Petition for review from the United States Board of Tax Appeals.
Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.
This is a petition for review of an order of redetermination of the Board of Tax Appeals. The petitioners are executors of the estate of William Winder Laird, who, at the time of his death, owned 1,000 shares of the common stock of the Christiana Securities Company and 250 shares of the capital stock of the Delaware Realty & Investment Company. Neither the Christiana nor the Delaware stock were listed on the stock exchange. For the purpose of computing federal estate tax, the petitioners valued the Christiana stock at $800 and the Delaware stock at $781 per share.The Commissioner of Internal Revenue revalued the Christiana stock at $1,760.60 and the Delaware stock at $15,066.51 per share, and thereupon assessed a deficiency. Upon petition for redetermination, the ruling of the Commissioner was sustained by the decision and order of the Board of Tax Appeals.
The petitioners contend that the Commissioner put too high a value on these stocks. Section 302 of the Revenue Act of 1926 (26 U.S.C.A. § 411) provides:
"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 --
"(a) To the extent of the interest therein of the decedent at the time of his death. * * *"
Treasury Regulation 70, promulgated under this act, provides:
"The value of all property includable in the gross estate is the fair market value thereof at the time of the decedent's death. The fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell. * * *
"The value of stocks and bonds listed upon a stock exchange should be determined by taking the mean between the highest and lowest quoted selling prices upon the date of death. * * *
"Stock in a close corporation should be valued upon the basis of the company's net worth, earning and dividend-paying capacity, and all other factors having a bearing upon the value of the stock. * * *"
The principal assets of the Christiana Company consisted of listed stock of E. I. du Pont de Nemours & Co. and of Atlas Powder Company. In accordance with the provisions of the statute and regulation, supra, the Commissioner took the mean between the highest and lowest quoted selling prices of the listed stock at the time of the decedent's death, which he used as a factor in arriving at the value of the Christiana stock. The petitioners argue that, had they dumped on the market large blocks of the listed stock, they could not have obtained prices even approximating those determined by the Commissioner. They contend that the listed stock should be valued at the prices which their expert witnesses testified could probably be obtained upon a forced sale. In our opinion, this method wo uld not result in a fair determination of the value of the Christiana stock because the prices obtained upon a sacrifice sale do not necessarily represent the true value of the listed stock. We do not think the presumption of correctness which follows the Commissioner's determination of value (Welch v. Helvering, 290 U.S. 111, 54 S. Ct. 8, 78 L. Ed. 212; Lucas v. Kansas City Structural Steel Co., 281 U.S. 264, 50 S. Ct. 263, 74 L. Ed. 848) was overcome by the petitioners' testimony. This court suggested in Heiner v. Crosby (C.C.A.) 24 F.2d 191, that the value of stock might be proved by evidence of book values, intrinsic values, earnings, good will, and prospects of the company involved. The petitioners failed to avail themselves of this procedure by which they might have proved that the value of the listed stock owned by the Christiana Company was less than the market quotations or the Commissioner's valuation.
What has been said about the value of the Christiana stock also applies to the Delaware stock. An additional element enters into the determination of the value of the Delaware stock. The principal assets of the Delaware Company consisted of stock of the Christiana Company, the du Pont Company, the Atlas Powder Company, and the Hercules Powder Company; $13,500,000 of the assets of the Delaware Company consisted of real estate and securities which had been transferred to it by Pierre S. du Pont and his wife in consideratin of an annuity of $900,000 to them jointly or to the survivor.
In valuing the Delaware stock, the Commissioner included the assets of the annuity fund and the annuity reserve fund, and deducted as a liability the present worth of the annuity. The petitioners contend that the Commissioner erred in so doing because there was no provision in the annuity contract giving the Delaware Company the right to discharge its obligation to Pierre S. du Pont and his wife by payment of the present worth of the annuity at any time before the death of the survivor of the annuitants. We are not convinced by this argument. The method used by the Commissioner is followed in cases where the net value of the assets of a corporation which has mortgaged its property is calculated by deducting the amount of the liability under the terms ...