Lockie v. Commissioner

Estate of George McNaught Lockie, Deceased, Guaranty Trust Company of New York, Ancillary Executor, Petitioner, v. Commissioner of Internal Revenue, Respondent Lockie v. Commissioner Docket No. 32102 United States Tax Court 21 T.C. 64; 1953 U.S. Tax Ct. LEXIS 49; October 15, 1953, Promulgated *49 Decision will be entered under Rule 50. 1. Estate Tax -- Gross Estate -- Dividend -- Section 811. -- A dividend declared prior to the death of the decedent but payable to stockholders of record on a date after his death is not includible in the gross estate. 2. Estate Tax -- Nonresident Alien -- Gross Estate -- Property Within the United States -- Section 861. -- Certificates connected with decedent's ownership of Bank of Nova Scotia stock and loans by the decedent to the British Treasury which were located in the United States at the time of decedent's death were not the property itself, the stock and the loans were not situated within the United States, and they were not subject to the estate tax. 3. Estate Tax -- Nonresident Alien -- Gross Estate -- Purchase of Securities -- Sections 861, 862. -- Where the decedent contracted on the day before his death in the regular way on the New York Stock Exchange for the purchase two days later of certain securities, the value of the securities is not includible in his gross estate. The contract had no value on the date of decedent's death since it required the payment of an amount of money greater than the then value of the securities. Edgar A. Kniffin, Esq., and Horace N. Taylor, Esq., for the petitioner. Clay C. Holmes, Esq., for the respondent. Murdock, Judge. Van Fossan, J., dissenting. Black and Tietjens, JJ., agree with this dissent. MURDOCK *65 The Commissioner determined a deficiency of $ 42,905.41 in estate tax. The issues for decision are: (1) Whether the value of a dividend on General Electric stock declared prior to the death of the decedent but payable to stockholders of record on the day after his death is includible in the gross estate, (2) Whether loans of $ 111,200 and 5,000 shares of stock of the Bank of Nova Scotia had siti in the United States which would make them subject*51 to estate tax, and (3) Whether the value of securities, for the purchase of which the decedent's broker had contracted on the day before the decedent died, was properly included in the gross estate. FINDINGS OF FACT. The return was filed with the collector of internal revenue for the second district of New York. The decedent, George McNaught Lockie, a British subject, died at 4 a. m. on September 20, 1945, at Sosua, Dominican Republic, where he was domiciled. The decedent, at the time of his death, owned 200 shares of General Electric Company, Inc., common stock on which a dividend of 40 cents per share payable on October 25, 1945, to stockholders of record on September 21, 1945, had been declared on or before September 17, 1945. The Commissioner, in determining the deficiency, erroneously included the dividend of $ 80 in the gross estate. The decedent, on various dates from October 25, 1940, to April 30, 1942, loaned $ 106,200 in currency of the United States and $ 5,000 in Canadian currency to the British Treasury. Those loans were unusual war borrowings by the British Government bearing no interest for each of which the British Treasury issued a paper entitled "Treasury Certificate." *52 Those certificates were located in the United States when the decedent died. They were not securities but merely acknowledgements that the money had been loaned. They were not transferable or negotiable. A typical one stated "This certificate entitles George McN. Lockie, Esq. to the payment of $ * * * without interest, out of the Consolidated Fund of the United Kingdom, on demand." They were signed by the Secretary to the Treasury. It was further stated on each that it "should be lodged" at the Bank of England or the Treasury a few days before "payment is due" and payment would be made by check drawn to the person named in the certificate and mailed to his address. No address was given on the certificates. They represented no property right issuing from or enforceable against a resident of or a domestic corporation of the United States. They were not treated as being the property itself. The loans were payable in London, England. They had no situs in the United States at the time the decedent died. *66 The decedent at the time of his death owned 5,000 shares of the book stock of the Bank of Nova Scotia which were registered in his name on the registry of the Bank at *53 Halifax, Nova Scotia. A certificate issued by the bank stating that on September 16, 1944, the decedent was the owner of the 5,000 shares was located in the United States when the decedent died. It was entitled "Stock Certificate" but was not a security. It stated that the "shares are transferable * * * only at the office of the Bank of Halifax" and "The certificate shows only that the person in whose name it is drawn was the proprietor of the number of shares therein specified at its date and it is not available for any other purpose." No rights attach to it and it had no value. It could not be used to transfer ownership of the stock and was actually retained after the stock was disposed of by the estate. The stock could be transferred only by the transferor and the transferee supplying the Bank at Halifax with powers of attorney authorizing the change in registration of the stock from one name to the other, or by the personal appearances of the parties there. The certificate was not