17 T.C. 92">*93 The Commissioner has determined a deficiency of $ 59,634.08 in estate1951 U.S. Tax Ct. LEXIS 114">*116 tax. The two adjustments in controversy were explained in the deficiency notice as follows:

Item 5 -- All relevant factors having a bearing upon the value of the Graybar Electric Company stock owned by the decedent at the time of his death, having been considered, the stock is included in the decedent's gross estate at $ 60.00 a share.

* * * *

Item 10 -- The $ 40,000.00 paid the decedent's widow as a regular death benefit by the Graybar Electric Company is included in the decedent's gross estate pursuant to the pertinent sections of the Internal Revenue Code and the Regulations pertaining thereto, relating to the imposition of a Federal estate tax.

By appropriate assignments of error petitioners contest these adjustments. Other adjustments of a minor nature are not contested.

FINDINGS OF FACT.

All of the facts have been stipulated and we adopt them 1951 U.S. Tax Ct. LEXIS 114">*117 as our findings of fact. They may be summarized as follows:

Lloyd Bergen Salt and Mary Bergen Salt are the presently qualified and acting executors of the estate of Albert L. Salt.

On December 16, 1946, the Federal estate tax return of the estate was filed with the collector of internal revenue at Augusta, Maine, and the tax of $ 37,716.66 shown to be due thereon was paid.

Issue 1. Value of Stock of Graybar Electric Company.

Decedent Albert L. Salt died on September 29, 1945, a resident of Sullivan, Hancock County, Maine. At the time of his death decedent was a retired president of Graybar Electric Company, Inc. (hereinafter referred to as Graybar) and was receiving a service pension from that company as a "Class A" pensioner under its "Plan for Employees' Pensions, Disability Benefits and Death Benefits." Decedent had been employed by Graybar since its incorporation on December 17 T.C. 92">*94 11, 1925, having been its president since that date until December 31, 1928, when he retired as president. He was a member of the board of directors of Graybar from December 21, 1925, until November 10, 1930, having served as chairman of the board from December 31, 1928, until his retirement1951 U.S. Tax Ct. LEXIS 114">*118 on November 10, 1930. Prior to his employment by Graybar decedent had been employed by Western Electric Company, Inc., for over 20 years.

Graybar was incorporated under the laws of the State of New York on December 11, 1925, to take over the wholesale supply department of Western Electric Company, Inc., and has since that date continued to be and is now engaged in the distribution of electrical apparatus and supplies throughout the United States. The principal executive offices of the company are located in New York City. In 1928 Electrical Research Products, Inc. (hereinafter referred to as Products), owned all of the common stock of Graybar. On November 3, 1928, Graybar Management Corporation (hereinafter referred to as Management) was formed to acquire all of the stock of Graybar from Products and the employees of Graybar were given an opportunity to purchase stock of Management represented by voting trust certificates.

All of the voting stock of Management was at all times held under a voting trust agreement dated November 5, 1928, or under a later voting trust agreement dated July 15, 1938, and all of the voting trust certificates with respect thereto were owned by employees, 1951 U.S. Tax Ct. LEXIS 114">*119 pensioners, or the estates of deceased employees or pensioners of Graybar.

On December 28, 1928, decedent purchased 800 shares of common stock of Management having a par value of $ 100 a share represented by a voting trust certificate at a total cost to him of $ 80,000 under a plan known as the "Employees' Stock Purchase Plan" dated November 1, 1928.

