*122 Decision will be entered for respondent.
Petitioners transferred stock in family corporation to members of both their families shortly before the declaration of substantial dividends in each of the years 1937, 1938, and 1939. Immediately upon payment of the dividends, each petitioner borrowed the entire amount thereof from the stock transferees who were members of his family, executing promissory notes therefor. Neither the stock certificates nor the notes were delivered into the possession of the transferees or payees, but were kept in the corporate office. In 1940 petitioners reacquired, and their wives acquired, the stock which stood in the names of the children, and promissory notes were executed, but not delivered, to the children, subject to an understanding as to the manner of their payment in future years. Petitioners managed the corporate affairs after the transfer of the stock the same as before, and no stockholders' meetings were held until 1940, when the stock was reacquired. Held, there were no bona fide gifts of stock by petitioners in 1937, 1938, or 1939, and respondent did not err in taxing the dividends on the stock in question to the petitioners.
*444 The Commissioner determined a deficiency in the income tax of Ralph R. Anderson for the calendar years 1939 and 1940 in the respective amounts of $ 2,096.97 and $ 6,978.96, and in the income tax of Herbert R. Anderson for the calendar years 1939 and 1940 in the respective amounts of $ 1,927.50 and $ 7,898.60.
The cases were consolidated for hearing. They involve questions concerning the validity of certain alleged gifts of petitioners to members of their own and each other's families.
FINDINGS OF FACT.
Petitioners filed their separate income tax returns for the calendar years 1939 and 1940 with the collector for the first district of Illinois, at Chicago. They are brothers, engaged in the contracting and construction business in Chicago, Illinois.
The Robert R. Anderson Co. was established by petitioners' father in 1907, and incorporated in 1914. Petitioners Herbert and Ralph Anderson first acquired stock therein in 1914 by cash purchases. They were then, respectively, aged 13 years and 9 years. About 10 years later their father*124 first gave to each of petitioners and their sister gifts consisting of 12 shares of stock in the company. At various times, until 1931, petitioners' parents gave them additional gifts, they purchased their sister's holdings in 1928, and received stock dividends, with the result that by 1937 Herbert Anderson owned 388 shares and Ralph Anderson owned 360 shares, totaling 748 of the 750 shares outstanding. Petitioners' father retired from the business about 1921.
Faye Anderson is the wife of Herbert R. Anderson, and Herbert R. Anderson, Jr., is their son, who was born May 3, 1923.
Florence Anderson has been the wife of Ralph R. Anderson since 1939. Ralph had three children by his first wife: Mary, who became of age September 28, 1943; Robert, born July 27, 1929; and Ralph, Jr., born October 13, 1930.
Robert R. Anderson Co. was engaged in heavy construction projects, such as paving streets, building bridges and retaining walls, and, in recent years, the construction of two sections of the Chicago subway. It requires the use of such heavy equipment as concrete mixers, steam shovels, cranes, compressors, and pile drivers. It employed, during the tax years from 100 to 500 people, according*125 to the season and volume of work. It does business with governmental units and private industry.
In 1928 another corporation, called the Suburban Paving & Improvement Co., was organized. Its stock was owned by Robert R. Anderson *445 Co., which, in 1933, distributed it to petitioners, its stockholders, who still hold it.
It was petitioners' plan to increase the volume of Suburban's contracts and to decrease those taken by Robert R. Anderson Co., and to have the latter corporation hold title to all the equipment used by Suburban, so as to exempt it from liability on contracts and bonds. Accordingly, petitioners turned in to Robert R. Anderson Co. the assets of the A. D. Construction Co., another corporation whose stock was held by petitioners and which owned the equipment used by both Robert R. Anderson Co. and Suburban. The gross receipts from contracts of Suburban increased from $ 74,273.23 for the year ended April 30, 1938, to $ 145,860.08 for the year ended April 30, 1939, and $ 411,137.96 for the year ended April 30, 1940.
