32 T.C. 262">*263 The Commissioner has determined a deficiency in petitioner's estate tax of $ 21,150. The deficiency is due to an increase of $ 58,325.81 in the value of the stock in Sun Oil Company returned as part of decedent's gross estate. The adjustment is explained in the deficiency notice as follows: 1959 U.S. Tax Ct. LEXIS 175">*177 "The stock dividend of 831 shares at $ 70 3/16 per share of Sun Oil Company no par common stock is includible in gross estate for optional valuation purposes. Section 811(j), 1939 Code."

By appropriate assignments of error petitioner contests the correctness of this adjustment made by the Commissioner.

FINDINGS OF FACT.

Most of the facts have been stipulated and the stipulation of facts is incorporated herein by this reference.

The petitioner is the Estate of John Schlosser, Deceased; Raymond Schlosser is the executor of the estate, with residence at Chester Springs, Pennsylvania.

The decedent, John Schlosser, died a resident of Delaware County, Pennsylvania, on January 25, 1953. Petitioner elected to have the gross estate of the decedent valued in accordance with values as of January 25, 1954, 1 year subsequent to the decedent's death, as authorized by section 811(j). ¹

The decedent at the time of his death was the owner1959 U.S. Tax Ct. LEXIS 175">*178 of 10,394 shares of common stock of Sun Oil Company, hereinafter sometimes referred to as Sun Oil. The common stock of Sun Oil had a value of $ 70.1875 per share on January 25, 1954.

At the meeting of the board of directors of Sun Oil held on October 20, 1953, resolutions were adopted with respect to a stock dividend to be issued on December 15, 1953, part of which reads as follows:

Resolved, That out of the authorized, unissued Common Stock of the Company a stock dividend be and the same is hereby declared to be issued on December 15, 1953, to the holders of Common Stock of the Company of record 32 T.C. 262">*264 at the close of business November 13, 1953, in proportion to their respective holdings of Common Stock on that date, at the rate of eight (8) shares of Common Stock for each one hundred (100) shares then held, said stock when so issued to be full-paid and non-assessable, and

Be it Further Resolved, That said stock when so issued be charged against the surplus of the Company at the rate of Sixty-five Dollars ($ 65.00) per share. * * *

The common stock of Sun Oil is listed on the New York Stock Exchange and the Philadelphia Stock Exchange. By applications to the New York Stock 1959 U.S. Tax Ct. LEXIS 175">*179 Exchange and the Philadelphia Stock Exchange, dated October 20, 1953, Sun Oil applied for the listing of 567,948 additional shares of its common stock and stated that the authority for and purpose of issue were:

The above 567,948 shares of said stock are to be issued as a stock dividend pursuant to a resolution of the Board of Directors adopted at a meeting of the Board duly called and held on the 20th day of October, 1953, declaring a stock dividend on the Common Stock at the rate of eight shares per hundred shares held, payable December 15, 1953, to stockholders of record at the close of business November 13, 1953. Said stock, when issued, will be charged against the earnings employed in the business of the Company at the rate of $ 65.00 per share. * * *

Estimated earnings for the year ending December 31, 1953, will approximate the aggregate of the assigned value ($ 65.00 per share) of the capital stock to be issued in payment of this stock dividend, and the cash dividends disbursed or to be disbursed during such period. * * *

On December 15, 1953, the petitioner received a stock dividend of 8 per cent on the 10,394 shares of Sun Oil, or 831 shares of common stock.

By letter dated1959 U.S. Tax Ct. LEXIS 175">*180 December 15, 1953, the treasurer of Sun Oil advised the holders of common stock that the amount of $ 36,916,620, based upon 567,948 shares at $ 65 per share, would be transferred from earnings to the common stock account and that "estimated earnings for the year ending December 31, 1953, will approximate the aggregate of the assigned value of the capital stock to be issued in payment of this stock dividend and the cash dividends disbursed during such period."

The annual report of Sun Oil for 1953 discloses that earnings employed in the business on January 1, 1953, amounted to $ 57,848,351, and that the net income for the year 1953 amounted to $ 45,153,602, making a total of $ 103,001,953, against which there was charged for cash dividends $ 7,506,336 and, for the 8 per cent stock dividend issued on December 15, 1953, $ 36,908,404, or a total of $ 44,414,740, leaving employed in the business on December 31, 1953, earned surplus of $ 58,587,213.

The policy of the New York Stock Exchange in authorizing the listing of the additional shares of Sun Oil distributed as a stock dividend on December 15, 1953, required that (1) in respect of each such 32 T.C. 262">*265 additional share there be transferred1959 U.S. Tax Ct. LEXIS 175">*181 from earned surplus to the permanent capitalization of Sun Oil an amount equal to the fair value of such share, and (2) the undistributed earnings of the period between successive distributions be sufficient to cover such aggregate fair value.

In respect to the stock dividend issued on December 15, 1953, Sun Oil complied with the policy of the New York Stock Exchange and transferred $ 65 per share from earned surplus to its common stock account or permanent capitalization, and its earnings between December 15, 1952 (date of the immediate prior distribution of a stock dividend), and December 15, 1953, amounting to $ 45,153,602, were more than sufficient to cover the aggregate fair value of the stock dividend of December 15, 1953, and the cash dividends paid in 1953, or a total of $ 44,414,740.

