*1216 In 1927 and in 1929 the decedent informed his wife, his son, and his daughter that he was making gifts to them of certain shares of stock of the International Petroleum Co., Ltd. They accepted the gifts. The decedent deposited the certificates for the shares in envelopes marked as the private property of each, which were kept in two safe deposit boxes to which the decedent, his wife, and his daughter had access. Dividends received on the donated stock were collected by the decedent and deposited in a joint bank account maintained by himself and wife. The son and the daughter were paid such part of the dividends as they desired to receive. In 1931 the son and the daughter gave the decedent permission to use some of their shares as additional collateral on a loan owed by the decedent to a bank. They also permitted him to use such portion of the dividends as he might need to use. When the collateral was released by the bank the certificates were replaced in the envelopes containing other private property of the son and the daughter. In their income tax returns the donees accounted for the dividends paid upon their shares of stock. Held, that the gifts made in 1927 and in*1217 1929 were absolute gifts, and that the decedent was not liable to income tax in respect of the dividends paid on the donated shares.
*213 This proceeding involves deficiencies in income tax of Lorenzo W. Swope, deceased, for the years 1934, 1935, and 1936 in the respective amounts of $6,223.54, $6,968.53, and $11,008.11. The decedent having died after the trial of this case his executors have been substituted as petitioners.
The principal question in issue is whether the decedent is taxable on the dividends paid on certain shares of stock of the International Petroleum Co., Ltd., a Canadian corporation, which shares, it is contended, were conveyed by the decedent as gifts to his wife and two children in 1927 and 1929. An alternative issue is raised as to credits for Canadian taxes on dividends withheld at the source.
FINDINGS OF FACT.
The decedent was a physician and surgeon, with offices and residence in Pittsburgh, Pennsylvania. For many years he was connected with the Western*1218 Pennsylvania Hospital, serving as chief surgeon for the last 30 years of his life and as president of the medical board for *214 the last 8 years. The Western Pennsylvania Hospital is one of the oldest and largest hospitals in Pittsburgh. The decedent stood at the top of his profession and was regarded as one of the foremost physicians and surgeons in the country. A great deal of his work, particularly in the latter years of his life, was of a charitable or nonremunerative character.
Decedent's family consisted of his wife, Sara V. Swope, a daughter, Blanche A. Swope, born in 1891, and a son, Karl B. Swope, born in 1897. Both of the children have resided in the family home in Pittsburgh with the decedent and his wife continuously since their birth. Blanche worked as librarian for a few years after completing her education but has not been gainfully employed since 1927. Karl has worked from time to time since graduating from college but was not employed at the time of the hearing in this proceeding. He served overseas during the World War. In 1937 he married and continued to live with his wife in the family residence at Pittsburgh. Neither of the children has ever*1219 made any regular contributions to the general household expenses. There has existed at all times a very close family relationship among all the members of the decedent's family.
The decedent was a large investor in securities. Among the stocks which he owned in 1927 were 8,178 shares of the International Petroleum Co., Ltd., a Canadian corporation. He acquired these shares partly in exchange for shares of stock of the Tropical Oil Co. in 1920 and partly by purchase in a later year. The International Petroleum Co., Ltd., shares were all represented by bearer warrants which were not issued in the name of any shareholder and were transferable by delivery. Attached to the warrants were numbered dividend coupons which could be detached and presented to the corporation for payment whenever a dividend was declared, the dividends being payable in Toronto, Canada. These warrants will be referred to hereinafter as shares.
In 1927 the decedent decided to make a gift of all of his International Petroleum Co., Ltd., shares to his wife and children. He first talked the matter over with his wife and some of their close friends early in 1927 while they were visiting in Florida. On returning*1220 to Pittsburg he further discussed the matter with friends and associates and declared his intention to make such gifts. He consulted an attorney who had been his close friend and legal counsel for a number of years and asked his advice as to the wisdom of the gifts and how they might be legally made.
At that time 7,678 of decedent's 8,178 shares, together with other property of the decedent and his wife and children, were held in two safe deposit boxes at the Union Trust Co. of Pittsburgh. These boxes had been leased to the decedent and his wife and his daughter Blanche as joint lessees for a number of years. The other 500 shares were held *215 by the Union Trust Co. as collateral on a loan which the decedent had obtained from that bank in 1927.
