*46 Decision will be entered under Rule 50.
Estate Tax. --
1. Corporate stock valued at amount stipulated.
2. Decedent, a nonresident alien, owned stock of a domestic corporation at the time of his death but was not engaged in conducting the corporate business or in any other business activities. Held, the decedent was not engaged in business in the United States and moneys in bank accounts in his name are not includible in his gross estate.
3. Decedent was a citizen of Yugoslavia. Prior to and during World War II he brought or had transferred to the United States funds of two Yugoslav corporations of which he was an officer and director. Held, that he was trustee as to such funds and the amount thereof is not includible in his gross estate.
*748 The respondent determined a deficiency in estate tax in the amount of $ 326,437.44. The petitioner contends that there is no deficiency and, further, that there has been an overpayment of estate tax.
The issues concern (1) the valuation of corporate stock owned by the decedent; (2) whether the decedent was engaged in business in the United States; and (3) whether an amount standing to the decedent's credit on the books of a domestic corporation is includible in the gross estate. Issue (2) arises by reason of the decedent being a nonresident alien and having money on deposit in banks in the United States at the time of his death. Issue (3) depends upon whether the relation of the decedent to two foreign corporations was that of debtor or trustee.
The facts were stipulated and are so found. The stipulation filed is incorporated herein by reference.
FINDINGS OF FACT.
The decedent died on April 14, 1945. The return for his estate was filed with the collector of internal revenue for the second district of New York. He was a nonresident alien, and at the time of his death was in the*48 United States under a visitor's permit issued by the Immigration and Naturalization Service, expiring September 21, 1945.
The decedent was a citizen of Yugoslavia. He was general manager and president of Jugoslavenski Lloyd, and general manager and vice president of Prekomorska Plovidba, both of which were *749 Yugoslav shipping corporations. He owned 280,834 shares of stock of Jugoslavenski Lloyd (out of 600,000 shares outstanding). That corporation in turn owned 82 per cent of the outstanding capital stock of Prekomorska Plovidba.
Prior to the outbreak of World War II, and prior to the occupation of Yugoslavia by the Germans and Italians in April 1941, the decedent, in his capacity of general manager of the two Yugoslav corporations, and acting under powers of attorney dated April 15, 1940, began gradually to withdraw from the Adriatic and the Mediterranean Seas the bulk of the fleet belonging to those corporations, and to remove the ships to the Western Hemisphere where the Axis Allies could not reach them. After the outbreak of the World War the decedent, with two other directors of the corporations, namely, Karlo Banac and Dioniz Jakovcic, moved to neutral Switzerland. *49 The last meetings of the boards of directors of the two Yugoslav corporations were held on January 2, 1941, at Zagreb, Yugoslavia.
In defiance of the neutrality declared by the Yugoslav Government, the decedent placed at the disposal of Great Britain, on bareboat charter under the British flag, a large part of the tonnage of the two Yugoslav corporations at rates below those obtainable in the open market for neutral ships. He sold two passenger steamers to French and Portuguese nationals. By organizing a New York corporation, as hereinafter described, he arranged to keep the funds of the Yugoslav corporations from the clutches of the Germans and Italians by transferring the funds from Europe into an account which he kept with the New York corporation. No dividends or other payments were paid to the stockholders of the two Yugoslav corporations out of these funds prior to the decedent's death.
While still in Europe, the decedent caused to be organized Combined Argosies, Incorporated, under the laws of New York on May 28, 1940. The decedent became president of that corporation, hereinafter called Combined Argosies, and Ivan S. Ivanovic became its treasurer. Mr. Ivanovic lived *50 for a time in the home of the decedent in London, and has been associated with the decedent in various shipping enterprises. The capital stock of Combined Argosies was originally $ 50,000, divided into 1,000 shares of a par value of $ 50 each. The decedent acquired for cash at par value the entire capital stock of Combined Argosies. Nine hundred and ninety-six shares were issued to the decedent and one share each to the other four directors, which four shares were transferred to the decedent's widow after his death. Combined Argosies began business on July 1, 1940. Its business was that of acting as agent for Yugoslav shipping owners whose vessels had escaped seizure by the Axis.
In September 1941, the capital stock of Combined Argosies was increased to $ 1,000,000, divided into 20,000 shares of a par value of *750 $ 50 each. Only 10,000 shares were issued. All of the shares were owned by the decedent who acquired them for cash. In 1946, after the decedent's death, the capital was reduced to $ 200,000, divided into 4,000 shares of $ 50 par value.
