
    475 F. 2d 591
    
    HAL JOSEPH ROTHGERY, EXECUTOR OF THE ESTATE OF BERNARD ANTHONY ROTHGERY, DECEASED v. THE UNITED STATES
    [No. 63-69.
    Decided March 16, 1973]
    
      
      Harlem Pomeroy, attorney of record, for plaintiff. Baker, Hostetler & Patterson, of counsel.
    
      Jane 0. Bergner, with whom was Assistant Attorney General Scott P. Crampton, for defendant. Theodore D. Peyser, of counsel.
    Before CoweN, Chief Judge, Davis, SkeltoN, Nichols, Kashiwa, KtjNzig, and BeNNEtt, Judges.
    
   Per Curiam :

This case was referred to Trial Commissioner Mastin G. White with directions to make findings of fact and recommendation for conclusions of law under the order of reference and Rule 134(h). The commissioner has done so in an opinion and report filed on May 8, 1972. Exceptions to the commissioner’s opinion, findings of fact and recommended conclusion of law were filed by plaintiff, and defendant requested that the court adopt the commissioner’s findings but urged that the court adopt a different conclusion of law to give effect to an agreement of the parties made at trial. The case has been submitted to the court on oral argument of counsel and the briefs of the parties. Since the court agrees with the commissioner’s opinion, findings of fact and recommended conclusion of law, with a modification in the conclusion of law, it hereby adopts the same, as modified, as the basis for its judgment in this case as hereinafter set forth. Therefore, it is concluded (1) that the plaintiff is not entitled to recover on its claim that the Commissioner of Internal Revenue erroneously valued the decedent’s stock in Rothgery Motors, Inc., and (2) that the plaintiff is entitled to recover 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 recovery will be determined in accordance with Rule 131(c).

OPINION OP COMMISSIONER

White, Commissioner:

Hal Joseph Rothgery, the plaintiff, is the son and executor of the estate of Bernard Anthony Rothgery, deceased (“the decedent”). In the present action, the plaintiff seeks to recover federal estate taxes which he paid to the Internal Revenue Service because of deficiencies assessed by that agency in 1965 and 1966.

It is my opinion that the plaintiff is not entitled to recover.

The decedent, a resident of Grafton, in Lorain County, Ohio, died on May 16, 1962. Prior to and at the time of his death, the decedent owned 125 shares, or 50 percent, of the outstanding stock in Rothgery Motors, Inc. (“the corporation”) , an Ohio corporation and automobile dealer founded by the decedent and located in Grafton, Ohio. The 125 shares of stock in the corporation owned by the decedent were bequeathed by him in his will to his son, the plaintiff, who already held 124 shares of the corporation’s stock. The remaining share of stock in the corporation was held by Jeanne Rothgery, the plaintiff’s wife and the decedent’s daughter-in-law.

In the federal estate tax return which the plaintiff filed for the decedent’s estate, the value of the decedent’s 125 shares of stock in the corporation was reported as $7,590, or $60.72 per share. This valuation was reflected in the amount of the estate tax which the plaintiff paid in connection with the return.

The valuation of the corporation’s stock at $60.72 per share for federal estate tax purposes was arrived at by using a price-earnings ratio of 12 times the average annual earnings of the corporation for the 4 years immediately preceding the decedent’s death, and allocating the resulting amount among the 250 shares of outstanding stock.

After administrative proceedings that will be discussed more fully in another part of this opinion, the Internal Revenue Service assessed and collected from the plaintiff in 1965 and 1966 estate tax deficiencies that were ultimately based upon a valuation of $72,750, or $582 per share, which the IKS placed on the decedent’s 125 shares of stock in the corporation.

Therefore, the principal issue before the court in the present case involves a determination of the fair market value of the decedent’s 125 shares of stock in the corporation at the time of the decedent’s death.

Value

That the value of $60.72 per share which the plaintiff placed upon the decedent’s 125 shares of the corporation’s stock in preparing the federal estate tax return was grossly inadequate becomes readily apparent when it is noted that the corporation, at the time of the decedent’s death, had on hand cash in the amount of $44,661 and marketable securities having a value of $23,247, and that the corporation’s liabilities at the time amounted only to $3,223. Thus, if all other assets of the corporation are excluded and consideration is given only to the liquid assets, the corporation’s actual net worth at the time of the decedent’s death was $64,685. When this amount is allocated among the 250 shares of stock outstanding at the time of the decedent’s death, the resulting figure per share of stock, based on the corporation’s liquid assets alone, is $258.71 per share, rather than the $60.72 per share stated in the federal estate tax return that was filed for the decedent’s estate.

Perhaps it should be stated in this connection that the evidence in the record warrants the inference that the corporation’s cash and marketable securities on hand at the time of the decedent’s death were not being held by the corporation for any business need. It is true that, prior to the decedent’s death, the Chevrolet Motor Division of General Motors Corporation (the corporation was a Chevrolet dealer) had expressed to the decedent its dissatisfaction with the location of the corporation’s place of business at the time on Mechanic Street in Grafton, and had suggested to the decedent that he relocate the business. This dissatisfaction was also expressed by the Chevrolet Motor Division to the plaintiff following the decedent’s death. Despite pressure from the Chevrolet Motor Division, however, the corporation did not move its place of business until 1965, when the building on Mechanic Street was damaged by a tornado. Furthermore, the land and building on Mechanic Street used by the corporation prior to 1965 did not belong to the corporation, but to a trust which had been established by the decedent and which leased the premises to the corporation. Also, it is pertinent to note that the new premises to which the corporation moved in 1965 were not purchased by the corporation, but by the plaintiff and his wife, who leased such premises to the corporation. Thus, it is fair to infer that the corporation’s cash and marketable securities on hand at the time of the decedent’s death had not been assembled, and were not being held, for use in connection with any anticipated purchase by the corporation of a new place of business.

In addition to the cash and marketable securities previously mentioned, the corporation at the time of the decedent’s death had other assets that exceeded the cash and securities in value. Findings 37-49, which are based upon a careful consideration of the sometimes conflicting evidence in the record respecting the value of the corporation’s assets, show that such assets had a total value of $149,111 at the time of the decedent’s death on May 16, 1962. This represents the amount that could have been realized from the corporation’s assets if the corporation had been liquidated upon the decedent’s death. If the corporation’s liabilities at the time, in the amount of $3,223, are deducted from the total value of the assets, the result is an actual net worth of $145,878 for the corporation at the time of the decedent’s death on May 16, 1962. When the net worth is allocated among the 250 shares of stock outstanding at the time of the decedent’s death, the amount per share is $583.51 and the total amount allocable to the decedent’s 125 shares of stock is $72,939.

In this connection, the evidence in the record shows that the value of an automobile dealership, such as the corporation, is closely related — and generally corresponds — to the value of its underlying assets.

