Avery v. Commissioner

OPINION.

Van Fossan, Judge-.

The single issue before us is the correct valuation of shares of Montgomery Ward & Co. and United States Gypsum Co. stock made the subject of gift by the petitioner in the trust agreements of December 31,1940.

The Commissioner follows and relies on his regulations,¹ which state that the fair market value of stocks and bonds listed on the stock exchange is the mean between the highest and lowest quoted selling price on the day of the gift. On this basis he has determined such value to be $37.50 per share for the Ward stock and $04.50 for the Gypsum stock.

The petitioner contends that the proper basis of valuing stock transferred in large blocks is the price which the seller or transferor would receive under the custom and usage governing such transactions. He contends that Ward and Gypsum stock in blocks of the size here involved could not have been sold in ordinary course on the market and that the normal and usual method of disposing of such blocks is by secondary distribution, a well recognized practice.

This and other courts have held that the effect of the size of the block of listed stock, given or transferred, upon the value of the stock per share is a question of fact. Helvering v. Maytag, 125 Fed. (2d) 55; certiorari denied, 216 U. S. 689 (see cases there cited); Commissioner v. Shattuck, 97 Fed. (2d) 790; Helvering v. Safe Deposit & Trust Co. of Baltimore, 95 Fed. (2d) 806, affirming 35 B. T. A. 259; Henry F. du Pont, 2 T. C. 246. In valuing shares of stock for gift tax purposes the correct criterion is the fair market value of all of the stock comprising the gift, not merely a single share thereof. Helvering v. Maytag, supra.

Petitioner contends that either the two gifts should be considered as one, in which event the value of the stock should be based on the aggregate blocks of 26,000 shares of Montgomery Ward and 16,000 shares of Gypsum, or the corpus of each trust should be considered separately as the gift to be valued, the amounts in question in each instance being 13,000 shares of Montgomery Ward and 8,000 shares of Gypsum. The respondent argues that the petitioner’s donation should be divided into four gifts, one each to his two daughters and their respective husbands, the four being the beneficiaries of the trusts. Respondent cites Helvering v. Hutchings, 312 U. S. 393; Lawrence C. Phipps, 43 B. T. A. 1010; affd., 127 Fed. (2d) 214, and other cases to support his position.

Respondent’s position that four gifts are presented for valuation is well fortified both in the law (Helvering v. Hutchings, supra; United States v. Pelzer, 312 U. S. 399) and in the provisions of the trust instruments themselves. The trust agreement referring to petitioner’s daughter Arla and her husband specifically provided that the “Settlor desires to create certain trusts for the use and benefit of his daughter, Aela Avery McMillan, and her husband, William Benton McMillan, and the other beneficiaries hereinafter named or described, upon the terms and conditions hereinafter set forth.”

The agreement further provided:

Fiest: The Trustees shall divide the trust estate into two separate trusts, one of the trusts to consist of one-half (%) of the trust estate to be held by the Trustees for the benefit of Settlor’s daughter, Aela Avert McMillan, and one of the trusts to consist of one-half (%) of the trust estate to be held by the Trustees for the benefit of William Benton McMillan, the husband of Settlor’s daughter, Arla Avert McMillan.

The agreement proceeded to provide that:

1. The Trustees shall pay over and distribute to the Settlor’s daughter, Aela Avert McMillan, so long as she shall live, all of the net income derived from that certain trust consisting of one-half (%) of the trust estate so held by the Trustees for her benefit. * * *

with similar provision for the payment to William Benton McMillan so long as he shall live of all of the net income derived “from that certain trust consisting of one-half (y2) of the trust estate so held by the Trustees for his benefit.”

We conclude that for the purposes of the gift tax statutes and for valuation there were four separate gifts, each consisting of 6,500 shares of Montgomery Ward stock and 4,000 shares of Gypsum stock. This conclusion, however, dqes not entail the consequence urged by respondent that such blocks of stock should be valued as though sold in one day on the open market. We are of the opinion, and the' record supports the conclusion, that either secondary distribution or sales over a reasonable period of time after the basic date would have been resorted to to dispose of blocks of stock of the size of the four gifts here in question. To have offered it on the open market in one day would have demoralized the market.

We have indicated in our findings the values of the stocks on the basic date, which values will be used in the computation consequent on this opinion. In arriving at these figures we have given due weight to the trend of prices, the various theories of valuation submitted, and the experience of other vendors making comparable offerings as shown by the record, as well as to the opinion evidence as to values.

Reviewed by the Court.

Decision will be entered under Rule 50.

Disney, J., dissents.

1 Art. 19, Regulations 79 (1936 Ed.), as amended by T. D. 4901, May 18, 1939, 1939-1 (Part I) C, B. 341. This regulation also provides that if the formula prescribed therein does not, under the facts, reflect fair market value, a reasonable modification of the formula or other relevant facts shall be considered.