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SOLES v. GRANGER

March 16, 1948

SOLES
v.
GRANGER, Collector of Internal Revenue



The opinion of the court was delivered by: MCVICAR

This is an action to recover an alleged overpayment of federal estate taxes in the amount of $ 9,630.55 with interest thereon of $ 570.84, or a total of $ 10,201.39. The facts were stipulated. A brief summary thereof is as follows:

Decedent, Terrissa C. Soles, was one of the income beneficiaries of a trust created by the will of Terrissa C. McCune, who died June 8, 1934. Among the assets of the residuary trust created by the will of Terissa C. McCune, were 48 shares of no par value common stock of Hookless Fastener Company, a Pennsylvania corporation.

 Immediately prior to August 1937 there were outstanding 3,906 shares of no par value common stock of said Company having a stated capital value of $ 3,515,400 or $ 900 per share. There were also 94 shares of this stock held as treasury stock.

 On August 5, 1937, the board of directors of said Company adopted resolutions by which $ 1,282,500 in its surplus account was transferred to the capital account, increasing that account to $ 4,882,500.

 Pursuant to said recapitalization, T. F. Soles, as trustee of the residuary trust under the will of Terrissa C. McCune, received 12,000 shares of the new stock of Talon, Inc., in exchange for the 48 shares of the old stock of the Hookless Fastener Company then owned by the trust.

 T. F. Soles, as executor of the estate of Terrissa C. McCune, filed his first and final account in the Orphans' Court of Allegheny County, Pennsylvania, in 1935. He reported the 48 shares of Hookless Fastener Company as part of the balance in his hands as executor. His account was confirmed absolutely and a decree of distribution was made decreeing all of said shares to T. F. Soles as trustee for the purposes specified in the will of Terrissa C. McCune.

 T. F. Soles, as testamentary trustee under the will of Terissa C. McCune, filed his first and final account as trustee in the Orphans' Court, Allegheny County, Pennsylvania, wherein he reported the receipt on October 13, 1937 of 12,000 shares of $ 5.00 par value common stock of Talon, Inc., in exchange for the 48 shares of common stock of Hookless Fastener Company. His account was confirmed absolutely and on October 25, 1944, a decree of distribution was entered by said Orphans' Court decreeing 4,000 shares of said stock to each of the three remaindermen, namely, Alva C. Cochran, Iva P. Murphy and Ernest R. Cochran as corpus.

 T. F. Soles, as executor under the will of Terrissa C. McCune, filed his inventory and appraisement as executor and his first and final account was confirmed absolutely and on June 29, 1943, a decree of distribution was entered by said Orphans' Court. Said executor did not include any part of the 12,000 shares of common stock of Talon, Inc. above referred to in the inventory and appraisement in his account, or in his audit statement.

 The Commissioner of Internal Revenue determined that decedent, as beneficiary of one-third of the income, was entitled to receive at that time 1,120 shares of the new stock distributed to the trustee. He further determined that the value of said stock was $ 36,960 and included said amount in decedent's gross estate for federal estate tax purposes.

 On October 19, 1944, plaintiff filed with the Collector of Internal Revenue a claim for refund of said tax together with interest. Said claim was rejected August 20, 1946 by the Commissioner of Internal Revenue.

 The only question involved in this case is whether the action of the Commissioner of Internal Revenue in including in decedent's gross estate, 1,120 shares of the new stock of Talon, Inc. as part of her gross estate was correct.

 The applicable statute, 26 U.S.C.A.Int.Rev.Code, 811, ...


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