Ruehlmann v. Comm'r of Internal Revenue (In re Estate of Wells)
| Decision Date | 16 September 1968 |
| Docket Number | Docket No. 5691-66. |
| Citation | 50 T.C. 871 |
| Parties | ESTATE OF FRANCES FOSTER WELLS, DECEASED, EUGENE P. RUEHLMANN, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Michael D. Rose, for the petitioner.
Conley G. Wilkerson, for the respondent.
Held, shares in open-end investment companies or mutual funds were properly valued for estate tax purposes at the public offering price on the date of death in accordance with sec. 20.2031-8(b), Estate Tax Regs., rather than at the redemption price.
The Commissioner determined a deficiency in estate tax in the amount of $2,328.25.
The only issue is whether the Commissioner properly valued for estate tax purposes the shares of certain open-end investment companies. He valued them pursuant to section 20.2031-8(b),1 Estate Tax Regs., the validity of which is in contention.
All of the facts are stipulated and so far as pertinent are as follows:
The petitioner is Estate of Frances Foster Wells, deceased, Eugene P. Ruehlmann, executor. Eugene P. Ruehlmann's business address at the time this petition was filed was and now is 1800 First National Bank Building, Cincinnati, Ohio.
Frances Foster Wells died testate January 27, 1964, a resident of Cincinnati, Ohio. The Federal estate tax return of Frances Foster Wells was timely filed with the district director of internal revenue, Cincinnati, Ohio, on April 27, 1965.
At the date of her death, January 27, 1964, Frances Foster Wells owned shares in open-end investment companies or mutual funds as follows:
+-----------------------------------------+
¦ ¦Number of ¦
+-----------------------------+-----------¦
¦ ¦shares ¦
+-----------------------------+-----------¦
¦Massachusetts Investors Trust¦1,073 ¦
+-----------------------------+-----------¦
¦Geo. Putnam Fund of Boston ¦3,876.638 ¦
+-----------------------------+-----------¦
¦Wellington Fund, Inc. ¦1,031.601 ¦
+-----------------------------------------+
A mutual fund or open-end investment company is an organization which sells shares in itself and with the proceeds therefrom invests in securities of other firms. A mutual fund or open-end investment company issues as many of its shares as can be marketed and continually offers its shares to the public. Also a mutual fund or open-end investment company continually offers to redeem its outstanding shares from the holders thereof. The open-end investment companies or mutual funds whose shares were included in the taxable estate of Frances Foster Wells sell their shares to the public through management companies and/or ‘underwriters' acting as agents for and pursuant to contracts with the open-end investment companies or mutual funds.
Customarily, the price at which open-end investment companies or mutual funds offer their shares to the public (quoted in financial publications as the ‘asked’ price) is the net asset value which is the fractional value per share outstanding of the fund's net assets, plus a ‘sales load’ or ‘sales charge.’ The ‘sales load’ or ‘sales charge’ goes entirely to the management companies and/or ‘underwriters' for their services in marketing the shares. The sales load represents a percentage of the offering price and varies between a maximum and minimum charge depending on the quantity purchased in a single transaction. The sales load with respect to each of the funds herein involved as of January 27, 1964, was as follows:
+----------------------------------------------------+
¦ ¦Maximum ¦Minimum ¦
+-----------------------------+----------+-----------¦
¦ ¦(percent ¦(percent) ¦
+-----------------------------+----------+-----------¦
¦Massachusetts Investors Trust¦8.5 ¦1.75 ¦
+-----------------------------+----------+-----------¦
¦Geo. Putnam Fund of Boston ¦8.5 ¦1.0 ¦
+-----------------------------+----------+-----------¦
¦Wellington Fund, Inc. ¦8.0 ¦2.25 ¦
+----------------------------------------------------+
There are in existence open-end investment funds which do not include a ‘load charge’ in their public offering price. Both the public offering price ‘asked’ and the public redemption price ‘bid’ for shares in such a fund are equal to the net asset value of such shares. The Scudder, Stevens & Clark Common Stock Fund, Inc., is such a ‘no-load’ fund.
The price at which open-end investment companies or mutual funds will redeem their shares (quoted in financial publications as the ‘bid’ price) is the net asset value, which is the fractional value per share outstanding of the funds' net assets.
