MEMORANDUM FINDINGS OF FACT AND OPINION
TIETJENS, Judge:* The Commissioner determined a deficiency of $92,166.95 in the Federal estate tax of Airdrie K. Pinkerton (hereafter decedent). 1
*248 The issues for decision are: (1) the value of certain shares of stock owned by decedent at her death; and (2) the extent to which decedent's funeral expenses may be deducted from her gross estate.
FINDINGS OF FACT
The stipulated facts are so found and are incorporated herein by this reference.
Decedent, a resident of Ojai, California, died testate on June 26, 1966. Roy D. Pinkerton (hereafter petitioner), of Ojai, California, Airdrie Paula Martin, of Ojai, California, and Roy H. Pinkerton, of Sacramento, California, are the duly appointed, qualified and acting executors of decedent's will.
On or about May 8, 1967, petitioner filed a Federal estate tax return with the district director of internal revenue at Los Angeles, California, and elected to use the date of decedent's death as the date of valuation of the estate.
Decedent's estate was administered under the jurisdiction of California. Decedent's funeral expenses of $510.50 were paid by decedent's estate.
At the time of her death, decedent owned a one-half community property interest in the following shares of corporate stocks:
(a) 16 shares of Class A capital stock of John P. Scripps Newspapers.
(b) 16*249 shares of Class B capital stock of John P. Scripps Newspapers.
(c) 10 shares of Class A capital stock of Tulare Newspapers, Inc.
(d) 10 shares of Class B capital stock of Tulare Newspapers, Inc.
(e) 10 shares of Class A capital stock of Watsonville Newspapers, Inc.
(f) 10 shares of Class B capital stock of Watsonville Newspapers, Inc.
(g) 10 shares of Class A capital stock of Redding Record, Inc.
(h) 30 shares of Class B capital stock of Redding Record, Inc.
The Class A, no par capital stock of each of the four corporations is voting stock whereas the Class B is non-voting. In all other respects there is no distinction between the Class A and Class B stock of any of the corporations.
There have never been any sales of shares of capital stock of any of the four subject corporations from which the fair market value of such shares could be determined as of June 26, 1966.
John P. Scripps Newspapers
John P. Scripps Newspapers (hereafter Scripps), was incorporated under the laws of the State of California in 1935. From March 1935 until the date of decedent's death, the issued and outstanding capital stock of Scripps was owned as follows:
| Class A, no-par shares | Class B, no-par shares | Total | |
| Decedent and her surviving husband, Roy D. Pinkerton, as community property | 16 | 16 | 32 |
| John P. Scripps | 64 | 32 | 96 |
| Edgar F. Elfstrom and Thelma A. Elfstrom, Trustees | 16 | 16 | 32 |
| Totals | 96 | 64 | 160 |
*250 As of June 26, 1966, Scripps published the daily Ventura County Star-Free Press (hereafter the Star-Free Press) in Ventura, California, and the daily News-Chronicle in Thousand Oaks, California. The Star-Free Press was acquired by Scripps in 1946 although it was started as a daily newspaper by Roy D. Pinkerton on June 15, 1925. The News-Chronicle is the successor of the Conejo News, a weekly newspaper purchased by Scripps in 1961. The Star-Free Press is circulated throughout Ventura County, California, and the News-Chronicle is circulated in Southeastern Ventura County.
As of June 26, 1966, the Star-Free Press was printed on a six unit Goss letter press which was approximately 40 years old. Throughout the industry, letter presses were becoming obsolete and were being replaced by more modern offset presses. The market for used letter presses was very depressed.
As of June 26, 1966, the News-Chronicle was printed on a three unit offset press. The News-Chronicle operated from two different buildings, one of which was an old, remodeled church which had become inadequate for the newspaper's needs. It was not adaptable to remodeling, and the cost of replacing it was estimated*251 at from $150,000 to $200,000.
As of June, 1966, there were profit-sharing agreements in existence between Scripps and certain of its key employees. On December 7, 1965, the executive committee of Scripps increased the reserve account from $350,000 to $400,000 from its earned surplus to provide for its liability under the profit-sharing agreements.
The following schedules reflect certain information relevant to our determination of the value of decedent's interest in Scripps:
| (1) John P. Scripps Newspapers | |||
| Net Income Before Federal Income Taxes | Federal Income Taxes | Dividends Paid | |
| 1956 | $235,507 | $115,595 | $ 38,400 |
| 1957 | 231,239 | 114,709 | 38,400 |
| 1958 | 244,319 | 121,250 | 38,400 |
| 1959 | 304,759 | 151,949 | 38,400 |
| 1960 | 315,262 | 157 ,258 | 76,800 |
| 1961 | 350,721 | 175,642 | 76,800 |
| 1962 | 232,326 | 114,076 | 76,800 |
| 1963 | 227,006 | 111,296 | 76,800 |
| 1964 | 141,322 | 42,091 | 76,800 |
| 1965 | 264,817 | 111,709 | 76,800 |
| 1966 | 242,585 | 106,739 | 76,800 |
| (2) Ventura County Star-Free Press | |||||
| Total Revenues | Net Operating Profit | Average Paid Daily Circulation | Total Pages Printed | Total Advertising Inches | |
| 1956 | $1,071,561 | $237,693 | 19,961 | 7,220 | 737,812 |
| 1957 | 1,131,237 | 237,131 | 20,342 | 7,464 | 749,857 |
| 1958 | 1 ,206,284 | 249,056 | 21,449 | 7,418 | 720,278 |
| 1959 | 1,374,926 | 306,645 | 23,182 | 7,936 | 796,813 |
| 1960 | 1,534,811 | 309,115 | 23, 995 | 8,130 | 837,941 |
| 1961 | 1,700,785 | 397,695 | 24,230 | 8,462 | 868,567 |
| 1962 | 1,767,893 | 353,332 | 25,090 | 8,796 | 881,181 |
| 19 63 | 1,937,494 | 385,787 | 26,208 | 9,438 | 903,827 |
| 1964 | 2,080,790 | 378,611 | 27,627 | 10,236 | 964,335 |
| 1965 | 2,338,131 | 456,496 | 28,894 | 10,534 | 1,020,221 |
| 1966 | 2,535,362 | 317,582 | 29,273 | 12,170 | 1,065,433 |
| (3) News-Chronicle | |||||
| Total Revenues | Net Operating (Loss) | Average Paid Daily Circulation | Total Pages Printed | Total Advertising Inches | |
| 7 months ended December 31, | |||||
| 1961 | $ 60,661 | [50,997) | 1,308 | 778 | 63,526 |
| 1962 | 151,491 | (119,884) | 2,454 | 1,636 | 150,922 |
| 1963 * | 191,46 2 | (154,583) | 3,829 | 2,020 | 181,857 |
| 1964** | 244,632 | (220,232) | 4,662 | 2,810 | 198,267 |
| 1965 | 347,020 | (187,636) | 4,310 | 3,540 | 230,896 |
| 1966 | 509,111 | ( 36,577) | 6,285 | 4,409 | 326,491 |
| (4) John P. Scripps Newspapers | |||
| (a) For the Years 1961, 1962, and 1963 | |||
| 1961 | 1962 | 1963 | |
