Estate of Levenson v. C.I.R., 061159 FEDTAX, 69569

Docket Nº:69569.
Opinion Judge:LeMIRE, Judge:
Party Name:ESTATE OF DAVID J. LEVENSON, DECEASED, ROBERT L. LEVENSON, DONALD W. LEVENSON, EDGAR LEO LEVENSON AND FIDELITY TRUST COMPANY, EXECUTORS, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Louis Caplan, Esq., for the petitioners. Gerald Backer, Esq., for the respondent.
Case Date:June 11, 1959
Court:United States Tax Court
 
FREE EXCERPT

18 T.C.M. (CCH) 535 (1959)

T.C. Memo. 1959-120

ESTATE OF DAVID J. LEVENSON, DECEASED, ROBERT L. LEVENSON, DONALD W. LEVENSON, EDGAR LEO LEVENSON AND FIDELITY TRUST COMPANY, EXECUTORS, Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 69569.

United States Tax Court.

June 11, 1959

Louis Caplan, Esq., for the petitioners.

Gerald Backer, Esq., for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION.

LeMIRE, Judge:

The Commissioner determined a deficiency of $22,369.15 in estate tax.

The sole question presented is the value on April 2, 1953, of 155 shares of the capital stock of Retail Furniture Stores, Inc.

FINDINGS OF FACT.

The stipulated facts are found.

The decedent died at Pittsburgh, Pennsylvania, on April 2, 1953. The decedent's Federal estate tax return was filed with the district director of internal revenue at Pittsburgh, Pennsylvania.

The date for fixing the value in this case in the date of death, April 2, 1953.

The property, the value of which is in controversy, is 155 shares of the capital stock of Retail Furniture Stores, Inc., a West Virginia company incorporated in 1936. Its business office is in Whelling, West Virginia. The only activity of this company is the holding of stock in an operating company called Reichart Furniture Company. Retail Furniture Stores, Inc. will be hereinafter referred to as ‘ Retail’ and Reichart Furniture Company will be referred to as ‘ Reichart (W. Va.)’ .

The capital stock of Retail consisted of 2,400 authorized and outstanding shares of a par value of $25 at the decedent's death. It has not been listed or traded at any stock exchange. There were no sales of the stock of Retail on the day the decedent died, since then, or for five years prior thereto.

At the time of the decident's death he was president of Retail, his son, Robert, was vice-president, and his son, Donald, was treasurer. The secretary was J. M. Nycum, who was not a stockholder.

The decedent's wife and three sons owned, in the aggregate, 1,475 shares of Retail on April 2, 1953. In addition, relatives of the decedent's wife on that day owned 406 shares of Retail. The remaining 364 shares were owned by Willa P. Guckert, who was not related to the decedent or his wife, but was the daughter of a Pittsburgh banker who was a friend of the decedent.

On April 2, 1953, Retail owned 600 shares of the capital stock of Reichart (W. Va.). It was a West Virginia corporation engaged in the retail installment sale of furniture and electrical applicances through stores located at Wheeling, West Virginia, and Washington, Pennsylvania. The authorized capital stock of Reichart (W. Va.) on April 2, 1953, consisted of 1,500 shares of a par value of $100 per share, of which 800 were outstanding and 200 were held in the treasury. The 200 shares outstanding, which were not owned by Retail, were divided equally among parties who had no relationship to the decedent.

The decedent was not an officer in Reichart (W. Va.), but his sons, Robert, Edgar, and Donald, were president, vice-president, and treasurer, respectively.

On April 2, 1953, Reichart (W. Va.) owned all of the authorized capital stock of Reichart's, Inc., which consisted of 250 shares with a par value of $100 per share; all of the authorized capital stock of Bertschy Furniture Company, which consisted of 500 shares with a par value of $50 per share; and 210 of the shares of Reichart Furniture Company, hereinafter called ‘ Reichart (Ohio)’, which had an authorized capital stock of 500 shares, with a par value of $100 per share, only 350 of which were outstanding and 140 of which were owned by a relative of the decedent's wife.

On April 2, 1953, Reichart's, Inc., Bertschy and Reichart (Ohio) all were engaged in the retail installment sale of furniture, Reichart's, Inc. was located at Martins Ferry, Ohio, Bertschy at Wheeling, West Virginia, and Reichart (Ohio) at Youngstown, Ohio.

The decedent had been engaged in the retail furniture business and the manufacture of furniture for many years prior to his death. He organized Reichart (W. Va.) in 1919 or 1920. He was so well known in the furniture industry that his advice was widely sought. He was considered to be a part of the ‘ old guard’ of that industry. The decedent; in 1936, received the Cavalier national award for outstanding and meritorious service to the entire furniture industry.

