Court Opinion

ID: 4599446
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:23:23.32+00
Date Added: 2024-06-11T07:52:08.042583
License: Public Domain

Estate of Frederick Webb, The Fall River National Bank, Executor v. Commissioner.Estate of Webb v. CommissionerDocket No. 111689.United States Tax Court1944 Tax Ct. Memo LEXIS 262; 3 T.C.M. (CCH) 440; T.C.M. (RIA) 44151; May 8, 1944*262  Harold B. Tanner, Esq., 15 Westminster St., Providence, R.I., and Richard K. Hawes, Esq., 57 N. Main St., Fall River, Mass., for the petitioner. Melvin L. Sears, Esq., for the respondent.  OPPERMemorandum Findings of Fact and Opinion OPPER, Judge: This proceeding involves a redetermination of a deficiency in petitioner's estate tax of $191,085.53. Petitioner claims an overpayment of tax in the amount of $63,810.39. The only issues presented involve the valuation of stocks in five merchandising and two real estate corporations. Findings of Fact The facts stipulated by the parties are hereby found accordingly. Facts hereinafter recited which are not from the stipulation are facts otherwise found from the record. Petitioner is the duly qualified executor under the will of Frederick Webb, who died a resident of Rhode Island on December 7, 1938. The estate tax return was filed with the collector of internal revenue at Providence, Rhode Island. The companies, the value of whose stock is in question, the number of shares of preferred and common stock therein held by the estate, and the number of shares outstanding are as follows: PreferredCommonCorporationEstateOutstandingEstateOutstandingCherry & Webb Co. (Fall River)4371,2507872,250Cherry & Co., Inc. (New Bedford)9353,0008182,700Cherry & Webb Co. (Lawrence)5001,0006001,210Cherry & Webb Co. (Lowell)3322,0003232,070Cherry & Webb Co. (Providence)5632,2501,9337,587Cherry Realty Co.001651Cherry & Webb Realty Co.005,28711,450*263  The above-named companies will be hereinafter referred to for convenience by the name of the town in which they are located, except the realty companies. No one of the blocks of the securities listed constitutes a controlling interest in the respective corporations. The sale of one of the blocks of stock to an existing stockholder might give such a purchaser control of the respective corporations. There are no known sales or bid and asked prices for any of the securities here involved either on or near April 7, 1938. On or about May 1, 1942, there was a sale of 200 shares of preferred and 200 shares of common of Lawrence at $95 and $100 per share, respectively, to the Lawrence Company. These sales were made under the terms of a trust created by decedent and were for the purpose of providing funds with which to pay the trust's proportion of Federal estate taxes. The trustee thought that the price represented the fair value of the stock at the time of the sale. This conclusion was based upon a valuation by Chelcie C. Bosland and reflected his estimate of improvement in business since April 7, 1938, at which time he had valued the preferred stock of Lawrence at $90 per share, the common*264  stock at $75 per share. William J. Cherry and decedent began the business of Cherry & Webb about 1894. They first had a store in Fall River. They were joined by George Cherry in organizing the store in New Bedford a few years later. The Providence store was organized by William J. Cherry and decedent. Later they bought out a store which became Cherry & Webb of Lowell. and in about 1912 they organized Cherry & Webb of Lawrence. The stores are operated as individual stores and sell ladies' apparel, specializing at first in cloaks, suits, and dresses, but later adding departments such as hosiery. undergarments, and other apparel. They sell a small amount of men's goods. With the exception of the Providence store, which is rented from outside interests, the stores were located in buildings owned by one or the other of the two realty companies. In 1938 the towns of Fall River, New Bedford, Lowell, and Lawrence were on the down grade, having suffered severe economic reversals. Lowell was particularly depressed. The populations of these towns had declined from 1920 to 1940 and Fall River, New Bedford, and Lowell had been affected by the shift of the cotton textile industry to the South. *265  Lawrence was largely dependent upon the state