5 T.C. 904">*904 Petitioner seeks a redetermination of an estate tax deficiency of $ 8,028.27. The sole issue is whether the respondent erred in determining that the fair market value of 3,100 shares of class A common stock of the Hobart Manufacturing Co. was $ 155,000, or $ 50 per share, at the time of decedent's death on October 1, 1940. The case was submitted on oral testimony, documentary proof, and exhibits.

FINDINGS OF FACT.

The decedent, Caroline McCulloch Spencer, died a resident of Troy, Ohio, on October 1, 1940. The estate tax return was filed with the collector of internal revenue for the first Ohio1945 U.S. Tax Ct. LEXIS 64">*65 district. At the time of her death, decedent owned 3,100 shares of class A common stock of the Hobart Manufacturing Co. These shares were returned as having a value of $ 35 per share for Federal estate tax purposes, which was the price at which such shares sold on the Cincinnati Stock Exchange on the critical date. In his deficiency notice the respondent determined the fair market value of the shares to be $ 50.

The Hobart Manufacturing Co. (hereinafter sometimes referred to as the company) was organized in 1897. It is engaged in the manufacture and sale of a variety of electric food cutting and mixing machines for both commercial and home use. The company was recapitalized in 1934, at which time it acquired the Dayton Scale Division of the International Business Machines Corporation. The old common shares of the company were exchanged for class A shares, and class B shares were issued to International Business Machines Corporation as the purchase price of the Dayton Scale Division. Its outstanding capital stock consisted of 200,000 shares of class A and 100,000 class B shares, both without par value. The class A shares were listed only on the Cincinnati Stock Exchange. The1945 U.S. Tax Ct. LEXIS 64">*66 class B shares are not listed on any stock exchange. There are between 1,300 and 1,400 holders of A shares residing in 25 states and in some 5 T.C. 904">*905 foreign countries. The directors of the company and their families since 1934 have owned approximately 36 percent of the class A shares.

From January 1, 1935, to 1942, inclusive, the number of class A shares sold on the Cincinnati Stock Exchange and the average market price per share are shown in the following schedule:

During the period January 1, 1935, to December 31, 1942, inclusive, 73,599 of class A shares were sold over the counter, at price ranges within one-eighth to one-fourth of a point of the exchange quotation at the time of sale. During such period there were bid and asked prices on the Cincinnati Stock Exchange on practically every trading day. The average yearly range for the 5-year period including the 2 years prior and the 2 years subsequent to 1940 was $ 34.10. For the period 1935 to 1942, inclusive, 1945 U.S. Tax Ct. LEXIS 64">*67 the aggregate average annual volume of sales of class A shares to the total number of outstanding shares was 6.38 percent. On the critical date of October 1, 1940, 4 shares of class A stock were sold on the Cincinnati Stock Exchange at $ 35 per share. The next preceding sale was 15 shares on September 5, 1940, at $ 34, and the next succeeding sale was 10 shares on October 4, at $ 34 per share.

The following schedule sets forth, as of December 31, the current assets and liabilities, other assets, earned surplus and net income for the years 1937 to 1942, inclusive:

The class A per share book value, earnings, and dividends paid for the years 1935 to 1940, inclusive, are as follows:

1945 U.S. Tax Ct. LEXIS 64">*68 5 T.C. 904">*906 The Cincinnati Stock Exchange was not sufficiently active to permit the sale of 3,100 shares of class A stock of the company on any one day at the current market price, but they could have been disposed of within a reasonable time.

The fair market value of 3,100 shares of class A stock of the Hobart Manufacturing Co. on the critical date of October 1, 1940, was $ 35 per share.

OPINION.

The issue presented is the fair market value of 3,100 shares of class A capital stock of the Hobart Manufacturing Co. on October 1, 1940, for Federal estate tax purposes. The stock was reported for those purposes at a value of $ 35 per share. This value was increased by the respondent to $ 50. Since 1926 the shares of that corporation have been listed only on the Cincinnati Stock Exchange.

Petitioner relies heavily on the regulations promulgated by the Treasury as to the valuation of stocks and bonds listed on a stock exchange. ¹ Those regulations provide in substance that where stock is listed on a stock exchange, the mean between the highest and lowest selling prices on the valuation date shall be considered as the fair 5 T.C. 904">*907 market value per share. The respondent, however, stresses1945 U.S. Tax Ct. LEXIS 64">*69 another provision of the same regulations providing, in effect, that, where the selling or bid and asked prices do not reflect the fair market value, then some reasonable modification of such basis or other relevant facts and elements of value shall be considered in determining fair market value. The practical definition of fair market value that has been repeatedly applied in cases coming before the courts is that now contained in the same regulation that "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell." The respondent argues that his determination enjoys the presumption of correctness and that petitioner has failed to sustain its burden of showing the fair market value to be other than that determined by him. Petitioner counters with the argument that where the respondent refuses to accept the selling price established on a regular stock exchange, he has the burden of showing the other relevant facts and elements of value. Since the evidence adduced is sufficiently ample to enable us to determine the question of fact involved, we think it is unnecessary1945 U.S. Tax Ct. LEXIS 64">*70 to pass upon these conflicting positions.

1945 U.S. Tax Ct. LEXIS 64">*71 The parties have stipulated that we may take judicial notice of all the evidence, both oral and documentary, introduced in a proceeding before this Court in the case of the Estate of Herbert L. Johnston, Docket No. 110075. In a memorandum opinion entered June 22, 1943, we determined the value of 7,564 shares of class A stock of the Hobart Manufacturing Co. to be $ 36 per share as of January 21, 1938. We have examined the record in that case and find it helpful in some aspects of our present problem. Since our task is to determine the value of certain shares on a given date 2 years and 10 months later than the critical date involved there, the finding of fact as to the value of class A shares in that case is not decisive in the instant proceeding.

The evidence here consists of the stock market record of the class A shares, the volume of actual sales on the exchange, the over-the-counter transactions, the company balance sheets, the income statements and the dividends paid of the Hobart Manufacturing Co. for a period of several years. Expert testimony was presented to the effect that the Cincinnati Stock Exchange was a free market, that the prices at which the shares sold and1945 U.S. Tax Ct. LEXIS 64">*72 the bid and asked prices truly reflected the fair market value of the shares of the Hobart Manufacturing Co. on the respective dates. No evidence was presented showing the existence of facts and elements of value which were unknown to respective buyers and sellers. The evidence here further discloses that while the Cincinnati Stock Exchange is not an active market, the annual volume of sales of class A shares averaged 6.38 5 T.C. 904">*908 percent of the total outstanding shares and that this percentage compares favorably to 6.9 percent average of 23 comparable industrial companies whose shares are listed on the New York Stock Exchange. The volume of sales and the consistency of the market price trend over the several years indicate the sales upon the Cincinnati Stock Exchange were predicated upon fair market value of the class A shares of the Hobart Manufacturing Co. The prices at which shares of stock are actually traded on an open public market on the pertinent date have been held generally to be the best evidence of the fair market value on that date, in the absence of exceptional circumstances. John J. Newberry, 39 B.T.A. 1123">39 B.T.A. 1123; Frank J. Kier et al., Executors, 28 B.T.A. 633">28 B.T.A. 633;1945 U.S. Tax Ct. LEXIS 64">*73 Estate of Leonard B. McKitterick, 42 B.T.A. 130">42 B.T.A. 130. Giving due consideration to all the evidence disclosed by this record, we conclude that the value of the class A shares of the Hobart Manufacturing Co. on October 1, 1940, was $ 35 per share, and we so find as a fact. Petitioner is sustained on the issue of value.

Decision will be entered under Rule 50.