*1041 1. Respondent's determination of value at which blocks of stock and warrants owned by decedent on the date of his death should be included in his estate for estate tax purposes is sustained.
2. A sum of money paid to the executrix of decedent as a bonus for services rendered by him to a corporation for the period of the year ending with his death is includable in his gross estate.
*130 This is a proceeding to redetermine a deficiency in estate tax in the amount of $598,778.26. The principal issues are the fair market value of certain shares of stock and warrants owned by the decedent upon the date of his death and whether a certain sum of money paid to the executrix of the decedent is properly includable in his gross estate.
FINDINGS OF FACT.
Cora Madeline McKitterick is the duly qualified executrix of the will of Leonard B. McKitterick (hereinafter referred to as to "decedent"). Decedent, a resident of New York County, New York, died early in the morning of August 15, 1936.
The bulk*1042 of his estate consisted of 34,902 shares of the common stock of Philip Morris & Co., Ltd., Inc. (hereinafter referred to as Philip Morris), and 34,780 warrants to purchase 8,695 additional shares of that stock. The stock was reported in the return as having a value of $71 per share, and the warrants as having a value of $5.25 each. Respondent determined the stock to be worth $91 3/8 and the warrants to be worth $10 3/8, which values were the mean between the high and low prices of the stock and warrants on the New York Stock Exchange on the day of decedent's death.
At the time of his death, decedent was the president and a director of Philip Morris, which was a corporation organized under the laws of Virginia. Prior to 1933 this company had engaged principally in the manufacture of Marlboro cigarettes, though it also made a number of other brands. In 1933 it introduced a new brand, known as Philip Morris English Blend cigarettes, to retail at 15 cents per package of 20, and entered into an advertising campaign to promote the sale thereof. The policy of the company was not to force the sale of the new cigarette by artificial means, but to acquaint the smoking public with its*1043 merits through a moderate but sustained advertising *131 program. The progress of these efforts is shown by the following table, which shows the gross sales of the cigarette during successive fiscal years ended March 31:
| 1933 | $227,992 |
| 1934 | 3,909,797 |
| 1935 | 13,267,800 |
| 1936 | $21,741,845 |
| 1937 | 31,971,955 |
| 1938 | 48,251,617 |
The cigarette competed with Camel cigarettes, manufactured by the R. J. Reynolds Tobacco Co., Lucky Strike cigarettes, manufactured by the American Tobacco Co., Chesterfield cigarettes, manufactured by the Liggett & Myers Tobacco Co., and Old Gold cigarettes, manufactured by the P. Lorillard Co. These companies were commonly known as the "Big Four." Their products retailed at from 10 cents to 12 1/2 cents per package, whereas Philip Morris cigarettes sold at 15 cents per package. The Philip Morris cigarettes sold in the semivolume field, accounting for five billion out of the 150 billion sold during 1936.
Decedent played a large part in the promotion and development of the Philip Morris cigarette. He was well known and respected by dealers and others in the industry. At the time of his death, faced with the threat of competition*1044 from the American Tobacco Co., which was planning to put Pall Mall cigarettes on the market to compete with Philip Morris in the 15-cent field, he was planning what was called the "free deal", that is, to give each dealer 100 cigarettes free with each 1,000 ordered, so as to increase sales and reduce the price differential existing between Philip Morris cigarettes and the Big Four. There was a firm and increasing demand for Philip Morris cigarettes throughout all the years herein mentioned and, being popular with dealers because it sold for more than other brands, its sales were pushed by them in every possible way. For the fiscal year ended March 31, 1936, the company's total sales of all brands amounted to $26,876,090, of which $21,741,845 was received from the sale of Philip Morris English Brand cigarettes alone.
For some years prior to July 1936 the authorized capital stock of Philip Morris consisted of 1,000,000 shares of $10 par value common stock, of which 415,465 shares were issued and outstanding. The company had no funded debt.
