Estate of Stooddard v. C.I.R., 063075 FEDTAX, 3797-73

Docket Nº:3797-73.
Opinion Judge:DRENNEN, Judge:
Party Name:ESTATE OF HARRY G. STODDARD, deceased, ROBERT W. STODDARD AND PARIS FLETCHER, CO-EXECUTORS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Phillips S. Davis and Carl J. Marold, for the petitioners. Barry J. Laterman, for the respondent.
Case Date:June 30, 1975
Court:United States Tax Court
 
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34 T.C.M. (CCH) 888 (1975)

T.C. Memo. 1975-207

ESTATE OF HARRY G. STODDARD, deceased, ROBERT W. STODDARD AND PARIS FLETCHER, CO-EXECUTORS, Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 3797-73.

United States Tax Court

June 30, 1975

Value of stock representing a 20-percent interest in a closely held newspaper corporation whose stock was not publicly traded determined for estate tax purposes.

Phillips S. Davis and Carl J. Marold, for the petitioners.

Barry J. Laterman, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION.

DRENNEN, Judge:

Respondent determined a deficiency of $854,668.40 in the Federal estate tax due from the estate of Harry G. Stoddard. The only issue for decision concerns the value of 30,000 shares of common stock in Worcester Telegram & Gazette, Inc., owned by decedent at the time of his death.

FINDINGS OF FACT

The parties have stipulated to some facts, which we find accordingly.

Harry G. Stoddard died May 21, 1969, a resident of Worcester, Mass. Petitioners Robert W. Stoddard and Paris Fletcher are the executors of the estate; at the time of filing of the petition herein, their address was in Worcester, Mass.

On or about August 17, 1970, petitioners filed a Federal estate tax return for decedent's estate with the district director of internal revenue in Boston, Mass., electing the alternate valuation date, May 21, 1970, as the date of valuation of the estate's assets.

Decedent died owning 30,000 common shares in the Worcester Telegram & Gazette, Inc. (hereinafter the ‘ company’ ), representing 20 percent of the 150,000 shares of the only class of stock outstanding on May 21, 1970.

The company, incorporated in 1925 under the laws of Massachusetts, is and was on May 21, 1970, engaged in publishing newspapers and operating a radio station, in Worcester, Mass. There have been no sales of shares in the company since its incorporation. The company's stock is not registered for public sale.

The company publishes the Worcester Telegram, a morning newspaper (daily and Sunday), and the Worcester Gazette, an evening paper (daily except Sunday). Both papers are published in, and their coverage is limited principally to, Worcester County. The radio station, also in Worcester, broadcasts with 5,000 watts of power on the AM band and is affiliated with the National Broadcasting Co. network. In 1968 the company acquired two smaller daily newspapers, the Marlboro Enterprise in Marlborough, Mass., and the Hudson Daily Sun, in Hudson, Mass., which are published through a subsidiary corporation, Enterprise-Sun, Inc. The enterprise and Sun, with a combined circulation of about 8,500, were purchased by the company for an aggregate price of $425,000, or about $50 per subscriber.

The company's history indicates stability. Circulation of the Worcester Telegram, Evening Gazette, and Sunday Telegram during 1965 through 1969 was as follows:

Worcester The Evening Sunday

Year Telegram Gazette Telegram

1965 60,954 94,844 105,838

1966 62,932 95,275 109,529

1967 62,185 94,901 108,376

1968 62,153 94,463 108,685

1969 61,979 94,296 107,206

The company's net profit from operations for the years 1965 through 1969 may be summarized as follows:

Net Net Profit Dividend

Year Profit[1] Per Share Share

1965 $628,789.21[2] $4.19 $2.00

1966 722,214.92[2] 4.81 2.00

1967 428,288.00 2.86 2.00

1968 697,577.00 4.65 2.00

1969 527,061.00[3] 3.51[1] 2.00

1970 504,141.00 3.36 N.A.

