## Facts

- Husband and wife taxpayers transferred shares of closely held corporate stock into three separate trusts, one for each minor grandchild.
- Each trust provided that the beneficiary would receive the net income until age 30; at age 30 the beneficiary could terminate the trust and take the corpus.
- The parties agreed the transfers of the stock corpus were gifts of future interests and therefore did not qualify for the annual exclusion under 26 U.S.C. § 2503(b).
- Taxpayers claimed the beneficiaries also received separate present gifts of income interests qualifying for the $3,000 per-donee annual exclusion.
- The stock was never publicly traded, and the corporation had not paid dividends since 1950.
- The district court found there was little possibility any income would be paid to beneficiaries from the trust assets and disallowed the exclusions; taxpayers appealed.

## Issues

1. Whether an income interest in a trust funded with non-dividend-paying closely held stock has an “ascertainable value” for purposes of the 26 U.S.C. § 2503(b) annual exclusion.
2. Whether a donor may satisfy the burden of proving “ascertainable value” solely by applying actuarial tables in Treas. Reg. § 25.2512-5(c), despite evidence that income is unlikely to be produced.

## Decision

- The Eighth Circuit affirmed the district court’s judgment (per curiam).
- The court held the beneficiaries’ income interests had no ascertainable value where the evidence showed little possibility of any income.
- The court rejected valuation based solely on the actuarial tables when the underlying property offered no realistic prospect of producing income.
- As a result, the taxpayers were not entitled to the claimed annual gift tax exclusions.

## Legal Principles

- To qualify for the 26 U.S.C. § 2503(b) annual exclusion, the transfer must (1) not be a future interest and (2) have an ascertainable value.
- The “ascertainable value” requirement is judicially imposed and requires a valuation grounded in economic reality, not merely formal rights stated in a trust instrument.
- Treasury actuarial tables may be used to quantify an interest only when the interest has a real economic basis; tables cannot be used to assign value to an income interest that is effectively worthless due to the funding asset’s lack of income potential.
- The donor bears the burden of proving that the claimed present income interest has an ascertainable value.

## Conclusion

The court denied § 2503(b) annual exclusions for trust income interests funded with closely held, non-dividend-paying stock, holding that actuarial tables cannot establish “ascertainable value” when the evidence shows little likelihood that any trust income will be produced.


Stark v. United States, 477 F.2d 131 (8th Cir. 1973)