The Stinson family (Lavonna Stinson and her five children and two grandchildren) formed a family corporation, Stinson, Inc. Stinson sold 267 acres of farmland to the corporation for $398,000, to be paid off over 20 years in monthly payments of $2,800. The children and grandchildren transferred 160 acres of farmland to the corporation for 600 shares of stock. Lavonna was never a shareholder in the corporation.

Between 1982 and 1985, Lavonna forgave $147,000 of the corporation’s debt, but she did not report this on gift tax returns because she thought the forgiveness would qualify for the annual exclusion of $10,000 per donee. However, the IRS, upon her death, asserted that the gifts were not of a present interest to the donee’s and therefore did not qualify for the annual exclusion. The estate paid the resulting deficiency and filed a refund claim.

Both the district court and the Seventh Circuit agreed with the IRS. According to the Seventh Circuit, because the shareholders could not individually realize the benefit of the gifts without the consent of the majority of the corporation’s board of directors, the gifts are gifts of a future interest.