Kelly v. Commissioner , 31 T.C. 493 ( 1958 )

Estate of Daniel Wade Kelly, Deceased, Ethel Campbell Kelly, Joe T. Kelly, Ethel Kelly McGinty, and Marjorie Dan Kelly Lomax, Sole Heirs and Distributees, Petitioners, v. Commissioner of Internal Revenue, Respondent. Ethel Campbell Kelly, Petitioner, v. Commissioner of Internal Revenue, Respondent. Joe T. Kelly and Gussie Kelly, Petitioners, v. Commissioner of Internal Revenue, Respondent

Kelly v. Commissioner

Docket Nos. 60753, 60754, 60755

United States Tax Court

31 T.C. 493; 1958 U.S. Tax Ct. LEXIS 22;

December 10, 1958, Filed

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Decisions will be entered under Rule 50 in Docket Nos. 60753 and 60754.

Decision will be entered for the respondent in Docket No. 60755.

1. On April 28, 1950, Daniel Wade Kelly and his wife made valid gifts inter vivos to their three children of certain community property.

2. The failure to file any Federal gift tax returns for 1950 reporting these gifts makes mandatory the additions to tax provided in section 3612 (d) (1) of the 1939 Code. William Fleming, 3 T. C. 974, followed.

3. The basis for gain of certain property, which was acquired by Joe T. Kelly from his parents by gift on April 28, 1950, and sold in 1950 and 1952, is cost to the donors.

E. Chas. Eichenbaum, Esq., and Leonard L. Scott, Esq., for the petitioners.

Jackson L. Bailey, Esq., for the respondent.

Raum, Judge.

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RAUM

The respondent determined that the petitioners were liable for the following gift and income tax deficiencies, and additions to tax for failure to file gift tax returns:

	Year	Deficiency	Additions	Deficiency
		gift tax	to tax	income tax
Estate of Daniel Wade Kelly	1950	$ 8,293.27	$ 2,073.32
Ethel Campbell Kelly	1950	5,559.51	1,389.88
Joe T. and Gussie Kelly	1952			$ 9,007.96

The proceedings were consolidated for trial.

The issues are:

1. Did Daniel Wade Kelly and his wife, Ethel Campbell Kelly, on April 28, 1950, make taxable gifts to their three children of certain community property?

2. Are petitioners, the Estate of Daniel Wade Kelly and Ethel Campbell Kelly, liable for additions to tax for failure to file gift tax returns for the calendar year 1950?

3. Is the basis used in computing the gain from the sale of property in 1950 and 1952, which property was contained in an act of donation to Joe T. Kelly from Daniel Wade Kelly and his wife, the cost of such property in the hands of the donors?

Respondent concedes that if this Court finds that Daniel Wade Kelly and Ethel Campbell Kelly made taxable gifts to their children in the year 1950, they are each entitled to a $ 30,000 specific exemption. He also concedes that no gifts were made by Daniel Wade Kelly to Ethel Campbell Kelly in the year 1950.

FINDINGS OF FACT.

Daniel Wade Kelly (hereinafter referred to as the decedent) died on July 18, 1950. At the time of his death he was a resident of Oak Grove, Louisiana, and was 74 years old.

Ethel Campbell Kelly is the widow of decedent, and resides in Oak Grove, Louisiana. She was born in 1885.

Joe T. Kelly, Ethel Kelly McGinty, and Marjorie Dan Kelly Lomax, adults, are the sole children of decedent and Ethel Campbell Kelly, and the sole heirs of the estate of decedent.

Joe T. Kelly and Gussie Kelly are husband and wife and reside in Oak Grove, Louisiana.

Decedent had practiced as a licensed physician and surgeon in Oak Grove, Louisiana, for approximately 50 years. In January of 1950, he determined by visits to the Ochsner Clinic in New Orleans that he had cancer of the stomach. This was confirmed at the Mayo Clinic in February of 1950, and decedent was told that he had but 4 months to live. Thereafter he ceased active practice although he went to his office from time to time.

Decedent stayed in bed for 2 weeks prior to his trip to the Mayo Clinic, and after he returned he was "up and down." He began to receive narcotic drugs in January 1950, and in February the daily doses were increased. At that time he was given "Demerol" but, beginning in the latter part of March, he was given "Dolophine," a stronger drug which required less frequent injections. Decedent was disturbed and depressed because he knew he was "fatally ill." In April he was not able to retain solid foods and at times had difficulty retaining liquids, and became quite depressed. Although he had previously been a jovial person, he would break down and cry at intervals. By the latter part of April his weight had declined from about 200 pounds to approximately 125 pounds.

