*2075 1. The Commissioner's valuation of stock approved.
2. Where a widow accepts the provisions of the decedent's will "in lieu of dower and a year's support," and under the laws of the jurisdiction (Georgia) such election bars her right to dower and a year's support, the amount paid her during the first year subsequent to the decedent's death is not deductible from the gross estate as an allowance for the "support of dependents."
*618 The Commissioner determined a deficiency of $1,827.09 in estate tax, subject to a credit for the state inheritance tax. The petitioners allege that the respondent erred (1) in determining the value of 262 shares of stock owned by the decedent at the time of his death to be $104,800; and (2) in disallowing as a deduction from the gross estate the amount of $4,000 for the "support of dependents."
FINDINGS OF FACT.
The petitioners, residents of Valdosta, Ga., are the executors under the will of A. S. Pendleton, who died on April 13, 1925, a resident of Valdosta, Ga.
The decedent had been president and general manager*2076 of the A. S. Pendleton Co., dealers in wholesale groceries, and prior to his death completely dominated the affairs of the company. Two of the decedent's sons were active in the business and one succeeded his father as president and general manager of the company; another son and a son-in-law were directors of the company. The capital stock of the company was 500 shares (five of which were held as treasury stock) of the par value of $100 per share. The decedent owned 262 shares and other members of his family owned 65 shares of this stock. There are no recorded changes in stock ownership between December 31, 1924, and the date of the death of the decedent. On December 31, 1924, the stock of the company was held as follows:
| Held by - | Number |
| of shares | |
| 1. J. W. Bray | 15 |
| 2. Mrs. Mary W. Davis | 5 |
| 3. Regina Deming | 6 |
| 4. C. I. Harrell | 20 |
| 5. W. B. Johnson | 12 |
| 6. Mrs. A. J. Little | 5 |
| 7. A. D. McCallum | 15 |
| 8. H. S. McCallum (deceased) | 70 |
| 9. M. M. Knight (deceased) | 1 |
| 10. M. T. Pinder | 5 |
| 11. A. A. Parrish (deceased) | 5 |
| 12. R. A. Peeples and son | 2 |
| 13. A. S. Pendleton | 262 |
| 14. Mrs. A. S. Pendleton | 10 |
| 15. Alexis R. Pendleton | 10 |
| 16. Albert S. Pendleton | 30 |
| 17. P. C. Pendleton | 10 |
| 18. E. L. Sasser (deceased) | 7 |
| 19. L. F. Shaw | 5 |
*2077 *619 This stock was not listed upon any stock exchange. In 1920 one share of the stock was sold to Alexis Pendleton for $150. On December 31, 1921, Mrs. A. J. Little, a daughter of the decedent, purchased five shares of the stock at $150 per share; there were no other sales of the stock between that date and 1927, in which year members of the Pendleton family or the executors of the estate made the following purchases:
| February 7, 1927, 15 shares at | $250 |
| April 11, 1927, 70 shares at | 280 |
| During 1927, 20 shares at | 300 |
The following balance sheet shows the condition of the company on December 31, 1924, as reflected by its books:
| ASSETS | |
| Current assets: | |
| Cash | $2,374.46 |
| Accounts receivable | 78,534.95 |
| County warrants | 2,676.57 |
| Notes receivable | 17,941.13 |
| Inventory | 66,098.81 |
| Cash surrender value of insurance on life of A. S. Pendleton | 11,501.40 |
| Total current assets | 179,127.32 |
| Stocks and bonds | 18,160.00 |
| Treasury stock (cost) | 1,000.00 |
| Fixed assets, less reserve for depreciation | 71,072.73 |
| Deferred charges: | |
| Livestock | 53.60 |
| Total | 269,413.65 |
| LIABILITIES | |
| Current liabilities: | |
| Accounts payable | $29,486.56 |
| Notes payable | 23,871.97 |
| Service-station coupons outstanding | 32.57 |
| Premium loan on life insurance | 5,041.43 |
| Total current liabilities | 58,432.53 |
| Reserve for 1924 income tax | 699.02 |
| Capital stock | 50,000.00 |
| Surplus | 160,282.10 |
| Total liabilities and capital | 269,413.65 |
*2078 Two per cent would have been a reasonable reserve for any loss on the accounts and notes receivable. The inventory was taken at cost or market, whichever was lower. The inventory could have been liquidated for at least 60 per cent of its book value. The insurance on the life of A. S. Pendleton was in the amount of $30,000 and this sum was collected by the company upon his death. The treasury stock was acquired at $200 per share on a debt. The other assets listed above were worth their book value.
