Appeal of Stebbins

OPINION.

Smith:

The only question presented by this appeal is the valuation of 114% shares of the capital stock of The Bagley & Sewall Company owned by Grace S. Stebbins at the date of her death, January 10,1921. In the estate-tax return filed for the estate the shares of capital stock were valued at $1,000 per share. The Commissioner has increased this valuation to $1,725 per share.

There have been no sales of the shares of stock of The Bagley & Sewall Company for many years, either prior or subsequent "to the date of the death of the decedent. The stock is closely held. The only criteria for the determination of the value of the stock are given in the findings of fact. The company had been conservatively managed over a long period of years, and less than one-half of the average net earnings had been paid out in dividends. The book value of the shares of stock at December 28, 1919, ivas $1,845.61, and at December 31, 1920, $2,166.46.

The Commissioner determined the value of the shares of stock at January 10, 1921, from a consideration of many facts-. The representative of the Commissioner who made the determination testified at the hearing that in making his determination—

Tlie fact was considered of the nature of the business, character of the management, the financial condition of the company, its earnings, both in the past and prospective; the fact that the business on its book’s at the time was greatest in the corporation’s history, that it had increased its plant capacity immediately prior to that time by from fifty to sixty per cent, thus increasing its potential earning capacity. On that basis earnings at the rate of approximately $300,000 a year, plus, enabled the company to pay dividends at the rate of $150,000 a year. * * *

The situation of the taxpayer at December 31, 1920, ivas most unusual. During the year 1920 it secured contracts for the building of 15 paper-making machines at a total price of $4,030,551.80. In accordance with its custom, the taxpayer had collected more than 40 per cent of the purchase price from the purchasers. There ivas therefore no possibility of a cancellation of the contracts. Prices of materials were falling at the close of 1920, and this falling of prices was greatly to the benefit of the taxpayer. There was every prospect that the taxpayer would at least have two or three very profitable years following 1920, and this was without regard to whether it secured contracts for the building of any more paper-making machines. The prospective profits on the uncompleted contracts at December 31, 1920, unquestionably amounted to several hundred dollars per share of stock.

From a consideration of the entire record we are of the opinion that the evidence before us warrants a finding that the fair value of the shares of stock of The Bagley & Sewall Company owned by Grace S. Stebbins at her death was not less than $1,725 per share. It will be noted, however, that the amount of stock owned by her was 1141/4 shares, instead of 114-14 shares, the amount returned. Adjustment of the amount of the deficiency should be made to correct this error.