On April 26 or 27, 1950, the decedent telephoned his attorney, R. V. Reeves, and asked Reeves to come to his office. When Reeves arrived the decedent was emotionally upset and began to cry. He told Reeves that he had received his death sentence; that he wanted to divide certain property among his three children; that he had written a description of the property each was to receive; that he wanted Reeves to prepare the necessary documents; and that he knew what he was doing and did not want Reeves to make any suggestions.

On April 28, 1950, Reeves brought three instruments he had prepared to the home of decedent. The decedent, his wife, his three children, and a notary public were in the dining room when the attorney arrived. Reeves read the contents of the instruments to the decedent. Each stated that the decedent "did and does by these presents donate, transfer, convey, and set over and deliver to" his adult child designated therein certain property. Each of them was signed by the decedent, his wife, and the child designated as the donee, and by two witnesses. Each instrument was also signed in the presence of and by "V. J. Scott, Clerk of the 5th Dist. Court & Notary Public," and was recorded. These gifts have been referred to as "Acts of Donation." The transfers, which were of community property, included all the community property owned by decedent and his wife, except their home, automobile, household furnishings and personal effects, and cash in bank. The cash in bank was drawn out by check after April 28, 1950, and the proceeds, amounting to approximately $ 26,000, were placed in United States bonds in the name of Ethel Campbell Kelly. The bonds were issued in June of 1950.

The wording of the acts of donation to the three children, Joe T. Kelly, Ethel Kelly McGinty, and Marjorie Kelly Lomax, except for the description of the particular property donated, was substantially the same. The instrument with respect to Joe T. Kelly reads in part as follows:

Personally came and appeared Dr. D. W. Kelly, husband of Mrs. Ethel Campbell Kelly, a resident of the Parish of West Carroll, State of Louisiana, who declares that for and in consideration of the love and affection he has for his son, herein named, he did and does by these presents donate, transfer, convey, set over and deliver unto his son, Joe T. Kelly, husband of Mrs. Gussie Ross Kelly, a resident of the Parish of West Carroll, State of Louisiana, the following described land and property, to wit:

[Description of property]

To have and to hold said described property unto the said Joe T. Kelly, his heirs and assigns forever with full warranty of title and full subrogation to all rights of warranty and all other rights held by the donor. * * *

Also donated and conveyed and delivered herein by the said Dr. D. W. Kelly to the said Joe T. Kelly are the following notes;

[Description of notes]

* * * *

Also appeared Mrs. Ethel Campbell Kelly, wife of said Dr. D. W. Kelly, who declares that she hereby ratifies and confirms this act of donation, and that all of the conditions herein named are binding on her.

Also appears said Joe T. Kelly, who declares that he accepts this act of donation, with all of its clauses and stipulations.

The items included in the acts of donation to the three children of decedent and the uncontested value of each item on April 28, 1950, were as follows:

To Joseph Thomas Kelly:	Value
(a) Approximately 3,800 acres of land in the Parish of East
Carroll	$ 57,000.00
(b) Note of J. H. Driskill	1,200.00
(c) Note of Doc. N. Smith	337.50
(d) Note of W. H. Campbell	1,425.00
(e) Note of Margaret and H. W. Felker	1,125.00
Total value	61,087.50
To Ethel Kelly McGinty:
(a) 340 acres of land in the Parish of West Carroll, subject to
contract to sell (obligation to title) same of Kermit Edwards	$ 15,500.00
(b) Note of Mrs. Cyrus McGinty, Jr	1,500.00
(c) Credit with Rapides Bank of Alexandria	9,500.00
Total value	26,500.00
To Marjorie Dan Kelly Lomax:
(a) 1,241 acres of land	$ 29,473.75
(b) Note of J. W. White	437.00
(c) Note of Mose Berryman	991.18
(d) Note of C. W. Baggett	2,812.00
Total value	33,713.93

In 1940, the decedent and his son, Joe T. Kelly, purchased approximately 4,000 acres of land at $ 5.10 an acre. Joe T. Kelly purchased a one-fourth interest in this land, and the decedent the remaining three-fourths. The three-fourths interest purchased by decedent was part of the property donated to Joe T. Kelly on April 28, 1950, referred to in the preceding table as 3,800 acres of land in the Parish of East Carroll. Prior to the death of the decedent, Joe T. Kelly made the following sales of part of this land: 160 acres to D. H. and E. E. Newton; 80 acres to C. D. Newton; and 80 acres to H. B. Crenshaw. In making these sales Joe T. Kelly was carrying out the decedent's wishes and "commitments."

