De Goldschmidt-Rothschild v. Commissioner

Marie-Anne de Goldschmidt-Rothschild (plaintiff) was a French citizen who entered the United States as a temporary visitor. Goldschmidt-Rothschild’s cousin, Alexander Van Marx, lived in New York City and worked in finance. Van Marx encouraged Goldschmidt-Rothschild to transfer a large portion of her assets into two trusts for the benefit of her two children. Goldschmidt-Rothschild accepted the advice, creating two trusts with an aggregate principal of nearly $200,000 and designating the Fiduciary Trust Company, of which Van Marx was an employee, as trustee. Van Marx introduced Goldschmidt-Rothschild to a trust officer who advised her that she could avoid the federal gift tax by converting her assets to United States bonds or Treasury notes and placing them in the trusts. [Editor’s Note: This provision has since been repealed.] Goldschmidt-Rothschild agreed to the plan. On several occasions over the next few months, Fiduciary Trust sold the Treasury notes and reinvested the proceeds in stocks to diversify investments and generate trust income. The commissioner of the Internal Revenue Service (IRS) (defendant) assessed a deficiency, determining that the property transferred did not qualify for exemption from the gift tax. Goldschmidt-Rothschild challenged the deficiency in the United States Tax Court, which ruled in favor of the IRS. Goldschmidt-Rothschild appealed to the United States Court of Appeals for the Second Circuit.