Rev. Rul. 67-396

The purpose of this Revenue Ruling is to update and restate the position set forth in G.C.M. 16460, C.B. XV-1, 369 (1936), under the current statute and regulations. The question involved is when a completed gift was effected for purposes of the gift tax in the situations described below.

Situation (1) . On December 25, 1966, A , the donor, presented B with a check in excess of $3,000.00. A requested B not to deposit or cash the check for a few days, as he was not certain his bank balance was sufficient to cover the check. B held the check until January 2, 1967, when it was cashed by the drawee bank. The record shows that A's bank account was sufficient to cover the check from the date the check was presented to B until it was cashed by the bank.

Situation (2) . On August 29, 1965, C , the donor, transferred to a trustee an interest-bearing note executed by him on August 15, 1965. The note is payable within one year upon C's order, is endorsed by him in blank, and bears interest at the rate of six percent. The note was paid by C in 1966.

A gift is complete as to any property of which the donor has so parted with dominion and control as to leave him no power to change its disposition, whether for his own benefit or for the benefit of another. Section 25.2511-2 of the Gift Tax Regulations. It is evident, therefore, that the effective date occurs at the time the donor can no longer revoke the gift, or revest the beneficial title to the property in himself or change the interest of the beneficiaries. A mere promise to make a gift is not a gift.

A gift is not consummated by the mere delivery of the donor's own check or note. The gift of a check does not become complete until it is paid, certified, or accepted by the drawee, or is negotiated for value to a third person. Prior to payment, certification, or negotiation, a check is nothing more than an order on the drawee bank which may be revoked at any time by the drawer by stopping payment and is revoked ipso facto by the death of the drawer. In re Estate of Seyffert , 192 N.Y.S.2d 148 (1959); Bridwell v. Clay , 185 S.W.2d 170 (1954); Edwards v. Guaranty Trust and Savings Bank , 190 Pac. 57 (1920); Provident Institution for Savings in Jersey City v. Sisters of the Poor of St. Francis, et al. , 100 A. 894 (1917); Bainbridge v. Hoes , 149 N.Y.S. 20 (1914). The gift of the donor's own note is not complete until the note is paid or transferred for value. Shaw, et al. v. Camp , 43 N.E. 608 (1896); Bowers v. Alexandria Bank , 130 N.E. 808 (1921); Dougherty v. Salt , 125 N.E. 94 (1919); Woodward v. United States , 208 F.2d 893 (1953); Brown v. Commissioner , 241 F.2d 827 (1957). In the Dougherty case, the court said:

* * * The transaction thus revealed admits of one interpretation, and only one. The note was the voluntary and unenforceable promise of an executory gift. * * *

See also Annot., 38 A.L.R.2d 594 (1954).

Accordingly, it is held that in the first situation the gift by A was completed on January 2, 1967, the date on which the check was cashed.

In the second situation, the gift of the note by C was effected in 1966 when the note was paid. The amount of the gift is the amount of the principal and the interest thereon.

This Revenue Ruling restates under current law the position set forth in G.C.M. 16460. Therefore, G.C.M. 16460 is hereby superseded.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.