| Circulation income | $ 358,990 | $ 384,123 | $ 411,168 |
| Advertising income | 1,392,824 | 1,520,708 | 1,701,932 |
| Miscellaneous income (shopping news circulars, commercial printing, etc.) | 9,631 | 14,553 | 15,855 |
| Interest income | 12,463 | 7,853 | 4,009 |
| Dividend income | 2,790 | 2,790 | 2,790 |
| Gain or (loss) on sale of capital assets | (1,155) | (40) | 89 |
| Total Income | $1,775,543 | $1,929,987 | $2,135,843 |
| Operating expense* | 1,415,502 | 1,687,548 | 1,898,605 |
| Interest expense | 9,320 | 10,113 | 10,232 |
| Operating profit before Federal income taxes | $ 350,721 | $ 232,326 | $ 227,006 |
| Federal income taxes | 175,642 | 114,076 | 111,296 |
| Net profit after Federal income taxes | $ 175,079 | $ 118,250 | $ 115,710 |
| *Includes depreciation expense in the amounts of | $ 40,350 | $ 42,431 | $ 42,071 |
| (b) For the years 1964, 1965, and 1966 | |||
| 1964 | 1965 | 1966 | |
| Circulation income | $ 445,719 | $ 469,661 | $ 550,775 |
| Advertising income | 1,861,176 | 2,125,653 | 2,387,390 |
| Miscellaneous income (shopping news, circulars, commercial printing) | 18,526 | 170,565 | 265,965 |
| Interest income | 4,485 | 5,323 | 4,807 |
| Dividend income | 2,790 | 2,790 | 2,836 |
| Gain or (loss) on sale of capital assets | (276) | 1,384 | (367) |
| Total Income | $2,332,420 | $2,775,376 | $3,211,406 |
| Operating expense* | 2,167,921 | 2,482,207 | 2,924,238 |
| Interest expense | 23,177 | 28,352 | 44,583 |
| Operating profit before federal income taxes | $ 141,322 | $ 264,817 | $ 242,585 |
| Federal income taxes** | 42,091 | 111,709 | 106,739 |
| Net profit after federal income taxes | $ 99,231 | $ 153,108 | $ 135,846 |
| *Includes depreciation expense in the amounts of | $ 53,387 | $ 70,717 | $ 78,686 |
| **After reduction for investment credits in the amounts of | $ 20,385 | $ 7,641 | $ 2,105 |
| (5) John P. Scripps Newspapers | ||
| (a) As of December 31, 1961 and 1962 | ||
| Assets | 12/31/61 | 12/31/62 |
| Cash on hand and in banks | $ 208,618 | $ 105,591 |
| Securities at cost | 85,824 | 160,824 |
| Notes and accounts receivable - net | 315,973 | 208,368 |
| Inventories and supplies | 45,699 | 41,236 |
| Land, buildings and equipment - net | 507,293 | 657,502 |
| Goodwill - purchased | 49,827 | 49,827 |
| Deferred charge | 8,105 | 7,969 |
| Organization expense | 599 | 599 |
| Miscellaneous assets | 12,308 | 975 |
| Total Assets | $1,234,246 | $1,232,891 |
| Liabilities and Capital | ||
| Current liabilities | $ 182,267 | $ 140,409 |
| Notes payable-non-current | 163,145 | 166,510 |
| Prepaid subscriptions | 5,379 | 5,647 |
| Miscellaneous non-current liabilities | 10,706 | 6,127 |
| Reserve for liability under employee profit sharing agreements | 350,000 | 350,000 |
| Capital stock (160 shares) | 1,600 | 1,600 |
| Capital surplus | 98,631 | 98,631 |
| Earned surplus | 422,518 | 463,967 |
| Total Liabilities and Capital | $1,234,246 | $1,232,891 |
| (b) As of December 31, 1963 and 1964 | ||
| Assets | 12/31/63 | 12/31/64 |
| Cash on hand and in banks | $ 114,252 | $ 97,958 |
| Securities at cost | 173,162 | 194,061 |
| Notes and accounts receivable - net | 217,189 | 262,751 |
| Inventories and supplies | 42,609 | 51,710 |
| Land, buildings and equipment - net | 638,946 | 957,925 |
| Goodwill - purchased | 49,827 | 49,827 |
| Deferred charge | 8,663 | 10,040 |
| Organization expense | 599 | 599 |
| Miscellaneous assets | 56,728 | 90 |
| Total Assets | $1,301,975 | $1,624,961 |
| Liabilities and Capital | ||
| Current liabilities | $ 168,269 | $ 114,640 |
| Notes payable-non-current | 169,415 | 523,970 |
| Prepaid subscriptions | 7,316 | 7,791 |
| Miscellaneous non-current liabilities | 3,867 | 3,020 |
| Reserve for liability under employee profit sharing agreements | 350,000 | 350,000 |
| Capital stock (160 shares) | 1,600 | 1,600 |
| Capital surplus | 98,631 | 98,631 |
| Earned surplus | 502,877 | 525,309 |
| Total Liabilities and Capital | $1,301,975 | $1,624,961 |
| (c) As of December 31, 1965 and June 30, 1966 | ||
| Assets | 12/31/65 | 6/30/66 |
| Cash on hand and in banks | $ 175,057 | $ 117,625 |
| Securities at cost | 194,061 | 194,061 |
| Notes and accounts receivable - net | 323,904 | 325,298 |
| Inventories and supplies | 44,759 | 60,262 |
| Land, buildings and equipment - net | 1,091,831 | 1,064,634 |
| Goodwill - purchased | 274,827 | 274,827 |
| Deferred charge | 62,897 | 66,519 |
| Organization expense | 599 | 599 |
| Miscellaneous assets | 316 | 4,967 |
| Total Assets | $2,168,251 | $2,108,792 |
| Liabilities and Capital | ||
| Current liabilities | $ 232,358 | $ 212,709 |
| Notes payable-non-current | 871,606 | 774,107 |
| Prepaid subscriptions | 9,534 | 11,170 |
| Miscellaneous non-current liabilities | 2,905 | 2,557 |
| Reserve for liability under employee profit sharing agreements | 400,000 | 400,000 |
| Capital stock (160 shares) | 1,600 | 1,600 |
| Capital surplus | 98,631 | 98,631 |
| Earned surplus | 551,617 | 608,018 |
| Total Liabilities and Capital | $2,168,251 | $2,108,792 |
| (6) Securities owned by John P. Scripps Newspapers as of December 31, 1965, and June 30, 1966 | |
| Description | Cost |
| $ 50,000 U.S. Treasury bonds - 4% of 8/15/70 | $ 50,000 |
| 40,000 U.S. Treasury bonds - 2 1/2% of 6/15/69 | 37,337 |
| 20,000 U.S. Treasury bonds - 3 7/8% of 5/15/68 | 20,000 |
| 10,000 U.S. Treasury bonds - 2 1/2% of 12/15/69 | 10,000 |
| 558 shares of 5% Series "A" cumulative preferred stock of E.W. Scripps Company | 55,824 |
| 100 shares of common capital stock (20% interest) by Entsunews, Inc., publisher of Simi-Enterprise-Sun & News, Simi, California | 20,900 |
| Total | $194,061 |
Tulare Newspapers, Inc.
Tulare Newspapers, Inc. (hereafter Tulare) was incorporated under the laws of the State of California in 1945. From the date of incorporation until the date of decedent's death, the issued and outstanding capital stock of the corporation was owned as follows:
| Class A, no-par shares | Class B, no-par shares | Total | |
| Decedent and her surviving husband, Roy D. Pinkerton, as community property | 10 | 10 | 20 |
| John P. Scripps | 80 | 80 | 160 |
| Harry Green | 10 | 10 | 20 |
| Totals | 100 | 100 | 200 |
As of June 26, 1966, Tulare's principal business activity consisted*255 of the publication of a daily newspaper, the Tulare Advance Register and Tulare Times (hereafter the Register-Times) in Tulare, California. The Register-Times was started as a daily newspaper by Tulare in December 1945. The Register-Times is circulated in Tulare County.