of the woolen textile industry, which fluctuates greatly and was considerably depressed during most of the twenties, experiencing a revival in the late thirties. The Lawrence location was subject to severe competition from Boston stores. Providence has a more substantial economic background by reason of its diversified industry and business. It has an assured but not rapidly growing economic foundation. Women's apparel stores, because of style changes, require particular skill in merchandising. They are subject to the effects of business cycles, and in depressions they are first to be affected because of the semi-durable nature of apparel. The risk of change in management is present, as well as the competition from the small store not requiring much capital because of its small stock of low-cost goods and low rental overhead. Competition from the "hole-in-the-wall" type of store was increasingly severe in the years leading up to 1938. The stores here in question were built up by the application to the business of earnings resulting from successful operation under good management. The stores have had generally good earnings records. The*266  high peak of earnings in the late twenties fell with the business decline thereafter. Between 1928 and 1938 Fall River. New Bedford, and Lawrence each had one year resulting in a net loss. The earnings per common share, and per preferred share in the case of Lowell, for the periods indicated per year were as follows: LowellFall RiverLawrenceCommonPreferredProvidenceNew BedfordAverage Earnings pershare 1937$ 5.71$ 9.95Nominal$6.40$11.91$10.20Average Earnings pershare 1935-379.8218.12Nominal9.869.1712.76Average Earnings pershare 1932-375.3214.04Nominal6.594.806.28Average Earnings pershare 1928-3712.4010.87Nominal9.2414.709.19After the deficit years all of the stores made substantial recoveries in net income, but by 1938 Lawrence was the only store whose net income approximated the most favorable net income of the period prior to the depression. For the years 1928 through 1938, inclusive, the stores paid dividends on their common stock as follows: Fall RiverLawrenceLowellProvidenceNew Bedford(2,250 shares)(1,210 shares)(2,070 shares)(7,587 shares)(2,700shares)1928$22,50000$ 66,5000192945,00000133,5000193045,00000134,0000193122,5000067,0000193200000193300000193400030,3480193500037,9350193600045,5220193700045,5220193800045,5220*267  For the period 1928 to 1938, inclusive, the stores paid dividends on their preferred stock as follows: Fall RiverLawrenceLowellProvidenceNew Bedford1,250 shares1,000 shares2,000 shares2,250 shares3,000 shares128% cumulative8% cumulative8% cumulative8% cumulative8% cumulative1928$15,000$20,0000$30,000$51,000192915,0004,000030,00051,000193015,0000030,00012,000193115,0000030,0000193215,00020,000030,00001933016,00009,0000193400018,0000193500027,0000193630,00024,000$24,00018,00036,000193710,0008,0008,00018,00036,000193820,0008,00016,00018,00024,000For the period 1928 to 1938, inclusive, preferred dividend requirements were earned the number of times designated as follows: Fall RiverLawrenceLowellProvidenceNew Bedford19284.491.290.229.754.5419294.63def.1.008.565.0519305.403.883.798.101.3819313.293.261.927.06def.1932def.0.580.540.150.4519331.373.880.571.040.3919342.313.040.213.022.0819352.543.982.194.272.4619364.804.722.024.302.7019372.281 (2.50)0.816.022.151.1819384.791.701.616.941.82*268 The general supervisory management of the stores was performed by William Cherry and decedent. They and one or two others held all of the stock in the stores. Cherry was the merchandiser and the imaginative, dynamic member of the partnership, and decedent devoted his efforts to the detail management such as maintenance of the records. Between the two the policies of the businesses were determined. At the time of decedent's death Cherry was reaching an advanced age. There was a serious business recession in the Spring of 1938. It was a period of increasing unemployment and great pessimism. This condition was reflected in the stock market in which stock prices fell almost 50 percent between April, 1937, and April, 1938. Slight improvement occurred early in April of 1938, but the condition was still extremely difficult. Common stock in a number of instances had April 7, 1938, market prices which were less than the respective net current assets per share and also below the respective book values per share. On April 7, 1938, the stock market price for the following stocks, the high 1937 stock market price, and the *269  1937 dividends were as follows: Company and(1937 Dividend)April 7, 1938High 1937Am. Smelting & Refg.