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Estate of David J. Levenson v. Commissioner of Internal Revenue

decided: September 28, 1960.

ESTATE OF DAVID J. LEVENSON, DECEASED, ROBERT L. LEVENSON, DONALD W. LEVENSON, EDGAR LEO LEVENSON AND FIDELITY TRUST COMPANY, EXECUTORS, PETITIONERS-APPELLANTS
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.



Author: Forman

Before BIGGS, Chief Judge, and HASTIE and FORMAN, Circuit Judges.

FORMAN, Circuit Judge.

This case involves a petition filed by the executors of the Estate of David J. Levenson, Deceased, to review the decision of the Tax Court of the United States placing for estate tax purposes a valuation of $900 per share upon the 155 shares of stock in Retail Furniture Stores, Inc., owned by David J. Levenson on the date of his death, April 2, 1953. Jurisdiction is conferred on this court by Section 7482 of the Internal Revenue Code of 1954.

Retail Furniture Stores, Inc., hereinafter referred to as Retail, is a West Virginia corporation organized in 1936 and has its business office in Wheeling, West Virginia.Its only activity is the holding of stock in Reichart Furniture Company, hereinafter referred to as Reichart (W. Va.).

The capital stock of Retail consisted of 2400 authorized and outstanding shares with a par value of $25 at the decedent's death. It has not been listed or traded on any stock exchange and there were no sales of this stock on the day the decedent died, since then, or for five years prior thereto.

At the time of the decedent's death he was president of Retail; his son, Robert, was vice-president; and his son, Donald, was treasurer.

The decedent's wife and three sons owned, in the aggregate, 1475 shares of Retail on April 2, 1953. In addition relatives of decedent's wife owned 406 shares on that day. The remaining 364 shares, exclusive of those owned by the decedent, were owned by the daughter of a friend of the decedent.

On April 2, 1953, Retail owned 600 shares of the capital stock of Reichart (W. Va.), which was a West Virginia corporation organized by the decedent about 1920 and engaged in the retail installment sale of furniture and household appliances through stores located at Wheeling, West Virginia, and Washington, Pennsylvania. Its authorized capital stock on April 2, 1953, consisted of 1500 shares with a par value of $100 per share, of which 800 were outstanding and 200 were held in the treasury. The 200 shares outstanding which were not owned by Retail were divided equally among parties not related to the decedent. The decedent was not an officer of Reichart (W. Va.), but his sons, Robert, Edgar and Donald, were president, vice-president and treasurer, respectively.

On April 2, 1953, Reichart (W. Va.) owned all of the authorized capital stock of Reichart's, Inc., which consisted of 250 shares with a par value of $100 per share; all of the authorized capital stock of the Bertschy Furniture Company, which consisted of 500 shares with a par value of $50 per share; and 60 per cent of the shares of Reichart Furniture Company, hereinafter called Reichart (Ohio), which had an authorized capital stock of 500 shares, with a par value of $100 per share, only 350 of which were outstanding. Reichart (W. Va.) owned 210 shares and a relative of the decedent's wife owned 140 shares. The last three companies referred to were engaged in the retail installment sale of furniture, with Reichart's, Inc. located at Martins Ferry, Ohio, Bertschy at Wheeling, West Virginia and Reichart (Ohio) at Youngstown, Ohio.

The decedent had been engaged in the retail furniture business for many years prior to his death. He was well known in the industry and his advice was widely sought. Prior to his becoming ill in January 1953, he had been active in the operation and supervision of the business. The decedent, his sons and the branch managers of the various stores attended the furniture markets where merchandise was purchased by the decedent's sons and the branch managers after they had consulted and discussed the matter with the decedent.

The business employed about 300 people at the time of the decedent's death. Each retail store had a branch manager and their salaries ranged from $6,000 to $15,000 per year. The decedent's sons who each owned 240 shares of Retail were actively engaged in the business at the time of the decedent's death and they each held offices in the various companies involved here.

As part of its findings of fact the Tax Court set out the balance sheet of Retail as of April 2, 1953. It showed that Retail's principal assets consisted of $18,289.41 in cash, notes valued at $79,675.85 and the stock of Reichart (W. Va.) valued at $100,000, its cost when acquired in 1936. It had earned surplus, paid in surplus, and capital surplus totaling $138,399 and capital stock valued at $60,000.

Also included in the Tax Court's findings of fact were the balance sheets on December 31, 1952 of Reichart (W. Va.), Bertschy, Reichart's, Inc., and Reichart (Ohio). From these balance sheets the Tax Court made a chart covering the four companies and showing (1) their working capital, i.e., current assets in excess of current liabilities; (2) ratios of current assets to current liabilities; (3) excess of working capital over operating expenses for 1952; (4) total net worth and net worth per share; (5) in relation to Reichart (W. Va.) its net worth exclusive of its investment in the three subsidiaries included here, and (6) the latter company's rate of return on total assets.

The Tax Court also charted the earnings after taxes of Reichart (W. Va.), Bertschy and 60 per cent of the earnings after taxes of Reichart (Ohio), for the years 1943 to 1952, inclusive, and the earnings of ...


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