included in the term “all transac- thereon, clear- agreed pay interest conclude, as tions.” I can the Commis- such interest would ly, Internal and mem- sioner of Revenue four constitute a concluded, bers the Tax Court have of Internal Reve- v. Commissioner Crown treating this as a taxable 1060,1066 nue, (1977). The taxpay- 67 T.C. long has been available in the stat- event paid in effect interest er here has utes as written. pay- he not demand these when does I would reinstate the decision of the Com- prevailing interest rate. ment or of Internal Revenue and reverse missioner recognized recipient has majority the Tax Court. majority Under the deci- been enriched. sion, disparaté gift-giving treatment

taxpayers becomes obvious when we more through

follow has happened. what loaning money

We here a lender to his family and other close members

children which, amount without America, UNITED STATES of Bonds, placed in U.S. Government even Plaintiff-Appellee, handling bright” money, one “not hardly help resulting could in annual in- come million All of of a dollars. MUSCARELLA, Veller, Fred Carl Antho- tax any gift without or other received ny Vymola More, Ronald and paid, being transfer tax if the Tax Court Defendants-Appellants. affirmed. Nos. 77-2120 to 77-2122. hand, who, grandparent On the other Appeals, United States Court of lawyers without tax advice of and account- Seventh Circuit. $10,000 ants, gives grandchild year, one previously his or her used Argued May exclusion, pays what comparison Decided Sept. million could called eighteen dollars Rehearing Rehearing En Banc populist mite.” ex- “the widow’s I use the 20,1978. Denied Oct. comparisons pressions paragraph in this point up graphically more my feel- ings the Tax decision of Court’s “just ain’t

majority right.” disposition Additionally, judges participate in did the consideration or the case. three resented notes on demand. period of time the recipient is by enriched remaining open 87% consisted of loans on the amount of income that the money gen- open account. Neither the accounts nor the erates for time, him. At the same demand notes any provision contained person who lends the poorer except interest after de- the amount of foregone. interest His nomi- mand. Nor was paid decline, nal wealth but he misses outstanding balances of the loans during out on a chance to increase his net worth. year tax question. “opportunity is the cost” of his loan. In order for an economic benefit to be deficiency In the notice of sent to the recipient, transferred to the it is not neces- 30, 1973, appellee on November the Com- sary that the interest zero, rate be set at missioner of Internal Revenue determined but that the interest rate on the loan that the loans to the resulted in gifts trusts be less than the appropriate market rate of from the Areljay partners in 1967 in the interest at the time. $1,086,407.75, amount of one-third of which appellee. was allocated to the In calculat- argues Commissioner that this trans- ing the amount the gifts the Commis- fer of economic benefit means of inter- applied sioner per interest rate of 6% est-free loans inimical to major the two annum to the daily balance of the purposes protection statute — outstanding during year. The Commis- of the income tax and the estate tax.2 The consumption produc- 1. Even rather than purposes. rather than one of its goods, gives tion use thereof rise to “in- But there is contrary. to the With during period employs regard Act, come” of use one Cong.Rec. see 65 8095-96; H.R.Rep.No. 708, the economic definition of income as the sum Cong., 72d 1st Sess. consumption during period plus S.Rep.No. the net Cong., 72d 1st Sess. 40 change in wealth. generally McCord, Taxes, argues protection 2. Petitioner of the in- Federal 22.2 Estate and Gift Harris, consequence” 1974); Legislative come tax is a “natural 26.15 ed. ing the estate of the lender had not been respect to clearly correct goes But the tax, which the Tax Court affected. a fact income here The concern if the lender had retained the argue to note. majority failed pro- income will use loaned out and invested it in income- people is that