The stock of Combined Argosies was not listed on any stock exchange, nor was it dealt in through brokers, nor was it ever sold. *51 The corporation never paid any dividends.
The net earnings of Combined Argosies from the time it started business were as follows:
| Percentage | |||
| Period | Net earnings | Per share | to par |
| Fiscal year ending | |||
| June 30, 1941 | $ 12,031.63 | $ 12.03163 | $ 24.06326 |
| June 30, 1942 | 23,683.61 | 2.368361 | 4.736722 |
| June 30, 1943 | 20,966.10 | 2.09661 | 4.19322 |
| June 30, 1944 | 20,648.32 | 2.064832 | 4.129664 |
| Period ending: April 15, 1945 | 14,008.79 | 1.400879 | 2.801758 |
| Fiscal year ending: June 30, 1945 | 18,942.88 | 1.894288 | 3.788576 |
Average annual net earnings for the periods below specified were:
| Period | Amount |
| July 1, 1940, to April 15, 1945 | $ 19,062.00 |
| Three years ended June 30, 1945 | 20,185.7666 |
| Three years ended April 15, 1945 | 18,541.07 |
The balance sheet of Combined Argosies at June 30, 1945, was as follows:
| ASSETS | ||
| Cash and due from banks | $ 1,475,216.30 | |
| U. S. Government securities | 114,126.50 | |
| Bonds and mortgages: Mortgages loan | ||
| on New York real estate | 1,460,000.00 | |
| Accounts receivable | 162,245.26 | |
| Accrued interest receivable: On mortgages | 13,766.67 | |
| Furniture and fittings: At cost less | ||
| reserve for depreciation | 1,586.65 | |
| $ 3,226,941.38 | ||
| LIABILITIES, CAPITAL STOCK, AND SURPLUS | ||
| Accounts payable | $ 2,684,494.89 | |
| Federal taxes on income: Fiscal year | ||
| ended June 30, 1945 | 2,169.46 | |
| Reserve: For contingencies | 1,600.00 | |
| Capital stock and surplus: | ||
| Capital stock, $ 50 par value: | ||
| Authorized 20,000 | ||
| shares | $ 1,000,000.00 | |
| Less unissued | ||
| 10,000 shares | 500,000.00 | |
| $ 500,000.00 | ||
| Surplus (earned): June | ||
| 30, 1944 | 38,677.03 | |
| 538,677.03 | ||
| $ 3,226,941.38 |
*52 On April 15, 1945, the following sums were on deposit in the accounts of Combined Argosies with the following domestic banks:
| First National Bank of Boston, Boston, Mass | $ 991,330.43 |
| Chase National Bank of the City of New York, N. Y. C | 414,499.08 |
| Bankers Trust Company, New York City | 113,682.61 |
| National City Bank, New York City | 74,684.98 |
| Total | $ 1,594,197.10 |
At that date its other assets consisted of cash, U. S. Treasury bonds, two bonds secured by mortgages on Manhattan real estate, accounts receivable, and a few pieces of office furniture and fixtures.
*751 The net asset value of Combined Argosies at the date of the decedent's death was $ 595,039.02. The value of the stock of that company on that date was $ 59.503902 per share.
The decedent came to the United States on May 28, 1941, under a Yugoslav diplomatic passport, being admitted on a non-immigrant visa. His status was changed to that of a temporary visitor in 1944, and he was granted an extension to September 21, 1945. At the time of his arrival in the United States, he was in poor health, suffering from a failing heart. His health condition deteriorated constantly, and he died of heart failure. *53 He was under constant medical care, repeatedly confined in hospitals, and had an attendant nurse all of the time. The decedent took a slight active part in the business of Combined Argosies, and went to its office on rare occasions. While he was president of the corporation, he executed at home or at his hotel such corporate papers as were submitted to him, and which the other officers felt should be executed by the president. He attended only three directors' meetings. He resigned as president and director on November 13, 1942.
After the decedent's resignation as president and director of Combined Argosies, the decedent was physically unable actively to attend to business and did not take any active part in the corporation's business, and did not engage in any other business in the United States. At the time of his death, the decedent was a retired shipping executive and was neither a director nor an officer of any corporation in the United States. He drew no salary from Combined Argosies except for the year 1942, in which year he was paid $ 12,000 for services rendered. Except for such payment, he had no income in the United States from the time of his arrival. He lived*54 from his capital.
