## Facts

- Paul and Esther Dickman, Florida residents, made substantial interest-free demand loans from 1967 to 1976 to their son and to a closely held family corporation.
- The loans were typically evidenced by demand notes bearing no interest.
- The Commissioner asserted gift-tax deficiencies, treating the loans as gifts not of principal, but of the reasonable value of the borrowers’ use of the funds without paying interest.
- The Tax Court ruled for the Dickmans, holding that interest-free intrafamily demand loans did not produce taxable gifts.
- The Eleventh Circuit reversed, concluding that the interest-free loans resulted in taxable gifts of the value of the use of the money.
- The Supreme Court granted certiorari to resolve a circuit conflict on whether such loans are taxable gifts.

## Issues

1. Whether interest-free demand loans constitute “transfers of property by gift” under I.R.C. §§ 2501(a)(1) and 2511(a).
2. Whether the right to use money without paying interest is a valuable property interest whose reasonable value is subject to federal gift tax.
3. Whether the Commissioner may treat such loans as taxable gifts despite asserted prior administrative practice and taxpayer reliance.

## Decision

- The Supreme Court affirmed the Eleventh Circuit.
- The Court held that interest-free demand loans result in taxable gifts equal to the reasonable value of the use of the money lent.
- The Court rejected the claim that taxing foregone interest imposes a duty to invest profitably; the tax follows from a gratuitous transfer of a valuable use right.
- The Court found concerns about intrusion into routine personal loans overstated in light of statutory exclusions, exceptions, and credits.
- Even assuming prior administrative nonenforcement, the Commissioner could change an interpretation and apply it retroactively despite taxpayer reliance.

## Legal Principles

- The federal gift tax applies broadly to “transfers of property by gift,” whether direct or indirect, and whether the property interest is tangible or intangible. (I.R.C. §§ 2501(a)(1), 2511(a))
- A gratuitous transfer of the use of property can be a taxable gift; the use of money is a property right capable of valuation.
- An interest-free demand loan transfers to the borrower a valuable right to use funds without charge; the gift is the reasonable value of that use (subject to reduction reflecting demand features).
- Construing the gift tax to reach interest-free loans serves its function of limiting income-tax avoidance and supplementing the estate tax by taxing valuable interfamily transfers of economic benefit.
- The Commissioner is not estopped from enforcing the statute by an earlier administrative position, and may apply a changed interpretation retroactively.

## Conclusion

The Court held that interest-free demand loans can be taxed as gifts of the measurable economic benefit conferred—the right to use money without paying interest—bringing such arrangements within the broad reach of the federal gift tax.


Dickman v. Commissioner, 465 U.S. 330 (1984)