Notes

notes at a sig- demand trade conceptual or property, include however nificant discount from face value Shaughnessy, Smith contingent.” Nor can a place. market discount- 545, 547, 176,180, 63 S.Ct. 87 L.Ed. successfully applied ed value formula be reports evi- Congressional also given knowledge the absence of as to when concept “property”: dence a broad

notes terms dis- sense; comprehensive broadest most as of the time the loan counted value will “property” reaching every spe- the term range somewhere between zero and the cies of protected by or interest law face amount of the notes.13 The reason having exchangeable value. that the value at the time of the loan 708, supra, at 27-28; H.Rep.No. S.Rep.No. greater cannot be certain- determined 665, supra, at 39. ty is that the transfer of the economic spite in sweep the broad incomplete point, being benefit at .that gift statutes at- Commissioner’s yet totally dependent on the lender’s contin- tempt to bring interest-free demand loans uing willingness demanding to refrain from scope within their presents a number of repayment. difficulties. His seems to alter- The for determin- Commissioner’s method nate between at least analytically two dis- ing timing and amount of the taxable tinguishable approaches. He attempts first gift generated by interest-free demand to characterize the transaction as an “un- the calculation equal permits definite exchange” 2512(b), within Section fo- value, cusing entirely on the time but is not consistent with the of the loan. The lender is seen “unequal exchange” theory. as The transferring (mon- Commis- “property” ey) exchange promise for a sioner would find a to have occurred that a like amount will repaid upon during be in which any quarter de- there were mand. promise is seen being as less in loans outstanding and would Justice Frankfurter suggested found that de 12. The Commissioner has not that protean sired arrangements “to hit all agreement plan there was a collateral that which the wit of man can devise precluded demanding repayment that are not would have business meaning transactions within the predetermined period. the notes over ordinary speech . . " Comm’r v. Wem yss, 652, 654, 324 U.S. 65 S.Ct. immediately If is demanded after L.Ed. 958 made, present approx- the loan is value will per- imate the face value. If the loan remains Congressional reports specifically 11. The state petually unpaid, approaches value ‘property’ word “[t]he tax law zero. money.” H.Rep.No. supra, 30; includes at S.Rep.No. supra, at 42. analogy, multi- the amount of it is as if measure the lender gives the outstanding balances the mar- plying “tenancy borrower will” at respect notes. im- interest rate similar The sum of money ket while retaining the subsequent of interest time putation Smith, “reversion.” See Simes & The Law theoretically is not accurate meas- Future Interests periods 1966). Of ed. § in value at the time of question ure difference is whether such an “at will” inter- can properly loan between the loaned and the est “prop- characterized as laws; repay. “unequal exchange” erty” promise e., i. whether 2512(b) implicitly “protected by of Section as- it is approach law” and has an “ex- being compared changeable values will H.Rep.No. 708, sumes value.” supra,. time, 27; just at the same S.Rep.No. be measured at supra, at 39. Certain 2512(a)requires outright as Section that an will” “at interests subject have been the legal be valued as of th'e date of protection parties. vis-a-vis third A The failure discount the inter- property tenancy real at will clearly gives imputed periods subsequent est back to the tenant a possessory against seeming parties. the time of the loan leads third There is also authority to the permit paradox that the lender were to effect that an action be maintained loan outstanding against parties the interest-free to remain third for interference with a a sufficiently long period de- before contract even if the latter was termin- manding repayment, up pay- Prosser, he would end able at will. W. Law of Torts ing more he have taxes than 129 at ed. we outright gift he made an of the loan seen had suggesting that the recipient principal.14 problem payable The other is that as a of a loan on demand has a legally protectible “unequal exchange” measure of the differ- interest vis-a-vis the ential, Moreover, lender. the Commissioner’s formula would the Commissioner has produced imply showing no evidence time of loan was that the bor- rower’s “at will” interest has an predetermined exchangea- the loan would out-

Case Details

Case Name: Lester Crown v. Commissioner of Internal Revenue

Court Name: Court of Appeals for the Seventh Circuit

Date Published: Sep 19, 1978

Citation: 585 F.2d 234

Docket Number: 77-1898

Court Abbreviation: 7th Cir.