2 T.C. 702 (1943), 111881, McCann v. C. I. R.

Docket Nº:111881.
Citation:2 T.C. 702
Opinion Judge:STERNHAGEN, Judge:
Party Name:HARRISON K. MCCANN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Attorney:William W. Nottingham, Esq., for the petitioner. Francis S. Gettle, Esq., for the respondent.
Case Date:September 17, 1943
Court:United States Tax Court
 
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Page 702

2 T.C. 702 (1943)

HARRISON K. MCCANN, PETITIONER,

v.

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

No. 111881.

United States Tax Court.

September 17, 1943

The value of a gift from one employee to another of corporate shares carrying bylaw restrictions permitting them to be held only by employees, requiring that upon termination of the employment they should be sold to the corporation, which was required to purchase them at a defined book value, and the assignment of which shares from one employee to another was prohibited by the certificate of incorporation except with special permission of the board of directors, held limited by reason of the restrictions to such book value.

William W. Nottingham, Esq., for the petitioner.

Francis S. Gettle, Esq., for the respondent.

OPINION

STERNHAGEN, Judge:

The Commissioner determined a deficiency of $15,814.55 in gift tax for 1939, by increasing the valuation of 2,500 shares of class B stock of McCann-Erickson, Inc., from $89,887.50, as returned by the taxpayer, to $219,400, ‘ after consideration of the provisions of the charter and bylaws of the corporation pertaining to class B preferred stock, net worth, earning power, dividend-paying capacity, and all other relevant facts and elements of value. ‘ The facts are all stipulated, in addition to which the respondent offered the opinion of one witness.

The primary ground upon which the taxpayer assails the Commissioner's determination of value is that the determination fails to treat the restriction upon the class B shares as a factor of valuation the recognition of which fixes the value at a book value figure of $36.5485 per share. Both parties agree that this figure of $36.5485 is the correct figure, if book value, as defined in the bylaw, is properly to be used in determining the value of the gift for tax purposes.

The taxpayer, a resident of New York, filed a 1939 gift tax return in the third district of New York. On November 27, 1939, he transferred to his wife by gift 2,500 shares of the class B stock of McCann-Erickson, Inc., an advertising agency. Both donor and donee were employed by the corporation. The class B shares were what petitioner calls incentive shares which were issued by the corporation only to employees. A bylaw restriction printed on the face of the certificate permitted only employees to hold such shares, required that...

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