At the same time, prospects for growth in circulation have not been good, as the market to the east of Worcester County is dominated by large Boston newspapers seeking to expand their own circulations westward. Indeed, the company made its acquisition of Marlboro Enterprise and the Hudson Daily Sun largely for defensive purposes, to consolidate its position against encroachment by the Boston newspapers. The net book value of the company's stock at the end of 1969 was $7,023,244.42, or $46.82 per share. On May 31, 1970, the net book value was $6,701,130, or $44.67 per share. The company's balance sheet (certified) as of December 31, 1969, was as follows:

ASSETS

Current Assets:

Cash in banks and on hand $420,213.95

U.S. government securities, at cost

(market value - $1,095,125.00) 1,145,088.91

Accounts receivable $1,394,778.95

Less: Allowance for doubtful

accounts $12,500.00

Reserve for allowance and

discounts 109,331.68 121,831.68 1,272,947.27

Accrued interest receivable on investments 16,923.00

Notes receivable - employees 31,975.68

Inventories - at lower of cost or market 281,778.32

Prepaid expenses 38,125.62

Total Current Assets 3,207,052.75

Investment in and Advances to Wholly-Owned

Subsidiary, Enterprise-Sun Inc.: (note 1)

Investment in capital stock, at cost 425,000.00

Advances 180,701.55 605,701.55

Other Investments, at cost (not in excess

of market) 61,299.50

Cash Value of Life Insurance 174,630.86

Property, Plant and Equipment: (note 2)

Accumulated

Cost Depreciation Net

Land $ 1,097,300.89 $1,097,300.89

Buildings 4,303,813.32 $1,861,834.76 2,441,978.56

Machinery and

equipment 3,919,743.52 1,587,916.33 2,331,827.19

Office furniture

and fixtures 404,399.63 138,519.49 265,880.14

Factory furniture

and fixtures 23,794.83 6,345.28 17,449.55

Automobiles 190,927.10 86,051.95 104,875.15

Type metal 88,263.76 40,289.36 47,974.40

Morgue 50,141.50 37,641.50 12,500.00

New construction

and equipment

(in progress) 23,209.30 23,209.30

$10,101,593.85 $3,758,598.67 6,342,995.18

TOTAL ASSETS $10,391,609.84[4]

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable:

Trade creditors $312,232.60

Employee payroll deductions 105,172.86

Newsdealers deposits 610.60 $ 418,015.96

Accrued expenses:

Vacation pay 218,930.58

Salaries and wages 61,717.84

Commissions payable 12,295.35

Miscellaneous 813.88 293,757.65

Accrued taxes:

Payroll taxes 21,118.70

State corporation excise tax 19,621.81

Federal income tax 102,396.39 143,136.90

Current maturities on long-term debt 28,000.00

Total Current Liabilities 882,910.51

Long-term Debt: (note 3)

Mortgage note payable 210,000.00

Less: Current maturities 28,000.00 182,000.00

Deferred Income:

Unearned subscriptions 61,843.46

Stockholders' Equity:

Capital stock, common, $10 par

150,000 shares authorized, issued

and outstanding 1,500,000.00

Retained earnings:

Unappropriated $5,523,244.42

Appropriated for retirement

benefits (note 4) 2,241,611.45 7,764.855.87

Total Stockholders'

Equity 9,264.855.87

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,391,609.84

The company's balance sheet (uncertified) as of May 31, 1970, was as follows:

Assets

Current Assets $ 3,451,552

Other Assets

Cash Surrender Value of

Life Insurance $ 174,631

Miscellaneous Investments 61,229 235,860

Fixed Assets (less

depreciation) 6,885,922

Total Assets $10,573,334

Liabilities and Capital

Current Liabilities 1,347,736

Mortgage and Notes Payable

(not currently due) 282,857

Long-Term Liabilities

Past Service Pension

Liability - Insured

Program 757,163

Accrued Pension Liability -

Uninsured Program 1,484,448 2,241,611

Capital Stock and Surplus

Capital Stock 1,500,000

Surplus 5,201,130 6,701,130

Total Liabilities and Capital $10,573,334

Both the Telegram and the Gazette are edited and published in the company's plant in downtown Worcester, which also houses the studios and administrative offices of the radio station. The buildings are about 50 years old, but in good repair. Most of the company's printing is done with the ‘ hot type’...

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