As of June 26, 1966, the plant and equipment used in the production of the Register-Times was old and outdated. The Register-Times was printed on a Goss letter press, and, in 1966, the estimated cost of converting to an offset press operation was $300,000.
Tulare did not pay any dividends during the years 1956 through 1970.
The following schedules reflect certain information relevant to our consideration of the value of decedent's interest in Tulare:
(1) Tulare Newspapers, Inc.
| Net Income Before Federal Income Taxes | Federal Income Taxes | |
| 1956 | $16,480 | $ 4,944 |
| 1957 | 11,273 | 3,382 |
| 1958 | 23,509 | 7,053 |
| 1959 | 21,136 | 5,741 |
| 1960 | 34,877 | 12,636 |
| 1961 | 10,244 | 3,073 |
| 1962 | 12,832 | 3,850 |
| 1963 | 1,498 | 444 |
| 1964 | 38,393 | 11,102 |
| 1965 | 34,550 | 11,506 |
| 1966 | 26,087 | 7,335 |
(2) Tulare Advance Register and Tulare Times
(2) Tulare Advance Register and Tulare Times
| Total Revenues | Net Operating Profit | Average Paid Daily Circulation | Total Pages Printed | Total Advertising Inches | |
| 1956 | $286,144 | $ 24,661 | 4,771 | 3,454 | 283,154 |
| 1957 | 280,708 | 19,082 | 4,847 | 3,432 | 268,919 |
| 1958 | 311, 533 | 31,034 | 4,819 | 3,426 | 274,907 |
| 1959 | 318,871 | 16,673 | 5,047 | 3,508 | 271,769 |
| 1960 | 377,477 | 42,420 | 5,018 | 3,740 | 290 ,573 |
| 1961 | 362,652 | 17,980 | 5,200 | 3,728 | 277,760 |
| 1962 | 385,629 | 20,239 | 5,239 | 3,896 | 289,867 |
| 1963 | 390,294 | 4,972 | 5,2 59 | 4,028 | 273,175 |
| 1964 | 416,020 | 42,153 | 5,201 | 3,836 | 281,859 |
| 1965 | 433,067 | 39,725 | 5,353 | 3,826 | 284,406 |
| 1966 | 461,515 | 30,832 | 5,599 | 4,126 | 296,728 |
| (3) Tulare Newspapers, Inc. | |||
| (a) For the years 1961, 1962, and 1963 | |||
| 1961 | 1962 | 1963 | |
| Circulation income | $ 63,189 | $ 63,417 | $ 67,449 |
| Advertising income | 289,328 | 307,141 | 308,464 |
| Miscellaneous income (shopping news, circulars, commercial printing, etc.) | 10,135 | 15,071 | 14,381 |
| Gain on sale of capital assets | -0- | -0- | 2,000 |
| Total Income | $362,652 | $385,629 | $392,294 |
| Operating expense * | 344,672 | 365,391 | 385,322 |
| Interest expense | 7,736 | 7,406 | 5,474 |
| Operating income before federal income taxes | $ 10,244 | $ 12,832 | $ 1,498 |
| Federal income taxes | 3,073 | 3,850 | 444 |
| Net profit after federal income taxes | $ 7,171 | $ 8,982 | $ 1,054 |
| *Includes depreciation expense in the amounts of | $ 5,351 | $ 5,350 | $ 5,297 |
| (b) For the Years 1964, 1965, and 1966 | |||
| 1964 | 1965 | 1966 | |
| Circulation income | $ 74,309 | $ 76,647 | $ 79,477 |
| Advertising income | 322,975 | 330,488 | 347,372 |
| Miscellaneous income (shopping news, circulars, commercial printing, etc.) | 18,736 | 25,932 | 34,666 |
| Interest income | -0- | -0- | 60 |
| Gain on sale of capital assets | 1,333 | -0- | -0- |
| Total Income | $417,353 | $433,067 | $461,575 |
| Operating expense * | 373,867 | 393,342 | 430,682 |
| Interest expense | 5,093 | 5,175 | 4,806 |
| Operating income before federal income taxes | $ 38,393 | $ 34,550 | $ 26,087 |
| Federal income taxes** | 11,102 | 11,506 | 7,335 |
| Net profit after federal income taxes | $ 27,291 | $ 23,044 | $ 18,752 |
| *Includes depreciation expense in the amounts of | $ 6,167 | $ 7,041 | $ 7,260 |
| **After reduction for investment credits in the amounts of | $ 2,276 | $ 78 | $ 187 |
| (4) Tulare Newspapers, Inc. | ||
| (a) As of December 31, 1961 and 1962 | ||
| Assets | 12/31/61 | 12/31/62 |
| Cash on hand and in banks | $ 53,822 | $ 39,586 |
| Notes and accounts receivable - net | 37,694 | 41,444 |
| Inventories and supplies | 10,111 | 6,386 |
| Land, buildings and equipment - net | 68,964 | 64,993 |
| Goodwill - purchased | 84,630 | 84,630 |
| Deferred charges | 1,730 | 1,829 |
| Total Assets | $256,951 | $238,868 |
| Liabilities and Capital | ||
| Current liabilities | $ 18,673 | $ 15,026 |
| Notes payable-non-current | 129,441 | 106,035 |
| Prepaid subscriptions | 2,827 | 2,858 |
| Miscellaneous non-current liabilities | 492 | 448 |
| Capital stock (200 shares) | 2,000 | 2,000 |
| Earned surplus | 103,518 | 112,501 |
| Total Liabilities and Capital | $256,951 | $238,868 |
| (b) As of December 31, 1963 and 1964 | ||
| Assets | 12/31/63 | 12/31/64 |
| Cash on hand and in banks | $ 22,523 | $ 33,637 |
| Notes and accounts receivable - net | 36,817 | 43,190 |
| Inventories and supplies | 6,544 | 4,345 |
| Land, buildings and equipment - net | 61,847 | 88,030 |
| Goodwill - purchased | 84,630 | 84,630 |
| Deferred charges | 1,854 | 2,144 |
| Total Assets | $214,215 | $255,976 |
| Liabilities and Capital | ||
| Current liabilities | $ 10,301 | $ 23,259 |
| Notes payable-non-current | 84,885 | 86,249 |
| Prepaid subscriptions | 3,084 | 3,062 |
| Miscellaneous non-current liabilities | 390 | 560 |
| Capital stock (200 shares) | 2,000 | 2,000 |
| Earned surplus | 113,555 | 140,846 |
| Total Liabilities and Capital | $214,215 | $255,976 |
| (c) As of December 31, 1965 and June 30, 1966 | ||
| Assets | 12/31/65 | 6/30/66 |
| Cash on hand and in banks | $ 53,022 | $ 66,082 |
| Notes and accounts receivable - net | 49,697 | 41,605 |
| Inventories and supplies | 6,177 | 4,927 |
| Land, buildings and equipment - net | 82,098 | 81,740 |
| Goodwill - purchased | 84,630 | 84,630 |
| Deferred charges | 2,822 | 2,334 |
| Total Assets | $278,446 | $281,318 |
| Liabilities and Capital | ||
| Current liabilities | $ 29,193 | $ 17,067 |
| Notes payable-non-current | 79,744 | 80,096 |
| Prepaid subscriptions | 3,009 | 3,516 |
| Miscellaneous non-current liabilities | 610 | 590 |
| Capital stock (200 shares) | 2,000 | 2,000 |
| Earned surplus | 163,890 | 178,049 |
| Total Liabilities and Cpaital | $278,446 | $281,318 |
*258 Watsonville Newspapers, Inc.