These safe deposit boxes contained three large envelopes, one of which was marked "Private property of Sara V. Swope," another "Private property of Blanche A. Swope," and the other "Private property of Karl B. Swope." Each of the envelopes contained securities and other properties belonging to the person whose name it bore.
On May 20, 1927, decedent went to the safe deposit boxes and placed 2,750 shares of the International*1221 Petroleum Co., Ltd., in Blanche's envelope, the same number in Karl's envelope, and 2,178 shares in his wife's envelope. On returning to his home that day the decedent told his wife and children that he had given them his International Petroleum Co., Ltd., stock and had placed the shares in their respective envelopes in the safe deposit boxes. They all accepted the gifts and expressed their appreciation of them.
There were three keys to the safe deposit boxes, one of which was carried by the decedent, one kept at his office, and one kept at decedent's residence. The decedent, his wife, and Blanche, the lessees of record, had free access to the safe deposit boxes at all times. Karl was not a lessee and had access to the boxes only when accompanied by one of the lessees. In this manner he could have access to the boxes whenever he desired and was in no way restricted as to the use and enjoyment of the properties contained in his envelope.
It was the decedent's intention in placing the International Petroleum Co., Ltd., shares in the envelopes of his wife and children to transfer such shares to them as absolute gifts. Decedent had been advised by legal counsel that the gifts*1222 might be effectually made in that manner. It was decedent's intention in fact to give each of the children 3,000 of the shares, but 500 of them were on deposit as collateral at the bank and were not available at that time. However, in June 1929, when those shares were released by the bank, the decedent placed them in the envelopes of Blanche and Karl, 250 shares in each envelope, and informed them of what he had done.
In May 1929 the International Petroleum Co., Ltd., declared a 100 percent stock dividend, to be paid by the issuance of two new shares for each of those outstanding. The decedent, acting for his wife and children and with their authorization, exchanged all of their 8,178 shares for 16,356 new shares, which he then replaced in the envelopes in the safe deposit boxes in the same proportion as the old shares.
There was no written memorandum evidencing the decedent's gift of the International Petroleum Co., Ltd., shares to his wife and children, but both private and public declarations were made from time to time by decedent and the other members of his family that such gifts had been made and that the wife and children and not the decedent were the owners of the*1223 shares. In 1934 affidavits to that *216 effect were executed by Sara V. Swope, Blanche A. Swope, and Karl B. Swope, and were submitted to the paying agent of the International Petroleum Co., Ltd., and ownership certificates were issued to them for use in connection with the preparation of their United States income tax returns in which credits were allowable for the Canadian taxes paid on the dividends.
In April 1927 the decedent obtained a loan at the Union Trust Co. of $150,000, depositing as collateral security 200 shares of Star Oil Co. of New Jersey and 500 shares of International Petroleum Co., Ltd. The latter shares were those released to the decedent by the bank in June 1929, as stated above. Following the crash of the securities market in 1929 the bank made several calls upon the petitioner for additional collateral on his loan. After putting up all of his own available securities and still being pressed by the bank for additional collateral, the decedent talked the matter over with his wife and children and they gave him permission to use their International Petroleum Co., Ltd., shares for additional collateral, if needed. With such authorization the decedent*1224 went to the safe deposit boxes and took 2,000 of the shares from Blanche's envelope and 2,000 shares from Karl's and deposited them with the bank. This occurred in December 1931. In April 1932 the bank called for still more collateral and the petitioner took an additional 3,000 shares from each of the envelopes of Blanche and Karl, which he deposited at the bank. All of these shares were released by the bank in 1934 and decedent then replaced them in the envelopes of Blanche and Karl, putting 5,000 shares in each envelope. The shares have all remained in Blanche's and Karl's envelopes up to the present time.
Dividends were paid on the International Petroleum Co., Ltd., shares in the years 1927 to 1936, inclusive, as follows: In 1927, a 75 cent dividend was paid per share; in 1928, a 75 cent dividend; in 1929, 62 1/2 cents on each share of new stock and 25 cents on each share of old stock; in 1930, 1931, and 1932, $1 on each share; in 1933, $1.09 on each share; in 1934, $2.28 on each share; and in 1935 and 1936, $2.50 on each share.
