*1065 1. ESTATE TAX. - Petitioners have not shown that the respondent erred in determining the fair market value of certain shares of preferred and common stock in the Fre-Dou Corporation of New York owned by the decedent at the time of his death and his determination is sustained.
2. At the time of his death the decedent, a British subject domiciled in the United States, owned certain intangible personal property situated in England. The respondent included such property in his gross estate. Held, the Federal Government had jurisdiction to levy the tax, since the decedent was domiciled in the United States; held, further, the due process clause of the Fifth Amendment does not constitute a constitutional restriction on the power of the Federal Government to levy the tax.
*804 The respondent determined a deficiency in estate tax in the amount of $4,378.27. There are two issues: First, whether the respondent erred in determining the fair market value of certain shares of stock in the Fre-Dou Corporation of New York owned by the decedent*1066 at the time of his death; and, second, whether the Federal Government had jurisdictional and constitutional power in levying the Federal estate tax to require the inclusion in the decedent's gross estate of certain intangible personal properties situated in England, the decedent being a British subject domiciled in the United States.
FINDINGS OF FACT.
William McDougall, a resident of and domiciled in the city of Durham, North Carolina, died testate on November 28, 1938. At all times during his life he was a British subject. The petitioners are the executors of his estate. On May 26, 1939, they filed an estate tax return for the decedent with the collector at Greensboro, North Carolina, and reported as a part of his gross estate 150 shares of preferred and 225 shares of common stock in the Fre-Dou Corporation of New York. The preferred stock was returned at $50 per share, or $7,500, and the common stock at $25 per share or $5,625. In the notice of deficiency the respondent determined that the preferred stock had a value of $100 per share or $15,000 and the common stock $50 per share, or $11,250.
Prior to 1935 a corporation known as Mt. Sinai Memorial Park operated a Jewish*1067 cemetery on Staten Island, New York. The project was unsuccessful and in 1935 title to the burial rights in the park, consisting of about 16 acres, was taken over by a new corporation known as the Fre-Dou Corporation. The park was then converted into a cemetery for Negro burial purposes. The agreement between Mt. Sinai Memorial Park and Fre-Dou Corporation provided that the latter would pay the former 32 percent of the proceeds realized from sales of burial plots, 16 percent of which was to be used for buying back the plots that had been sold for Jewish burial purposes and the remaining 16 percent was to be applied against the debts of the former owner and then to its stockholders. The contract also provided that at least 30,000 square feet in each acre would be used for burial purposes, which would make between twenty and twenty-three thousand graves in the whole tract, and that the first thousand graves would be sold at $36 each, the next thousand at $40 each and thereafter at $45 each. At about the time Fre-Dou took over the burial rights in the cemetery it acquired a $15,000 note executed by Mt. Sinai Memorial Park for the sum of $10,000.
*805 Shortly after its organization*1068 the Fre-Dou Corporation entered into a contract with the United Hebrew Cemetery for the purchase of burial rights in a 36-acre tract situated adjacent to the other tract acquired from Mt. Sinai. For these rights it paid $7,414 and issued 50 shares of its preferred and 1,495 shares of its common stock to the United Hebrew Cemetery. Of this common stock 508 shares were later returned to Fre-Dou and held by it as treasury stock. Additional payments were supposed to have been made to the United Hebrew Cemetery, but no payments have been made since 1936.
Although the Fre-Dou Corporation holds the burial rights above described, it does not operate the cemetery nor conduct the sales of burial plots. Another corporation, known as the Frederick Douglas Memorial Park, Inc., was organized for that purpose. It issued no stock and its officers are the same as those of the Fre-Dou Corporation. Under an operating contract between Fre-Dou and the Frederick Douglas Memorial Park, the latter agreed to divide and distribute the proceeds from sales of burial plots as follows: 32 percent to the Mt. Sinai Memorial Park, 21 percent to the Fre-Dou Corporation, 35 percent for selling expenses, 4 percent*1069 for development, and 8 percent for operations. The Fre-Dou Corporation agreed to advance to the Frederick Douglas Memorial Park sufficient funds to enable it to carry out its activities.
From the beginning of operations up to November 30, 1938, the Frederick Douglas Memorial Park, pursuant to the above agreement, paid over to the Fre-Dou Corporation the sum of $3,312.81 representing a portion of the amount due on sales of burial plots and at the end of that period it still owed Fre-Dou the sum of $1,710.37 on account of such sales. From March 1, 1938, through February 1939, the Frederick Douglas Memorial Park sold 224 single burial plots at the price of $36 each.