Watsonville Newspapers, Inc. (hereafter Watsonville) was incorporated under the laws of the State of California in December 1945. From the date of incorporation until the date of decedent's death, the issued and outstanding capital stock of Watsonville was owned as follows:
| Class A, no-par shares | Class B, no-par shares | Total | |
| Decedent and her surviving husband, Roy D. Pinkerton, as community property | 10 | 10 | 20 |
| John P. Scripps | 60 | 60 | 120 |
| Harry Green | 10 | 10 | 20 |
| Edgar F. Elfstrom and Thelma A. Elfstrom, Trustees | 20 | 20 | 40 |
| Totals | 100 | 100 | 200 |
As of June 26, 1966, Wastsonville's principal business activity consisted of the publication of a daily newspaper, the Watsonville Register-Pajaronian (hereafter the Register-Pajaronian) in Watsonville, California. Watsonville acquired the Register-Pajaronian on December 31, 1945. The Register-Pajaronian is circulated in Monterey and Santa Cruz Counties.
As of June 26, 1966, old equipment and an inadequate leased building were used in the production of the Register-Pajaronian. The Register-Pajaronian had been printed on letter press but was converted to offset press*259 in 1969 at an approximate cost of $700,000, which included the cost of the property necessary to the conversion.
As of June 26, 1966, there were profit-sharing agreements in existence between Watsonville and certain of its key employees. On December 3, 1965, the executive committee of Watsonville increased the reserve account in the amount of $50,000 from its earned surplus to provide for its liability under the profit-sharing agreements.
The following schedules reflect certain information relevant to our consideration of the value of decedent's interest in Watsonville:
(1) Watsonville Newspapers, Inc.
| Net Income Before Federal Income Taxes | Federal Income Taxes | Dividends Paid | |
| 1956 | $ 56,942 | $24,110 | $ 18,000 |
| 1957 | 58,637 | 24,991 | 18,000 |
| 1958 | 55,590 | 23,205 | 18,000 |
| 1959 | 58,104 | 24,106 | 18,000 |
| 1960 | 76,284 | 33,56 0 | 24,000 |
| 1961 | 50,702 | 20,257 | 24,000 |
| 1962 | 68,517 | 29,521 | 24,000 |
| 1963 | 76,434 | 33,524 | 24,000 |
| 1964 | 115,710 | 48,784 | 24,000 |
| 1965 | 117,723 | 48,898 | 35,000 |
| 1966 | 110,925 | 46,070 | 36,000 |
(2) Watsonville Register-Pajaronian
| Total Revenues | Net Operating Profit | Average Paid Daily Circulation | Total Pages Printed | Total Avertising Inches | |
| 1956 | $378,691 | $ 60,245 | 7,449 | 3,908 | 364,855 |
| 1957 | 379,968 | 62,151 | 7,632 | 3,796 | 342,723 |
| 1958 | 380,879 | 57, 889 | 7,749 | 3,772 | 340,929 |
| 1959 | 393,623 | 57,832 | 7,905 | 3,742 | 328,262 |
| 1960 | 456,838 | 74,919 | 8,133 | 4,040 | 347,843 |
| 196 1 | 444,464 | 48,212 | 8,287 | 4,042 | 338,385 |
| 1962 | 516,011 | 67,835 | 8,389 | 4,386 | 367,346 |
| 1963 | 579,539 | 75,063 | 8,471 | 4,7 94 | 394,275 |
| 1964 | 694,936 | 113,954 | 8,654 | 5,370 | 456,473 |
| 1965 | 730,650 | 114,175 | 8,910 | 5,468 | 458,056 |
| 1966 | 760,692 | 104,836 | 9,278 | 5,586 | 467,850 |
| (3) Matsonville Newspapers, Inc. | |||
| (a) For the years 1961, 1962 and 1963 | |||
| 1961 | 1962 | 1963 | |
| Circulation income | $106,320 | $106,265 | $108,441 |
| Advertising income | 333,372 | 398,007 | 447,308 |
| Miscellaneous income (shopping news, circulars, commercial printing, etc.) | 4,772 | 11,739 | 23,791 |
| Interest income | 6,588 | 6,973 | 6,718 |
| Dividend income | 1,375 | 1,375 | 1,375 |
| Gain on sale of capital assets | -0- | (1,171) | 422 |
| Total Income | $452,427 | $523,188 | $588,055 |
| Operating expense* | 396,252 | 448,176 | 504,476 |
| Interest expense | 5,473 | 6,495 | 7,145 |
| Operating income before federal income taxes | $ 50,702 | $ 68,517 | $ 76,434 |
| Federal income taxes | 20,257 | 29,521 | 33,524 |
| Net profit after federal income taxes | $ 30,445 | $ 38,996 | $ 42,910 |
| *Includes depreciation expense in the amounts of | $ 8,488 | $ 8,420 | $ 7,175 |
| (b) For the years 1964, 1965, and 1966 | |||
| 1964 | 1965 | 1966 | |
| Circulation income | $128,707 | $131,452 | $135,685 |
| Advertising income | 531,016 | 566,755 | 599,164 |
| Miscellaneous income (shopping news, circulars, commercial, printing, etc.) | 35,213 | 32,443 | 25,844 |
| Interest income | 6,848 | 8,158 | 12,112 |
| Dividend income | 1,375 | 1,375 | 1,375 |
| Gain on sale of capital assets | -0- | 3 | -0- |
| Total Income | $703,159 | $740,186 | $774,180 |
| Operating expense* | 580,982 | 616,474 | 655,856 |
| Interest expense | 6,467 | 5,989 | 7,399 |
| Operating income before federal income taxes | $115,710 | $117,723 | $110,925 |
| Federal income taxes** | 48,784 | 48,898 | 46,070 |
| Net profit after federal income taxes | $ 66,926 | $ 68,825 | $ 64,855 |
| *Includes depreciation expense in the amounts of | $ 7,609 | $ 8,399 | $ 8,651 |
| **After reduction for investment credits in the amounts of | $ 1,487 | $ 548 | $ 113 |
| (4) Watsonville Newspapers, Inc. | ||
| (a) As of December 31, 1964 and 1962 | ||
| Assets | 12/31/61 | 12/31/62 |
| Cash on hand and in banks | $ 40,203 | $ 63,048 |
| Securities at cost | 97,629 | 97,629 |
| Notes and accounts receivable - net | 119,276 | 129,970 |
| Inventories and supplies | 9,106 | 8,690 |
| Land, buildings and equipment - net | 58,374 | 53,255 |
| Goodwill - purchased | 104,293 | 104,293 |
| Deferred charges | 1,235 | 2,676 |
| Total Assets | $430,116 | $459,561 |
| Liabilities and Capital | ||
| Current liabilities | $ 34,633 | $ 49,953 |
| Notes payable-non-current | 92,009 | 93,084 |
| Prepaid subscriptions | 7,646 | 6,776 |
| Miscellaneous non-current liabilities | 3,588 | 2,512 |
| Reserve for liability under employee profit sharing agreements | 125,000 | 125,000 |
| Capital stock (200 shares) | 2,000 | 2,000 |
| Earned surplus | 165,240 | 180,236 |
| Total Liabilities and Capital | $430,116 | $459,561 |
