*2069 Fair market value of stock on April 28, 1926, determined for estate tax purposes.
*757 This proceeding involves a deficiency in estate tax as determined by the Commissioner in the amount of $9,656.43 on account of the estate of Sue E. Homes, who died on April 28, 1926. The only question involved is the value of 770 shares of the common stock of the Joseph Horne Company which were held by the decedent at the time of her death.
FINDINGS OF FACT.
The decedent, Sue E. Holmes, died on April 28, 1926, and at the time of her death she was the owner of 770 shares of the common stock of the Joseph Horne Company (hereinafter referred to as the "corporation").
The corporation is the successor to a partnership which began business in 1849, and conducts one of the oldest department stores in Pittsburgh, Pa. It was incorporated in 1901. The business has grown from net sales in 1901 of approximately $4,000,000 to approximately $22,000,000 at the date of decedent's death. Pittsburgh is a highly competitive field for department stores and allied businesses. *2070 During the period from 1923 to 1928 stronger competition came into that field by merger of certain of the corporation's competitors into chain store groups.
The corporation had a total authorized common stock of $3,000,000 of a par value of $100 per share, all of which had been issued, though 1,500 shares had been repurchased at $160 per share and were carried on its books as treasury stock at cost, $240,000. It also had outstanding first and second preferred stock in the respective amounts of $600,000 and $900,000. The surplus as shown by its balance sheet at January 31, 1926, was in the amount of $8,831,617.11.
The corporation kept its books on the basis of a fiscal year ending January 31, and on the basis of fiscal years so ending the following approximate results were shown for the years January 31, 1923, to January 31, 1927, inclusive:
| Year | Net sales | Net earnings | Preferred dividends | Net profits on common |
| 1923 | $15,853,000 | $1,043,000 | $48,000 | $995,000 |
| 1924 | 20,549,000 | 1,336,000 | 87,000 | 1,249,000 |
| 1925 | 21,885,000 | 1,132,000 | 88,000 | 1,044,000 |
| 1926 | 21,584,000 | 1,380,000 | 99,000 | 1,281,000 |
| 1927 | 21,444,000 | 1,314,000 | 99,000 | 1,215,000 |
| Total | 101,315,000 | 6,205,000 | 421,000 | 5,784,000 |
| Average | 20,263,000 | 1,241,000 | 84,200 | 1,156,800 |
*2071 *758 On the basis of 28,500 shares of common stock outstanding (30,000 issued less 1,500 held as treasury stock) the average earnings on common stock over the above period were $40.58 per share. Annual dividends were paid on common stock during the same period of $8 per share. The book value of the common stock on January 31, 1926, was $406.72 per share. The value of common stock as returned for capital stock tax purposes for the fiscal year ending January 31, 1925 (the last year when capital stock tax returns were required), was $345.72 per share.
The stock of the corporation was closely held. At the time of decedent's death 75 per cent of the stock was in the hands of members of the families who formed the original partnership. The stock was not listed on an exchange until after the date of decedent's death nor was any information as to its financial condition disclosed to the public until subsequent to that time.
The stock here in question was appraised at the time of decedent's death for State inheritance tax purposes at $160 per share.
On September 13, 1926, 45 shares of the common stock of the corporation were purchased by a broker at $241 per share and*2072 on the same day sold by him at $245 per share.
In February, 1925, a trustee under a will sold 1,040 shares of the common stock of the corporation at $160 per share, payment being made in cash and second preferred stock. The stock was purchased by the corporation itself.
In 1922, certain of the larger stockholders sold 3,400 shares of the common stock to the corporation at $160 per share. The purpose of such sale was to enable the corporation to sell some of its stock to its older employees who desired to become interested in the business.
In December, 1926, a broker offered to sell 25 shares at $260 per share, but a purchaser could not be found at that price. The best offer obtained by him was $200 per share and the holder of the stock was unwilling to sell at that price.
In 1925, a broker offered 162 shares at $225 per share, but a purchaser was not shortly found and the offer to sell was withdrawn as the family which held the stock decided that price was too low.
*759 The 770 shares of stock held by the decedent at her death on April 28, 1926, had a fair market value on that date of $245 per share.
OPINION.
SEAWELL: The issue presented is entirely one*2073 of fact, namely, what was the fair market value of 770 shares of common stock of the Joseph Horne Company at decedent's death on April 28, 1926? The petitioner asks us to find a value of $160 per share, whereas the Commissioner made his determination, and contends that the valuation should be, on the basis of $400 per share. We are convinced that a valuation between the two amounts more nearly represents the true situation.
The valuation fixed by the Commissioner is the approximate book value of this stock, but what we are seeking to determine is fair market value, which is not synonymous with book value. We are not unmindful of the fact that we are concerned with stock of a corporation which was in a strong financial position and whose earning history was most favorable. Further, we do not have active dealing in the stock as a guide to our determination. We do have, however, some sales and other information as to value which we do not think can be disregarded. In addition to the evidence set out in our findings, one of petitioner's witnesses testified that in his opinion the stock had a fair market value of $200 per share. The officer of the corporation who testified as*2074 to the sale of $3,400 shares at $160 per share stated that in his opinion the fair market value was in excess of that amount. While we do not think that the sale of 45 shares at $245 per share in September, 1926, establishes the market value of the stock held by decedent at her death, we are of the opinion, when all of the evidence is considered, that a value in that amount is fair and reasonable.
Judgment will be entered under Rule 50.