From May 15, 1935, to November 30, 1938, the Fre-Dou Corporation received the sum of $44,581 from sales of its preferred and common stock. Of that amount $30,400 was derived from sales of preferred stock, $11,100 from common, and $3,081 from stock subscriptions not allocated to either preferred or common. All the sales were made at the same prices, namely, $100 per share for the preferred and $50 per share for the common, and the dates of the sales were evenly spaced throughout the period. A sale of two shares of*1070 common stock was made to the wife of the president of the corporation in August 1937. The stock was not listed or sold through any stock exchange.
*806 The balance sheet of the Fre-Dou Corporation, dated November 30, 1938, is as follows:
| ASSETS | |||
| Cash in bank | $7.36 | ||
| Accounts receivable - F.D.M.P. 21% | $1,710.37 | ||
| Advances - F.D.M.P | 22,540.33 | 24,050.70 | |
| United Hebrew contract | 284,430.50 | ||
| Less unpaid | 122,516.50 | 161,914.00 | |
| Notes receivable - | |||
| Mt. Sinai Mem | 15,000.00 | ||
| Less premium paid | 5,000.00 | 10,000.00 | |
| Misc. assets | 150.00 | ||
| 196,122.06 | |||
| LIABILITIES | |||
| Notes payable - lot purchases | $75.00 | ||
| Accrued franchise taxes | 814.84 | ||
| Loans payable | 1,080.00 | ||
| 1,969.84 | |||
| CAPITAL | |||
| Common stock issued | $150,000.00 | ||
| Less in treasury | 29,600.00 | $120,400.00 | |
| Preferred stock issued | 55,400.00 | ||
| Treasury stock subscribed | 12,200.00 | ||
| Preferred stock subscribed | 12,200.00 | ||
| 24,400.00 | |||
| Less unpaid subscriptions | 15,219.00 | 9,181.00 | |
| Donated surplus | 34,100.00 | ||
| 199,081.00 | |||
| Organization expense | 6,168.13 | $192,912.87 | |
| Surplus and undivided profits | 1,239.35 | ||
| Total liabilities and capital | 196,122.06 |
*1071 A statement of receipts and disbursements of the Fre-Dou Corporation from May 15, 1935, to November 30, 1938, shows total receipts in the sum of $50,698.02, which includes $44,581 from stock sales; disbursements in the amount of $50,690.66, which includes advancements to the Frederick Douglas Memorial Park in the *807 amount of $19,404.34 and $10,000 paid for the Mt. Sinai note; and a balance on hand of $7.36.
The balance sheet of the Frederick Douglas Memorial Park, dated November 30, 1938, shows total assets of $15,945.99, which includes improvements of $13,494.13; total liabilities of $32,760.16, which includes a loan payable to Fre-Dou in the amount of $23,635.50; and a deficit at the end of the period of $16,814.17.
A statement of receipts and disbursements of the Frederick Douglas Memorial Park, Inc., from June 5, 1935, to November 30, 1938, shows total receipts of $74,849.62, some of the principal items of which are land sales $31,752.80, grave openings $6,854.20, no title graves, net, $10,003.20, and advances from the Fre-Dou Corporation, $22,340.33; total disbursements of $74,660.76, some of the larger items of which are labor $23,312.29, sales commissions $9,888.52, *1072 officer's salary $7,900, office salary $2,531, office rent $2,312.50, improvements $4,167.41, payment to Mt. Sinai $7,178.13, payment to Fre-Dou Corporation $3,212.81, and transfer to perpetual care trustee $2,935.99; and a balance on hand of $88.86.
At the time of his death the decedent owned certain intangible personal property located in England which the parties agree had a total value of $32,555.47 and consisted of the following: English copyright interests $1,533.01, deposit in English bank $753.47, unpaid royalties on English books $411.76, and remainder interest in a trust of personal property set up under a will $29,857.23. None of these properties were reported as a part of the decedent's estate subject to the estate tax but in the notice of deficiency the respondent determined that they should be so included and subject to the tax.
OPINION.
TURNER: In the estate tax return filed for the decedent the preferred stock of the Fre-Dou Corporation was returned at $50 per share and the common stock was returned at $25 per share. The respondent determined that the preferred stock had a value of $100 per share and the common stock $50 per share. It is alleged in the petition*1073 and petitioners now claim that the preferred stock had a value of only $10 per share and the common stock $1 per share and that they are entitled to a refund on account of an overpayment of tax.
The burden is on the petitioners to prove that the value placed on the stock by the respondent was incorrect. Commissioner v. Robertson, 75 Fed.(2d) 540. In addition to the prima facie correctness of the respondent's determination, he has established that from May 1935 through November 1938 the corporation sold its preferred stock for $100 per share and its common stock for $50 per share and that during that period it received from such sales the total sum of $44,581. *808 The dates of the sales were rather evenly spaced throughout that period and one of such sales was made to the wife of the president of the corporation. For reasons unknown to us the petitioners did not establish whether the decedent purchased the stock in question, and, if so, the cost thereof, or when or how he acquired it. The president of the corporation indicated in his testimony that there were several stock transfers on the books of the corporation which did not represent stock subscriptions, *1074 but the details of these transactions were not brought out.