| (b) As of December 31, 1963 and 1964 | ||
| Assets | 12/31/63 | 12/31/64 |
| Cash on hand and in banks | $ 81,580 | $119,732 |
| Securities at cost | 115,054 | 115,054 |
| Notes and accounts receivable - net | 105,111 | 120,975 |
| Inventories and supplies | 6,096 | 10,868 |
| Land, buildings and equipment - net | 56,172 | 69,800 |
| Goodwill - purchased | 104,293 | 104,293 |
| Deferred charges | 2,514 | 2,069 |
| Miscellaneous assets | 1,500 | 1,000 |
| Total Assets | $472,320 | $543,791 |
| Liabilities and Capital | ||
| Current liabilities | $ 48,969 | $ 71,169 |
| Notes payable-non-current | 88,089 | 94,350 |
| Prepaid subscriptions | 7,379 | 7,583 |
| Miscellaneous non-current liabilities | 1,737 | 1,617 |
| Reserve for liability under employee profit sharing agreements | 118,500 | 112,000 |
| Capital stock (200 shares) | 2,000 | 2,000 |
| Earned surplus | 205,646 | 255,072 |
| Total Liabilities and Capital | $472,320 | $543,791 |
| (c) As of December 31, 1965 and June 30, 1966 | ||
| Assets | 12/31/65 | 6/30/66 |
| Cash on hand and in banks | $ 60,763 | $ 35,194 |
| Securities at cost | 115,054 | 115,054 |
| Notes and accounts receivable - net | 218,510 | 211,740 |
| Inventories and supplies | 9,808 | 11,577 |
| Land, buildings and equipment - net | 69,226 | 126,818 |
| Goodwill - purchased | 104,293 | 104,293 |
| Deferred charges | 4,555 | 12,416 |
| Miscellaneous assets | 1,000 | 1,000 |
| Total Assets | $583,209 | $618,092 |
| Liabilities and Capital | ||
| Current liabilities | $ 70,089 | $ 45,850 |
| Notes payable-non-current | 100,594 | 135,095 |
| Prepaid subscriptions | 8,103 | 8,914 |
| Miscellaneous non-current liabilities | 1,526 | 1,994 |
| Reserve for liability under employee profit sharing agreements | 155,500 | 149,000 |
| Capital stock (200 shares) | 2,000 | 2,000 |
| Earned surplus | 245,397 | 275,239 |
| Total Liabilities and Capital | $583,209 | $618,092 |
*262 (5) Securities owned by Watsonville
As of December 31, 1965 and June 30, 1966
| Description | Cost |
| $50,000 U.S. Treasury bonds - 2 1/2% of 6/15/69 | $ 47,412 |
| 30,000 U.S. Treasury bonds - 4% of 8/15/70 | 30,000 |
| 10,000 U.S. Treasury bonds - 3 7/8% of 5/15/68 | 10,125 |
| 275 shares of 5% Series "A" cumulative preferred stock of E.W. Scripps Company | 27,517 |
| Total | $115,054 |
Redding Record, Inc.
Redding Record, Inc. (hereafter Redding) was incorporated under the laws of the State of California on October 17, 1938. From the date of incorporation until the date of decedent's death, the issued and outstanding capital stock of Redding was owned as follows:
| Class A, no-par shares | Class B, no-par shares | Total | |
| Decedent and her surviving husband, Roy D. Pinkerton, as community property | 10 | 30 | 40 |
| John P. Scripps | 80 | 40 | 120 |
| Paul C. Bodenhamer | 5 | 15 | 20 |
| Harry O. Bostwick, Jr. | 5 | 15 | 20 |
| Totals | 100 | 100 | 200 |
As of June 26, 1966, Redding's principal business activity consisted of the publication of a daily newspaper, the Redding Record-Searchlight and The Courier-Free Press (hereafter the Record-Searchlight), in Redding, California. Redding*263 started the Record-Serachlight on October 17, 1938. The Record-Searchlight is circulated in Shasta County.
As of June 26, 1966, the Record-Searchlight was printed on a forty year old five unit letter press and production was carried on in two separate locations, one of which was owned by Redding and the other leased. The estimated cost of consolidating operations and converting to an offset press was $950,000.
As of June 26, 1966, there were profit-sharing agreements in existence between Redding and certain of its key employees. On December 3, 1965, the executive committee of Redding increased the reserve account from $125,000 to $200,000 from its earned surplus to provide for its liability under the profit-sharing agreements.
The following schedules reflect certain information relevant to our consideration of the value of decedent's interest in Redding:
(1) Redding Record, Inc.
| Net Income Before Federal Income Taxes | Federal Income Taxes | Dividends Paid | |
| 1956 | $ 95,545 | $ 44,183 | $ 18,000 |
| 1957 | 94,939 | 43,862 | 18,000 |
| 1958 | 98,571 | 45,707 | 18,000 |
| 1959 | 122,941 | 58,429 | 18,000 |
| 1960 | 136,391 | 65,424 | 18,000 |
| 1961 | 146,0 02 | 70,421 | 38,000 |
| 1962 | 148,292 | 71,551 | 48,000 |
| 1963 | 154,890 | 74,416 | 48,000 |
| 1964 | 230,570 | 106,124 | 60,000 |
| 1965 | 275,167 | 124,867 | 72,000 |
| 1966 | 267,672 | 117,126 | 72,000 |
*264 (2) Redding Record-Searchlight & The Courier-Free Press
| Total Revenues | Net Operating Profit | Average Paid Daily Circulation | Total Pages Printed | Total Advertising Inches | |
| 1956 | $ 593,964 | $ 95,512 | 12,507 | 5,118 | 473,380 |
| 1957 | 642,613 | 94,987 | 13,131 | 5,272 | 481,716 |
| 1958 | 688,7 47 | 99,138 | 13,866 | 5,220 | 459,071 |
| 1959 | 779,797 | 126,527 | 14,795 | 5,372 | 494,788 |
| 1960 | 885,663 | 138,325 | 15,423 | 5,656 | 529,477 |
| 1961 | 936,798 | 147,448 | 16,159 | 5,676 | 510,540 |
| 1962 | 1,004,486 | 149,677 | 16,861 | 5,938 | 537,182 |
| 1963 | 1,093,888 | 153,908 | 18,057 | 6,260 | 553,938 |
| 1964 | 1,279,578 | 232,385 | 19,238 | 7,008 | 630,766 |
| 1965 | 1,425,348 | 272,466 | 20,150 | 7,394 | 665,616 |
| 1966 | 1,513,649 | 259,739 | 21,160 | 7,796 | 687,239 |
| (3) Redding Record, Inc. | |||
| (a) For the Years 1961, 1962, and 1963 | |||
| 1961 | 1962 | 1963 | |
| Circulation income | $207,685 | $ 214,833 | $ 223,983 |
| Advertising income | 711,331 | 772,807 | 855,229 |
| Miscellaneous income (shopping news, circulars, commercial printing, etc.) | 17,782 | 16,846 | 14,676 |
| Interest income | 837 | 899 | 1,392 |
| Gain on sale of capital assets | -0- | 227 | 2,322 |
| Total Income | $937,635 | $1,005,612 | $1,097,602 |
