MacDonald v. Comm'r of Internal Revenue (In re Estate of Joslyn)
| Decision Date | 09 March 1972 |
| Docket Number | Docket No. 5591-67. |
| Citation | 57 T.C. 722 |
| Parties | ESTATE OF MARCELLUS L. JOSLYN, ROBERT D. MacDONALD, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Malcolm George Smith, for the petitioner.
Allan D. Teplinsky and Norman H. McNeil, for the respondent.
The estate incurred expenses in selling stock in a secondary offering. In computing the value of the stock for inclusion in the gross estate, the respondent ascertained the mean between the high and low selling prices of stock at the date of death and reduced the value so ascertained by the expenses incurred in the secondary offering. Held, since the expenses of selling the stock were taken into consideration in computing the value of the gross estate, the petitioner may not also deduct them as expenses of administration under sec. 2053(a)(2), I.R.C. 1954.
The respondent determined a deficiency in the Federal estate tax of the Estate of Marcellus L. Joslyn in the amount of $150,710.74. A number of issues have been settled; the issue remaining for decision is whether certain expenses incurred in connection with the sale of stock, having been allowed as a reduction in the value of the stock to be included in the gross estate, are also deductible as expenses of administration under section 2053 of the Internal Revenue Code of 1954.1
Some of the facts have been stipulated, and those facts are so found.
Marcellus L. Joslyn (the decedent), a widower, died testate a resident of California on June 30, 1963. The petitioner, the Estate of Marcellus L. Joslyn, Robert D. MacDonald, executor, maintained its office in Santa Monica, Calif., at the time of filing its petition in this case. A Federal estate tax return for Marcellus L. Joslyn's estate was filed with the district director of internal revenue, Los Angeles, Calif.
On the date of his death, the decedent owned 66,099 shares of the common stock of Joslyn Mfg. & Supply Co. (the Joslyn stock). During the course of its administration, the estate was involved in certain costly litigation concerning the admissibility to probate and the validity of the decedent's will. As a result thereof, the estate incurred substantial extraordinary executor's and attorney's fees. In order to pay such fees and the balance of Federal and State taxes, it was necessary to sell assets of the estate, and a portion of the Joslyn stock held by the petitioner was selected as an asset to be sold for such purposes. It was agreed that such stock would be sold through an underwriting group in a ‘secondary offering’ to the public, and the sale of the stock was completed on April 6, 1965.
The 66,099 shares of Joslyn stock were reported on the Federal estate tax return as having a value of $3,040,544 at the date of the decedent's death. An audit of the return was completed by the respondent after the sale of the stock, and upon its completion, the respondent's agent proposed an increase in the date-of-death value of the stock to $3,103,697.43. In this report, the agent computed the value of the stock as follows:
Such valuation was reflected in the statutory notice of deficiency as having been determined in accordance with section 20.2031-2 of the Estate Tax Regulations on the basis of stock exchange quotations at the date of death with an allowance for blocking elements. The respondent's proposed adjustment as to the value of the Joslyn stock was accepted by the petitioner.
In this proceeding, the petitioner also claimed as administrative expenses a deduction for $366,500.07 relating to the secondary offering of the Joslyn stock. The respondent has denied a deduction for $359,194.71 of such expenses.
OPINIONThe petitioner does not argue that the expenses of the secondary offering should be deductible instead of being taken into consideration in determining the value of the Joslyn stock; it argues that, and we must decide whether, it is entitled to deduct such expenses even though they resulted in a reduction in the value of the stock.
The Federal estate tax is imposed upon the net value of a decedent's estate. Secs. 2001, 2051; sec. 20.0-2, Estate Tax Regs.; Estate of Henry E. Huntington, 36 B.T.A. 698 (1937). Section 2031 and the regulations thereunder generally provide that property includable in the gross estate is to be valued at its retail or replacement cost value. Sec. 20.2031-1(b), Estate Tax Regs.; Estate of Frances Foster Wells, 50 T.C. 871 (2968), affd. 418 F.2d 1302 (C.A. 6, 1969). However, when a large block of stock is to be valued, it may be valued by reference to the amount for which it could be sold to an underwriter. Sec. 20.2031-2(e), Estate Tax Regs.; Commissioner v. Stewart's Estate, 153 F.2d 17 (C.A. 3, 1946), affirming a Memorandum Opinion of this Court; Thomas A. Standish, 8 T.C. 1204 (1947); Sewell L. Avery, 3 T.C. 963 (1944). To compute the amount of the taxable estate, the value of the gross estate is reduced by certain deductions. Section 2053(a) allows a deduction for the expenses of administration, and section 20.2053-3(d)(2), Estate Tax Regs., provides that deductible administration expenses include the expenses of selling property of the estate when such sales are necessary to pay the expenses of the administration of the estate. Estate of Henry E. Huntington, supra.
In Estate of Elizabeth W. Haggart, 13 T.C. 14 (1949), the value of a revocable trust was includable in the decedent's estate. Certain attorney fees and other expenses were incurred as a result of the inclusion of the property of the trust in the gross estate. We held that such expenses could not be used to reduce the value of the trust property in computing the value of the gross estate; nor were they deductible as expenses of administration of the estate. We were reversed by the Third Circuit on the premise that it was incongruous for the corpus of the trust to be included in the gross estate without taking into account expenses chargeable thereto in determining the net estate subject to tax. Haggart's Estate v. Commissioner, 182 F.2d 514 (C.A. 3, 1950). The court said at page 516:
Whether * * * (the expenses) are to be allowed as expenses of administration administration2 or whether they are to be allowed in diminution of the gross estate3 does not matter in this case. It comes out the...
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Almirall v. Comm'r of Internal Revenue (In re Estate of De Foucaucourt)
...affirming 45 B.T.A. 52 (1941); Emma Peabody Abbett, 17 T.C. 1293 (1952); and Elroy N. Clark, 1 T.C. 663 (1943). Cf. Estate of Marcellus L. Joslyn, 57 T.C. 722 (1972); Mary E. Burrow Trust, 39 T.C. 1080 (1963), affd. 333 F.2d 66 (C.A. 10, 1964). Since the effect of an exclusion from gross es......
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...The result in Estate of Joslyn v. Commissioner [74-2 USTC ¶ 13,012], 500 F.2d 382 (9th Cir. 1974), revg. [Dec. 31,289] and remanding 57 T.C. 722 (1972), is not controlling here since in Joslyn the brokerage expenses did not involve a separately depreciable asset while the road construction ......
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MacDonald v. Comm'r of Internal Revenue (In re Estate of Joslyn)
...States Court of Appeals for the Ninth Circuit. The case was originally heard by this Court and decided in favor of the Commissioner (57 T.C. 722 (1972)). Upon a petition for review, the Court of Appeals for the Ninth Circuit reversed our decision and remanded the case for further considerat......
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Estate of Joslyn, In re
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