Davies v. Commissioner

British citizen Geoffrey Davies (plaintiff) lived in Hawaii on a large property known as Craigside. The property was owned by Geoffrey’s father, T. Clive Davies. Clive wished to convey Craigside to Geoffrey. Craigside had an agreed-upon fair market value of $88,500. Clive and Geoffrey agreed that Clive would sell Craigside to Geoffrey for $74,500, plus a down payment of £5,000, and that the sale would be secured by a mortgage. Geoffrey expressed doubts about his ability to pay, and the two agreed that Clive would deposit £5,000 into Geoffrey’s account in England so that Geoffrey could cover the down payment. A deed and mortgage were executed, and the outstanding balance was noted as being £26,500. Over the next few months, despite there being no formal plan to make Craigside an unofficial gift, Clive made a series of deposits (most in the amount of £5,000) into Geoffrey’s account in England, each deposit large enough for Geoffrey to cover the monthly mortgage payment. The £26,500 was fully paid off in this manner, and the mortgage was released. Following Clive’s death, the transaction was included in the British estate tax return as a £26,000 gift. However, the United States Internal Revenue Service commissioner (defendant) assessed a gift-tax deficiency, reasoning that Clive had conveyed to Geoffrey a gift worth $88,500, which was taxable in the United States due to the location of the property. Geoffrey challenged this assessment in the United States Tax Court.