Market

The plaintiff contends, however, that there was no market for the decedent’s stock interest in the corporation after his death on May 16, 1962. This contention is based upon an inference that the acquisition of the decedent’s interest in the corporation would have been unattractive to a possible purchaser in view of the circumstances that a purchaser of the decedent’s 125 shares would have acquired only a 50 percent interest, and not a controlling interest, in the corporation, that the other 125 shares of the corporation’s stock were owned by the plaintiff (124 shares) and his wife (1 share), and that the plaintiff was unwilling to share the management and operation of the corporation with an outsider.

With respect to the plaintiff’s contention, it is necessary to begin the resolution of any valuation problem by presupposing a “willing seller.” In the present case, therefore, we must begin with the assumption that the decedent’s 125 shares of stock in the corporation were not bequeathed by the decedent to his son, the plaintiff, and that such shares were available for sale by the decedent’s estate as a “willing seller.” If we begin with such an assumption, it is apparent at once that the plaintiff himself would be a “willing buyer” of the decedent’s 125 shares of stock in the corporation. The evidence in the record shows that the plaintiff intended to continue the business of the corporation after his father’s death, and that he wished to have control of the corporation in order that his son might have a place in the business. This objective required the acquisition of the decedent’s stock interest in the corporation.

The evidence warrants the inference that the plaintiff would have been willing to pay — and from a business standpoint would have been justified in paying — for the decedent’s half-interest in the corporation an amount equal to half the value of the corporation’s assets, or $72,939, if the decedent’s half-interest had been on the market for sale. Although income from the corporation in the form of dividends may have been modest and sometimes nonexistent, the corporation for years had provided the Rothgery family with a good living in the form of salaries, rents, expense accounts, and the use of automobiles; and there was every reason to anticipate that it would continue to do so in tibe future. In any event, tibe plaintiff could bave recouped bis investment by liquidating tibe corporation, as be would bave been empowered to do.

Furthermore, as indicated in findings 53 and 54, the evidence justifies the conclusion that there would have been other potential buyers for the decedent’s 125 shares of stock in the corporation at a price of $72,939 if the decedent’s estate, as a “willing seller,” bad made tibe shares of stock available for sale to persons outside the Rothgery family. It seems unnecessary to extend the present discussion by summarizing findings 53 and 54 in the opinion.

Fair Market Value

For the reasons set out in the preceding portions of the opinion and outlined more fully in the findings of fact, it is concluded that the decedent’s 125 shares of stock in the corporation had a fair market value of $72,939, or $583.51 per share, at the time of the decedent’s death. Consequently, the figure of $72,750, or $582 per share, which the Internal Revenue Service ultimately used as the value of the decedent’s 125 shares of stock in tibe corporation was not excessive.

Administrative Proceedings

It now becomes necessary to consider an argument made by the plaintiff to the effect that, irrespective of the fair market value of the decedent’s 125 Shares of stock in the corporation, the 1966 estate tax deficiency assessed by the Internal Revenue Service was improper.

As stated in an earlier portion of the opinion, the value of the decedent’s 125 shares of stock in the corporation was reported on the federal estate tax return as $7,590, or $60.72 per share. Following the filing of the estate tax return, the Internal Revenue Service caused an audit of such return to be made. The estate tax examiner who conducted the audit proposed to fix the value of the stock in the corporation owned by the decedent’s estate at the book value ($625 per share) shown by the corporation’s balance sheet.

The estate tax examiner prepared a formal report, which was transmitted to the plaintiff with a covering letter dated June 18, 1964, from the conference coordinator in the office of the District Director, Internal Revenue Service, Cleveland, Ohio. The transmittal letter stated in part as follows:

In the event you still do not agree to the adjustments, we would like to arrange an informal conference to give you an opportunity to discuss these adjustments further and to submit additional or supporting information. A member of our staff would represent this office at such a conference and he will have full authority to modify the proposed adjustments to the extent warranted by law and regulations on the basis of the information submitted.

Pursuant to the invitation contained in the letter of June 18, 1964, the plaintiff requested a conference with a member of the staff of the conference coordinator. Such a conference was held on August 12, 1964, in accordance with the procedure prescribed in paragraph (c) of Section 601.105 of 26 C.F.R. (Supp. 1964). The only disputed issue raised or discussed at the conference was the proper basis for valuing the estate’s stock interest in the corporation. The plaintiff (acting through his counsel) suggested that the adjustment which the estate tax examiner had proposed be modified on the basis of an agreement under which the estate’s stock in the corporation would be valued at $132 per share. The conferee representing the Internal Revenue Service requested that the plaintiff submit certain additional supporting information; and stated that he would review the matter and thereafter advise the plaintiff.

At the request of the conferee who represented the Internal Revenue Service at the conference on August 12, 1964, the plaintiff submitted in affidavit form certain additional information on August 13,1964, in support of the plaintiff’s contention concerning the value of the estate’s stock in the corporation.

Thereafter, the estate tax examiner wrote a letter to the plaintiff’s counsel, stating in part as follows:

Just a note to say that I am enclosing a waiver Form 890 in the amount of $2,854.08, and Affidavit forms on the Attorney Fees and the Accountant’s fees. After the forms are completed, they can be returned back to me at this office.
Two adjustments were made. 1) The Closely held stock was adjusted to a total value of $16,500.00 and 2) the Ford Motor Stock was adjusted to $2,309.37.
In the event the Accountants and Attorney fees will [be] different than estimated on the Form 706, please let me know so that I can re-compute the tax.

The plaintiff’s counsel replied on January 4, 1965, returning the waiver form “for recomputation, because of the change in the amount of attorney fees to be paid to me for the handling of this estate.”

Subsequently, the estate tax examiner sent to the plaintiff’s counsel a corrected waiver form and a recomputation of the tax. These papers showed (among other things) that the value of the estate’s stock in the corporation had been increased from $7,590 (as shown on the estate tax return) to $16,500, and that there was an estate tax deficiency in the amount of $3,923.15.

On January 12, 1965, by an executed Form 890, Estate Tax Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment, the plaintiff consented to the assessment of an estate tax deficiency in the amount of $3,923.15; and the plaintiff remitted his check for $4,256.62 in full payment of the deficiency and accrued interest thereon. Thereafter, such deficiency was assessed and the amount of the plaintiff’s remittance was credited thereon in full payment of such deficiency.

On July 6, 1965, the plaintiff filed the final account for the decedent’s estate with the Probate Court for Lorain County, Ohio. The account was subsequently approved on August 14, 1965, and the estate was closed.

On January 26, 1966 — which was more than a year after the plaintiff had paid the 1965 estate tax deficiency — the District Director of Internal Revenue advised the plaintiff that there was a further (or second) deficiency in estate tax based upon a redetermination of the value of the estate’s stock interest in the corporation. This time, it was proposed to raise the value of such stock interest to $72,750, or $582 per share. Such action was the result of a review of the estate tax return for the decedent’s estate in the office of the Regional Commissioner of Internal Revenue. The resulting deficiency in the amount of $16,200, together with interest thereon in the amount of $3,091.31, was thereafter assessed on October 21, 1966, and paid by the plaintiff on November 2, 1966.