( 5.00)33105Am. Tel. & Tel. Co.( 9.00)124187Anaconda Cop. Min. Co.( 1.75)2469Bethlehem Steel( 5.00)43106Chesapeake & Ohio( 3.80)2669Chrysler Corp.(10.00)40135Cons. Edison( 2.00)1950Du Pont( 6.25)96180General Electric( 2.20)3165General Motors( 3.75)2971Int. Harvester( 4.00)55120Int. Nickel( 2.25)4273Montgomery Ward( 4.90)2869New York Central(none)1255Socony-Vacuum( 0.80)1223Texas Corp.( 2.25)3665Union Carb. & Carb.( 3.20)61111Union Pacific( 6.00)62149U.S. Steel( 1.00)41126Westinghouse E. & M.( 6.00)68168Purchasers of stock are interested in a company's working capital position, its future earnings and dividends. Where the stock being sold carries a substantial ownership of the company and a voice in its operations, the payment of dividends is not of paramount importance. A potential purchaser is also interested in the marketability of a security and the possibility of gain on its sale. A search by Bosland of apparel stores for*270  whose stock there was a market disclosed, after consideration of some 120 companies, seven ladies' apparel stores comparable to those of petitioner. The qualifications for such stores were that they handle wearing apparel exclusively (that is, they must not be department stores); that they have earning records disclosing not more than two years of deficits in the last ten years; and that their stock have a market quotation. The stores primarily comparable and their economic history in so far as pertinent are as follows: (Adjusted to Common Stock Outstanding Jan. 31, 1938) Calendar YearBlauner's (1911)I. Magnin & Co. (1876)Phila. & 26 storesSan Fran. & 8 BranchesSalesPer ShareSalesPer share(000)Earn.Div.(000)Earn.Div.19285854.320.609,4872.871.0019297255.101.2010,9842.681.3819304.65a 2.0010,0901.941.501931Not2.24a 2.008,8130.801.331932Stated0.951.006,7061.140.3319330.331.006,7140.42019342.001.007,9150.680.4019351.341.008,9891.150.47193610,6212.181.0010,2892.021.50193711,4261.081.0010,6591.551.00Current Assets 1/31/38 (000)1,5304,633Current Liab. 1/31/38 (000)5021,021Net Current Assets1,0283,612Cash (000)471264Mkt. Value of Sec. Owned (000)196240Cash Value of Life Ins. (000)111214Tang. Book Value per Share Common8.60 16.7011.50Net Current Assets per Sharenil9.50Price of Stock 4/7/3810 1/29 1/4No. of Common Shares out 1/31/38121,937263,145Stock quoted onN. Y. CurbSan F. S.E.Capital Structure (000)Long term debtAdjustedPreferred Stock981,0791,164Common & Surplus2,0331,0523,0432,1312,1314,207Real Estate OwnedNoneNoneNone*271 (Adjusted to Common Stock Outstanding Jan. 31, 1938) Calendar YearRoose Bros. (1865)Best & Co. (1879)Cal. 9 storesNew York & 9 BranchesSalesPer ShareSalesPer Share(000)Earn.Div.(000)Earn.Div.19285,0414.152.5013,3463.261.5019295,4133.732.5014,6144.201.6319304,9522.782.5015,0984.152.0019314,4500.541.6613,8223.022.0019323,2663.010.2011,1311.050.5019333,3920.69011,2082.330.2519343,8661.51012,5433.141.2519354,5123.441.0013,3293.732.0019365,0813.622.7514,9454.212.6319375,5873.591.8816,1934.023.00Current Assets 1/31/38 (000)2,4894,937Current Liabilities 1/31/38 (000)696890Net Current Assets1,7934,047Cash (000)3131,061Mkt. Value of Sec. Owned (000)590Cash Value of Life Ins. (000)44312Tang. Book Value per Share Common18.7032.00Net Current Assets per Share10.7510.20Price of Stock 4/7/3813 1/431 1/4No. of Common Shares out 1/31/3873,704300,000Stock quoted onSan F. S.E.N. Y. S.E.Capital Structure (000)Long term debt650Preferred Stock1,000346Common & Surplus1,3739,6142,37310,600Real Estate ownedNone(a) 5,178*272 (Adjusted to Common Stock Outstanding Jan. 31, 1938) Calendar YearLerner Stores Corp.Fashion Co. (1914)(1918)Chain. 159 StoresCol. OhioSalesPer ShareSalesPer Share(000)Earn.Div.