Bromley v. Commissioner

JOHN BROMLEY AND WILLIAM H. KINGSLEY, EXECUTORS, ESTATE OF HELEN KINGSLEY BROMLEY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Bromley v. Commissioner Docket No. 29328. United States Board of Tax Appeals 16 B.T.A. 1322; 1929 BTA LEXIS 2409; July 9, 1929, Promulgated *2409 1. ESTATE TAX. - Commissioner's valuation of stock sustained for lack of evidence to show error. 2. ID. - Policies of insurance upon which decedent's husband paid the premiums held to be policies taken out by decedent upon her own life, and the face amounts properly included in the gross estate. Murray H. Spahr, Jr., Esq., for the petitioners. Richmond H. Ritterbush, Esq., for the respondent. ARUNDELL *1323 Proceeding for the redetermination of a deficiency in estate tax under the Revenue Act of 1924 in the amount of $27,234.13. Petitioners allege that the respondent erred (1) in fixing the value ascribed to certain stock owned by petitioners' decedent, and (2) in failing to pass upon a protest in regard to the inclusion in the gross estate of the face amount of two insurance policies. FINDINGS OF FACT. Petitioners are the executors of the estate of Helen Kingsley Bromley, who died on December 28, 1924. At the time of her death decedent was the owner of 250 shares of common stock of the Rodgers Hosiery Co., par value $100 per share, and 400 shares of the North American Lace Co., par value $1,000 per share. The values at*2410 which these stocks were reported by the executors, the values recommended by the supervising internal revenue agent, and the values fixed by the respondent were as follows: Stock Value reported Revenue agent's Respondent's valuation valuation Rodgers Hosiery Co $25,000 $62,500 $92,500 North American Lace Co 400,000 480,000 720,000 The Rodgers Hosiery Co. was engaged in the business of manufacturing full fashioned hosiery. It was founded in 1919 by Clarence V. Rodgers and John Bromley, the latter of whom was the husband of the decedent. All of the preferred stock of the company was owned by Bromley and his family. All the common stock was owned by Bromley and his family and Rodgers, except one share, which was owned by Rodger's father-in-law. The machinery used by the company is large and expensive and can not be used for any other purpose. The North American Lace Co. was founded in 1903 by William L. Turner and Joseph H. Bromley, who have been associated in business for many years. The business of the company is that of manufacturing lace curtains and dress laces. Both of these products are manufactured on very complicated and expensive*2411 machines, which are not adaptable to any other use. The machines require buildings specially constructed to house them, and are operated by highly skilled labor which is difficult to obtain. Since 1920 competition in the company's business field has been very keen, and the demand for its products has lessened due to changes in styles of women's clothes. *1324 During the first 12 years of the company's operation the officers drew merely nominal salaries. After that period the salaries were increased, but were still low in proportion to the size of the business conducted. The stock of the North American Lace Co. has never been offered for sale to outsiders. In July, 1926, the stock of William L. Turner was purchased from his estate by the company at $1,500 per share, and at the same time and the same price the company purchased a small block of stock standing in the name of Mrs. Turner. The price paid was agreed upon by representatives of the company and the executors of Turner's estate, and represented what was thought to be the liquidating value of the stock. At that time the book value of the stock was $2,000 per share. Decedent, at the time of her death, was*2412 insured in the Penn Mutual Life Insurance Co. of Philadelphia and in the Aetna Life Insurance Co. of Hartford, each policy being in the face amount of $50,000. The Penn Mutual policy, issued November 23, 1923, was an ordinary life policy with the insurance payable to the "executors, administrators or assigns" of the assured and reserving the right to her to change the beneficiary. The Aetna Life policy, issued December 3, 1923, was a 55-year endowment policy. Under its terms the principal sum was payable to the insured if she survived the premium-paying period, and in the event of her death during the period the principal sum was payable to her "executors, administrators or assigns." Under this policy the insured had the right to change the beneficiary as often as desired. In each case the decedent signed the application for insurance. All premiums under both policies were paid by the decedent's husband who kept the policies in his safe-deposit box. No monetary consideration moved from the insured to her husband for the payment of the premiums. OPINION. ARUNDELL: On the first issue - the valuation of stock included in decedent's estate - the respondent