Three gift tax returns were duly and timely filed in 1951 with the State of Louisiana. No gift to decedent's wife was reported on these returns. The gifts reported were those made by decedent to his three children on April 28, 1950, and the gift to each child was reported on a separate return. Attached to each return is an affidavit which reads as follows:

Before me, the undersigned authorities, personally came and appeared Joe T. Kelly; Mrs. Ethel Kelly McGinty; Mrs. Marjorie Kelly Lomax, who, being first duly sworn, depose and say that they are the sole and only heirs of their deceased father, Dr. D. W. Kelly, and are the issue of his marriage with Mrs. Ethel Campbell Kelly; That their said father, Dr. D. W. Kelly died intestate on July 18, 1950; that his estate only owed gift taxes; and that there was no necessity for an administration of his estate; that the said affiants, his said three children and sole heirs, accept his succession; and his sole and only heirs, and in his stead, make this State of Louisiana Gift Tax Return for the year 1950; that the said parties are his sole and only donees, and herein also act for him, their said father as donor; and that this return including the accompanying schedules and statements has been examined by me; and to the best of my knowledge and belief is a true, correct and complete return for the calendar year 1950, pursuant to the Gift Tax Act of 1940; and no transfer required by said law to be returned other than the transfers disclosed herein was made by the said Dr. D. W. Kelly during the said calendar year; the said donations being to each of us three children and sole heirs, and each of us filing the Gift Tax Return. [Emphasis supplied.]

No Federal gift tax returns were filed.

On April 28, 1950, prior to the execution of the acts of donation, the decedent and Ethel Campbell Kelly had not less than $ 155,126.42 of community assets.

In 1952, a joint petition was filed in the Fifth Judicial District Court, Parish of West Carroll, Louisiana, by Ethel Campbell Kelly, Joseph Thomas Kelly, Ethel Kelly McGinty, and Marjorie Dan Kelly Lomax. The petition alleged that the decedent died leaving property, both real and personal, all of which was acquired by him during his marriage; that the decedent on April 28, 1950, "purported and attempted to donate" certain property to each of his three children; that these "purported and attempted" donations were made by decedent "in contemplation of death"; that although, under the laws of the State of Louisiana, these "attempted and purported donations" were made "in contemplation of death," petitioners desired that the wishes of the decedent, as expressed therein, be given full force and effect and that Joseph Thomas Kelly, Ethel Kelly McGinty, and Marjorie Dan Kelly Lomax should be decreed to "inherit and/or receive the said properties and be sent and put in possession thereof in conformity with the wishes of the "decedent, as expressed herein; and that with reference to the other properties left by decedent, consisting of his home, household furnishings and personal effects, automobile, and United States bonds, decedent's desire that Ethel Campbell Kelly, his surviving widow in community, should have full and complete ownership thereof should be recognized. The petition set forth the values of the properties involved, and the amount of inheritance and gift taxes due the State of Louisiana after credit for gift taxes previously paid the State of Louisiana. The petition also stated:

That in order that the inheritance taxes and gift taxes due to the State of Louisiana herein may be judicially determined and fixed, it is necessary that a rule do issue herein directed to the Honorable J. R. Butler, Sheriff and Ex-Officio Inheritance Tax Collector within and for the Parish of West Carroll, State of Louisiana, commanding him to show cause, if any he has or can, why petitioners * * * should not be, respectively, recognized as the surviving widow in community and the sole children and heirs at law of the said decedent * * * entitled, as such, to inherit and/or receive all of the properties belonging to the estate of the said late Daniel Wade Kelly, and/or to the Community of acquets and gains which heretofore existed between the said late Daniel Wade Kelly and his said surviving widow in community, Mrs. Ethel Campbell Kelly, as hereinabove described, and as such surviving widow in community and sole children and heirs at law of the said decedent * * * be sent and put in possession of all of the properties, both real and personal, of the said decedent * * * and/or of the community of acquets and gains which heretofore existed between the said decedent, Daniel Wade Kelly, and his said surviving widow in community, Mrs. Ethel Campbell Kelly, in the manner, form and proportions, as hereinabove set out, and fixing the amount of the inheritance taxes and gift taxes, if any, due by each of petitioners on their respective shares of said properties to the State of Louisiana, as hereinabove set out.

