*120 Decision will be entered under Rule 50.
1. Renunciation of right reserved in trust instrument to designate beneficiary to take after death of life tenant, held, to subject the remainder interest to gift tax. Sanford's Estate v. Commissioner, 308 U.S. 39">308 U.S. 39, followed.
2. Provisions of Revenue Act of 1942, section 452, covering the exercise or release of powers of appointment, and their limitation to releases subsequent to 1942, held, not applicable to powers retained by the donor of the original gift.
3. Value of a block consisting of a large number of shares, held, on evidence to be at variance with the market prices per share on the date of the gift.
4. In computing the value of the remainder interest, held, the remainder factor, i. e., the present value of $ 1 at the date of death of a person of a certain age, as determined by respondent in accordance with the tables set out in his regulations (Regulations 79, art. 19), not shown to be erroneous.
*246 By this proceeding petitioner challenges deficiency in gift tax for the year 1939 in the amount of $ 1,423,821.67.
The questions presented are whether the relinquishment in the taxable year by petitioner of his right and power under a certain trust agreement constituted a taxable gift; and if such was the case what was the value of that gift.
FINDINGS OF FACT.
All of the facts stipulated are hereby found. Those facts hereinafter appearing which are not from the stipulation are facts found from evidence adduced at the hearing.
Petitioner is an individual who resides at Winterthur, Delaware.
On or about January 25, 1927, by an instrument of that date petitioner created a trust and transferred to the Wilmington Trust Co., as trustee, 15,000 shares of the common capital stock of E. I. du Pont de *247 Nemours & Co. By the terms of the trust instrument the trustee was directed to pay over to Louise Evelina du Pont Crowninshield, sister of petitioner, the net income of the trust during her life. Upon the death of Louise Crowninshield the trustee was to hold the trust fund in *122 further trust or distribute it for the benefit of one or more of the following beneficiaries in such manner and amounts as petitioner should then designate in writing: (a) Any child or children or issue of deceased children of petitioner; (b) Nicholas Ridgely du Pont, godson of petitioner; or (c) University of Delaware, an educational corporation of the State of Delaware. If petitioner were not alive at the death of Louise Crowninshield, then the trustee was to hold the property in further trust or distribute it for the benefit of the above named group of beneficiaries as petitioner designated in his will. In default of any designation or appointment by petitioner the trustee was directed to pay the fund over to the children of petitioner or their issue and, in the absence of issue, to pay the income from the fund for life to Nicholas Ridgely du Pont, or if he were not alive, and in any event upon his later death, to pay the fund over to the University of Delaware.
The trust instrument gave the trustee power with the written consent of petitioner during his lifetime, and after his death at the trustee's sole discretion, to dispose of the trust investments by sales and invest the *123 proceeds of such sale without restriction by the rules or laws governing the investment of funds by trustees. In the trust instrument petitioner, however, expressed the wish that the trustee hold as trust corpus the du Pont common stock and/or derivative securities, unless the trustee after petitioner's death concludes that there is an impairment in the investment standing or earning power of such securities.
On January 4, 1939, petitioner executed an instrument of release and relinquishment in which were recited the creation and general terms of the trust. The instrument further stated as follows:
Whereas, during the intervening eleven years my children and my said godson have matured to my satisfaction and I am satisfied in consequence that their respective rights should be as is provided in said instrument in default of further designation, appointment, or direction by me,
Now, Therefore, in order to assure said children that their respective rights shall not be disturbed, I do hereby release and relinquish all right and power whatever which I have or hereafter can, shall or may have under said indenture or by reason of its terms, my purpose being hereby to extinguish altogether*124 all such right and power as aforesaid.
Louise Crowninshield, a white female, was born August 3, 1877, and was living on January 4, 1939.
On January 4, 1939, the corpus of the trust held by the trustee under the January 25, 1927, trust agreement consisted of 52,900 shares *248 of the common capital stock of E. I. du Pont de Nemours & Co. The dividends paid upon the stock to the trustee were at least the following amounts before deduction of trustee's expenses:
| 1927 | $ 232,500 |
| 1928 | 258,750 |
| 1929 | 306,500 |
| 1930 | 246,750 |
| 1931 | $ 210,000 |
| 1932 | 144,375 |
| 1933 | 144,375 |
| 1934 | 162,750 |
| 1935 | $ 181,125 |
| 1936 | 320,250 |
| 1937 | 329,125 |
| 1938 | 170,625 |
On January 17, 1940, petitioner filed a gift tax return for the calendar year 1939 with the collector of internal revenue at Wilmington, Delaware, in which petitioner reported the execution of the January 4, 1939, instrument and stated that no gift tax liability had been incurred by its execution.
Respondent determined that by executing the January 4, 1939, instrument petitioner had made a taxable gift of the present value of the right to receive the property held by the trustee on the death of petitioner's sister. He determined in his notice*125 of deficiency, dated January 23, 1940, that there was a deficiency in petitioner's Federal gift tax for 1939 in the amount of $ 1,423,821.67. Of this deficiency $ 1,375,000 was assessed and paid to the collector of internal revenue at Wilmington, Delaware, on March 15, 1940, a date after the filing of the petition herein.