must be sustained, *2413 because of the lack of evidence to show the values to be other than those fixed by him. A witness who is an officer of both companies in which decedent owned stock gave what he thought was a fair value of the stock of each company, but his testimony discloses a striking lack of familiarity with any facts with which to support his testimony or by which the soundness of his conclusion might be tested. We are told when the corporations were founded, what their business was, that officers' salaries were low, and the book value of the stock of one of the companies in 1926. That is about all that the record contains. We are not given any of the factors which were present in , relied upon by petitioners, and *1325 which might enable us to determine the value of the stock. On the record as it stands we are not disposed to accept the conclusion of the one witness as to value. See ; . The error alleged as to the insurance on decedent's life is in the following words in petition: The failure to pass upon the exception*2414 in the protest to the inclusion in Schedule C - Mortgages, Notes, Cash and Insurance - of the item of $100,000 being the fact [face] amount of two policies of insurance paid to the Executors of the Estate of the decedent. This is rather an ambiguous allegation and we take it that petitioners do not intend for us to consider it literally, for certainly we have no power to say that the respondent erred in "the failure to pass upon" any question presented to him. We take it that petitioners intend to put in issue the question of whether the face amount of the policies should be included in decedent's gross estate. The case was tried on the theory that this was the question involved and we will consider it accordingly. Section 302 of the Revenue Act of 1924 provides for the determination of the value of the gross estate of a decedent by including the following: (g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life. Petitioners direct*2415 our attention to the words "taken out by the decedent upon his own life," and argue that because John Bromley, and not the decedent, paid the premiums on the policies and because he kept the policies in his possession, the insurance payable under the policies was not "taken out by the decedent" upon her own life. If the policies were not taken out by the decedent upon her own life, by whom were they taken out? Not by John Bromley, for, while he had an insurable interest in the life of his wife (, he did not apply for the insurance on her life and he was not the beneficiary. The decedent herself applied for the insurance, which in the case of one of the policies was payable to her in the face amount if she survived the premium-paying period, and in the event of her death before the expiration of the period it was payable, as was the insurance under the other policy, to her executors, administrators or assigns. It so happens that the husband, John Bromley, is one of the executors but this is a mere coincidence. He, with his coexecutor, was entitled to collect the insurance but only as executor*2416 and not in his individual capacity. *1326 Petitioners cite article 25 of Regulations 68 which construes section 302(g) of the 1924 Act and reads in part as follows: Insurance is deemed to be taken out by the decedent in all cases where he pays all the premiums, directly or indirectly, whether or not he makes the application. On the other hand, the insurance is not deemed to be taken out by the decedent, even though the application is made by him, where all the premiums are actually paid by the beneficiary. Petitioners further cite a ruling of the respondent dated September 15, 1922, not officially reported, where a wife out of her separate income paid premiums on insurance she had taken out on the life of her husband, their children being named beneficiaries, with the provision that if the children predeceased the insured, the insurance was to be paid to the wife, if living, otherwise to her estate. It was held that, upon the death of the husband while the children were living, the amount paid to the children as beneficiaries under the policy described should not be included in the decedent's gross estate. Assuming, without deciding, that these rulings correctly*2417 interpret the law, they do not fit petitioners' case. The ruling quoted from the regulations supposes the premiums to have been paid by the beneficiary, which is not the case here. In the other ruling mentioned, the insurance was actually "taken out" and premiums paid by one other than the insured and who, in the case of the death of the first-named beneficiaries, automatically became the beneficiary. In our opinion it must be held that the policies here involved were taken out by the decedent upon her own life and the proceeds are properly to be included in determining the value of her gross estate. Cf. . Judgment will be entered for the respondent.