Estate of Bodell v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 106353.

• Citation: 47 BTA 62
• Decision Date: 09 June 1942
• Docket Number: Docket No. 106353.
• Parties: ESTATE OF FREDERICK BODELL, JOSEPH J. BODELL, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

47 B.T.A. 62 (1942)

ESTATE OF FREDERICK BODELL, JOSEPH J. BODELL, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 106353.

Board of Tax Appeals.

Promulgated June 9, 1942.

Andrew P. Quinn, Esq., and Richard F. Canning, Esq., for the petitioner.

Davis Haskin, Esq., for the respondent.

This proceeding involves a deficiency of $15,381.98 in the estate tax of the estate of Frederick Bodell, deceased. There are two questions in issue: (1) Whether the proceeds in excess of $40,000 of certain life insurance policies on decedent's life are includable in his gross estate, and (2) the value at which certain shares of stock owned by decedent at the time of his death are to be included in his gross estate.

FINDINGS OF FACT.

Decedent died June 20, 1938, and was survived by his wife, Albina Elise Bodell. An estate tax return was timely filed by decedent's executor with the collector of internal revenue for the district of Rhode Island.

At the time of decedent's death there were in effect eight policies of insurance on his life amounting in the aggregate to $113,332, face amount, on account of which $120,260.07 was paid at decedent's death. Those policies were as follows:

(1) Policy No. 178772, Provident Mutual Life Insurance Co. of Philadelphia, was an endowment policy for $5,000 taken out by decedent October 31, 1911, payable to him on October 31, 1955, if living, otherwise to his mother, if living, otherwise to his estate. Decedent's wife was irrevocably named beneficiary, instead of his mother, on May 6, 1918.

(2) Policy No. 398704, Massachusetts Mutual Life Insurance Co., was an ordinary life policy for $10,000 taken out by decedent March 1, 1917. It was first made payable to decedent's mother, but on October 6, 1917, was made payable to decedent's wife if living at the time of his death, otherwise to decedent's estate. Decedent reserved the right to change the beneficiary at any time.

(3) Policy No. 393754, Provident Mutual Life Insurance Co. of Philadelphia, was an endowment policy for $5,000 taken out by decedent in 1921 and made payable to decedent on November 28, 1955, if living, or upon his death prior to that date payable to his wife, if living, otherwise to his estate.

(4) and (5) Policies Nos. 855005 and 855006, John Hancock Mutual Life Insurance Co., were ordinary life policies for $15,000 and $10,000, respectively, taken out by decedent on February 8, 1922, and made payable to his wife, if living, otherwise to decedent's estate.

(6) and (7) Policies Nos. 3,135,830 and 3,135,831, Equitable Life Assurance Society of the United States, were ordinary life policies for $30,758 and $12,574, respectively, taken out by decedent on March 22, 1923, and made payable to decedent's wife, if living at the time of his death, otherwise to his estate.

(8) Policy No. 501,258, Fidelity Mutual Life Insurance Co., was an endowment policy for $25,000 taken out by decedent on March 4, 1933, and made payable to decedent if living at maturity (1971), or upon his death prior to the maturity date to his wife, if living, otherwise to his estate.

The decedent paid all of the premiums on all of the above policies.

Petitioner did not report any of the proceeds of the above described insurance policies in the decedent's estate tax return. The respondent included $120,350.07 in the gross estate as the amount paid on the policies, less an exclusion of $40,000, or a net of $80,350.07.

At the date of his death the decedent was the owner of 2,375 shares of common stock of the James Hanley Co., which was included in his estate tax return at a value of $25 a share, or $59,375. In determining the deficiency herein the respondent valued the stock at $29.625 a share, or $70,359.38.

The James Hanley Co. was a brewing company organized in 1934. Its original issue of securities was underwritten by Bodell & Co., a partnership of which decedent and his brother were members. The partnership continued active trading in the securities and at the time of decedent's death the partnership, as well as individual members of the Bodell family, owned a large number of shares of the stock. From June 1938 to June 1939, inclusive, Bodell & Co. purchased 4,953 shares of common stock and sold 4,832 shares at prices ranging from $28.50 to $31.75 per share. During the month of June 1938, the month of decedent's death, 705 shares were purchased and 512 shares were sold by Bodell & Co., the lowest price being $28.50 and the highest $29.50.

Another brokerage firm in Providence, Rhode Island, Barret & Co., also dealt in the James Hanley Co. stock. It purchased 55 shares on June 10, 1938, at $29, 25 shares on June 21, 1938, at $30, and 160 shares on June 23, 1938, at $29.50. From June 20, 1938, to June 20, 1939, it purchased 3,397 shares at prices ranging from $29 to $30.50 a share. In January 1936 the stock sold as low as $3.75 a share. In April 1937 it sold as high as $39.50 a share. It broke to about $25 a share in September 1939, when the general manager, who was retiring from the company, offered a large block of shares for sale, and in December 1939 sold as low as $22.50 a share.

The James Hanley Co. stock was never listed on any stock exchange, but was traded in by a number of brokers in over-the-counter transactions. Practically all purchases and sales of the stock were made through these brokers. There was usually a margin of from $1 to $2 between the prices which the brokers paid for the stock and the prices at which they sold it to the public.

According to the company's stock book records, approximately 11,600 shares were transferred during the period June 20, 1938, to June 20, 1939. There were 110,000 shares of the common stock of a par value of $5 each authorized and outstanding on June 20, 1938, and some 7 percent debentures, but no preferred stock. In the latter part of 1938 the debentures were retired and preferred shares were issued. A dividend of $2 a share was paid on the common shares in 1938.

The fair market value of the 2,375 shares of common stock of the James Hanley Co. which were owned by the decedent at the time of his death was $28 a share.

OPINION.

SMITH:

The first question for our determination is what portion of the proceeds of the above described insurance policies on decedent's life in excess of $40,000 is includible in his gross estate for estate tax purposes. Section 302 of the Revenue Act of 1926, as amended by section 404 of the 1934 Act, reads in part as follows:

SEC. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside the United States — (a) To the extent of the interest therein of the decedent at the time of his death;

* * * * * * *

(g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life.

(h) Except as otherwise specifically provided therein subdivisions (b), (c), (d), (e), (f) and (g) of this section shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relinquished before or after the enactment of this Act.

Of the eight policies listed above, three were endowment policies which were payable to decedent at maturity. If the decedent should die before maturity the named beneficiary was to receive the proceeds. All of the other policies were ordinary life policies, with the proceeds payable to decedent's wife if living at the time of his death, otherwise to his estate. Decedent specifically reserved the right to change the beneficiary in only one of the policies. All of the policies were taken out by the decedent and the premiums were all paid by him. Two of them were taken out before February 14, 1919, the effective date of the Revenue Act of 1918, which was the first revenue act to...