## Facts

- Albert F. Metzger executed a power of attorney on August 26, 1985 authorizing his son, John Metzger, to make gifts to Metzger’s heirs and related persons.
- On December 14, 1985, acting under the power of attorney, John wrote four $10,000 checks on Albert’s account payable to John, John’s wife, John’s brother, and the brother’s wife.
- John and his wife deposited their checks on December 31, 1985; the checks cleared Albert’s account on January 2, 1986 due to ordinary year-end banking delays.
- In 1986, Albert made additional $10,000 gifts to John and his wife that cleared in 1986.
- Albert died on May 29, 1987; the estate filed an estate tax return.
- The IRS audited and treated the December 1985 checks to John and his wife as 1986 gifts because the drawee bank honored them in 1986, resulting in annual-exclusion overages and an asserted estate tax deficiency.
- The Tax Court ruled for the estate, applying a relation-back doctrine to treat the gifts as completed in 1985; the Commissioner appealed.

## Issues

1. For federal gift tax purposes, are noncharitable gifts made by check completed upon unconditional delivery and deposit, or only when the drawee bank honors the checks?
2. Under what limited circumstances, if any, may payment of a noncharitable gift check relate back to the year of delivery for annual exclusion purposes?

## Decision

- The Fourth Circuit affirmed the Tax Court’s judgment for the estate.
- The court held that, on the case’s limited facts, the gifts were completed in 1985 when the checks were unconditionally delivered and deposited, and the bank’s honoring of the checks related back to that year.
- The court relied on the absence of intervening events and the prompt presentment and honoring of the checks shortly after deposit.
- A dissent would have treated the gifts as completed only when the checks were honored, arguing the donor retains dominion and control until payment.

## Legal Principles

- A gift is completed for federal gift tax purposes when the donor has parted with dominion and control sufficient to place the property beyond the donor’s recall.
- In limited circumstances, payment of a noncharitable gift check may relate back to the year of unconditional delivery and deposit where:
  - the check is delivered without conditions and with donative intent,
  - the donee deposits and presents the check within a reasonable time,
  - the check is promptly honored shortly thereafter as part of routine banking practice, and
  - no intervening event (e.g., stop payment, death, delay suggestive of manipulation) occurs between delivery/deposit and honoring.
- The relation-back analysis is fact-specific and does not establish a categorical rule that all noncharitable checks complete gifts in the year of delivery.

## Conclusion

The court upheld treatment of year-end noncharitable gift checks as completed in the year they were unconditionally delivered and deposited when the checks were promptly presented and honored after a brief, routine banking delay, allowing the annual exclusion to apply to the intended year.


Metzger v. Commissioner, 38 F.3d 118 (4th Cir. 1994)