The bid and asked prices for open-end investment companies or mutual fund shares represent the prices at which transactions with the open-end investment companies or mutual funds take place rather than the range of negotiations and transactions. Except for a negligible number of transfers between individuals, all transactions with respect to open-end investment companies or mutual fund shares take place with the particular open-end investment company or mutual fund whose shares are involved.
The open-end investment company or mutual fund shares involved herein were reported in the estate tax return filed by the Estate of Frances Foster Wells at the following valuation per share:
+------------------------------------+
¦Massachusetts Investors Trust¦$15.72¦
+-----------------------------+------¦
¦Geo. Putnam Fund of Boston ¦15.62 ¦
+-----------------------------+------¦
¦Wellington Fund, Inc. ¦14.75 ¦
+------------------------------------+
On the date of the death of Frances Foster Wells, January 27, 1964, Massachusetts Investors Trust, the Geo. Putnam Fund of Boston, and Wellington Fund, Inc., were offering and sold shares in their respective companies to the public (asked price) and were offering to and did redeem shares in their respective companies from the holders thereof (bid price) as follows:
+-------------------------------------------------------+
¦ ¦Asked price ¦Bid price ¦
+-----------------------------+-------------+-----------¦
¦Massachusetts Investors Trust¦$17.18 ¦$15.72 ¦
+-----------------------------+-------------+-----------¦
¦Geo. Putnam Fund of Boston ¦17.07 ¦15.62 ¦
+-----------------------------+-------------+-----------¦
¦Wellington Fund, Inc. ¦16.08 ¦14.75 ¦
+-------------------------------------------------------+
These bid and asked prices were not subject to negotiation but represent the prices at which transactions with the above referred to open-end investment companies took place on the date indicated, rather than the range of negotiations and transactions, excepting those transactions that may have occurred whereby shares were purchased from the funds in sufficient quantities that quantity purchase discounts, representing reductions in per share purchase price, were allowed.
On the purchase and sale of listed corporate common stock by an individual through a stockbroker, the normal vehicle for such transactions, the stock is purchased or sold at an agreed figure and in addition at the same time the stockholder normally charges the individual purchaser or seller a commission for his services in purchasing or selling the shares. Where a stockbroker is acting as an underwriter of a stock issue, the stock is offered by the broker-underwriter to the public at a fixed price including the underwriting cost. The issuing corporation receives the amount paid by the purchaser less the underwriting costs.
The applicable lump-sum public offering prices, asked prices, on January 27, 1964, for shares in each of the subject open-end investment companies include the maximum sales load with respect to a share in each company. A quantity purchase discount would have been available to a purchaser on January 27, 1964, had he purchased on that date in a single transaction with each respective mutual fund the number of shares which the decedent owned on January 27, 1964, in Massachusetts Investors Trust and the Geo. Putnam Fund of Boston. No quantity purchase discount would have been available on January 27, 1964, with respect to a purchase in one transaction of the number of shares which the decedent owned on January 27, 1964, in the Wellington Fund, Inc. Taking into consideration the applicable quantity purchase discounts that would have been available in acquiring the number of open-end investment company shares owned by Frances Foster Wells on the date of her death, January 27, 1964, the asked prices as adjusted for the quantity discounts would be as follows:
+------------------------------------+
¦Massachusetts Investors Trust¦$16.99¦
+-----------------------------+------¦
¦Geo. Putnam Fund of Boston ¦16.30 ¦
+-----------------------------+------¦
¦Wellington Fund, Inc. ¦16.08 ¦
+------------------------------------+
Therefore, under section 20.2031-8(b), Estate Tax Regs., the fair market value of the shares of open-end investment company stock owned by Frances Foster Wells on the date of her death, January 27, 1964, is no greater than the amounts shown below:
+------------------------------------------------------------+
¦ ¦Number of¦Per-share¦Total ¦
+-----------------------------+---------+---------+----------¦
¦ ¦shares ¦value ¦valuation ¦
+-----------------------------+---------+---------+----------¦
¦Massachusetts Investors Trust¦1,073 ¦$16.99 ¦$18,230.27¦
+-----------------------------+---------+---------+----------¦
¦Geo. Putnam Fund of Boston ¦3,876.638¦16.30 ¦63,189.20 ¦
+-----------------------------+---------+---------+----------¦
¦Wellington Fund, Inc. ¦1,031.601¦16.08 ¦16,588.14 ¦
+------------------------------------------------------------+...To continue reading
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