That each of the petitioners herein has had the advice of legal counsel of his or her choice with reference to this proceeding; that it is the express desire of each of the petitioners herein that the expressed wishes of their late husband and father, Daniel Wade Kelly, as to the manner, form and proportions of the distribution of the properties of this succession, all as hereinabove set out and hereinafter prayed for, be given full force and effect; that in order to forever set at rest, settle, adjust and compromise any and all differences with respect to the properties belonging to this succession and/or to the community of acquets and gains which heretofore existed between the said late Daniel Wade Kelly and his surviving widow in community, Mrs. Ethel Campbell Kelly, hereinabove described, each of the petitioners does hereby unqualifiedly, unequivocally and irrevocably ratify, confirm, approve, accept and adopt each and every provision and stipulation herein contained as to the manner, form and proportions of the distribution of the properties of this succession and of the community of acquets and gains which heretofore existed between the said late Daniel Wade Kelly and his said surviving widow in community, Mrs. Ethel Campbell Kelly; that petitioner, Mrs. Ethel Campbell Kelly, does hereby unqualifiedly, unequivocally and irrevocably confirm and approve the donations or gifts made by her to each of her children * * * and each of her said children * * * does hereby unqualifiedly, unequivocally and irrevocably ratify, confirm, approve and accept the respective donations or gifts received by each of them from their said mother * * *; and that each petitioner does hereby request the approval of this Honorable Court of the manner, form and proportions of the distribution of the properties of this succession and of the community of acquets and gains which heretofore existed between the said late Daniel Wade Kelly and his surviving widow in community * * *.

The petitioner prayed that a rule be issued on the sheriff and ex officio inheritance tax collector to show cause why the inheritance taxes due by each petitioner should not be judicially fixed and determined in the amounts set forth in the petition, and further prayed that the parties be recognized as the owners of the properties in accordance with the petition. After answer by the sheriff and ex officio tax collector, a judgment was duly entered by the court "in accordance with the provisions and stipulations of the agreement and compromise as set out in the joint petition," and, after credit for gift taxes previously paid, the following inheritance and gift taxes were adjudged to be due from each petitioner:

Mrs. Ethel Campbell Kelly	None
Joseph Thomas Kelly	$ 1,024.63
Mrs. Ethel Kelly McGinty	None
Mrs. Marjorie Dan Kelly Lomax	203.31

In 1952 Joe T. Kelly sold 3,138.31 acres of the land in the Parish of East Carroll to the U. S. Gypson Company for $ 62,766.62.

On September 9, 1952, an estate tax return was filed by Joe T. Kelly for the estate of Daniel Wade Kelly, deceased, showing thereon a gross estate of $ 78,438.22. There was attached thereto F. D. Form 7, signed by Joe T. Kelly, reading as follows:

I declare under the penalties of perjury, as prescribed by Section 3809 (c) of the Internal Revenue Code, that my delinquency in filing return of Estate Tax Return, Form 706, for the period due Oct. 18, 1951 as required by the Internal Revenue Code was not due to any intent to violate the law or to evade taxation, but was due to: Daniel Wade Kelly, deceased, settled his estate before he died, and heirs did not think that they were required to file an estate tax return.

Petitioners, Joe T. and Gussie Kelly, filed an individual income tax return for the year 1952 with the district director of internal revenue for the district of Louisiana at New Orleans, Louisiana.

Joe T. and Gussie Kelly, in their income tax return for the year 1952 reported taxable net long-term capital gains computed as follows:

Houses	$ 445.00
Installment	246.95
3,138.31 acres	9,267.56
Kelly Sims	1,035.00
Total	10,994.51
50 per cent	5,497.26

The respondent, in the statutory notice of deficiency to Joe T. and Gussie Kelly, made the following determination:

(a) It has been determined that three-fourths of the properties sold by you in the year 1950 and reported on your 1952 return as an installment sale, and three-fourths of the property sold by you in the year 1952 to the U. S. Gypson Company were acquired by you by gift from Daniel Wade Kelly and Ethel Campbell Kelly on April 28, 1950. Your basis of this three-fourths interest in these properties is the same as it would be in the hands of the donors or $ 5.10 per acre, the price paid by them in the year 1940 (see Section 113 (a) (2) of the Internal Revenue Code of 1939). Accordingly the gain from the sale or exchange of capital assets reported on your 1952 return is increased by the amount of $ 17,624.81 computed as shown in Exhibit "A" of this statement.