As of December 30, 1939, Management was consolidated with Graybar pursuant to an agreement of that date entered into by decedent and substantially all other holders of Management voting trust certificates, and by a certificate of consolidation dated December 30, 1939. The agreement of December 30, 1939, became effective in accordance with its terms on and as of December 30, 1939. Under the terms of the certificate of consolidation five shares of common stock of Graybar of the par value of $ 20 a share were exchangeable for each one share of Management stock. Decedent surrendered his voting trust certificate representing 800 shares of common stock of Management upon the consolidation of Management and Graybar to reflect the consolidation, and on January 2, 1940, received a voting trust certificate representing 4,000 shares of common1951 U.S. Tax Ct. LEXIS 114">*120 stock of the consolidated company, Graybar. This certificate of consolidation granted Graybar an option 17 T.C. 92">*95 to purchase its common stock or voting trust certificate for such stock at $ 20 per share, plus accrued dividends, if any, in the event a stockholder or the estate of a stockholder desired to, or, pursuant to the provisions of the certificate of consolidation was required to sell or otherwise dispose of such stock or voting trust certificate. By this agreement of December 30, 1939, decedent as a holder of a voting trust certificate of Management agreed to the consolidation of Management with Graybar, agreed on behalf of himself and his estate that his Graybar stock or voting trust certificate would be offered to Graybar in accordance with the option granted to the latter, and Graybar agreed with decedent to purchase or designate a purchaser of the stock or voting trust certificate covering 4,000 shares of its common stock at $ 20 per share, plus accrued dividends, if any, when such stock was offered by decedent or the estate of decedent in accordance with the option granted to Graybar. By this agreement of December 30, 1939, decedent agreed to hold his common stock of1951 U.S. Tax Ct. LEXIS 114">*121 Graybar or any voting trust certificate for such stock subject to the terms and conditions set forth in the certificate of consolidation. The certificate of consolidation of Management with Graybar into Graybar Electric Company, Inc., executed December 30, 1939, by the holders of record of all outstanding shares of Management stock recited the prior existence of the component corporations with the amount of their outstanding stock. It further provided in substance as follows:

(a) The capitalization of the consolidated corporation was to consist of 15,000 shares of preferred, $ 100 par value, and 300,000 shares of common, $ 20 par value.

(b) Provision was made for payment of dividends on the preferred stock.

(c) No holder of common stock should sell or dispose of any shares to any party other than the corporation without first offering to sell said shares to the corporation at the price for which they were issued (or if changed or reclassified, then at the price as so changed or reclassified), and the consolidated corporation was given a 30-day option to purchase said stock at said price.

(d) The corporation was likewise given an option in the event of the death of a common stockholder1951 U.S. Tax Ct. LEXIS 114">*122 to purchase the same from his estate at the above price any time from and after the expiration of one year from date of death until 30 days after such shares were offered for sale. If the stock, in case of death, was offered for sale within the year, the option was to terminate unless within 30 days from the date of offer the corporation purchased the stock at said price.

(e) The corporation also had an option to purchase the common stock without an offer, by giving a notice, at the above price.

(f) Provision was also made with respect to the pledging of the stock subject to the above restrictions; and in the event the debt owed exceeded the price at which the corporation could purchase the stock, the corporation had the right, for 30 days after notice was given, to redeem the stock at the option price and no sale was to be made by the pledgee until such option expired.

(g) All certificates of common stock and voting trust certificates were to contain the above provisions.

17 T.C. 92">*96 (h) The preferred stock was to remain unchanged; but the common stock of Graybar Management Corporation was to be cancelled and converted into five shares of common of the consolidated corporation, and1951 U.S. Tax Ct. LEXIS 114">*123 no dividends were to be paid on the old common stock until surrendered and exchanged for new shares.

(i) The consolidated corporation reserved the right to amend, change, or repeal any of the above provisions.

Pursuant to the provisions of the certificate of consolidation and of the agreement of December 30, 1939, Graybar acquired from petitioners as the executors of decedent's estate the voting trust certificate for the 4,000 shares of its common stock owned by decedent for $ 20 per share on September 30, 1946.

In every instance since December 30, 1939, where an employee or pensioner has died owning a voting trust certificate for shares of stock of Graybar, such voting trust certificate has been offered by the estate of said deceased employee or pensioner of Graybar and has been reacquired by Graybar pursuant to the provisions of Article IV, section B of the certificate of consolidation and pursuant to paragraph 6 of the agreement of December 30, 1939.

In the Federal estate tax return duly filed petitioners included the 4,000 shares of Graybar common stock represented by voting trust certificate No. NV-26 as part of the gross estate at a value of $ 20 per share or a total of $ 80,000, 1951 U.S. Tax Ct. LEXIS 114">*124 and reported that such stock had been sold for $ 20 per share on September 30, 1946. In this return petitioners elected to have the gross estate of decedent valued in accordance with value as of a date or dates subsequent to decedent's death.