Respondent has conceded that petitioner is entitled to a specific exemption of $ 32,462.93 in the computation of his gift tax liability for the year 1939, which amount was not allowed in the computation of the proposed deficiency.
In computing the amount of the asserted gift respondent determined that the value of the corpus of the trust consisting of 52,900 shares of du Pont common stock was $ 8,100,312.50, or $ 153,125 per share. To determine the present value of the right to receive the property on the death of petitioner's sister, respondent multiplied the value of the corpus of the trust, as thus determined, by a remainder factor of .61163, resulting in a value for the taxable gift of $ 4,954,394.13.
The remainder factor of .61163 used by respondent in his deficiency computation was taken from table A, page 27, Regulations 79, (1936 Edition), relating to the*126 gift tax. It is the "reversion, or present value of $ 1 due at the end of the year of death of a person" 61 years of age. This remainder factor was derived by mathematical computation from the Actuaries' or Combined Experience Table of Mortality with interest at 4 percent.
The Actuaries' or Combined Experience Table of Mortality was published in Great Britain in 1843 and was based on experience to December 31, 1837, of 17 British life insurance companies, and has not been changed since it was first compiled. It was used by insurance *249 companies before 1900, but it is not now used by any important insurance companies in the United States. It does not make any differentiation between the mortality of men and women.
During the 100 years before 1939 there were substantial improvements in mortality as shown by lower death rates among males and females of all ages in the United States. The greater improvement was in the lower-age groups, but there was marked improvement among the upper-age groups as well.
Frank D. Kineke prepared the "1937 Standard Annuity Table" in order to fill a need for a mortality table reflecting death rates for the purpose of calculating regular and *127 group annuity rates and life income options under insurance contracts and for differentiating between male and female mortality. This table was published in the transactions of the Actuarial Society of America for May 1938. It was based on the experience of principal life insurance companies on annuity contracts and life income settlements, and it is now in use by many of the large life insurance companies for such purposes. In that publication the only interest rate assumed is 3 percent. The average purchaser of an annuity has selected himself as being likely to live as long as or longer than the average person of his age. People in receipt of regular income, as a general rule, tend to have fewer financial worries than the average person. Experience has shown that purchasers of annuities have a more favorable mortality rate than the average person. There has been a tendency to further improvement in the mortality rate since 1937. The remainder factor calculated from the 1937 Standard Annuity Mortality Table with respect to a female aged 61 is .47999 at 4 percent.
The American Annuitants' Mortality Table was based on the experience of insurance companies under annuity contracts*128 during the period 1910 to 1920. It was used for annuity and similar purposes by principal insurance companies just prior to the adoption of the 1937 Standard Annuity Mortality Table. It differentiated between the mortality experience of men and women. The remainder factor calculated from the American Annuitants' Mortality Table with respect to a female aged 61 is .52728 at 4 percent.
The American Men Table is a mortality table based on the experience of principal American insurance companies for the period 1900 to 1915 on insured male lives. It is used in the calculation of life insurance premiums. Life expectancy for women is sometimes determined under it by an adjustment on the principle that women on the average have a life expectancy of four to five years longer than men. This table is frequently used without adjustment for determining insurance rates for women.
Dividends of a mutual insurance company paid on insurance contracts *250 tend to correct error made by use of a mortality table which shows shorter lives for the insured than is accurate.
The United States Life Tables are prepared by the Bureau of Census of the Department of Commerce and show the mortality experience*129 among the general population of the United States. The tables are prepared from census figures and are revised every 10 years. They are used for general reference work in considering mortality problems. There are numerous discrepancies between actuarial figures and census figures. Census figures are obtained by a door-to-door canvass without financial interest in their accuracy. Such figures cover all kinds of people -- rich and poor, sick and well, disabled and dying. The remainder factor calculated from United States Life Tables 1930-1939 (Preliminary), based on the 1940 Census figures for a white female aged 61 is .55917 at 4 percent; at 3 percent the factor is .619. Such factor calculated upon the 1930 census figures for a similar person at a 4 percent rate is .56521.
Insurance companies use a different mortality table in computing rates for life insurance than they do for rates for annuities.
The present value of a dollar due at the end of the year of death of a person 61 years of age is $ .61163.
In computing the remainder factor applied to the determined value of the trust corpus, respondent used an interest rate or discount factor of 4 percent. A greater rate can be*130 justified when investment of the funds involved is in speculative rather than in conservative securities.
E. I. du Pont de Nemours & Co. (sometimes hereinafter referred to as the du Pont Co.) was incorporated in Delaware on September 4, 1915, and succeeded to the assets and business of the E. I. du Pont de Nemours Powder Co. Through departments, divisions, and subsidiary companies in its own operation it is engaged in extensive chemical production. On January 4, 1939, the du Pont Co. owned outright 10,000,000 shares of common stock of General Motors Corporation or approximately 23 percent of the outstanding General Motors common stock. This amounted to approximately nine-tenths of a share of General Motors stock for each share of du Pont Co. stock outstanding. The du Pont Co. first acquired General Motors stock in 1917 and has controlled that company since 1923. Approximately one-half of du Pont net income for the years 1924 to 1938, inclusive, was derived from its General Motors stock.
