                       T.C. Memo. 1997-431



                     UNITED STATES TAX COURT



    ESTATE OF MARY D. MAGGOS, DECEASED, CATHERINE M. ADKINS,
              SPECIAL ADMINISTRATOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20877-93.          Filed September 23, 1997.



     Stanley Y. Mukai, Carmen J. SantaMaria, R. John Seibert,

Kimberly R. McCorkle, and William C. McCorriston, for

petitioner.1

     Henry E. O'Neill, for respondent.




     1
      The petition was prepared by Messrs. Victor H. Bezman and
Rex A. Guest, who withdrew from the case on Aug. 26, 1994.
                                 - 2 -


                          MEMORANDUM OPINION


     LARO, Judge:   Petitioner moves for summary adjudication

under Rule 121(a),2 arguing that the Court may enter a decision

in its favor as a matter of law.    Respondent objects thereto,

arguing that the Court must still decide questions of material

fact in order to decide this case.       We agree with respondent.   We

will deny petitioner's motion.    This case is not ripe for summary

adjudication because material facts remain in dispute.

                              Background

     While residing in Honolulu, Hawaii, Mary D. Maggos (Ms.

Maggos) petitioned the Court on September 27, 1993, to

redetermine respondent's determination of a $2,229,350 deficiency

in her 1987 Federal gift tax.    Respondent determined that Ms.

Maggos' sale of 56.7 percent of the outstanding stock of

Pepsi-Cola Alton Bottling, Inc. (PCAB), to PCAB in exchange for a

$3 million promissory note was a transfer for less than adequate

and full consideration.    Respondent determined that the fair

market value of the transferred stock was $8,056,000 on the date

of transfer and, accordingly, that Ms. Maggos had made a gift of

$5,056,000 to her son, Nikita Maggos, who was PCAB's sole

remaining shareholder.    Ms. Maggos had filed a 1987 Federal gift


     2
       Rule references are to the Tax Court Rules of Practice and
Procedure. Unless otherwise indicated, section references are to
the Internal Revenue Code in effect for the year in issue.
                                - 3 -


tax return reporting an $11,000 gift that she made to her

daughter, Catherine Maggos Adkins.      After taking into account the

$10,000 exclusion that applied to this gift, respondent

determined that Ms. Maggos' taxable gifts in 1987 totaled

$5,057,000, rather than the $1,000 amount shown on her 1987

return.   Respondent increased Ms. Maggos' taxable gifts by

$5,056,000 to reflect this determination.

     Ms. Maggos alleged in her petition that the value of her

redeemed stock was not more than $3 million, and that the value

of the promissory note was $3 million.     On October 5, 1995, with

leave of the Court, Ms. Maggos amended her petition to allege new

facts.    According to the amended petition, Ms. Maggos' stock was

worth substantially more than $3 million at the time of the

redemption, but Nikita Maggos and certain other persons who were

close confidants of Ms. Maggos fraudulently induced her to sell

her stock to PCAB for less than its full worth.     Ms. Maggos

alleges in her amended petition that she did not make a gift to

Nikita Maggos because of this fraudulent inducement.     Ms. Maggos

alleges alternatively in her amended petition that her sale of

the stock to PCAB was not a gift because the redemption was a

"bona fide, arm's length transaction which proved to be a bad

bargain" for her.

     Ms. Maggos was born in 1906.    She and her former husband,

Gust Maggos, developed PCAB over the course of several decades.
                                 - 4 -


PCAB, which is based in Alton, Illinois, is a regional bottler of

Pepsi-Cola products in the Midwest.      At all relevant times prior

to May 1987, Ms. Maggos owned 56.7 percent of PCAB's stock, and

her only son, Nikita Maggos, owned the remaining stock.     Nikita

Maggos was the president and a director of PCAB, and he oversaw

the daily operation and management of the company.     Ms. Maggos

had little, if any, participation in the operation or management

of PCAB after the mid-1960's, having moved to Honolulu, Hawaii,

from Alton, Illinois, at that time.

     Following her move to Honolulu, Ms. Maggos retained Robert

Hite, a lawyer in Hawaii, to update her estate tax plan.     The

estate plan included Ms. Maggos' transfer of complete ownership

of PCAB to her son, Nikita Maggos, which it sought to accomplish

with minimal tax consequences.    Effective May 1, 1987, upon

consultation with Mr. Hite and certain other advisers, Ms. Maggos

entered into the redemption transaction with PCAB under which she

received a promissory note from PCAB in exchange for her stock.

The note provided for annual payments of interest at a rate of

8 percent per year and the payment of the $3 million face amount

at the end of 10 years.   The note was structured so that Ms.