(000)Earn.Div.192812,1041.5202,1653.08no. inf.192919,0773.010.252.1322.230.50193025,2942.921.002,0662.362.00193126,0770.470.751,8050.501.501932*1,4100.800.05193322,0882.3401,3370.690193428,0933.7001,5211.170193532,2164.561.001,5741.390.50193637,1785.182.971,8201.901.50193739,5514.652.471,9331.681.88Current Assets 1/31/38 (000)5,522459Current Liabilities 1/31/38 (000)1,505142Net Current Assets4,017317Cash (000)2,321101Mkt. Value of Sec. Owned (000)15Cash Value of Life Ins. (000)29Tang. Book Value per Share Common15.9021.00Net Current Assets per Sharenil6.20Price of Stock 4/7/3821.15 bidNo. of Common Shares Out 1/31/38400,00034,015Stock quoted onN. Y. S.E.O.C.Capital Structure (000)Long Term Debt1,2216Preferred Stock3,200100Common & Surplus6,37971610,800822Real Estate Owned(a) 2,553(a) 377*273 (Adjusted to Common Stock Outstanding Jan. 31, 1938) Calendar YearMangel Stores Corp. (1916)Chain 110 StoresSalesPer share(000)Earn. $5 P.D.(Issue1928 *26.701929)192910,60013.084.8819309,9871.546.5019319,35714.60019326.637 *019336,56013.22019348,54418.88019358,66610.42019369,10513.385.0019378,9858.405.00 * Not reported.Current Assets 1/31/38 (000)1,329Current Liabilities 1/31/38 (000)628Net Current Assets701Cash (000)522Mkt. Value of Sec. Owned (000)Cash Value of Life Ins.Tang. Book Value per Share Commonpfd 88.00Net Current Assets per Sharepfd 35.60Price of Stock 4/7/38pfd 45No. of Common Shares out 1/31/38pfd 17,500 par 25177,500Stock quoted onN. Y. Curb(com)Capital Structure (000)Long term debt77Preferred stock438Common & Surplus1,1041,619Real Estate Owned(a) 171Blauner's has its main store in Philadelphia and operates a chain in the eastern States under the name of Wilbur-Rogers. Some of these chain stores are located in New England.*274 I. Magnin & Co. emphasizes style and exclusiveness, and obtains high prices for quality merchandise. Its branches are operated in various cities along the Pacific coast. Roos Bros., Inc., also operating along the Pacific coast, caters to college students, and emphasizes style. In addition to women's clothing, it carries a line of men's clothing. Best & Co., Inc. is able, because of the prestige of its name, to get high prices for its merchandise. Lerner Stores Corp. is one of the new type of chain clothing stores, with stores in various parts of the East and Middle West. It handles fast-moving merchandise. It usually uses not more than two floors in a building, makes great efforts to cut costs, has no advertising, minimum service, and no charge accounts. Its goods are sold on a price and style basis. Most apparel stores do business on credit. The Cherry & Webb stores have big credit accounts. The Fashion Co. more closely approximates the size of the Cherry & Webb stores. Columbus, Ohio, where it is located, is a city with substantially the same diversified industrial background as Providence, and in addition is the State capital and a university town. Certain other stores are somewhat*275  comparable. Franklin Simon Co. was successful during the life of the founder, but after his death it never recovered its earning power. Although Outlet Co., Lincoln Stores, Kennedy's, and Gilchrist Co. are located in the same areas as the Cherry & Webb stores they are not strictly comparable because they have different risks involved by reason of the merchandise handled. The Lincoln stores are a chain located throughout New England. They have a store in Lowell and one in New Bedford. They emphasize price and fast-moving merchandise rather than quality and style. Kennedy's specializes in men's clothing. Gilchrist does a heavy credit business and tends to emphasize price and rapid turnover rather than quality. Bullock's is a wellknown Los Angeles store which emphasizes women's wear. It has a Hollywood store which deals exclusively in women's wear. The ratios of market prices for common stocks to average earnings of such stores for 1, 3, 6, and 10-year periods ending in 1937 are as follows: 1 year3 years6 years10 yearsPrimary Companies:(1937)(1935-37)(1932-37)(1928-37)Blauner's9.756.868.044.34Magnin (I.) & Co.5.965.8611.807.13Roos Bros., Inc.3.703.808.056.28Best & Co., Inc.7.777.8310.159.44Lerner Stores Corp.4.524.38Fashion Co.8.959.0514.8510.56Average multiple (earnings to price) =6.786.3010.587.55Average decimal (earnings / = price).1475.1587.0945.1325Mangel Stores(pfd.)