During the early part of 1936 rumors were current in financial circles that Philip Morris was planning to secure additional financing, to*1045 take care of large bank loans which had been incurred in connection with increasing inventories. Articles in the Wall Street Journal and the Boston News Bureau, standard publications in financial circles, reported that earnings were increasing and that a tripling of the dividend rate was in prospect.
On July 14, 1936, the board of directors of Philip Morris authorized the issuance to stockholders of warrants for subscription on or before August 17, 1936, to common capital stock of the company at *132 a price of $50 per share, and at the rate of one share for each four warrants. The warrants were issued to stockholders on July 28, 1936. One warrant was issued for each share of stock.
Of the total of 415,465 warrants issued, 414,744 were exercised, so that the company issued and sold 103,686 additional shares of common stock at $50 per share. On August 17, 1936, the board of directors made an exception as to the warrants held by petitioner and extended the time within which those warrants might be exercised to August 31, 1936. The warrants were exercised by the executrix on August 28, 1936.
The stockholders of Philip Morris were notified on July 30, 1936, that the*1046 annual dividend rate of $1 would be increased to $3, commencing with the regular quarterly payment, on October 15, 1936. The letter of notification stated that the announcement was being made at that time because of recent public rumors as to the probability of such an increase and in view of the issuance of warrants.
The common stock of Philip Morris was listed on the New York Stock Exchange. The monthly volume of trading and monthly high and low prices for 1936 are shown by the following table:
| Month | High | Low | Total volume |
| Shares | |||
| January | 73 | 66 3/4 | 34,100 |
| February | 74 1/4 | 68 1/2 | 29,600 |
| March | 73 3/4 | 66 | 23,600 |
| April | 85 1/2 | 72 | 44,100 |
| May | 87 1/4 | 78 1/2 | 47,400 |
| June | 88 1/2 | 81 1/2 | 33,600 |
| July | 101 3/4 | 81 1/4 | 52,400 |
| August | 98 1/2 | 84 5/8 | 37,600 |
| September | 93 1/4 | 89 | 15,400 |
| October | 91 | 76 1/2 | 28,900 |
| November | 82 1/2 | 73 1/2 | 40,500 |
| December | 78 | 69 1/4 | 34,100 |
| Total for the year | 421,300 |
The quotations for the month of decedent's death, August 1936, were as follows:
| August | High | Low | Volume |
| Shares | |||
| 1 | 97-2 | 94-6 | 1,300 |
| 3 | 98-4 | 97 | 800 |
| 4 | 97-2 | 96 | 900 |
| 5 | 96-6 | 95-4 | 700 |
| 6 | 95-2 | 93 | 1,500 |
| 7 | 94-2 | 93 | 800 |
| 8 | 95 | 93-4 | 400 |
| 10 | 93-4 | 93-4 | 100 |
| 11 | 94 | 93 | 600 |
| 12 | 93-6 | 92-4 | 1,000 |
| 13 | 96-4 | 93-4 | 1,500 |
| 14 | 95-6 | 93-6 | 1,600 |
| 15 | 94 | 88-6 | 4,600 |
| 17 | 89 | 86 | 5,900 |
| 18 | 88-4 | 87 | 2,300 |
| 19 | 87 | 86-4 | 1,600 |
| 20 | 87-4 | 86 | 1,700 |
| 21 | 86 | 84-5 | 1,500 |
| 22 | 85-4 | 85 | 800 |
| 24 | 86-4 | 86 | 700 |
| 25 | 89-6 | 87 | 800 |
| 26 | 89-1 | 88-4 | 900 |
| 27 | 89-2 | 88 | 700 |
| 28 | 92-2 | 89 | 3,300 |
| 29 | 91-6 | 91-1 | 900 |
| 31 | 92-3 | 91-2 | 700 |
*1047 News of McKitterick's death reached the stock exchange about 11:20 a.m. on August 15, 1936, which was a Saturday.
