Estate of Levine v.
Commissioner
536 F.2d 717 (1975)
Kaufman, Chief Judge
Anderson, Circuit Judge
Van Graffeiland, Circuit Judge
Case History
IRS assesses additional tax on taxpayers.
 Tax Court rules for the taxpayers.
 IRS appeals to the 2nd Circuit Court of
Appeals
 Court of Appeals rules for IRS
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Case Facts
December 20, 1968 – David Levine
establishes five identical irrevocable trusts
for his five grandchildren
 Corpus of trust consists of New Haven
Moving Equipment Corporation stock
 All income was to be held by the trust until
the beneficiary reached age 21 when all
accumulated income would be distributed.
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Case Facts
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If the grandchild died before reaching 21 years
of age, the income was to go to the grandchild’s
estate
The status of the corpus of the trust was up to
the exclusive discretion of the Independent
Trustee
Beneficiary had a limited power of appointment
in case any corpus remained at his or her death
– must go to a lineal descendant of David Levine
Case Facts
I.R.C. § 2513 “permits a married couple to
treat a gift made by one spouse as if made
half by each spouse” a.k.a. “gift splitting”
 Levines elect § 2513 treatment, each pay
$34.17 in tax
 Commissioner determines that Mrs.
Levine was deficient by $160.72 and Mr.
Levine was deficient by $1,026.31
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Future Interests
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§ 2503(b): Permits donor to escape gift tax on
the first $3,000 of gifts to each donee yearly, so
long as the gift is not of future interests in
property.
Fondren v. CIR: the question is when enjoyment
of the property begins
“The gift is of a future interest if limited to
commence in use, possession, or enjoyment at
some future date or time.”
Remainder interest in trust = future interest
Income interest in trust = present interest (if
payment commence immediately)
Gifts to Minors
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§ 2503(c): Says that gifts to minors shall
not be considered a gift of future interests
if certain conditions are met
 Property
and income may be expended by or for
benefit of minor before 21 years of age, and
 If not expended, pass to the donee when he or she
reaches age 21, and
 If donee dies before age 21, payable to estate of
donee or may appoint under a general power of
appointment
Division of Components
In the Disston and Fondren cases, the
Supreme Court said that a gift may be
divided into component parts for tax
purposes.
 Thus, the Levine trusts could be divided
into the pre-21 income portion and the
post-21 income portion.
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Court’s Decision
The pre-21 income interest satisfies §
2503(c).
 The post-21 income interest does not
satisfy § 2503(c) because 1) the property
(stock in corpus of trust) does not pass to
the beneficiary at 21 years of age, and 2)
there is only a limited power of
appointment instead of a general power of
appointment, as required by the Code.
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Conclusion
The Court reverses the Tax Court’s
decision and remands the case back to
the Tax Court
 The IRS wins; taxpayer owes additional
tax
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