
    439 F. 2d 1204
    HARRIET T. RIGHTER, EXECUTRIX OF THE ESTATE OF JESSIE H. RIGHTER v. THE UNITED STATES
    [No. 37-67.
    Decided March 19, 1971]
    
      
      Scott P. Crampton, attorney of record for plaintiff. William J. Cosgrove, Wrenn <&, Schmid, Stanley Worth, and Worth <& Crampton, of counsel.
    
      E. Alan Moorhouse, with, whom was Assistant Attorney General Johrmie M. Walters, for defendant. Philip B. Miller and Joseph Kovner, of counsel.
    Before CoweN, Chief Judge, Laramore, Dureee, Davis, ColliNS, SkeltoN, and Nichols, Judges.
    
   SkeltoN, Judge,

delivered the opinion of the court:

We are indebted to Trial Commissioner Saul R. Gamer in this case for his findings of fact and conclusion of law and also for his opinion in which he held that the plaintiff was entitled to recover. We have adopted his findings of fact with minor changes and have used much of his opinion. The opinion of the court follows:

Miss Jessie H. Righter, a resident of Brooklyn, New York, died on April 24, 1961. The federal estate tax return filed on July 24, 1962, by her executors, which valued the assets of the decedent as of the date of death, reported a tax liability of $42,467.55, but the Commissioner of Internal Revenue, on June 25, 1965, assessed a deficiency in estate tax due of $74,838.91, together with interest thereon in the amount of $14,912.45, totaling $89,746.36. After payment of the asserted deficiency, the filing of a claim for refund, and the passage of more than six months during which the Commissioner took no action with respect thereto, the executors filed the petition herein seeking a refund of said amount of $89,746.36.

Included in the assets of the estate were stocks and bonds upon which the return placed a total value at date of death of $593,024.80. There were 24 items of such securities listed. The Commissioner’s notice of deficiency changed the values set forth in the return of ten of such items. The valuation changes in nine of the items were small and no issue arises in connection therewith. The change in one of the items was substantial, however, and accounts for a large part of the asserted deficiency. That item consists of 337 shares of Sel-chow & Righter Company, a New York corporation. The return valued this stock at $424.90 per share for a total valuation of $143,191.60, but the Commissioner concluded that the stock had a fair market value of $1,000 a share, making a total valuation of $337,000.

Another adjustment made by the Commissioner in the return related to a charitable deduction. The decedent’s will creates a trust of her residuary estate, the income from which is to go to her two sisters for their lives. Upon the death of the survivor, certain general legacies are to be paid from the residuary estate, and the balance of such estate is then to go to certain named charities. To ascertain the charitable deduction to which the estate is entitled by reason of these provisions of the will, it is necessary to calculate the amount of the remainder interest of the residuary trust which will go to charity. In making such calculation, the executors used the same value of $424.90 per share of Selchow & Righter (hereinafter “S & R”) stock. The charitable deduction claimed by the estate in the return was $385,821.20, but in his notice of deficiency the Commissioner reduced such deduction by $68,270.72. This reduction apparently reflects the reduced amount which will be available for charity because of the greater tax liability resulting largely from the aforementioned increase in the S & R stock valuation. For the purpose of calculating the amount of the charitable deduction, the Commissioner did not change the $424.90 per share value of the S & R stock used by the executors.

The executrix here argues that the Commissioner, in calculating the values of the stocks and bonds as of the date of death, erred in increasing the value of the S & R stock to $1,000 per share. She says the value of $424.90 set forth in the return was proper. She further contends, alternatively, that if a higher value is to be used for such purpose, then the same higher value should be used in calculating the remainder interest of the residuary estate and the resulting charitable deduction. Such a higher value would, she continues, result in a calculation of a greater amount available for charity under the terms of the will and, therefore, would entitle the estate to a larger charitable deduction than would result from the use of the $424.90 figure.

The Issue of the Fair Market Value of the S & R Stock

S & R is a comparatively small corporation engaged in the business of manufacturing and selling games. Its plant and principal place of business are located at Bay Shore, Long Island, New York. During 1960, the last full year prior to the date of decedent’s death on April 24, 1961, the company’s net sales totaled approximately $3,200,000. As of such date of death, when the 337 shares of the company’s stock in the estate are to be valued, there were only 2,000 shares of S & R stock outstanding.

S & R was established over 100 years ago by its cofounders, Mr. Selchow and Mr. Righter. Just prior to the death of the decedent, 1,018 of the 2,000 outstanding shares, or slightly more than one-half, were owned by the three Righter sisters, who were the daughters of one of the cofounders. As stated, the decedent, Miss Jessie H. Righter, owned 337 shares. Miss Katharine A. Righter, one of the executors (since deceased), also owned 337 shares, and Miss Harriet T. Righter, the surviving executrix (the plaintiff herein in her representative capacity), owned 344 shares. The balance of 982 shares was owned by 21 individuals and estates. A substantial number of the other shareholders were descendants of the other cofounder.

This closely held stock was not listed on any stock exchange, nor was it available on any over-the-counter market. It has never been publicly traded.

As of the date of the decedent’s death, S & B’s principal products were two games which were sold under the trademarks of “Scrabble,” a crossword puzzle game, and “Parcheesi,” a backgammon game. Scrabble was by far the company’s main item of support. In 1960, it alone furnished over 60 percent of the company’s business.

Miss Harriet Bighter, the executrix and plaintiff herein, has long been closely associated with and actively engaged in the running of the business. For over thirty years, i.e., from 1923 to 1955, she was its President and devoted full time to the company. Since then, she has continued to serve actively as Chairman of the Board of Directors. In 1955, Mr. C. Ells-worth Tobias became its President. Mr. Tobias, a lawyer, was a partner in a firm which had been the personal attorneys of the Bighter sisters. He had served as a director of the company since 1947.

Ascertaining the fair market value of infrequently sold, unlisted, closely held stock is recognized as a difficult legal problem. See Central Trust Company v. United States, 158 Ct. Cl. 504, 514, 305 F. 2d 393, 399 (1962). A common and accepted technique used by financial analysts and experts in such situations is to obtain, as a basic starting point, the prices of the stocks of corporations in the same or a similar business which are traded on an exchange; to develop some relationship between such prices and the per share earnings, dividends, and book values of the stocks; and then, after some indication, as a result of comparison, of what the closely held stock would sell for on the same basis of relationship to its earnings, dividends, and book value were it also actively traded, to make the necessary refinements and adjustments in such hypothetical comparative selling price as are justified by differences between the unlisted company and those listed which informed investors would reasonably take into account.

This comparative appraisal method is so logical and so highly regarded that it has found its way into the 1954 Internal Revenue Code provisions concerning estate and gift taxes. Section 2031, “Definition of gross estate,” subsection (b), “Valuation of unlisted stock and securities,” provides that:

In the case of stock and securities of a corporation the value of which, by reason of their not being listed on an exchange and by reason of the absence of sales thereof, cannot be determined with reference to bid and asked prices or with reference to sales prices, the value thereof shall be determined by taking into consideration, in addition to all other factors, the value of stock or securities of corporations engaged in the same or a similar line of business which are listed on an exchange.

The comparative appraisal method produces, nevertheless, no magic formula which rigidly gives the exact valuation answer. Companies are rarely identical in size, operation, or product, and allowances must be made, as the statute says, for “all other factors.” This would necessarily include the very fact of unmarketability of the stock of the closely held corporation. In the last analysis, much necessarily depends on the informed judgment of the knowledgeable investor concerning the refinements and adjustments to be made in arriving at the ultimate valuation figure. Thus it is not surprising that in this field the opinions of experts are considered to be peculiarly appropriate. Central Trust Company v. United States, supra, 158 Ct. Cl. at 514, 305 F. 2d at 399; Bader v. United States, 172 F. Supp. 833, 836 (S.D. Ill. 1959). The pertinent regulations specifically so recognize. Section 20.2031-2 of the Treasury Regulations on Estate Tax (1954 Code) provides that where

(f) * * * actual sale prices and bona fide bid and asked prices are lacking, then the fair market value is to be determined by taking the following factors into consideration:
*****
(2) In the case of shares of stock, the company’s net worth, prospective earning power and dividend-paying capacity, and other relevant factors.
Some of the “other relevant factors” referred to in subparagraphs (1) and (2) of this paragraph are: the good will of the business; the economic outlook in the particular industry; the company’s position in the industry and its management; the degree of control of the 'business represented by the block of stock to be valued; and the values of securities of corporations engaged in the same or similar lines of business which are listed on a stock exchange. However, the weight to be accorded such comparisons or any other evidentiary factors considered in the determination of a value depends upon the facts of each case. Complete financial and other data upon which the valuation is based should foe submitted with the return, including copies of reports of any examinations of the company made by accountants, engineers, or any technical experts as of or near the applicable valuation date. [26 C.F.E. §20.2031-2 (1969).]

In this case, however, plaintiff did not attempt to sustain the $424.90 per share valuation of the S & B stock contained in the return by anything resembling the comparative appraisal method or by any expert testimony. Instead, she relies principally on a sale of the very stock here involved which she and her coexecutor themselves made to Mr. Tobias, the company’s President, his mother, and his wife. The sale was made on July 12,1961. On that date the sale of 200 shares was completed at $424.94 per share, 100 shares being sold to Mr. Tobias and 100 shares to his mother. Such price was 50 percent of the stock’s book value as of the close of the preceding year (the company’s books, pursuant to an annual audit, being closed once a year at the termination of the calendar year), less the amount of the dividend paid during the early part of the year from the earnings of the prior year. This “ex dividend” price, coming so closely after the date of death, produced a figure which was 50 percent of book value both as of the date of death and as of the date of sale. On July 12,1961, the executors and Mr. Tobias also agreed that Mr. Tobias would, on April 5, 1962, purchase the balance of the 137 shares at a price which would be calculated on the basis of 50 percent of the book value of the shares on such date, again “ex dividend,” such “ex dividend” price, consisting of the book value as of the previous December 31, less the dividend, being considered as producing a figure representing book value as of the date of sale. On April 5, 1962, such sale of the balance of the shares in the estate was effected on such basis (at a price of $473.40), 100 shares being purchased by Mr. Tobias and 37 shares by his wife. It was subsequent to the completion of the sale transaction on April 5, 1962, that the executors, on July 24,1962, filed the estate tax return with the S & R shares valued at $424.90 as of the date of the decedent’s death on April 24,1961, such valuation being calculated on the same formula basis as the sale of the 200 shares to Mr. Tobias and his mother.

The sale of the stock to the Tobiases at 50 percent of book value shortly after the death of the decedent was, plaintiff argues, an arm’s-length transaction made in good faith by parties who believed that the 50 percent book value price represented fair market value. The best measure of fair market value, it is contended, is such a sale price arrived at by parties dealing independently in their own interests. The guiding principle is, plaintiff points out, as stated by the court in Fitts’ Estate v. Commissioner, 237 F. 2d 729, 731 (8th Cir. 1956) :

* * * In determining the value of unlisted stocks, actual sales made in reasonable amounts at arm’s length, in the normal course of business, within a reasonable time before or after the basic date, are the best criterion of market value.

Since there is such valid evidence of fair market value based on an arm’s-length transaction, it is wholly unnecessary, and would be improper, plaintiff argues, to resort to hypothetical prices derived from such techniques as the comparative appraisal method, the use of which is justified only as a last resort when, as both the statute and the regulations make plain, actual bona fide sales prices are lacking.

The fair market value of the stock based on this one sale transaction alone is not controlling. “* * * [I]solated sales [of the stock] of closely held corporations in a restricted market offer little guide to true value.” Central Trust Company v. United States, supra, 158 Ct. Cl. at 519, 305 F. 2d at 402, and cases there cited. Further, certain circumstances pertaining to this particular sale transaction serve to prevent it from falling entirely into the prerequisite “arm’s-length” category. The price at which the sale was effected was not one that resulted from the usual type of bargaining or negotiation based on factors normally applicable to stock valuation. Instead, it was a price that was set by the plaintiff herein without any negotiation. And plaintiff, in turn, took the 50 percent book value price formula from a directive in her sister’s will. Under the will, the decedent “authorize[d] and direct[ed]” that at the termination of the aforementioned trust of the residuary estate, the trustees

* * * shall at such time give to the then officers of Selchow & Eighter Co. the preferential opportunity to purchase the shares of said company * * * at a price equal to fifty per cent (50%) of the book value per share as of the time of my death, which, in my judgment, will be a fair and reasonable price therefor.