*133 In the period from August 15 to October 6, 1936, 46,600 shares were traded.
The market was not manipulated during 1936.
The warrants were traded in on the New York Stock Exchange on a "when issued" basis from July 27 to July 30, 1936, and in regular trading from July 31 to August 17, 1936. The common stock was bought and sold ex-warrants on and after July 27, 1936. The daily sales and the daily high and low prices of said warrants on the Stock Exchange for the period July 27 to August 17, 1936, inclusive, are shown by the following table:
| 1936 | Shares sold | High | Low |
| July 27 | 12,500 | 10 3/8 | (When issued) 9 5/8. |
| July 28 | 4,000 | 9 7/8 | (When issued) 9 3/8. |
| July 29 | 1,600 | 10 1/4 | (When issued) 9 1/2. |
| July 30 | 1,500 | 10 1/8 | (When isued) 9 3/4. |
| July 31 | 5,400 | 11 3/8 | 10. |
| August 1 | 4,300 | 11 7/8 | 11 1/8. |
| Total week | 29,300 | ||
| August 3 | 1,900 | 12 1/8 | 11 5/8. |
| August 4 | 2,700 | 11 7/8 | 11 3/8. |
| August 5 | 2,100 | 11 5/8 | 11 1/4. |
| August 6 | 10,500 | 11 3/8 | 10 5/8. |
| August 7 | 1,700 | 10 7/8 | 10 5/8. |
| August 8 | 800 | 11 1/8 | 11. |
| Total week | 19,700 | ||
| August 10 | 800 | 10 7/8 | 10 3/4. |
| August 11 | 2,900 | 10 5/8 | 11. |
| August 12 | 4,100 | 10 7/8 | 10 1/2. |
| August 13 | 6,400 | 11 1/2 | 10 3/4. |
| August 14 | 8,600 | 11 3/8 | (Cash sales) 10 7/8. |
| August 15 | 3,800 | 11 | (Cash sales) 9 3/4. |
| Total week | 26,600 | ||
| August 17 | 2,500 | 9 5/8 | (Cash sales) 8 7/8. |
*1048 Between August 15 and December 31, 1936, the price of Philip Morris stock declined, reaching a low for the period of 69 1/4 on December 23. The Federal Reserve index for 348 industrial stocks rose during the same period from 128.4 in August to 142.6 in December. The index for stocks of cigarette manufacturers remained fairly level during this period, except for a slight rise in November. The indices of industrial production, freight car loadings, department store sales, and employment showed an upward trend during the period.
The net earnings of Philip Morris and the net earnings per share for its fiscal years ended March 31 from 1932 to 1937, inclusive, were as follows:
| Year | Net earnings | Net earnings per share |
| 1932 | $498,834 | $1.20 |
| 1933 | 417,957 | 1.01 |
| 1934 | 503,661 | 1.21 |
| 1935 | $1,556,566 | $3.75 |
| 1936 | 2,408,105 | 5.80 |
| 1937 | 3,573,617 | 6.88 |
*134 The net tangible assets of Philip Morris on various dates were as follows:
| Date | Net tangible assets | Shares outstanding |
| March 31, 1932 | $4,464,718 | 415,465 |
| March 31, 1933 | 4,497,625 | 415,465 |
| March 31, 1934 | 4,591,801 | 415,041 |
| March 31, 1935 | 5,686,380 | 415,026 |
| March 31, 1936 | 7,675,855 | 415,026 |
| July 31, 1936 | 8,427,894 | 415,465 |
| Aug. 31, 1936 | 13,806,645 | 519,151 |
*1049 The current assets and current liabilities of Philip Morris were as follows at the dates shown:
| Date | Current assets | Current liabilities | Ratio |
| March 31, 1932 | $4,417,854.45 | $457,909.06 | 11 to 1 |
| March 31, 1933 | 4,481,201.53 | 361,501.62 | 12 to 1 |
| March 31, 1934 | 4,591,756.26 | 434,444.09 | 11 to 1 |
| March 31, 1935 | 8,383,108.73 | 3,677,921.49 | 2.28 to 1 |
| March 31, 1936 | 12,289,464.15 | 5,935,709.00 | 2.07 to 1 |
| July 31, 1936 | 16,043,511.76 | 9,002,155.35 | 1.78 to 1 |
| Aug. 31, 1936 | 19,821,031.63 | 7,398,525.39 | 2.71 to 1 |
The value of the 34,902 shares of Philip Morris common stock and the 34,780 warrants owned by decedent on the date of his death was $3,550,012.75, or $91 3/8 per share for the stock and $10 3/8 per share for the warrants.