On December 1, 1937, Herbert Anderson, Sr., caused to be transferred on the corporate records the following 68 shares of stock in Robert R. Anderson*126 Co.:
| Transferee | Shares |
| Faye | 17 |
| Herbert, Jr | 17 |
| Ralph, Jr | 12 |
| Robert | 11 |
| Mary | 11 |
On the same date, Ralph Anderson, Sr., caused to be transferred on the corporate records the following 85 shares in the same corporation:
| Transferee | Shares |
| Faye | 17 |
| Herbert, Jr | 17 |
| Ralph, Jr | 17 |
| Mary | 17 |
| Robert | 17 |
The new certificates were placed in a safe of the company, in the care of the secretary of the corporation, Frank Christiansen, who was an employee. Instructions with regard to these certificates and the other certificates and notes hereinafter mentioned were given to Christiansen by petitioners. The custody of these certificates and notes by Christiansen was with the knowledge and consent of the alleged donees of the certificates in question, who were fully apprised of the transfers. The stock and notes later issued were placed by Christiansen in envelopes bearing the names of the alleged donees.
On December 10, 1937, dividends were declared on the stock so transferred in these amounts:
| Shares | Dividend | |
| Ralph, Jr | 29 | $ 725 |
| Robert | 28 | 700 |
| Mary | 28 | 700 |
| Herbert, Jr | 34 | $ 850 |
| Faye | 34 | 850 |
*446 On the same day, Herbert, Sr., borrowed from Faye and Herbert, *127 Jr., the proceeds of their dividend checks on their 68 shares in the amount of $ 850 each and executed to each a promissory note, payable on demand, calling for 6 percent interest, which note was also kept in the office.
On the same day Ralph, Sr., borrowed from Ralph, Jr., Robert, and Mary the proceeds of their dividend checks on their 85 shares in the respective amounts of $ 725, $ 700, and $ 700. He executed to each his promissory note, payable on demand, and calling for 6 percent interest on those amounts. These notes were also kept in the safe at the office, in Christiansen's care.
On April 1, 1938, Herbert, Sr., caused to be transferred and placed with the others a total of 72 shares as follows:
| Transferee | Shares |
| Faye | 18 |
| Herbert, Jr | 18 |
| Ralph, Jr | 12 |
| Robert | 12 |
| Mary | 12 |
On the same day, Ralph, Sr., caused to be transferred and the new certificates placed with the others a total of 90 shares as follows:
| Transferee | Shares |
| Faye | 18 |
| Herbert, Jr | 18 |
| Ralph, Jr | 18 |
| Robert | 18 |
| Mary | 18 |
On April 4, 1938, a 25 percent dividend was declared, payable April 20 to stockholders of record April 10. Dividends were duly paid on the stock transferred as set forth above, as*128 follows:
| Shares | Dividend | |
| Ralph, Jr | 59 | $ 1,475 |
| Robert | 58 | 1,450 |
| Mary | 58 | 1,450 |
| Herbert, Jr | 70 | $ 1,750 |
| Faye | 70 | 1,750 |
On the day following the issuance of the dividend checks, Herbert, Sr., borrowed from Faye and Herbert, Jr., the proceeds of their dividends on their total of 140 shares in the amounts of $ 1,750 each, and executed to each a promissory note in that amount, payable on demand and calling for 6 percent interest. These notes were likewise placed in the company safe.
On the same day Ralph, Sr., borrowed from Ralph, Jr., Robert, and Mary the proceeds of their dividends on their total holdings of 175 shares, in the respective amounts of $ 1,475, $ 1,450, and $ 1,450. He executed three promissory notes in those amounts, payable on demand *447 and calling for 6 percent interest, and caused the notes to be placed in the company safe with the others.
