SUSIE SALVATORE 29 T.C.M. 89 (1970) CASE BRIEF

SUSIE SALVATORE

29 T.C.M. 89 (1970)

NATURE OF THE CASE: This was a dispute over the taxes due on a gift over to children. Salvatore (P) sought review of a decision of the Commissioner, which determined a deficiency in income tax.

FACTS: P's husband owned an oil and gas station service. H's will left the entire gas station to P and gave the executors full power to sell any and all of his property. For several years after the death of H, P ran the station with her three sons along with her daughter who kept the books. Eventually two sons left the business in 1958. From 1958 to 1963 P got $100 per week from the income of the gas station with the remaining income divided between the family members who worked at the business. As time went on the land became increasingly valuable and eventually Texaco made the offer P wanted to hear along with the fact that only one son was still involved in the operations. Eventually, Texaco agreed to pay $295,000. Besides tax liens and a mortgage, they owed $58,000 on the property. It was then decided to take the offer with P getting $100,000 so she would have enough money to live her life with $5,000 per year with the balance to be divided upon among the five children. To effectuate this understanding, P was to first convey a 1/2 interest in the property to the children and then they would convey the property to Texaco. The down payment was taken and warranty deeds recorded the transaction to the children and then to Texaco. P filed a federal tax return reporting that she had made gifts of 1/10th interest in the property to each of the five children and disclosing that she owed $10,744.35 in gift tax. P also reported a long term gain on the sale of $115,063 plus an ordinary gain of $665. Each of the children reported their gain of the balance. The IRS determined that P's gain was in fact the full net amount or $238,856 all of which was taxable as a long term gain. The IRS claimed that P's conveyance of the property was merely an intermediate step along the way to closing the transaction with Texaco and that as such the entire sale was chargeable to P as the children were merely conduits.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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