11 T.C. 525">*525 The respondent determined a deficiency in estate tax in the amount of $ 1,538.69, to which he added a 25 per cent penalty in the amount of $ 3,367.55 under the provisions of section 3612 (d) (1) of the Internal Revenue Code. The respondent disallowed deduction of $ 10,802.40 which was taken on the return as executors' commissions. The pleadings raise the issue whether the respondent erred in disallowing deduction of the above sum; but the dispute between the parties relates to the particular question of whether the amount of the commissions which is claimed is within the amount allowed by the laws of the State of New York, where the estate is being administered. Regulations 105, sec. 81.33.

There is still pending in the Kings County, New York, Surrogate's Court, certain proceedings relating to the accounting of the executors, and the executors' commissions have not been paid in full. While that fact, alone, does not preclude, ordinarily, the allowance of deduction of some amount for executors' commissions on the basis of an estimate of the amount of the payment which may1948 U.S. Tax Ct. LEXIS 68">*70 reasonably be expected (Regulations 105, sec. 81.33), doubt about the basis of the computation of commissions under section 285 of the New York Surrogate's Court Act does, in this proceeding, stand in the way of agreement of the parties as to a reasonable estimate of the amount of the payment which may be expected for the purpose of the final determination of the estate tax.

When this proceeding was first before us, the question of the allowable deduction for commissions of the executors was left for stipulation by the parties, and the trial and the considerations of this Court 11 T.C. 525">*526 were limited to a second question presented by the pleadings. See Estate of Abraham Werbelovsky, 9 T.C. 689. Upon failure of the parties to arrive at an agreed allowance for the commissions, there was further trial, further evidence was adduced, and supplemental briefs were filed.

The question to be decided is whether a bequest of the decedent to a daughter was a specific bequest, as respondent contends, or a general bequest, as petitioners contend. If the disputed bequest was specific, the value of the property involved may not be considered in the computation of1948 U.S. Tax Ct. LEXIS 68">*71 the commissions by the surrogate, and the amount of the deduction from the gross estate for commissions, for purposes of the Federal estate tax, will be less as a consequence.

Supplemental findings of fact are now made from the additional evidence. As a matter of convenience, certain facts originally found are restated in the supplemental findings of fact.

SUPPLEMENTAL FINDINGS OF FACT.

Abraham Werbelovsky died testate on February 17, 1940, a resident of Kings County, City and State of New York. Letters testamentary were granted on March 23, 1940, by the Surrogate's Court, Kings County, New York, to Samuel and Rose Small and Everett Stein, named in the decedent's will as executors. Petitioners are the duly qualified and acting executors of the estate. Rose Small is the daughter of the decedent; Samuel Small is the husband of Rose Small; and Everett Stein is the fourth cousin of the decedent.

In his will, dated October 19, 1936, the decedent, after directing that his just debts and funeral and testamentary expenses be paid, transferred all the rest, residue, and remainder of his estate, both real and personal, to his executors in trust, to collect the income therefrom for and during1948 U.S. Tax Ct. LEXIS 68">*72 the lifetime of his wife, Sarah Werbelovsky, and to pay the net income to his wife and two daughters, Rose Small and Miriam Goldberger, in equal shares. Upon the death of the decedent's wife, or in the event that she should not survive him, then the residuary estate is to be divided into two parts of equal value, of which the decedent gave one equal part absolutely to each of his two children, Rose Small and Miriam Goldberger, "if living at the respective date of vesting (my own death or my wife's, whichever shall later occur)." The will also provided for the disposition of the property in the event of the death of either or both children and contained other provisions which are not material.

By a codicil dated November 10, 1937, petitioner named Rose Small, Samuel Small, and Everett Stein as executors and trustees under his will. The codicil also included, inter alia, the following provisions:

11 T.C. 525">*527 First: Upon the death of my wife, Sarah Werbelovsky, and before the division of the principal of my estate into two parts of equal value, as in paragraph "Second" of my said Will dated October 19, 1936 provided, or if my wife, Sarah Werbelovsky, does not survive me and before1948 U.S. Tax Ct. LEXIS 68">*73 the division of my entire residuary estate into two parts of equal value, as in paragraph "Third" of my said Will provided, I give and bequeath unto my daughter, Rose Small, the shares of capital stock that I have in Interboro Theatres, Inc., Popular Theatres, Inc., or any shares of stock or securities that I may receive from any successor corporation or corporations to either of said two named corporations, for my stock holdings in either Popular Theatres, Inc., or Interboro Theatres, Inc., or any sums of money that I may receive for my stock holdings in Popular Theatres, Inc. or Interboro Theatres, Inc. or for my stock holdings or investment in any successor corporation or corporations to either said Popular Theatres, Inc., or Interboro Theatres, Inc.