| Operating expense* | 789,350 | 854,809 | 939,980 |
| Interest expense | 2,283 | 2,511 | 2,732 |
| Operating income before federal income taxes | $146,002 | $ 148,292 | $ 154,890 |
| Federal income taxes | 70,421 | 71,551 | 74,416 |
| Net profit after federal income taxes | $ 75,581 | $ 76,741 | $ 80,474 |
| *Includes depreciation expense in the amounts of | $ 19,086 | $ 20,220 | $ 22,993 |
| (b) For the Years 1964, 1965, and 1966 | |||
| 1964 | 1965 | 1966 | |
| Circulation income | $ 254,750 | $ 284,159 | $ 299,927 |
| Advertising income | 1,009,243 | 1,111,572 | 1,178,428 |
| Miscellaneous income (shopping news, circulars, commercial printing, etc.) | 15,585 | 29,617 | 35,294 |
| Interest income | 1,138 | 6,100 | 11,754 |
| Total Income | $1,280,716 | $1,431,448 | $1,525,403 |
| Operating expense* | 1,047,193 | 1,152,882 | 1,253,909 |
| Interest expense | 2,953 | 3,399 | 3,822 |
| Operating income before federal income taxes | $ 230,570 | $ 275,167 | $ 267,672 |
| Federal income taxes** | 106,124 | 124,867 | 117,126 |
| Net profit after federal income taxes | $ 124,446 | $ 150,300 | $ 150,546 |
| *Includes depreciation expense in the amounts of | $ 23,354 | $ 23,993 | $ 26,631 |
| **After reduction for investment credits in the amounts of | $ 2,161 | $ 713 | $ 4,856 |
| (4) Redding Record, Inc. | ||
| (a) As of December 31, 1961 and 1962 | ||
| Assets | 12/31/61 | 12/31/62 |
| Cash on hand and in banks | $ 77,548 | $101,248 |
| Securities at cost | 29,578 | 29,578 |
| Notes and accounts receivable - net | 76,394 | 84,990 |
| Inventories and supplies | 40,569 | 36,226 |
| Land, buildings and equipment - net | 281,910 | 291,614 |
| Goodwill - purchased | 13,219 | 13,219 |
| Deferred charges | 3,671 | 4,217 |
| Miscellaneous assets | 11,155 | 5,115 |
| Total Assets | $534,044 | $566,207 |
| Liabilities and Capital | ||
| Current liabilities | $ 85,875 | $ 85,010 |
| Notes payable-non-current | 41,854 | 45,540 |
| Prepaid subscriptions | 4,404 | 4,581 |
| Miscellaneous non-current liabilities | 6,658 | 7,081 |
| Reserve for liability under employee profit sharing agreements | 125,000 | 125,000 |
| Capital stock (200 shares) | 2,000 | 2,000 |
| Earned surplus | 268,253 | 296,995 |
| Total Liabilities and Capital | $534,044 | $566,207 |
| (b) As of December 31, 1963 and 1964 | ||
| Assets | 12/31/63 | 12/31/64 |
| Cash on hand and in banks | $ 96,379 | $172,238 |
| Securities at cost | 38,003 | 38,003 |
| Notes and accounts receivable - net | 96,173 | 112,560 |
| Inventories and supplies | 29,693 | 16,855 |
| Land, buildings and equipment - net | 331,586 | 339,476 |
| Goodwill - purchased | 13,219 | 13,219 |
| Deferred charges | 5,315 | 5,568 |
| Miscellaneous assets | 3,252 | 3,252 |
| Total Assets | $613,620 | $701,171 |
| Liabilities and Capital | ||
| Current liabilities | $ 95,251 | $109,219 |
| Notes payable-non-current | 49,215 | 56,650 |
| Prepaid subscriptions | 4,731 | 5,723 |
| Miscellaneous non-current liabilities | 7,954 | 8,665 |
| Reserve for liability under employee profit sharing agreements | 125,000 | 125,000 |
| Capital stock (200 shares) | 2,000 | 2,000 |
| Earned surplus | 329,469 | 393,914 |
| Total Liabilities and Capital | $613,620 | $701,171 |
| (c) As of December 31, 1965 and June 30, 1966 | ||
| Assets | 12/31/65 | 6/30/66 |
| Cash on hand and in banks | $110,945 | $ 60,300 |
| Securities at cost | 38,003 | 38,003 |
| Notes and accounts receivable - net | 276,950 | 293,172 |
| Inventories and supplies | 21,590 | 21,272 |
| Land, buildings and equipment - net | 325,602 | 328,808 |
| New press - installation in process | -0- | 63,691 |
| Goodwill - purchased | 13,219 | 13,219 |
| Deferred charges | 9,257 | 15,554 |
| Miscellaneous assets | 19,761 | 100 |
| Total Assets | $815,327 | $834,119 |
| Liabilities and Capital | ||
| Current liabilities | $137,479 | $ 95,813 |
| Notes payable-non-current | 63,700 | 63,700 |
| Prepaid subscriptions | 5,836 | 6,626 |
| Miscellaneous non-current liabilities | 9,098 | 9,030 |
| Reserve for liability under employee profit sharing agreements | 200,000 | 200,000 |
| Capital stock (200 shares | 2,000 | 2,000 |
| Earned surplus | 397,214 | 456,950 |
| Total Liabilities and Capital | $815,327 | $834,119 |
*266 (5) Securities owned by Redding Record, Inc. as of December 31, 1965 and June 30, 1966
| Description | Cost |
| $10,000 U.S. Treasury bonds - 3 1/8% of 5/15/68 | $ 10,000 |
| 30,000 U.S. Treasury bonds - 2 1/2% of 6/15/69 | 28,003 |
| Total | $ 38,003 |
ULTIMATE FINDINGS OF FACT
As of June 26, 1966, the values per share of the stock owned by decedent and her husband were as follows:
| Scripps | $5,400 |
| Tulare | 400 |
| Watsonville | 2,200 |
| Redding | 4,500 |
OPINION
VALUATION
We must first determine the value as of June 26, 1966, of shares of stock owned by decedent and her husband as community property at decedent's death. Petitioner reported certain values on the decedent's estate tax return, and the Commissioner determined a deficiency of $92,166.95 based on higher values. The Commissioner lowered that deficiency to $52,215.67, based on values computed by his expert witness. In an amended petition, petitioner modified his position in accordance with the values computed by his expert witness. The following chart summarizes these various values:
| Return | Amended Petition | Original Deficiency | Modified Deficiency | |
| Scripps (per share) | $4,800 | $4,394 | $13,779 | $9,500 |
| Tulare (per share) | 750 | 169 | 1,245 | 900 |
| Watsonville (per share) | 1,750 | 1,714 | 4,337 | 3,500 |
| Redding (per share) | 3,600 | 3,519 | 10,822 | 8,000 |
*267 Petitioner and the Commissioner presented the reports and testimony of two expert witnesses, both of whom were highly qualified to give expert opinions.Each expert used sophisticated analyses to determine the value of the shares under consideration.
