OPINION.
Mellott :
Tbe Commissioner determined a deficiency in gift tax for the calendar year 1935 in tbe amount of $600.
The proceeding was submitted upon an agreed statement of facts, all of which we find to be as stipulated. Petitioner, a resident of Ardmore, Oklahoma, duly filed a gift tax return for the calendar year 1935, reporting total gifts made during that year of $200,000 and net gifts made during the preceding year of $77,Y91.38. The $200,000 consisted of two gifts of $100,000 each made to trusts. Accordingly petitioner excluded $5,000 from each, under section 504 (b) of the Revenue Act of 1932, or a total of $10,000, and computed a tax of $18,634.05, which he paid. It is stipulated that "The sole question for determination * is whether the petitioner is entitled to the exclusion or exemption of $5,000 from each of said gifts in the computation of his gift tax liability."
Respondent filed no brief. The deficiency was determined upon the theory that the transfer of $100,000 to the Guaranty Trust Co. of New York in trust was a transfer of a "future interest in property" and hence not excludable under section 504 (b), supra; but in his amended answer the respondent makes the additional contention that only $5,000 may be deducted because of the fact that petitioner's son was the beneficiary under each of the two trusts. The trust instruments are incorporated in the agreed statement of facts and have been examined by us. For present purposes, however, it will be sufficient to quote the stipulation.
(3) On November 15, 1935, the petitioner made a transfer of $100,000.00 to the Guaranty Trust Company of New York as trustee in trust for the benefit of the beneficiaries named in and subject to the terms, provisions, and conditions of, a declaration of trust executed by him in the making of such transfer. Petitioner's son, Edwin Loeliridge Cox, was one of the beneficiaries named in the declaration of trust, and upon conditions of survivorship and the attainment of certain ages therein stated, was to receive certain distributions from the income and from the corpus of the trust.
(4) On December 14, 1985, the petitioner made a transfer to Elizabeth L. Cox, his wife, as trustee in trust for his son, Edwin L. Cox, of the sum of $100,000.00. This transfer was made by a declaration of trust in writing and was wholly without any restrictions upon the administration of the trust fund by the trustee, but provided for distributions therefrom at certain specified dates, and the termination of the trust on January 1, 1950.
The transfer to the Guaranty Trust Co. of New York was not one of a future interest in property. The donor "divested himself of all vestige of title, and no future act on his part could modify or abrogate his act." Commissioner v. Wells, 88 Fed. (2d) 339, affirming Thomas E. Wells, 34 B. T. A. 315. Inasmuch as the statute imposes the tax upon the donor, the quality of the estate conveyed by him is determinative rather than the estate received by any particular beneficiary, Commissioner v. Krebs, 90 Fed. (2d) 880; but even if the gift be considered from the standpoint of the donee, it was one of a present interest in property, the trust being an entity capable of and in fact actually receiving the property transferred. Commissioner v. Wells, supra; cf. Charles W. Deeds, 37 B. T. A. 293,297; Noyes v. Hassett, 20 Fed. Supp. 31.
Bespondent's contention that the petitioner's son was the beneficiary under each trust, if important, is only partially true. Under the transfer made to petitioner's wife the son, Edwin L. Cox, was the sole beneficiary; but not so under the other trust. The instrument creating it provided that the son should receive the income for his life if he attained the age of 21 years. If he attained the age of 32 years then he was to receive 25 percent of the corpus. If he attained the age of 45 years then he was to receive 33⅛ percent of the corpus then on hand. It will be noted that the maximum amount of corpus which he could ever receive was only 50 percent of the amount transferred to the trust company by petitioner. Petitioner's wife had a possibility of becoming a beneficiary if she outlived the son, but if not then the son's lineal descendants, if any, were to receive the remainder, otherwise it was to go to Bussell Eugene Cox. So while it is true that the son was a beneficiary under each trust, it can not be said that he was the sole beneficiary.
But even if the son were the sole beneficiary under each trust, we are of the opinion that the $5,000 exclusion should be allowed as to each. The trusts were separate entities. As the court pointed out in Commissioner v. Wells, supra, "They were no different from persons, for the Act so states." Sec. 1111 (a) (1). In Seymour H. Know, 36 B. T. A. 630, we held that the fact that two beneficiaries were in existence at the time the transfer in trust was made did not entitle the donor to two exclusions of $5,000 each. This was on the theory that the trust was the donee. To the same effect also see Katherine S. Rheinstrom, 37 B. T. A. 308 (on appeal, 8th C. C. A.). The District Court reached a different conclusion in Davidson v. Welch, 22 Fed. Supp. 726; but inasmuch as trusts, though abstractions, long have been, and usually are, treated for income tax purposes as entities having separate existence, cf. Anderson v. Wilson, 289 U. S. 20, and inasmuch as we were affirmed in Commissioner v. Wells, swpra, we prefer to follow our earlier decisions rather than Davidson v. Welch, sufra.
While the precise question now being considered has not been decided, it seems to be a necessary corollary to our earlier decisions that a $5,000 exclusion may be made from each transfer in trust, though the beneficiary be the same. Congress anticipated this holding — though the fact that it did so has comparatively little significance — when it amended section 504 (b) in 1938 and provided that the exclusion should not apply to gifts in trust. See Report No. 1567, Committee on Finance, 75th Cong., 3d sess. The reports of the Congressional Committees in connection with the enactment of the Gift Tax Law in 1932 have also been examined; but, as the court pointed out in Commissioner v. Wells, sufra, "the enactment is neither ambiguous nor doubtful in its expressions," so the reports furnish little aid.
The respondent erred in denying the exclusion of $5,000 from the transfer in trust made by petitioner to the Guaranty Trust Co. of New York. It follows that the deficiency determined by him can not be approved.
Reviewed by the Board.
Judgment will be entered for the petitioner.
SEC. 504. NET GIFTS.
*
(b) Gifts Less Than $5,000. — In tbe case of gifts (other than of future interests in property) made to any person by the donor during the calendar year, the first $5,000 of such gifts to such person shall not, for the purposes of subsection (a), bo included in the total amount of gifts made during such year.
Sec. 503. The Committee is also proposing an amendment by which the exclusion would not apply to gifts in trust. The Board of Tax Appeals and several Federal courts have held, with respect to gifts in trust, that the trust entities were the donees and on that account the gifts were of present and not of future interests. The statute, as thus construed, affords ready means of tax avoidance, since a donee may create any number of trusts in the same year in favor of the same beneficiaries with a $5,000 exclusion applying to each trust, whereas the gifts, if made otherwise than in trust, would in no case be subject to more than a single exclusion of $5,000.