Court Opinion

ID: 9456643
Source: CourtListenerOpinion
Date Created: 2023-08-04 19:59:26.365288+00
Date Added: 2024-06-11T17:35:03.825889
License: Public Domain

DAVIS, Judge
(dissenting in part):
Although the court’s opinion adopts much of Commissioner Gamer’s underlying reasoning, it balks at his most significant intermediate conclusions and also at his ultimate determination that the stock was worth no less than $900 per share. I consider his opinion and conclusion correct, and I would follow him entirely.1
One of the two principal differences between the court and the trial commissioner concerns the evaluation of the stock by the Internal Revenue Service for the other estates. Commissioner Gamer thought, and I agree, that the valuations accepted for these other estates “contribute little of probative value in the solution of the problem involved in this case.” He cited Fitts’ Estate v. Commissioner of Internal Revenue, 237 F.2d 729, 733-734 (C.A. 8, 1956), in which the court ruled that the Tax Court did not abuse its discretion in excluding testimony concerning the valuation of unlisted, closely held stock *1222in another estate where “[t]here is no indication as to how the values [of the stocks in the other estates] were arrived at * * *.”2 After detailing the six instances of valuation of the instant stocks in other estates, the trial commissioner pointed out that:
“Thus, an analysis of the situation in each of the six estates upon which plaintiff relies so heavily fails to reveal in any of them what the considerations were that led to the acceptance by the Internal Revenue Service of the valuations indicated. In four of the six, there is no evidence that any investigation was initiated by the Service, the taxpayer’s valuation merely being accepted as filed. And as to the first of the other two, in which, after a consideration of the company’s financial statements for prior years, the valuation was raised from $275, as set forth in the return, to $450, there is nothing to indicate the basis for such $450 figure or why it was selected. The second simply used the figure of the first. The evidence concerning these other estates has little probative value in the solution of the factual problem here involved of determining the fair market value of the 337 shares of S & R stocks as of April 24, 1961.
The ‘equality of treatment’ principle applied to the excise tax problem involved in International Business Machines Corp. v. United States, 170 Ct.Cl. 357, 367, 343 F.2d 914, 920 (1965),7
7. “Equality of treatment is so dominant in our understanding of justice that discretion, where it is allowed a role, must pay the strictest heed.’
cert. denied, 382 U.S. 1028 [86 S.Ct. 647, 15 L.Ed.2d 540] (1966), which plaintiff emphasizes, has no applicability to the estate tax problem here involved. The court’s concern in that case was the adverse competitive effects of the inconsistent positions of the Internal Revenue Service upon the operations of two similarly situated business competitors. The Commissioner there exercised a statutorily conferred discretion by denying an application for an excise tax exemption in one situation and granting it to a competitor identically situated. The court refused to sanction such discrimination between the two business concerns operating in the field. It construed the statute as directing the Commissioner to apply equality of excise tax treatment to competitors similarly situated. Obviously, such a situation is hardly applicable to the type of estate tax issue here involved which concerns only the factual problem of fair market value of a certain block of stock on a certain date. The Internal Revenue Manual merely provides that ‘it may not be necessary to make another detailed analysis of the stock’ in the situation where ‘a valuation has been made in a prior estate * * * provided the valuation date on the prior estate is within reasonable proximity to the current date and the pertinent facts have not changed substantially.’ Surely, such a discretionary authorization in limited situations neither constitutes a directive to the agents to accept at all times in the future a stock valuation made in a prior estate, nor does it give a taxpayer anything in the nature of a vested right to have the prior valuation applied to his return. As the court stated concerning the gift tax involved in Wagner v. United States, 181 Ct.Cl. 807, 817-818, 387 F.2d 966, 972 (1967), with respect to a charge of alleged discrimination against the taxpayer:
‘Nor did discrimination result from the circumstances that other persons * * * may have never *1223paid a gift tax ■***.**» The fact that all taxpayers or all areas of the tax law cannot be dealt with by the Internal Revenue Service with equal vigor and that there thus may be some taxpayers who avoid paying the tax cannot serve to release all other taxpayers from their obligation. As this court said in Kehaya v. United States, 174 Ct.Cl. 74, 78, 355 F.2d 639, 641 (1966): “The Commissioner’s failure to assess deficiencies against some taxpayers who owe additional tax does not preclude him from assessing deficiencies against other taxpayers who admittedly owe additional taxes on the same type of income. The Commissioner might reasonably conclude that a reaudit of * * * returns * * * would not produce sufficient additional revenue to justify the undertaking. Such a decision would certainly not be arbitrary.” ’ ”