OPINION.

1. Did the decedent and his wife make valid gifts of their community property on April 28, 1950? The petitioners contend that any gifts made were not valid because (a) decedent was incompetent at the time of the alleged gifts; (b) he gave away all of his property, and, therefore, the gifts were void under Louisiana law; (c) the gifts were intended to take effect only on death and were invalid testamentary dispositions; and (d) the 1952 judgment adjudicated the gifts to be invalid and is controlling.

Article 1475 of the Louisiana Civil Code provides that "[to] make a donation either inter vivos or mortis causa, one must be of sound mind." The burden of proving that the decedent was not of sound mind at the time he executed the acts of donation on April 28, 1950, was on the petitioners. They have not sustained this burden. The evidence submitted by them indicates that the decedent on April 28, 1950, was seriously ill, emotionally upset, depressed by reason of the fact that he knew he had but a short time to live, and that he was receiving drugs for the alleviation of pain. It does not convince us, however, that he was not mentally competent and did not know what he was doing when he executed the acts of donation.

Article 1497 of the Civil Code of Louisiana provides that "[the] donation inter vivos shall in no case divest the donor of all his property; he must reserve to himself enough for subsistence; if he does not do it, the donation is null for the whole." Cf. Kirby v. Kirby, 176 La. 1037, 147 So. 71; Kelly v. Kelly, 131 La. 1024">131 La. 1024, 60 So. 671">60 So. 671; Welch v. Forrest Lumber Co., 151 La. 960">151 La. 960, 92 So. 400">92 So. 400. The prohibition against making a donation omnium bonorum applies to a donation made by a man to his wife as well as to a donation made by him to a stranger. Succession of Suarez, 131 La. 500">131 La. 500, 59 So. 916">59 So. 916.

The decedent on April 28, 1950, made three gifts to his children. When these gifts were consummated, he still retained his community interest in his home, household furnishings and personal effects, his automobile, ¹ and cash in bank amounting to about $ 26,000. Decedent withdrew the cash in bank after April 28, 1950, and placed it in United States bonds in the name of his wife. The bonds were issued in June 1950. It is not possible to determine from the evidence exactly when the cash was withdrawn from the bank. The only evidence relating to this withdrawal was given by the decedent's son, Joe T. Kelly. He testified that he presumed the decedent signed the check for the withdrawal; that he went to the bank and withdrew the money; and that he "would say" the withdrawal was made in May although he could not recollect exactly when it was made. He also testified, "I think the check for those bonds was written right at the time when all the rest of the instruments, in other words, he [the decedent] had a housecleaning there all at once."

In support of their contention that the gifts were void because decedent did not retain enough for subsistence, the petitioners urge that the gifts to the three children of decedent and the "gift of the cash" to his wife were part of the same transaction; that all gifts were, so to speak, part of decedent's plan of complete disposal of his property, known to and acquiesced in by the donees; and that there was, in substance, one gift. They argue that if a gift of all of one's property is void, it would be illogical to hold that where such a gift is made in segments, the last donee must disgorge, but the donee who is first by a few days or a few minutes may retain the fruits of such forbidden act.

There is no convincing evidence that on April 28, 1950, when decedent made the gifts to his three children, he was contemplating any gift to his wife or then took any step to make such a gift. ² Joe T. Kelly's testimony in this respect was vague and unsatisfactory. All that the evidence really shows is that at some undisclosed time after April 28, the decedent withdrew approximately $ 26,000 from his bank account and placed these funds in United States bonds in the name of his wife. Assuming that by these acts the decedent intended to make a gift to her, that gift appears to have been a gift of bonds and not a "gift of the cash." Such a gift could not have been completed prior to the purchase of the bonds, which occurred after the consummation of the gifts to the children. In the light of the evidence produced we cannot find that the gifts to the children, and the gift, if any, to the wife, were part of the same transaction, and, in substance, one gift. The former did not leave the decedent without sufficient property for subsistence since he retained at least $ 26,000 in cash in addition to his home, personal effects, and automobile. Moreover, even if the assumed gift of the $ 26,000 in bonds be combined with the three gifts to the children, it is not clear that he so stripped himself of assets as to render the gifts void. The estate tax return shows community "cash on hand" in the amount of $ 1,650, and we cannot say on the record before us that the decedent failed to retain enough for his subsistence so as to bring article 1497 of the Louisiana Civil Code into play.