In contending that the assessment of the second estate tax deficiency in 1966 was improper, the plaintiff relies upon the language of paragraphs (c) and (i) of Section 601.105 of 26 C.F.R. (Supp. 1964), particularly the following portions of those paragraphs:

(c) Informal conference procedure. * * *
* * * * *
(3) Rules governing informal conferences. The objective of the informal conference procedure is to give taxpayers greater opportunity to reach an early agreement with respect to disputed items arising from examinations made by internal revenue agents. * * * It is the responsibility of the conference coordinator or other designated officer to prepare a conference report with respect to each case on which an informal conference is held. This report, which will set forth briefly and concisely the facts and conclusions reached with respect to each issue, will be made available to the examining officer. In preparing his report the examining officer will give effect to the conference decisions. The examination report and the conference report are subject to review in the Audit Division of the district director’s office. The purpose of this review is to insure uniformity in the application of the provisions of the Code, the regulations, and rulings, as well as the general policy of the Service. Occasionally, however, review of a case discloses that the conferee’s decision was based on a clearly defined error having a substantial effect on the tax liability. In such an instance, if the change necessary to correct the error is adverse to the taxpayer, he will be offered another informal conference m the matter with the conference coordinator. In the event that an agreement with the taxpayer is reached at the informal conference, the taxpayer will be requested to execute Form 870 or other appropriate agreement form. Any deficiency in tax or additional tax proposed will then be assessed, or any overpayment will be credited or refunded.
* * * $ *
(i) Regional post review of examined cases. Regional commissioners _ review _ samples of the examined cases closed in their district offices to assure uniformity throughout their districts in the application of the provisions of the Code, regulations, and rulings, as well as the general policies of the Service. In certain circumstances, such as where substantial errors are found or where there is evidence of fraud or collusion, the regional commissioner has authority to reopen the case. * * *

It is the position of the plaintiff that the assessment in 1966 of the second estate tax deficiency against the decedent’s estate was in violation of the provisions of Sec. 601.105 of 26 C.F.R. previously quoted, because the Regional 'Commissioner did not find “substantial errors” or “evidence of fraud or collusion” in connection with the assessment of the first estate tax deficiency following the conference of August 12, 1964.

There is certainly no evidence in the record indicating “fraud or collusion,” and it is true that the Internal Revenue Service, in connection with the assessment of the second tax deficiency in 1966, did not expressly inform the plaintiff that “substantial errors” had been found in connection with the assessment of the first estate tax deficiency. On the other hand, the notice to the plaintiff by the IRS that the value of the estate’s stock in the corporation would be increased to $72,750 involved by necessary implication a determination that “substantial errors” had been found in the earlier valuation of $16,500 upon which the first estate tax deficiency was based. Furthermore, the facts before the court show that the valuation of $16,500 involved substantial errors.

It appears, therefore, that the Internal Revenue Service did not violate the pertinent provisions of the agency’s regulations in assessing the second estate tax deficiency against the decedent’s estate, and that such deficiency was not improper.

Conclusion

For the reasons stated in the preceding portions of the opinion, it is concluded that the fair market value of the decedent’s 50 percent stock interest in the corporation on May 16,1962, was $72,939, that the figure of $72,750 which the Internal Revenue Service ultimately used as the value of such stock interest was not excessive, and that the second estate tax deficiency which the Internal Revenue Service assessed against the decedent’s estate in 1966 was not improper.

■It necessarily follows that plaintiff is not entitled to recover with respect to the value of the decedent’s stock interest and that the petition should be dismissed in that respect.

Findings of Fact

General

1. This is an action against the United States to recover federal estate taxes paid by the plaintiff to the District Director of Internal Revenue in Cleveland, Ohio. Jurisdiction of this action arises under Title 28, United States Code, Sections 1346 and 1491.

2. Hal Joseph Rothgery (“the plaintiff”) is the son of Bernard Anthony Eothgery. The plaintiff is, and at all times material to this litigation has been, the duly qualified and acting executor of the estate of his father, Bernard Anthony Rothgery, who died testate on May 16,1962.

3. At the time of his death, Bernard Anthony Rothgery (“the decedent”) was a resident of Grafton, in Lorain County, Ohio. The plaintiff is also a resident of Grafton.

4. (a) At the time of and prior to his death, the decedent owned 125 shares (or 50 percent) of the outstanding stock in Rothgery Motors, Inc. (“the corporation”), an Ohio corporation and automobile dealer founded by the decedent and located in Grafton, Ohio.

(b) The 125 shares of stock in the corporation owned by the decedent were bequeathed by the decedent in his will to the plaintiff.

(c) The principal issue before the court in the present action involves a determination of the fair market value of the decedent’s 125 shares of stock in the corporation at the time of the decedent’s death.

5. (a) Prior to and at the time of the decedent’s death, the corporation was engaged in business as an automobile dealer at Grafton, Ohio, selling new Chevrolet and Cadillac automobiles. It also sold used automobiles, repair parts, and accessories ; and it operated a garage.

(b) The decedent died in the midst of the good selling season for automobiles in the part of Ohio where the corporation operates.

6. The 250 outstanding shares of stock in the corporation were closely held. Of the remaining 125 shares of stock in the corporation at the time of the decedent’s death and not owned by the decedent, 124 shares were held by the plaintiff (the decedent’s son) and one share was held by Jeanne Rothgery (the plaintiff’s wife and the decedent’s daughter-in-law).

Administrative Proceedings

7. (a) The plaintiff duly and timely filed a federal estate tax return for the decedent’s estate with the District Director of Internal Revenue in Cleveland, Ohio, and paid the resulting estate tax.

(b) On the return, the plaintiff reported the value of the decedent’s 125 shares of stock in the corporation as $7,590. This was based on a per-share value of $60.72 determined by three persons who were appointed by the Probate Court for Lorain County, Ohio, to appraise the stock. The three appraisers were personal friends of the decedent. One of them was a long-time employee of the corporation, who had received loans in the past from the corporation; another was a farmer; and the third was a local bank officer. None of the three appraisers was previously experienced in valuing the stock of a closely held automobile dealership.

(c) In arriving at their value of $60.72 per share for the decedent’s stock in the corporation, the court-appointed appraisers used a price-earnings ratio of 12 times their determination of the average annual earnings of a share of the corporation’s stock for the 4 years immediately preceding the decedent’s death.

8. (a) Following the filing of the federal estate tax return for the decedent’s estate, the Internal Revenue Service caused an audit to be made of such return, in accordance with prescribed procedures.

(b) The estate tax examiner who conducted the audit of the estate tax return proposed to fix the value of the stock in the corporation at the boot value ($625 per stare) shown by the corporation’s balance sheet.

(c) The estate tax examiner prepared a formal report, which was transmitted to the plaintiff with a covering letter dated June 18, 1964, from the conference coordinator in the office of the District Director, Internal Revenue Service, Cleveland, Ohio. The transmittal letter (Form L-70) stated in part as follows:

In the event you still do not agree to the adjustments, we would like to arrange an informal conference to give you an opportunity to discuss these adjustments further and to submit additional or supporting information. A member of our staff would represent this office at such a conference and he will have full authority to modify the proposed adjustments to the extent warranted by law and regulations on the basis of the information submitted.
$ $ $ $ ‡ $
We would appreciate your submission of a brief informal statement of your position, with supporting information, in advance of the conference. Although not required, such a written statement would assist the conferee in resolving the issues. * * *

(d) Pursuant to the invitation contained in the letter of June 18, 1964, the plaintiff requested a conference with a member of the staff of the conference coordinator.