At the time of his death, the decedent had checking accounts in his name with deposits therein as follows:
| First National Bank of Boston, Boston, Massachusetts | $ 33,153.76 |
| Chase National Bank of the City of New York, Rockefeller | |
| Center Branch | 148,555.31 |
| Total | $ 181.709.07 |
The decedent was not engaged in business in the United States at the time of his death.
At the date of the decedent's death, there was a credit in an account, kept in his name with Combined Argosies, in the amount of $ 1,598,010.71. The account of the decedent on the books of that corporation was opened on June 8, 1940. Thereafter, it was used as his own. Withdrawals were made for personal and living expenses, and the account contains advances from him. The funds in the account had been reported by the decedent to the Foreign Funds Control Division of the Treasury Department as his own and had been disbursed *752 by him for use or investment pursuant to permits issued by that office.
The executrix of the decedent's estate treated the balance in the account at the date of death as not being an asset of the estate, on the theory that the funds that went into it were *55 those belonging originally to the two Yugoslav shipping corporations and represented freights earned by them, proceeds from the sale of two ships in 1940, and other moneys.
In 1946 an accounting was made with officers and directors of the two Yugoslav corporations of moneys held by Combined Argosies in the name of the decedent. As the result of such accounting, and pursuant to resolutions adopted in February 1946 by the directors of those companies, credits were entered against the account of the decedent as follows:
| Various stockholders of the Jugoslavenski Lloyd at | |
| $ 3.75 per share | $ 1,196,822.10 |
| Various stockholders of the Prekomorska Plovidba at $ 100 per | |
| share (excepting the Jugoslavenski Lloyd) | 180,000.00 |
| Officers and directors of the Jugoslavenski Lloyd | 126,701.00 |
| Officers and directors of the Prekomorska Plovidba | 41,666.67 |
| Combined Argosies Incorporated | 135,054.97 |
| Jugoslavenski Lloyd | 6,157.84 |
| Prekomorska Plovidba | 10,710.22 |
| Total | $ 1,697,112.80 |
| Credit appearing on said account | 1,598,010.71 |
| Shortage | $ 99,102.09 |
Claims for payment of the above sums were presented to the executrix, and they were paid except for the following still outstanding*56 balances:
| Undistributed sums to Jugoslavenski Lloyd shareholders | $ 102,618.75 |
| Undistributed sums to Prekomorska Plovidba shareholders | 30,283.33 |
| Total | $ 132,902.08 |
The funds in the account of the decedent are still held by Combined Argosies.
Estate tax in the amount of $ 177,651.98 computed in the return of the decedent's estate has been paid.
OPINION.
I. Valuation of Stock.
The first issue concerns the value of the stock of Combined Argosies Incorporated at the date of the death of the decedent. On this point, the parties have stipulated as follows:
In the notice of deficiency the Commissioner, after considering all relevant factors, determined that the value of the shares of the Combined Argosies Incorporated, as of decedent's death on April 14, 1945, should be equal to the *753 value of the net assets which he determined to be $ 673,732.00, or $ 67.3732 per share.
The correct net asset value of said corporation as of said date was $ 595,039.02 or $ 59.503902 per share.
Counsel for the respondent emphasizes that part of the stipulation which says that after considering all relevant factors he made his determination that the value of the shares should*57 be equal to net asset value. The second paragraph of the stipulation sets forth a lower net asset value and the respondent concedes that the value of the stock is no higher than that agreed value.
The petitioner objects to valuing the stock in the manner described in the stipulation. The objection is not that the respondent did not consider elements other than book value, but that he did not literally comply with that part of section 81.10 of Regulations 105 which says that where, as here, actual sales prices or bona fide bid and asked prices are not available, "value is to be arrived at * * * upon the basis of the company's net worth, earning power, dividend paying capacity, and all other relevant factors having a bearing upon the value of the stock." In view of the wording of the stipulation as to the respondent's method of determining value, we think that it was incumbent on the petitioner to show what other factors or elements should be taken into consideration and what weight should be ascribed to them. True, it would appear that a value of about $ 60 is rather high for stock with average earnings of approximately $ 2 per share over a 5-year period, but the petitioner *58 has not given us any aid in fixing a value other than that stated in the stipulation. Consequently, we cannot say that the stock should be valued for estate tax purposes at less than the stipulated figure of $ 59.503902 per share.
II. Bank Deposits in Domestic Banks.
The respondent has included in the decedent's gross estate the sum of $ 181,709.07 which was the balance in two checking accounts in the name of the decedent, one in the First National Bank of Boston, and the other in the Chase National Bank.