On January 4, 1939, the outstanding common stock of the du Pont Co., including 18,600 shares in the treasury for employee bonus awards, amounted to 11,065,717 shares out of a total authorized *131 issue of 15,000,000. The outstanding stock was held by 59,750 shareholders. Of the outstanding shares 8,888,633 shares were held on January 4, 1939, by trusts, holding companies, investment trusts, insurance companies, *251 banks, institutions such as colleges, members of the du Pont family and relatives, officers, directors, and employees of the du Pont Co., other than members of the du Pont family and individuals or families who in the past have been permanent holders of the stock. The remaining 2,177,080 shares outstanding were held by miscellaneous holders.
Neither the remainder interest in the trust in question nor any interest therein, nor the du Pont Co. common stock in the corpus of the trust, nor any part thereof has ever been sold or offered for sale.
On January 4, 1939, 1,400 shares of du Pont Co. common stock were sold on the New York Stock Exchange; the high for the day was $ 154.25 and the low for the day was $ 152, or a mean between the high and the low of $ 153.125.
The recorded number of shares of du Pont Co. stock traded in on the New York Stock Exchange each month in 1938, the high and low of each month, and the dates thereof were as follows:
| 1938 | Shares sold | Date | High | Date | Low |
| January | 79,100 | 1-15 | 120 5/8 | 1-28 | 107 3/8 |
| February | 46,000 | 2-23 | 123 3/8 | 2-4 | 106 |
| March | 89,600 | 3-1 | 120 3/4 | 3-21 | 90 1/2 |
| April | 94,000 | 4-18 | 110 3/8 | 4-7 | 94 |
| May | 66,000 | 5-9 | 109 | 5-31 | 92 1/8 |
| June | 118,300 | 6-30 | 122 1/4 | 6-1 | 92 |
| July | 74,900 | 7-25 | 132 3/4 | 7-8 | 116 |
| August | 43,500 | 8-26 | 135 3/4 | 8-12 | 122 |
| September | 51,700 | 9-30 | 135 1/4 | 9-14 | 125 |
| October | 62,800 | 10-24 | 150 3/4 | 10-1 | 135 1/2 |
| November | 39,800 | 11-9 | 151 3/4 | 11-28 | 142 |
| December | 60,300 | 12-30 | 154 3/4 | 12-2 | 143 3/4 |
| For year | 826,000 | 154 3/4 | 90 1/2 |
*132 The recorded number of shares of du Pont Co. common stock traded in on the New York Stock Exchange weekly during 1938 ranged between a low of 2,700 shares in the 42d week and a high of 44,000 shares in the 25th week.
Between November 5, 1938, and January 4, 1939, inclusive, 40,000 shares of du Pont Co. stock were traded in on the New York Stock Exchange at a daily average price of from 142 3/4 to 150 3/8. The daily trading varied from 300 shares to 4,500 shares in the last named period.
Technical position of du Pont stock on January 4, 1939, was not favorable to the sale of 52,900 shares at the prevailing price. The stock had had a substantial advance in a 6-months' period and there was very little protection afforded by the short position which was shown by figures of the New York Stock Exchange during the last four months of 1938 to be as follows:
| Aug.31, 1938 | 13,413 shares |
| Sept. 30, 1938 | 11,110 shares |
| Oct.28, 1938 | 7,439 shares |
| Nov.29, 1938 | 6,722 shares |
| Dec.30, 1938 | 5,846 shares |
*252 The stock market was thin on January 4, 1939. The price of du Pont Co. stock was such that it would attract only purchasers of wealth, particularly in view of a requirement*133 of the Securities and Exchange Commission calling for 40 percent margins. The price was such that there was no attraction for buyers from investment sources.
In January, 1939, the rules of the New York Stock Exchange did not permit brokers to buy or sell securities at a price more than $ 2 per share above or below the last-quoted price without first obtaining permission of the board of governors. The Stock Exchange rules at that time regarding specialists required them to maintain an orderly market and to this end to make purchases and sales for their own account. A specialist would be obliged to buy stock which he might not wish to purchase in a declining market and would be obliged to sell stock which he might not wish to sell in a rising market. These obligations of a specialist would not require him to purchase a block of du Pont stock as large as 52,900 shares. In 1939 short sales were not permitted on the New York Stock Exchange at a price lower than that of the previous sale. This rule made it virtually impossible for short selling to take place when a stock was declining in the market. The "over-the-counter market" is a market that trades in blocks of stock and in stocks*134 not listed on the New York Stock Exchange. In January of 1939 there was no over-the-counter market sufficiently developed to handle large blocks of stock, and 52,900 shares of du Pont Co. common stock could not have been disposed of on any over-the-counter market without considerable difficulty. The shares could not have been sold for $ 153 a share, but could have been sold for $ 125 per share.
