## Facts

- Sumner Redstone owned 100 shares of Class A voting stock of National Amusements, Inc. (NAI), a closely held family business.
- A dispute with his brother, Edward, led to adversarial litigation that ended in a settlement decree requiring that Edward receive 66 2/3 shares outright and 33 1/3 shares in trust for Edward’s children.
- In connection with the settlement, NAI agreed to redeem Edward’s NAI shares for $5 million in a price negotiated at arm’s length and contemporaneous with the period of the disputed transfer.
- After the settlement, Redstone created irrevocable trusts for his two children and, in 1972, transferred 33 1/3 of his 100 NAI shares to those trusts.
- The settlement decree imposed no legal obligation on Redstone to transfer any of his shares to his children.
- Redstone did not file a gift-tax return reporting the 1972 transfer.
- Decades later, during unrelated litigation, Redstone testified that he gave his children a third of the stock voluntarily as an outright gift, prompting an IRS gift-tax examination.
- The IRS determined a gift-tax deficiency for the quarter ending September 30, 1972, and asserted additions to tax for fraud, alternatively negligence, and failure to file.

## Issues

1. Whether the 1972 transfer of NAI shares to trusts for Redstone’s children was a taxable gift under I.R.C. § 2512(b) or a transfer for adequate and full consideration in money or money’s worth.
2. If a gift occurred, what the fair market value of the transferred NAI shares was on the transfer date.
3. Whether Redstone was liable for additions to tax for fraud, negligence, or failure to file a timely gift-tax return.

## Decision

- The court held that Redstone’s 1972 transfer to his children’s trusts was a taxable gift because it was not supported by adequate and full consideration in money or money’s worth.
- The court valued the transferred shares by relying on the contemporaneous, arm’s-length $5 million redemption price for Edward’s shares, adopting an implied value of $75,000 per NAI common share.
- The court sustained the gift-tax deficiency but rejected all asserted additions to tax, finding insufficient proof of fraud and declining to impose negligence or late-filing additions on the record presented.

## Legal Principles

- Under I.R.C. § 2512(b), a transfer of property for less than adequate and full consideration in money or money’s worth is treated as a gift to the extent the property’s value exceeds the consideration received.
- Intangible, non-economic motivations (e.g., family harmony, maintaining family control, ending family conflict) do not constitute “money or money’s worth” consideration for federal gift-tax purposes absent a bargained-for exchange of enforceable rights.
- A contemporaneous arm’s-length transaction involving the same issuer’s stock may be strong evidence of fair market value for closely held shares.
- Civil fraud additions require clear and convincing evidence of intent to evade tax by conduct designed to conceal or mislead; absent that showing, fraud penalties do not apply.

## Conclusion

The Tax Court treated Redstone’s transfer of closely held NAI stock to trusts for his children as a taxable gift valued using a contemporaneous, arm’s-length redemption benchmark, while holding that the IRS did not prove fraud and that negligence and late-filing additions were not warranted on the facts.


Redstone v. Comm’r, T.C. Memo. 2015-237 (2015)