All of the dividends that were paid during the years 1927 to 1936, inclusive, and during a portion of 1937 on the International Petroleum Co. *1225 , Ltd., shares that were held in the safe deposit boxes in the envelopes of Sara V. Swope, Blanche A. Swope, and Karl B. Swope, and on the shares held by the Union Trust Co. as collateral on decedent's note, were received by the decedent or by the Union Trust Co. and were deposited in the joint bank account of decedent and Sara V. Swope. This joint account was maintained at the Union Trust Co. during all of those years. During the remaining portion of 1937 and in all subsequent years the dividends on the shares contained in the envelopes of Blanche and Karl were received by them *217 and deposited in their separate bank accounts. Blanche had a separate bank account of her own at the Union Trust Co., which was opened in January 1928, closed out in December 1933, and reopened in December 1935, Karl has had a separate bank account continuously since January 1927. Decedent's wife had a separate account from January 1, 1927, until February 5, 1936.
For all years after and including 1927 the decedent kept memorandum records showing all the dividends paid on the International Petroleum Co., Ltd., shares which were or had been contained in the envelopes of his wife and children*1226 and showing also the amount of funds which had been withdrawn by them or which he had advanced to them out of his and his wife's joint account. At the end of each year the decedent executed a demand promissory note in favor of each one of them for the balance between the amount of the dividends on their shares and the amount of money which they had drawn down. New notes were made each year carrying over the prior year's balance. These notes were kept in their separate envelopes. The last of such notes were executed by the decedent in January 1937. One of those in the amount of $31,795 was payable to Sara V. Swope and two others in the amount of $58,918.95 each were payable to Blanche and Karl, respectively. These notes were still held in the safe deposit boxes in the separate envelopes of the wife and children at the time of the hearing of this proceeding. None of the dividends from the International Petroleum Co., Ltd., shares were received by or used by the decedent after 1937.
The decedent made returns of personal property to Allegheny County, Pennsylvania, for 1933 and subsequent years and also made returns of personal property to the Commonwealth of Pennsylvania after*1227 the year 1935. He did not include the shares of International Petroleum Co., Ltd., stock referred to above in any of those returns.
In his Federal income tax returns for the years subsequent to 1927 the decedent did not report any of the dividends on the shares of International Petroleum Co., Ltd., stock in question, it being his belief that such dividends were the income of his wife and children by reason of their ownership of the stock. Such dividends for all of the years 1934, 1935, and 1936 were reported in the income tax returns of Sara V. Swope, Blanche A. Swope, and Karl B. Swope.
Karl filed no Federal income tax returns for the years 1927 to 1930, inclusive. He filed a return for 1931, showing no tax due. Blanche filed no returns for 1927 and 1928 but filed returns for all subsequent years. Returns were filed by or on behalf of Sara V. Swope for 1927 and subsequent years. The decedent prepared or assisted in the preparation of some or all of such returns and paid the taxes shown to be due thereon with his personal check.
*218 The International Petroleum Co., Ltd., dividends reported in the returns filed by Sara V. Swope, Blanche A. Swope, and Karl B. Swope*1228 for the years 1934, 1935, and 1936, amounted in the aggregate to $37,666.44 in 1934, $40,615.27 in 1935, and $40,835.67 in 1936.
In his deficiency notice herein the respondent has determined that all of such dividends for the years 1934, 1935, and 1936 are taxable to the decedent as the owner of the stock rather than to his wife and children.
OPINION.
SMITH: The question for our determination is whether the decedent made a completed gift of all of his shares of stock of the International Petroleum Co., Ltd., to his wife and children prior to the taxable year 1934.
The requisites of a valid gift inter vivos are: (1) A donor competent to make the gift; (2) a donee capable of accepting the gift; (3) a clear and unmistakable intention on the part of the donor to divest himself of title, dominion, and control over the subject matter of the gift; (4) an irrevocable transfer by the donor to the donee, or to someone acting as trustee or agent for the donee; and (5) an acceptance of the gift by or on behalf of the donee. See *1229 , and cases therein cited. See also ; ; .
