The opinion of the court was delivered by: ABRUZZO
This action was brought to recover the sum of $15,558.39 with interest from August 26, 1935, paid as and for an inheritance tax upon the estate of John W. Weber, deceased, who died May 26, 1933.
The decedent, when he died, left 1,497 shares of the capital stock of William Ulmer, Incorporated, a New York corporation. The Commissioner of Internal Revenue found that these shares of stock had a fair market value of $183.17 per share. The estate, on the contrary, reported that these shares of stock had a fair value of $100 per share on the date of the decedent's death. The amount sued for represents the tax on the increased value of $83.17 per share.
William Ulmer, Incorporated, was originally incorporated as William Ulmer Brewery, and as such was engaged in the manufacture and sale of malt beverages. With the advent of national prohibition, the corporation ceased to manufacture malt beverages but continued in business for the purpose of managing and liquidating assets consisting in the main of real property and mortgages upon real property which had been acquired in connection with its malt beverage business.
The corporation name was changed from William Ulmer Brewery to William Ulmer, Incorporated, in 1930.
When John W. Weber died on May 26, 1933, there were existing 5,500 shares of capital stock which were owned as follows:
John W. Weber 1497 shares
Mrs. Webder 1253 shares
Mrs. Becker 1554 shares
Mrs. Fallert 299 shares
Margaret W. Becker 299 shares
Frederick W. Becker 299 shares
William U. Becker 299 shares
Mrs. Weber and Mrs. Becker were sisters, and all of the stockholders were members of either the Weber or Becker families, and were related to one another either by blood or through marriage.
This stock had never been listed, nor had there been any sales of the same.
The owners of the stock were in perfect accord as to the management of the corporation's affairs and the officers and directors were equally divided between the Weber and Becker families. The decedent was president of the corporation at an annual salary of $12,000; the plaintiff vice president at $6,000; Mrs. Becker secretary at $6,000; and her son, William W. Becker, treasurer at $10,500. Thus, it will be seen that the annual salaries, for five years preceding decedent's death, totaled the sum of $34,500 each year.
There is no dispute that this was closely held corporate stock. The determination of the Commissioner with respect to the value of the stock of this corporation was made under Article 13(3), Treasury Regulations 80, promulgated under the Revenue Acts of 1926 and 1932 as amended, which reads as follows:
"Art. 13. Valuations. -- * * *
"(3) Stocks and bonds. -- * * *
"In the case of the stock of a close corporation, the value shall be determined on the basis of the company's net worth, earning power, and dividend-paying capacity, and all other relevant factors bearing upon the value of the stock. Complete financial and other data upon which the estate bases its valuation should be submitted in duplicate with the return. In the case of the stock of other corporations where the shares are not quoted on a bona fide bid and asked basis and no bona fide sales thereof have been made within a reasonable time of the decedent's death, the value should be determined and supported in the manner indicated in this paragraph."
Under this regulation, the Commissioner appraised the net worth or asset value of the corporation at $1,007,470.44. He then divided that sum by 5,500 representing the number of shares, reaching the conclusion that on May 26, ...