Stricker v. Lindley

Celebrezze, J. The instant cause concerns valuation of United States Treasury H bonds issued prior to March 4, 1971. Provision was made in the public debt chapter of the United States Code (Section 765, Title 31) authorizing receipt of such bonds at par plus accrued interest in payment of taxes on the estate of the deceased holder. Because of this unique capacity for effecting federal estate tax savings these bonds are popularly referred to as “flower bonds.” However, to the extent that flower bonds can be used to pay estate taxes, they are includible in the federal gross estate at the higher of par value or market value on the date of death, plus accrued interest, even though they may be selling below par on the date of the holder’s death.1 The sole issue presented by this appeal is whether the bonds in question should have been included in the decedent’s Ohio estate tax return at their par value, or at their market value on the date of Mr. Kaufman’s death. The definition of the term “market value”2 has been [233] codified within R. C. 5731.01(B), which section provides as follows: “The value of any property included in the gross estate shall be the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. All relevant facts and elements of value as of the valuation date shall be considered in determining such value.” It is the position of the Tax Commissioner that daily market price quotations from a stock exchange cannot establish the proper value of these particular bonds for estate tax purposes. Rather, it is contended that by dying Kaufman “enabled his estate to ‘sell’ the bonds to the Federal Government at face value to pay federal death taxes,” thereby creating another market for the estate which was “different from the market in which living persons dealt.” Thus, appellant urges that under the present circumstances par value is equivalent to this unique “market” value. We find this argument to be untenable. As the appellate court below so succinctly observed: “* * * The executor of the deceased’s estate is not a willing seller as he must redeem the bonds to the extent there is federal estate tax liability or subject himself to an action for breach of fiduciary duty. Nor can the Treasury Department of the Federal Government be considered a willing buyer when it accepts bonds at par value, since it has previously contracted itself by the terms of the bonds to do so. Yet the Ohio statute unequivocally sets out a ‘willing buyer-willing seller’ standard. Thus, it cannot be said that the statute authorizes recognition of an additional market created by the United States Government at the date of decedent’s death.” [234] Appellant contends further that, by virtue of the second sentence in R. C. 5731.01(B), any factor which would influence the value of the disputed bonds must be considered in the determination of their value. In effect, appellant argues that the valuation of property included in a gross estate must reflect what the property is worth to' the estate, not what the property was worth to a decedent, vis., the open market price on the date of death. Clearly, appellant’s line of argument confuses market value, the standard defined by the General Assembly in R. C. 5731.01(B), with actual value, in this instance the peculiar augmented value realized only when the executrices were able to utilize the flower bonds to extinguish federal estate tax liability. Although the second sentence of R. C. 5731.01(B) states that “[a]ll relevant facts and elements of value as of the valuation date shall be considered in determining • such value,” we believe it apparent that “such value” refers to the market valuation standard set forth in the preceding sentence. In In re Estate of Power (1970), 156 Mont. 100, 476 P. 2d 506, the Supreme Court of Montana, in a situation similar to the one herein, construed the Montana inheritance tax statute, which specified the “clear market value” standard. The court held that the value, for state inheritance tax purposes, of United States Treasury H bonds, was the market value, and not the face value of the bonds, commenting as follows at page 106: “In our view where, as here, ‘clear market value’ is the standard of valuation for Montana inheritance tax purposes, a peculiar value to an individual executor not reflected in the market generally has no place in inheritance tax valuation. Such inflated value to a particular executor is not the ‘clear market value’ to which the statute refers. -And what better evidence'of market value exists than the price commanded by such bonds in open market transactions ? “The redeemability of United States Treasury bonds at par in discharge of federal estate tax liability is one element of their value reflected in the price at which they [235] can he bought and sold in the open market. To attribute an additional value to them in the hands of an executor who is in a position to so use them not only destroys the standard of ‘clear market value’ governing inheritance tax valuation, but amounts to double taxation of the same ‘element of value.’ ” Accord In re Estate of Voss (1973), 55 Ill. 2d 313, 303 N. E. 2d 9. We share the belief that the potential for tax savings inherent in flower bonds is a relevant factor in the determination of their market value, and as such is undoubtedly reflected in over-the-counter market quotations. Because this court may not sanction any deviation from the market value standard set forth in R. C. 5731.01(B) we must conclude that the Probate Court erred in determining that the United States Treasury H bonds should have been listed at par value in the decedent’s Ohio estate tax return. The parties have stipulated that decedent died on a Saturday, having purchased the bonds in question on the last preceding business day. Accordingly, in this instance the purchase price constituted the market value on the valuation date. It is therefore unnecessary to remand this cause for a determination of the value of the bonds, as had been ordered by the appellate court below. As modified, the judgment of the Court of Appeals is hereby affirmed. Judgment affirmed. Herbert, W. Brown, P. Brown and Sweeney, JJ., concur. O’Neill, C. J., and Looker, J., dissent. Footnotes [1] See 34 American Jurisprudence 2d 750, Federal Taxation (1978), Section 8514; Revenue Ruling 69-489, C. B. 1969-2, 172. [2] Paragraph two of the syllabus of In re Estate of Sears (1961), 172 Ohio St. 443, defines market value as follows: “Market value is the fair and reasonable cash price which can be [233] obtained in the open market, not at a forced sale or under peculiar circumstances but at voluntary sale between persons who are not under any compulsion or pressure of circumstances and who are free to act; or, in other words, between one who is willing to sell but not compelled to do so and one who is willing to buy but not compelled to do so.”