(e) The District Director then caused the matter of the adjustments proposed by the estate tax examiner to be assigned to a member of the staff of the conference coordinator. In accordance with the letter of June 18, 1964, the plaintiff submitted a memorandum of facts and authorities dated August 11, 1964, stating his position. Such memorandum was submitted in anticipation of a conference that was scheduled for August 12, 1964, before the designated member of the conference coordinator’s staff.

(f) The only disputed issue raised or discussed in the plaintiff’s memorandum and at the conference which ensued on August 12, 1964, was the proper basis for valuing the estate’s stock interest in the corporation. At the conference, the plaintiff (acting through ‘his counsel) suggested that the adjustment which tibe estate tax examiner had proposed re-speoting the value of the estate’s stock in the corporation be modified on the basis of an agreement under which the estate’s stock in the corporation would be valued at $132 per share. The conferee representing the Internal Revenue Service requested that the plaintiff submit certain additional supporting information; and stated that he would review the matter and thereafter advise the plaintiff.

(g) At the request of the conferee who represented the Internal Revenue Service at the conference on August 12, 1964, the plaintiff submitted in affidavit form certain additional information on August 13, 1964, in support of the plaintiff’s contention concerning the value of the estate’s stock in the corporation.

(h) Thereafter, the estate tax examiner wrote a letter to plaintiff’s counsel, stating in part as follows:

Just a note to say that I am enclosing a waiver Form 890 in the amount of $2,854.08, and Affidavit forms on the Attorney Fees and the Accountant’s fees. After the forms are completed, they can be returned back to me at this office.
Two adjustments were made. 1) The Closely held stock was adjusted to a total value of $16,500.00 and 2) the Ford Motor Stock was adjusted to $2,309.37.
In the event the Accountants and Attorney fees will [be] different than estimated on the Form 706, please let me know so that I can re-compute the tax.

(i) In a letter dated January 4, 1965, and addressed to the estate tax examiner by the plaintiff’s counsel, it was stated in part as follows:

This acknowledges receipt of your Form No. 890 for Waiver of Restrictions on Assessment and Collection of Deficiency in this matter, and I am returning the same herewith for recomputation, because of the change in the amount of attorney fees to be paid to me for the handling of this estate. * * *
*****
Kindly recompute the deficiency, reflecting this change in attorney fees, as well as the change in value of Ford Motor Company stock and Rothgery Motor stock, and forward to me a revised waiver and I will then have Mr. Rothgery promptly execute the same so that this matter may then be concluded.

(j) (1) Subsequently, tlie estate tax examiner sent to plaintiff’s counsel a communication stating in part as follows:

I am enclosing the corrected waiver form 890 and another copy of the corrected computation of tax that reflect the attorney fees that will be paid.
The executor may pay the tax and interest at this time or he may wish to be billed. * * *

(2) The papers accompanying the communication referred to in subparagraph (1) of this paragraph (j) showed (among other things) that the value of the estate’s stock in the corporation had been increased from $7,590, as shown on the estate tax return, to $16,500, and that there was an estate tax deficiency in the amount of $3,923.15.

(k) On January 12,1965, by an executed Form 890, Estate Tax Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment, the plaintiff consented to the assessment of an estate tax deficiency of $3,923.15; and the plaintiff remitted his check for $4,256.62 in full payment of the deficiency and accrued interest thereon.

(l) Thereafter, such deficiency was assessed; and the amount of the plaintiff’s remittance was credited thereon in full payment of such deficiency.

9. On July 6, 1965, the plaintiff filed the final account for the decedent’s estate with the Probate Court for Lorain County. The account was subsequently approved on August 14, 1965, and the estate was closed.

10. (a) On January 26,1966, which was more than a year after the plaintiff had paid the estate tax deficiency referred to in finding 8, the District Director of Internal Revenue advised the plaintiff that there was a further (or second) deficiency in estate tax based upon a redetermination of the value of the estate’s stock interest in the corporation. This time, it was proposed to raise the value of such stock interest to $72,750, or $582 per share. Such action was based upon a review of the matter in the office of the Regional Commissioner of Internal Revenue.

(b) The resulting additional (or second) deficiency of $16,-200, together with interest thereon in the amount of $3,091.81, was thereafter assessed on October 21, 1966, and paid by the plaintiff on November 2,1966.

(c) In connection with the assessment of the additional (or second) deficiency referred to in this finding, the Internal Revenue Service did not expressly advise the plaintiff that the conferee’s decision in connection with the adjustment referred to in finding 8 was based on a clearly defined error having a substantial effect on the tax liability of the decedent’s estate, or that the Regional Commissioner’s office had found substantial errors, fraud, or collusion in connection with the assessment of the first estate tax deficiency against the decedent’s estate.

11. (a) On August 15, 1966, and December 19, 1966, the plaintiff duly and timely filed claims for refund with the District Director of Internal Revenue in Cleveland, Ohio, and set forth in such claims the same grounds as he has set forth in this action.

(b) The amount sought to be recovered in this action has not been refunded or otherwise credited.

The Corporation

12. (a) The plaintiff was incorporated under the laws of the State of Ohio on February 27, 1948. Thereafter, it engaged in business as an automobile dealer. It sold new automobiles, used automobiles, repair parts, and accessories; and it also operated a garage.

(b) At the time of the decedent’s death, the corporation was operating under a Dealer Selling Agreement (“the agreement”), which it had entered into with the Chevrolet Motor Division of General Motors Corporation as of November 1, 1960, and which authorized the corporation to sell new Chevrolet and Cadillac automobiles for a 5-year term that was scheduled to expire on October 31,1965. The agreement was the standard form of agreement used by General Motors Corporation in authorizing automobile dealers to sell its products.

(c) The agreement, or franchise, defined the corporation’s “area of sales responsibility” as consisting of: Grafton, Kipton, and LaGrange, in Lorain County, Ohio, including “non. post office areas served by post office stations located in the above named communities.”

(d) The third paragraph of the agreement provided in part that “This agreement is a personal service contract, and is entered into by Chevrolet with Dealer [the corporation] in reliance upon and in consideration of the personal qualifications of * * * the following named * * * persons who, it is agreed, will substantially participate in the ownership of Dealer and/or will actively participate in the operation of Dealer’s Chevrolet dealership,” with both the decedent and the plaintiff being named as “Participating in Ownership” and as “Participating in Operation.”

(e) The agreement required the corporation at all times to maintain a place of business satisfactory to General Motors Corporation.

(f) The agreement provided that General Motors Corporation was entitled to the use of the words “Chevrolet” and “Cadillac,” as applied to motor vehicles, parts, and accessories, and the servicing thereof; and that the dealer was not an agent or a legal representative of General Motors Corporation.