*620 The net earnings of the company for the years 1921 to 1924, inclusive, were as follows:
| 1921 (loss) | $3,149.17 |
| 1922 | 7,644.97 |
| 1923 | 5,015.46 |
| 1924 | 8,364.93 |
The business of the company had dropped off during the above years, but showed considerable improvement in the years 1925 and 1926, when net earnings were $26,731.62 and $28,332.35, respectively. The company sold some of its real estate at a profit in the fall of 1925. The book value of the stock on December 31, 1926, was $117.80 per share more than it was on December 31, 1924. Business conditions around Valdosta and vicinity were much better in 1925 and 1926 than in the years 1921 to 1924. *2079 The company paid a 10 per cent dividend in 1921 and 1924.
The book value of the stock on December 31, 1924, was $422.79 per share. The petitioner, in reporting the gross estate for estate-tax purposes, valued the 262 shares of stock held by the decedent at $39,300, or $150 per share. The respondent valued the stock at $104,800, or $400 per share.
In so far as material hereto, the will of the decedent provides that:
6. During the lifetime of my wife, and subject only to the within mentioned special bequests, I desire and direct my executors to manage my estate just as they see proper to manage it, to collect the imcome therefrom, and from said net income to pay my wife, Susie P. Pendleton, monthly, an amount sufficient to support her and any child or children that may, because of sickness or otherwise, be dependent upon her, taking into consideration her accustomed manner of living and her station in life.
* * *
9. The income hereinbefore directed to be paid to my wife for her support is to be accepted by her in lieu of dower and a year's support.
Pursuant to the above provision the executors paid to the decedent's widow $4,000 in the year subsequent to his death, *2080 which amount they deducted from the gross estate as "support of dependents." The respondent has disallowed this deduction.
OPINION.
MURDOCK: At the time of his death, the decedent owned 262 shares of stock in a close corporation which he controlled. The stock was not listed on any stock exchange and there was no general market for it in which willing sellers and willing buyers might trade freely. The last sale of this stock prior to the decedent's death was to a member of his family in 1921, and the first sale after his death was in 1927 to another member of his family. The *621 only known sales over a period of seven years were to members of the Pendleton family or to the executors of the decedent's estate, and these sales were so far removed from the date of the decedent's death as to be no true indication of the value of the stock on April 13, 1925. The net earnings of the company for the years 1921 to 1924 were $17,876.19, or an average of $4,469.05 each year, but such earnings are not a sure indication of the value of the stock of the company, since business in these years was generally depressed, and in the two succeeding years the company showed greatly increased*2081 earnings, due largely to better business conditions generally. Apparently the Commissioner resorted to the assets underlying this stock in order to determine its value. His determination is prima facie correct and the burden of disproving it is upon the petitioner. ; ; . The value of the assets of the corporation on December 31, 1924, tends to show that on that date the stock was worth at least $400 a share. Giving due weight to the other evidence in the case, it is our opinion that the determination of the Commissioner should not be disturbed. Cf. ; ; ; ; ; ; *2082 ;
In determining the net estate of the decedent, the petitioners claim the deduction of $4,000 as an allowance for a year's support of dependents. In so far as material hereto, section 303(a)(1) of the Revenue Act of 1924 provides that in determining the net estate of a decedent there shall be deducted from the gross estate:
* * * Such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are Allowed by the laws of the jurisdiction * * * under which the estate is being administered. (Italics supplied.)
The estate in the instant proceeding is being administered under the laws of the State of Georgia. The Georgia Civil Code of 1910, section 4041, authorizes the allowance of a year's support out of the estate of a decedent to his widow and dependents. Section 4045 of that code is as follows:
A testator may, by his will, make provision in lieu of this support for twelve months; in which case the widow may elect, under the same rules as regulated her election of dower.
*2083 Section 5249(2) provides that dower may be barred by a provision made by deed or will, expressly in lieu of dower, and accepted by the wife after the husband's death.
*622 The decedent made specific provision in his will for his wife in lieu of a year's support and dower. The widow accepted this provision and thereby cut off her right to either dower or a year's support. ; ; ; . Having elected to take under the will, the widow would not be allowed a year's support out of the gross estate under the laws of Georgia, and such amount claimed as an allowance for a year's support of dependents is not deductible in determining the net estate of the decedent. Cf. ; ; ; affd., ; certiorari denied, A; *2084 .
Judgment will be entered for the respondent.