On April 15, 1939, Herbert, Sr., caused to be transferred on the corporate records a total of 88 shares of stock, and caused the certificates to be placed in the company safe, as before, as follows:
| Transferee | Shares |
| Herbert, Jr | 22 |
| Faye | 22 |
| Ralph, Jr | 11 |
| Robert | 11 |
| Mary | 11 |
| Florence | 11 |
On the same*129 day, Ralph, Sr., caused the transfer on the books of the corporation of a total of 132 shares, as follows:
| Transferee | Shares |
| Herbert, Jr | 22 |
| Faye | 22 |
| Ralph, Jr | 22 |
| Robert | 22 |
| Mary | 22 |
| Florence | 22 |
The new shares were placed with the others in the company safe.
On April 29, 1939, a 50 percent dividend was declared payable on June 1, 1939, to stockholders of record on April 30. This dividend was actually paid on September 14, 1939, on the stock transferred as set out above in the following amounts:
| Shares | Dividend | |
| Faye | 114 | $ 5,700 |
| Herbert, Jr | 114 | 5,700 |
| Ralph, Jr | 92 | 4,600 |
| Robert | 91 | $ 4,550 |
| Mary | 91 | 4,550 |
| Florence | 33 | 1,650 |
On or before September 18, 1939, Herbert, Sr., borrowed from Herbert, Jr., and Faye the proceeds of their dividends on their total holdings of 228 shares, in the amounts of $ 5,700 each. He executed in their favor promissory notes in that amount, payable on demand, calling for interest at the rate of 6 percent per annum. These notes were placed in the company safe with the others.
At approximately the same time, Ralph, Sr., borrowed from Florence, Ralph, Jr., Robert, and Mary the total proceeds from their entire holdings of 307 shares, *130 in the respective amounts of $ 1,650, $ 4,600, $ 4,550, and $ 4,550, and executed in their favor promissory notes in those amounts, payable on demand and calling for the payment of 6 percent interest per annum. These notes were placed with the others in the company safe.
No interest was paid on any of the notes referred to hereinabove from the dates of issuance in 1937, 1938, and 1939, until December 31, 1941, when other demand 6 percent promissory notes were executed in the amounts of interest due on the notes. Those notes executed by Herbert, Sr., were as follows: Herbert, Jr., $ 3,891.10; and Faye, $ 1,375.60; and by Ralph, Sr., as follows: Ralph, Jr., $ 2,557.59; Robert, $ 2,005.08; Mary, $ 1,114.98; and Florence, $ 226.88.
*448 None of the proceeds of the dividends so borrowed by either petitioner were used for the support or maintenance of his wife or children, but were devoted to the personal business or use of each petitioner. Some of the dividend checks were indorsed by petitioners or by Christiansen in the names of the respective payees.
The dividends paid in 1937, 1938, and 1939 to the wife and children of each petitioner were reported for taxation in each case *131 in the name of the wife or child, except that in 1937 the amounts received by the children in 1937 were less than their exemptions, and no returns were, therefore, filed for them. Taxes were paid on the returns made by the petitioners for members of their respective families, and credit was taken on December 31, 1941, for the amounts so paid.
No gift tax returns were filed in 1937 or 1938 because each gift was valued at less than $ 5,000, and no return was required. In 1939 the value of each gift was in excess of $ 4,000 but less than $ 5,000, and petitioners were not aware of the reduction of the allowable minimum of tax-free gifts from $ 5,000 to $ 4,000, and for that reason no return was filed for 1939.
It was customary in petitioners' families, both before and after the transfers in question, to discuss the business affairs of the family corporations at home. No formal stockholders' meetings were ever held after the transfer of the shares described herein until November 9, 1940. Petitioners continued, without objection, to manage and direct the affairs of the corporations the same as before.
In 1937 Herbert, Sr., reported for taxation a net income of $ 20,718.52; in 1938, $ *132 22,496.48; in 1939, $ 16,161.11; and in 1940, $ 41,873.19. Ralph, Sr., had a net taxable income in 1937 of $ 17,064.74; in 1938, $ 21,070.57; in 1939, $ 10,645.57; and in 1940, $ 41,891.40.