Under the will, the decedent appointed her sister Harriet, the plaintiff herein, and Mr. Tobias to be the trustees. However, the decedent plainly did not wish to prevent Mr. Tobias, as an officer of the company, from purchasing the stock simply because he was a trustee, for the will went on to provide that:

* * * Authority is hereby conferred, in such circumstances, at such time or times, upon the Trustees and Executors to make sales upon such terms to such an officer at the time of sale even though such officer be at such time a Trustee or Executor hereunder.

Furthermore, the will, by the following provision, authorized such a sale of the stock at any time during the existence of the trust provided the sister-beneficiaries consented:

* * * During the period of the trust, a like authority with respect to sale and purchase by and to a Trustee or Executor of some or all such shares of Selchow & Eighter Co. * * * as shall be held at the time in the trust, is hereby given if such of my sisters as shall be living at the time thereof shall consent thereto.

It was under this provision that the sale herein was effected.

Thus, the sale was here made by the executors, one of whom was a trustee, to the cotrustee, the selling executor-trustee also being Chairman of the Board of S & E, and the cotrustee qualifying as a purchaser by virtue of his falling into the “preferential” category of an S & E officer (its President), with the sale price on such sale of the 200 shares) being fixed by the formula contained in the will, namely, “a price equal to fifty percent (50%) of the book value per share as of the time of my death.”

Of the three factors usually given consideration in attempting to arrive at the fair market value off an unlisted, closely held stock — earnings, dividends, and book value — book value is fairly considered to be the least important in the case of a manufacturing company with consistent earnings and dividend records, as was S & R. Central Trust Company v. United States, supra, 158 Ct. Cl. at 588-84, 305 F. 2d at 410-11.

Under the peculiar circumstances here involved, the sale upon which reliance is placed cannot be considered as the type of private transaction that would alone qualify as establishing fair market value. Mr. Tobias had a special relationship with both the decedent and the executrix, having been, before becoming S & R’s President, a partner in the law firm that acted as their personal attorneys. He had long been a director of the company. Since 1955, he has worked actively with the executrix, who is Chairman of the Board and who preceded him as President. Mr. Tobias was the only one to whom this stock was offered, and the decedent not only made him a trustee of her residuary estate, but in another part of the will provided that, if her sisters predeceased her, her personal property should go “to my friend, C. Ells-worth Tobias, if living at the time of my death.” In cases such as this, “the burden is upon the taxpayer to demonstrate that the sales relied upon are arm’s length sales in the normal course of business.” Fitts' Estate v. Commissioner, supra, 237 F. 2d at 731.

The court has considered this sale along with all the other evidence on the question of fair market value, but has given but little weight to it.

The same is true with reference to the evidence of Miss Harriet Righter and Mr. Tobias. Both testified that in their opinion the fair market value of the stock was 50 percent of its book value. Neither qualified as an expert in this particular field. However, both had long been associated with the company. Miss Harriet Righter was a stockholder of the company and had been its president for over thirty years (1923 to 1955) and during this period devoted full time to actively running the business. Since 1955, she has served actively as Chairman of the Board of Directors. Under these circumstances she no doubt knew more about the company than anyone who testified in this case. She was entitled to give her opinion as to the value of the stock. Next to Miss Harriet Eighter, the person who was the most knowledgeable as to the affairs of the company was Mr. Tobias. He had been the attorney for the Eighters for many years and had been a director of the company since 1947. He became its president in 1955 and was serving in that capacity at the time of the sale of the stock in 1961. This shows tha/t he was an official of the company for over 14 years and was actively engaged in running the company, to say nothing of his prior knowledge of its affairs. We think he was entitled to give his opinion as to the value of the stock. His opinion and that of Miss Harriet Eighter have been considered by the court along with all the other evidence, but, notwithstanding their intimate knowledge of the company and their honesty in giving their opinions, under the rules followed by the courts in establishing fair market value of stock, we have been unable to give much weight to their opinions.

Other evidence which plaintiff offers in support of the estate’s 50 percent of book value formula is the administrative treatment of several other estates which similarly had, among their assets, various amounts of S & E stock. Plaintiff shows that in the cases of six other estates, in which the dates of the decedents’ deaths ranged from July 16,1956, to October 1, 1962, and the number of S & E shares varied from 29 to 108, the values of the shares that were accepted by the Internal Eevenue Service ranged from $235 to $450 per share, and that for the five estates for which the record shows the pertinent data, such values were approximately 50 percent of book value (at the end of the year preceding the date of death) or even less.

The valuations accepted by the Internal Revenue Service in the cases of other estates, involving the same stock and other death and valuation dates, are of probative value in the solution of the problem involved in this case and must be considered. 'Stocks necessarily have different values on different dates. Numerous considerations enter into the determination of value on any particular date or the acceptance of certain values set forth in any particular estate tax return. Each case necessarily stands on its own facts.

In the first two estates in point of dates of death, i.e., July 16,1956, and November 20,1958, approximately five and two and one-half years, respectively, prior to the date herein involved, the estate tax returns valuing the shares at $235 and $275 per share, respectively (which were 36.2 percent and 39.4 percent of book value, respectively, at the end of the years preceding the dates of death), were simply accepted as filed. There is no evidence to indicate that any investigation was made by the Internal Revenue Service into the value of the blocks of 99 and 108 shares of S & R stock included in the assets of the estates.

On the third estate, in which the date of death was June 13, 1959 — almost two years prior to the date herein involved— the 38 shares included in the estate were valued in the return at $275 per share. The evidence shows, however, that, in connection with its examination, the examining Internal Revenue Service office in Brooklyn, New York, obtained financial statements covering S & R’s operations for prior years, and subsequently determined a deficiency based in part on increasing the fair market value of the stock to $450 per share, a deficiency which the estate apparently did not contest. The increased value constituted 58.7 percent of book value as of December 31,1958, i.e., the end of the year preceding the date of death.

On the fourth estate, in which the date of death was December 30, 1959 — only six months after the date of death involved in the third estate — the 99 shares included in the estate were valued in the return at $325. In this instance too, the examining Revenue Service office (in Connecticut) obtained financial statements covering S & R’s prior years’ operations. The examiner originally concluded that the value per share ranged from $1,200 to $1,250, but his report shows that the estate objected to such proposed valuation and pointed out that in the recent above-mentioned third estate in the Brooklyn District, a value of $450 had been arrived at. The Connecticut examiner then concluded that acceptance of a $450 valuation would be justified in his case too in view of a provision in the Internal Bevenue Service Manual stating that: “Where a valuation has been made in a prior estate, it may not be necessary to make another detailed analysis of the stock in the current investigation, provided the valuation date on the prior estate is within reasonable proximity to the current date and the pertinent facts have not changed substantially.” The Connecticut examiner stated that the Brooklyn office examiner had the pertinent financial statements, and “[s]ince the determination of fair market value is a question of fact, no doubt the [Brooklyn] examiner took into account all the circumstances to arrive at the value of $450.00.” He was “reluctant to press for a higher figure” because he felt that to do so “would appear to defeat the purpose of the paragraph in the Manual, which is to provide a means of obtaining uniformity in current valuations of a particular stock regardless of the district involved.” Upon review of the examiner’s recommendation, the reviewer suggested an $800 a share valuation, but the ultimate determination by the Connecticut District was the $450 recommended by the examiner, which the estate apparently accepted. (As was the situation on the third estate, this figure was 58.7 percent of the book value as of December 31,1958.)

In the fifth estate, in which the date of death was December 16, 1960 — about four months prior to the decedent’s death herein — the estate tax return valued the 29 shares of S & B stock included in the estate’s assets at $450 per share. (This was 53.8 percent of book value as of December 31, 1959.) The return was accepted as filed. There is nothing to indicate that any investigation was made of the fair market value of the 29 shares as of the date of death.

Similarly, in the sixth estate, in which the date of death was October 1,1962 — almost a year and a half subsequent to the date of death here involved — the estate tax return also valued the 104 shares of S & B stock included in the estate’s assets at $450 per share. The record does not indicate what the book value of the S & B stock was as of December 31,1961, a date subsequent to the decedent’s death. Accordingly, the relationship of this figure to book value is not shown. However, even if it be assumed that the figure was approximately 50 percent of book value, there is nothing to indicate that the Internal Eevenue Service made any investigation into the valuation of the stock set forth in the return, which was simply accepted as filed.

The plaintiff contends that the valuations accepted by the IBS for the stock of this company in these other estates are controlling and binding on the IBS regarding the fair market value of the stock in our case. On the other hand, the defendant argues that the valuations in such other estates should not even be considered by the court on the question of value here. We do not agree with either party, but follow a somewhat middle course between their widely divergent views. It is our opinion and we hold that while the values placed on this stock by the IBS in the other estates is not determinative of the question of value, in a case such as this where there is no sure way of arriving at the true market value, the value so placed by the IBS in the other estates is some evidence which may be considered.

Accordingly, it is our view that the action taken by the IBS in the six other estates in approving the value of the identical stock at about the date of the death of our decedent at from 36.2 to 58.7 percent of book value ($235 to $450 per share) is evidence we may consider in solving the problem before us. This is especially true with reference to the third and fourth estates where investigations were made as detailed above, and the valuations of $450 per share (58.7 percent of book value) were fixed in both estates after the investigations were made. It should be noted that in the fourth estate, the examiner originally fixed the value at from $1,200 to $1,250 per share, but finally recommended $450 after his investigation was concluded. However, the reviewer suggested $800 per share. The “Connecticut District” determined that the value should be $450.

Other evidence and factors favorable to the position of the plaintiff on the fair market value of the stock, besides the statement of the testatrix in her will, the opinions of Miss Harriet Righter and Mr. Tobias, and the valuations of identical stock fixed by the IRS in the six other estates, are the following:

1. The 337 shares represented a minority interest of only 17 percent of the company’s stock and lacked marketability.

2. The company only produced two products (games called Scrabble and Parcheesi).

3. The company was engaged in a luxury type business that was subject to fluctuation.

4. The business of the company was subject to lively competition from larger companies.

5. The principal product of the company was a game called Scrabble which it did not own and which it produced under a license from the owner.

6. Sixty percent of its business was from sales of Scrabble.

7. Through the years, the company had been unable to develop new products.

8. The company was relatively small compared to other companies in the entertainment field,

9. The company had recently lost the services of key sales personnel in the persons of Mr. Anderson and Miss Stringer.

10. The owner of Scrabble had the right to compete with S & R in the manufacture and sale of the game and did so as to luxury types thereof.

11. The owner of Scrabble had the right to terminate S & R’s license if its sales fell below 50,000 units in any calendar year.

12. The business of the company was highly seasonal.

13. There was always the possibility and even likelihood that Scrabble and Parcheesi would become unpopular and not be saleable.

Defendant’s proof offered to sustain the Commissioner’s valuation of $1,000 per share is discussed below. It produced two experts who utilized the comparative appraisal method in the process of arriving at their ultimate opinions.

The first expert is a financial analyst in the Internal Revenue Service. Educated both in business administration and the law, he worked, prior to becoming employed by the Internal Revenue Service, as a security analyst for stockbrokers (Bache & Co. and Hayden, Stone & Co.), as a branch office assistant manager for a company in the investment business (Hess & Co.), and as an investment counselor for Standard & Poor. In these capacities, he had made many evaluations of minority blocks of stocks of small, closely held corporations. He selected, as comparatives, four companies in the game and toy business whose stocks were publicly traded, and arrived at ratios between their market prices as of April 24, 1961 and their earnings and book values. He found that, on the basis of their earnings for the most recent five full calendar years prior to the date of death (1956-1960), their market prices were 41 times earnings. On the basis of 1960 earnings alone, the ratio was 29.55 times earnings. S & R’s average earnings for the five-year 1956-1960 period were $89 per share. On the 41 times earnings basis of the four comparatives, S & R’s per share price would be $3,649. S & R’s 1960 per share earnings were $123.32. On the 29.55 times 1960 earnings basis of the four comparatives, S & R’s per share price would be $3,644.11.

As to book values, the ratio of price to such values for the four comparatives averaged 5.76 to 1 as of December 31, 1960. S & R’s book value as of such date was $899.81. On the sole basis of the average relationship that the book values of the common stocks of the comparatives bore to their market prices, S & R’s market price would be $5,182.91 a share.