* * * *

Third: Whereas a certain action has been commenced by me as a stockholder of Popular Theatres, Inc. and Interboro Theatres, Inc., I direct that the Executors of my said Will and Trustees of the trusts in my said Will created shall retain my investments in said Popular Theatres, Inc., and Interboro Theatres, Inc. in their (the investments) present form until the termination and conclusion of said law-suit, either by judgment, 1948 U.S. Tax Ct. LEXIS 68">*74 compromise and/or settlement, unless my daughter, Rose Small, and my son-in-law, Samuel Small, or but one of them, if but one is then acting as Executor and/or Trustee, should decide otherwise, and my said Executors and/or Trustees may thereafter retain my said investments in Popular Theatres, Inc. and Interboro Theatres, Inc., unless my daughter, Rose Small, and my son-in-law, Samuel Small, or but one of them, if one is then acting as Executor and/or Trustee, should decide otherwise.

Decedent's wife, Sarah Werbelovsky, and his daughters, Rose Small and Miriam Goldberger, survived him.

At the time of his death on February 17, 1940, the decedent owned 35 shares of common and 700 shares of preferred stock of Interboro Theatres, Inc., and 40 shares of common and 700 shares of preferred stock of Popular Theatres, Inc. In the estate tax return, the executors reported the value of all this stock to be $ 49,906.46.

Prior to his death, decedent, in 1937, had instituted a derivative stockholders' suit on behalf of himself and other minority stockholders against Interboro Theatres, Inc., and Popular Theatres, Inc. This suit, which had been brought to determine whether profits of the corporations1948 U.S. Tax Ct. LEXIS 68">*75 were being made available to stockholders through dividends, was still pending at the time of decedent's death. Early in 1941 the New York County Supreme Court dismissed the suit; and, although notice of appeal was filed, the litigation was settled in June 1941. The majority stockholders agreed to purchase the stock of the dissatisfied stockholders, and under the settlement decedent's estate received $ 49,906.46 for the stock of decedent in the two theatre corporations.

In the estate tax return the executors claimed deductions for executors' commissions in the amount of $ 10,802.40. Respondent disallowed 11 T.C. 525">*528 the deduction pending the final determination and payment out of the funds of the estate. Proceedings are still pending in the Surrogate's Court of Kings County to settle the account of the executors. Claim for executors' commissions was made in the accounting of the executors, and each executor will take all the commissions authorized under the laws of the State of New York. The commissions have not yet been allowed by the surrogate, nor paid out of the funds of the estate.

SUPPLEMENTAL OPINION.

The petitioners do not dispute the validity of section 81.33 of Regulations1948 U.S. Tax Ct. LEXIS 68">*76 105, which relates to executors' commissions deductible under section 812 (b) of the Internal Revenue Code. The pertinent part of section 81.33 is set forth in the margin. ¹

1948 U.S. Tax Ct. LEXIS 68">*77 The parties are further agreed that under section 285 of the New York Surrogate's Court Act, Clevenger's Practice Manual, 1941, the executors are entitled to receive commissions based in large measure on the value of the decedent's estate. However, it is also acknowledged that, under section 285 of the Surrogate's Court Act, the value of any "specific legacy or devise" must be excluded from the value of the estate for purposes of computing the executors' commissions.

There has been set forth in the findings of fact the first paragraph of a codicil to the will of the decedent, which he executed on November 10, 1937. It is unnecessary to restate the pertinent provision in full. However, the testator explicitly provided therein for a bequest to Rose Small of:

* * * the shares of capital stock that I have in Interboro Theatres, Inc., Popular Theatres, Inc., or any shares of stock or securities that I may receive from any successor corporation or corporations to either of said two named corporations, for my stock holdings in either Popular Theatres, Inc. or Interboro Theatres, Inc., or any sums of money that I may receive for my stock holdings in Popular Theatres, Inc. or Interboro 1948 U.S. Tax Ct. LEXIS 68">*78 Theatres, Inc. or for my stock holdings or investment in any successor corporation or corporations to either said Popular Theatres, Inc. or Interboro Theatres, Inc.

