(125 Misc. Rep. 787) (211 N.Y.S.) In re JACKSON'S ESTATE. (Surrogate's Court, New York County. November 5, 1924.) 1. Taxation 895(5)—Isolated sales of shares of stock in corporation closely held held not conclusive evidence that selling price was market value of stock. With respect to transfer tax, isolated sales of shares of stock in corporation closely held are not conclusive evidence that selling price was market value of stock. 2. Taxation ~895(5)—Prima facie book value of stock of closely held corporation controls in determining valuation for transfer tax purposes. Prima facie the book value of stock of closely held corporation is controlling in determining valuation for transfer tax purposes. 3. Taxation 895 (5)—Evidence held to justify reduction of appraiser's valuation of shares of common stock in closely held corporation. Evidence held to justify valuation of shares of common stock in close ly held corporation at less than appraiser's valuation. 4. Taxation ~~~895(6)—In determining transfer tax, trustee's commissions on several trust funds should be allowed as deduction. In determining transfer tax, trustee's commissions on several trust funds should be allowed as deduction. 5. Taxation885, 895 (1)—-Transfers to beneficiary of will held contingent remainders, and not deferred legacies; in valuing property for transfer tax, held, appraisers should report value of temporary life estate until age of 25 as against beneficiary of trust fund. Where, under a will, one-fourth of the trust vested in beneficiary at testator's death, because of beneficiary's attainment of age of 21, and will further directed payment over to him of one-fourth of remainder of trust on his arriving at the age of 25, and an additional one-fourth on arriving at the age of 30, remaining part to be held in trust until his death, and will authorized beneficiary to dispose by will, under the power of appointment, of the balance of the trust estate remaining at his death, regardless of when it occurred, held, that the transfers to the beneficiary were contingent remainders, and not deferred legacies, and in valuing property for transfer tax appraiser should report value of temporary life estate until age of 25 years, as against such beneficiary. In the matter of the estate of Caroline M. Jackson. The executor appeals from an order of the appraiser fixing a transfer tax. Grounds of appeal sustained, and order advised in accordance with opinion. Stetson, Jennings & Russell, of New York City, for appellants. Charles A. Curtin, of New York City, for State Tax Commission. FOLEY, S. The executor has appealed from the order fixing the transfer tax upon three separate grounds: For other cases sec same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes 1. The first ground of appeal is that the common stock of the Boorum & Pease Company has been appraised in the report in excess of the true value of the stock at the date of decedent's death on April 15, 1922. She was the owner of 1,111 shares of the common stock of that company out of a total capital of 4,000 shares. This corporation manufactures and sells standard blank books and loose-leaf devices. The transfer tax appraiser has valued the stock at $299.21 per share. It is contended by the executor that the true value was $100 per share. The concern was a close corporation. Its president, in his affidavit submitted to the appraiser, stated: "That the shares of stock in this corporation are not bought and sold to any great extent, but they remain in the hands of the families of the original owners from generation to generation.' In this affidavit he stated the value of the common stock to be $85 per share. In a subsequent affidavit he repeated his statement that the stock was not listed on any Stock Exchange, and that it was not bought and sold by any brokerage house, and that there were no purchases or sales of this stock in the open market. He modified his previous affidavit, however, to the extent of setting forth five sales of the common stock immediately before and after the death of the decedent. These sales were all at the rate of $100 per share. The sales and amounts were as follows: April 3, 1922, 150 shares, to Frank B. Foster; on the same date, 330 shares, to A. W. Erickson; on July 11, 1922, 47 shares, to Frank S. Voss; on August 1, 1922, 20 shares, to Edwin S. S. Sunderland; and on January 25, 1923, 50 shares, to A. W. Erickson. It is claimed by the executor that these sales are controlling upon the appraiser and the surrogate in fixing the value of the stock. The dividend rate on the common stock for a period of 10 years was 6 per cent. An examination of the statement of earnings and the balance sheets discloses a book value, including good will, as of the date of death, of approximately $375 per share. The accountant expert for the state has eliminated from this book value an item of $310,905 carried in the balance sheet for good will and patents. He thus reached the valuation fixed above of $299.21, by accepting the financial statement filed by the company, its valuation of the physical property, its estimate of depreciation, and other elements submitted with the report. A further analysis of the financial reports of the company indicated that upon the $400,000 of common stock for the year ending February 28, 1920, the net earnings, after deduction of taxes and all other charges, were at the rate of 73 per cent. For the year ending February 28, 1921, the net earnings. were at the rate of 25 per cent. For the year ending February 28, 1922, there was a loss in the operation of the business. The company's surplus at the time of the death of the decedent was $1,195,278.81. No disclosure of the earnings prior to 1920 has been made by the executor, nor (211 N.Y.S.) the officers of the company, but the average net earnings on the common stock for the last three years were at the rate of 16 per cent. [1] It is interesting to note that the accumulated surplus at the beginning of the fiscal year of 1919-20 was $1,075,326.29, which indicates a very high rate of return in previous years. It further appears that the sales of stock set forth above were made to persons about to become or already directors of the company, although they were not necessary to qualify them as directors. In any event, these sales are not a compelling argument to justify a finding that the selling price was the true market value of the stock. The authorities have pointed out that sales of stock of closely held corporations to officers or stockholders are not an exclusive criterion of value. Moreover, scattering sales of relatively small lots were held in Matter of Curtice's Estate, 111 App. Div. 230, 97 N. Y. S. 444, affirmed 185 N. Y. 543, 77 N. E. 1184, by Judge Hiscock, now Chief Judge of the Court of Appeals, not to be conclusive evidence of valuation. [2] In the present case