The witness felt that these high ratios, producing in turn such high valuations when applied to S & R, might conceivably reflect unusual popularity of certain products of the comparatives at that particular time. To guard against such possibility, he took the lowest of the comparatives’ ratios, instead of their averages. Of the four, the lowest price-earnings ratio was 21.70 to 1 on the five-year average basis. Multiplying this figure by S & R’s $89 per share five-year average earnings gave a value, on such basis, of $1,931 per share. On a book value basis, again taking the lowest price-to-book value ratio (as of December 31,1960) of 2.84, S & R’s price per share would be $2,555.

As a further check, the witness examined the general market prices as reflected in The Standard & Poor’s Index of Industrial Stocks. This Index showed that publicly traded stocks were, as of April 24, 1961, selling at a price-earnings ratio of 23 to 1. Similarly, such stock prices were, as of December 31,1960, approximately twice their book value. On such price-earnings ratio basis, the S & R stock would (on the basis of 1960 earnings of $123.32 per share) sell for $2,900 per share, and on such price-book value ratio basis, would sell for approximately $1,800 per share.

As a result of all these comparisons, the witness concluded that, were S & R stock similarly publicly traded as of April 24,1961, it would have sold within a range of not less than $1,800-$2,000 a share.

The witness further concluded, however, that certain special considerations would warrant a substantial discount in such a price. Since the S & R stock was not publicly traded, it lacked marketability. Furthermore, the 337-share block being evaluated represented only a minority interest. Although the company had, during the five-year period, showed a favorable trend of steadily rising earnings, it was somewhat vulnerable 'because it had only two principal products, indicating a lack of vitality and creativity in new product development; it was in a type of luxury business, and it was subject to lively competition from larger companies. Because of these factors, be felt a rather large discount of approximately 45-50 percent in the hypothetical $l,800-$2,000 selling price would in this case be warranted. On this basis, it was his opinion that $1,000 per share (as the Commissioner had determined) was the fair market value of the stock as of April 24, 1961. He felt this was a conservative price for the stock of such a successful, established company with increasing earnings and book values, and with a principal product (Scrabble) which had attained such sustained popularity (in the industry it was considered that it had attained the status of a “staple” game).

The second expert, a graduate of the Harvard Business School, worked as a security analyst and cost account manager for the Fidelity-Philadelphia Trust Company in Philadelphia, Pennsylvania. He is now president of an investment counseling firm in Washington, D.C., which furnishes advice on securities, including valuations of closely held corporations.

As comparatives, he selected three companies. His studies indicated that, based on their average earnings per share for the five-year period 1956-1960, their stocks were selling, as of December 31,1960, based on their average prices during such week, at an average of 19.3 times earnings. He further found that there was an exceedingly favorable investment climate for toy and game manufacturing companies during the early part of 1961, for between December 31, 1960 and April 24, 1961, the prices of the stocks of these three companies more than doubled. On the same five-year average price basis, the stocks of these same companies were selling, as of April 24, 1961 (based on their average prices during such week), at an average of 45.7 times earnings.

On these bases, S & R stock would hare sold as of December 31, 1960, based on S & R’s average earnings per share from 1956-1960 of $89 per share, at $1,718. On April 24, 1961, the stock would have sold at $4,067 per share.

On the same bases (average earnings per share during 1956-1960, and the average prices during the weeks of December 31, 1960 and April 24,1961), Standard & Poor’s Industrial Index showed a price-earnings ratio for the stocks included therein of 18.3 and 20.2 as of December 31, 1960, and April 24, 1961, respectively, indicating a much smaller rise during the early part of 1961 for stocks in general than for toy and game company stocks. On these bases, S & R stock would have sold as of December 31,1960, and April 24, 1961, at $1,629 and $1,798, respectively.

The witness then used the same technique but with the average prices during the weeks of December 31, 1960 and April 24, 1961 applied only to the 1960 earnings per share of the three comparatives (instead of five-year averages), resulting in price-earnings ratios of 10.9 and 25.9, respectively (again reflecting the sharp rise in the stocks of the toy-game manufacturers during such four-month period). On this basis (S & R’s 1960 earnings per share being, as hereinabove set forth, $123.32), S & R’s stock would have sold for $1,344 as of December 31,1960, and $3,194 as of April 24,1961.

Applying the Standard & Poor Industrial Index test, also on the 1960 earnings basis, the witness found that the price-earnings ratio, calculated on the average prices for the week of December 31, 1960, was 18.2 (higher than the toy-game companies), and that the ratio calculated on the average prices for the week of April 24, 1961 was 20.2 (lower than the toy-game companies). On this basis, S & R’s stock would have sold for $2,244 as of December 31, 1960, and $2,491 as of April 24,1961.

The witness then gave special consideration to certain other facts relating to S & R and its operations. He found that, for the five full calendar years preceding the valuation date, sales had increased every year, going from over $1,800,000 in 1956 to over $3,200,000 in 1960, an increase of 78 percent; that earnings per share had risen from over $44 in 1956 to over $123 in 1960, an increase of 280 percent; and that the average dividend payout rate per share during such period was approximately 50 percent, a rate which he considered to be conservative and which an investor would reasonably feel would continue. Although he took it into account, he did not consider the $899.81 per share book value as of December 31,1960, to be a major factor in determining its fair market value. He gave primary weight to earning power. He also considered significant the fact that the company had good control over its costs, since costs had risen during the five-year period more slowly than sales and profits. He noted the strong liquid current asset position of the company, as shown by its balance sheet as of December 81, 1960, as well as the lack of any substantial indebtedness. He felt these were signs of good company management. He considered too that the block of stock being valued represented only a 17 percent minority interest. He also felt that recognition should be given to the fact that the comparatives left much to be desired since they manufactured toys (and some other products) 'as well as games, whereas S & R manufactured only games. He did feel, however, that an investor would consider that the companies fell within the same general category, although it would, of course, be more desirable if comparatives could be found which, like S & R, produced only games. However, there were no such other companies whose stocks were publicly traded. Finally, he also considered the fact that S & R was simply a licensee with respect to the particular editions of Scrabble which it was manufacturing and the owner of the copyright had reserved to itself the right to manufacture and sell the same editions for which it had licensed S & R, so that legally it could become a competitor of its licensee (the licensor also reserved the right to manufacture and sell certain higher-priced editions of the game, and did in fact do so).

Upon the basis of all the facts and figures he considered, the witness concluded that the fair market value of the S & R stock as of April 24,1961, was $950. He recognized, however, that the valuation of any closely held security lacking a public market or a record of any significant private transactions or placements is difficult at best, and not a precise undertaking. He therefore felt that a certain flexibility was permissible, and that any valuation within the range of $900-$1,000 would not be unreasonable. He did not feel that any figure less than the lowest level of such range could be justified by rational analysis.

Plaintiff attacks the valuation of such experts on various grounds. She says the companies they selected as comparatives are not truly comparable since they manufacture such items as toys and dolls, which appeal to a younger class of consumer than does Scrabble. She further argues that not enough consideration was given to certain unfavorable factors, such as (1) the company’s being, as of the valuation date, in effect only a two-product business (Scrabble and Parcheesi), with over 60 percent of its sales in one product; (2) the company’s relatively small size as compared with its closest competitor (the Milton Bradley Company); (3) the loss, during the six-month period preceding the valuation date, of its two top sales executives who had long been associated with the company; (4) the nonownership by the company of the Scrabble trademarks and copyrights and its position as only a licensee; (5) the legal ability of the licensor to enter into the business of manufacturing the same type of Scrabble games as S & It was licensed to manufacture; (6) the highly seasonal nature of its business, with a substantial part of its annual volume of sales being accounted for around the Christmas season, thus making it most vulnerable to strikes both within its unionized factory, and by such outside unions as those in the trucking and shipping industries, in-eluding the longshoremen; and (7) considering the type of business it is in, its peculiar vulnerability to the public’s fancy.

We agree with the plaintiff that the companies used by the expert witnesses of defendant as comparables were not in fact truly comparable to S & R. Our trial judge found that there are no other publicly traded companies that are comparable to S & R in terms of game manufacture and that for this reason S & R was compared by such witnesses with other companies “which are essentially in the business of manufacturing toys.” We do not think a company that manufactures toys or toys and games can be accurately compared to a company like S & R that manufactures only games. Their products appeal to and are used by different age groups. They are different in many other respects as shown herein. Therefore, since the basis for the opinions of defendant’s expert witnesses was grounded on the comparison of companies that were not truly comparable, their analyses based on the comparative appraisal method have but little, if any, weight in establishing the fair market value of the S & R stock. This court dealt with the principle of comparables in Jones Bros. Bakery v. United States, 188 Ct. Cl. 226, 411 F. 2d 1282 (1969). There the problem was whether or not the company had paid its officers more than reasonable salaries and deducted the same as an expense on their income tax returns. The government offered evidence of salaries of executives of another company that it contended was comparable to the plaintiff company to show plaintiff’s salaries were too high. The court held that while the two companies were similar in many respects, they were also quite different in other ways, and were not truly comparables. The court proceeded by a jury verdict on the whole record to fix proper salaries for plaintiff’s officers that were lower than the amounts deducted by the plaintiff but higher than those contended for by the government.

In the case before us, the government relied on the testimony of its expert witnesses to establish the fair market value of the stock by the comparative appraisal method. Since the companies used by such witnesses for comparison were not true comparables, it becomes necessary for the court to review the whole record and consider all the evidence to arrive at the correct value of the stock.

We held in Penn Yan Agway Cooperative v. United States, 189 Ct. Cl. 434, 417 F. 2d 1372 (1969) :

It is a well established rule of 'law, carefully analyzed and stated in Drybrough v. United States, 208 F. Supp. 279 (W. D. Ky. 1962), that the market value of common stock in a closely held corporation, there being no market sales of such stock, must be determined upon consideration of all relevant factors, such as earning capacity, anticipated profits, book value, and dividend yield. * * * [Emphasis supplied.] [Id. at 446, 417 F. 2d at 1378.]

We find a similar statement in Arc Realty Co. v. C.I.R., 295 F. 2d 98 (8th Cir. 1961) as follows:

The question of “fair market value,” defined to be “the price at which property would change hands in a transaction between a willing buyer and a willing seller, neither being under compulsion to buy nor to sell and both being informed,” O’Malley v. Ames, 8 Cir., 197 F. 2d 256, at page 257; Fitts’ Estate v. Commissioner of Internal Revenue, 8 Cir., 237 F. 2d 729, 731, is one of fact and cannot be established on the basis of fixed rules or formulae. Among the factors properly to be considered in making the determination are corporate assets, earnings, dividend policy, earning power of the corporation, prospects of the corporation, book value, character of the management, competition and other factors which an informed purchaser and informed seller would take into account. O’Malley v. Ames, supra; Fitts’ Estate v. Commissioner of Internal Revenue, supra. [Id. at 103.]

The defendant contends that we should accept the evidence of its expert witnesses because they were experts in the field of market value analysis and were the only experts who testified. We are not required to do so. This was made clear by our decision in United States v. Northern Paiute Nation, 183 Ct. Cl. 321, 346, 393 F. 2d 786, 800 (1968) where we said:

The Indians’ other complaint about the findings is that the Commission rejected its expert appraisers’ views, and did not spell out why in detailed findings. In legal ap-praisement, however, widely divergent opinion testimony is the rule rather than the exception. The trier of fact must decide first, of course, if such testimony is competent and admissible. Before us, no party claims that this case was decided with respect to any issue on inadmissible testimony. The Indians wanted the Commission to take up the reasoning of its appraisers step by step, and either accept each step or show reasons for rejecting it. Having competent testimony before it, the Commission was not restricted to swallowing it whole or rejecting it utterly. It did not have to refute what it did not accept as controlling. It could, and apparently did, synthesize in its mind the immense record before it, determine to what extent opinion evidence rested on facts, consider and weigh it all, and come up with figures supported by all the evidence, perhaps, though not identified with any of it. * * *

In addition to the other circumstances favorable to the plaintiffs view in this case, as set forth above, there is the significant fact that the stock involved here was a minority interest of only 17 percent in a closely held corporation. It is logical to assume that this would adversely affect its value if it were offered for sale on the open market, as few people would be interested in buying it under these circumstances. The decided cases support this view. In Drybrough v. United States, 208 F. Supp. 279 (W.D. Ky 1962), the court discounted by 35 percent the value of minority interests in a corporation. In that case the court cited with approval the decision in Whittemore v. Fitzpatrick, 127 F. Supp. 710 (D.C. Conn., 1954), where the court allowed a 50 percent discount for a minority interest in stock of a corporation, and stated further:

Other cases holding that minority stock interests in closed corporations are usually worth much less than the proportionate share of the assets to which they attach are Andrew B. C. Dohrmann, (1930) 19 B.T.A. 507; Cravens v. Welch, (D.C. Cal., 1935) 10 F. Supp. 94; Estate of Irene DeGuebriant, (1950) 14 T.C. 611, reversed on other grounds Claflin v. Commissioner of Internal Revenue, 2 Cir., 186 F. 2d 307; Mathilde B. Hooper, (1940) 41 B.T.A. 114, 129; Bartram v. Graham, (D.C. Conn., 1957) 157 F. Supp. 757; Bader v. United States, (D.C. Ill., 1959) 172 F. Supp. 833, and Snyder’s Estate v. United States, (4 Cir., 1961) 285 F. 2d 857. [208 F. Supp. at 287.]