The decedent became ill in January 1953. Prior to that time he had been active in the operation and supervision of the business. He consulted on purchases, composed ‘ ads' and ‘ mailing pieces,’ ‘ took care of personnel problems' including union negotiations and purchased the trucks.

The business employed about 300 people at the time of the decedent's death. Each retail store had a branch manager. Their salaries varied from $6,000 to $15,000 a year. The decedent's sons, Robert, Donald, and Edgar, each owned 240 shares of Retail and were actively engaged in the business at the time of the decedent's death. All three sons were college trained. Their age, the year when they entered the business, and the corporate offices they held on April 2, 1953, were as follows:

Robert 37 years 1937 Vice-President

Retail

Pres. Reichart

(W. Va.)

Pres. Bertschy

Pres. Reichart's,

Inc.

Vice-President

Reichart (Ohio)

Edgar 30 years 1945 Vice Pres.

Reichart

(W. Va.)

Treas. Reichart's

Inc.

Donald 33 years 1947 Vice Pres. Retail

Treas. Reichart

(W. Va.)

Treas. Bertschy

Vice Pres.

Reichart's Inc.

The decedent was not an officer of Reichart (W. Va.), the leading retail sales outlet of the business, nor was he an officer of Reichart's, Inc., or Reichart (Ohio). Reichart (W. Va.) paid its officers $53,000 in salaries in 1952, and Reichart (Ohio) paid its officers $17,000 in salaries in that year. The decedent resided in Pittsburgh. He visited the stores in Wheeling, West Virginia, 62 miles distant, at least twice a week and at the same time he would also visit the stores in Washington, Pennsylvania, and Martins Ferry, Ohio. The decedent, his sons, and the branch managers of the stores attended the furniture markets, including the Chicago Furniture Market. These semi-annual markets were the meeting ground for the manufactures of furniture and the retail merchants and their salesmen. The actual purchasing was made by the decedent's sons and the branch managers after they had consulted and discussed the matter with the decedent. The following is a balance sheet of Retail at April 2, 1953:

Cash (Wheeling) $ 1,635.77

(Pittsburgh) 16,651.64 $ 18,289.41

____--

Notes, Reg. D.J. Levenson 5,871.16

1 1/2% U.S. Treasury Notes ($75,000 par

due 3/15/55) 73,804.69

Reichart Furniture Co. 100,000.00

Miscellaneous Assets 435.74

Capital Stock $ 60,000.00

Surplus earned 44,864.77

Paid in 5,000.00

Capital surplus (in liquidation

of Standard of Pittsburgh) 88,534.23

______ ______

$198,399.00 $198,399.00

The following is the balance sheet of Reichart (W. Va.) at December 31, 1952:

Assets

Cash $ 133,809.06

Accounts Receivable:

Installment $1,524,565.89

Other 94,353.77 1,618,919.66

______- ______-

Merchandise Inventory 507,539.67

Investment, U.S. Government Obligations 503,100.00

Investment, Corporate Stocks Bertschy,

Reicharts, Inc. and Reichart's (Ohio) 84,012.50

Capital Assets:

Buildings $ 290,907.52

Fixtures & Equipment 92,366.18

______-

383,273.70

Less: Reserve for Depreciation 218,972.51 164,301.19

______-

Land 71,850.00

Deferred Charges 37,138.21

______-

$3,120,670.29

Liabilities

Accounts Payable $ 137,902.98

Accrued Taxes 191,417.93

Customers Deposits 8,071.88

Reserves Unrealized Gross Profit $ 627,909.27

Reserves Rebuilding 3,458.85 631,368.12

______-

Common Stock

Common-1,000 shares 100,000.00

Earned Surplus 2,126,909.38

______-

2,226,909.38

Treasury Stock-200 shares 75,000.00 2,151,909.38

______-

$3,120,670.29

The following is the balance sheet of Bertschy at December 31, 1952:

The following is the balance sheet of Bertschy at December 31, 1952:

Assets

Cash $ 63,301.71

Accounts Receivable 206,508.78

Inventory 50,134.19

U.S. Government Obligations

(50 U.S. Treasury Notes) 50,000.00

Furniture and Fixtures $1,975.04

Trucks 2,808.66

______-

Total Depreciable Assets $4,783.70

Less: Reserve for Depreciation 1,817.68 2,966.02

______-

Accrued interest 1,120.00

Due from Affiliated
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