## Facts

- Jennie Owen owned stock in two local banks and wanted to transfer more than $250,000 in value to members of her family.
- Federal gift-tax law imposed tax when a donor’s gifts to a single person in a year exceeded the $10,000 annual exclusion amount.
- To avoid gift tax, Owen divided the stock into 29 bundles, each valued by her at slightly less than $10,000.
- Owen transferred one bundle to each of 29 nonfamily recipients (six recipients received shares of one bank; twenty-three recipients received shares of the other).
- Owen expected the nonfamily recipients to pass the stock on to Owen’s family members; most recipients either:
  - did not understand they were receiving a true gift, or
  - agreed beforehand that they would endorse the certificates so the stock could be reissued to Owen’s family.
- After receiving the certificates, 27 recipients endorsed the stock (often in blank) and the shares were later reissued to Owen’s family; two recipients kept the stock.
- Owen died. Her daughter, Mary Ann Heyen, as executrix of the estate, filed a gift-tax return that did not pay gift tax on any of the 29 transfers.
- The IRS determined Owen had made taxable indirect gifts to her family members, assessed a gift-tax deficiency, and imposed civil fraud penalties under 26 U.S.C. § 6653(b)(1) and (2).
- Heyen sued the United States for a refund and challenged the fraud penalty. After a jury trial, the jury returned a verdict for the government, and the district court denied Heyen’s post-trial motions.

## Issues

1. Whether Owen’s stock transfers to nonfamily intermediaries, made with the expectation that the stock would be reissued to family members, were taxable indirect gifts to family members for federal gift-tax purposes.
2. Whether the government’s valuation of the bank stock used to compute the deficiency was erroneous.
3. Whether the evidence was sufficient to sustain the jury’s finding of fraud and the resulting civil fraud penalties under 26 U.S.C. § 6653(b)(1), (2).

## Decision

- The Tenth Circuit affirmed the judgment for the United States.
- The court upheld the government’s treatment of the arrangement as indirect gifts to Owen’s family members rather than separate gifts to the 29 nominal recipients.
- The court rejected the challenge to the government’s valuation, concluding the record supported the valuation used in the deficiency assessment and accepted by the jury.
- The court held the evidence supported the jury’s fraud finding and upheld the civil fraud penalties.

## Legal Principles

- Gift tax applies to transfers of property for less than full and adequate consideration; tax consequences turn on the transfer’s real effect rather than labels used by the parties.
- A donor can make an indirect gift when property is routed through intermediaries who function as conduits to the intended beneficiaries; the annual exclusion is measured by the actual donees, not temporary holders.
- Courts may disregard a multi-step plan that serves only to route property to the intended recipients while attempting to avoid gift tax.
- Civil fraud penalties under 26 U.S.C. § 6653(b) require clear and convincing proof that an underpayment is due to an intent to evade tax; circumstantial evidence and the structure and execution of the transaction may support a fraud finding.
- Appellate review respects the jury’s role on disputed factual questions such as valuation and intent, and a verdict stands if supported by sufficient evidence.

## Conclusion

The Tenth Circuit held that Owen’s plan to split bank stock into sub-$10,000 bundles and transfer them through nonfamily recipients—most of whom promptly enabled reissuance to Owen’s family—resulted in taxable indirect gifts to the family, and it affirmed both the deficiency based on the government’s valuation and the jury’s finding that the return involved fraud warranting § 6653(b) penalties.


Heyen v. United States, 945 F.2d 359 (1991)