Industrial averages for 1938 indicated a declining market immediately after the first part of that year. From a high of about 134 in January the Dow-Jones industrial averages declined until a low of approximately 99 was reached at the end of March 1938. Thereafter there was a steady rise until a high of about 158 for the year was reached in the middle of November. A comparable course is disclosed in the Dow-Jones rail averages for that year. The volume of daily sales of stock in 1938 exceeded 2,000,000 shares on three occasions prior to June 22. On about November 8, it was slightly in excess of 3,000,000 shares, and on December 31, it was approximately 1,800,000 shares.
In 1938 there were 93, including du Pont, out of approximately 1,239 issues of common stock which had a trading volume*135 in excess of 800,000. Du Pont's was 826,000. Du Pont's trading volume in dollars of $ 101,288,250 was exceeded by 9 of the 93 issues. Between December 5, 1938, and January 4, 1939, 58,300 shares of du Pont Co. stock were sold for approximately $ 8,697,750, or an approximate average of 2,332 shares, and $ 347,900 for each of the trading days.
*253 Sales of du Pont Co. common stock between January 5, 1939, and March 5, 1939, totaled 61,400 and ranged between 3,100 shares on January 12 and January 23 at mean prices between high and low of 148 1/4 and 145, respectively, and 100 shares on February 9 at a mean price of 148 3/4. The daily mean prices for that period ranged between 155 5/8 on January 5 and 143 1/4 on January 26, on which dates 2,900 and 2,700 shares were sold respectively.
The number of shares of du Pont Co. common stock sold January to November 1939, inclusive, and the monthly price range were as follows:
| Number | |||
| Date | of shares | High | Low |
| monthly | |||
| Jan | 41,400 | 156 3/4 | 142 |
| Feb | 19,300 | 150 3/4 | 146 |
| Mar | 52,000 | 156 | 141 1/2 |
| Apr | 51,200 | 143 3/4 | 126 1/4 |
| May | 36,900 | 147 1/8 | 139 |
| June | 40,400 | 150 | 144 1/2 |
| July | 52,500 | 160 | 147 1/2 |
| Aug | 41,900 | 164 1/4 | 151 |
| Sept | 102,600 | 188 1/2 | 154 3/4 |
| Oct | 43,100 | 184 | 174 |
| Nov | 28,400 | 181 3/4 | 173 1/2 |
| 509,700 |
*136 A block of 52,900 shares of du Pont Co. common stock could not have been sold during a period of 90 days after January 4, 1939, at prices that would have averaged quoted prices for the stock on the New York Stock Exchange during that period. Any period shorter than 90 days would have decreased the price obtainable. If sold on the New York Stock Exchange during a period of 90 days after January 4, 1939, 52,900 shares of du Pont common stock would have brought prices of 15 points below the average market prices prevailing over that period. It could not have been sold at prices averaging 10 points under 153 1/8. The sale of such a large block of du Pont stock would have been characterized as "Wilmington" selling which would have had a tendency of reducing prospective bidders for the stock.
The 52,900 shares of stock in question had a fair market value as a block at the rate of $ 135 per share.
OPINION.
The deficiency in gift tax determined against petitioner is resisted on two principal grounds: (1) that no taxable gift took place, and (2) that the respondent's valuation was excessive. The disputed taxable event was the relinquishment by petitioner of a retained power to designate*137 among specified beneficiaries who should be entitled to receive the remainder interest upon the death of the life tenant. The issue is the imposition of a gift tax upon the value of the remainder, no question as to the life estate being involved.
The principle of Sanford's Estate v. Commissioner, 308 U.S. 39">308 U.S. 39, *254 seems to us to bring this relinquishment within the category of taxable gifts. True, a final and irrevocable release of all control by petitioner when he originally established the trust creating the gift in 1927 might have resulted in an act of such finality that the gift having been complete when made could not subsequently become subject to a gift tax. But here that control was retained through petitioner's power to select the beneficiaries. In its own field it was complete, for if petitioner survived the life tenant he could manifest his choice by deed, and if he predeceased her he could do so by his will.
The contingency over which he had no control, namely, the chronological relation of the death of the life tenant to his own, was therefore not a condition to the existence of the power, but merely the determinant of the method*138 of its exercise. There clearly was that "retention of control over the disposition of the trust property whether for the benefit of the donor or others [which] renders the gift incomplete until the power is relinquished whether in life or at death" of which the Sanford case speaks. This would sufficiently reconcile the dictum in Emily Trevor, 40 B. T. A. 1241, to which petitioner refers, if that case were still to be treated as authoritative. Cf. Burnet v. Guggenheim, 288 U.S. 280">288 U.S. 280.