The problem before us is always a difficult one. It is never possible to fix the value of corporate stock in a closely held corporation which is not sold on the open market with mathematical exactness, and we are not required to do so. This was aptly stated by the court in Arc Realty Co. v. C.I.R., supra, when it said:

* * * The matter of fixing the fair market value of corporate stock for capital gains treatment, with numerous factors entering the picture, obviously cannot be accomplished with exactness or complete accuracy. * * * [295 F. 2d at 103.]

Many times courts solve problems like the one before us by considering all the evidence and the whole record and then deciding what is right and just under all the facts and circumstances. We did this as to officers’ salaries in Jones Bros. Bakery v. United States, supra, and again in Meredith Broadcasting Co. v. United States, 186 Ct. Cl. 1, 405 F. 2d 1214 (1968) in arriving at the value of certain intangibles. We think we are justified in following this procedure in the instant case. It appears to be fair and right and in accordance with justice to both parties that we do so.

Based on all the evidence and the whole record, we conclude that the fair market value of the 337 shares of S & R stock as of April 24,1961, was $700 per share.

The Charitable Deduction Issue

For the purpose of computing such deduction, it is first necessary to arrive at a figure representing the amount that will go to charity at the termination of the trust. That was the way the executors computed it in the return. In view of the power given in the will to the trustees to sell the stock at 50 percent of book value as of the date of the decedent’s death, the executors properly used such figure in computing the amount that would go to charity, and the Commissioner was correct in accepting such figure.

Indeed, in view of the controlling regulations governing charitable bequests, it is necessary to give effect, as the executors did, to the power vested in the trustees by the will. Section 20.2055-2 (b) of the Treasury Regulations on Estate Tax (1954 Code) specifically provides, with respect to charitable bequests, that if a “trustee is empowered to divert the property * * *, in whole or in part, to a use or purpose which would have rendered it, to the extent that it is subject to such power, not deductible had it been directly so bequeathed, devised, or given by the decedent, the deduction will be limited to that 'portion * * * of the property * * * which is exempt from an exercise of the power.” (Italics supplied.) This provision directly controls the situation here involved, where the trustees were not only empowered, but were required, at the termination of the trust, to offer the S & E stock to its then officers at a price of 50 percent of book value as of the date of the decedent’s death. Thus, no matter what the fair market value of the stock was as of such date, the charities would receive, in accordance with the exercise of the power vested in the trustees by the will, only 50 percent of book value as of the date of the decedent’s death. In the words of the regulation, therefore, to the extent that the fair market value of the stock exceeded 50 percent of the book value as of the date of death, the will empowered the diversion of such excess to persons other than to charities. Only that portion of the value of the property exempt from such power to divert, i.e., $424.90 per share, is accordingly deductible as a charitable bequest.

Plaintiff says that if the test is the “amount that would in fact go to charity” then defendant should at least “allow a charitable deduction of $473.40 with respect to the stock purchased [by Mr. Tobias and his wife in 1962] * * Plaintiff herself supplies the answer to this contention, however, by also pointing out that it is “the situation at the instant of death” that controls. Plaintiff elected to have the assets valued as of the date of the decedent’s death, and for the purposes here involved, it is as of such date that the return, including the amount of the charitable deduction, speaks, and the tax computed. The deduction is based on the present (as of the date of death) value, actuarially computed, of the remainder interest, and that was the way the executors computed it in the return. Accordingly, for the purpose here in question, the subsequent sales to the Tobiases, to which both parties refer, are irrelevant. Merely looking to the will, the conclusion would have to be made that the trustees were empowered to sell the stock at the termination of the trust at 50 percent of book value as of the date of the decedent’s death, and such sale proceeds would therefore fix the amount that would go to charity. Consequently, in accordance with the regulation, the charitable deduction is limited to such amount. Cf. Commissioner v. Sternberger’s Estate, 348 U.S. 187 (1954) (no part of a conditional bequest to charity allowed as a deduction from the gross estate where there was no assurance that charity would receive the bequest or a determinable part of it).

Summary

Since the deficiency which plaintiff paid was based upon a valuation of the S & B stock as of the date of death of $1,000 per share for gross estate tax purposes, and the determination herein is that such value was $700 per share, plaintiff is entitled to recover on such issue to such extent. Plaintiff is not entitled to recover on the issue of the charitable deduction.

Section 2053 of the Internal Bevenue Code of 1954 allows a deduction from the value of the gross estate for “administrative expenses.” Section 20.2053-3 (c) (2) of the Treasury Begulations provides that such expenses include “A deduction for attorneys’ fees incurred in contesting an asserted deficiency * * *” and that “A deduction for reasonable attorney’s fees actually paid in contesting an asserted deficiency * * * will be allowed even though the deduction, as such, was not claimed in the estate tax return or in the claim for refund.” The regulation goes on to provide that “A deduction for these fees shall not be denied, and the sufficiency of a claim for refund shall not be questioned, solely by reason of the fact that the amount of the fees to be paid was not established at the time that the right to the deduction was claimed.” 26 C.F.B. § 20.2053-3 (c) (2) (1969).

Pursuant to these provisions, plaintiff also claims such amount as may be allowable as a result of a deduction for reasonable fees and expenses incurred in connection with the prosecution of this case. Defendant concedes plaintiff’s entitlement to such a deduction. No reason is apparent for not giving effect to the parties’ agreement in this respect. Accordingly, the amount of the recovery should also reflect such a deduction.

Davis, Judge,

dissenting in part:

Although the court’s opinion adopts much of Commissioner Gamer’s underlying reasoning, it balks at his most significant intermediate conclusions and also at his ultimate determination that the stock was worth no less than $900 per share. I consider his opinion and conclusion correct, and I would follow him entirely.

One of the two principal differences between the court and the trial commissioner concerns the evaluation of the stock by the Internal Revenue Service for the other estates. Commissioner Gamer thought, and I agree, that the valuations accepted for these other estates “contribute little of probative value in the solution of the problem involved in this case.” He cited Fitts' Estate v. Commissioner, 237 F. 2d 729, 733-34 (C.A. 8, 1956), in which the court ruled that the Tax Court did not abuse its discretion in excluding testimony concerning the valuation of unlisted, closely held stock in another estate where “[tjhere is no indication as to how the values [of the stocks in the other estates] were arrived at * * After detailing the six instances of valuation of the instant stocks in other estates, the trial commissioner pointed out that:

“Thus, an analysis of the situation in each of the six estates upon which plaintiff relies so heavily fails to reveal in. any of them what the considerations were that led to the acceptance by the Internal Bevenue Service of the valuations indicated. In four of the six, there is no evidence that any investigation was initiated by the Service, the taxpayer’s valuation merely being accepted as filed. And as to the first of the other two, in which, after a consideration of the company’s financial statements for prior years, the valuation wais raised from $275, as set forth in the return, to $450, there is nothing to indicate the basis for such $450 figure or why it was selected. The second simply used the figure of the first. The evidence concerning these other estates has little probative value in the solution of the factual problem here involved of determining the fair market value of the 337 shares of S & B stocks as of April 24,1961.
The ‘equality of treatment’ principle applied to the excise tax problem involved in International Business Machines Corp v. United States, 170 Ct. Cl. 357, 367, 343 F. 2d 914, 920 (1965), cert. denied, 382 U.S. 1028 (1966), which plaintiff emphasizes, has no applicability to the estate tax problem here involved. The court’s concern in that case was the adverse competitive effects of the inconsistent positions of the Internal Bevenue Service upon the operations of two similarly situated business competitors. The Commissioner there exercised a statutorily conferred discretion by denying an application for an excise tax exemption in one situation and granting it to a competitor identically situated. The court refused to sanction such discrimination between the two business concerns operating in the field. It construed the statute as directing the Commissioner to apply equality of excise tax treatment to competitors similarly situated. Obviously, such a situation is hardly applicable to the type of estate tax issue here involved which concerns only the factual problem of fair market value of a certain block of stock on a certain date. The Internal Beve-nue Manual merely provides that ‘it may not be necessary to make another detailed analysis of the stock’ in the situation where ‘a valuation has been made in a prior estate * * * provided the valuation date on the prior estate is within reasonable proximity to the current date and the pertinent facts have not changed substantially.’ Surely, such a discretionary authorization in limited situations neither constitutes a directive to the agents to accept at all times in the future a stock valuation made in a prior estate, nor does it give a taxpayer anything in the nature of a vested right to have the prior valuation applied to his return. As the court stated concerning the gift tax involved in Wagner v. United States, 181 Ct. Cl. 807, 817-18, 387 F. 2d 966, 972 (1967), with respect to a charge of alleged discrimination against the taxpayer:
“Nor did discrimination result from the circumstances that other persons * * * may have never paid a gift tax ***.*** The fact that all taxpayers or all areas of the tax law cannot be dealt with by the Internal Bevenue Service with equal vigor and that there thus may be some taxpayers who avoid paying the tax cannot serve to release all other taxpayers from their obligation. As this court said in Kehaya v. United States, 174 Ct. Cl. 74, 78, 355 F. 2d 639, 641 (1966) : ‘The Commissioner’s failure to assess deficiencies against some taxpayers who owe additional tax does not preclude him from assessing deficiencies against other taxpayers who admittedly owe additional taxes on the same type of income. The Commissioner might reasonably conclude that a reaudit of * * * returns * * * would not produce sufficient additional revenue to justify the undertaking. Such a decision would certainly not be arbitrary.’ ”

The other major disagreement between court and trial commissioner hinges on the treatment of the evidence given by the Government’s experts. Plaintiff presented no expert evidence at all, and in the commissioner’s eyes (as in-mine) the material on which plaintiff does rely (the sale to Mr. Tobias, the other valuations by IBS, the testimony of Miss Bighter and Mr. Tobias, the statement in the will) is all “unacceptable” as proving value. On the other hand, as the commissioner says, the “evidence of fair market value presented by defendant [through its expert witnesses] is based upon a sound approach and is, from a financial analysis viewpoint, entirely reasonable.” As a result, he properly considered that he was justified in placing bis ultimate conclusion as to tbe fair market value of tbe S & R stock (as of April 24,1961) “within the confines of the opinions of defendant’s experts.”

Tbe trial commissioner did not neglect tbe “unfavorable” factors which both the plaintiff and the court stress. He said:

“Some of these factors were, however, given ample consideration in the very large discounts from the market values indicated by the application of the comparative appraisal method which the experts took in arriving at their final conclusions. Others, such as the vulnerability to strikes, were not considered to be any more serious than generally applicable to manufacturing businesses. The loss of experienced sales persomiel affected in no way the continually increasing sales under a new Sales Manager (appointed in 1959) who had substantial and successful experience with the company, first as a salesman and then as Assistant Sales Manager. And the long, apparently satisfactory association S & R had with its licensor, the manufacturing capacity and experience which S & R had and which the licensor did not, and the substantial royalties the licensor was receiving, would hardly lead an investor to believe that the licensor would soon decide to invest in greatly increased manufacturing facilities and go into direct competition with its licensee.
In view of the steadily increasing trend of the company’s earnings during the five-year 1956-1960 period preceding the valuation date, the company’s ability to establish Scrabble as a staple game in the industry, its steady growth in assets, its plant enlargement program initiated in 1960 and still in process as of the valuation date, indicating confidence by the management in the company’s future, its efficient management, as demonstrated by its ability to produce good profit margins and effect good cost controls, and the particularly favorable investment climate at the date of valuation, both for stocks in general and for stocks in the game and toy industry in particular, it is concluded that the fair market value of the 337 shares of'S & R stock as of April 24, 1961, was $900 per share. This is at the lowest end of -the range testified to by defendant’s experts. Such a valuation reflects an extremely conservative price-earnings ratio of 7.3 to 1, and a generous (as of such date) dividend yield, based on 1960 dividends, of 5.5 percent. Such value would simply be approximately equal to the December 31, 1960 book value of $899.81. Based on this record, no lower valuation would appear to be warranted.”

