Gift-tax liability is not a deductible burden in valuing gifted property when it arises only after the gift is complete.

Deduction in valuing gifted property is limited to liabilities or encumbrances existing before the gift takes effect. A gift-tax liability arises only after completion of the gift, and the statutory primary liability rests on the donor; an agreement under which the donee undertakes to pay that tax does not turn the contingent tax burden into a pre-existing charge on the property. Authorities dealing with antecedent liabilities or charges were therefore distinguishable. On that basis, gift-tax liability was not an allowable deduction in determining the value of the gifted property.

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Issues: Whether gift-tax liability undertaken by the donee could be treated as a deductible liability while determining the value of the gifted property.

Analysis: Deduction in valuing gifted property is confined to a liability or encumbrance existing before the gift takes effect. A gift-tax liability arises only as a consequence of a completed gift and, under the statutory scheme, the primary liability is on the donor, with the tax becoming a charge only after the gift is complete. An agreement between donor and donee by which the donee undertakes to pay the tax does not convert that contingent statutory liability into a pre-existing burden on the gifted property. The authorities relied on for the assessee concerned liabilities or charges anterior to the gift, and were therefore distinguishable.

Conclusion: Gift-tax liability was not an allowable deduction in determining the value of the gifted property, and the assessee's claim failed.

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