Petitioner's expert reviewed the financial data and the publishing facilities of each corporation and the market climate at the time of decedent's death. He examined valuation criteria and formulae proposed by various students of the newspaper industry. Of these formulae, he chose four which he believed representative and developed "Values of Total Enterprise by Principal Formulas" as follows:
| Krehbiel* | 10 times 5-year mean net income | 6-2/3 times excess of 5-year mean net income over 8% of net tangible assets, plus net tangible assets | 13.1 times 1965 net income | |
| Scripps | $1,772,279 | $1,532,270 | $1,197,865 | $2,005,714 |
| Per Share | 11,076 | 9,577 | 7,486 | 12,535 |
| Tulare | 321,702 | 135,080 | 121,390 | 301,876 |
| Per Share | 1,608 | 675 | 607 | 1,509 |
| Watsonville | 581,235 | 496,180 | 397,699 | 901,608 |
| Per Share | 2,906 | 2,480 | 1,988 | 4,508 |
| Redding | 1,149,079 | 1,015,080 | 857,084 | 1,968,930 |
| Per Share | 5,745 | 5,075 | 4,285 | 9,845 |
Having indicated the values resulting from the application of these formulae, petitioner's expert examined data taken from the 1966 Moody's Manual concerning the Boston Herald-Traveler, Inc., the Cincinnati Enquirer, Inc., Dow Jones & Co., New York Times Co., and Times-Mirror Co. He concluded:
The one company whose business is confined to that of newspaper publishing only, and in one locality, is the Cincinnati Enquirer, and in our opinion offers the best single comparable with the companies under valuation. Applying the same ratios to the companies under valuation gives the following results:
| Company | 5-year P/E(14) | 1965 P/E (12-1/2) | 110% of gross | Div. Yield (5.5%) | Mean |
| Scripps | $13,407 | $11,962 | $18,456 | $8,727 | $ 13,138 |
| Tulare | 946 | 1,441 | 2,382 | 0 | 1,192 |
| Watsonville | 3,473 | 4,302 | 4,071 | 3,182 | 3,757 |
| Redding | 7,105 | 9,394 | 7,830 | 6,545 | 7,718 |
*269 Having computed values which would have been appropriate if the companies had been transferred as complete enterprises and if the stock in the companies had been traded actively, petitioner's expert argued that the value of decedent's minority interests in closely held corporations was subject to a discount for lack of marketability. Using purchases by two investment companies in 1967 and 1968 of restricted shares of stock in corporations which also issued comparable publicly traded stock, he concluded that an appropriate discount "would certainly exceed 50 percent, and in our opinion would rise to 75 percent."
Petitioner's expert concludes with the following "Valuation Summary":
A purchaser of the shares of the Companies under valuation would acquire a highly unmarketable interest in Companies in which he had practically no influence upon management, and in which his expectancy could only be the dividend return, the value of which would be capitalizable at an appropriate discounted rate. In the case of two of the Companies (Watsonville Newspapers, Inc. and Redding Record, Inc.) the expectancy of increased dividends was high.In the case of one (Tulare Newspapers, Inc.) no dividend*270 had been paid during the preceding decade; revenues and net income were gradually increasing, but the necessity of eventually modernizing the presses would tend to postpone that expectation. In the case of John P. Scripps Newspapers the dividend was doubled in 1960, but had remained unchanged since, and the fluctuations in net income in the 5-year period, 1961-1965 (between $115,710 and $175,642), with the highest net in the earliest year, did not offer a basis for anticipating an early increase in the dividend.
In the light of all the foregoing considerations it is our opinion that the shares of the instant Companies, on valuation date, if available and publicly marketable, would be appraised at the market at the mean of 10 times the five-year mean net profit and a capitalization of the dividend. In the case of the John P. Scripps Newspapers, the dividends, which have been secure and steady, would be capitalizable at 6 per cent, corresponding to the interest obtainable from time deposits in savings institutions. In the case of the Watsonville Newspapers, Inc. and Redding Record, Inc., an appropriate capitalization rate would be 4 per cent. In the case of Tulare Newspapers, Inc.*271 , which paid no dividends, the dividend capitalization rate would be zero. The results may be summarized as follows:
| 5-year P/E (19) | Dividend capitalized | Mean | |
| Scripps | $9,576 | $8,000 (6%) | $8,788 |
| Tulare | 675 | 0 | 338 |
| Watsonville | 2,481 | 4,375 (4%) | 3,428 |
| Redding | 5,075 | 9,000 (4%) | 7,037 |
These values, in our opinion, would be subject to a discount for nonmarketability of at least 50 percent, or more, and at 50 percent discount the indicated fair market values are as follows:
| Scripps | $4,394 |
| Tulare | 169 |
| Watsonville | 1,714 |
| Redding | 3,519 |
The Commissioner's expert analysed the newspapers and balance sheets of each company. Using that analysis, he compared the stock owned by decedent to the stock of seven companies "primarily engaged in the newspaper industry": Boston Hearld-Traveler, Cincinnati Enquirer, Federated Publications, Globe-News Publishing Company, Maclean-Hunter Publications (Canadian), Stauffer Publications, and Toronto Star Limited (Canadian). Having determined relevant averages for those seven companies, he chose four of them as more nearly comparable to the companies the stock of which he was evaluating: Cincinnati*272 Enquirer, Federated Publications, Maclean-Hunter Publications, and Stauffer Publications. Having determined average relevant ratios of those four companies, the Commissioner's expert examined the relevant ratios of the Cincinnati Enquirer, which he considered most similar to the companies the stock of which he was evaluating.
We have compiled the following chart summarizing the values determined by the Commissioner's expert:
| Scripps | Tulare | Watsonville | Redding | |
| Price-Net Tamgible Asset Ratio Of 7 na (335%) | $ 9,075 | $1,431 d | ||
| Of 4 b | $ 3,367- | $ 8,677- | ||
| 6,086 h | 12,605 j | |||
| Cincinnati Enquirer (448.70% | 12,155 | 2,140 | 3,303 | 6,897- |
| 4,580 i | 10,002 k | |||
| Price-Earnings Ratio Latest Year Of 7 na (16.48%) | 1,237- | |||
| 1,596 e | ||||
| Of 4 b (14.45%) | 10,545- | 1,237- | ||
| 20,168 c | 1,857 f | h | j | |
| Cincinnati Enquirer (12.73%) | 10,808 | 1,197 | i | k |
| 5 Year Average | ||||
| Of 7 a (22.04%) | e | |||
| Of 4 b (21.58%) | c | f | h | j |
| Cincinnati Enquirer (16.24%) | 12,635 | 1,283 | i | k |
| Dividend Yield Latest Year Of 7 a (2.73%) | e | |||
| Of 4 b (3.04%) | c | f | h | j |
| Cincinnati Enquirer (5.22%) | 9,195 | 720 g | i | k |
| 5 Year Average Of 7 a (2.11%) | e | |||
| Of 4 b (2.38%) | c | f | h | j |
| Cincinnati Enquirer (4.33%) | 11,085 | 730 g | i | k |
| Value determined by Commissioner's expert | 9,500 | 900 | 3,500 | 8,000 |
*274 The reports and testimony of the two expert witnesses have aided us in our consideration of the evidence. Both reports were carefully prepared and suggested analyses which we have used in our independent determination of the value of the stock owned by decedent and her husband. Both experts have given us insights into the financial history and future of each of the companies. The use by the Commissioner's expert of comparative companies to develop ratios and formulae was helpful, but we have considered the sizes and capital structures of those "comparatives" in our own determination. Similarly, we have considered the review by petitioner's expert of literature containing formulae for the valuation of newspapers. We have also studied his lists of stocks purchased at discounts in our consideration of appropriate discounts.
