Rev. Rul. 80-111

ISSUE

What portion of the Wisconsin gift tax is allowable to offset the gross value of transferred property under section 2512 of the Code, if the donor transferred the property with the understanding that the donee would pay all the resulting Wisconsin gift tax?

FACTS

In December 1976, G gratuitously transferred 100x dollars to A upon the condition that A would pay the resulting Wisconsin gift tax. G filed the required donor's return and A filed the required donee's return. A paid the Wisconsin gift tax in the amount of 10x dollars.

LAW AND ANALYSIS

Section 2512(a) of the Internal Revenue Code of 1954 provides that, if a gift is made in property, the value thereof at the date of gift is considered the amount of the gift. Section 2512(b) of the Code states that if property is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the value of the transferred property exceeds the value of the consideration is deemed a gift.

The donor is liable for the payment of the federal gift tax before the tax is overdue. The donor, therefore, receives consideration for a transfer to the extent of the federal gift tax that the donee has, by prior arrangement, agreed to pay. In computing the value of the gift, the federal gift tax paid by the donee may be deducted from the value of transferred property, if it can be shown that the payment of tax by the donee or from the transferred property was a condition of the transfer. See, Rev. Rul. 75-72, 1975-1 C.B. 310.

Similarly the amount of state gift tax paid by the donee is deductible in computing the value of the transfer for federal gift tax purposes, to the extent that the donor would have been liable for the payment of the tax before it was overdue and the donee, prior to the transfer, agreed to pay the tax. See Rev. Rul. 76-49, 1976-1 C.B. 294; Rev. Rul. 76-57, 1976-1 C.B. 297; Rev. Rul. 76-104, 1976-1 C.B. 301; and Rev. Rul. 76-105, 1976-1 C.B. 304.

Wis. Stat. Ann. section 72.85(2) (West) provides that by April 15 of each year both the donor and donee of any transfers during the proceeding year must report the transfers and pay the tax. Wis. Stat. Ann. section 72.85(3) provides that if the tax is not paid by the due date, the donor and donee are jointly and severally liable for the tax, penalty, and interest, and that if one person pays the tax, there is no right of contribution unless the person paying the tax reserves it in writing on the filed tax return.

Wis. Stat. Ann. sections 72.85(2) and 72.85(3) establish a joint liability for the Wisconsin gift tax between the donor and the donee both before and after the tax becomes overdue. The donor and the donee, therefore, are joint obligors for the gift tax. The term "joint" signifies shared by or between two or more, coupled together in interest or liability. Black's Law Dictionary 971 (4th ed. 1968). Wisconsin recognizes a right of contribution between co-obligors. The right of contribution arises between parties, when one party pays more than that party's share of the joint obligation. See Sattler v. Neiderkorn, 190 Wis. 464, 209 N.W. 607 (1926); Western Casualty and Surety Co. v. Milwaukee General Construction Co., 213 Wis. 302, 251 N.W. 491 (1934). Thus, the donee's share of the Wisconsin gift tax is one-half.

Prior to the transfer, A agreed to pay all the Wisconsin gift tax, A thereby relinquished A's right to contribution and relieved G of any obligation to pay one-half of the gift tax. Thus, A furnished consideration to G for the transfer to the extent of one-half of the amount of Wisconsin gift tax.

HOLDING

The gross value of transferred property for federal gift tax purposes is reduced by one-half of the amount of the Wisconsin gift tax, because the donor transferred the property subject to the condition that the donee would pay all the resulting Wisconsin gift tax. Therefore, the value of the transfer for federal gift tax purposes is 95x dollars.