DIEDRICH V. COMMISSIONER, 457 U. S. 191 (1982)

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U.S. Supreme Court

Diedrich v. Commissioner, 457 U.S. 191 (1982)

Diedrich v. Commissioner

No. 80-2204

Argued February 24, 1982

Decided June 15, 1982

457 U.S. 191


Held: A donor (such as petitioner husband and wife and petitioner executor's decedent) who makes a gift of property on condition that the donee pay the resulting gift taxes realizes taxable income to the extent that the gift taxes paid by the donee exceed the donor's adjusted basis in the property. Pp. 457 U. S. 194-200.

(a) The substance, not the form, of the agreed transaction controls in determining whether taxable income was realized. Old Colony Trust Co. v. Commissioner, 279 U. S. 716; Crane v. Commissioner, 331 U. S. 1. Pp. 457 U. S. 194-196.

(b) When a donor makes a gift, he incurs a "debt" to the United States for the amount of whatever gift taxes are due, which are as much the donor's legal obligation as his income taxes. When conditional gifts, such as those in question here, are made, the donor realizes an immediate economic benefit by the donee's assumption of the donor's legal obligation to pay the gift taxes. Subjective intent, while relevant in determining whether a gift has been made, is not characteristically a factor in determining whether an individual has realized income. Even if intent were a factor, the donor's intent as to the condition shifting the gift tax obligation to the donee is plainly to relieve the donor of the debt owed to the United States. And the economic benefit realized by the donor is not diminished by the fact that the liability attaches during the course of the donative transfer, such benefit being indistinguishable from the benefit arising from discharge of a preexisting obligation. Pp. 457 U. S. 196-198.

(c) Treating the amount by which the gift taxes exceed the donor's adjusted basis in the property as income is consistent with § 1001 of the Internal Revenue Code, which provides that the gain from the disposition of property is the excess of the amount realized over the transferor's adjusted basis in the property. Pp. 457 U. S. 198-199.

643 F.2d 499, affirmed.

BURGER, C.J.,delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, BLACKMUN, POWELL, STEVENS, and O'CONNOR, JJ., joined. REHNQUIST, J., filed a dissenting opinion, post, p. 457 U. S. 200.

Page 457 U. S. 192

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