On August 8, 1924, the board of directors adopted a resolution to pay the then president, R. M. Ellis, a salary of $20,000 per year and to pay him, as additional compensation, 5 percent of the net profits of the corporation for the preceding calendar year in excess of $102,000. In the event of his death, his legal representatives were to receive the proportion of the corporation's net profits for the portion of the calendar*1050 year which had expired up to the time of his death.
On June 20, 1933, the directors adopted another resolution, the material part of which follows:
WHEREAS, the Management Bonus Plan adopted by this Board on August 8, 1924, automatically became inoperative and ceased to be of effect upon the death of Reuben M. Ellis, which occurred on May 12, 1933, and it isdesirable to institute another Management Bonus Plan in its place, now therefore be it
RESOLVED, that the Treasurer of the Corporation be and he hereby is authorized, empowered and directed annually, in the month of January, in each and every year commencing in January 1934, for so long as L. B. McKitterick shall be President of the Corporation, to set aside an amount equal to 15% of the difference between the cumulative net profits in any one calendar year, after all deductions except bonus provision for the current month, and 7% of the average capital and surplus accounts of the Corporation, figured at the end of each month, for the preceding calendar year; average capital to be computed *135 as the average of the balances of such capital and surplus accounts at the end of each month (exclusive of bonus provisions*1051 during the current year) for as many months as have expired to the date of calculation in any one calendar year; and that 50% of such amount shall accrue to and be paid to L. B. McKitterick, President of the Corporation, and the balance shall be distributed to and among various other officers and employees of the Corporation by and pursuant to the decision and direction of L. B. McKitterick, President of the Corporation.
* * *
Following McKitterick's death, the directors adopted the following resolution on December 18, 1936:
Whereas, the Management Bonus Plan adopted by this Board on June 20, 1933, automatically became inoperative and ceased to be in effect upon the death of Leonard B. McKitterick, which occurred on August 15, 1936;
Now, Therefore, Be It
RESOLVED, that the Treasurer of the Corporation be and he hereby is authorized, empowered and directed, in the month of January 1937, or as soon thereafter as possible, to set aside an amount computed in the manner set forth in said Management Bonus Plan for the period from January 1, 1936, to August 15, 1936, inclusive; and that 50% of such amount shall be paid to Cora M. McKitterick, Executrix of the Estate of Leonard*1052 B. McKitterick, deceased; and the balance shall be distributed to and among various other officers and employees of the Corporation, by and pursuant to the decision and direction of Messrs. Chalkley, Ryan and Lyon, who are hereby constituted a Committee of this Board to effect such distribution.
FURTHER RESOLVED, that the Treasurer of the Corporation be and he hereby is authorized, empowered and directed, in the month of January, 1937, or as soon thereafter as possible, to set aside an amount computed in the manner set forth in said Management Bonus Plan for the period from August 16, 1936, to December 31, 1936, inclusive; and that such amount shall be distributed to and among various officers and employees of the Corporation, by and pursuant to the direction of Messrs. Chalkley, Ryan and Lyon, hereinbefore constituted a Committee of this Board to effect such distribution.
Pursuant to the last quoted resolution, Philip Morris paid $125,000 to Cora Madeline McKitterick, Executrix, on May 10, 1937, and $9,513.38 on June 21, 1937, being a total of $134,513.38.
