*2308 Valuation of certain stock determined for estate-tax purposes.
*380 The respondent, as set forth in his deficiency letter dated July 1, 1926, determined a deficiency in estate taxes in the amount of $6,572.03, and this proceeding for a redetermination thereof is brought by the petitioner as one of the executors of the estate.
The only question involved is the value, as of the date of the decedent's death, of 1,227.5 shares of the common stock of the Chattanooga News Co.
*381 FINDINGS OF FACT.
The petitioner is one of the executors of the estate of George F. Milton, who died on April 23, 1924.
At the time of his death the decedent was the owner of 1,227.5 shares of the common stock of the Chattanooga News Co., a Tennessee corporation, out of an authorized and outstanding issue of 1,500 shares of the par value of $100 each. There were outstanding 990 shares of preferred stock of the same par value.
In December, 1908, the Chattanooga News Co. purchased the "Chattanooga News," the only daily a afternoon newspaper published in Chattanooga, *2309 Tenn., from the News Publishing Co., a Tennessee corporation, for $180,000. At the time of the purchase, the selling corporation carried on its books as an asset, an amount of $100,000 for intangibles, composed of about $25,000 for the Associated Press franchise and $75,000 for good will or circulation structure. At the time of the purchase, the newspaper was supposed to have a circulation of 13,000. It was afterwards discovered that the actual circulation was only 9,000. In 1916 the item of franchise and good will was increased on its books to $160,000, by which time the circulation had increased to 13,251.
The Chattanooga News Co. was a family corporation in which the decedent was the largest and predominant stockholder. The common stock was never actively dealt in. The last recorded sale of stock was in 1920, when George F. Milton, Jr., a son of the decedent, purchased 10 shares for $50 per share from a former employee.
Following the acquisition of the "Chattanooga News" by the corporation, radical changes were made in its editorial policy. One result of these changes was a pronounced loss of advertising and each year from 1909 to 1915, inclusive, showed a deficit.
*2310 The circulation of the paper, as indicated by the press run (which was greater than the paid circulation by 1,000 or 1,500 copies), was as follows:
| 1913 | $12,232 |
| 1914 | 12,829 |
| 1915 | 13,443 |
| 1916 | 13,251 |
| 1917 | 19,486 |
| 1918 | 22,492 |
| 1919 | 16,863 |
| 1920 | 20,744 |
| 1921 | 21,651 |
| 1922 | 23,899 |
| 1923 | 25,753 |
The corporation had a nonexclusive Associated Press franchise for the "Chattanooga News" as an evening paper. This franchise was worth at least $25,000.
*382 The earnings of the company from 1909 to 1923, inclusive, were as follows:
| Year | Loss | Net income |
| 1909 | $31,509.29 | |
| 1910 | 21,754.49 | |
| 1911 | 10,202.87 | |
| 1912 | 16,216.61 | |
| 1913 | 18,037.29 | |
| 1914 | 3,529.66 | |
| 1915 | 2,837.70 | |
| 1916 | $1,258.55 | |
| 1917 | 3,192.94 | |
| 1918 | $17,786.88 | |
| 1919 | 16,947.46 | |
| 1920 | 15,916.64 | |
| 1921 | 5,910.72 | |
| 1922 | 21,934.82 | |
| 1923 | $646.64 | |
| 104,734.55 | 82,948.01 | |
| Net loss for 15 years | 21,786.54 |
The balance sheets as of December 31, for each of the years 1919 to 1923, inclusive, are as follows:
| Dec. 31, 1919 | Dec. 31, 1920 | Dec. 31, 1921 | Dec. 31, 1922 | Dec. 31, 1923 | |
| Assets: | |||||
| Real estate | $6,760.00 | $6,760.00 | $6,760.00 | $6,760.00 | $6,760.00 |
| Buildings | 21,184.28 | 112,096.90 | 149,884.93 | 157,851.13 | 151,143.93 |
| Machinery | 54,002.32 | 81,062.20 | 93,956.75 | 88,850.83 | 138,490.95 |
| Securities | 2,600.00 | 95.00 | 95.00 | ||
| Cash | 970.17 | 1,097.74 | 920.00 | ||
| Notes receivable | 1,729.96 | 534.99 | 1,345.53 | 931.05 | 1,124.14 |
| Accounts receivable | 46,751.45 | 57,711.21 | 45,937.09 | 59,674.40 | 66,133.57 |
| Inventories | 4,565.35 | 5,411.63 | 1,674.84 | 3,137.19 | 8,800.45 |
| Other assets (furniture and autos) | 8,786.24 | 9,662.59 | 12,339.93 | 13,130.01 | 16,637.07 |
| Type and fixtures | 8,026.16 | ||||
| Franchise and good will | 160,000.00 | 160,000.00 | 160,000.00 | 160,000.00 | 160,000.00 |
| 311,805.76 | 433,239.52 | 475,469.24 | 491,527.35 | 550,105.11 | |
| Liabilities: | |||||
| Reserve for depreciation | 5,786.98 | 14,422.41 | 50,368.23 | ||
| Bonds outstanding | 80,000.00 | 80,000.00 | 80,000.00 | 70,000.00 | 70,000.00 |