In , the court said that:
A statement frequently found in the decisions is: "To constitute a valid gift inter vivos, there must be a gratuitous and absolute transfer of the property from the donor to the donee, taking effect immediately and fully executed by a delivery of the property by the donor, and an acceptance thereof by the donee."
The respondent's contentions are that the decedent did not intend to make completed gifts of the shares of stock in question; that there was no delivery of the shares to decedent's wife and children; and that decedent did not divest himself of all dominion and control over the shares.
The decedent's intention to make completed gifts of the shares in question to his wife and children is clearly established by the evidence. The decedent himself testified that such was his intention and his testimony was corroborated by other witnesses to whom he had divulged his intention before*1230 the gifts were made. Subsequent events likewise bear evidence of decedent's intention to make absolute gifts of the shares to his wife and children. He gave notice to the International Petroleum Co.'s agent, to his bank, and to the tax authorities that he had made such gifts. He asked and obtained the consent of his wife and children before making use of the shares for collateral *219 deposit on his indebtedness. Although the dividends on the shares were deposited in decedent's and his wife's joint bank account and some of them used by the decedent, this was done with the full knowledge and consent of the wife and children and the decedent gave them his promissory notes for the amounts of the dividends to which each was entitled, less the amounts which they had received personally on their shares.
In , we said:
If a valid gift inter vivos has been made, it is of no importance what the donee thereafter does with the income from the property. In the case of a bona fide gift by a husband to his wife, the wife may thereafter dispose of the income as she chooses. She may lend it to her husband, or may indeed*1231 make a gift of it to him, without invalidating the gift to her of the res. * * *
The gifts were complete when the decedent with the intention to make the gifts placed the shares in the envelopes of each of the donees, informing the donees of what he had done, and the donees accepted the gifts. There was a delivery of the shares when the donor, with the intention of making the gifts, placed the shares in the envelopes of each of the donees in the safe deposit boxes to which they all had access, except possibly Karl, who could enter the safe deposit boxes only when in the company of one of the other members of the family. Each of the donees kept other personal belongings in these envelopes. See ; ; .
On facts somewhat similar to those in the instant case the Board determined in ; affd., ; certiorari denied, ; that there was not a completed gift of shares of stock by a father to his minor children. There, the father placed the shares*1232 in envelopes bearing the names of each of the children, with the declared intention of making gifts of such shares, but he retained exclusive possession and control of the stock for the purpose of selling it in accordance with a predetermined plan. We held that the father intended to make gifts not of the shares of stock themselves but of the proceeds from the sale of the stock. In final analysis that case is distinguishable from the instant case, since here the donor had the intention to make completed gifts in praesenti of the shares of stock which he placed in the envelopes of the donees.
Among other cases relied upon by the respondent are ; ; ; ; and . All of those cases are distinguishable from the instant case in one or more of their essential features. For instance, in the Joseph case the *220 husband who purportedly made a gift of stock to his wife thereafter used the stock for his own*1233 purposes without consulting his wife; sold some of the shares and reported the gains in his income tax returns as his own; and received all of the dividends on the shares without any restrictions as to their use. The Richardson case also involved an alleged gift from husband to wife. There, however, we found that the husband:
* * * made no effort to place the stock within the dominion and control of his wife. * * * Neither did he make any constructive or symbolic delivery of the subject matter of the gift. He was content to let the stock remain under his dominion and control in his safe deposit box, to which his wife had no access. * * *
In the Commonwealth of Pennsylvania the courts require a "less quantum of evidence" to establish a gift where a relationship such as that of parent and child exists than where such relationship does not exist. See ;; ; ; *1234 .
On the evidence of record we determine that the decedent made completed gifts of all of his shares of stock of the International Petroleum Co., Ltd., to his wife and son and daughter in 1927 and 1929. It follows that the dividends on such shares in the years 1934, 1935, and 1936, the years involved in this proceeding, were not income of the decedent.
The issue as to the validity of the gifts being determined in petitioners' favor, it is not necessary to consider the alternative issue pertaining to the credit for taxes paid to the Dominion of Canada on the dividends in question.
Decision will be entered under Rule 50.