Court Opinion

ID: 9445353
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:25:49.565676+00
Date Added: 2024-06-11T17:30:13.127204
License: Public Domain

WHITTAKER, Circuit Judge
(dissenting).
I respectfully dissent. I disagree on two bases.
First, I believe that there was no substantial evidence to . support the Tax Court’s finding of fair market value, but even if it may be said that there was, I am left with the conviction that a mistake has been committed by the Tax Court in making that finding and that it is “clearly erroneous”, within the meaning of that phrase as defined in the Gypsum case, 333 U.S. 395, 68 S.Ct. 542.
The issue was: What was the fair market value, per share, of the stock in question at the date of Mrs. Fitts’ death on February 10,1949 ? As correctly said by the majority, fair market value is the price that a willing buyer would pay and a willing seller would take for the property — in other words, it is what you could get for it.
Petitioners , returned this stock at $150.00 per share. The Commissioner set it up at $600.00 per share. The Tax Court found its value to be $375.00 per share — an exact split of the difference between the parties. This is reminiscent, of the pun about the old justice of the peace who made his decisions upon the basis that there are three sides to every lawsuit — the plaintiff’s side, the defendant’s side and the right side, which is the middle. Upon what evidence does that finding rest? I think none at all. Petitioners put on three entirely independent, highly credible, and thoroughly competent, experts in this particular field who were altogether familiar with local conditions and with this company, and with the probable purchasers of its stock and with what they might reasonably be expected to be willing to pay for it. After taking into account all relevant factors, including the very fiscal information offered and solely relied on by the Commissioner, as later stated, they swore that all you could reasonably expect to get for the stock on the date of Mrs. Fitts’ death was $200.00 to $225.00 per share, and that such was its fair market value at that time. On the other hand, the Commissioner’s evidence consisted only of accountants’ summaries of balance sheets, gross sales and net income of the company, and of the book value of its stock and the dividends paid thereon, thi'ough the period December 31, 1944 to *735January 1,1954 — the very fiscal information taken into account by the three experts mentioned as some of the factors they considered in concluding that the most you could reasonably expect to get for the stock was from $200.00 to $225.-00 per share.
I submit that this evidence does not afford any basis of support for a determination of fair market value at $375.00 per share. I agree with the statement of the majority that the Tax Court is not bound by the opinions of experts, but, in circumstances like these, it may not properly ignore them, but even if it does, certainly it must have some substantial evidence upon which to rest its finding of fair market value. If, here, the Tax Court had credited the three experts, it would have had an adequate evidentiary basis to support a finding of $200.00 to $225.00 per share, but not $375.00 per share. And if it did not credit those experts, it had only the Commissioner’s evidence of fiscal history of the company upon which to make its finding, and that information, standing alone, does not, in my view, afford an adequate basis, or any substantial evidence, upon which to make a determination of what reasonably could be gotten for decedent’s stock, and I would so hold. And I fear that any contrary holding sanctions the perilous doctrine of placing the Tax Court’s findings of fair market value beyond any meaningful or effective judicial review, for if we permit the Tax Court to ignore the only evidence there is as to what reasonably could be gotten for shares of stock in a closely held corporation, and to make its conclusionary finding solely on book data, and thus without any legal standards, certainly without any reviewable ones, we would be paying only lip service to, and making a mockery of, the common-sense and fundamental rule that fair market value of such property is what one could reasonably get for it.
These are my reasons for feeling that the Tax Court’s finding is not supported by any substantial evidence, and are the basis of my conviction that, even if the contrary may be said, a mistake has been made by the Tax Court and its findings are clearly erroneous.
Second, I think the Tax Court erred in rejecting, and in refusing to receive and consider, the evidence proffered by petitioners, showing that, in the Webster estate, the Commissioner — the respondent here — determined that the stock of this very company, in the very year in question, had a fair market value of $200.00 per share.
Mrs. Fitts died February 10, 1949. Mrs. Webster died September 9, 1949. Each died seized of shares of stock in Fitts Dry Goods Company. This was fungible property, exactly the same— more alike than two peas in a pod. The executor of the Webster estate returned the stock, for Federal estate tax purposes, at $150.00 per share. The Commissioner proposed an adjustment to $2Q0.00 per share. The executor accepted the proposal. But when petitioners sought to offer that evidence before the Tax Court on the trial of this case the Commissioner objected upon the grounds (1) that the witness, Mr. Webster, had been discharged as executor of his wife’s estate and was then without right to waive the privilege of non-disclosure, and (2) that this evidence was immaterial to the issue being tried. The Tax Court sustained the objection. Counsel for petitioners then made a proper offer to prove the mentioned facts. The same objections were made to the offer, and were again sustained by the Tax Court.
The majority, quite properly, hold that there was no merit in the first ground of the objection, but they appear to hold, I think erroneously, that the second ground of the objection was good — that the proffered evidence was immaterial to the issue being tried — for they say they believe the Tax Court “did not abuse its discretion in rejecting the offered evidence”, and that it would not have the effect of a “binding adjudication” of the stock’s value, and “would be of little probative value in the absence of a showing that the valuation was arrived at after a thorough investigation.” I do hot understand the law to be that any *736court has> a discretion to reject and refuse to consider competent, noncumnlative, evidence., bearing directly -and potently upon the issue being tried — and-especially not if.it is afterward to find the issue against the one offering such evidence. I do not contend, that. the. proffered evidence would have.,the effect of a binding adjudication, but I. do contend that it was competent and.noncumulative, and material to the issiie on trial, and that the Tax Court had no right or discretion to reject it and to refus.e to consider it at all. As to the statement that the Webster evidence'would be of little probative value in the absence of a showing that the valuation1 was arrived at after a thorough investigation, I must observe that any question respecting its “probative value” could not render it immaterial nor authorize its rejection, and whether the Commissioner made the adjustment to $200.00 per share with or without a thorough investigation, was a matter for him, not for petitioners, to show, after the evidence be received — ■ thus to show what weight should be accorded it.
The majority believed that the proffered evidence was: “cumulative in nature.” I cannot agree. I think it did not accumulate to anything offered by peti-' tioner, but was of a markedly different character than any other evidence they offered. It was evidence that the very same Commissioner — petitioners’ adversary — who was here contending for a valuation of $600.00 per share, had earlier made a determination [presumptively correct] that this very property had a fair market value in the very year in question of only $200.00 per share.
The majority appear to be of the view that exclusion of the Webster evidence, even if error, was not prejudicial, for they say they are convinced that if the Tax Court had admitted and considered the proffered evidence, it would have reached the same result. I cannot argue that statement, but do say that it should be presumed that if the Tax Court had received and considered the proffered evidence, as I .think itshouId.have,'it .would' have given it fair consideration... r.\.
■ I would reverse and remand to the Tax Court with -directions to receive and consider- the"proffered Webster evidence and" to ma&e'án entirely new determination of-the fair market value of the stock in-' question.