(earnings to price)7.185.62Average including Mangel Stores (pfd.)and excluding Best & Co., Inc.: Average (earnings to price) =6.685.9310.697.08Average (earnings / price).1497.1686.0936.1412Secondary Companies: Outlet Company9.098.469.757.34Lincoln Stores8.607.739.34Kennedy's2.95Gilchrist Co.4.573.9214.908.31Bullock's6.336.1610.7010.65Arnold Constable8.007.0512.7029.90Russek's Fifth Ave.8.005.629.409.50Oppenheim Collins4.66def.def.3.44Average (earnings to price)6.536.4911.1311.52 8.91(median)Average (earnings / price).1531.1540.0898.0868.1122(median)*276  The second average above shown, including Mangel and excluding Best, is designed to show the effect of accumulated arrearages of preferred stock which was a factor in the Mangel stores. A capitalization of the companies here in question at the rates above indicated for the primary companies adjusted for Mangel and Best discloses the following valuation for common stock for the periods indicated: NewFall RiverLawrenceLowellProvidenceBedford193738.1466.46Nominal80.7568.141935-193758.24107.47Nominal57.7875.681932-193768.70150.00Nominal53.5467.091928-193798.8076.98Nominal116.9064.37Average65.97100.25Nominal77.2468.82Decedent spent most of his time in the Fall River store where he made his headquarters. Lawrence suffered a considerable loss in 1937 due to a bank failure. The loss was charged off against earnings for tax purposes. Such a loss is a nonrecurring item and effect can be given to it by adding back one-half of the loss into earnings. Fall River balance sheets disclose the following: CommonPref.andSecu-TotalCal.StockSurplusTotalGoodInven-ritiesCurrentYr.xxCapitalWilltoriesat CostAssets1928$187,500$122,700$310,200$21,875$89,562$ 58,310$376,3091929187,500134,135321,63521,87572,25688,298383,8381930187,500155,326342,82621,87572,75496,094396,3531931187,500167,117354,61721,87559,36796,082379,6081932187,500147,426334,92621,87549,80196,082305,0381933187,500167,924355,42421,87540,83096,082353,9921934187,500202,673390,17321,87544,29496,082371,9591935125,000228,076353,076058,299 * 86,450359,1341936125,000245,089371,089066,150 * 106,065419,0571937125,000258,929383,929052,388 * 80,230399,6801938125,000292,981417,981048,346 * 127,758460,339*277 NetCurrentWork-Cal.Liabil-ingYr.itiesCapital1928$ 96,796$279,5131929101,843281,995193090,142306,211193168,212311,396193256,210248,828193376,630277,362193453,040318,919193561,306297,828193678,182340,875193766,382333,298193877,905382,434New Bedford balance sheets disclose the following: 1928$300,000$ 38,078$338,0780$76,124$ 48,810$329,3041929300,000107,257407,257079,12648,810357,9421930300,000128,374428,374091,83726,660261,2951931300,000108,182408,1820121,74026,660266,1881932300,000119,030419,030089,25126,660269,0151933300,000128,382428,382074,52629,460284,9091934300,000178,453478,453064,67322,660361,9911935300,000237,622537,622067,757**279  17,122412,8001936300,000266,318566,318077,109* 21,800448,1421937300,000281,864581,864065,087* 62,031481,0751938300,000303,216603,216071,881* 96,300518,4241928$ 86,798$242,506192952,944304,9981930168,90892,3871931141,988124,2001932120,756148,2591933113,123171,7861934125,655236,3361935108,430304,370193695,555352,5871937102,694378,381193899,712418,712*278 Providence balance sheets disclose the following: Cal.PreferredCommon &TotalGoodSecuritiesYr.StockSurplus [a]CapitalWillInventoriesat Cost1928$375,000$ 870,283$1,245,283$131,250$127,300$662,0041929375,000967,6651,342,665131,250109,891782,3821930375,0001,355,1381,730,138131,250104,117847,7871931375,0001,162,3561,537,356131,250102,619904,3951932225,0001,125,9341,350,93478,75082,375694,5901933225,0001,134,1141,359,11478,75073,182591,9501934225,0001,133,9831,358,98378,75087,568571,9261935225,0001,141,9321,366,93278,75090,840[*] 367,0001936225,0001,169,0691,394,06978,750103,056[*] 429,5001937225,0001,206,0081,431,00878,75089,556[*] 433,5681938225,0001,285,2001,510,20078,75087,536[*] 718,000[x] No allowance made for preferred arrears which on Jan. 31, 1938 were $208,000. [*] Securities at Market Value. [a] Based on securities at cost. Market price of securities in 1937 $284,000 below cost.Cal.Total CurrentCurrentNet WorkingYr.AssetsLiabilitiesCapital1928$1,191,911$183,160$1,008,75119291,333,477207,6311,125,84619301,426,826202,7741,224,05219311,545,262201,2811,343,98119321,243,784111,2851,132,49919331,334,086106,8001,227,28619341,409,914191,1111,218,80319351,237,093132,6581,104,43519361,382,841187,7791,195,06219371,228,687167,7171,060,97019381,290,955160,4681,130,487*280  The fair market value on April 7, 1938, of the 935 preferred shares and 818 common shares of the New Bedford Co. owned by the decedent was $156,800, and of the various other stocks in question per share