In 1940 petitioners decided that it was inadvisable to continue to conduct the business of Robert R. Anderson Co. in corporate form and that it would be advantageous to change it to a partnership. It was decided, with the consent of all the members of the family, that petitioners and their wives would acquire the stock which stood in the names of the children in such proportions that each of these four individuals would own one-fourth of the corporation's stock. Each was to execute a note to the child or children whose stock he or she acquired. On November 19, 1940, the following transfers of stock were made on the corporate records:
| Shares | ||
| Transferee | Transferor | transferred |
| Herbert, Sr | Herbert, Jr | 140 |
| Do | do | 22 1/2 |
| Faye | do | 3 |
| Do | do | 3 1/2 |
| Ralph, Sr | do | 13 |
| Do | Ralph, Jr | 92 |
| Ralph, Sr | Robert | 47 1/2 |
| Do | do | 10 |
| Florence K | do | 33 1/2 |
| Do | Mary | 14 |
| Do | do | 77 |
*449 Demand notes calling for 6 percent interest were*133 executed by the transferees in an amount based on the book value of $ 258 per share and were placed in the company safe. They were in these amounts:
| Payee | Payor | Amount |
| Ralph, Jr | Ralph, Sr | $ 23,736 |
| Robert | Florence | 8,643 |
| Robert | Ralph, Sr | 14,835 |
| Mary | Florence | 23,478 |
| Herbert, Jr | Herbert, Sr | $ 41,925 |
| Herbert, Jr | Faye | 1,677 |
| Herbert, Jr | Ralph, Sr | 3,354 |
On December 31, 1941, Ralph and his wife and Faye executed additional notes in the amounts of the unpaid interest on these notes and placed them in the safe with the others. These were as follows:
| Payee | Payor | Amount |
| Robert | Florence | $ 518.58 |
| Mary | Florence | 1,408.68 |
| Herbert, Jr | Ralph, Sr | $ 201.24 |
| Herbert, Jr | Faye | 100.62 |
Petitioners on December 31, 1941, took credits upon the principal notes for income tax payments made by them on behalf of their wives and children, and in 1942 took credits upon the principal notes on account of war bonds purchased by them for the children. In most instances these credits were acknowledged by the holders of the notes by appropriate endorsements.
As a result of these transfers in November 1940 (and the acquisition of 2 shares by Florence at some undisclosed time) the entire*134 outstanding stock of the company then stood in the names of petitioners and their wives in equal shares of 187 1/2 shares each. Later, in November, the liquidation of the company was undertaken, and a partial liquidation took place in 1940, being completed in 1941.
At the time it was understood among petitioners, their wives, and the sons that when the sons became 25 years of age or finished school they could use the notes or the proceeds of the notes to purchase an interest in the partnership business. The understanding with Mary differed and is not wholly clear, but it seems to have been that she was to receive half of her money when she became 25, or when she married, and half when she became 30.
The capital gains resulting from the reacquisition of the stock in the children's names were reported for taxation by the child in whose name the stock had stood.
In 1941 petitioners discussed with each other the advisability of creating trusts for the children, the corpora to consist of the notes which had been executed. They decided to do so, and caused a trust agreement to be prepared, naming their brother-in-law as trustee. It was their intention to destroy the notes previously*135 executed, which were still in the safe in their office, and to execute new notes in their *450 place to the trustee. They instructed Christiansen to destroy the old notes and prepare new ones payable to the trustee. The new ones were prepared, but the old ones were never destroyed. The trust agreement was executed on January 2, 1942. When the trustee inquired about the payment of interest on certain of the notes, about July or early August of 1942, he was informed that the trust agreement was void and would be canceled on the advice of petitioners' attorney, who based his opinion on the fact that the intended corpora of the trust was already the property of the children and petitioners had no legal authority to exercise such control over the notes as they had assumed. The trust agreement was marked "void" and returned to petitioners, together with the notes executed by them to the trustee.