| Accounts payable | 5,406.12 | 42,344.02 | 10,637.81 | 9,662.24 | 34,761.82 |
| Notes payable | 59,922.40 | 139,107.48 | 133,639.20 | 124,378.83 | 135,829.71 |
| Interest accrued | 1,891.67 | 1,666.67 | 1,666.67 | 1,458.33 | |
| Bank overdraft | 2,392.04 | 1,011.18 | 2,058.74 | ||
| Accrued expenses | 121.67 | ||||
| Preferred stock | 76,800.00 | 99,700.00 | 99,900.00 | ||
| Common stock | 150,000.00 | 150,000.00 | 150,000.00 | 150,000.00 | 150,000.00 |
| Surplus | 12,193.53 | 19,110.17 | 14,879.84 | 21,905.54 | 9,123.68 |
| 311,805.76 | 433,239.52 | 475,469.24 | 491,527.35 | 550,105.11 |
*2311 At the time of the decedent's death, 8 per cent was a fair return for money at Chattanooga, Tenn., and the Chattanooga News Co. was paying this rate to obtain money.
Under proper management, a circulation structure such as that possessed by the Chattanooga News Co. at the time of the decedent's death could be built up in approximately seven years.
In the estate-tax return a value of $30,077.92 was placed on the 1,227.5 shares of common stock of the Chattanooga News Co. The respondent determined that the stock had a value of $174 per share or a total value for the 1,227.5 shares of $213,585.
The value of the 1,227.5 shares of common stock of the Chattanooga News Co. on April 23, 1924, was not more than $122,750.
*383 OPINION.
GREEN: The only question presented in this proceeding is one of fact, namely, what was the value on April 23, 1924, of the 1,227.5 shares of common stock of the Chattanooga News Co., included as a part of the gross estate of the decedent in accordance with the provisions of section 402 of the Revenue Act of 1921. The petitioner, in the estate-tax return, valued the stock at $30,077.92, and the respondent has determined the value to be*2312 $213,585. The petitioner, in his proposed findings of fact, asks that this value be found at not more than $130,213.20, and the respondent closed his brief with a request that the Board find a value of not less than $122,750. It is apparent that the parties are now almost in accord as their difference in value has been reduced from $183,507.08 to $7,463.20.
We are not advised as to how the parties arrived at the $30,077.92 and $213,585 valuations.
The evidence shows that the 1,227.5 shares of stock were worth more than $38,310.75. George F. Milton, Jr., a son of the decedent and now president of the Chattanooga News Co., has been in the newspaper business all of his life. He testified that in his opinion the intangibles owned by the corporation at the time of his father's death were worth at the most not more than $100,000. If we were to substitute this value for the $160,000 carried on the books, the revised book value of the 1,227.5 shares on December 31, 1923, would be $81,113.20.
The $130,213.20 value, which the petitioner contends is the highest value the record will support, is the book value on December 31, 1923, the date nearest to the date of death on which the*2313 books were closed. But the objection to this value is that the books carried the intangibles at a value of $160,000, which, from the record, is excessive.
The stock of the corporation was closely held and there were no sales of the stock in the open market prior to the decedent's death. The circumstances surrounding the sale in 1920 of the 10 shares at $50 per share were not fully disclosed. The number of shares sold as compared with the total number outstanding was small and the date of sale was almost four years prior to the valuation date here in question. For the reasons given, this sale is not entitled to a great deal of weight.
In , we held that where the stock of a corporation is closely held so that it can not be valued upon the basis of sales in an open market, its value, for estate-tax purposes, should be determined upon the basis of the assets underlying the capital stock and the earnings of the corporation. Milton further testified that in his opinion the best net price that could have *384 been obtained on the date of the decedent's death for all the net assets of the corporation, both tangible and intangible, *2314 was $250,000. On this basis, the 1,227.5 shares would be worth $122,831.83 or practically par. The respondent offered no evidence.
After considering all the evidence, we find that the common stock of the Chattanooga News Co., on April 23, 1924, had a value of not more than par and that, therefore, the value of the 1,227.5 shares owned by the decedent on that date was not more than $122,750.
Judgment will be entered under Rule 50.