Campbell's Estate v. Kavanagh, 12221.

• Decision Date: 15 September 1953
• Docket Number: No. 12221.,12221.
• Citation: 114 F. Supp. 780
• Parties: CAMPBELL'S ESTATE et al. v. KAVANAGH, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Michigan

114 F. Supp. 780

CAMPBELL'S ESTATE et al. v. KAVANAGH, Collector of Internal Revenue.

No. 12221.

United States District Court E. D. Michigan, S. D.

September 15, 1953.

George L. Cassidy, William Loud, Detroit, Mich., for plaintiffs.

Fred W. Kaess, U. S. Dist. Atty., Detroit, Mich., Lester L. Gibson, Asst. Atty. Gen., for defendant.

PICARD, District Judge.

This is an action brought by plaintiffs, executors of the Estate of Wilfred W. Campbell, deceased, to recover monies collected by defendant, Collector of Internal Revenue, as an alleged deficiency in estate taxes.

Decedent died at Detroit, Michigan, December 6, 1947. In the estate's return, plaintiffs included 400 common stock shares, Boyer-Campbell Company, owned by decedent, at a value of $149 per share and excluded therefrom the value of 880 shares of said stock which decedent had given his wife, son, and daughter, December 27, 1935.

The Commissioner of Internal Revenue determined a deficiency in estate taxes on two grounds: (1) That the block of 400 shares should have been valued at $175 per share, and (2) that the gift of 880 shares should have been included in the gross estate as a gift made in contemplation of death.

As To the 400 Shares

On the question of proper valuation of the block of 400 shares for estate tax purposes, the parties have stipulated to the following facts:

1. "The stock of Boyer-Campbell Company is not listed on any stock exchange and is not traded-in on an over-the-counter basis. At the time of decedent's death there were 3,090 shares of said stock issued and outstanding, and his immediate family owned approximately 40% thereof, the remainder being largely owned by his two business associates, neither of whom had controlling interest."

2. "If four hundred or more of said shares had been the subject of a public offering on December 6, 1947, they could have been so marketed successfully at $175.00 per share."

3. "The sale of said shares through brokers at a public offering would have given rise to underwriting and distribution costs of about $26.00 per share."

4. "Costs of underwriting and distribution are recognized as ordinary and usual expenses to sellers in instances of exchange or sale of stock through brokers."

The issue is whether the amount it would have cost to sell said stock is deductible in determining its fair market value at the time of decedent's death.

Treasury Regulation 105, § 81.10, provides in this connection that:

"The value of every item of property includible to the gross estate is the fair market value thereof at the time of the decedent's death; or, if the executor elects in accordance with the provisions of section 81.11, it is the fair market value thereof at the date therein prescribed or such value adjusted as therein set forth. The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell. The fair market value of a particular kind of property includible in the gross estate is not to be determined by a forced sale price. Such value is to be determined by ascertaining as a basis the fair market value as of the applicable valuation date of each unit of the property. For example, in the case of shares of stock or bonds, such unit of property is a share or a bond. All relevant facts and elements of value as of the applicable valuation date should be considered in every case." (Emphasis ours.)

It appears that the courts are not in harmony on this question, chiefly because each case seemingly presents different equities. In Groff v. Munford, 2 Cir., 150 F. 2d 825, the court took the mean market price of the stock exchange and deducted the $2 broker's fee. But we have no stock exchange price here.

In Re Estate of Bodell, 47 B.T.A. 62, 67, plaintiffs' contention is upheld to the extent that the value of the stock is what "decedent's estate would have been able to realize from the sale * * *. But here again under practically the same state of facts the broker's fee was set at one or two dollars.

In Estate of Munroe v. Commissioner, decided March 6, 1946 (1946 P-H T.C. Memorandum Decisions, par. 46,050 at p. 113) the court took just the opposite view and stated:

"The expense, tax, and gain (or loss) upon a possible exchange or sale of stock have never been regarded as proper reductions in valuing the shares."

We place emphasis on the word "possible."

See also Estate of Lunken v. Commissioner, decided June 11, 1945, (1945 P-H T.C. Memorandum Decisions, par. 45,203); Havemeyer v. United States, 59 F.Supp. 537, 103 Ct.Cl. 564.

We cannot follow any of these alleged authorities in toto if, as we are instructed by the Regulations, we must consider "all relevant facts and elements of value as of the applicable valuation date * * *". Among these are:

(a) Boyer-Campbell Company was a closed corporation. No outsiders would have been able to buy any of its stock. In 1945, the corporation was offered a very high price to sell out but refused and only a few select employees ever could get in. Stockholders not on salary usually want dividends;

(b) The stock was never offered for sale and, of course, never sold;

(c) The $175 value placed on the stock by stipulation was too low but in the absence of more definite information this price probably should be accepted by the court;

(d) The cost of selling that particular stock as agreed upon in the stipulation ($26 per share) is ridiculous. It would seem that both the government and the petitioners had in mind the floating of some bond or stock issue of uncertain quality and involving many other difficulties. None of the cases cited place any such "cost" upon the sale of this type of stock. Undoubtedly part of the stock or all could have been sold to some employee if the employee was a "willing buyer" and the estate was a "willing seller;" without any cost;

(e) The regulation provides that the "value is to be determined by ascertaining as a basis the fair market value as of the applicable valuation date * * *." It does not specify that costs of sale should be deducted, particularly when, as in this case, the estate never intended to offer it for sale under any circumstances;

(f) No great elucidation was given this court as to the basis for either the $175 market price or the $26 selling costs; and

(g) The book value, earning power, and management.

Taking into consideration all the relevant facts, we conclude that we will accept the stipulated market price of $175 per share, without permitting any deduction for "selling costs" for the reasons above stated, particularly the fact that the stock was not sold and, in the opinion of this court, it was never intended that it should ever be put up for sale.

As to the 880 Shares

Were the 880 shares of stock given by decedent to his wife, son, and daughter on December 27, 1935, properly excluded from his gross estate by plaintiffs, or should said stock have been included on the ground that the gifts were made "in contemplation of death" within the meaning of the Internal Revenue Code, Section 811(c)(1)(A), 26 U.S.C.A.?

U. S. Treasury Regulation 105, Sec. 81.16, provides:

"Transfers in contemplation of death made by the decedent after September 8, 1916, other than bona

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