Cases of this kind would be better disposed of by the honest bargaining of the experts rather than by lengthy trials and conflicting testimony of those experts. Nevertheless, the parties in this case have come to us and have attempted to give us the knowledge of their experts. That the question of value is one of fact, to be decided after a consideration*275 of all the pertinent evidence and an application thereto of the judgment and experience of the trier of the facts, needs the citation of no authority. We have carefully considered all the evidence which the parties have offered and have attempted to follow in our own poor way the "ancient precedent established by a man whose name has become synonymous with wisdom." Webster Investors, Inc. v. Commissioner, 291 F.2d 192">291 F.2d 192, 194 (C.A. 2, 1961), affirming a Memorandum Opinion of this Court. We state our application of that precedent to the pertinent facts without dissecting the individual factors underlying our findings, and we hold that the values per share of decedent's stock on June 26, 1966, were as follows:
| Scripps | $5,400 |
| Tulare | 400 |
| Watsonville | 2,200 |
| Redding | 4,500 |
Funeral Expenses
The second issue presented involves the deductibility of decedent's funeral expenses. The Commissioner determined that, under California law, the entire community property, including the interest therein of decedent's husband, was chargeable with decedent's funeral expenses and that, under section 2053(a), that portion of the funeral expenses chargeable to the husband's*276 one-half interest in the community property could not be deducted from decedent's gross estate. The Commissioner relies on Pfeiffer v. United States, 310 F. Supp 392 (E.D. Cal. 1969), Estate of Mary V. Rowan, 54 T.C. 633">54 T.C. 633, 641 (1970), Estate of Hugh C. Hutson 49 T.C. 495">49 T.C. 495 (1968), and Rev. Rul. 70-156, 1 C.B. 190">1970-1 C.B. 190. See also Estate of Henry James Davis, 51 T.C. 361">51 T.C. 361, 369 (1968). 2
Petitioner argues that the amounts paid for funeral expenses may be fully deducted from decedent's gross estate. He contends that a husband's funeral expenses are chargeable to community property only because that property is included in his gross estate and that, when a wife predeceases her husband, only her half of the community property is subject to the debts of her estate, including her funeral expenses. Petitioner relies on section 202 of the California Probate Code, In Re Cornitius' Estate, 154 Cal. app. 2d 422, 316 P.2d 438">316 P.2d 438 (1957),*277 In Re Dennis' Estate, 110 Cal. app. 2d 667, 243 P.2d 579">243 P.2d 579 (1952), and In Re Kurt's Estate, 83 Cal. app. 2d 681, 189 P.2d 528">189 P.2d 528 (1948).
Petitioner asks us to reconsider our holding in Estate of Mary V. Rowan, supra, that a wife's funeral expenses were not fully deductible. He argues that, in that case, we considered section 951.1 of the California Probate Code and did not consider the relevance of California Probate Code section 202, which, petitioner contends, establishes a distinction between the funeral expenses of a husband and those of a wife.
We believe that our holding in Estate of Mary V. Rowan was correct. We need not analyze the complexities of the California statutes to determine whether the same sections establish the chargeability against the interests of both the husband and wife, for we find ample authority for the proposition that, in California, a husband's interest in community property must bear a portion of a wife's funeral expenses. In Odone v. Marzocchi, 34 Cal. 2d 431">34 Cal. 2d 431, 211 P.2d 297">211 P.2d 297, 301-2 (1949), rehearing denied 212 P.2d 233">212 P.2d 233 (1949), the Supreme Court of California held*278 that funeral expenses of a wife were chargeable against community property:
Section 202 of the Probate Code provides in part that "Community property passing from the control of the husband, either by reason of his death or by virtue of testamentary disposition by the wife, is subject to his debts and to administration and disposal under the provisions of Division III of this code; * * *." The husband is liable for the necessaries of life furnished to the wife while the parties are living together. Civ. Code, sec. 174. [Now Civil Code 5130, added by Stats. 1969, c. 1608, p. 3343, sec. 8, operative January 1, 1970.] Medical expenses incurred during the last illness, and the funeral expenses, are such necessaries. * * * In Re Estate of Coffee, 19 Cal. 2d 248">19 Cal. 2d 248, 252, 120 P.2d 661">120 P.2d 661, 664, this Court, in construing section 202, Probate Code, said that "* * * the portion of the community property which belongs to the wife is the one-half which remains after the payment of the husband's debts and the expenses of administration * * *." * * * In the Coffee case, the husband predeceased the wife so the reverse situation is presented. This would, however, seem to make no difference*279 in the result to be reached.
This liability for a wife's funeral expenses does not seem to have been affected by either In Re Dennis' Estate, supra or the passage of section 951.1 of the California Probate Code. See Knego v. Grover, 208 Cal. App. 2d 134">208 Cal. App. 2d 134, 25 Cal Reporter 158, 165 (1962) and "Deductibility of Funeral Expenses - Time for a Change in California," August 1969 L.A.B. Bull. 426.
Since California courts have held that community property is chargeable for the funeral expenses of a wife as well as a husband, we follow Pfeiffer v. United States, supra, and Estate of Hugh C. Hutson, supra, and hold that a portion of decedent's funeral expenses is not deductible from decedent's gross estate. In short, on this issue, we agree with the Commissioner's determination.
Decision will be entered under Rule 155.
Footnotes
*. Pursuant to a notice of reassignment sent to counsel for all parties, and to which no objections were filed, this case was reassigned by the Chief Judge on July 5, 1973 from Judge Austin Hoyt to Judge Norman O. Tietjens↩ for disposition.
1. In June 1970, the Commissioner secured an appraisal which suggested values lower than those originally determined for the shares of stock the values of which are in dispute. Accordingly, the Commissioner has made certain concessions and now asserts a deficiency of $52,215.67. ↩
*. Converted from twice weekly to three times weekly, April 1, 1963.
** Converted from three times weekly to daily and Sunday, June 1,1964. ↩
*. Mean of (a) gross income x 117% (use 120%); (b) population x $19.34 (use $20); (c) paid circulation x $39.30 (use $40); (d) after tax earnings x 12. The Krehbiel formula values dailies at the price computed after certain adjustments to that mean for strengths and weaknesses of the town, field, plant, economy, and general operation of the paper. ↩
d. Apparently, the Commissioner's expert used an asset ratio of 300% rather than 355%. ↩
b. The four companies are Cincinnati Enquirer, Federated Publications, Maclean-Hunter Publications, and Stauffer Publications. ↩
h. The Commissioner's expert states that, based on average yields, asset ratio, and P/E ratios of the four comparatives, "indicated value of Watsonville stock ranges from $3,367 per share to $6,086 per share. The low side of the range is attributed to the price net tangible asset ratio and the high side is attributable to five year average earnings and dividends." ↩
j. The Commissioner's expert gives only a range, $8,677 to $12,605, of Redding values derived from the four comparables. ↩
i. The Commissioner's expert gives only a range, $3,303 to $4,580, of Watsonville values derived from Cincinnati. ↩
k. The Commissioner's expert gives only a range, $8,677 to $12,605, of Redding values derived from Cincinnati. ↩
e. The Commissioner's expert gives only a range, $1,237 to $1,596, of values of Tulare stock derived from average P/E ratios and yields of the seven comparatives. ↩
c. In his report, having set forth the P/E ratios and yields, the Commissioner's expert states, "The average ratios of the four comparatives produce indicated values for Scripps ranging from $10,545 per share to $20,168 per share." We assume that those figures represent utilization of the yields as well as the P/E ratios. ↩
f. The Commissioner's expert gives only a range, $1,237 to $1,857, of values of Tulare stock derived from P/E ratios and yields of the four comparatives. ↩
a. The seven companies are Boston Herald-Traveler, Cincinnati Enquirer, Federated Publications, Globe-News Publishing Company, Maclean-Hunter Publications, Stauffer Publications, and Toranto Star Limited. ↩
g. In his computations of the value of Tulare stock, the Commissioner's expert "assumed a dividend potential equivalent to a 40 percent pay out of earnings, this amounts to a dividend of $37.60 per share for 1966 and a five year average dividend of $31.60 per share." ↩
2. The Comissioner notes that amounts paid after June 17, 1970, the effective date of an amendment to California Probate Code section 951.1 are fully deductible. See Rev. Rul. 71-168, 1 C.B. 271">1971-1 C.B. 271↩.