The executors or trustees were directed to distribute the above stated bequest before the division of the remainder of the residuary estate for final distribution to named legatees upon the death of the wife of the decedent.

11 T.C. 525">*529 Respondent contends that the above bequest was a specific legacy, and petitioners contend that it was a general bequest.

We hold that the gift of the stock of the two theatre corporations was clearly a specific legacy.

The term "specific legacy," in so far as it relates to executors' commissions under section 285 of the Surrogate's Court Act, is used in its ordinary legal sense. See In re Anable's Will, 249 N. Y. S. 462, 465. As a general proposition, a specific legacy is "a bequest of a specified part of the testator's personal estate distinguished from all others of the same kind." Crawford v. McCarthy, 159 N.Y. 514, 518; 54 N.E. 277, 278. See also In re Kingsley's Will, 67 N. Y. S. (2d) 464, 468;1948 U.S. Tax Ct. LEXIS 68">*79 and In re Anable's Will, supra.

The test is whether it was the intention of the testator to make a specific bequest, and this is "to be derived from the language used in the bequest, construed in the light thrown upon it by all the other provisions of the will." Davis v. Crandall, 101 N.Y. 311, 319; 4 N.E. 721, 722. See also In re Security Trust Co. of Rochester, 221 N.Y. 213, 219; 116 N.E. 1006, 1007, and cases cited therein; In re Kingsley's Will, supra.

There can be no doubt as to the intention of the testator to make a specific bequest of his stock in Interboro Theatres, Inc., and Popular Theatres, Inc. It is significant that the testator referred to the stock of these corporations "that I have," or "that I may receive from any successor corporation or corporations," or any money "that I may receive from my stock holdings" in such corporations. In re Anslinger's Estate, 57 N. Y. S. (2d) 466, 469; In re Franklin Trust Co., 160 N. Y. S. 221, 222;1948 U.S. Tax Ct. LEXIS 68">*80 In re Anable's Will, supra. The intention to make a specific bequest is further evidenced in the third paragraph of the codicil, which is set out in full in the findings of fact. In that provision it is directed that disposition of the stock of the theatre corporations by the executors or trustees is to be controlled by the decision of "Rose Small, and my son-in-law, Samuel Small, or but one of them, if but one is then acting as executor and/or trustee." Thus, the stock of the theatre corporations is distinguished from that of other assets in decedent's possession, and Rose Small or her husband was accorded a substantial amount of control over the gift which she was ultimately to receive. Cf. In re Wing's Estate, 55 N. Y. S. (2d) 621, 623.

Moreover, it should be noted that the stock in question was apparently not dealt in by the general public on public exchanges. Where there are gifts of such closely held stock, the general rule prevails that, absent an indication of a contrary intent, the gifts are specific legacies. In re Kingsley's Will, supra, and cases cited therein.

The inclusion1948 U.S. Tax Ct. LEXIS 68">*81 of the gift in the residuary clause and the devolution of the stock to Rose Small only after the termination of the trust upon the death of decedent's wife clearly do not preclude the gift from constituting 11 T.C. 525">*530 a specific legacy. In re Miller's Will, 70 N. Y. S. (2d) 472, 475; In re Smith's Estate, 7 N. Y. S. (2d) 302, 304. See also In re Dunigan's Estate, 30 N. Y. S. (2d) 38, 41; Smith v. Smith, 135 S.E. 855. Furthermore, the fact that the executors may have executorial functions to perform in connection with the specific legacy does not provide a basis for the payment of executors' commissions measured by such legacy. In re Wing's Estate, supra;In re Anable's Will, supra.

Upon the authorities cited above, respondent's contention under this issue is sustained. In the recomputation of the estate tax liability under Rule 50, the value of the stock of the theatre corporations in the amount of $ 49,906.46 shall be excluded from the value of the assets of the estate in computing the amount of1948 U.S. Tax Ct. LEXIS 68">*82 the commissions, payment of which the executors may expect to receive.

Decision will be entered under Rule 50.