In rendering a “jury verdict” of $100 per share, the court seems to me to have no sound basis at all for its finding since there is no evidence whatever pointing to any figure in that range, and the amount of $100 is not, as in some cases, within the span of conflicting expert testimony. I do not know how the court arrived at it, and the opinion does not explain. Cf. United States v. Nez Perce Tribe of Indians, post, at 490, decided this day. For myself, rejecting as I do plaintiff’s evidence as wholly unpersuasive, I must agree with Commissioner Gamer that our choice has to be within the range of values testified to by the Government’s experts. There is no adequate reason, in my view, to reject the views of these two qualified witnesses, one of whom was not connected with the Government and had had great experience in valuations of this type, especially since the trial commissioner heard and credited them.

LaRAmore, Judge, and Dureee, Judge, join in the foregoing opinion dissenting in part.

EINDINGS OP PACT

The court, having considered the evidence, the report of Trial Commissioner Saul Ii. Gamer, and the briefs and arguments of counsel, makes findings of fact as follows:

1. Plaintiff is the duly appointed, qualified, and acting Executrix of the Estate of Jessie H. Eighter.

2. Jessie H. Eighter, a resident of Brooklyn, New York, died on April 24, 1961. Letters testamentary were thereafter issued to plaintiff by the Surrogate’s Court, Kings County, Brooklyn, New York, hi an administration proceeding known as Case No. 3446/1961.

3. On July 24,1962, within the time allowed by law, plaintiff filed a federal estate tax return, on Treasury Department Form 706, with the District Director of Internal Eevenue for the First District of New York at Brooklyn, New York. This return reported a federal estate tax liability of $42,467.55. For federal estate tax purposes, plaintiff valued the assets of the testatrix as of her date of death.

4. For many years prior to her death, the testatrix had owned 337 shares, or about 17 percent, of the outstanding stock of Selchow & Eighter Company (hereinafter “S & E”), a New York corporation engaged in the business of manufacturing and selling games, with its principal place of business at Bay Shore, Long Island, New York. During the period here involved, there were 2,000 outstanding shares of stock ofS&E.

5. In Schedule B (“Stocks and Bonds”) of the federal estate tax return filed by plaintiff, she listed the 337 shares of capital stock of S & E held by the testatrix. These were valued on the return at $424.90 a share, with a total valuation as set forth on the return, of $143,191.60. This same value was used in computing in Schedule N (“Charitable, Public, and Similar Gifts and Bequests”) the deduction to which the estate was entitled by virtue of certain bequests to charities. Schedule B listed 24 items of securities upon which the return placed a total value at date of death of $593,024.80.

6. On June 25, 1965, the Commissioner of Internal Eev-enue sent to plaintiff a statutory notice of deficiency setting forth a net deficiency in estate tax due of $74,833.91. This asserted deficiency, together with interest thereon in the amount of $14,912.45, was paid by plaintiff on November 26, 1965. This deficiency was based in part on a determination that the S & E stock owned by the testatrix had a fair market value for federal estate tax purposes of $1,000 per share at the date of death, with a total valuation for the 337 shares of $337,000. The notice changed the values set forth in the return of ten items of securities. However, the value changes in nine of the items were small and no issue arises herein in connection therewith. The deficiency was also based in part on a reduction in the amount of $68,270.72 in the charitable deduction claimed by the estate. The notice of deficiency did not indicate that any change was made in the $424.90 per share computation for the purpose of the charitable deduction.

7. On December 8, 1965, plaintiff duly filed a claim for refund in which she sought a refund of $74,833.91, plus interest paid thereon of $14,912.45, on the ground that the Commissioner of Internal Eevenue had erroneously increased the value of said S & E stock and had erroneously decreased the charitable deduction claimed by the estate.

8. More than six months elapsed during which period the Commissioner of Internal Eevenue took no action with respect to plaintiff’s refund claim.

9. S & E keeps its books and records on a calendar year basis and closes its books only once a year, as of December 31. During the period pertinent to this case, the principal games manufactured by S & E were a crossword puzzle game sold under the trademark of “Scrabble,” and a backgammon game sold under the trademark of “Parcheesi.” Scrabble is played primarily by older children and adults. The business of S & E is highly seasonal with most of its sales being made in the period preceding the Christmas holidays.

10. During the period 1955 through June 1961, the S & E stock was closely held. It was not listed on any stock exchange, was not available on any over-the-counter market, and had never been publicly traded. In addition to the 337 shares owned by the testatrix, Miss Jessie H. Righter, the S & R stock was, in April 1961, owned as follows: 344 shares by Miss Harriet T. Righter; 337 shares by Miss Katharine A. Righter; and the balance (982 shares) by 21 individuals and estates. The Misses Righter were the daughters of one of the cofounders of S & R, and a substantial number of the other shareholders were descendants of the other cofounder, Mr. Selchow. The business is over 100 years old. In 1961 the outstanding 2000 shares of common stock had a par value of $50 a share.

11. From 1923 to 1955 the President of S & R was Miss Harriet T. Righter, who devoted her full time to the business of the corporation. In 1955 Mr. C. Ellsworth Tobias became President of the corporation, and Miss Righter continued to serve actively as Chairman of its Board of Directors. Mr. Tobias is in no way related to either the Righter or the Selchow family.

12. (a) The patents and trademarks relating to Scrabble are owned by the Production and Marketing Corporation (hereinafter “P & M”), a Connecticut corporation. The basic copyrights for the game were issued in 1948 when the game was first marketed. The trademark “Scrabble” was issued in 1950. In that year, S & R began manufacturing certain parts for inclusion in the Scrabble game being assembled and sold by P & M.

(b) Due to the increase in Scrabble’s popularity, P & M’s plant, facilities, and capacities for exploiting the game were, by 1953, being utilized to the limit and were inadequate to handle the present and anticipated demand. In order to secure competent assistance in exploiting Scrabble, and because S & R had the plant capacity, facilities, ability, and long experience in the exploitation, production, marketing, and manufacturing of all kinds of games, P & M and S & R entered into a “Manufacturing and Marketing Agreement” on February 19,1953.

13. The agreement between S & R and P & M, dated February 19, 1953 (sometimes referred to as a “license agreement”) , provided in part as follows:

1. Production & Marketing Corporation grants to Sel-chow & Righter Company the exclusive right (the grantor Production & Marketing Corporation only excepted) to manufacture, exploit, and distribute tbe game “SCRABBLE” in tbe United States and its possessions during tbe lifetime of tbe aforesaid copyrights and trademark registration, and during tbe lifetime of any renewals thereof, in an edition or editions utilizing wooden, metal, or plastic playing pieces, designed and intended to retail at a price higher than $2.00 per unit, but not to exceed about $5.00 per unit (except as set forth in clause 14 herein), and in general of similar quality, design, material, and appearance to the game “SCRABBLE” now being produced and sold by the Production & Marketing Corporation at a retail price of approximately $3.00 ;
2. Both parties to the agreement hereby assure each other that they will fully collaborate in the use of their respective manufacturing facilities to insure as great production of the game “SCRABBLE” as possible in order to meet current demand for the game;
3. The parties to this agreement are cognizant of the agreement entered into in December, 1952, between the Production & Marketing Corporation and Cadaco-Ellis, an Illinois partnership, whereby Production & Marketing Corporation granted to Cadaco-Ellis an exclusive license to make and sell a game patterned after the game “SCRABBLE” and covered by the aforesaid copyrights, but strictly limited to an inexpensive embodiment designed to be sold at a retail price not to exceed $2.00, not to utilize wooden or plastic playing pieces, and to be marketed under a different name; and therefore Selchow & Righter Company agrees that it will exercise its rights as granted herein to the exclusion of such inexpensive games, and confine their activities to the game entitled “SCRABBLE” described in clause 1 of the present agreement;
4. Production & Marketing Corporation at present reserves the exclusive right to itself to make and sell a “deluxe” edition or editions of the game “SCRABBLE” which may be designed and intended to retail at prices not lower than approximately $5.00 per unit, and the Production & Marketing Corporation further agrees that if at any future time, it does not desire to exercise such right to make and sell said “deluxe” edition or editions, it agrees that it will not grant the right to make and sell such “deluxe” edition or editions to any other party than Selchow & Righter Company;
5. All copyrights and trademark registrations relating to the game “SCRABBLE” are to remain tbe property of Production & Marketing Corporation;
*****
• 7. The basis of compensation to the Production & Marketing Corporation is to be the current jobbing price at which the games are sold by Selchow & Righter Company, the payments being based upon all units shipped and charged during any current year according to the following schedule:
for the first 50,000 units — 5%,
for the second 50,000 units — 6%,
for the next 200,000 units — 7%, and
for all sales over 300,000 units — 8%.
$ * ❖ * #
9. Production & Marketing Corporation may cancel this agreement upon thirty days’ ¡advance written notice after the end of any calendar year, if the sales of games subject of the agreement shall have fallen below 50,000 units;
10. This agreement shall be terminable by either party as to the rights of the other party, for material breach by the other party, without thereby adversely affecting the rights hereunder of the party not in default;
$ $ ‡ $
14. The life of the present agreement shall extend to the end of the terms of the aforesaid copyrights and trademark or of any renewals thereof; until abrogated by mutual agreement of the parties; or until terminated for cause under the provisions elsewhere set forth herein;
15. The rights hereby conveyed by Production & Marketing Corporation to Selchow & Righter Company are personal to the Selchow & Righter Company and are are not assignable by Selchow & Righter Company without the.consent of Production & Marketing Corporation in writing; except that this agreement shall be binding upon the administrators, executors, and successors in business of the parties hereto.

14. On September 10, 1957, S & R entered into a series of agreements with P & M for the production and marketing by S & R, under the Scrabble trademark, of a children’s crossword game which, had been created by S & B. The preamble to one of these agreements stated that “the parties are of the opinion and belief that the potential markets for both the adult’s cross-word game and children’s cross-word game, will be enlarged by the sale of the children’s cross-word games under P. & M.’s registered trademark ‘Scrabble’ which has acquired a reputation as a guarantee of quality and of singleness of origin of the goods bearing such mark.”

15. P & M maintains a factory operation at Newtown, Connecticut, where it manufactures a deluxe Scrabble edition, a travel edition, foreign language editions, and a tournament edition. All of the aforesaid editions were marketed by S & B for P & M, with the exception of the tournament edition, which P & M itself marketed. P & M also manufactured from 25 to 30 percent of the scrabble tiles which S & B purchased for use in the games it marketed. During the year in question, the deluxe and travel editions sold at retail for $10, the tournament edition for $6, the foreign editions for $5-$6, and the standard set for $3. These editions competed with each other to the extent that any higher priced edition of a product competes with the lower priced editions. There is no connection between S & B and P & M other than their various contractual agreements.

16. During the years from 1950 through 1960, S & B had net sales as set forth below. The percentage allocations between nonowned games and games owned by it were for the later years as follows:

17.From 1953 through 1960, S & E paid royalties to P & M for the use of the trademark, coyprights, and patents relating to Scrabble, by years and in the amounts, respectively, as follows:

Year Royalty Paid
1953 _$79,261
1954 _ 306,339
1955 _ 224, 572
1956 _ 69,636
1957 _ 84,882
1958 _ 125,903
1959 _ 124,446
1960 _ 120,255

18. While P & M had reserved the right to manufacture and market the standard Scrabble game, such right had not, prior to the date of valuation here involved, been exercised nor was there any indication that P & M might do so.

19. The fact that the Scrabble line was a dominant product sold by S & E was a problem to it. However, as of the time here involved, S & E was engaged in making Scrabble what is called in the game industry a “staple” game. Despite a slight decrease in sales for the preceding two years, Scrabble was an established or staple game in 1961.