Petitioner concedes that it is not a sufficient distinction from the Sanford case that he here retained only a special power limiting his designation to a specified group of beneficiaries. Higgins v. Commissioner (C. C. A., 1st Cir.), 129 Fed. (2d) 237; certiorari denied, 317 U.S. 658">317 U.S. 658. And if the test is whether a failure to exercise the retained power at death, in the absence of such an inter vivos renunciation as occurred here, would be taxable as part of petitioner's estate, the authorities indicate an affirmative answer. Estate of Homer G. Day, 41 B. T. A. 580;*139 Fidelity-Philadelphia Trust Co., 34 B. T. A. 614; H. T. Cook et al., Executors, 23 B. T. A. 335; affd. (C. C. A., 3d Cir.), 66 Fed. (2d) 995; certiorari denied, 291 U.S. 660">291 U.S. 660. Thus, if upon the life tenant's death or at any time thereafter prior to his own, petitioner exercised the power by deed and thus destroyed it, the gift tax would then accrue. See Sanford's Estate v. Commissioner, supra; Regulations 79, art. 3, as amended by T. D. 5010; Higgins v. Commissioner, supra.If he exercised it by will, the estate tax would clearly bring the property into his gross estate; and this would be equally true if the property passed at his death upon default of the designation by him. Porter v. Commissioner, 288 U.S. 436">288 U.S. 436; Estate of Homer G. Day, supra; Fidelity-Philadelphia Trust Co., supra; H. T. Cook et al., Executors, supra.Hence, the only occasion by which the earlier uncompleted gift*140 could become complete in the absence of these taxable contingencies was the surrender in petitioner's lifetime of the right of selection. This then becomes the occasion for the gift tax to attach, and justifies the *255 respondent's action in this respect. Sanford's Estate v. Commissioner, supra;Burnet v. Guggenheim, supra.
Nor do the provisions of the Revenue Act of 1942, section 452, 1 affect this conclusion. It is evident that the exceptions set forth in subdivisions (b) and (c) are designed only to limit the effect of the amendment which it was the basic purpose of the section to effect. 2 No necessity existed for bringing within the scope of the gift tax the exercise or release of a power of appointment previously created by the donor himself. Sanford's Estate v. Commissioner, supra.The evident purpose was merely to add to the category of taxable gifts the exercise or release of a power of appointment received by the holder of the power from another. It follows that the provisions limiting the operation of these amendments to future releases could be no broader *141 than the operation of the amendments themselves; and that they were not intended to and did not exempt relinquishment of powers of appointment over gifts created by the same donor, the existence of which had previously resulted in such lack of completeness of the prior gift as to exclude it from the operation of the gift tax.
*142 If there were any doubt of the correctness of this construction, the legislative history of the section puts it entirely beyond dispute. The limitations upon the operation of the section provided by subdivisions (b) and (c) were first added by a floor amendment in the Senate. To these the conference managers for the House agreed in substance. The report of the Conference Committee contains the following language:
* * * The House recedes with certain technical amendments. These amendments, in accordance with the entire tenor of sections 403 and 452 of the House bill, apply only to powers received by the individual from another person, and do not affect the present status of powers reserved to an individual by himself. See Estate of Sanford v. Comm. (308 U.S. 39">308 U.S. 39 (1939)).
*256 That report was acted upon favorably by both Houses. We are satisfied that the authority of the Sanford case and its application to the situation in controversy are undiminished by the subsequent legislation.
We have fixed the value of the corpus of the trust fund at a price per share of $ 135. This is some 18 points below the per share price at which the stock*143 was selling on the New York Stock Exchange on the date of the gift. In the light of the evidence, however, we are satisfied that the actual sales figures are not to be taken as an accurate reflection of value by reason of the size of the block involved in the gift which consisted of upwards of 50,000 shares of the same stock. This is not the result of any automatic assumption that a large number of shares is necessarily of a different value as to each share than a smaller number. But it is now as well settled as may be, considering that the Supreme Court has never passed upon the question, that whether the size of the block involved affects the value of a given number of shares is a matter which may be shown by the evidence. Safe Deposit & Trust Co. of Baltimore, 35 B. T. A. 259; affd. (C. C. A., 4th Cir.), 95 Fed. (2d) 806; Helvering v. Maytag (C. C. A., 8th Cir.), 125 Fed. (2d) 55; certiorari denied, 316 U.S. 689">316 U.S. 689.
There was uncontradicted testimony from petitioner's witnesses that in their opinion the sale of a block of that size on or about the date in question*144 at stock market prices would have been impossible. If such a view was excessively pessimistic, the respondent had ample opportunity to produce contrary evidence, but this was not done. He contended strenuously at the hearing, and continued to do so in his brief, that petitioner's testimony was inadmissible and should be disregarded. But the respondent's regulations on the subject take notice of the present situation and permit "some reasonable modification" where "it is established that the value per bond or share of any security determined on the basis of a selling or bid and asked prices as herein provided does not reflect the fair market value thereof." Regulations 79 art. 19 (3), as amended by T. D. 4901. It would be in the highest degree anomalous, and this portion of the regulation would be deprived of all meaning, if a taxpayer were prevented from establishing by testimony the very fact which the regulation requires as the premise for the "reasonable modification" of market prices which the same provision permits. There may be better ways to submit such proof, although they are not readily apparent, but we cannot for that reason refuse to consider*145 the opinions of qualified witnesses in the absence of better evidence and in fact of any at all.
