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Italian Government would seize her assets following her marriage
to an Italian citizen, she created the trust to protect her
property against confiscation. On a Federal gift tax return, she
reported as a gift the value of the assets transferred less a
retained life estate. The Commissioner determined that she made
a gift of the entire trust fund since she reserved only an
expectancy of income. We rejected the latter contention and held
that the taxpayer properly deducted the value of a life estate
because, under State law, her creditors could reach the maximum
amount of the trust income. Reasoning that the taxpayer could
borrow money and then relegate her creditors to the trust for
repayment, we noted that she “[obtained] the enjoyment and
economic benefit of the full amount of the trust income.” Id. at
187.
The facts in this case require a similar conclusion. Under
State law, the Danzig claimants had several options to recover
the assets transferred. As their form of relief, they sought a
money judgment against the transferee, permitting them to reach
the mineral interests. Thus, like the taxpayer in Paolozzi v.
Commissioner, supra, petitioner continued to enjoy those
interests by forcing his creditors to look to the donee for
settlement of their claims. In these circumstances, it is
apparent that petitioner did not surrender such dominion and
control over the properties as to result in taxable gifts.
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Last modified: May 25, 2011