## Facts

- In late 1923 and early 1924, S.S. Kresge transferred to Doris Farid-Es-Sultaneh a total of 2,500 shares of S.S. Kresge Co. common stock while they contemplated marriage and after his divorce.
- Before their April 1924 marriage, the parties executed an antenuptial agreement under which the taxpayer accepted the stock (including shares to be transferred) and, in exchange, released marital and support rights she would otherwise obtain by the marriage.
- The agreement described the stock as a “gift,” but also characterized the transfers as consideration for the taxpayer’s waiver of marital rights.
- The parties later divorced in 1928.
- Stock dividends increased the taxpayer’s holdings to 12,000 shares, which she sold in 1938 for $230,802.36.
- The Commissioner asserted the stock was acquired by gift, requiring the taxpayer to use Kresge’s low carryover basis under § 113(a)(2) of the Revenue Act of 1938; the Tax Court sustained the deficiency.
- The taxpayer argued she acquired the stock by purchase/exchange for value and therefore had a cost basis equal to the stock’s fair market value when transferred.

## Issues

1. Whether stock transferred pursuant to an antenuptial agreement in exchange for release of marital rights is a “gift” under § 113(a)(2) of the Revenue Act of 1938, requiring a carryover basis.
2. If not a gift, whether the taxpayer’s basis is the stock’s fair market value at the time of transfer as property acquired for value.

## Decision

- The Second Circuit reversed the Tax Court.
- The court held the taxpayer received the stock as a purchaser (in exchange for valuable consideration), not as a donee.
- The transfer was not a “gift” within § 113(a)(2); the taxpayer’s basis was the stock’s fair market value when she acquired it, not the transferor’s carryover basis.
- Judge Clark dissented, favoring treatment of marriage-settlement transfers as gifts and construing “gift” consistently across income and transfer-tax regimes.

## Legal Principles

- For income tax basis rules, a “gift” generally requires a voluntary transfer without valuable consideration; labels used by the parties are not controlling.
- Property transferred to satisfy a binding contractual obligation, where the transferee gives up rights of monetary value (including marital rights), is treated as acquired for value for basis purposes.
- “Gift” in income tax basis provisions is not necessarily coextensive with broader gift/estate tax concepts that may treat transfers for less than full consideration as gifts.

## Conclusion

Because the taxpayer surrendered enforceable marital and support rights of monetary value in exchange for the stock, the transfer was an exchange for consideration rather than a gift; she therefore took a cost basis equal to the stock’s fair market value at the time of transfer, and the Tax Court’s deficiency determination based on carryover gift basis was reversed.


Farid-Es-Sultaneh v. Commissioner, 160 F.2d 812 (2d Cir. 1947)