(g) Upon failure of the dealer to comply with the agreement, General Motors Corporation could cancel the agreement upon 3 months notice, or immediately under certain specified conditions.

(h) The removal, resignation, or withdrawal of either the decedent or the plaintiff from paragraph 3, or the sale or transfer of any interest in the ownership or management of the corporation without prior written approval from the Chevrolet Motor Division, were grounds for immediate termination by General Motors.

(i) The incapacity or death of either the decedent or the plaintiff (as the persons named in the third paragraph of the agreement) also constituted a basis for termination of the agreement by General Motors. However, in a situation where (as here) two persons were named in the third paragraph of a Dealer Selling Agreement and one of them died, it was the customary practice of General Motors to renew the agreement for the unexpired portion of its term and name the survivor in the third paragraph of the renewal agreement, if the survivor met the capital requirements of General Motors.

(j) Further grounds for terminating the agreement by General Motors included a dispute, disagreement, or controversy between the managers or stockholders of the corporation which might adversely affect the operation or management of the business.

13. The corporation employed approximately eight or nine employees at the time of the decedent’s death, including three mechanics, who were busy most of the time.

14. The plaintiff was vice-president of and a salesman for the corporation prior to the decedent’s death. The decedent, as president of the corporation, ran the business until his death. The plaintiff planned to continue the business as chief executive officer of the corporation after his father’s death. The plaintiff did not have any plan or intention to invite another operator into the business, either as a partner or to take over the business.

15. Before any person could validly purchase an interest representing more than 25 percent of the stock in a General Motors dealership, it was necessary for such person to obtain from General Motors Corporation a listing under the third paragraph of the Dealer Selling Agreement covering the particular dealership. If a person purchased such an interest in a dealership without obtaining the required listing under the third paragraph of the Dealer Selling Agreement, the franchise would be terminated.

16. (a) The business address of the corporation, from the time of its establishment up to and at the time of the death of the decedent, was 968 Mechanic Street, Grafton, Ohio. At the time of the decedent’s death, the land and building at that address were not owned by the corporation, but by a trust which had been established by the decedent during his lifetime for the benefit of the plaintiff’s children. The premises were leased to the corporation by the trust.

(b) The location referred to in paragraph (a) of tibia finding was on a side street and a block off the main street in Grafton. It was near a railroad track and adjacent to a grain elevator and a flour mill in a deteriorated residential area. The yard was muddy in wet weather. The corporation’s place of business was not visible from Grafton’s main street, and tihere was no substantial motor traffic along the side street on which such place of business was located. The used and new cars outside the building had to be washed daily because of the dust from the adjoining mill.

(c) Prior to the death of the decedent, the Chevrolet Motor Division of General Motors Corporation had expressed to the decedent its dissatisfaction with the location of the corporation’s place of business and had suggested to the decedent that he relocate the business. This dissatisfaction was also expressed by the Chevrolet Motor Division to the plaintiff following the decedent’s death. Despite pressure from the Chevrolet Motor Division, however, a move was not made by the corporation until 1965, when the building on Mechanic Street was damaged by a tornado. The corporation’s place of business is now located at a new address, 480 North Main Street, Grafton, Ohio. The ownership of the land and building at that address was not acquired by the corporation, but such realty is owned by the plaintiff and his wife, Jeanne Rothgery, who lease the premises to the corporation.

17. (a) The decedent had a fine reputation as an automobile dealer, and he also had an excellent reputation for fair dealing, honesty, and integrity. At the time of his death, and for many years prior thereto, the decedent was president of the Grafton Savings and Banking Company, as well as president of the corporation that is involved in the present litigation. He was known as a capable businessman and as an outstanding leader in the community where he lived; and he was responsible for bringing business to the corporation. Every transaction in Which the corporation was involved went through the decedent’s hands.

(b) The plaintiff, who succeeded the decedent as the head of the corporation and who, after the decedent’s death, was the only person named in the agreement with the Chevrolet Motor Division, lacks the business acumen and the community standing that characterized the decedent, although the plaintiff is known as a man of honesty and integrity. Under the plaintiff’s leadership, the corporation has been unable to regain the prestige and the volume of business which it had achieved under the decedent’s management.

18.(a) Prior to and at the time of the decedent’s death, the officers of the corporation were as follows:

President_ Bernard A. Rothgery

Vice-President _ Hal J. Rothgery

Treasurer_ Jeanne Rothgery

Secretary_ Ray Trenchard

(b) Hal J. Rothgery is the son of the decedent and, as the executor of the decedent’s estate, is the plaintiff in the present action.

(c) Jeanne Rothgery is the wife of the plaintiff and the daughter-in-law of the decedent.

(d) Ray Trenchard was and still is an employee of the corporation.

19. For each year during the period beginning in 1957 and ending with 1961, the decedent and the plaintiff each received an annual salary of $10,000 from the corporation. They were provided expense accounts and the use of automobiles by the corporation. The Rothgery family derived a good living from the corporation.

20. Prior to the decedent’s death, the directors of the corporation were the decedent, the plaintiff, and Jeanne Rothgery. The two members of the board remaining after the decedent’s death (i.e., the plaintiff and his wife, Jeanne Rothgery) had the right to select a successor director and to elect a new president of the corporation, pending the next annual meeting of the corporation’s stockholders.

21. (a) At the time of the decedent’s death, there were no buy-sell agreements or restrictive contracts regarding the sale of stock in the corporation.

(b) The corporation did not maintain any key-man insurance.

(c) From the date of the incorporation of the corporation in 1948 through the date of the death of the decedent, there were no sales of the corporation stock.

22. As evidenced by its financial statements, the corporation had capital surplus in the following amounts for the years indicated:

1957 _ $85,600.74

1958 _ 90,761.21

1959 _ 91,202. 89

1960 _ 84,876.89

1961_ 83,612. 90

April 1962_ 85, 816. 67

23.(a) Based upon the financial statements of the corporation for the respective years indicated in the following table, the book value per share of stock in the corporation was as follows:

1957 _ $683. 04

1958 _ 644.81

1959 _ 659. 90

1960 _ 614. 57

1961_ 621. 62

April 1962. 631. 83

(b) The book value did not take into account the fair market value of the securities owned by the corporation.

24.(a) The earnings of the corporation for the 5 years preceding the decedent’s death and for 1962, the year of his death, were as follows:

(b) The average annual earnings per share (250 shares outstanding) during the 4-year period immediately prior to the decedent’s death were approximately $5.

25.For the respective calendar years during the period beginning in 1957 and extending through 1962, the following dividends were distributed by the corporation:

26. Under tbe agreement, the corporation was required to submit annually to the Chevrolet Motor Division a dealer statement of ownership, financial interests, and active management. The statement submitted on September 30, 1961, showed the total book value of the shares of the corporation to be $154,564, or $618.26 per share.