Petitioners contend further that the gifts made by the decedent on April 28, 1950, were not intended to take effect presently, but only on death, and were, at best, invalid donations mortis causa. Pertinent provisions of the Louisiana Civil Code are noted in the margin. ³ We are unable to agree with petitioners. The acts of donation made by decedent on April 28, 1950, clearly evidence his intention to make present gifts to his children of the property described therein. They were passed and signed in the presence of two witnesses and a notary. They were accepted by the donees in precise terms, and were recorded. There is no expression in the acts indicating that the gifts were to take effect at or after the death of the decedent. Cf. Succession of Sinnott v. Hibernia Nat. Bank, 105 La. 705">105 La. 705, 30 So. 233">30 So. 233; Johnson v. Waters, 111 U.S. 640">111 U.S. 640. We hold that the donations made by the decedent on April 28, 1950, were valid gifts inter vivos under the laws of Louisiana and were effective on that date, when the acts of donation were executed.

The petitioners also contend that the effect of the 1952 State court proceedings in the Fifth Judicial District Court was to adjudicate that there never was an effective 1950 gift under Louisiana law, and that this determination is binding on this Court. In the joint petition filed in the State court proceedings, the petitioners did not allege that the decedent attempted to make, or made, any gift to his wife prior to his death, but simply urged that decedent's desire that she should have full and complete ownership of his home, household furnishings and personal effects, automobile, and United States bonds be recognized. With respect to the property included in the 1950 acts of donation, the petitioners alleged that the decedent on April 28, 1950, "purported and attempted to donate" certain property to each of his three children "in contemplation of death"; and that they desired that the wishes of the decedent, as expressed in the acts of donation, be given full force and effect. They urged that the children should be decreed to "inherit and/or receive the said properties and be sent and put in possession thereof in conformity with the wishes of the" decedent, and that the court fix the amount of the inheritance taxes, if any, due to the State of Louisiana, as set out in the petition. As we read the petition it reflects an agreement on the part of the petitioners that the children had received the property which the decedent "purported and attempted to donate" to them in the acts of donation and that they were liable for specified amounts of inheritance taxes. The only thing accomplished by the judgment was the fixing of the amounts of the State of Louisiana inheritance taxes, which would be the same whether the property in question passed by inheritance or as gifts in contemplation of death. ⁴ The court does not appear to have decided that the property was acquired by the children by inheritance rather than by gift. Even if it be assumed, however, that the judgment could be construed, in effect, to be an adjudication that the children had received the property from the decedent by inheritance, ⁵ rather than by gift, the judgment, which was in substance a consent judgment not obtained in an adversary proceeding, would not be binding on this Court. Cf. Saulsbury v. United States, 199 F. 2d 578 (C. A. 5), certiorari denied 345 U.S. 906">345 U.S. 906; Wolfsen v. Smyth, 223 F. 2d 111 (C. A. 9).

After a careful consideration of the contentions of petitioners, our conclusion is, and we hold, that decedent and his wife on April 28, 1950, made valid gifts inter vivos to each of their three children, which were subject to tax under section 1000 (a) of the 1939 Code. ⁶

2. Petitioners challenge the additions to tax determined by respondent for failure to file gift tax returns. Section 3612 (d) (1) of the 1939 Code provides for the addition of an amount not to exceed 25 per cent of the tax in instances where returns are not filed. This section is applicable where required gift tax returns are not filed. Sec. 1018, I. R. C. 1939. We have held that the decedent and his wife made taxable gifts during the year 1950, and the returns called for by section 1006 of the 1939 Code were not filed. In the circumstances the imposition of the addition to tax provided for in section 3612 (d) (1) is mandatory. William Fleming, 3 T. C. 974, 988-989. The respondent did not err in determining that petitioners, Estate of Daniel Wade Kelly and Ethel Campbell Kelly, are liable for additions to tax for failure to file required gift tax returns.

3. The remaining issue relates to the basis for gain on certain property sold by Joe T. Kelly in 1950 and 1952. The property sold was a part of the property contained in the 1950 act of donation to Joe T. Kelly from decedent and his wife. The parties agree that if Joe T. Kelly acquired the property by gift the basis is $ 5.10 an acre, and if by inheritance the basis is $ 20 an acre. Inasmuch as we have held that it was acquired by gift, the correct basis is $ 5.10 an acre as determined by respondent.