assuming a reasonable period of liquidation was as follows: CorporationPreferredCommonFall River9570Lawrence95110Lowell751Providence10585Income and balance sheet data with reference to the Cherry Realty Company is as follows: CalendarInvestmentsYearNet WorthLandBldgs. GrossBldgs. NetCashat Market1933$389,071$168,253$210,898$199,299$17,51001934380,186168,253210,898194,0266,33401935387,405168,253210,898188,78231,73101936394,578168,253210,898183,53824,944$23,0481937401,908168,253210,898178,29427,66425,8731938411,219168,253210,898173,05041,80629,140CalendarNet WorkingRentalInt. &Depre-NetDivs.YearCapitalIncomeDiv. Inc.SalariesciationIncomeon Com.1933$21,520$30,000$ 357$ 0$6,327$13,801$20,400193417,90730,33328815,9505,2721,31510,200193530,37034,0002212,7505,2447,2190193646,19734,00045712,7505,2447,1720193751,66634,00089012,7505,2447,3300193868,48634,0001,07011,2505,24410,5135,100*281  Income and balance sheet data for Cherry & Webb Realty Company for the years indicated are as follows: CalendarInvestmentsYearNet WorthLandBldgs. GrossBldgs. NetCashat Cost1933$1,082,588$528,500$516,500$402,870$18,925$117,77819341,081,444528,500516,500392,54016,057139,42819351,081,178528,500516,500382,21023,875141,83119361,077,714528,500516,500371,88028,218* 205,75519371,087,981528,500516,500361,55049,287* 153,59419381,090,900528,500516,500351,22037,969* 189,562*282  The Realty Companies owned stores that are located in cities other than Providence. The Cherry Realty Company owns the old part of the New Bedford store; a new part of the store was constructed by the store itself. Cherry & Webb Realty Co. owns the store buildings used by Fall River, Lawrence, and Lowell. The Cherry Realty Co. leases its property to New Bedford on a net rental basis. The rentals paid by the stores to the Realty Companies are comparatively stable and are based on contracts which call for a fixed payment. All the store properties are in comparatively good locations, being in downtown shopping districts. The Cherry Realty Co. was organized in 1931. The salaries paid the executives were paid for carrying on the administrative work of the Realty Companies. The salaries have been approved by the Bureau of Internal Revenue. Most of the buildings owned by Cherry & Webb Co. in Lowell, Lawrence, and Fall River are fairly old buildings, but well located. While the buildings are well located in their respective cities, the area presents a declining market. The buildings are all specialized buildings. Modern trends in merchandising make it difficult to rent more than one or*283  two floors to new types of stores. The major element or value is the continued occupancy of the buildings by the Cherry & Webb stores. The stores are rented in such a way that it is quite likely that their income will be somewhat more stable than the average real estate security. On April 7, 1938, real estate securities were seriously depressed. Such securities had one of the worst records of any type of securities in the depression of 1930. The Emmett Baker Index of Real Estate Bond Prices put the price at about 33 cents on the dollar for $200 of real estate bonds based on real estate properties in eastern cities. Real estate securities were one of the most difficult to dispose of in the period in question. There were a number of such securities which had market values on or about April 7, 1938, which were a small percentage of book value. Securities of three Boston companies of this type were selling on a five-year average yield of between 14 and 16 percent. The fair market value per share on April 7, 1938, of the realty companies' stocks were as follows: Cherry Realty Co.$4,000.Cherry & Webb Realty Co.65.Opinion This proceeding calls exclusively for a valuation*284  of securities forming part of decedent's estate. All of the property had similar characteristics, in that it consisted of preferred and common shares of closely-held corporations engaged in businesses actively participated in by decedent and concerned directly or indirectly in the retail sale of women's apparel. It is thus reasonable to approach the process of valuation as a generally single problem and to apply a more or less comparable formula to each block of stock. The difficulty presented is how to evolve that formula in order to arrive at a solution of the problem best calculated