The opinion of the court was delivered by: HUYETT
The taxpayer, Provident National Bank, executor of the estate of Abram L. Spector, filed this action seeking a refund of Federal estate taxes. Plaintiff asserts in its claim for refund that certain shares bequeathed in favor of the decedent's widow (the widow's shares) were worth more than the $ 157 per share figure determined by the Internal Revenue Service and that the taxpayer thus was entitled to a greater marital deduction. The matter is on remand from the United States Court of Appeals for the Third Circuit. Provident National Bank v. United States, 581 F.2d 1081 (3d Cir. 1978). The action was retried non-jury.
Initially the Court of Appeals directed me to determine the value, if any, in excess of $ 157, of the widow's shares. 581 F.2d at 1089. The widow's shares were 2,196 shares of class A non-voting common stock of Dial Shoe Company, Inc. (Dial) held by the decedent at his death which were subject to a testamentary directive that the shares be converted to preferred shares to be held for the benefit of the decedent's widow. The remaining 4,719 shares of common stock of Dial (both voting and non-voting) are referred to herein as the "non-widow's shares".
The court recognized that, depending upon the facts developed, the market value of the widow's shares was not necessarily their par value of $ 214.75 per share and could be some other value. 581 F.2d at 1089. The court directed me to take into account all relevant factors in arriving at market value on the basis of a fuller factual record. Id. One specific factor to be taken into account was that, even if the decedent's widow would otherwise realize a value in excess of $ 157 per share, there would be some effect on the value caused by the "prospect of a challenge by some minority shareholders". 581 F.2d at 1088.
The court also identified a secondary issue to be determined on remand in the event that the taxpayer demonstrated a value for the widow's shares in excess of $ 157 per share. In that event the court directed me to determine the overall increase in the value of all the decedent's Dial shares that it expected would result from the prospective recapitalization. 581 F.2d at 1091-92, n.26.
In resolving these issues, I am mindful that "taxpayers have the burden in a refund suit of proving not only entitlement to a refund but also the amount of the entitlement." Tunnell v. United States, 512 F.2d 1192, 1194 (3d Cir.), cert. denied, 423 U.S. 893, 96 S. Ct. 190, 46 L. Ed. 2d 124 (1975). Thus plaintiff must prove that the government's valuation is incorrect, and that the stock here in question has a different fair market value than that used by the government in order to prevail as to any portion of this action. United States v. Janis, 428 U.S. 433, 440, 96 S. Ct. 3021, 3025, 49 L. Ed. 2d 1046 (1976); Helvering v. Taylor, 293 U.S. 507, 55 S. Ct. 287, 79 L. Ed. 623 (1935); Griffin v. United States, 588 F.2d 521, 530 (5th Cir. 1979); Fed-Mart Corp. v. United States, 572 F.2d 235, 238 (9th Cir. 1978); Tunnell v. United States, supra.
Abram L. Spector died, testate, on May 11, 1966, survived by a wife and four children. His will created a marital trust funded in part with shares of the Dial Shoe Company, Inc., a close corporation of which he was the major shareholder.
Paragraph 4 of that will provided:
4. I give, devise and bequeath to my wife, Ruth Spector, and to the Provident Tradesmens Bank and Trust Company, as Trustee, to hold in Trust, nevertheless for distribution and for the various purposes as hereinafter set forth to be known as Trust #1:
(a) All Class A Common Stock of Dial Shoe Company, Inc., in my name (to be exchanged for Preferred Stock of Dial Shoe Company, Inc., as hereinafter provided).
Paragraph 7 of that will provided:
7. As soon as possible after my decease, I direct my Executor, hereinafter named, shall cause the recapitalization of Dial Shoe Company, Inc., which shall provide the Five Percent (5%) Preferred Stock be created and issued in exchange for the Class A Common Stock which has been bequeathed under Paragraph 4(a) hereof to the Trustees of Trust #1; said Preferred Stock shall have a par value equal to the book value of the Class A Common Stock exchanged therefor, on a consolidated basis, as of the end of the fiscal year immediately preceding my death, and shall have the following attributes:
(a) Dividends shall be payable quarterly, the first quarterly payment payable three (3) months after the date of issuance at the annual rate of Five Percent (5%).