The respondent places a great deal of reliance on the sales above described, while the petitioners attempt to minimize their importance in so far as they tend to establish fair market value, contending on brief that sales of stock by subscription to capital negotiated by promoters do not establish a "market value." The authorities cited by the petitioners do not support any such proposition. In Heiner v. Crosby, 24 Fed.(2d) 191 cited by petitioners, the court said that sales alone without regard to the circumstances under which they are made do not conclusively establish value. In the instant case the evidence does not show, as suggested, that such sales were made only after a "diligent effort" to develop a buyer, Walter v. Duffy,287 Fed. 41, nor does it appear, as suggested, that such sales were made to organizers or promoters who were to receive salaried positions with the corporation, Premier Packing Co.,12 B.T.A. 637">12 B.T.A. 637. True, the stock was not listed or traded in on any exchange, but that fact does not establish that the stock had no market value. Here the*1075 record does not show whether the decedent or his estate ever made any effort to sell the stock.
The petitioners argue that the business of the corporation is highly speculative and that that fact tends to negative market value. The cases cited do not support that proposition, and, as the respondent suggests, the speculative character of stock might well be the element which gives it value. The facts here are too meager to support either view.
A study of the balance sheet and the statement of receipts and expenditures of the Fre-Dou Corporation gives very little aid in determining the value of its stock. The importance to be attached to the balance sheet would seem to depend largely upon the proper value to be placed upon the Hebrew contract (the contract with Mt. Sinai was not listed at all), but, accepting the various items as listed, the preferred and common stock seems to have a book value at least equal to the value determined by the respondent. In view of the working arrangement between the Fre-Dou Corporation and the Frederick Douglas Memorial Park and the fact that a considerable portion of the funds advanced by the former to the latter was *809 used for development*1076 purposes, it would seem that the financial position of one would have to be considered in conjunction with the other. The cemetery during the period prior to the decedent's death was obviously in the development stage and the absence of quick assets under the circumstances does not show the absence of value for the stock.
We do not think the petitioners have shown that the respondent erred in determining the fair market value of the preferred and common stock of the Fre-Dou Corporation owned by the decedent at the time of his death and his determination is accordingly sustained.
The next question is whether the respondent erred in including in the decedent's gross estate certain intangible personal property situated in England. The decedent was a British subject, but at the time of his death Durham, North Carolina, was his domicile and place of residence. The petitioners concede that the statute by its language requires the inclusion of the property in question in the decedent's gross estate. Secs. 303 and 304, Revenue Act of 1926, as amended by sec. 403, Revenue Act of 1934. They contend, however, that, since the decedent was a British subject, the United States and its*1077 laws afforded no protection to him with respect to his property located in England and therefore the imposition of the tax on the transfer of such property at and by reason of his death is as to the United States extra jurisdictional and beyond the power of Congress; and, further, that the inclusion of such property in the gross estate is in violation of rights guaranteed by the Fifth Amendment to the Constitution.
Although the statutory provision in question has stood unchanged since the passage of the Revenue Act of 1934, this seems to be the first time the question here involved has been presented for the consideration of this Board or any of the courts; at least neither party has cited a case directly in point, and we have found none.
According to the pronouncements of the Supreme Court in Burnet v. Brooks,288 U.S 378, the national power as it relates to other nations and their subjects and apart from "any self-imposed constitutional restriction" is to be determined "by applying the principles of jurisdiction recognized in international relations." In that case the Court upheld the right and power of Congress to tax as a part of the gross estate of a*1078 nonresident alien certain securities, the physical evidences of which were located in the United States. The Court pointed out that the jurisdiction to impose a tax with respect to the same property might exist in more than one government and might rest on any one of four distinct grounds - the citizenship of the owner, his domicile, the source of income, or the situs of the property. The situation said the Court, has resulted in efforts "to preclude *810 multiple taxation through the negotiation of appropriate international conventions." 1 It was noted however that these endeavors have proceeded "upon express or implied recognition, and not in denial, of the sovereign taxing power as exerted by governments in the exercise of jurisdiction upon any one of these grounds."
*1079 In the instant case the decedent, though a British subject, was domiciled in the United States, and, domicile being one of the distinct grounds recognized as fixing the jurisdiction of a sovereign power, Congress was clearly within its power in requiring the inclusion of the decedent's intangible personal property in his gross estate, even though the evidences of such property were actually located in England. In Burnet v. Brooks, supra, and First National Bank of Boston v. Commissioner, 63 Fed.(2d) 685, the jurisdictional ground for the tax was the situs of the property. In United States v. Bennett,232 U.S. 299">232 U.S. 299, and Guaranty Trust Co. v. Commissioner, 79 Fed.(2d) 245, it was citizenship. In this case the power to impose the tax rests on domicile.