In determining the deficiency herein, respondent determined the fair market value of the Graybar common stock represented by the voting trust certificate to be $ 60 per share or a total of $ 240,000.

The 4,000 shares of Graybar stock represented by a voting trust certificate owned by decedent at the date of his death had a value on the optional valuation date for Federal estate tax purposes of $ 20 per share, the amount received by decedent's estate upon its sale to Graybar September 30, 1946.

Issue 2. Death Benefits of Pension Plan.

A "Plan for Employees' Pensions, Disability Benefits and Death Benefits," (hereinafter called the Plan) of Graybar was in effect at the time of decedent's death. Under section 7 of the Plan, "Regular Death Benefits" provided that the committee in its discretion could authorize payments to the wife, husband, or dependent relative of a deceased pensioner in an amount which could have been paid as a sickness 1951 U.S. Tax Ct. LEXIS 114">*125 death benefit under the terms of the Plan if the pensioner had died on his last day of active service with Graybar. An amount of $ 5,000 on October 3, 1945, and an amount of $ 35,000 on November 17 T.C. 92">*97 15, 1945, making a total of $ 40,000 was paid by Graybar to decedent's widow, Mary B. Salt, as a regular death benefit under the provisions of paragraph 4 of section 7 of the Plan. This amount of $ 40,000 was not included in the gross estate of decedent in the Federal estate tax return filed by petitioners. In determining the deficiency herein, respondent included this amount of $ 40,000 paid to decedent's widow as part of decedent's gross estate.

Since the adoption of the amendment to the Plan in 1930, regular death benefits have been paid as authorized in accordance with the provisions of paragraph 4 of section 7 of the Plan in every case in which there was a qualified beneficiary.

Section 8 of the Plan provided for "Special Death Benefits" for employees or pensioners who were, at the time of death, holders of shares of stock of the company which the company reacquired pursuant to the option. The special death benefits were to be paid by the committee to a decedent's estate, 1951 U.S. Tax Ct. LEXIS 114">*126 or, at the option of the committee, to certain beneficiaries and were to be the equivalent of the cash dividend for a specified period which may be paid by Graybar on a number of shares equal to the number of shares acquired from the estate of the decedent. This provision could "be terminated, suspended or reduced in whole or in part at any time either before or after the death of any employee or pensioner whose estate or beneficiaries might receive said benefits, solely by resolution of the Board of Directors of the Company." These special death benefits as authorized by section 8 of the Plan have been paid to decedent's widow in the following amounts:

Prior to the reacquisition of the voting trust certificate by Graybar, the estate of decedent received cash dividends on this stock in the sum of $ 3,600 and the estate of decedent reported these dividends as taxable income in its 1946 fiduciary income tax return.

The widow of decedent paid no Federal income tax on any of these regular death benefit payments received by her. The widow of decedent disclosed in her Federal income tax returns the special death1951 U.S. Tax Ct. LEXIS 114">*127 benefits paid to her for information purposes only for the years above stated.

The Plan of Graybar has been approved by the Commissioner as a valid pension plan within section 165 of the Internal Revenue Code.

On its books Graybar carries a contingent reserve for death benefits in the amount of $ 100,000. However, death benefit payments are made from Graybar's operating funds and not charged against said 17 T.C. 92">*98 contingent reserve. Graybar has regularly deducted all payments of regular and special death benefits on its Federal corporate income tax returns.

In accordance with the provisions of the Plan the committee appointed to administer it publishes annually to the employees a report of the operations of the Plan.