Once we are satisfied that the Stock Exchange prices do not accurately reflect the fair market value of the large block of stock with which we are here concerned, it becomes necessary to fix some other *257 figure which appears to us to be the price at which the stock could have changed hands. One of petitioner's witnesses testified that although in his opinion the block could not have been sold at the quoted price of 153 1/8 within 90 days or at prices averaging 10 points less, he admitted that he thought it could have been sold at an average of 20 points under that figure. Another witness for the petitioner was of the opinion that during a 90-day period prices 15 to 20 points below the average market prices during that time could have been realized for the entire amount. The record shows that for the two months following January 5, the date of the gift, market prices were in the neighborhood of $ 150 and although the remaining 26 days of March are not shown, the mean of the high and low for that month was approximately the same as that for the two months preceding.
Taking the*146 testimony of these two witnesses in its aspect most unfavorable to petitioner, which seems to us reasonable in view of their production and sponsorship by him, it thus follows that within a 90-day period the stock could have been sold at prices averaging $ 135 per share. For a block of this size 90 days would not be an unreasonable time to expect marketing operations to continue. We do not by this mean to imply that this period would be the limit of reasonableness, but the evidence shows that prices declined during April and May, with the result that even though a longer period should be considered, there might yet be no appreciable improvement in the prices realized. From the entire record we have accordingly reached the conclusion that the fair market value per share on the date of the gift of the property constituting the corpus of the trust was $ 135.
The value of the gift itself, consisting of the remainder after the death of the life tenant, aged 61 at the time of the gift, remains to be discussed. In fixing this we have accepted the commutation determined by respondent, in accordance with his regulations, which in our opinion has not been shown to be unreasonable. The *147 figure in question, sometimes referred to as the remainder factor, consists of the present value of one dollar due at the end of the year of death of a person 61 years of age, computed from the Actuaries' or Combined Experience Table of Mortality with interest at 4 percent.
The case of Anna L. Raymond, 40 B. T. A. 244, upon which petitioner relies, is inapposite in at least two fundamental respects. The taxpayer there had paid to certain institutions, in exchange for their agreements in the nature of annuity contracts, sums which the Board considered to be in excess of reasonable cost of the agreements. The balance was treated as a gift. Since the parties had made no such division, it became necessary to discover a proper figure to attribute to the purchase of the annuities on the one hand, and to the gift on the other. What could be more natural than that the Board should *258 resort to an inspection of the charges which would be made for similar contracts by those in the business of issuing them, 3 namely, insurance companies? This conclusion was in effect a forecast of the decision in Guggenheim v. Rasquin, 312 U.S. 254">312 U.S. 254,*148 holding that the fair market value of a donated single premium life insurance policy is what it would cost to purchase such a policy from an insurance company.
That this was the effect of the Board's decision appears from both the majority and the minority statements. The respondent had calculated a commuted value by reference*149 to his estate tax regulations and to the Actuaries' or Combined Experience Table of Mortality therein adopted. The Board's opinion comments:
* * * The evidence shows that a later table called the "American Annuitants' Mortality Table" is a more approved table and is now commonly in use among insurance companies in the United States.
The opinion then refers to the "American Annuitants' Mortality Table" as being the means by which "the petitioner's expectancy at the dates of the several agreements can readily be computed to arrive at the reasonable cost which petitioner would have paid to the five leading insurance companies for the annuities which she bought * * *." [Italics added.] And the dissenting opinion construes the prevailing view as being that: "The amount that was paid as consideration for the annuity is found by the majority opinion to be that which would have been paid to the five leading insurance companies under the American Annuitants' Mortality Table."
In the present case it requires no fine discrimination to recognize that the life tenant did not buy an annuity from anyone nor pay any amount to anyone to act as consideration for such an agreement of annuity; *150 and there is no issue in this case which requires us to find what the life tenant would have had to pay for such an agreement in order to discover how much it is reasonable to assume that she did in fact pay, as was the case in the Raymond proceeding. The life estate in question here was given; it was not bought. It bears no true resemblance to an insurance company annuity. There is no insurance company or institution involved in the contract. There is no agreement to pay a stipulated amount; and there is no assurance of an *259 annual income irrespective of the annual earnings. This is the essence of the distinction between an annuity and a life estate. Burnet v. Whitehouse, 283 U.S. 148">283 U.S. 148; Helvering v. Butterworth (Pardee), 290 U.S. 365">290 U.S. 365.
In the second place, even if we assume that a method of valuation comparable to that in the Raymond case would be relevant here, it is the opposite or converse type of valuation which must be engaged in. In the Raymond case the necessity arose to inquire into the reasonable cost of an annuity. In the present case the property to be valued is not the *151 annuity or life estate but the remainder. True, life estate and remainder are theoretically two parts of a whole, which should be subject to mutual calculation by means of subtraction from the value of the whole. But so are life insurance policies and annuities two parts of a whole. Helvering v. Le Gierse, 312 U.S. 531">312 U.S. 531. Yet we know that insurance companies adopt different mortality tables for computing the premium on life insurance from those used to establish the cost of annuities. In the words of one of the petitioner's witnesses, "We would select the best tables to accomplish what was to the best interests of the company, taking all of the factors into account."