The other major disagreement between court and trial commissioner hinges on the treatment of the evidence given by the Government’s experts. Plaintiff presented no expert evidence at all, and in the commissioner’s eyes (as in mine) the material on which plaintiff does rely (the sale to Mr. Tobias, the other valuations by IRS, the testimony of Miss Righter and Mr. Tobias, the statement in the will) is all “unacceptable” as proving value. On the other hand, as the commissioner says, the “evidence of fair market value presented by defendant [through its expert witnesses] is based upon a sound approach and is, from a financial analysis viewpoint, entirely reasonable.” As a result, he properly considered that he was justified in placing his ultimate conclusion as to the fair market value of the S & R stock (as of April 24, 1961) “within the confines of the opinions of defendant’s experts.”
The trial commissioner did not neglect the “unfavorable” factors which both the plaintiff and the court stress. He said:
“Some of these factors were, however, given ample consideration in the very large discounts from the market values indicated by the application of the comparative appraisal method which the experts took in arriving at their final conclusions. Others, such as the vulnerability to strikes, were not considered to be any more serious than generally applicable to manufacturing businesses.. The loss of experienced sales personnel affected in no way the continually increasing sales under a new Sales Manager (appointed in 1959) who had substantial and successful experience with the company, first as a salesman and then as Assistant Sales Manager. And the long, apparently satisfactory association S & R had with its licensor, the manufacturing capacity and experience which S & R had and which the licensor did not, and the substantial royalties the licensor was receiving, would hardly lead an investor to believe that the licensor would soon decide to invest in greatly increased manufacturing facilities and go into direct competition with its licensee.
In view of the steadily increasing trend of the company’s earnings during the five-year 1956-1960 period preceding the valuation date, the company’s ability to establish Scrabble as a staple game in the industry, its steady growth in assets, its plant enlargement program initiated in 1960 and still in process as of the valuation date, indicating confidence by the management in the company’s future, its efficient management, as demonstrated by its ability to produce good profit margins and effect good cost controls, and the particularly favorable investment climate at the date of valuation, both for stocks in general and for stocks in the game and toy industry in particular, it is concluded that the fair market value of the 337 shares of S & R stock as of April 24, 1961, was $900 per share. This is at the lowest end of the range testified to by defendant’s experts. Such a *1224valuation reflects an extremely conservative price-earnings ratio of 7.8 to 1, and a generous (as of such date) dividend yield, based on 1960 dividends, of 5.5 percent.21 Such value
21. As against the then 3.4 percent yield on the stocks composing the Dow-Jones industrial average.
would simply be approximately equal to the December 31, 1960 book value of $899.81. Based on this record, no lower valuation would appear to be warranted.” 22
22. Plaintiff’s proposed valuation of $424.-90 would, based on the 1960 earnings of $123.32 per share, result in a price-earnings ratio of only 3.5 to 1 (at a time when such ratio of the four comparatives used by Mr. Goulston averaged 29.55 times earnings and the stocks in Standard & Poor’s Industrial Index averaged 23 times earnings) ; a dividend return, based on 1960 dividends of $50 per share, of 11.3 percent (at a time when the Dow-Jones industrial stock average was 3.4 percent) ; and in a book value of one-half (as against the comparatives, whose prices averaged 5.76 times book value, and the stocks in Standard & Poor’s Industrial Index, whose prices, as of the end of 1960, averaged around twice book value).
In rendering a “jury verdict” of $700 per share, the court seems to me to have no sound basis at all for its finding since there is no evidence whatever pointing to any figure in that range, and the amount of $700 is not, as in some cases, within the span of conflicting expert testimony. I do not know how the court arrived at it, and the opinion does not explain. Cf. United States v. Nez Perce Tribe of Indians, Appeal No. 2-70, decided this day. For myself, rejecting as I do plaintiff’s evidence as wholly unpersuasive, I must agree with Commissioner Gamer that our choice has to be within the range of values testified to by the Government’s experts.3 There is no adequate reason, in my view, to reject the views of these two qualified witnesses, one of whom was not connected with the Government and had had great experience in valuations of this type, especially since the trial commissioner heard and credited them.
LARAMORE and DURFEE, JJ., join in the foregoing opinion dissenting in part.

. There is now no dispute as to the charitable deduction issue, since plaintiff does not seek review of the trial commissioner’s adverse holding on that point.

. The Eighth Circuit also said: “ * * * the valuation of the stock in. the case of one taxpayer would be no 'binding adjudication of its value in the case of another taxpayer, and such evidence would be of little probative value in the absence of a showing that the valuation was arrived at after a thorough investigation.”

. Defendant errs in saying that one must accept the $1,000 figure (which the IRS used) once one concludes that plaintiff has failed to prove any lower figure. By putting in its own affirmative evidence of value, the defendant opens the way for the trier to take account of that evidence in coming to a final conclusion. Here, defendant’s own evidence leads one to infer that $900 (rather than $1,000) is the better figure.