20. During the years 1950 through 1960, S & E realized gross profit, earned after-tax net income, and paid dividends as follows:

21. (a) In the years from 1953 through 1960, S & R’s ratio of manufacturing profits (net sales less cost of sales) to net sales (sales less returns and allowances) was as follows:

(b) During such years, S & R’s ratio of operating profit (manufacturing profit minus allowances and operating expenses) to net sales was as follows:

22. During the years 1950 through 1960, the book values net worth of S & R, and the book values per share were as follows:

23.During the ten years preceding tbe death, of Jessie H. Righter, the corporation had net earnings per share and paid dividends per share by years in the amounts respectively as follows:

24. S & R closes its books once a year at the termination of the calendar year. No quarterly audits are taken. No audit was taken at decedent’s death.

25. The principal competitors of S & R are Milton Bradley Company (as to its games), Parker Brothers, and Cadaco-Ellis. The game of Scrabble does not compete directly with dolls, model trains, or other toys.

26. In December 1960, S & R suffered a loss in experienced personnel as a result of the death of Mr. Lionel K. Anderson, its Executive Vice President. Mr. Anderson had been in charge of sales for forty years. Furthermore, just before his death the Assistant Sales Manager, Miss Marion E. Stringer, because of poor health, ceased all sales activities (although she continued to serve as Advertising Manager). Miss Stringer had also been with the business for approximately forty years and had been in charge of product development. Mr. Louis Goebel, Jr., then in his early thirties, was made Sales Manager in 1959. Prior to being named Sales Manager, he had been a salesman, having been with the company since 1952, and Assistant Sales Manager. The company had difficulty in finding a satisfactory substitute for Miss Stringer in the product development field. The loss of these two key employees impaired the development of new games for S & E at that time. S & E was at this time in the process of expanding its plant at Bay Shore, Long Island.

27. In 1961 S & E had approximately one hundred employees. These employees belonged to a labor union. In 1955 the company, when it moved its plant from Brooklyn, New York, to Bay Shore, Long Island, had an organizational strike which lasted for three months during the latter part of the year. This created difficulties for a highly seasonal business such as is S & E, the Christmas trade accounting for a substantial part of its annual volume. S & E ships its products primarily by truck. It also imports certain wooden pieces for its games. Hence S & E (like other companies with similar problems) is concerned about the possibility of strikes in the trucking or shipping industries, and especially should they occur at a crucial time in the company’s operations.

28. The Scrabble manufacturing process in S & E’s Bay Shore plant consists of bringing in the various components, assembling the game boards, collating the tiles, and then packaging and distributing the item.

29. S & E’s raw material, consisting principally of game boards and tiles, comprised between 73.35 percent and 77.04 percent of its cost of sales for the years 1950 through 1959. It was 75.39 percent of such cost in 1960.

30. In 1960, S & E’s labor costs were 11.19 percent of its cost of sales.

31. During 1960, S & E commenced the erection of a substantial addition to its factory building in Bay Shore. This addition was completed in 1962. S & E had considered building a geographically separate plant, but had rejected that idea in favor of adding to its existing plant.

32. The will of Jessie H. Eighter, which was executed on May 9, 1960, created in Paragraph SIXTEENTH a trust from the residue of her estate with the income to be paid to her sisters for their lives. Upon the death of the last income beneficiary, this article provided for certain specific bequests, after which the remainder of the trust was to be paid to four charities.

33. Paragraph NINETEENTH of the will of Jessie H. Righter reads in part as follows:

NINETEENTH: I hereby authorize and empower such Executors or Executor as shall be acting for the time being hereunder, whether primary or substitutional (hereinafter, for convenience of reference, called the “Executors”), and as to the property at any time embraced in the trusts herein created, I hereby authorize such Trustees or Trustee as shall be acting for the time being hereunder, whether primary or substitutional (hereinafter, for convenience of reference, called the “Trustees”), respectively, as follows:
1. Subject to the restrictions hereinafter set forth in respect of shares of stock of SELCHOW & RIGHTER CO., or in the event of a corporate change of stock, the equivalent thereof, to sell, for any purpose, including that of division and/or of more convenient distribution, at such time or times, and in such manner, whether at public or private sale, and upon such terms, as to cash or credit, as in the discretion of the Executors or of the Trustees shall seem proper, any or all property, real and personal, or any interest therein, which may belong to me at my death, or which may at any time belong to my estate or to the trusts hereunder. This power shall not end at the termination of the trusts, but shall survive the same and may be exercised after such termination.
If during my lifetime I shall have entered into a contract or agreement, which shall be in effect at the time of my death, granting to persons therein named an option or options to purchase shares of stock of SELCHOW & RIGHTER CO., or their equivalent, owned by me, and in any such event, I direct my Executors or Trustees, as the case may be, to comply with the terms of such contract or agreement.
If, however, no such contract or agreement shall be in effect at the time of my death or if the options, or any of the options therein granted, are not exercised, then, and in such event, the Executors are not authorized, and the Trustees are not authorized during the period of the trust, except in the event that a sale to discharge tax obligations, shall be necessary, to sell any shares of stock of SELCHOW & RIGHTER CO., as shall be embraced in the trusts hereunder, or the equivalent thereof, dr any of such shares or equivalent, unless such of my sisters, HARRIET T. RIGHTER and KATHARINE A. RIGHTER, as shall be living at the time, shall consent to such sale.
Subject to such contract or agreement, if any, as may be in effect at the time, I hereby authorize and direct that (a) at the termination of the trusts for the benefit of my sisters in this my Will established, or (b) from and after my decease, if neither of my sisters, HARRIET T. RIGHTER and KATHARINE A. RIGHTER, shall survive me, as the event shall determine, the Trustees or the Executors, as the case may be, shall at such time give to the then officers of SELCHOW & RIGHTER CO. the preferential opportunity to purchase the shares of said company, or the equivalent thereof, or portions of such shares or equivalent, then freely available for such sale and purchase, at a price equal to fifty per cent (50%) of the book value per share as of the time of my death, which, in my judgment, will be a fair and reasonable price therefor. Authority is hereby conferred, in such circumstances, at such time or times, upon the Trustees and Executors to make sales upon such terms to such an officer at the time of sale even though such officer be at such time a Trustee or Executor hereunder. During the period of the trust, a like authority with respect to sale and purchase by and to a Trustee or Executor of some or all such shares of SELCHOW & RIGHTER CO., or the equivalent thereof as shall be held at the time in the trust, is hereby given if such of my sisters as shall be living at the time thereof shall consent thereto.

34. (a) Following the death of Miss Jessie H. Righter, the executors of her estate decided it would be in the interests of the estate to sell its S & R stock. In carrying out this decision, Miss Harriet T. Righter, in June 1961, approached Mr. C. Ellsworth Tobias, the President of S & R, and asked him if he would be interested in buying the 337 S & R shares held in the estate, at a price of 50 percent of book value. Mr. Tobias indicated that he would be interested. However, because of the large amount of money that would be involved in the transaction, he inquired whether his mother might participate therein and whether the sale could be accomplished over a period of time. Miss Righter had no objection to either suggestion. Mr. Tobias and Miss Righter did not negotiate regarding the price. Miss Righter set the price at 50 percent of book value pursuant to the directions in her sister’s will. However, both Mr. Tobias and Miss Righter believed that 50 percent of book value was a fair price at the time of the transaction.

(b) The stock in question was offered only to Mr. Tobias. For one thing, Miss Righter thought that he was the only officer of the corporation who was in a financial position to purchase the stock. In addition, the decedent had especially friendly feelings toward Mr. Tobias. In Paragraph FIFTEENTH of her will, she gave her sisters Harriet and Katharine, whom she appointed as the executors of her will, all of her personal property, provided they were living at the date of her death. However, the paragraph went on to provide that “if neither be then living, I give and bequeath said items of personal property to my friend, C. Ellsworth Tobias, if living at the time of my death.” Further, in Paragraph EIGHTEENTH of the will, the decedent appointed her sister Harriet and Mr. Tobias “to be the Trustees of the trusts in this Will created.”

35. On July 12, 1961, the executors of the estate sold, at $424.94 per share, 100 shares of S & R stock to Mr. Tobias for the total amount of $42,490.42, and 100 shares to his mother, Edna F. Tobias, for the same total amount. As part of this transaction, it was also agreed, as set forth in an agreement of said date between the executors and Mr. Tobias, as follows:

The undersigned Executors of said Estate agree to sell and the undersigned C. ELLSWORTH TOBIAS agrees to purchase the balance of 131 shares of said stock of said company on April 5, 1962, at a price determined as follows:
50% of the book value of said 137 shares of stock on said date, “ex dividend”, that is to say, less the amount of the dividend paid the early part of the year 1962 out of prior year’s earnings; said dividend so declared shall belong to the ESTATE OF JESSIE H. RIGHTER, and the book value and selling price of said shares shall be reduced to reflect the book value thereof after the payment of such dividend.

Pursuant to this quoted provision, the estate, on April 5, 1962, sold another 100 shares to Mr. Tobias and 37 shares to bis wife at $473.40 per share. In each transaction, tbe price of tbe stock was 50 percent of tbe book value as of the close of tbe preceding year but “ex dividend” as to tbe dividend paid the first part of the year from tbe earnings of tbe prior year. Tbe executors felt they bad the authority, in making a sale of the S & It stock in tbe estate prior to tbe termination of tbe trust of which they were tbe beneficiaries, to make the sale at 50 percent of book value as of the dates of tbe actual transfers of title of tbe stock instead of 50 percent of book value “as of the time of my [tbe decedent’s] death,” the formula specified in tbe will. On tbe first transaction covering the 200 shares, the value as of either date was the same.

36. In deciding to accept the offer made by the executors of the estate to sell the stock at 50 percent of book value, Mr. Tobias took into consideration certain factors which he considered to be of a negative character, such as the fact that he was acquiring only a minority interest in a closely held company; that S & B did not own the Scrabble trademarks, copyrights, and patents, upon which game it was depending for most of its business; that the company was, at the time, suffering from the serious personnel loss of Mr. Anderson and Miss Stringer; and that the seasonal nature of the company’s business and its method of operation made it peculiarly vulnerable to strikes by its own employees, as well as in the trucking and shipping industries. However, he also considered such positive factors as the company’s current earnings, the recent upward trend therein, the rate of dividends, the rising book values, and the company’s apparent success in establishing Scrabble as a staple game in the industry. Mr. Tobias had been the company’s President since January 1, 1955, and a director since around 1947. He was fully familiar with the company’s financial condition. Prior to the 1961 and 1962 purchases, he owned only six shares, which were in the nature of directors’ qualifying shares, and for which he had paid, prior to 1950, $75 per share. Prior to becoming President of the company, Mr. Tobias had been a partner in a law firm which had been the personal attorneys of the Bighter sisters.

37. Sales and profits continued to increase after Mr. Louis Goebel, Jr., was appointed Sales Manager in the latter part of 1959.

38. The holder of a 17 percent interest in S & It would be a minority stockholder. However, he would not be dominated by any other stockholder. The sale by the estate divested the Lighter sisters of majority control of S & It. After the sale, no one person or family could claim dominant control of S & It.

39. In 1961, the investment environment for new stock was good. Stock prices of major companies were strong, and stock prices of smaller companies were even stronger. The price-earnings ratio for Standard & Poor’s Industrial Index had increased from 18.2 to 1, based on the average price of the week of December 31,1960, to 20.2 to 1, based on the average price of the week of April 24,1961.

40. The prospective earnings of a manufacturing company are normally the most important factor in determining the fair market value of its stock. In forecasting future earnings, the company’s earnings, and the trend thereof, over its most recent years are important. For the years 1956 through 1960, S & R’s financial statements showed, as set forth in finding 20, a steady increase in net income after taxes. The 1956 earnings show a sharp drop from the years 1954 and 1955. Those were the years, however, when Scrabble was first marketed by S & R, and reflect the phenomenal success enjoyed by the game when introduced by S & R in those years.

41. Disregarding its earnings trend for the period 1956 through 1960, S & R had, for that period, average earnings of $178,215. On a per share basis, this amounts to $89.11.

42. In view of S & R’s steadily rising sales, earnings and profit margins over the period from 1956 through 1960, it could fairly be expected that its earnings for a reasonable period in the future would continue at or above its 1960 earnings of $246,631, or $123.32 a share.

43. The yearly S & R dividend per share averaged $42 for the five-year" period from 1956 through 1960. This was an average of 47 percent of average net earnings for the same period. This dividend rate is rather conservative. In view of S & E’s record of continuous dividend payment, the outlook was good that, as of the valuation date, this dividend payment rate would not be materially decreased in the near future.