27. As part of its administrative procedure, the Chevrolet Motor Division maintained a dealer history card for the corporation which set out (among other things) the net working capital and the net worth or book value of the corporation for the last day of the respective years 1957 through 1961. The book value did not take into account the fair market value of the securities or of the fixed assets owned by the corporation. The net working capital and the net worth or book value for the respective years indicated were as follows:

28.In the course of operating its business, the corporation maintained both monthly and annual financial statements. The financial statements were on forms prescribed by the Chevrolet Motor Division and they had to be submitted to Chevrolet both monthly and annually. Each financial statement was an accurate reflection of the books of the corporation. The balance sheet of the corporation for the month ending April 30, 1962, was as follows:

ASSETS

Current Assets:

Cash:

Petty_ $750.00

In Bank_ 43,911.67

Total Cash- $44,661.67

Receivables:

Customer Notes — Not Due_ $43,415.65

Customer Notes — Past Due_ 4,599.62

Customer Accounts — Not Due_ 13,077.53

Customer Accounts — Past Due_ 1,028.63

[Memo Car Aeet. — in Acet. 220 — $7,669.85]_

Total Receivables- $62,121.43

Inventories:

New cars (2)- $6,503.80

New car freight and handling_ 638. 75

Used cars (20 Pass, and 1 comm.)_ 10, 779.87

Parts- 5,255.43

Accessories - 1,977.90

Gas, Oil and Grease_ 323.03

Undercote [sic]- 30.00

Total Inventories_ $25,508. 78

Discounts Receivable- $1,183. 78

Due Ftom Finance Companies_ 193.48

Securities- 19,288. 00

Total Current Assets-$152,957.14

(Owned Net Working Capital $149,734.06)

Fixed Assets:

Machinery and Shop Equipment_ $4,461.95

Parts and Accessories Equipment_ 1,455.32

Furniture and Fixtures- 1,140. 98

Total Fixed Assets_ $7,058.25

Other Notes and Accounts Receivable_ $6,932.94

Total Assets___ $166,948.33

LIABILITIES

Current Liabilities:

Accounts Payable:

Accounts Beceivable Credit Balances- $1,983. 42

Accrued Liabilities:

Commissions and Salaries — Salesmen- 323.00

Income taxes — Current year- 916.66

Total Current IdaMlities_ $3,223.08

Reserves — Fixed Assets:

Depreciation of machinery and shop equipment- $3,215. 38

Depreciation Of parts and accessories equipment- 1, 440.79

Depreciation of furniture and fixtures- 1,113.53

Total Fixed Asset Reserves- $5, 769. 70

Total IdaMlities and, Reserves_ $8,892. 78

Net Worth:

Capital Stock_ $70, 000.00

Surplus- 85, 816. 67

Profit for period to date (Jan.-April)- 2,138. 88

Total Wet Worth_$157,995. 55

Total IdaMlities, Reserves and Wet Worth-$166,948.33

29. (a) The year-end balance sheets of the corporation for the 5 calendar years preceding the decedent’s death showed the following:

(b) There were no long-term liabilities in any of these years. The balance sheets indicate that the corporation maintained a favorable position of liquidity.

30. For the 5 calendar years preceding the decedent’s death, the corporation’s current ratio of current assets to current liabilities was as follows:

Year: Current Ratio

1957 _ 10/1

1958 _ 34/1

1959 _ 20/1

1960 _ 50/1

1961 _ 42/1

31.A conservative method of determining the cash asset value of a corporation is to subtract total liabilities (and reserves) from the cash on hand and the securities as they are listed on the books. As of April 30, 1962, the cash asset value per share of the stock in the corporation was $220 per share.

Valuation

32. The fair market value of an automobile dealership, particularly a General Motors dealership, is generally equal to net book value, subject to adjustment for assets not reflected on the books at current values.

33. General Motors has always made it clear that no goodwill attaches to the value of its franchises. Termination of one of its franchises has meant not only the loss of the right to receive new cars, parts, etc., under the particular agreement, but also the right to use General Motors trademarks, such as “Cadillac” or “Chevrolet,” in the name of the franchised corporation. These names and the goodwill attached thereto have been specifically reserved to the General Motors Corporation in the franchise agreements, in which no provision has been made for the payment for goodwill or going-concern value upon their termination. The franchise, or Dealer Selling Agreement, states that it is a personal service contract which is not transferable, nor is any right or obligation under the franchise transferable.

34. Earnings do not provide a reliable basis for stock valuation in the case of an automobile dealership.

35. (a) Negative goodwill, or a history of consistently declining earnings in the period preceding the valuation date, should not be given any dominant weight. The Motor Holdings Division of General Motors Corporation provides capital to qualified and experienced persons who wish to enter the automobile business, by supplying up to 75 percent of the investment necessary for a General Motors dealership, one-half of which is provided by loan and the remaining half of which is taken in the form of capital stock. In situations where poor dealers backed by Motor Holdings have experienced repeated patterns of losses, Motor Holdings has consistently bought the dealers’ interests in the dealerships at prices equal to the value of the dealerships’ assets.

(b) Furthermore, stock in an automobile dealership is not necessarily bought with an expectation of future earnings or dividends. This is because the great majority of dealerships are closely controlled, and the dealer, or operator, may realize an income through salaries for himself and members of his family, expense accounts, rents, and other factors, even though these may not be excessive.

36. (a) The last monthly financial statement for the corporation prior to the decedents’ death on May 16,1962, was prepared as of April 30, 1962. Since there is no evidence of any substantial changes between April 30 and May 16, it is appropriate to use this statement in valuing the stock as of May 16,1962. Bookkeeping for the operations of an automobile agency is not done on a daily basis, and few bookkeeping entries are recorded in the first 10 days of the month, when the bookkeeper is occupied in preparing the financial statement for the preceding month. The last few days of a month reflect the greatest activity on the books of an automobile dealership, and, accordingly, the balance sheet for the month immediately preceding a valuation or sale date provides the most accurate book figures and is commonly used on a sale.

(b) In valuing the assets of the corporation as of May 16, 1962 (see findings 37-49), amounts will be determined which could have been realized from the respective assets if the corporation had been liquidated upon the decedent’s death.

37. The value of the corporation’s cash on May 16, 1962, was $44,661, the amount that was reflected on the corporation’s April 30, 1962, balance sheet.

38. (a) In determining the value of the corporation’s notes receivable on May 16, 1962, it is necessary to begin with the figure of $48,015, which was the amount recorded on the corporation’s April 30, 1962, balance sheet. The general ledger dheet of the corporation for the period from October 1,1959, through December 31,1963, indicated a high balance of notes receivable of $89,175, and a 'low balance of $33,562. Since the difference between these figures — $55,613—had been paid during the period covered by the general ledger sheet and since the figure for notes receivable 'had been considerably higher, this indicates that $48,015 was not an unusually high figure for this automobile agency. The ledger indicated no variance in accounting which would have produced this figure, and verified that there was a steady flow of cash coming into the corporation as repayments on notes, which exceeded the amounts being loaned.

