Opinion ID: 1480148
Heading Depth: 1
Heading Rank: 1

Heading: The Decedent's Interest in the New Firm.

Text: Only one question arises as to the appraisal of the decedent's interest in the New Firm, and that depends upon the following facts. In 1930 a new partner, named Howland, was taken into the firm for five years and the articles provided that at the end of that time he might retire and sell his interest for $2,000,000. This he did on January 1, 1935, and the petitioner was compelled to pay the decedent's proportion of this which was $100,000. The Commissioner appraised her interest in the New Firm at $167,288.60, and her argument is that he should have subtracted from that figure the greater part of this payment. Specifically she argues, since Howland's interest in the business was only two twenty-fourths as to one class of enterprises  in which the decedent's was five twenty-fourths  and one-tenth as to the other class in which the decedent's was one-fifth  that if the decedent's interest was worth only $167,288.60, Howland's could have been worth no more than $85,000 (she says $50,000). In that event the decedent's share in Howland's interest acquired in 1935 could not have been worth more than $4,000, so that her payment of $100,000 was a loss of more than $95,000 by which the decedent's interest in the New Firm should have been reduced. There are two answers to this. First, the decedent's interest in the New Firm was appraised more than four years before Howland's interest was valued at $2,000,000 and the two sums are therefore not commensurable. Second, it by no means follows that Howland withdrew or was expected to withdraw each year the full amount which he contributed to the firm assets. His privilege was not a gratuity, and unless it was his withdrawal should have left the firm no worse off than if he had never joined. Whatever the fact, such at any rate must have been the understanding at the outset and the contract had gone for so small a part of the five years that nobody could reasonably have declared on September 28, 1930, that Howland's connection with the firm would result in a loss. At least it rested upon the petitioner to show that that was true and she did not do so. The Collateral for the Son's Obligation. The decedent had deposited certain shares of stock with the Old Firm as collateral for his guaranty of his son's future liability. This collateral was sold and the petitioner asserts that no part of the proceeds which took its place should have been included in the decedent's estate. This extreme position is clearly wrong; it did not follow because it was eventually necessary to use the collateral that that was evident on September 28, 1930. On the other hand, it was improper to include the collateral as though it had not been subject to the pledge. When a decedent has pledged part of his estate upon a debt of his own it is reasonable to include it at its full value because he gets a deduction for the debt, but when he pledges it for the debt of another  even a debt which he has guaranteed  that is not so. The problem is the same in kind as in the case of the decedent's interest in the Old Firm itself; and it was necessary to make some allowance for the same chances that infected the decedent's interest in the assets of the Old Firm. As to this item there must therefore be a reappraisal.