to supply the necessary values. There is, of course, no easy road or readily ascertainable rule of thumb for dealing with the difficult questions of fact encompassed in the generic process of reducing to particular situations such broad phrases as fair market value, or the price at which an article would change hands between a willing buyer and a willing seller. Both parties are in accord that no one factor should be considered to the exclusion of others. The figures set forth in our findings embodying our conclusions of fair market value in each instance are the result of our best endeavor to appraise*285  all of the relevant circumstances. We have selected for discussion here only certain aspects of that procedure as representing the elements particularly in controversy without attempting to enumerate every consideration receiving our attention. Having as a point of departure the earning history of the respective securities, one of the most difficult questions in a valuation case is the selection of an appropriate rate of capitalization. On this point the testimony of one of petitioner's opinion witnesses is of great assistance and renders a much more valuable contribution than is normally to be found in cases of this nature. The material compiled and presented by him deals with the average ratio between earnings and market price of the stock of corporations conducting businesses similar to that carried on by decedent's companies during various periods prior to the basic date. An average of those ratios for an average of the periods, when applied to the earnings of the common stocks in issue, results in figures appearing in our findings which as a fundamental premise seem to us to be as carefully computed and as soundly grounded as is reasonably possible in a case of this kind. See*286  Revenue Act of 1943, section 501, amending section 811, Internal Revenue Code. In arriving at his conclusions, however, petitioner's witness adjusted the resulting figures for various collateral factors. It is in this process that we have been unable to concur. Some of the elements normally calling for consideration in appraising securities are in this instance largely discounted already by the method adopted; others strike us as actually indicating an enhancement in value rather than the reverse. For example, the depressed condition of securities markets as a whole is reflected in the selling prices of the stock used as comparatives. Current prices have been given four times the effect of earlier ones by the method used, since the final figure is an average of the four periods selected, and the most recent year is the only one which appears in each. Likewise, any downward earning trend is discounted by the use of a similarly computed average of earnings and by the consequent quadruple emphasis on the most recent year's business. And for a parity of reason peculiar business conditions in the respective localities are offset by the selection of comparative stores in various places*287  throughout the country which in some instances at least admittedly indicated comparable trends. On the other hand, such factors as capital structure, funded debt, asset value, and ratio of quick assets to current liabilities, to business volume, and to fixed assets, are preponderantly advantageous. They represent conditions more favorable to the companies being valued than to the comparatives. These considerations require, to our way of thinking, an upward adjustment of the basic figures rather than the reverse, and account for the somewhat higher values at which we have arrived in compiling our findings. In the case of the New Bedford store we have found a value for the total holdings of the estate, rather than for each individual share. The peculiar situation existing in that instance with respect to arrearages in preferred dividends makes it extremely difficult to determine whether future treatment will incline toward the benefit of the preferred shareholders on the one hand or of the common shareholders on the other. As an illustration, petitioner's witness arrived at his figures by making the assumption that the arrcars would be paid off immediately by the issuance of sufficient*288  common shares, thereby diluting the earning power of the outstanding common. This, of course, is manifestly a