## Facts

- Eleanor A. Bradford and J. C. Bradford were married and lived in Nashville, Tennessee.
- J. C. Bradford, an investment banking partner and member of the New York Stock Exchange (NYSE), owed the American National Bank a large sum (about $305,000).
- After NYSE requirements increased attention to members’ personal indebtedness, the bank agreed to accept Eleanor’s promissory note for $205,000 of J. C.’s existing debt, leaving the balance still in his name.
- Eleanor had relatively modest independent assets and relied largely on J. C. for income.
- The substituted note was effectively supported by J. C.’s assets and earning power; J. C. paid the interest, and Eleanor did not expect to pay the note from her own assets.
- Years later, at the government’s request, Eleanor filed a 1938 gift tax return reporting the transaction but asserting no gift tax.
- The Commissioner determined that Eleanor made a $205,000 taxable gift to J. C. in 1938 and assessed a gift tax deficiency and an addition to tax under I.R.C. § 291 (1939).

## Issues

1. Whether Eleanor Bradford’s substitution of her $205,000 promissory note for an equal amount of her husband’s bank debt in 1938 constituted a taxable gift to her husband for federal gift tax purposes.

## Decision

- The Tax Court held that the note substitution did not constitute a taxable gift by Eleanor to her husband in 1938.
- The court rejected the Commissioner’s deficiency determination and related addition to tax for the year at issue.

## Legal Principles

- Federal gift tax applies to completed transfers of property or economic value for less than adequate and full consideration.
- In determining whether a taxable gift occurred, the court evaluates the transaction’s economic substance rather than its formal labels.
- A spouse’s assumption of, or substitution for, another spouse’s obligation is not a taxable gift absent a real shifting of economic burden or value from the signing spouse to the other spouse.
- Where the lender continues, in substance, to rely on the original debtor’s assets and earning capacity, and the signing spouse has no realistic expectation of satisfying the obligation from personal resources, a completed gift may be absent.

## Conclusion

The Tax Court concluded that Eleanor’s note substitution was a form-driven restructuring prompted by third-party concerns and did not shift real economic value or burden from Eleanor to her husband; therefore, no completed taxable gift occurred in 1938.


Bradford v. Commissioner, 34 T.C. 1059 (1960)