It was the practice of the treasurer of Philip Morris to set aside amounts monthly, crediting them to a reserve account, *1053 for eventual payment of the management bonuses. At the end of each annual accounting period, the tabulation of the accumulation of that reserve for bonus account was adjusted to reflect corrections of the monthly credits arising from adjustments of the profit and loss accounts. Philip Morris considered all bonus payments as items deductible in its income tax returns.
Facts, including those concerning payments made and agreed to be made by decedent's estate in connection with its administration, have been stipulated and we find them as stipulated.
*136 OPINION.
LEECH: Respondent included in decedent's estate, under the Revenue Act of 1926, section 302, 34,902 shares of Philip Morris stock and 34,780 warrants, at the respective per unit values of $91 3/8 and $10 3/8, as of August 15, 1936, the date of decedent's death. The stock of this company was listed on the New York Stock Exchange before, during, and after 1936, and the warrants were listed from July 27 to August 17, 1936. The values of decedent's stock and warrants, as determined by respondent, were the mean unit market prices thereof, as reflected by actual sales on that Exchange on the critical date. The*1054 first issue involves only the correctness of this determination of value.
The term "value", as used in the cited statutory provision, means "fair market value." Cecil H. Gamble, Executor,33 B.T.A. 94">33 B.T.A. 94; affd., 101 Fed.(2d) 565; certiorari denied, 306 U.S. 664">306 U.S. 664. This value is a fact, the determination of which is, at least, generally difficult. The result is rarely satisfactory. However, certain rules are helpful in considering the question.
Thus, respondent can not, by regulation or otherwise, limit the evidence to be considered. Commissioner v. Shattuck, 97 Fed.(2d) 790. All the evidence, bearing on the ultimate fact, must be considered. Crawford v. Helvering, 70 Fed.(2d) 744; Heiner v. Crosby, 24 Fed.(2d) 191.
However, in the absence of exceptional circumstances depriving them of or reducing their evidentiary worth, the prices at which stock or warrants are actually traded on an open public market, on the pertinent date, have been held generally to be the best evidence of their fair market value on that date. *1055 John J. Newberry,39 B.T.A. 1123">39 B.T.A. 1123; Frank J. Kier et al., Executors,28 B.T.A. 633">28 B.T.A. 633.
The existence of such exceptional circumstances will not be presumed. It must be established clearly before a determination, supported by such evidence, will be disturbed. Safe Deposit & Trust Co. of Baltimore, Executor,35 B.T.A. 259">35 B.T.A. 259; affd., 95 Fed.(2d) 806; Estate of Archibald M. Chisholm,37 B.T.A. 167">37 B.T.A. 167; Frank J. Kier et al., Executors, supra.
Here petitioner argues that such exceptional circumstances do obtain. She says (1) the shares and warrants could not have been sold at the prices prevailing on the date of decedent's death; (2) the intrinsic value of the stock should be given more weight here than the market price; and (3) the market price was abnormally high on the date of death by reason of the unusual situation existing at that time.
The first position is, of course, a statement of the so-called blockage rule. The application of this rule is not dogmatic. It is merely one of the exceptions to the rule just stated. Before it may be applied, *137 the basis therefor must be shown*1056 clearly. Safe Deposit & Trust Co. of Baltimore, Executor, supra. That basis is that the actual market is so relatively narrow, as compared with the stock or warrants to be valued, as to destroy or seriously affect the weight of the prices in such market as competent evidence of the fact. Estate of Daniel Guggenheim,39 B.T.A. 251">39 B.T.A. 251; Helvering v. Kimberly, 97 Fed.(2d) 433; Commissioner v. Shattuck, supra.
Failure of the record to disclose that the market was so inactive on or about the critical date that it would have been impossible to dispose of the stock and warrants in a reasonably short period of time thereafter, prevents the application of the so-called blockage theory. John J. Newberry, supra;Frank J. Kier et al., Executors, supra.