(b) The decedent was a sound businessman, with a fine reputation in the community, and he was president of the local bank. He reviewed every business transaction of the corporation, and a credit cheek was made on each customer before the sale of an automobile. Before the corporation charged off its notes receivable or accounts receivable, it made calls to the customers whose Obligations it was holding. At times, the corporation repossessed automobiles when notes were not paid. The “Customer Notes — Past Due” and “Customer Accounts — Past Due” on the monthly balance sheets represented monthly estimates by the corporation of the overdue notes and accounts, based upon a review of the notes and accounts, and were in the corporation’s judgment a fair representation of the status of its notes and accounts. Moreover, at the end of each taxable year, before the corporation charged off as bad debts its uncolleotable notes and accounts, it reviewed them and was aware of their status. The receivables on the year-end balance sheets for the corporation were the net receivables after the charge-offs. The corporation charged off the following percentages of its receivables at the ends of the respective years indicated:

1957 - 2 percent

1958 - 1 "

1959 _1 ”

1960 _S ”

1961_ 0 ”

1962 _ 4 ”

1963 _ 0 ”

1964 _ 0 ”

(c) Twelve percent of the total notes receivable and accounts receivable (see finding 39) field by the corporation on April 30,1962, were eventually charged off as bad debts after the decedent’s death.

(d) It is found that the value of the corporation’s notes receivable at the time of the decedent’s death was $36,006 ($18,015 — the amount recorded on the corporation’s April 30, 1962, balance sheet — discounted by 25 percent to cover uncollectable debts, expenses of collection, and a profit for the purchaser of the notes receivable).

39. On the basis of the reasoning set out in finding 38, it is found that the value of the corporation’s accounts receivable on May 16,1962, was $10,579 ($14,106 — the amount recorded on the corporation’s April 30,1962, balance sheet — discounted by 25 percent to cover uncollectable debts, expenses of collection, and a profit for the purchaser of the accounts receivable).

40. The value of the corporation’s new cars, including freight and handling, on May 16,1962, was $7,142, the book value recorded on the corporation’s April 30, 1962, balance sheet. Since the business was in the middle of its selling year, none of the cars was obsolete. Moreover, in the event of the termination of the dealership, either through death, sale, transfer, liquidation, or termination by the Chevrolet Motor Division, the corporation was able to recover from Chevrolet the full value of its new cars, including freight and handling, due to Chevrolet’s obligation to repurchase them at the dealer’s net cost.

41. The value of the corporation’s used cars on May 16, 1962, was $10,780, the book value recorded on the corporation’s April 30,1962, 'balance sheet. The used cars were listed on the corporate balance sheets at their National Association of Automobile Dealers wholesale cost value, which was extremely conservative, as indicated by the corporation’s history in wholesaling its cars and by its history of writing down the value of its cars on the books. The history of the corporation, shown on the financial statements for the years 1957-1962 and for the month ending April 30, 1962, evidenced consistent profits on the wholesale sale of used cars. If the value of the used cars had been overstated on the corporate books, the corporation instead would have experienced losses in those periods. The average value per unit of each used car reflected on the April 30,1962, balance sheet was $500, a figure considerably below the average unit value of used cars in Chevrolet dealerships. Even if the corporation were liquidated and had to sell its used cars, because of its small inventory it would have incurred few expenses and would most likely have realized for the used cars at least a return of book value, if not a profit.

42. The value of the corporation’s parts and accessories on May 16,1962, was $7,233, the book value recorded on the corporation’s April 30, 1962, balance sheet. In the event of the termination of the dealership, either through death, sale, transfer, liquidation, or termination by the Chevrolet Motor Division, the corporation was able to recover from Chevrolet under the Dealer Selling Agreement the then-current price of all of its parts listed in Chevrolet’s current parts book, as well as the current price for all accessories held for no longer than 1 year, plus a 5-percent handling charge and a transportation charge. Since the corporation maintained a small inventory of parts and accessories only for immediate service customers, and purchased special parts from other Chevrolet dealers when necessary, it is unlikely that it held any obsolete parts not listed in the parts book or accessories over 1 year of age. Moreover, the corporation periodically adjusted this account on its books, so that the April 30, 1962, figure appears reasonable.

43. The value of the corporation’s miscellaneous inventories, including gas, oil, grease, and undercoating material, on May 16,1962, was $353, the book value recorded on the corporation’s April 30, 1962, balance sheet.

44.(a) Tbe value of the corporation’s securities on May 16, 1962, was $23,247, or their fair market value on April 30, 1962, the date of the corporation’s last monthly financial statement preceding the decedent’s death. The securities were listed on the corporation’s books at $19,288, which was their cost, rather than at their fair market value or redemption price.

(b) The following is a list of the securities reflected in the April 30,1962, financial statement and their fair market value on that date:

United States Savings Bonds — Series J-$22,300.00

10 Shares, General Motors Corporation_ 481.87

8 Shares, United States Steel_ 465.50

$23, 247.37

(c) Future taxes are not customarily taken into account in the determination of the fair market value of securities, because the liability for taxes on income from the sale of securities or on interest from securities does not accrue on the date of sale of the securities and because the amount of taxes, if any, prior to the close of a taxpayer’s taxable year is speculative.

45. The evidence fails to prove that, at the time of the the decedent’s death, the corporation was retaining its securities or cash in order to finance its subsequent move to new quarters, or for any other business need. Although the corporation was under pressure from General Motors prior to and at the time of the decedent’s death to move to a new location, such a move was not made until 1965, when the Mechanic Street premises were damaged by a tornado. The new building and land to which the corporation moved in 1965 were not purchased by the corporation, but by the plaintiff and his wife.

46. The value of the corporation’s discounts receivable on May 16, 1962, was $1,184, the book value recorded on the corporation’s April 30,1962, balance sheet. Discounts receivable reflect 2 percent of the wholesale cost of each new car purchased by the corporation from General Motors, which amount General Motors is obligated to return to the corporation in January of the year following the year of purchase, after settlement of the parts bill. If m automobile dealership changes ownership, the discounts receivable are paid immediately by General Motors. Considering the overall number of new oars on the corporation’s balance sheet, the figure on the April 30, 1962, balance sheet appears reasonable.

47. The value of the corporation’s asset account entitled “due from finance companies” on May 16,1962, was $193, the book value recorded on the corporation’s April 30,1962, balance sheet. This amount reflects the commissions due to the corporation from finance companies, upon certain conditions, for referral of business. Such amounts are normally paid to automobile dealerships at the beginning of each month, which in this case would have been May 1962, since the amount was first reflected on the books in April 1962.

4$. The value of the corporation’s fixed assets on May 16, 1962, was $800. Although the depreciated value reflected on the corporation’s April 30, 1962, balance sheet was $1,289, the evidence in the record shows that the equipment, furniture, and fixtures comprising the corporation’s fixed assets at the time were old and in poor condition. Most of them were abandoned as worthless when the corporation moved from its former location on Mechanic Street to the new location on Main Street in 1965.

49. The value of the corporation’s other notes and accounts receivable on May 16, 1962, was $6,933, or the book value reflected on the corporation’s April 30, 1962, balance sheet. This account reflecte loans made to the corporation’s officers. The corporation’s ledger sheets show that loans to Mr. Trenchard, an officer, had been repaid on time. The two remaining officers, the plaintiff and the decedent, had substantial reputations and good credit ratings.