Maggos would have an improved income stream to meet her extensive

nursing care needs.   As of May 1, 1987, Ms. Maggos' stock in PCAB

was worth substantially more than $3 million.
                                 - 5 -


     Following PCAB's redemption of Ms. Maggos' stock, Nikita

Maggos investigated the possibility of selling PCAB and informed

various bottling industry companies that his stock was available

for sale.   On April 28, 1989, Nikita Maggos sold all of PCAB's

stock for cash and other consideration totaling more than $22

million; this consideration included the purchase price, the

purchaser's assumption of PCAB's debt, PCAB's forgiveness of

loans to Nikita Maggos, the receipt by Nikita Maggos of certain

assets which had previously belonged to PCAB, and a

noncompetition agreement between Nikita Maggos and the purchaser.

     On August 23, 1994, Ms. Maggos commenced suit in the U.S.

District Court for the District of Hawaii against Nikita Maggos

and PCAB to recover damages for, among other things, fraud with

respect to the redemption.   On August 7, 1995, Ms. Maggos

commenced suit in the First Circuit Court in Hawaii against

Victor H. Bezman and E. Lawrence Helm, Jr., and their respective

firms, alleging fraud and professional negligence.    Mr. Helm, a

certified public accountant, and Mr. Bezman, an attorney, advised

Ms. Maggos on financial and tax matters, including the

disposition of her PCAB stock.    Mr. Helm had been Ms. Maggos'

personal accountant since at least 1960.

     Ms. Maggos died on September 3, 1996, and her daughter,

Catherine Maggos Adkins, was appointed special administrator of

Ms. Maggos' estate on October 24, 1996.    Ms. Maggos' last will
                               - 6 -


and testament bequeathed the $3 million promissory note to Nikita

Maggos.

                            Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials of phantom factual issues.

A decision on the merits of a taxpayer's claim can be made

through summary judgment "if the pleadings, answers to

interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law."   Rule 121(b).

Because summary judgment decides against a party before trial, we

grant such a remedy cautiously and sparingly, and only after

carefully ascertaining that the moving party has met all

requirements for summary adjudication.   Associated Press v.

United States, 326 U.S. 1, 6 (1945); P & X Mkts., Inc. v.

Commissioner, 106 T.C. 441, 443 (1996); Boyd Gaming Corp. v.

Commissioner, 106 T.C. 343, 346-347 (1996).

     The Court will not resolve disagreements over material

factual issues in a summary judgment proceeding.   A fact is

material if it "'tends to resolve any of the issues that have

been properly raised by the parties.'"   Boyd Gaming Corp. v.

Commissioner, supra at 347 (quoting 10A Wright et al., Federal

Practice and Procedure:   Civil, sec. 2725, at 93 (2d ed. 1983)).
                                - 7 -


The burden of proving the absence of any genuine issue of

material fact is on the moving party, and factual inferences are

viewed in the light most favorable to the nonmoving party.

United States v. Diebold, Inc., 369 U.S. 654, 655 (1962); Boyd

Gaming Corp. v. Commissioner, supra at 347; Kroh v. Commissioner,

98 T.C. 383, 390 (1992); Preece v. Commissioner, 95 T.C. 594, 597

(1990).

     Petitioner argues that its motion should be granted given

that it is indisputable that Ms. Maggos did not make a gift of

her stock to Nikita Maggos because she lacked a donative intent

when she sold her stock to PCAB.    We disagree.   Property

transferred by gift is subject to the Federal gift tax, sec.

2501(a); see also sec. 2511(a), and "Where property is

transferred for less than an adequate and full consideration in

money or money's worth, then the amount by which the value of the

property exceeded the value of the consideration shall be deemed

a gift", sec. 2512(b).    The transfers reached by the Federal gift

tax spans are not confined to those that would be termed "gifts"

under the common law.    Whereas a gift in the common law sense

requires a donative intent, delivery by the donor, and acceptance

by the donee, 38 Am. Jur. 2d, Gifts, sec. 18, at 820 (1968), a

gift for Federal gift tax purposes encompasses sales and other

exchanges of property in which the value of the property

transferred is more than the value of the consideration received.
                                 - 8 -


Sec. 25.2512-8, Gift Tax Regs.; see also Estate of Trenchard v.

Commissioner, T.C. Memo. 1995-121.       As stated by the Supreme

Court, the "Congress intended to use the term 'gifts' in its

broadest and most comprehensive sense" and "dispensed with the

test of 'donative intent'" in lieu of "a much more workable

external test, that where 'property is transferred for less than

an adequate and full consideration in money or money's worth,'

the excess in such money value 'shall, for purposes of the tax

imposed by this title, be deemed a gift'".       Commissioner v.