speculation. There were liquid assets on hand which for all that appears from the record might have been used to pay off in cash or in kind a large part, if not all, of the preferred dividends. On the other hand, the management might choose, with the cooperation of the preferred shareholders, to pay off preferred arrearages out of current earnings, thereby preserving the total earning power of the company and enhancing the prospects of the common stock. Since, however, the decedent owned a block of stock consisting of both common and preferred shares in fairly equal proportions, and since our problem is to value the property of the estate and not necessarily any individual shares, we have arrived at what we think is a fair minimum value for the entire block which in our opinion would attach irrespective of what course the management of the company might elect to pursue. The stock of the two realty companies presents a further complication. Net earnings for the five-year period shown by the record were radically diminished by the payment of officers' salaries at a rate which*289  petitioner's witness candidly recognized as excessive. The only method for ascertaining the true earning power of these shares is accordingly to add back the overpayments for purposes of computation, notwithstanding that the salaries have been approved by respondent for income tax reporting.  Here again, the approach employed by petitioner's witness is persuasive, but, as in the case of the other securities, we regard his final result as somewhat too favorable to petitioner. Considering, among other things, the high asset value, assured return, and ease of doing business, we believe such adjustments as we have made to be necessary to arrive at a figure which still truly represent the fair market values involved. Decision will be entered under Rule 50.  Footnotes1. Preferred dividend requirement $10,000 per year for 1935 and subsequent years. ↩2. Preferred dividend requirement $18,000 per year for 1933 and subsequent years.↩1. After adding back one-half loss on bank deposit of $21,264.↩a. Plus 3% stock.↩a. After depreciation↩*. Not Reported ↩a. After depreciation.↩a. After depreciation↩x. No allowance made for Preferred Arrears↩*. Securities at Market Value Lawrence balance sheets disclose the following: 1928$100,000$ 9,557$109,5570$37,4220$111,5991929100,000(1,279)98,721044,3810106,2651930100,00030,650130,650048,1350140,9891931100,00056,842156,842036,3220148,6061932100,00041,461141,461029,3270143,1141933100,00072,600172,600027,1435,000182,8341934100,00080,980180,980030,13723,695203,8311935100,000112,875212,875034,652Securities at Market Value Lowell balance sheets disclose the following: CommonPref.andSecu-TotalCal.StockSurplusTotalGoodInven-ritiesCurrentYr.[x][x]CapitalWilltoriesat CostAssets1928$200,000($105,458)$ 94,5420$67,9320$168,0521929200,000(89,424)110,576059,5300174,8281930200,000(28,798)171,202052,1480172,3661931200,000(2,385)197,615051,9980158,6821932200,0001,931201,931038,8970148,6021933200,0006,806206,806028,2580150,8041934200,0005,902205,902032,1800154,8651935200,00035,986235,986043,754 [*] 16,000207,5501936200,00039,931239,931046,262 [*] 22,200228,4481937200,00041,414241,414042,981 [*] 19,000239,4841938200,00075,354275,354041,322 [*] 45,738260,339NetCurrentWork-Cal.Liabil-ingYr.itiesCapital1928$219,127(51,075)1929199,568(24,740)1930127,601$44,765193176,69881,984193251,34897,254193338,172112,632193439,196115,669193548,655158,895193649,610178,838193752,466187,018193863,674196,665* 34,630247,3601936100,000126,715226,715041,676* 34,810261,7041937100,000128,120228,120047,711* 28,743247,7271938100,000130,149230,149038,595* 54,900256,141↩1928$32,929$78,670192965,68540,580193060,66880,321193135,411113,195193241,503101,611193346,168136,666193454,119149,712193555,202192,158193656,903204,801193743,188204,539193850,960205,181*. Securities at market value.CalendarNet WorkingInt. &Depre-NetDividendsYearCapitalRentsDiv. Inc.SalariesciationIncomeon Com.1933$151,188$70,080$ 5,463$15,000$10,330$33,264$45,8001934160,40470,08010,66630,00010,33033,23634,3501935170,46873,5807,38530,00010,33034,08334,3501936229,73670,7509,09230,00010,33030,88734,3501937197,09872,7608,73830,00010,33033,16722,9001938220,39171,0107,813$1200 of this amount in question by the Bureau of Internal Revenue.a↩ 22,00010,33037,28334,350