50. (a) The amount of the liabilities reflected on the corporation’s April 30, 1962, balance sheet, or $3,223, appears to be reasonable and was the correct amount of the corporation’s liabilities on May 16,1962.

(b) The value of an automobile dealership is closely related — and generally corresponds — to the value of its underlying assets. Therefore, in determining the total value of the corporation’s capital stock on May 16,1962, the total liabilities should be subtracted from the value of its underlying assets.

51. (a) Findings 37-50 as to the value of the corporation’s assets on May 16,1962, may be summarized as follows:

Cash_ $44) 661

Customers Notes Receivable- 36, 006

Accounts Receivable- 10, 579

New Cars_ 7,142

Used Cars- 10,780

Parts and Accessories Inventory- 7,233

Miscellaneous Inventories- 353

•Securities- 23,247

Discounts Receivable- 1,184

Due Prom Finance Companies- 193

Fixed Assets- 800

Other Notes and Accounts Receivable- 6,933

Sub-Total_$149, 111

Less Liabilities_ 3, 223

Value of Capital Stock_$145, 878

(b) Fifty percent of the total value of the assets of the corporation on May 16,1962, was $72,939.

(c) "When the total value of the corporation’s assets, $145,878, is divided by the number of shares, 250, the result is a figure of $583.51 per share on May 16, 1962.

Marketability

52. (a) There would have been a market for the decedent’s 50 percent stock interest in the corporation after his death on May 16,1962, if the decedent’s 125 Shares had been available for sale by the decedent’s estate as a willing seller, instead of being bequeathed to the plaintiff by the decedent’s will.

(b) The most obvious market for this interest would have been the decedent’s son, the plaintiff in this case, who, with his wife, owned the remaining 50 percent of the stock. He was listed under paragraph 3 of the Dealer Selling Agreement, along with the decedent, and he was a salesman for the corporation at the time of the decedent’s death. He planned to continue the business of the corporation after his father’s death, and he believed that he had a right to carry on the business. Moreover, at the decedent’s death, the plaintiff would have been reluctant to sell the estate’s 50 percent stock interest to an outside purchaser, as he did not plan to take on another partner or operator because he did not want to exclude his son, the decedent’s grandson, from the corporation’s operations. The plaintiff could have effectively realized a return on an investment of $72,939 made in the decedent’s stock by ensuring a place in the business for his son, or he could have recouped his investment by liquidating the business, as he would have been empowered to do.

53. (a) Even if the plaintiff were excluded as a purchaser, there were other potential buyers for the decedent’s stock upon his death if such stock had been made available for sale to outsiders by the decedent’s estate as a willing seller.

(b) An important factor is that if the decedent’s estate had been willing to sell the decedent’s stock interest in the corporation to a purchaser outside the Kothgery family, General Motors Corporation would have found a market for the stock at $583.51 a share, based on the value of the corporation’s underlying assets. The estate had only to submit to General Motors what is termed in the business a “Letter of Intent” notifying General Motors that it was willing to sell its 50 percent interest. Upon receipt of this notification, General Motors would have located a purchaser for the stock at a price based on the value of the corporation’s assets.

(c) The fact that the decedent’s stock held by the estate was only a 50 percent interest in the corporation did not impair the market for or lessen the value of the stock. The value of the underlying assets is the price basis customarily used in sales of both majority and minority interests in General Motors automobile dealerships. This is because General Motors must approve all sales of stock in its automobile dealerships prior to their consummation, and it requires any person purchasing 25 percent or more of the stock in a dealership to be listed under paragraph 3 of the Dealer Selling Agreement. If such a person is subsequently dissatisfied with the operation of the business, he may ask General Motors to terminate the franchise on the ground of a dispute between the owners adversely affecting the operation of the business, and in this way he can cause the liquidation of the business and recoup the value of his stock from the disposition of the dealership’s underlying assets. Thus, a purchaser from the decedent’s estate, 'as a willing seller, of the decedent’s 50 percent interest in the corporation would have been covered by paragraph 3 of the Dealer Selling Agreement and would 'have been in a position to insist upon a satisfactory arrangement with respect to participating in the operation of the dealership, salary, and other benefits, as a condition of the continuation of the franchise.

(d) Since a purchaser from the decedent’s estate, as a willing seller, of the decedent’s 50 percent interest in the corporation would necessarily be someone of whom General Motors Corporation approved, the purchaser could obtain financial assistance (if needed) from the Motor Holdings Division of General Motors Corporation in connection with the purchase price of the stock.

54. (a) A buyer from the decedent’s estate, as a willing seller, of the 50 percent stock interest held by the decendent’s estate would have paid $583.51 per share, irrespective of whether he was an officer or director of the corporation. In contrast with other businesses, the possibility of being an officer or director in a General Motors automobile dealership has no effect upon and does not increase the value of corporate stock. This is because the persons who have control over the operations of a dealership are the persons listed under paragraph 3 of the Dealer Selling Agreement, or franchise, as participating in such operations, and not the officers and directors. As previously indicated, a purchaser from the decedent’s estate, as a willing seller, would have been listed under the third paragraph of the agreement and could have insisted effectively on participating in the operations of the dealership.

(b) By the same token, in the event that he became dissatisfied with the operations of the corporation and wished to dissolve it, the purchaser of a 50 percent stock interest in the corporation could accomplish the corporation’s liquidation by representing to the Chevrolet Motor Division that there was a dispute between the stockholders which might adversely affect the operation of the business. Under the Dealer Selling Agreement, Chevrolet would promptly terminate the agreement if the difficulty could not be resolved, and this would precipitate the liquidation of the business.

Ultimate Finding

55. (a) The fair market value of the decedent’s 50 percent stock interest in the corporation on May 16,1962, was $72,939, or $583.51 per share. Therefore, the figure of $72,750, or $582 per share, which the Internal Revenue Service ultimately used as the value of the decedent’s 125 shares of stock in the corporation was not excessive.

(b) The 1966 estate tax deficiency assessed by the Internal Kevenue Service against the decedent’s estate was not improper.

CONCLUSION OE 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, (1) that the plaintiff is ¡not entitled to recover on its claim that the Commissioner of Internal Revenue erroneously valued the decedent’s stock in Rothgery Motors, Inc., and (2) that the plaintiff is entitled to recover 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 recovery will be determined in accordance with Rule 131 (c). 
      
       The parties have stipulated that plaintiff is entitled to recover 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.
     
      
       The opinion of the plaintiff’s witness on the valuation of the corporation’s assets to the effect that the notes receivable and accounts receivable should be discounted by 50 percent because of uncollectable debts was obviously incorrect. Conversely, the opinion of the defendant’s witness on the valuation of the corporation’s assets to the effect that a purchaser of the notes receivable and accounts receivable could have realized from them 100 percent of their book value was also incorrect.
     
      
       The plaintiff’s witness on the valuation of the corporation’s assets expressed the opinion that the value of the used cars was only $7,500, but no persuasive explanation of such valuation was given.
     