Petitioner introduced the testimony of three expert witnesses, and the respondent the testimony of two such witnesses. Two of these witnesses of petitioner testified that trading would have stopped had the shares and warrants, involved in this proceeding, been offered for sale on August 15, 1936; that it would have taken three to six months to liquidate*1057 the block, swollen as it was by the exercise of the warrants, and that such sales would have been impossible except at an average price of from $70 to $75 per share for the stock and comparable prices for the warrants. The third witness of petitioner declined to testify as to the possibility of disposing of the stock. The effect to be given the testimony of these two witnesses is more than a little weakened by the testimony of the witnesses for the respondent, and other evidence in the record. The market for Philip Morris stock was comparatively consistent and active throughout 1936.
Not only were 4,600 shares traded on the date of decedent's death, and 5,900 on the next succeeding market day, but a total of $46,600 shares was bought and sold on the New York Stock Exchange within 40 days after August 15, 1936. That was more than the number of shares included in decedent's block after the exercise of his warrants.
At least one of petitioner's witnesses admitted that he had failed to assume a corresponding addition of buyers to the market when he considered the possibility of disposing of decedent's stock and warrants. See *1058 John J. Newberry, supra. We therefore conclude that no basis has been established for the application of the blockage rule here.
No basis for the second position of petitioner, to the effect that intrinsic value should supersede market price as the best evidence of fair market value here, has been established. Formulas and evidence probative of intrinsic value are more appropriate to an unlisted stock valuation, than to the case of a listed stock for which there is an active market demand. See James Couzens,11 B.T.A. 1040">11 B.T.A. 1040; George D. Harter Bank, Executor,38 B.T.A. 387">38 B.T.A. 387; W. M. Ritter Lumber Co.,30 B.T.A. 231">30 B.T.A. 231, 281; *138 Frederick A. Koch, Jr., Executor,28 B.T.A. 363">28 B.T.A. 363. The stock and warrants of Philip Morris & Co., Ltd., Inc., were not closely held. The market therefor was public and relatively broad. The testimony of one of petitioner's witnesses disclosed wide discrepancies between "intrinsic" value and market price in the case of the stock of three other companies. It may be assumed that such a discrepancy frequently exists, but such a discrepancy does not, in the present circumstances, *1059 warrant ignoring the market price as the best evidence of fair market value. Cecil H. Gamble, Executor, supra;Eleanor Lansburgh, Administratrix,35 B.T.A. 928">35 B.T.A. 928. It may be irrational for buyers on the stock market to pay more for a stock than the per share value of the underlying corporate assets, but we are concerned only with what that stock will fetch on such a market even though it be irrational. Ithaca Trust Co. v. United States,279 U.S. 151">279 U.S. 151.
The third argument for petitioner, which it is said justifies the rejection of the fair market price of this stock and the warrants as the best evidence of their fair market value on the critical date, is likewise without merit.
It is true that the market for Philip Morris stock was affected by adventitious factors, namely, a favorable annual report, the issuance of warrants to buy for $50 stock selling at $90, and the announcement of an increased dividend rate. But the presence of such factors would seem to be nothing more than valid reasons for the upswing in this stock's value at the middle of the year. There was some testimony to the effect that the success of Philip Morris*1060 was due mainly to the personality and efforts of decedent, and that his death robbed the stock of considerable of its value. There was other evidence, however, tending to show that the company was well enough organized to be able to carry on without decedent, and its subsequent history as disclosed in its balance sheet and earnings statements for the fiscal year ended March 31, 1937, shows this latter evidence to be true. The market price, moreover, remained fairly level for a month and a half following McKitterick's death, serving to indicate the lack of any marked unfavorable reaction to the loss of his services.
