Revisiting Dickman: Are Loans of Tangible Property Gifts?

Abstract:     
Suppose a parent “loans” her vacation home “Dellview” in Aspen to her adult child for a non-specified period of time without rent or other charge for the use of the property. The home has a rental value of $1,000 per day. There is no formal lease agreement. Therefore, the parent (as owner) can occupy the premises or evict the child at will. The daughter in fact occupies the property for 65 days in the summer of 2009. Has Mother made a gift to daughter for gift tax purposes? Would any variation in this fact pattern alter the answer?

If one relies only on the function of the federal gift tax to back up the estate tax and (perhaps) the income tax, the answer would be that there is no gift. On the other hand, if the gift tax is viewed as a stand-alone excise tax on gifts of all types, a technical case can be made that there are gifts totaling $65,000, but there may be good reasons for not taxing the gift. The gift tax statute does not specifically deal with this situation, and the general language of the gift tax statute arguably would appear not to reach this transaction on the ground that the grant of permission to use property is not itself a “property interest.” However, the 1984 case of Dickman v. Commissioner held that an interest-free demand loan of cash did entail a gift. Moreover, dictum in the majority opinion suggests that the gratuitous rent-free-use of another’s tangible property could be a gift. Section 7872, enacted in 1984 in the wake of Dickman, only applies to below-market loans of money, but not property.

Part I explains how the deep structure of the gift tax precludes a gift in this situation. Part II analyzes the Dickman case. Part III holds that statutory enactments subsequent to Dickman do not resolve the issue. Part IV distinguishes “loans” of personal-use property from loans of money. Part V deals with the question of whether the gratuitous use of another’s property is the equivalent of a (taxable) distribution from a revocable trust. Part VI provides a summary and offers suggestions for legislation and/or administrative pronouncement.

Working Paper Series