In other words, if we were seeking to discover here what an insurance company would regard as the value of the remainder estate or what perhaps we might say a hypothetical insurance company would be willing to sell such a remainder estate for if it were in the business of selling such contracts, as well as annuities, it would be to the tables which an insurance company employs for computing such values, and not to the tables which it employs for computing annuity costs, that we should*152 resort. No such tables are availavle because insurance companies do not deal in these commodities, but since remainders, like life insurance, are the reciprocal of annuities, perhaps the nearest to this that actually exist are the tables which deal with life expectancies for the purpose of computing life insurance premiums. 4 These tables are comparable to those used by respondent. 5
*153 It follows that no more than in the case of Estate of Charles H. Hart, 1 T. C. 989, is there any evidence in this record sufficient to demonstrate that there are more accurate figures to which we can turn than those employed for the purpose by the respondent. As that case points out:
* * * Valuation for estate or inheritance tax purposes is computed in some 17 states by the use of the Actuaries' or Combined Experience Mortality Table, *260 with 4, 5, or 6 percent interest, and approximately 20 other states use the American Experience Table of Mortality, with interest at 5 or 6 percent * * *. In New York State the use of the Actuaries' or Combined Experience Table of Mortality, with 4 percent interest, is prescribed by statute * * *.
We can not say under those circumstances that the provisions of the Commissioner's regulations are unreasonable or arbitrary. See Robinette v. Helvering, 318 U.S. 184">318 U.S. 184. And as there is no evidence here that the tables adopted by insurance companies in their own financial interest for pricing annuities furnish a more accurate basis for evaluating this remainder than the Commissioner's*154 method, it is true here, as it was in the Hart case that "There may be better and more accurate methods, but we can not for that reason disapprove of a method long in use without evidence establishing a better one." See F. J. Sensenbrenner, 46 B. T. A. 713; affd. (C. C. A., 7th Cir.), 134 Fed. (2d) 883.
In determining the remainder factor we have assumed an interest rate of 4 percent. This finds support in material produced by both parties. It is the interest figure adopted for tables in the Commissioner's regulations. Regulations 79, 1936 Edition, article 19 (9), table A. It is also the rate accepted as correct under the circumstances of the present case by one of the witnesses produced and vouched for by petitioner. Four percent is perhaps an overly high rate to be assumed for safe investment under current economic conditions. 6 Cf. Simpson v. United States, 252 U.S. 547">252 U.S. 547. But it may be said that the trend of lower interest rates tends to offset any increase in the expectancy of life from the standpoint of computing remainder value. The assumption of an interest rate higher than*155 contemporary conditions would justify thus tends to equalize any slight error caused by the use of mortality tables which have not been corrected to reflect current life expectancy, 7 and presumably for that reason, respondent accepts the 4 percent rate to accompany his mortality figures.
*156 In approving the use of 4 percent interest under the circumstances of the present case, petitioner's witness emphasized that the trustees were empowered to convert the corpus of the trust if it appeared that the safety of the investment was endangered. We think it reasonable to conclude that the 4 percent rate is at least not too low in view of this testimony, of the character of the investment, and of the terms of the trust.
*261 We have accordingly concluded that the relinquishment by petitioner in the tax year before us of his power to designate the beneficiary entitled to take the remainder constituted a taxable gift; that the value of that gift is to be computed by measuring the corpus of the estate at the rate of $ 135 a share; and by commuting the result by use of the remainder factor employed by respondent, the evidence failing to show that the Commissioner's method was erroneous or that there are more accurate methods available than the one he used.
Decision will be entered under Rule 50.
Mellott, J., concurring: With some reluctance I concur in the holding that the shares of stock had a value of only $ 135 per share on the basic date. In my opinion*157 a higher figure might well have been adopted. I am persuaded to accept the lower one for two reasons: first because I agree with my associates that the Stock Exchange prices do not accurately reflect the fair market value of such a large block of stock and second because the value determined seems to be supported by substantial evidence.
The result reached upon the last point seems to be the only one which could be reached upon the present record. I therefore concur in it though it is quite unfortunate that a question of such importance must be resolved upon a mere "failure of proof." A few remarks upon the general subject may not be amiss.
The evaluation of a reversion interest -- the right to receive a sum of money after the death of another -- is at best a difficult one. A reasonably close approximation may be made through the use of mortality tables as one factor and an assumed interest rate as another. Ithaca Trust Co. v. United States, 279 U.S. 151">279 U.S. 151. The two factors, however, ought to be as accurate as possible. We have heretofore expressed the view that the table used by respondent is incorrect and "outmoded" in dealing with an annuity*158 question. Anna L. Raymond, 40 B. T. A. 244; affd., 114 Fed. (2d) 140; certiorari denied, 311 U.S. 710">311 U.S. 710. Disregarding the rule of stare decisis, the evidence in the instant proceeding would clearly justify a similar conclusion if the same question were involved. The correctness of the interest factor, to say the least, has not been demonstrated. In my judgment it is too high. While it is true that an overly high interest rate may tend to offset any increase in the life expectancy of the one having the income for life, this is a mere fortuitous circumstance. The result of using two incorrect factors may well be to increase the error.
The present question is almost an "imponderable." Whether this tribunal should attempt to formulate a new table based upon the best *262 and most reliable statistics and using an interest factor other than that used by the respondent or by actuaries is debatable. However that may be, it is devoutly hoped the administrative authorities will ultimately devise one which will not be so vulnerable to attack as the one now in use.