44.As of December 31,1960, S & E’s balance sheet showed the following:

45. Neither Harriet Eighter nor Mr. Tobias has ever attempted to obtain from qualified investment bankers or underwriters an opinion as to the feasibility of selling the S & E stock which was (1) held in the estate of Jessie H. Eighter; (2) owned by Katharine A. Eighter during her lifetime; and (3) owned by Harriet Eighter.

46. Neither Harriet Eighter nor Mr. Tobias has any professional experience in the field of investment counseling or stock valuation.

47. Neither Harriet Eighter nor Mr. Tobias has ever participated in the marketing or underwriting of an issuance or sale of stock to the public.

48. In. ascertaining the fair market value of the stock of a closely held corporation, a guide frequently employed by analysts, financial experts, and knowledgeable investors is to compare the relationship of earnings, dividends, and book values of such corporation stock to the market prices of actively traded stock of companies in the same or similar lines of business, and then to apply the resulting ratios to the earnings, dividends, and book value of the closely held company.

49. As of the valuation date, there were no actively traded companies that were closely comparable in all respects to S & R. The company closest to S & R in terms of product line and most competitive was Milton Bradley Company, with over 70 percent of its sales in games, as opposed to toys. Its sales in the period from 1956 through 1960 ranged from as low as $7,695,585 in 1957 to a high of $14,471,842 in 1960. Its sales increased every year except for 1957.

50. Since there are no other publicly traded companies that are comparable to S & R in terms of game manufacture, the defendant offered evidence on a comparative appraisal basis as to other companies which are essentially in the business of manufacturing toys. These companies are also in the leisure time industry.

51. Other companies compared by defendant to S & R, on the basis of being in the toy and game industry, are as follows:

1. Mattel, Inc., a manufacturer of toys, dolls and accessories, with sales of approximately $25,000,000 in 1960.
2. Remco Industries, a manufacturer of toys and games.
3. Aurora Plastics, a manufacturer of plastic hobby ships and toys.

52. The per share earnings on common stock for the above four companies during the years 1956 through 1960 were as follows:

Aurora Plastics. $0.47 $0.76 $0.72 $0.67 $0.33
Mattel, Inc...10 . 22 . 70 1.04 1.20
Milton Bradley... 2.43 2.18 3.02 6.87 7.96
Remco Industries.27 . 35 1.61 2.01 2.05

53.The average earnings per share for the five-year period from 1956 through 1960 are as follows:

Name 6-year average
Aurora Plastics_$0. 57
Mattel, Ine.- • 65
Milton Bradley Company___4. 50
Remeo Industries_1. 26

54.The market prices of the common stocks of the four companies on the valuation date were as follows:

Name Market price April 21,1961
Aurora Plasties_$ 12. 37
Mattel, Ine_ 41. 75
Milton Bradley Company_180. 00
Remeo Industries_ 48.00

55. The market prices of the four companies bear the following ratios to (a) the average earnings for the prior five years; and (b) the earnings for 1960:

Name 5-year average 1960 earnings
Aurora Plastics_ 21. 70:1 37. 48:1
Mattel, Inc_ 64. 23:1 34. 79:1
Milton Bradley Company_ 40. 00:1 22. 53:1
Remeo Industries_ 38. 09:1 23. 41:1

Such ratio is commonly referred to as the “price-earnings ratio.” The average price-earnings ratio for the above four companies was 41 to 1 based on an average of five years’ earnings and 29.55 to 1 based on 1960 earnings.

56. On the comparable earnings basis as computed above, S & R’s stock would, as compared with the above four companies, and assuming the stock was actively traded, be priced, on April 24,1961, at $3,644.11 per share on the basis of 1960 earnings. On the basis of average earnings for the prior five years, S & R’s per share price would be $3,653.51.

57. On the basis of the price-sharing ratio, based on 1960 earnings, of all stock on the Standard & Poor’s Industrial Index averaging 20.2 to 1 during the week of April 24, 1961, S & R’s per share stock price would be $2,491 during such week.

58.(a) Cash, dividend payments for the four companies for 1960 and the ratios of April 24,1961 prices to 1960 dividends were as follows:

The average price-dividend ratio of the above companies is 109.5 to 1.

(b) On the sole basis of the 1960 dividends of the above four companies as compared with S & R, the market price of the S & R stock on April 24, 1961 would be $5,475 a share.

59.(a) The per share book value of the common stock of the four companies as of December 31, 1960 and the ratios of April 24, 1961 prices to book values were as follows:

The above ratio of price to book value for the companies was 5.76 to 1.

(b) On the sole basis of the average relationship that the book values of the common stocks of the above four companies bore to their market prices, S & R’s comparable market price would be $5,182.91 a share.

60. The Standard & Poor’s Index of Industrial Stocks as of the end of 1960 showed that the stocks included therein had a price-book value ratio of approximately 2 to 1, and a price-earnings ratio of 23 to 1 as of April 24,1961. On such price-book value ratio basis, the S & R stock would have a comparable market value of $1,799.62 per share, and on such price-earnings basis, the S & R stock would have a value of $2,836.36 per share.

61. Many listed securities are being sold at prices amounting to substantial discounts below book value. As is apparent from Standard & Poor’s Index, many listed securities also sell at prices substantially above their book value. Taken by itself, book value is not a major factor in determining the fair market value of the stock of a profitable manufacturing company.

62. Using the lowest of the various comparisons described above, if they were truly comparable, the S & E stock would be valued at approximately $1,800 a share.

63. However, considering that (a) the S & E stock was closely held, lacked marketability, and the II percent interest being valued was a minority interest; (b) the four companies used as comparatives are not true comparables because, unlike S & E, they manufacture products other than games; and (c) certain unfavorable factors relating to S & E’s particular business operation existed as of the valuation date, such as (1) the company was in effect only a two-product business (Scrabble and Parcheesi), with 60 percent of its sales being in one product, Scrabble; (2) the seeming inability of the company over the years to embark upon a successful new product development program; (3) the relatively small size of the company as compared with its closest competitor, the Milton Bradley Company; (4) the comparatively recent loss of such experienced sales personnel as Mr. Anderson and Miss Stringer; (5) the nonownership by the company of the Scrabble trademarks and copyrights and its position as only a licensee; (6) the legal ability of the licensor to enter into the business of manufacturing, in competition with S & E, the same types of Scrabble games as S & E was licensed to manufacture; and (7) the highly seasonal nature of its business, the hypothetical comparative fair market value of $1,800 cannot be accepted as the fair market value of the stock.

64. (a) Considering all the facts and circumstances as set forth above, and the entire record, the fair market value of the 337 shares of 'S & E stock which were owned by the decedent on April 24,1961, was not less than $700 per share.

(b) In view of the steadily increasing trend of the company’s earnings during the five-year 1956-1960 period preceding the valuation date, the company’s ability to establish Scrabble as ¡a staple game in the industry, its steady ’growth in assets, as demonstrated by its increasing book values, its plant enlargement program, indicating confidence by the management hi the company’s future, its efficient management, as demonstrated by its ability to produce good profit margins and effect good cost controls, the favorable investment climate at the date of valuation, a $700 value per share, is a fair valuation.

65. The examining agents of the Internal Eevenue Service are instructed by the Internal Eevenue Manual in part as follows:

When a valuation has been made in a prior estate, it may not be necessary to make another detailed analysis of the stock in the current investigation, provided the valuation date on the prior estate is within reasonable proximity to the current date and the pertinent facts have not changed substantially.

66. On October 16, 1959, a federal estate tax return was filed for the estate of a decedent, referred to herein as decedent “A,” who died on November 20, 1958, a resident of the State of Connecticut. This return reported a gross estate of $88,298.42, a net taxable estate of $26,501.24, and an estate tax due of $2,510.17. Included among the assets of the estate (as Item 4 of Schedule B) were 108 shares of the capital stock ;of S & E which were valued at $275 per share. The federal estate tax return for the estate of A was selected for audit by the Internal Eevenue Service, which advised the estate by letter on June 29, 1960, that:

The Federal estate tax liability shown on the estate tax return, Form 706, filed for the above-named estate has been determined to be correct, resulting in no deficiency in estate tax. The return has, accordingly, been accepted as filed.

The revenue agent’s worksheet with regard to the prices for stocks listed in that estate indicates “no record” with regard to S & E stock. The estate tax file of the Internal Eevenue Service does not indicate whether any investigation was made into the value of the S & E stock included in the assets of the estate.

67. On November 4, 1960, a federal estate tax return was filed for the estate of a decedent, referred to herein as decedent “B,” who died on July 16, 1956, a resident of the State of Connecticut. This return reported a gross estate of $97,391.08, total deductions of $105,786.14, no net taxable estate, and no estate tax to be due. Included among the assets of the estate (as Item 4 of Schedule B) were 99 shares of the capital stock of S & E which were valued at $235 per share. The files of the Internal Eevenue Service disclose that it advised the estate on February 21, 1961, as follows:

As a result of the examination of the Federal estate tax return filed for the above-named estate, it has been determined that there is no liability for estate tax.

The files of the Internal Eevenue Service do not indicate whether any investigation was made by the Internal Eev-enue Service into the valuations given by the estate to the stocks included among the assets of the estate.

68. On September 12,1960, a federal estate tax return was filed with the Internal Eevenue Service office in Brooklyn for the estate of a decedent, referred to herein as decedent “C,” who died on June 13, 1959, a resident of the State of New York. This return included among the assets of the estate 38 shares of the capital stock of S & E which were valued at $275 per share. In examining the federal estate tax return for the estate of C, the Internal Eevenue Service asked for and received financial statements covering the operation ofS&E for prior years. The Internal Eevenue Service is unable to locate its files with regard to the estate of decedent C, but collateral information in the files relating to the estate of decedent D, infra, discloses the above facts and that the Internal Eevenue Service determined a deficiency in estate tax to be due in part by increasing the fair market value of the stock of S & E to $450 per share.

69. On April 3, 1961, a federal estate tax return was filed for the estate of a decedent, referred to herein as decedent “D,” who died on December 30,1959, a resident of the State of Connecticut. This return reported a gross estate of $139,-727.95, a net taxable estate of $69,382.93, and an estate tax due of $11,892.16. Included among the assets of the estate (as Item 16 of Schedule F) were 99 shares of the capital stock of S & E which were valued at $325 per share. In ex-fl.mining; the federal estate tax return for the estate of D, the Internal Eevenue Service asked for and received financial statements covering the operations of S & E for prior years and requested and received other information from the attorneys of the estate regarding the valuation. The Internal Eevenue Service examiner on February 5, 1962, originally “argued that the value per share ranged from $1,200 to $1,250 * * His report then pointed out in part as follows:

However, the Estate objects to such a value and stated that * * * the Estate of C * * * who died on June 18, 1959, approximately six months prior to this decedent, returned the shares she held in this corporation at $275.00 and the Estate Tax Examiner in the New York District fixed a valuation of $450.00 per share * * *. It is this examiner’s opinion that since the New York District has made a determination that the value of a share is $450.00 on July 13,1959, using the same financial statements as of the estate under investigation, that value should be accepted by this District in accordance with Paragraph 4365 (3) of Part IV of the Internal Eevenue Manual. That paragraph provides: — “Where a valuation has been made in a prior estate, it may not be necessary to make another detailed analysis of the stock in the current investigation, provided the valuation date on the prior estate is within reasonable proximity to the current date and the pertinent facts have not changed substantially.” The New York Examiner had the proper financial statements and analyzed same in accordance with the regulations governing the valuation of closely held securities. Since the determination of fair market value is a question of fact, no doubt the examiner took into account all the circumstances to arrive at the value of $450.00. This examiner is reluctant to press for a higher figure, since it would appear to defeat the purpose of the paragraph in the Manual, which is to provide a means of obtaining uniformity in current valuations of a particular stock regardless of the district involved. New York District has determined the value, to argue otherwise would indicate no harmony between Districts.

On March 22, 1962, the determination of the examining agent was questioned by a reviewer who suggested a possible valuation of $800 a share. The files of the Internal Eevenue Service disclose that it ultimately determined a deficiency in the estate tax of $2,768.16 to be due because of an increase in the fair market value of the stock of S & R to $450 per share.

