Gift Taxes-Interest-Free Demand Loans Are Not Taxable Gifts-Johnson v. United States

Over a period of several years, taxpayer transferred substantial amounts of money to his adult son as loans that were repayable on demand and did not bear interest. The Commissioner of Internal Revenue assessed and collected gift taxes on the theory that taxpayer had made gifts to his son of the use of the money loaned. The value of the gift was asserted to be 3½ per cent of the average unpaid balance as of the end of each of the taxable years involved. In a suit to recover the gift taxes paid, the Federal District Court for the Northern District of Texas held for the taxpayer. An interest-free loan repayable on demand does not constitute a gift of the value of the use of the money loaned.