It is the further claim of the petitioners that in the Fifth Amendment there is a constitutional restriction on the power of the United States to impose a tax with respect to the property of an alien where the situs of the property is in a foreign country. It is argued that inclusion of such property in the gross estate of such alien for Federal*1080 estate tax purposes amounts to the taking of his property without due process. Answering this contention, the respondent relies on the decision of the Supreme Court in Curry v. McCanless,307 U.S. 357">307 U.S. 357, wherein it was held that both Tennessee, the state of the decedent's domicile, and Alabama, where certain securities belonging to the decedent were actually located, had the power to impose death taxes in respect of the said securities and the imposition of such taxes by either state was not in violation of the due process clause of the Fourteenth Amendment. With respect to the applicability of Curry v. McCanless, the petitioners in their brief state that "The cases cited * * * show the basis of that decision to be one resting on the fact that under our Constitutional system the full faith and credit clause thereof gives any state full protection over intangible rights, regardless of where the property interests are supposed to be situated." Reading that decision, we find no justification for such a contention, even though some of the *811 cases cited may have dealt with the full faith and credit clause of the Constitution. In Curry v. McCanless*1081 the Supreme Court found that the decedent, being domiciled in Tennessee, enjoyed certain rights and privileges under Tennessee law with respect to the intangibles involved, even though the evidences thereof were located in another state, and found therein a sufficient ground to support a right in the State of Tennessee to impose the tax. The Court said: "The decedent's power to dispose of the intangible was a potential source of wealth which was property in her hands from which she was under the highest obligation, in common with her fellow citizens of Tennessee, to contribute to the support of the government whose protection she enjoyed. Exercise of that power, which was in her complete and exclusive control in Tennessee, was made a taxable event by the statutes of the state. Taxation of it must be taken to be as much within the jurisdiction of the state as taxation of the transfer of a mortgage on land located in another state and there subject to taxation at its full value."
While in the instant case the decedent was not a citizen of the United States, he was domiciled here, and much that was said by the Supreme Court in *1082 Curry v. McCanless, supra, with respect to the rights and privileges of the decedent therein under the laws of Tennessee is equally applicable to the rights and privileges enjoyed by the decedent in the instant case under the laws of the United States. It is true that certain of the decisions of the Supreme Court have indicated a difference in the practical application of the due process clause as contained in the Fourteenth Amendment to the states and similar application of the due process clause contained in the Fifth Amendment to the Federal Government. But where such distinctions have been drawn they have tended to show much greater restrictions with respect to the powers of the states as between themselves than with respect to the powers of the Federal Government as they relate to other nations and their subjects. Burnet v. Brooks, supra, pp. 403-5. In Union Refrigerator Transit Co. v. Kentucky,199 U.S. 194">199 U.S. 194, the Court said: "Because the limitations of the Constitution are barriers bordering the states and preventing them from transcending the limitation of their authority, and thus destroying the rights of other*1083 states, and at the same time saving their rights from destruction by the other states * * *, affords no ground for constructing an imaginary constitutional barrier around the exterior confines of the United States for the purpose of shutting that government off from the exertion of powers which inherently belong to it by virtue of its sovereignty." The application to the states of the rule of due process, said the Court, "has no application to the government of the United States so far as its admitted taxing *812 power is concerned", which power "embraces all the attributes which appertain to its sovereignty in the fullest sense." We have not been able to find anything in the cases cited to indicate that the due process clause of the Fifth Amendment restricts, or was in any way intended to restrict, the power of the Federal Government in the imposition of the tax with respect to intangible property owned by an alien domiciled in and a resident of the United States, even though the physical evidences of such property are located in a foreign country. The property in question was properly included in the decedent's gross estate. Cf. *1084 Frank W. Ross,44 B.T.A. 1">44 B.T.A. 1.
Reviewed by the Board.
Decision will be entered under Rule 50.
MELLOTT dissents on the second point.
Footnotes
1. According to a footnote one of the drafts of convention referred to by the Supreme Court appears in a publication entitled "Double Taxation Relief," Bureau of Foreign and Domestic Commerce, Department of Commerce, Jan. 1928. One of the subjects covered in that publication was the problem of multiple taxation as it relates to succession duties. In stating a proposed solution, the framers of the document said: "In the first place, the principle is recognized that the country in which the deceased was domiciled at the time of his death may levy succession duties on the entire estate." They recognized that, in drawing up any proposal for the elimination of double succession duties, "an agreement had at first to be reached as to which country should yield its right to tax, that of domicile or that of situs." ↩