the disparity between the price realized upon these sales and the book value of the stock, after the appraiser deducted a substantial allowance, is so great that the selling price can have little probative force. Prima facie the book value of the stock of a closely held corporation is the controlling element in its valuation. Matter of Dupignac's Estate, 123 Misc. Rep. 21, 204 N. Y. S. 273, and the cases comprehensively reviewed therein by Mr. Surrogate Slater. In Matter of Hoffman's Estate, 204 App. Div. 497, 198 N. Y. S. 401, the Appellate Division, First Department, held that an isolated sale was not controlling upon value, and in the absence of proof of the market value at the date of decedent's death "the stock should have been valued on the basis of the corporate assets, including good will, earnings," etc. Matter of Ball's Estate, 161 App. Div. 79, 146 N. Y. S. 499. [3] Considering all the proof of value submitted to the appraiser, including actual sales of the stock, the statements of assets and liabilities, the actual earnings and the earning power of the corporation, and the other evidence submitted to the appraiser, I shall fix the value of the common stock at $250 per share. The appeal is sustained to that extent. [4] 2. The second ground of appeal is sustained. The trustee's commissions on the several trust funds should have been allowed as a deduction. Matter of Blun's Estate, 176 App. Div. 189, 162 N. Y. S. 458; Matter of Nichols' Estate, 120 Misc. Rep. 228, 198 N. Y. S. 896. [5] 3. The third ground of appeal is sustained. The order fixing the tax failed to set forth the proper minimum tax. It is apparent that the remainders to Arthur W. Bingham, Jr., are contingent in their nature. Under the terms of the will, one-fourth of the trust vested in Arthur W. Bingham, Jr., at the date of death, because of his having attained the age of 21 years. The will further directed the payment over of onefourth of the remainder of the trust to him when he arrived at the age of 25, and an additional one-fourth when he arrived at the age of 30; the remaining part to be held in trust until his death. The terms of the will authorized Arthur W. Bingham, Jr., the remainderman, to dispose by will under the power of appointment of the balance of the trust estate remaining at his death, regardless of when it occurred. The report incorrectly describes certain of the transfers to Arthur W. Bingham, Jr., as deferred legacies. They are actually contingent remainders. The report is therefore remitted to the appraiser for correction. The appraiser should report the value of the temporary life estate until the age of 25 years as against Arthur W. Bingham, Jr. The report should also contain the value of the transfers under the various other contingencies of the will, in order that a proper maximum and minimum order may be made. Submit order accordingly. In re DAVIDSON'S ESTATE. (Surrogate's Court, New York County. November 18, 1924.) 1. Taxation 895(5)—With respect to appraiser's determination of value for transfer tax purpose of shares of stock in closely held corporation, appraiser's resort to corporate books for valuation of stock held proper. With respect to appraiser's determination of value for transfer tax purpose of shares of stock in closely held corporation, appraiser's resort to corporate books for valuation, and his giving of little weight to isolated sales of extremely small lots of stock, held proper. 2. Taxation 895 (5)-Facts held to justify valuation for transfer tax purposes of shares of common stock in corporation at $150 each. Facts held to justify reduction in appraiser's valuation for transfer tax purposes of shares of common stock in corporation. The execu In the matter of the estate of Samuel Cleland Davidson. tors appeal from an order of the appraiser fixing a transfer tax. Order advised in accordance with opinion. Phillips & Avery, of New York City, for appellants. Charles A. Curtin, of New York City, for State Tax Commission. FOLEY, S. [1] On this appeal by the executors from the order fixing the transfer tax the appraiser's valuation of $179.27 per share of the common stock of the American Blower Company is questioned. The For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes (211 N.Y.S.) appellants concede that the method adopted by the appraiser in computing the book value of the concern is "eminently fair." They contend, however, that sale prior to the date of death of decedent of five shares in January, 1921, at $105 per share, and of two shares on October 29, 1920, at $110, and certain more remote sales at lower prices, established the market value as of the date of decedent's death on August 18, 1921, at the sum of $80 per share. The shares of the corporation were closely held. A firm of brokers specializing in the stock stated in a letter accompanying the affidavit of appraisal that the stock was inactive and that there was no market for it. The appraiser, under these circumstances, properly gave little weight to the isolated sales of extremely small lots, and he resorted to the books of the corporation for his valuation. Matter of Hoffman's Estate, 204 App. Div. 497, 198 N. Y. S. 401; Matter of Dupignac's Estate, 123 Misc. Rep. 21, 204 N. Y. S. 273; Matter of Jackson's Estate (Sur.) 211 N. Y. S. 537. [2] In view of the fact that no dividend was paid on the stock in the year of decedent's death, and because of proof of other considerations affecting its value, I am of the opinion that a valuation of $150 per share is fair; and I so find. Submit order modifying taxing order accordingly. (125 Misc. Rep. 373) In re COLT'S ESTATE. (Surrogate's Court, New York County. June 23, 1925.) 1. Taxation 895(8)—Debts of deceased nonresident, due to resident creditors on money borrowed on pledge of stock of foreign corporations as security, are deductible in full from New York assets, prorated between taxable and nontaxable assets in state. Debts of deceased nonresident, due to resident creditors on money borrowed by him on pledge of stock of foreign corporations as security, are deductible in full from New York assets, prorated between taxable and nontaxable New York assets; Laws 1921, c. 476, amending Tax Law, § 230, not applying, such amendment being obviously intended to disallow deductions of mortgages on real estate situated outside the state, and deduction of sums of money expended in connection with the maintenance or improvement of such real estate. 2. Taxation 867(4)—Loan of deceased to copartnership within state, of which he was not member, held not taxable as transfer, because not constituting "doing business in this state either as member or partner." Loan of deceased to copartnership in state, and of which he was not a member, the loan bearing 6 per cent. interest, held not taxable as transFor cther cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes |