*2 HAND, N. Before AUGUSTUS time, At about the same December CHASE, CLARK, Judges. and Circuit 1940, plaintiff’s purchased wife also company on which the was located CLARK, Judge. $16,800 for immediately and leased it appeal orally. her recurring day plain- Involved in this is the On next savings tiff made problem gift $16,175 claimed as a conse- his wife purchase price a transfer of cover quence gift and hus- filed license, payments resulting to wife for that amount. Rental band return years neither the back. Here Commissioner 1941-1944 Were inclusive $1,500 year, nor district Internal Revenue court has which was the amount that accepted plaintiff of the trans- paying original view ; appeals lessor; 1944, plaintiff he now from the judg- paid actions and in addition against $5,000 adjustment his action for a refund ment him in his wife “an some deficiency against him assessed rent.” upon his income vic- the Commissioner years question plaintiff During the de- 1941, 1943, and tory years taxes for both rental ducted expenses. After investigation audit, of the case following are the facts the Commissioner Internal parties deficiency found by the issued Revenue notice stipulated disallow- years in During the the deductions in 1948. ing court. Plaintiff trial thereto, plaintiff deficiency prior $47,000 time the total of about for some thus áOO gift given for refund. brought
assessed and
wife or
action
plain-
property.
The district
that the
court found
with which
good
Assignment
certain
tiff’s motivation
to-make
cannot be divorced
*3
by
purposes
accompanying
in
held
losses
the value of securities
from their
for agreements
income taxes
whereby
wife
to-
and minimize
the husband retained
family group,
that “it was
plaintiff
but
dominion.
in fact
in-
And
never
taxpayer’s expectation
be;
action
no
tended that
he admitted
should
by
taken
the wife in exercise of her
impossibility
conducting
the business
rights
patent
of the
or real
patent
finding
without
basic
or of
this
property which
be detrimental
tо comparable
factory site in Connecticut.
plaintiff’s
interests.” The court then
equipped
wife
His
was neither
nor evinced
and
by
concluded that
license
and
any
any rights
desire to exercise or transfer
“by
family
rela-
reason of the
properties;
to the use of
in
either
tionship
con-
retains effective
patent
least,
case
it is clear
patent
property, while
trol of the
and real
right
legal
so,
she had no
to do
in the
save
purposes,
valid
other
will
transfers
unlikely event of the
default.
husband’s-
not form valid basis for deduction of
practical
The sole
effect
these transac-
paid
rent
the husband
and
tions, therefore,
in-
was to create a
arriving
expenses
the wife
as business
wife,
leaving
come in the
while
untouched
net
income tax
practical reality
in all
the husband-donor’s
purposes.”
effective dominion and control over the
properties
question.’
without
It is not
bare
arrange-
significance
point
on this
that the
rights
legally adequate
ad
transfer
all
actually disadvantageous
ment made was
hering
thereto to the wife. Likewise
passed
to the business. For it
re-
purchased
land
of the wife
in the name
charges
duction of land
which the
ap
alone. From this
сontends
plaintiff
might
up
option
taking
have made
power
peal
legal
that the wife’s
title and
purchase
in order to
the income
create
subject to no conditions
were absolute and
that, too,
in the
great-
donor’s
at a
Moreover,
or future claims whatsoever.
capital
stаtutory purposes,
er
cost. For the
evidence,
no
defendant
there is
nor does
legal obligation
the mere creation of a
contend,
plaintiff
any
derived
di
pay
controlling.
is not
Interstate Transit
rect benefit in the
of income
form
R., Cir.,
Lines
v. C. I.
130 F.2d
af-
Therefore, plaintiff
these transactions.
ar
firmed 319 U.S.
87 L.Ed.
that,
gues
since the
and rents were
ordinary
type
in nature for
of busi
amount, they
and reasonable in
consti
respect, then,
In
case
this
before us
expenses
under I.R.C.
tute valid
problem pre-
does not involve the definite
23(a)
(A),
23(a)
U.S.C.A. §
§
completed assignment
of a
sented
the deduction from
(A), which authorizes
product which
created
divided our court
“ordinary
necessary
gross income of
Circuit,
and the Fourth
both inter- and ex-
any
carrying on
trade
expenses”
“in
tra-murally, in the
two cases Wodehouse
Helvering,
Welch
See
business.”
R., Cir.,
Id.,
I.
177 F.2d
v. C.
Deputy
tions, L.Rev. Tax po aof Since here we find no evidence manage tential exercise of “control emphasized Supreme long has Court donee, part ment” practical the test retention “passive acquiescence to will do consequences of intra passing on nor,” Culbertson, supra, U.S. Intra-Family Soil, family. assignment. pаges 747, page 69 S.Ct. at Realization Assignments: Attribution practical re since the is in all transaction re Income, In the L.Rev. 6 Tax paper spects “mere reallocation of income Sunnen, case C.I.R. cent members,” family C.I.R. v. Tow among the involving er, supra, page 327 U.S. at by the inventor-husband re has page 538, and since the wife, the licensing contracts enjoyer owner of the actual mained said, question remains “The crucial court con property, the wife do not pow assignor retains sufficient whether the *5 the business deductions within stitute valid property assigned the control over er and C.I.R., 86 F. statute. Seе Johnson receipt income to make of the or over 710; C.I.R, 5 2d W. H. Armston Co. recipient of him as the to treat reasonable 531. 333 U.S. at purposes,” for tax the income and went Affirmed. page at page 68 S.Ct. controlling note that “The to (dissenting). CHASE, Judge permitted corporation in also position the оf amount regulate protect the him to to Perhaps it woulld be desirable page payable to wife.” 333 U.S. amending 23(a) Sec. revenue the as the page In essence expense 725. the business to from (A) exclude case was effective present the signment in which be- allowed those now1 deduсtions single the transferring only intrafamily extent necessary only to of of the because come used, late It is now too used, to income. to property receive or be gifts of proposition the well-established matter to be de- to But that is a business. the right will acts, I and, such by Congress that mere until termined grantor not suffice to insulate the tax- give effect are bound courts think like liability 22(a), and we think under oth- fully are effective wi'se which 23(a) obtain results must under erwise. 111, 50 Earl, 281 U.S. (A). See Lucas v. is, be- some distinction There I Horst, 731; Helvering v. 241, L.Ed. S.Ct. royalty tween the disallowance the 311 U.S. the disallowance of the rent deductions. S. Eubank, Helvеring 311 U.S. patent iby gift that the transfer It is recent case 149, 85 L.Ed. The Ct. busi- a transfer needed the wife was Culbertson, 733, 69 S.Ct. 337 U.S. already by the tax- owned established has did, to, and was intended payer which field, family-partnership whether test royalties. pay her necessary to make it arrange part of the as there existed or nоt money, which she gift of the donee to have the “'bona fide intent” ament some of her own together with used thus management, part real exercise taxpayer never owned building doctrine blessing to the final giving to have been shown ownership” in matters is decisive “true connection with which Tower, See аlso C.I.R. from the taxation. the net result stand- federal at all and taxpayer point However, change Schaffner, merely landlord. 1135; Harrison v. A.L.R. independent instant case differs on its facts trustee- the factor Here respect and Brown from the in this results. ship And it is is crucial.
áOS toy necessary payable taxрayer for taxes case, I liable as it is view ' one, my some which so much rely upon brothers this distinction. rely, little, determining any, what deductions, help respect the claimed taxpayer may take deductions identified now, factor the statute decisive computing 23(a) (A) Sec. royalty payments the rent аnd Assuming, arguendo, net income. “required as a condition to be made relevant,1 these cases factually possession, purpos- the continued use or inapplicable. out pointed basis business, es of the trade majority applying cases or is not taxpayer which has taken pat- facts before us is that the license equity.” title or had no in which taking ent buildings and the lease given to findings, based (A). The Sec. taxpayer practi- left in all “untouched them, adequately supporting on evidence cal reality effective husband-donor’s to transfer everything, show that was done dominion and propеrties legal equitable titles both in question.” But whatever control absolutely to and to the received was the control of li- thereby ac- she upon censee and lessee and was conditioned she quired gave her the to whatever making here claimed to rents get way could erroneous, deductible. would seem there- course, were, of which taxable to fore, deny deduction on this claimed And, 23(a) (1) (A) income. now Sec. basis. exception so that no is made because broad way expenses be- in which business point brief mention. other warrants One otherwise, e., necessary, by gift comе i. that the tax- apparently think My brothers *6 royalties hus- reasonable and rents the any rent de- longer entitled payer is no were, band well within the I because, presumably, he could have duction “required” scope statute, by the being gave his wife he used arrangements, license and and there- then he would hаve himself and Commissioner, fore deductible. so, no pay. If he had done had no rent to Cir., 7 168 F.2d Brown v. Commis- have as de- doubt been allowed he sioner, 180 F.2d certiorari de- etc., taxes, costs, ductions the maintenance nied, L.Ed. S.Ct. rent have included must which Commissioner, 598. See also Henson v. paid his wife to make reasonable The fact that may all but the effect this decision over Skemp and Brown cases the transfers help deprive even cannot them. I him independent the benefit trustees for mistakenly my brothers have but think family members is a distinction without a purpose applied rule of cases the 'business only difference since that com- bore Helvering, Gregory like pleteness and reasonableness situation paid, here rentals merely taxpayer what did was where shown found. H. Co. W. Armston permissible judgment to use Commissioner, Cir., is dis- increase his business in- disguised tinguishable instance of a pay vestment continue reasonablе large of dividends to stockholder transfer rent. corporation. judg- reverse problems arising I would and remand for a dealing cases appellant. identity of 22(a), I.R.C. as to the under Sec. ment prop- issue to which who retains sufficient eases erty him so relevant whether or not transferred as to cоuld be make “required” pay includible gross donor’s income under and rents as condition to us Sec. not, 22(a), law, ing as a matter since that the test “re- quired” pay the donee for in the statute. In order its use even set to be forth issue, though firm, he has entered into a to this and to hold as the relevant obligation legally enforceable, does, majority so it would seem that one do. accept premise donor must