Witnesses for both sides agreed that there was no evidence of market manipulation on or around the critical date, although one "had a feeling" that the market was being supported. Petitioner, in an attempt to prove manipulation, introduced a record of a proceeding brought by the Securities and Exchange Commission against one Schulte, charging manipulation of the market in several stocks, Philip Morris among them. An examination of that record discloses averments of manipulative practices in 1938, but there is nothing to show manipulation in 1936.
*139 We*1061 have considered the entire record, including the expert testimony and the financial record and history of Philip Morris. It was a successful and growing company, engaged in the manufacture and sale of a product for which there was a firm and increasing demand. The demand was stimulated by conservative, nonspectacular promotion methods. The financial position of the company in 1936 seems to us to have been thoroughly sound, the need for new financing arising from a healthy increase in inventory requirements rather than from a lessening of profits. Earnings were increasing. The market was exceptionally but not unreasonably active in the circumstances. On the basis of all the evidence, we think the record fails to disclose error in respondent's determination of values for the stock and warrants.
In determining the deficiency, respondent included in decedent's gross estate the amounts paid to the petitioner, as executrix, by Philip Morris in 1937, on the ground that decedent owned the right on the date of his death to the percentage of the profits specified in the bonus contract then in effect, adjusted to that date. The second issue is raised by petitioner's challenge to the*1062 propriety of this action.
Undoubtedly decedent could have made such a contract with Philip Morris as would not have created a legal liability on its part to pay a bonus to decedent's estate for the period in the taxable year prior to his death. United States Trust Co. of New York et al., Executors,9 B.T.A. 514">9 B.T.A. 514. The question is, Did they do so here? We think not. Of course, the intention of the parties to the contract, evidenced by the corporate resolution referred to, controls. And that intention must be gathered from the resolution itself, as concurrently construed by the parties, together with the attendant circumstances. Barnett v. West Construction Co., 69 Fed.(2d) 266; Federal Surety Co. v. Bentley & Sons Co., 51 Fed.(2d) 24.
Petitioner contends that, since the corporate resolution of June 20, 1933, provided that a computation be made of the net profits after the close of the year and since the contract thus established was to be in effect only during decedent's service as president, his death at any time before the date set for computing the amount payable thereunder would relieve the corporation from legal*1063 liability to compute and pay any bonus.
We do not agree with this view. The resolution mentioned provided that the bonus should be paid "for so long as L. B. McKitterick shall be President of the Corporation." McKitterick held that office from the first day of 1936 until his death on August 15 of that year. During that period he performed the services for which his salary and bonus were to be paid. Unless the evidence shows a contrary intent, it would seem that the liability of the company to pay both, *140 in the present circumstances, was the same. Here, no such opposite intent is revealed. Cf. United States Trust Co., Executor, supra. In fact, the amount of his bonus, reasonably to be anticipated, was many times the amount of the salary and probably was the main inducement by which the services of decedent were secured.
The company, itself, construed the concurrent right of the decedent as thus fixed. The corporation, upon the close of the year of decedent's death, by resolution directed the payment to his estate of the proportion of net earnings for the year, provided by the contract, allocable to that portion of the year during which he had*1064 lived and rendered services, entered this payment on its books as due the decedent on account of the bonus, and deducted it as the payment of an ordinary and necessary expense in its return for that year.
The disputed payment to decedent's estate was due and owing on account of the bonus for the part of the year preceding his death or it was a gift. A sine qua non of a gift is donative intent on the part of the payor. Theodore C. Jackson et al., Administrators,32 B.T.A. 470">32 B.T.A. 470. And that intent will not be presumed. Inconsistency with any other intention must appear. In short, the intent of the donor to make a gift must be shown unmistakably. Edson v. Lucas, 40 Fed.(2d) 398; Moore v. Tiller, 61 Fed.(2d) 478; Gannon v. McGuire,160 N.Y. 476">160 N.Y. 476; 55 N.E. 7">55 N.E. 7; Guaranty Trust Co. of New York et al., Executors,35 B.T.A. 916">35 B.T.A. 916; affd., 98 Fed.(2d) 62. Here the record discloses the actual payment of the money by the company to decedent's estate. But that fact does not characterize such payments as a gift. The corporate treatment of these payments, wholly inconsistent*1065 with the gift theory, supplemented by the absence of any provision in the resolution of June 20, 1933, releasing the company from liability to pay the bonus for any year during which decedent died, or any indication in the resolution of December 18, 1936, characterizing the payments as gifts, not only fails to establish that these payments were intended as gifts and the respondent's determination, therefore, was in error, but it supports the premise upon which the respondent included the contested payments in decedent's estate. See United States Trust Co., Executor, supra.
