CHAPTER I AMOUNT AND INCIDENCE OF THE TAX Revenue Act of 1924. SEC. 319. For the calendar year 1924 and each calendar year thereafter, a tax equal to the sum of the following is hereby imposed upon the transfer by a resident by gift during such calendar year of any property wherever situated, whether made directly or indirectly, and upon the transfer by a nonresident by gift during such calendar year of any property situated within the United States, whether made directly or indirectly: 1 per cent of the amount of the taxable gifts not in excess of $50,000; 2 per cent of the amount by which the taxable gifts exceed $50,000 and do not exceed $100,000; 3 per cent of the amount by which the $100,000 and do not exceed $150,000; taxable gifts exceed 4 per cent of the amount by which the taxable gifts exceed $150,000 and do not exceed $250,000; 6 per cent of the amount by which the taxable gifts exceed $250,000 and do not exceed $450,000; 9 per cent of the amount by which the taxable gifts exceed $450,000 and do not exceed $750,000; 12 per cent of the amount by which the taxable gifts exceed $750,000 and do not exceed $1,000,000; 15 per cent of the amount by which the taxable gifts exceed $1,000,000 and do not exceed $1,500,000; 18 per cent of the amount by which the taxable gifts exceed $1,500,000 and do not exceed $2,000,000; 21 per cent of the amount by which the taxable gifts exceed $2,000,000 and do not exceed $3,000,000; 24 per cent of the amount by which the taxable gifts exceed $3,000,000 and do not exceed $4,000,000; 27 per cent of the amount by which the taxable gifts exceed $4,000,000 and do not exceed $5,000,000; 30 per cent of the amount by which the taxable gifts exceed $5,000,000 and do not exceed $8,000,000; 35 per cent of the amount by which the taxable gifts exceed $8,000,000 and do not exceed $10,000,000; 40 per cent of the amount by which the taxable gifts exceed $10,000,000. SEC. 320. If the gift is made in property, the fair market value thereof at the date of the gift shall be considered the amount of the gift. Where property is sold or exchanged for less than a fair consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the consideration received shall, for the purpose of the tax imposed by section 319, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. Regulations 67. ART. 1. Transfers reached.-At common law the term "gift" is applied only to voluntary transfers of property made without consideration or compensation therefor. But the taxing act with which these regulations deal employs the term "gift" in a wider and more comprehensive sense, for, while it embraces transactions which at common law amounts to gifts, it goes further by including sales and exchanges for less than a fair consideration in money or money's worth. (See section 320.) Hence, the statute reaches and taxes all transfers of property made during the calendar year (other than the gifts specified in par. (3) of subdivision (a) and in par. (2) of subdivision (b) of sec. 321), to the extent that they are donative in character and exceed the authorized deductions. The subject of the gift may consist of any species of property or interest therein, whether legal or equitable. Thus, for example, a taxable transfer may be effected by a transfer of real estate, by the declaration of a trust, by the forgiveness of an indebtedness, the payment of another's debt, the assignment of a judgment, or the transfer of cash, certificates of deposit, or of Federal, state, or municipal bonds. A sale or exchange for a consideration reducible to a money value which is less than a fair consideration amounts to a gift, within the meaning of the statute, to the extent that the fair market value of the property, at the time of the transfer, exceeds the consideration received. If the consideration is not reducible to a money value it is to be wholly disregarded. A transfer which is neither a sale nor an exchange does not involve a gift if there is a valid, even if not an adequate, consideration for the transfer. The creation of a trust, where the grantor retains the power to revest in himself title to the corpus of the trust, does not constitute a gift subject to tax, but the annual income of the trust which is paid over to the beneficiaries shall be treated as a taxable gift for the year in which so paid. Where the power retained by the grantor to revest in himself title to the corpus is not exercised a taxable transfer will be treated as taking place in the year in which such power is terminated. The statute embraces donative transfers made by corporations, associations, partnerships, trusts, and estates, as well as those made by individuals. (See article 25.) ART. 2. Is not a property tax.-The tax is not laid upon the property, but upon the gift thereof. ART. 3. Definition of "resident" and "nonresident."The statute provides (par. (5) of sec. 2 (a)) that the term United States" when used in a geographical sense, includes only the states, the territories of Alaska and Hawaii, and the District of Columbia. A resident is one who had his domicile in the United States at the date of the gift. A missionary serving as such under a foreign missionary board of any religious denomination in the United States at the time of making a gift will be presumed to be a resident of the United States, if domiciled therein at the time of his or her commission and departure for such service, and not a nonresident merely by reason of his or her intention permanently to remain in such service. (See sec. 303 (f).) All persons not residents of the United States as above defined, or to whom the presumption just stated does not apply, are nonresidents. The statute takes no account of the citizenship of the donor, but prescribes different rules governing the determination of the tax liability for the gifts made by residents and nonresidents. A citizen of the United States is a nonresident if his domicile is in Porto Rico, the Philippine Islands, or other foreign country, whereas a subject or citizen of a foreign country is a resident if his domicile is in the United States. A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will inten tion to change domicile effect such a change unless accompanied by actual removal. ART. 4. Manner of determining liability.—The first step in the determination of tax liability is to ascertain the total amount of the gifts made during the calendar year. (See art. 1.) The second step is to subtract from this amount the total deductions authorized in order to arrive at the excess amounts of the gifts over the deductions. (See arts. 8 to 16, inclusive, as to resi dents, and arts. 19 to 21, inclusive, as to nonresidents.) One of the deductions authorized with respect to gifts made by a resident donor is the specific sum of $50,000. No such deduction is authorized with respect to gifts made by a nonresident donor. There is no basis for the tax where the total amount of gifts does not exceed the deductions. The third step is to obtain the sum of certain percentages of successive portions of the excess, as provided by the act. (See art. 6.) ART. 5. Rates of tax.-A table of the rates is given below. ART. 6. Computation of tax.-For the purpose of computing the tax, the net amount of gifts is divisible into blocks, each block being taxed at a different and increasing rate. The preceding table gives the amount of the various blocks and the applicable rate of tax under the act. For example, the tax upon the net amount of gifts of $1,250,000 is computed as follows: There is subjoined a table for ascertaining the tax without the detailed computation given above. An illustration of its use is as follows: The amount of taxable gifts in the calendar year is $1,250,000. By reference to the table it will be seen that the last complete block preceding this amount ends with $1,000,000 and that the total tax computed on a million dollars under the rates amounts to $76,000. Upon the remainder of the net amount of the gifts, $250,000, the tax is computed at the rate set out in the next following line, or at 15 per cent, which amounts to $37,500. The following result is thus obtained: |