On September 29, 1945, the date of decedent's death, the total issued and outstanding stock of Graybar consisted of approximately 290,497 shares of common stock having a par value of $ 20 per share. On this date voting trust certificates representing such shares of stock were held by approximately 1,642 voting trust certificate holders. The total number of employees of Graybar on September 29, 1945, was 2,036. On the optional valuation date elected by petitioners1951 U.S. Tax Ct. LEXIS 114">*128 in accordance with the provisions of section 811 (j) of the Internal Revenue Code, the total issued and outstanding stock of Graybar consisted of approximately 283,938 shares of common stock having a par value of $ 20 per share. On the optional valuation date voting trust certificates representing such shares of stock were held by approximately 1,680 voting trust certificate holders. The total number of employees of Graybar on the optional valuation date was 2,734. Neither on the date of decedent's death nor on the optional valuation date did any holder of voting trust certificates hold certificates representing more than approximately 5,250 shares of Graybar stock.

Petitioners will incur and pay additional administrative expense, attorneys' fees and expenses of litigation and the determination and allowance of the allowable deduction for such expenses will be made under the rules of this Court.

OPINION.

There are two questions for our decision in this proceeding: (1) Whether respondent erred in determining that the voting trust certificate representing 4,000 shares of Graybar stock which decedent held at the time of his death is includible in the gross estate at a value of $ 601951 U.S. Tax Ct. LEXIS 114">*129 per share or a total of $ 240,000; and (2) whether respondent erred in including in decedent's gross estate the amount of $ 40,000 which decedent's widow received from Graybar (decedent's former employer) as a "Regular Death Benefit."

The special death benefits aggregating $ 80,400 paid to Mrs. Salt over a period of 5 years described in our findings of fact are not in issue.

Issue 1. As to the value of the voting trust certificate representing 4,000 shares of Graybar stock which decedent held at the time of his death respondent has determined the value to be $ 60 per share or a total of $ 240,000 for inclusion in decedent's gross estate. Petitioner 17 T.C. 92">*99 reported the value of these shares in the estate tax return at $ 20 per share or $ 80,000 which was the amount received by the estate from Graybar on September 30, 1946, when Graybar exercised its option to purchase at $ 20 per share. Not only was the estate required to offer the stock to Graybar after decedent's death for $ 20 per share but also, if during decedent's lifetime he had desired to dispose of the stock, he was required to offer it to Graybar at $ 20 per share. The stock being subject to this restrictive agreement, 1951 U.S. Tax Ct. LEXIS 114">*130 which in practice had always been adhered to by Graybar, we conclude that the value of the stock for estate tax purposes was $ 20 per share. Lomb v. Sugden, 82 F.2d 166; Wilson v. Bowers, 57 F.2d 682. Cf. May et al., Exrs. v. McGowan, 97 F. Supp. 326">97 F. Supp. 326. In that case the court said in deciding an issue similar to the one we have here:

The first inquiry should be whether the stock was subject at the time of decedent's death to an enforceable option to buy at a specific price. If so the fair market value could not exceed the option price. * * * That was the fair market value of the decedent's stock at his death for estate tax purposes. Wilson v. Bowers, 57 F.2d 682; Lomb v. Sugden, 82 F.2d 166. It would require far more temerity than I possess to hold with the Government's contention that the Wilson and Lomb cases (both decisions of the Court of Appeals for the Second Circuit) are plainly outmoded and have no remaining vitality. If those cases are to be discarded it would seem to be the more prudent1951 U.S. Tax Ct. LEXIS 114">*131 course to await the unequivocal word of that Court, or a higher one.

In determining the value of the stock to be $ 60 per share respondent has laid great stress on the fact that over the period from 1946 through 1950, after decedent's death, decedent's widow received from Graybar as a "Special Death Benefit" pursuant to the Plan for pension and other benefits, an amount equivalent to what the dividend on 4,000 shares would have been during this period. Although the widow received sums which were measured by the stockholdings of decedent at the time of his death the provisions of the Plan under which the payment of this money was made were subject to termination by the board of directors of Graybar at any time either before or after the death of decedent. The amount actually received by decedent's widow as a special death benefit was $ 80,400 extending over a period of 5 years; however, it was not something in which decedent had any interest whatever at the time of his death. These payments were made to Mrs. Salt as special death benefits under the Plan and not as a stockholder of Graybar. All stock that decedent owned in Graybar at the time of his death had been sold by his1951 U.S. Tax Ct. LEXIS 114">*132 executors to Graybar who owned the enforceable option to acquire it at $ 20 per share. These 4,000 shares had been sold and transferred to Graybar prior to the time that any of the special death benefits were paid to Mrs. Salt. She never at any time owned any interest in these shares which were sold to Graybar under its option.

