Hanscom v. Commissioner

MELVILLE HANSCOM ET AL., EXECUTORS OF THE ESTATE OF EDWARD E. HANSCOM, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hanscom v. Commissioner Docket No. 44992. United States Board of Tax Appeals 24 B.T.A. 173; 1931 BTA LEXIS 1684; September 25, 1931, Promulgated *1684 1. Credit for state inheritance taxes paid allowed. 2. Respondent's determination of value of stock approved. Chester A. Bennett, Esq., and Elwood Seal, Esq., for the petitioners. L. S. Pendleton, Esq., for the respondent. VAN FOSSAN *173 This proceeding was brought to redetermine a deficiency in estate tax asserted against the estate of Edward E. Hanscom, deceased, in the amount of $4,466.85. The issues are as follows: (1) The failure of the respondent to allow as a credit the sum of $659.16 paid as an inheritance tax to the State of Pennsylvania. (2) The value of 2,297 shares of the capital stock of the Eliot Realty Company owned by the decedent at the date of his death and included in his gross estate. The respondent valued the said stock at $229,700, while the petitioners assert its value to be $114,850. FINDINGS OF FACT. The decedent, Edward E. Hanscom, a resident of Philadelphia, Pa., died August 7, 1926. The petitioners, Melville Hanscom and Minnie B. Hanscom, duly qualified as the executors of Edward E. Hanscom's will. On February 14, 1927, they filed an estate-tax return in which they listed as a part of the*1685 gross estate of the decedent 2,297 shares, par value $50, of the capital stock of the Eliot Realty Company at $114,850, or an alleged book value of $50 per share. *174 On January 20, 1927, the petitioners paid to the State of Pennsylvania an inheritance tax of $5,539.57 on the decedent's estate. The respondent has given credit for such payment. On October 29, 1927, they paid to the said State as a further inheritance tax the sum of $659.16, but the respondent refused to allow the additional payment as a credit against the Federal estate tax. On June 26, 1929, the petitioners filed their petition, claiming the said expenditure of $659.16 as such credit. The Eliot Realty Company was a Pennsylvania corporation engaged in the business of renting, leasing, buying, selling and operating real estate, improved and unimproved. On August 7, 1926, it owned and operated 26 parcels of real estate, 17 of which were located in Ocean City, N.J., and nine in Philadelphia, Pa. It had also other assets such as furniture, fixtures, delivery equipment, stocks in other corporations, accounts and mortgages receivable and cash. The assets of the corporation were carried on its books at*1686 their value as determined by the officers of the company. The book value of the Eliot Realty Company on December 21, 1926, was approximately $59.12 per share. The value of the real estate, which comprised about 90 per cent of its assets was substantially the same on August 7, 1926, as on December 31, 1926, and was fixed at $768,604.95. The stock of the Eliot Realty Company was closely held by the decedent and the members of his family. No sales thereof were ever made to the public. The corporation never declared a dividend. It had no earnings in 1925 and 1926. The outstanding capital stock on August 7, 1926, was $299,770. On December 31, 1926, the surplus was $54,770.77. OPINION. VAN FOSSAN: The first allegation of error is the failure of the respondent to allow as a credit the sum of $659.16 paid as an inheritance tax to the State of Pennsylvania. Section 301 of the Revenue Act of 1926 provides, in part, as follows: (a) In lieu of the tax imposed by Title III of the Revenue Act of 1924, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of*1687 every decedent dying after the enactment of this act, whether a resident or nonresident of the United States: * * * (b) The tax imposed by this section shall be credited with the amount of any estate, inheritance, legacy or succession taxes actually paid to any State or Territory or the District of Columbia, in respect of any property included *175 in the gross estate. The credit allowed by this subdivision shall not exceed 80 per centum of the tax imposed by this section, and shall include only such taxes as were actually paid and credit therefor claimed within three years after the filing of the return required by section 304. A payment of $5,539.57 made by the petitioners on January 20, 1927, as an inheritance tax to the State of Pennsylvania was duly credited by the respondent, but an additional payment of $659.16, made on October 28, 1927, after the return was filed, was not allowed. The petitioners paid the inheritance tax of $659.16 imposed by the State of Pennsylvania upon the transfer of the estate of Edward E. Hanscom, included in his gross estate for Federal estate-tax purposes. The petition filed by the petitioners on June 26, 1929, constitutes a claim*1688 for such payment as required by section 301(b). The total sum of $6,198.73 does not exceed 80 per centum of the tax legally due under that section. Therefore, the amount of the tax so paid, or $659.16, should be allowed as a credit. The second issue involves the valuation of the stock of the Eliot Realty Company as of August 7, 1926. The capital stock of the Eliot Realty Company was closely held by members of the decedent's family and no sales thereof were ever made to the public. Under such circumstances the value of the stock is determined on the basis of the assets underlying the capital stock, and the earnings of the corporation. ; . There were no earnings in 1925 and 1926 and no dividends had been declared during the corporation's existence. Hence, the value of the real estate and other assets owned by the corporation on August 7, 1926, is determinative of the value of the stock. The sole witness as to the value of the real estate was Edward Hanscom, Jr., treasurer of the corporation and son of the decedent. He was unable to qualify as an expert in real*1689 estate value in Ocean City, N.J., and Philadelphia, Pa. He testified merely that the book values of the properties were substantially correct. The experience of this witness was insufficient to give his opinion any substantial weight. The record does not disclose any persuasive evidence that the fair market value of the real estate holdings of the Eliot Realty Company was other than that fixed by the respondent. Therefore, the valuation of the 2,297 shares of the capital stock of the Eliot Realty Company at $229,700 as determined by the respondent is approved. Reviewed by the Board. Judgment will be entered under Rule 50.