70. On March 19,1962, a federal estate tax return was filed for the estate of a decedent, referred to herein as decedent “E,” who died on December 16, 1960, a resident of the State of New York. This return reported a gross estate of $181,-812.89, a net taxable estate of $17,281.65, and an estate tax due of $1,300.98. Included among the assets of the estate were 30 shares of the capital stock of S & R, one of which was valued at $50 because of a restriction on it, and the remaining 29 were valued at $450 a share. The return contained financial statements of S & R for the calendar years 1956 through 1960 and a letter from its President, Mr. Tobias, dated December 5, 1961. The files of the Internal Revenue Service disclose that pursuant to an inquiry from the Internal Revenue Service, the executor elected to apply a portion of the attorney’s fees and executor’s commission, which had been deducted by the estate, to the federal income tax returns of the estate, resulting in further estate tax of $207.07 'being due. This amount was paid to the Internal Revenue Service at the same time. The files do not indicate whether an investigation was made by the Internal Revenue Service into the valuations given by the estate to the stocks included among the assets of the estate, and no change was made in the reported fair market value of the S & R stock. On May 16, 1963, the Internal Revenue Service advised the estate by letter as follows:

The federal tax liability of $1,300.98 and additional payment of tax of $207.07 shown on the estate tax return, Form 706, filed for the above estate, has been accepted as filed.

71. On December 30,1963, a federal estate tax return was filed for the estate of a decedent, referred to herein as decedent “F,” who died on October 1, 1962, a resident of the State of Connecticut. This return reported a gross estate of $85,523.60, a net taxable estate of $24,471.30, and an estate tax due of $2,225.98. Included among the assets of the estate (as Item 5 of Schedule B) were 104 shares of the capital stock of S & R which were valued at $450 per share. The return stated that appraisers appointed by the local Probate Court had valued the stock at $400 a share and that the New York Estate Tax Department had accepted a value of $450 a share in connection with the estate of decedent E. The return also stated with regard to the S & R stock: “Some shares were sold at $425 a share, and some at $450 a ahaxe, within the last year or two * * * most of the sales within the last two or three years were at a value of $425 or $450 a share.” The files of the Internal Revenue Service do not disclose whether any investigation was undertaken regarding the value of the assets listed in the estate. The files do show that no change was made with regard to the fair market value of the stock of 'S & R as reported by this estate.

72. (a) The following is a summary of certain details regarding the other estates:

(b) The will of Jessie H. Righter was executed on May 9, 1960. As can be seen from the above compilation, only one of the above tax returns was filed prior to May 9, 1960, and none of the above estates was closed prior to that date. In the period between May 9, 1960 and April 24, 1961, returns had been filed in three of the above estates, and two estates had been closed.

73. The schedule in the return (Schedule N) in which the charitable deduction was computed, contained the following statement and explanation:

Decedent created a Trust of her residuary estate, to pay the income therefrom to her sisters — Harriet Righter, born 2/24/78, and Katharine Righter, bom 9/23/79 — for their lives and upon the death of the survivor directed that certain general legacies be paid from the remainder, and the balance remaining after the payments aforesaid to certain named charities. Said residuary trust is contained in Paragraph Sixteenth of decedent’s Will, a copy of which is attached to this return.
Factor used in determining the remainder interest of said residuary trust was taken from the Actuarial Tables contained in the Commissioner’s Eegulations. Table III, Value of $1.00 due at death of Survivor of two persons.

74. Plaintiff is the sole owner of the claim herein sued upon. No transfer or assignment has been made of said claim, and no action other than as aforesaid has been had thereon. Plaintiff has exhausted her administrative remedies.

75. No part of the taxes and interest paid by plaintiff as aforesaid has been refunded.

76. The parties have agreed to hold open the record to permit a determination of an additional deduction for legal fees and expenses in connection with this controversy, such determination to await a final opinion on the issues presently being litigated.

CONCLUSION OK LAW

Upon the foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover (1) on the issue of the valuation of the S & E stock for gross estate tax purposes (to the extent indicated in the opinion); and (2) such amount as results from allowing a deduction for reasonable fees and expenses incurred in connection with the prosecution of this case, together with interest as provided by law, and judgment is entered to that effect. The amount of the recovery will be determined in accordance with Exile 181 (c). 
      
       The executors were Miss Harriet T. Righter and Miss Katharine A. Righter, the decedent’s sisters. Subsequently Katharine died and Harriet, the surviving executrix, became the plaintiff herein.
     
      
       Plus such other amounts as may be allowable as a result of a deduction for the fees and expenses incurred in this proceeding, and interest and costs as provided by law.
     
      
       There is no dispute concerning the formula used to determine the amount of the remainder interest of the residuary estate, the factor used to compute such interest being taken from the actuarial tables contained in the Commissioner’s regulations.
     
      
       As shown by the following table:
      
        
      
     
      
       This would appear to be a valid assumption In view of tie $473.40 price which Mr. Tobias and his wife paid for the 137 shares on April 5, 1962, which represented 50 percent of book value as of December 31, 1961, less the dividend paid, in an amount not shown by the record, the early part of 1962. Thus, such $473.40 price was less than 50 percent of book value as of December 31, 1961, necessarily making the $450 valuation in the sixth estate similarly less than 50 percent of such book value as of such date.
     
      
       Mr. Leo Goulston.
     
      
       Aurora Plastics, Mattel, Inc., Milton Bradley Company, and Remco Industries.
     
      
       As to dividends, the average price to 1960 dividend ratio of the four comparatives was 109.5. The expert considered such a ratio as out of line and In this case eliminated such factor from his consideration.
     
      
       As shown by the following table:
      
        Tear Per share Mornings
      
      1956 _ §44.15
      1957 _ 64.17
      1958 -- 103. 51
      1959 _ 110.00
      1960 --- 123. 32
     
      
       The booh value per share had increased every year for the prior ten years, going from $136.77 in 1950 to $899.81 in 1960.
     
      
       John W. Davidge.
     
      
       Davidge, Van Cleef, Jordan & Wood, Ine.
     
      
       Milton Bradley Company, Mattel, Ine., and Remeo Industries.
     
      
       Milton Bradley’s average dividend payout rate per share during 1956-1960 was 24 percent.
     
      
       In this respect, Milton Bradley! Company was the closest comparative, with approximately 70 percent of its sales in games.
     
      
       Plaintiff contends that the second expert testified “he ■would not recommend that a willing buyer purchase the stock at $950.00,” and that “such an admission emasculates his testimony.” (Pltf. Brief at 41.) Plaintiff errs. The expert did not so testify. His testimony was only that he would not recommend such a stock to a “fiduciary” type of client, such as a church or college. He further testified, however, that he would recommend the stock at such figure to the appropriate type of investor, and that, as a matter of fact, he did have a client who he felt would be interested in purchasing such a block of S & R stock as was here involved.
     
      
       Most of the tiles, one of the components of the Scrabble game, are Imported. S & R ships its products primarily by truck.
     
      
       Plaintiff points to the upsurge in its 1954 and 1955 sales and profits after S & R first began marketing Scrabble, followed by the drastic drops therein in 1956, when Serabble’s initial flurry of popularity receded. Prom approximately $1,900,000 in 1953, sales jumped to oyer $5,000,000 and $4,000,000 in 1954 and 1955, respectively. They then dropped to $1,800,000 in 1956. Similarly, gross profits went from $733,000 in 1953 to $2,300,000 and $1,700,000 in 1954 and 1955, respectively, falling back to $710,000 in 1956. Plaintiff says the experts’ going back only five years resulted in their failing to consider this particular period In S & R’s life.
     
      
       The schedule In the return (Schedule N) In which the charitable deduction was computed contained the following statement and explanation:
      “Decedent created a Trust of her residuary estate, to pay the income therefrom to her sisters — Harriet Righter, born 2/24/78, and Katharine Righter, born 9/23/79 — for their lives and upon the death of the survivor directed that certain general legacies be paid from the remainder, and the balance remaining after the payments aforesaid to certain named charities. Said residuary trust is contained in Paragraph Sixteenth of decedent’s Will, a copy of which is attached to this return.
      “Factor used in determining the remainder interest of said residuary trust was taken fr,om the Actuarial Tables contained in the Commissioner’s Regulations. Table III, Value of $1.00 due at death of Survivor of two persons.”
     
      
       “§ 20.2055-8 Transfers not exclusively for charitable purposes.
      
      *****
      “(b) Transfers subject to a condition or a power. If, as of the date of decedent’s death, a transfer for charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is aUowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible. If an estate or interest has passed to or is vested in charity at the time of a decedent’s death and the estate or interest would be defeated by the performance of some act or the happening of some event, the occurrence of which appeared to have been highly improbable at the time of the decedent’s death, the deduction is allowable. If the legatee, devisee, donee, or trustee is empowered to divert the property or fund, in whole or in part, to a use or purpose which would have rendered it, to the extent that it is subject to such power, not deductible had it been directly so bequeathed, devised, or given by the decedent, the deduction will be limited to that portion, if any, of the property or fund which is exempt from an exercise of the power. * * *" [26 C.F.R. § 20.2055-2 (1969).]
     
      
       Pltf. Reply Brief at 22.
     
      
       mat 21.
     
      
       The will spoke of a sale of the stock to the officers only In terms of 50 percent of hook value at the date of decedent’s death. The July 12, 1961 sale of 200 shares at $424.90 per share conformed to this formula. Plaintiff testified that, with respect to the July 12, 1961 transaction “* * * we [the executors] had the instructions of my sister Jessie’s will”; that the executors concluded that “* * * that’s all right with us, it Is as near as we can guess to the probable value of it”; (Tr. at 15) and that the sale was made In accordance with the decedent’s “directions” and “instructions.” (Tr. at 20.) However, the April 5, 1962 sale of 137 shares did not so conform. This sale, at $473.40 per share, was made at 50 percent of book value as of the date of the sale instead of the date of death. (It is true that the July 12, 1961 sale would conform to both standards.) Apparently the executors felt they could make the sale upon such terms and thus deviate from the terms of the wlU at least to such extent. At the trial, plaintiff’s counsel referred to the sales as having been made “substantially” in accordance with the terms of the will. (Tr. at 6.)
     
      
       There Is now no dispute as to the charitable deduction Issue, since plaintiff does not seek review of the trial commissioner’s adverse holding on that point.
     
      
       The Eighth Circuit also said: “* * * the valuation of the stock in the ease of one taxpayer would be no binding adjudication of its value in the ease of another taxpayer, and such evidence would be of little probative value in the absence of a showing that the valuation was arrived at after a thorough investigation.”
     
      
       ‘Equality of treatment is so dominant in our understanding of justice that discretion, where it is allowed a role, must pay the strictest heed.’
     
      
       As against tlie then 3.4 percent yield on the stocks composing the Dow-Jones industrial average,
     
      
       Plaintiff’s proposed valuation of $424.90 would, based on the 1960 earnings of $123.32 per share, result in a price-earnings ratio of only 3.5 to 1 (at a time when such ratio of the four comparatives used by Mr. Goulston averaged 29.55 times earnings and the stocks in Standard & Poor’s Industrial Index averaged 23 times earnings) ; a dividend return, based on 1960 dividends of $50 per share, of 11.3 percent (at a time when the Dow-Jones industrial stock average was 3.4 percent) ; and in a book value of one-half (as against the comparatives, whose prices averaged 5.76 times book value, and the stocks in Standard & Poor’s Industrial Index, whose prices, as of the end of 1960, averaged around twice book value).
     
      
       Defendant errs in saying that one must accept the $1,000 figure (which the IRS used) once one concludes that plaintiff has failed to prove any lower figure. By putting in its own affirmative evidence of value, the defendant opens the way for the trier to take account of that evidence in coming to a final conclusion. Here, defendant’s own evidence leads one to infer that $900 (rather than $1,000) is the better figure.
     
      
       Originally, Harriet T. Righter and Katharine A. Righter were the executors of the estate, and they filed) the petition herein. However, Katharine A. Righter died after the petition was filed, and Harriet T. Righter, as surviving executrix, thereafter became the party plaintiff herein. Although all actions with respect to the estate prior to the death of Katharine A. Righter were taken by both executors, for convenience they will sometimes be considered herein to have been taken solely by Harriet T. Righter, the present sole plaintiff.
     
      
      
         The correct figure is $143,191.30.
     
      
       In 1954, the Production and Marketing Corporation was dissolved, and its business thereafter conducted by a partnership doing business under the name of Production And Marketing Company. For convenience, the new entity will also be referred to herein as P & M.
     
      
       Mattel, Inc., has a fiscal year ending February 28. All references to a particular year refer to the fiscal year ending the following February 28.
     