## Facts

- Marie A. Bies owned closely held stock in Mueller-Bies Funeral Home, Inc. (MBI), a family funeral-home business with a single class of stock.
- From 1985 through her death in 1995, Bies made yearly transfers of MBI stock valued at the annual exclusion amount to her sons (Albert and Gregory) and also to their wives (Gayle and Loretta).
- Beginning in 1991, Bies also made similar yearly transfers to her grandson (James C. Nielsen, Jr.) and his wife (Cheryl).
- The stock transfers to the wives were paired with immediate subsequent transfers from each wife to the corresponding son (and from the grandson’s wife to the grandson).
- Bies’s attorney prepared the “back-to-back” stock certificates as part of an integrated plan so that stock ownership would end up with the family members actively involved in the business.
- The wives did not retain the shares as continuing owners; at least one wife had indicated she did not want involvement in the funeral-home business.
- Bies did not file gift tax returns for the years of these transfers, and the estate tax return did not report taxable gifts.
- The IRS determined an estate tax deficiency of $129,866, treating the transfers through the wives as indirect gifts to the sons and grandson that exceeded available annual exclusions.

## Issues

1. Whether the yearly transfers of MBI stock to daughters-in-law and a granddaughter-in-law should be treated as direct gifts to those spouses for gift tax purposes.
2. Whether, in substance, those transfers were indirect gifts to the sons and grandson, preventing use of multiple annual exclusions through temporary nominal donees.

## Decision

- The Tax Court held for the Commissioner.
- The court treated the transfers to the daughters-in-law and granddaughter-in-law as indirect gifts to the sons and grandson.
- The court sustained the resulting estate tax deficiency (subject to computational adjustments consistent with its findings).

## Legal Principles

- Federal gift tax applies to transfers “whether the gift is direct or indirect,” and the true donee is determined by the substance of the transaction rather than formal title.
- The annual exclusion applies per actual donee receiving a present interest; it cannot be increased by routing a single intended gift through conduit recipients who are not intended to keep the property.
- Simultaneous, prearranged “back-to-back” transfers (donor → nominal donee → intended beneficiary) support treating the intended beneficiary as the true donee.

## Conclusion

Because the spouses’ ownership was transitory and the plan was structured so the sons and grandson would receive and keep the stock, the court recharacterized the spouse transfers as indirect gifts to the sons and grandson, limiting annual exclusions and sustaining the estate tax deficiency.


Estate of Bies v. Commissioner, T.C. Memo. 2000-338 (2000)