Decisions will be entered under Rule 50 in Docket Nos. 60753 and 60754.

Decision will be entered for the respondent in Docket No. 60755.

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Footnotes

• 1. The uncontested value of the home is $ 5,000; the household furnishings and effects $ 1,800; and the automobile $ 500.↩

• 2. In the petition filed in the Fifth Judicial District Court after decedent's death mention is made of "purported" donations to the three children on April 28, 1950, but no mention is made of any donation on that date to decedent's wife. Furthermore, although Louisiana gift tax returns were filed reporting the gifts to the three children, no return was filed reporting a gift to the wife, and an affidavit attached to the returns filed, which was signed by the three children, contains the statement that they were the sole and only donees of the decedent.↩

• 3. Art. 1467. Gratuitous acquisitions or donations -- Forms. -- Property can neither be acquired nor disposed of gratuitously, unless by donations inter vivos or mortis causa, made in the forms hereafter established.

  Art. 1468. Donation inter vivos defined. -- A donation inter vivos (between living persons) is an act by which the donor divests himself, at present and irrevocably, of the thing given, in favor of the donee who accepts it.

  Art. 1469. Donation mortis causa defined. -- A donation mortis causa (in prospect of death) is an act to take effect, when the donor shall no longer exist, by which he disposes of the whole or a part of his property, and which is revocable.

  Art. 1536. Immovables and incorporeal things. -- An act shall be passed before a notary public and two witnesses of every donation inter vivos of immovable property or incorporeal things, such as rents, credits, rights or actions, under the penalty of nullity.

  Art. 1540. Donation inter vivos -- Acceptance required. -- A donation inter vivos shall be binding on the donor, and shall produce effect only from the day of its being accepted in precise terms.

  The acceptance may be made during the lifetime of the donor by a posterior and authentic act, but in that case the donation shall have effect, with regard to the donor, only from the day of his being notified of the act establishing that acceptance.

  Art. 1550. Effect of acceptance. -- A donation, duly accepted, is perfect by the mere consent of the parties; and the ownership of the objects given is transferred to the donee, without the necessity of any other delivery.

  Art. 1554. Registry -- Donation and acceptance mortgageable property. -- When the donation comprehends property that may legally be mortgaged, the act of donation, as well as the act of acceptance, whether the acceptance be made by the same or a separate act, must be registered, within the time prescribed for the registry of mortgages, in a separate book kept for that purpose by the register of mortgages * * *↩

• 4. Title 47 of the Louisiana Revised Statutes, Revenue and Taxation, 1950, provides:

  Sec. 1201. Imposition of tax

  A tax is hereby imposed for the calendar year 1950 and each calendar year thereafter upon the transfer during such calendar year by any person, resident or nonresident, of property by gift.

  The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is movable or immovable, and corporeal or incorporeal. The tax hereunder shall apply to all such transfers made after December 31, 1949.

  Sec. 1211. Credit against inheritance tax in certain cases

  If a tax has been imposed on any gift under this Chapter, and thereafter upon the death of the donor an inheritance tax is imposed upon the same gift by this State, there shall be credited against the inheritance tax resulting from the inclusion of such gift in the computation of such inheritance tax an amount equal to the gift tax resulting from the inclusion of such gift in the computation of the gift tax on gifts from such donor to the donee who received such gift.

  Sec. 2401. Levy of tax

  There is hereby levied a tax upon all inheritances, legacies and donations and gifts made in contemplation of death, except such as hereinafter specifically exempted.

  Sec. 2402. Exemptions

  The following shall be exempt from the tax imposed in this Part:

  (1) Inheritances, legacies and donations and gifts made in contemplation of death, to a direct descendant by blood or affinity, ascendant or surviving spouse of decedent, to the amount or value of five thousand dollars.

  (2) Inheritances, legacies and donations and gifts made in contemplation of death to a collateral relation of decedent (including brothers or sisters by affinity) to the amount or value of one thousand dollars.↩

• 5. If such were the case we would have the extraordinary situation in which Joe T. Kelly would have been given more than the share of the decedent's property that he would have been entitled to as an heir, and the other two children would have obtained less than their respective shares.↩

• 6. Section 1000 (a) provides that "[for] the calendar year 1940 and each calendar year thereafter a tax * * * shall be imposed upon the transfer during such calendar year by any individual * * * of property by gift."↩