- 65 -
extent of their proportionate interests in the corporation.
Kincaid v. United States, 682 F.2d 1220, 1224 (5th Cir. 1982);
Chanin v. United States, 183 Ct. Cl. 840, 393 F.2d 972 (1968);
Estate of Hitchon v. Commissioner, 45 T.C. 96, 103-104 (1965);
Tilton v. Commissioner, 88 T.C. 590, 597 (1987); Estate of
Trenchard v. Commissioner, T.C. Memo. 1995-121; sec. 25.2511-
1(h)(1), Gift Tax Regs. When the shareholders of a recipient
corporation are members of the donor’s family, that fact is
strongly indicative of a gift. See Kincaid v. United States,
supra; Tilton v. Commissioner, supra; Estate of Hitchon v.
Commissioner, supra; Estate of Trenchard v. Commissioner, supra;
Estate of Higgins v. Commissioner, supra.
Here, Victor and Joyce Caracci set up transactions pursuant
to which their three children each received stock in the Sta-Home
for-profit entities that, in connection therewith, had a total
net asset value of more than $5 million. The Caracci children,
the natural heirs of Victor and Joyce Caracci, paid nothing for
that stock, nor did they contribute property for it. The
transfers were effectively gifts to the Caracci children.
The fact that the children were also employees of the new
corporations does not transform their receipt of 65 percent of
the corporate stock into compensation subject to income tax. We
are aware that section 102(c) provides that the transfer of
property to an employee is generally deemed to be compensation,
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