There were no bona fide gifts of stock by petitioners during 1937, 1938, and 1939.
OPINION.
The basic question involved here relates to the validity of the gifts which petitioners claim to have made to members of their families.
Petitioners urge the presence here of the well recognized*136 elements of a valid gift: (a) Donors competent to make the gift; (b) donees competent to receive and accept it; (c) effective delivery; (d) a clear and unmistakable intention on the part of the donors to divest themselves of title, dominion, and control over the property which was the subject of the gift.
There can be no serious question that the first two elements are present. While the donees were minors, and, in some cases, very young at the time the transfers were made, it is well settled that their acceptance will be presumed, if necessary to uphold the gift. ; affd., ; ; ; ; .
With respect to delivery although the certificates of stock were never in the physical possession of the donees, there is authority to support petitioners' view that transfer on the corporate records may effectuate a legal delivery. However, such *137 transfer, in itself, is not sufficient to prove a gift. . And see .
The petitioners' theory is undoubtedly weakened somewhat where the corporate records are controlled by the donors and where the donors frequently endorsed the donees' names on documents requiring the endorsement of the donees. It is true that the notes which petitioners executed to their wives and children for the dividends were never in the actual possession of the payees named thereon. They were placed in a safe in the office of the company, in the care of an employee. This employee indicated that he would have been reluctant *451 to open the safe and deliver the documents to petitioners, but finally conceded that he could not have refused to do so had the request been made. Apparently, the payees of the notes knew they were being kept there and had no objection, but there is no evidence that they ever authorized the employee, Christiansen, to act as their agent. But we must remember that these notes were not the subject of any gift with which we are here concerned. The question*138 whether there was sufficient relinquishment of dominion and control over them, or generally as to their delivery, is interesting only as it may indicate the presence or absence of good faith in the alleged gifts of the stock upon which the dividends were declared.
Looking for a moment, as we must, at the substance and practical effect of the series of transfers, we can not ignore the fact that, although the legal forms were properly executed in every case, the two petitioners who previously owned the stock, and through whose personal efforts the money was earned, continued after the transfers as before to exercise the prerogatives of stockholders in their exclusive management and control of the corporation, and continued to have the use and enjoyment of the dividends earned on exactly the same number of shares which each had previously owned.
Many things point to a lack of intent on the part of petitioners to relinquish dominion and control. Among these are the fact that in each year the transfers were made from four to fourteen days before the declaration of the substantial dividends, which were in each case immediately borrowed back and used by the petitioners; the fact that all*139 the stock and all the notes, those of the adult transferees as well as of the children, were kept in the corporate office, where they were under the control of the petitioners; the fact that endorsements were freely made on the dividend checks made payable to the transferees; the use by petitioners of the funds derived therefrom; the fact that instructions were later issued by petitioners to the secretary, in whose immediate care the notes were kept, to destroy them, and prepare new notes; the reacquisition of the stock when petitioners desired it; the collateral agreement with the children that the notes were not to be presented for payment until they attained certain mature ages some years in the future and, in the case of the boys, then not for payment in cash, but for interests in the business; and the payment by petitioners of all the income taxes due from all the transferees on the income resulting from the transfers.
The fact that the donor did not in every case borrow the dividends on the exact stock transferred by him does not seem important, where the evidence is clear that the transfers were made pursuant to a common plan, and inevitably dividends were borrowed by each *140 petitioner on the exact amount of stock transferred by him. Nor does the fact that the secretary did not destroy the notes pursuant to his instructions *452 weaken the inference that, in the minds of the petitioners, they had the power to exercise such complete dominion and control over the notes as to order them destroyed; it is evidence of their intention in that respect. Later on, when the trust agreement was invalidated, the original notes apparently were reinstated as valid in the minds of petitioners with as little formality as they had earlier ordered their destruction.
Considering all the facts, in the light of the close family relationship existing here, we conclude that petitioners have not sustained their burden of proving the respondent in error in his determination.
Decision will be entered for respondent.