treated as being the property itself. There was no property right in connection with the shares issuing from or enforceable against a resident or domestic corporation of the United States. The*54 5,000 shares of stock had no situs in the United States at the time the decedent died. Brokers in New York, pursuant to instructions from the decedent, entered into contracts on September 19, 1945, for the purchase of ten blocks of stock in the regular way on the New York Stock Exchange under which payment and delivery were to be and were made on September 21, 1945. The total cost of the securities was $ 68,082.90. The Commissioner, in determining the deficiency, included the securities in the gross estate at a total value of $ 67,989.58. The decedent was not the owner of those securities at the date of his death. The contracts to buy the securities which the decedent owned at the time of his death had no value at that time. The stipulation of facts and all joint exhibits are hereby incorporated in these findings. OPINION. The Commissioner states the first issue as follows: "Should the value of a dividend in the amount of $ 80.00, on General Electric Co., Inc. stock, which was quoted 'ex dividend' on the date of death of the decedent, be included in the decedent's gross estate?" The answer to that question is "No." The dividend was declared before the decedent died but was payable*55 to stockholders of record on the day after he died. Thus, the dividend was never payable to him and he never had a right to the dividend. Cf. . The amount of the dividend should not be included in his estate in addition to the value of his shares at the date *67 of his death, which value would include the right which those shares then carried to the dividend and, no doubt, would be greater than the value of other shares carrying no rights to the dividend selling "ex dividend" on the date of his death. The Commissioner relies upon a regulation and , both dealing with dividends payable to stockholders of record on a date when the decedent was still alive. The fact that General Electric shares were selling "ex dividend" on the New York Stock Exchange on the day the decedent died, a fact stressed by the Commissioner, is wholly immaterial to the question here presented. Corporations sometimes declare dividends payable in the future to stockholders of record on a date subsequent to the date of declaration, as did the General Electric*56 Company in this case. There could be misunderstanding and controversy as to whether the seller or the purchaser would receive such dividends when contracting to buy and sell after the declaration date but prior to the record date set in the declaration. Such doubt or misunderstanding is avoided by a rule or arrangement of the exchange under which it is specified that on and after a stated date all contracts relating to a particular stock on which such a dividend has been declared will exclude rights to the dividend, i. e., the seller will retain the right to the dividend and the purchaser will acquire none regardless of when the shares are registered in the name of the new owner or his nominee. The expression used to indicate that sales will not include the right to the dividend is that the stock is being sold "ex dividend" and quotations are given "ex dividend." However, such sales prices and quotations have no application here where stock with the rights to the dividend is included in the gross estate at its value on the date of death, September 20. Obviously the price at which other stock was being sold on that day "ex dividend" would not be a proper measure of the value of*57 this stock from which the dividend rights had not been separated. The question of the value at which the General Electric shares held by the decedent on the date of his death should be or were included in his gross estate is not in issue. The remaining issues arise because the decedent was an alien nonresident of the United States at the time of his death and personal property is not includible in his gross estate unless it had a situs in the United States at the time of his death. The parties agree that the Bank of Nova Scotia stock and the loans to the British Treasury had no siti in the United States unless the certificates described in the stipulation and in the Findings of Fact were "treated as being the property itself," as is the case with the ordinary certificates for stock of domestic corporations and the usual evidence of loans, or if there was in connection with them a property right issuing from or enforceable against a resident or domestic corporation of the United States. *68 ; Regs. 105, sec. 81.50. The Commissioner makes no argument that there was in connection with the stock or the loans*58 any property right issuing from or enforceable against a resident or domestic corporation of the United States, so the issue narrows to whether the certificates were or may be treated as being the property itself. The Commissioner argues that the stock certificate was just like the usual certificates issued by domestic corporations, the Treasury Certificates were like bonds or notes, each was the only document issued to evidence ownership, they were treated as being the property itself, and the values of the properties are includible in the value of the gross estate since the properties had siti within the United States. The evidence shows clearly that he is in error with respect to the bank stock. It was "book stock," ownership of which depended upon registration and to no extent upon any certificate. The