The parties are agreed that the propriety of the inclusion of this sum depends upon whether or not the decedent was "engaged in business in the United States at the time of his death" within the meaning of Internal Revenue Code section 863 (b). 1 On brief, the respondent attempts to support his action by argument that the petitioner was engaged in business through trusted lieutenants and through his *754 stock ownership in Combined Argosies. There is nothing in the evidence to show that directors and officers of Combined Argosies were agents of the petitioner in carrying on the business of that company. The matter of stock ownership as constituting the engagement in *59 business was squarely before us in Estate of Jose M. Tarafa y Armas, 37 B. T. A. 19 (Acq. 1938-1 C. B. 30), and we there held that "The domestication of a corporation does not domesticate its nonresident stockholders to the extent of causing them to be in business in the United States if they are not otherwise engaged in business in the United States." The evidence abundantly establishes that the petitioner was "not otherwise engaged in business in the United States." We accordingly hold that the respondent erred in including in decedent's gross estate the moneys on deposit in the decedent's checking accounts.
*60 III. Credit Balance on Books of Combined Argosies.
The respondent has included in the decedent's gross estate the sum of $ 1,598,010.71 which was the credit balance in the account in the decedent's name on the books of Combined Argosies, and has allowed as a claim against the estate a prorated amount computed in the ratio that the gross estate situated in the United States bears to the total gross estate wherever situated.
The petitioner attacks such inclusion on the principal ground that the moneys in the account were trust funds held by the decedent for the two Yugoslav corporations, their directors and stockholders, or, in the alternative that the amount of the credit balance consisted of moneys deposited by Combined Argosies for the decedent in domestic banks to which deposits Code section 863 (b) is applicable.
Thus, the difference between the parties in reality is whether the decedent was a debtor of the Yugoslav corporations and their stockholders or held the moneys as trustee for them.
We think that the respondent's theory of debtor-creditor relationship is unsound. The decedent's action in acquiring funds of the two corporations had its origin in the powers of attorney*61 granted to him on April 15, 1940. These powers are extremely broad, and gave authority to the decedent "to charter our steamers, collect freights, deposit and withdraw funds of the Company, make loans with or without mortgage and in general to dispose in the name of the Company of all Company's accounts * * *." There is no hint in these powers of attorney of any intent to loan the property of the companies, or the proceeds from the properties, to the decedent. There is no requirement for the payment of interest, as there normally would be in the case of loans, and it does not appear that any demand was made for interest in the accounting for the decedent's stewardship which occurred in 1946.
*755 Corporate directors who come into possession of property of the corporation stand in a fiduciary relationship to stockholders and creditors and are held accountable as fiduciaries. Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185, 148">123 N. E. 148; Kreitner v. Burgweger, 174 App. Div. 48, 160 N. Y. Supp. 256. That appears to be the situation here. According to the stipulation, the decedent*62 "arranged to keep the funds of said two Yugoslav corporations from the clutches of" the Axis powers. The funds were recognized as belonging to the corporations and the decedent was accountable to them. Consequently, the amount in the decedent's account at the date of his death was an amount held in trust and is not includible in his gross estate.
We recognize that there is some element of conflict in the evidence on this matter. The decedent withdrew from the account funds for personal expenses. He reported to the Treasury Department that the funds were his. On the other hand, there is some evidence that in 1941, acting under his powers of attorney, he declared dividends to the stockholders of the Yugoslav corporations out of the funds in his hands. Further, the executrix of the decedent's estate had no hesitancy in admitting that the amount on deposit, while in the name of the decedent, in reality was the property of the Yugoslav corporations or their stockholders. We have examined all of the evidence and our conclusion is that the amount on deposit to the credit of the decedent on the books of Combined Argosies was a trust fund, and as such should not be included in his gross*63 estate.
IV. Additions and Deductions.
The parties have stipulated that there should be an addition to the estate of $ 78,127.50 from the sum distributed by Jugoslavenski Lloyd because after the decedent's death it found that he owned additional shares of the company. They have also agreed that there was an additional liability of the estate in the amount of $ 42,225.02 representing amounts due to officers and directors of Jugoslavenski Lloyd for services rendered to that corporation. These agreements should be given effect in the recomputations under Rule 50.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 863. PROPERTY WITHOUT THE UNITED STATES.
The following items shall not, for the purpose of this subchapter, be deemed property within the United States:
* * * *
(b) Bank Deposits. -- Any moneys deposited with any person carrying on the banking business, by or for a nonresident not a citizen of the United States who was not engaged in business in the United States at the time of his death.↩