Wemyss, 324 U.S. 303, 306 (1945); see also Crown v. Commissioner,

585 F.2d 234, 238 (7th Cir. 1978), affg. 67 T.C. 1060 (1977).

The Federal gift tax provisions, however, do not reach all

transfers of property the value of which exceeds the

consideration received in exchange.      The Federal gift tax does

not attach to a transfer of property which is made in the

ordinary course of business.    Sec. 25.2512-8, Gift Tax Regs.      For

this purpose, a transfer is in the ordinary course of business

only when it is bona fide, at arm's length, and free from

donative intent.     Id.

       This and other Courts look to a number of factors to help

ascertain whether a transfer is a gift under section 25.2512-8,

Gift Tax Regs.     See Saltzman v. Commissioner, T.C. Memo. 1994-

641.    For example, disparities in value evidence a gift, Fehrs v.

United States, 223 Ct. Cl. 488, 620 F.2d 255 (1980); see Kincaid
                                - 9 -


v. United States, 682 F.2d 1220, 1224 (5th Cir. 1982), as does a

transfer that is made without an independent appraisal of the

underlying property, Bergeron v. Commissioner, T.C. Memo.

1986-587.   A gift also may arise from a transfer without an

arm's-length negotiation over the purchase price, see Righter v.

United States, 258 F. Supp. 763, 767-768 (W.D. Mo. 1966), revd.

and remanded on another issue 400 F.2d 344 (8th Cir. 1968), when

the effect of a transfer is to remove the donor from a business

that he or she created, Galluzzo v. Commissioner, T.C. Memo.

1981-733, or when the moving impulse for a transfer is the desire

to pass assets on to a family member, Robinette v. Helvering,

318 U.S. 184, 187-188 (1943).   Transfers between family members

are subject to strict scrutiny, and the presumption is that such

transfers are gifts.   Harwood v. Commissioner, 82 T.C. 239

(1984), affd. without published opinion 786 F.2d 1174 (9th Cir.

1986); Estate of Reynolds v. Commissioner, 55 T.C. 172, 201

(1970); Mercil v. Commissioner, 24 T.C. 1150, 1153 (1955); see

Muserlian v. Commissioner, 932 F.2d 109, 112 (2d Cir. 1991),

affg. T.C. Memo. 1989-493.

     Our review of the record in the light most favorable to the

nonmoving party (i.e., respondent) convinces us that genuine

issues as to material fact remain to be decided by the Court.

Petitioner claims that the record shows clearly that Ms. Maggos

was defrauded because she transferred her PCAB shares for less
                               - 10 -


than adequate consideration, or, alternatively, that Ms. Maggos

entered into a bad business deal when she agreed to the

redemption.   We disagree.   The mere fact that Ms. Maggos filed

two lawsuits against parties connected to the redemption is not

enough to persuade us that she was defrauded in connection with

the redemption, or that she entered into a bad business deal with

respect thereto.   Nor is it enough that Ms. Maggos received less

than fair market value for her shares.    Ms. Maggos sold her

shares to PCAB without an independent appraisal of PCAB's value,

and she bequeathed the promissory note to her son.    The value of

the note was substantially less than the value of her stock, and

the price for the stock was not set through arm's-length

negotiations.   The effect of Ms. Maggos' transfer was to remove

her from a family business that she helped build, passing total

ownership of the business to her family's next generation with a

conscious attempt on the part of Ms. Maggos to minimize the

payment of tax that would be due on the passage.    Bearing in mind

that Ms. Maggos also was astute enough to file a 1987 gift tax

return reporting a minimal gift, which, from a practical point of

view, served to start the running of the period of limitations

with respect to an assessment of a deficiency in gift tax for the

year of redemption, we simply do not believe that petitioner

prevails in this proceeding as a matter of law.    Inferences may

be drawn from the facts of this case which are consistent with
                              - 11 -


donative intent on the part of Ms. Maggos in effectuating the

redemption, as well as the absence of an arm's-length transaction

with respect thereto.   We defer our opinion on whether we will

draw these inferences until the conclusion of a trial, after we

have heard and viewed the persons connected with the redemption

as they testify to their understanding of the surrounding facts.

These witnesses, we are told, will include Ms. Maggos, whose

testimony has been preserved through a videotaped deposition.     We

will deny petitioner's motion.

     To reflect the foregoing,

                                         An appropriate order

                                    will be issued.