certificate in question bears no resemblance to the usual certificate for stock of a domestic corporation. There are sometimes in existence several such certificates relating to the same "book stock." They need not be turned in or destroyed when the ownership of the stock changes. They merely indicate who the registered owner of the stock was on the day stated in the certificate. *59 No rights attach to them. They have no value and do not even indicate who owns the stock at any later date. They are never treated in any way as the property itself. The stock had a situs only in Halifax where it was registered. The petitioner's case in regard to the war loans to the British Treasury appears to be somewhat weaker but the evidence shows, by at least a fair preponderance, that the loans also had no situs in the United States. They were the result of unusual war measures adopted by the British Government in an emergency. The borrower issued no bond or other usual evidence of the loans. The loans were strictly between the individual and the Treasury. The "Treasury Certificate" was not a security but merely an acknowledgment that the money had been advanced and would be returned when the lender demanded it. A suit would have to be in England for money loaned. The certificates bore no interest, could not be transferred or negotiated, and could not be sued upon. Each "should" be returned when repayment was demanded and was the only evidence of the transaction issued by the borrower. Nevertheless, the certificates were so unlike securities which are sometimes *60 treated as the property itself that their mere presence here does not justify a holding that the loans had a situs in the United States. The petitioner concedes that the decedent, at the time of his death, had property rights issuing from and enforceable against residents of the United States to buy the blocks of stock for which his broker had contracted on September 19, 1945, but argues that he was not the *69 owner of the stock and the contracts had no value because they required payment of money equal to or in excess of the value of the stocks. The Commissioner's argument is that title to the blocks of stocks passed to the decedent on the 19th. The evidence supports the petitioner. The blocks of stock were not bought on the 19th. The contracting brokers, following well-established rules and practices of the New York Stock Exchange, merely intended to enter into contracts on September 19, 1945, to buy and to sell the stock on September 21, 1945, upon payment, on that same day, of the purchase prices. The decedent never acquired any property rights in any shares which would make him the owner of those shares on the day he died. The property involved was fungible and unascertained. *61 Meyer, The Law of Stock Brokers and Stock Exchanges, sec. 58; ; . No property in the goods passed until they were ascertained on the delivery day of September 21, 1945. New York Personal Property Law, art. 5, secs. 98, 100, art. 6, sec. 162; Uniform Sales Act, sec. 17; ; . The decedent during his life could not sue for specific performance, but only for damage incurred, in case of default by the undisclosed seller. He never acquired voting rights. The stipulation indicates by its silence that no dividend rights were involved. The decedent was never in position to sell the shares but could have made only a short sale. The case of , affirming ,*62 certiorari denied , referred to by the Commissioner, is not in point because it involved a direct sale of specifically ascertained shares expressly appropriated to the contract. Here the decedent's money was still in the bank and not subject to estate tax, the shares, which would represent property having an estate tax situs in the United States, still belonged to undisclosed persons, and the decedent's contracts to buy the stock had no value when he died because the then value of the shares was less than the amount he had agreed to pay for them. Decision will be entered under Rule 50. VAN FOSSAN Van Fossan, J., dissenting: I respectfully dissent from the holding of the majority that the British Treasury Certificates, issued to evidence the non-interest-bearing wartime loans by petitioner to the British Government, were not securities or property having a situs in the United States and includible as part of the gross estate of the petitioner's decedent. *70 On their face, these certificates each represent the unconditional obligation of the British Government entitling decedent to the payment of a fixed sum of money in a designated*63 national currency upon presentation and demand. These are among the essential ingredients of an ordinary bond or debenture. I do not deem it of controlling significance that they were nontransferable and nonnegotiable. Nor do I consider as material the fact that the debt evidenced thereby could probably be collected without presentation thereof should any or all of them be lost or destroyed. Such is commonly the case where nonnegotiable registered bonds are involved. No reason has been suggested why the certificates should be considered as having any value less than the full amount of the debt of which they evidence. In my judgment, these certificates possess sufficient attributes of the intangible property of which they are the written evidence to be treated as being the property itself. ; Regs. 105, sec. 81.50. I would therefore hold that they have a taxable situs within the United States and that the value thereof, in the amount of $ 110,704.50, is includible in decedent's gross estate.