Murdock, J., dissenting: *159 The Commissioner determined that the value of the du Pont shares on January 4, 1939, was equal to the price at which similar shares were selling upon the market at that time. Actual sales of similar property on or near the valuation date are regarded as the best evidence of fair market value although this may be changed by other evidence showing that those sales do not reflect the fair market value. The prevailing opinion does not regard actual sales figures as truly reflecting value here because of the size of the block involved in the gift. It applies a so-called "blockage" rule. The rule as applied here means that we reduce the value of shares from the quoted market prices by accepting the opinions of witnesses for the petitioner, men experienced in marketing stocks, who have expressed opinions, based upon market conditions, that a seller would have been required to accept prices substantially under the market in order to sell a block of 52,900 shares within a reasonable time beginning on January 4, 1939.
Fair market value has been defined for tax purposes as the price at which property would pass from a willing seller to a willing buyer if each had reasonable knowledge of *160 the facts and was not acting under any compulsion. The existence of both of these imaginary people must be assumed. That is, it must be assumed that there is a person with reasonable knowledge of the facts and without any necessity for selling who desires to sell 52,900 shares of this stock, and also that there is another person willing to buy that number of shares who has reasonable knowledge of the facts and is not under any necessity of buying. The question is, Upon what price would they agree? It seems to me that the prevailing opinion, relying upon the petitioner's witnesses, considers the question too much from the standpoint of a seller, apparently a seller who had to convert the shares into cash. The shares here in question were not for sale. If it is pertinent to inquire how much a willing seller could have obtained for his shares, it would seem to be equally pertinent to inquire how much a willing buyer would have to pay for 52,900 shares if he had gone on the market at that time, and also to inquire what effect his efforts to buy would have had upon the market. Suppose the petitioner had used $ 8,100,312.50 to purchase du Pont shares on or about January 4, 1939, or*161 had given that cash to the trust and the trust had attempted to purchase du Pont shares. Is there any reason *263 to believe that the cash would have purchased substantially more than 52,900 shares? The question should not be examined from one side alone. It is not proper to assume that the purchaser would receive all of the advantages in the negotiations. The opinion evidence, which is all right as far as it goes, fails to convince me that the current market figures were not the best evidence of the fair market value of du Pont stock on January 4, 1939.
Footnotes
1. * * * *
(b) Powers With Respect To Which Amendments Not Applicable. --
(1) The amendments made by this section shall not apply with respect to a power to appoint, created on or before the date of enactment of this Act, which is other than a power exercisable in favor of the donee of the power, his estate, his creditors, or the creditors of his estate, unless such power is exercised after the date of enactment of this Act.
* * * *
(c) Release on or Before January 1, 1943. --
(1) A release of a power to appoint before January 1, 1943, shall not be deemed a transfer of property by the individual possessing such power.
(2) This subsection shall apply to all calendar years prior to 1943.↩
2. SEC. 452. POWERS OF APPOINTMENT.
(a) General Rule. -- Section 1000 (relating to imposition of gift tax) is amended by inserting at the end thereof the following new subsection:
"(c) Powers of Appointment. -- An exercise or release of a power of appointment shall be deemed a transfer of property by the individual possessing such power. * * *"↩
3. Respondent's own Regulations 79, 1936 edition, provide: Article 19. Valuation of property. * * *
* * * *
(7) Annuities, life, remainder and reversionary interest. -- For valuation of annuities purchased from life insurance companies or other companies issuing annuity contracts, see subdivision (9) of this article. * * *
* * * *
(9) Life insurance and annuity contracts↩. -- The value of a life insurance contract or of a contract for the payment of an annuity issued by a company regularly engaged in the selling of contracts of that character is established through the sale of the particular contract by the company, or through the sale by the company of comparable contracts. * * *
4. In the case of a life insurance policy or the hypothetical sale of a remainder, the sooner the insured -- or life tenant -- dies, the greater the detriment to the issuing company; whereas, with an annuity, the sooner the annuitant dies, the better for the company.↩
5. E. g., under the American Men Table, which is presently used by mutual insurance companies for the purpose of computing premium rates on life insurance for both men and women, the remainder factor of a person 61 years of age, at 4 percent interest, comes to .600902 (see P. H. Inheritance and Transfer Tax Service, 11th Ed., p. 838), as compared with the respondent's factor of .61163.↩
6. For example, one of petitioner's witnesses testified:
"* * * the rate of return which would normally be expected in the life insurance business, among life insurance companies, the expectation was around 3 1/2 percent * * *. That was the expectation, on which they were computing their estimates of rates where they had to compute their rates very carefully in the stock companies. They were using 3 1/2 percent."↩
7. For example, according to one of petitioner's witnesses, if the United States Life Tables of Mortality (census figures) for 1930-1939 be combined with an interest factor of 3 percent, the present value of a dollar due at the end of the year of death of a while female aged 61 is .619, compared with the factor used by respondent of .61163. No similar figure appears in the record for 3 1/2 percent interest.↩