Rev. Rul. 69-347

The Internal Revenue Service has been requested to clarify its position with respect to the effective date of a gift of property made pursuant to a legally enforceable antenuptial agreement.

In 1965, a taxpayer and his intended wife entered into a written antenuptial agreement which provided that, in consideration of the marriage and the wife's relinquishment of her marital rights in her husband's property, the husband would pay her a fixed amount per year beginning one year after the date of their marriage and continuing for twenty years thereafter or until the wife's death, whichever event occurred first. The taxpayer and his wife were married in 1966 and the husband made the first payment in 1967.

Although antenuptial agreements are enforceable under state law when consummated by marriage, 3 Williston on Contracts, section 270B (3d ed. 1959), transfers made pursuant to such agreements are not made for an adequate and full consideration in money or money's worth within the meaning of section 2512(b) of the Internal Revenue Code of 1954. Commissioner v. William H. Wemyss, 324 U.S. 303 (1945), Ct. D. 1634, C.B. 1945, 416. Such consideration as love and affection, promise of marriage, or relinquishment of dower or other marital rights is to be wholly disregarded and the entire value of the property transferred constitutes a gift. Section 25.2512-8 of the Gift Tax Regulations.

Section 2501 of the Code imposes a tax on the transfer of property by gift by any individual. The gift tax is not imposed upon the receipt of property by the donee, nor is it necessarily determined by the measure of enrichment resulting to the donee at the time of the transfer. The tax is a primary and personal liability of the donor, is an excise upon his act of making the transfer, is measured by the value of the property passing from the donor, and attaches at the time such property passes, regardless of the fact that the identity of the donee may not then be known or ascertainable. Section 25.2511-2(a) of the regulations. See also Meta B. Robinette v. Helvering, 318 U.S. 184 (1943), Ct. D. 1574, C.B. 1943, 1141.

The gift tax is aimed at every kind and type of transfer by way of gift, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Section 25.2511-1(a) of the regulations. Generally, a gift is complete when the donor has so parted with dominion or control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another. Section 25.2511-2(b) of the regulations.

In John D. Archbold v. Commissioner, 42 B.T.A. 453 (1940) (acquiescence in result only, page 20, this Bulletin) the taxpayer and his intended wife entered into an antenuptial agreement in 1936. Under the terms of the agreement, the taxpayer agreed to transfer 10x dollars to a trust for the benefit of his wife in each of the next nine years. The agreement did not become legally enforceable until the marriage, which took place in 1937. The Service asserted a gift tax deficiency for 1936, rather than for 1937, when the promise to make the payments described became legally enforceable.

The Board of Tax Appeals held that the taxpayer's promise to make future transfers of stated amounts did not constitute a taxable gift in 1936 (the taxable year in litigation), stating that the Commissioner had not rebutted the contention of the taxpayer that "a promise to make a gift in the future is not a present gift, even though the promise may be an enforceable one * * *", 42 B.T.A. 453, 455. Based on this statement the Service assumed that the Board considered that the promise before it was in fact an enforceable one in 1936.

In Estate of Ira C. Copley, et al. v. Commissioner, 15 T.C. 17 (1950), affirmed 194 F. 2d 364 (1952), acquiescence, C.B. 1965-2, 4, the petitioner and his intended wife entered into an antenuptial agreement in 1931. Under the terms of the agreement, the petitioner promised to give his future wife a specified sum of money in consideration of the marriage and in lieu of all of her marital rights in his property. No date was specified for the transfer of such sum. The agreement became legally enforceable under state law on the date of the petitioner's marriage, which was also in 1931. The petitioner transferred part of the sum in 1936 and the remainder in 1944.

The Service relied on the Archbold opinion in contending that the 1936 and 1944 transfers were subject to a gift tax in such years. However, the Tax Court concluded that the petitioner's transfers were not subject to Federal gift taxes in 1936 and 1944, but that a gift tax would have been due in 1931 if there had been a gift tax law in effect at that time. The court stated:

"Once the antenuptial contract became binding by the marriage, Copley became bound to make all of the payments and did not make a new gift each time he made a payment. 15 T.C. 17, 20."

Having stated that the transfer took place when the contract became binding, the Tax Court accordingly rejected the Commissioner's reliance upon the Archbold case, in which, as noted above, the Board was not faced with a binding contract in the taxable year in litigation.

The Tax Court also based its decision in Copley on Cornelia Harris v. Commissioner, 178 F.2d 861 (1949), reversed on other grounds, 340 U.S. 106, Ct.D. 1737, C.B. 1950-2, 77. In Harris, the Court of Appeals held that a promise to make a gift becomes taxable in the year in which the obligation becomes binding and not when the discharging payments are made. In Paul Rosenthal v. Commissioner, 205 F. 2d 505 (1953), the court held that the fact that the donee's possession and enjoyment had not yet fully ripened did not postpone the effective date of a gift made subject to a contingency, provided the contingency was susceptible of actuarial appraisal.

In the instant case, the taxpayer became legally obligated to perform according to the terms of the agreement at the time of his marriage in 1966. Since the instant gift is payable over a term of years, subject only to the wife's death, the value of the taxpayer's gift is determinable on the basis of recognized actuarial principles. See section 25.2512-5 of the regulations. It follows, therefore, that the effective date of his gift for Federal gift tax purposes is in 1966.