17 T.C. 92">*100 For reasons already stated we sustain petitioner's valuation of $ 20 per share; they could not have been sold for more and were not sold for more.

Issue 2. At the time of decedent's death Graybar's Plan for pensions and other benefits provided that in the discretion of the committee administering the Plan, the committee could authorize the payment of a specified amount to certain persons related to a deceased pensioner. This payment came under the provisions of the Plan entitled "Regular Death Benefits." Decedent was one of Graybar's pensioners and pursuant to this provision by order of the committee administering the Plan decedent's widow received $ 40,000 from Graybar.

Respondent has determined that this $ 40,000 is includible in decedent's gross estate and relies on section 811 (a) of the Internal Revenue Code. ¹ Petitioners did not include1951 U.S. Tax Ct. LEXIS 114">*133 the $ 40,000 in the estate tax return filed by them and they contend that respondent has erred in his determination. At the time of his death decedent had no vested interest in the $ 40,000 nor did his widow have an enforceable right to the $ 40,000. Whether she would receive it was entirely within the discretion of the committee administering the Plan. Since the decedent's "interest" in the $ 40,000 was a mere expectancy that his widow would receive the payment, it is not includible as a part of his gross estate under section 811 (a) of the Code. See Dimock v. Corwin, 19 F. Supp. 56">19 F. Supp. 56, affirmed on other issues 99 F.2d 799, 306 U.S. 363">306 U.S. 363. In the Dimock case it was held that where an employer adopted an annuity and insurance plan subject to withdrawal or modification providing for payment of a death benefit to a designated beneficiary, but for no payment if no beneficiary had been designated or if designated beneficiary died before employer and another had not been designated, such death benefit was no part of decedent employee's estate subject to tax, as employee's right to render it possible for beneficiary1951 U.S. Tax Ct. LEXIS 114">*134 to receive the benefit was not property. The court in so holding said, among other things:

It is concluded as to the first question, that there pertained to Mr. Folger, during his life, only the right to render it possible for Mrs. Folger to receive a grant from the Standard Oil Company, and that this did not constitute property of his under section 302 of the law, or subdivision (a), and that the act of naming her as the recipient of the death benefit was not a transfer of property by him to her, so as to fall within subdivisions (c) or (d), 44 Stat. 70, 71, * * *.

It should be noted that the Dimock case, supra, held that decedent1951 U.S. Tax Ct. LEXIS 114">*135 did not have an interest in property includible in gross estate under 17 T.C. 92">*101 a section of the Revenue Act of 1926 comparable to section 811 (a) of the Code even though in that case: (1) decedent could designate the beneficiary of the death benefit (decedent Salt could not do so), and (2) the Standard Oil Company was obliged upon decedent's death to pay the benefit to a named beneficiary who survived the decedent in accordance with the plan as in effect at the date of death. (Graybar had no such obligation, but reserved the right to withhold payment although a qualified beneficiary survived.)

Of course, entirely apart from the discretion imposed with the Graybar committee, under the Graybar Plan the death benefit might never have been paid if a qualified beneficiary failed to survive, a significant factor noted by the court in the Dimock case, supra. We hold that the Commissioner erred in including the $ 40,000 death benefit in decedent's gross estate under section 811 (a). Cf. Estate of William S. Miller, 14 T.C. 657, dismissed and affirmed by the Seventh Circuit September 15, 1950; Estate of Emil A. Stake, 11 T.C. 817.1951 U.S. Tax Ct. LEXIS 114">*136

Because of other adjustments of the respondent which petitioners have not contested and because the parties have stipulated that petitioners will incur and pay additional administrative expense, attorneys' fees, and expenses of litigation, and the determination and allowance of the allowable deductions for such expenses will be made under the rules of this Court,

Decision will be entered under Rule 50.