Decedent under the existing arrangement was rendering service for a stated yearly salary plus a certain percentage of the year's profits. He died after rendering service for seven and one-half months of the year. The corporation had received the benefit of his service for that period. To avoid such liability it would have to be definitely established that the understanding was that decedent must live and serve through the year to be entitled to any payment of bonus. See *1066 United States Trust Co., Executor, supra.It was not so established.
We hold that upon decedent's death his estate possessed the right to exact of Philip Morris that proportion of the percentage of net *141 profits of the corporation for the year designated in the bonus resolution of June 20, 1933, as payable to decedent, allocable to the period January 1 to August 15. Having reached this conclusion, the question is ruled by our recent decision in Estate of G. Percy McGlue,41 B.T.A. 1199">41 B.T.A. 1199. Respondent has included this right in decedent's estate at a value of $134,513.38. No issue has been raised with respect to the computation of this amount nor has a lesser value for the right been shown. Consequently, respondent is affirmed on this issue.
Petitioner has claimed a number of additional deductions on account of ordinary and necessary administration expenses, and the amounts and character thereof have been stipulated. Respondent does not oppose these deductions on brief. They are all allowable under section 303(a)(1) of the Revenue Act of 1926, and will be so considered in the recomputation under Rule 50.
Reviewed by the Board.
*1067 Decision will be entered under Rule 50.
BLACK, dissenting: I respectfully dissent from the majority opinion because I believe that the valuation placed by the Commissioner on the Philip Morris common stock is too high. The executrix of the estate of decedent returned the valuations on the estate tax return at $71 per share for the Philip Morris common stock. The Commissioner increased these valuations to $91.375 for each share of common stock. The majority opinion sustains the Commissioner in the values which he has determined.
While I think that the values on this Philip Morris common stock returned by the executrix on the estate tax return filed by her are, in the light of the evidence, too low, on the other hand I think the valuations fixed by the Commissioner and sustained by the Board are too high. Manifestly so large a block of stock as that owned by decedent on the day of his death, to wit, 34,902 shares, could not have been marketed on August 15 for $91.375 per share. I am convinced from the evidence that any attempt to have marketed that large a block of stock, on the basic date or any date thereabout, would have resulted in a much lower figure*1068 than $91.375. But it is of course true that no prudent executrix would attempt to market such a large block of stock in one day. Presumably, if selling is required, she would take a reasonable length of time in which to market so large a block of stock, and when this factor of valuation is taken into consideration, viewed in the light of the price range of the stock which existed after decedent's death, it is difficult for me to see where the Commissioner's valuation can be sustained. Considerably lower figures, I think, would be more in accord with the facts.
*142 STERNHAGEN, dissenting: I reach the same conclusion as my brother Black, but only upon the ground that the evidence indicates that the entire block of shares could not have been sold on that date for the market price per share, and not because of the recognition that in the nature of things a large block as a rule fetches less than the aggregate value of its units. Whether it does or not is a matter of evidence and not of rule. Helvering v. Safe Deposit & Trust Co. of Baltimore, 95 Fed.(2d) 806; *1069 Estate of Archibald M. Chisholm,37 B.T.A. 167">37 B.T.A. 167. The evidence here I think supports a lower value.