A stock dividend was also paid or distributed by Sun Oil on December 15, 1952.

Sun Oil has declared and issued stock dividends on its common stock averaging from 3 per cent to 10 per cent from 1925 to 1953.

It has been stipulated that the deficiency of $ 21,150 determined by the Commissioner is subject to credit for State estate, inheritance, or succession taxes upon submission of proof of payment.

1959 U.S. Tax Ct. LEXIS 175">*182 OPINION.

We have here only one issue to decide. That issue is whether, where the executor avails himself of the option granted by section 811(j) to value the decedent's gross estate as of 1 year after the decedent's death, the value of 831 shares of Sun Oil received as a stock dividend during the year is to be included in the value of the gross estate.

The facts have been fully stated in our Findings of Fact and it is unnecessary to repeat them here.

Section 811(j), the applicable statute, is printed in the margin. ²

1959 U.S. Tax Ct. LEXIS 175">*183 32 T.C. 262">*266 Petitioner, in support of its contention that the value of the stock dividend paid on stock of Sun Oil after the decedent's death and during the optional valuation period is not includible in decedent's gross estate under section 811(j), argues in its brief as follows:

Respondent here overlooks entirely the fact that the value of stocks, within the meaning of the Internal Revenue Code, is the fair market value per share on the applicable valuation date (section 81.10), and that the 10,394 shares included in the inventory or gross estate as of the date of decedent's death are not the same as 11,225 shares (under Federal law, the 10,394 shares are corpus, and the 831 shares are nontaxable income) on hand one year after death. Petitioner could not truthfully have sworn that the decedent owned the 831 shares on January 25, 1953, which the Company chose to distribute to the petitioner on December 15, 1953, at the rate of 8 shares for each 100 shares then held, and capitalized earnings which accrued during the optional period.

Section 81.10 to which petitioner refers in the above quotation from its brief is section 81.10 of Regulations 105 and is printed in the margin. ³

1959 U.S. Tax Ct. LEXIS 175">*184 Petitioner, in support of its contention that the 831 shares of Sun Oil stock which petitioner received as a stock dividend on December 15, 1953, is not includible property on the January 25, 1954, valuation date, relies chiefly on the Supreme Court's decision in Maass v. Higgins, 312 U.S. 443">312 U.S. 443. We do not think that case is applicable here. That case held that rents, royalties, interest, or dividends which had not accrued at the time of decedent's death but which accrued and were received after his death were not includible for valuation purposes where the executor had elected to value the estate 1 year after decedent's death. The dividends involved in 312 U.S. 443">Maass v. Higgins, supra, were cash dividends which had been declared and paid after decedent's death.

In the instant case the facts show that in the year 1953, following decedent's death, Sun Oil paid cash dividends of $ 7,506,336 out of its earnings for that year. Presumably, petitioner received its part of those cash dividends by reason of its ownership of the 10,394 shares which decedent owned at the time of his death. It is assumed that the reason why no mention1959 U.S. Tax Ct. LEXIS 175">*185 is made in the stipulation of facts 32 T.C. 262">*267 as to the amount of cash dividends which petitioner received on these 10,394 shares in 1953 is because the Commissioner has made no attempt to include them as a part of decedent's estate on the valuation date. Under section 81.11, Regs. 105, promulgated after the Supreme Court's decision in 312 U.S. 443">Maass v. Higgins, supra, these cash dividends clearly would not be includible property as of the date of decedent's death and the Commissioner has made no attempt to include them. He does not argue that they should be included.

In section 18.47 of Paul's Federal Estate and Gift Taxation, vol. 2, the author, under the heading "The Treatment of the Income of Estates where the Optional Valuation Date is Used," discusses the Treasury regulations here applicable. The author, after discussing several situations which may arise under the applicable regulations but which are not pertinent here, then turns his attention to the payment of a stock dividend declared and paid after decedent's death. Of this, he says:

Another problem to be considered in connection with stock under the optional valuation statute is the effect1959 U.S. Tax Ct. LEXIS 175">*186 of a "true" stock dividend, that is, one which does not give a stockholder "an interest different from that which his former stockholdings represented." Under the rule of Eisner v. Macomber, * * * a dividend of this kind, as, for example, shares of common upon common, is not taxable income. "The new certificates simply increase the number of the shares, with consequent dilution of the value of each share." Logically, it should follow that such dividends, if declared during the interim one-year period, should be taxed together with the underlying shares, if the later valuation date is chosen. The dividends do not constitute income to the estate but represent a readjustment of the stockholder's interest. The aversion to double taxation, displayed by the Court in the Maass case, has nothing to feed upon in this situation, at least as long as Eisner v. Macomber remains good law.

Petitioner argues that the payment of the stock dividend here involved should be treated the same as if it had been a dividend paid in cash because Sun Oil had sufficient earnings in 1953 to have paid the dividend in cash if it had desired to do so, and its action in capitalizing these earnings1959 U.S. Tax Ct. LEXIS 175">*187 when the stock dividend was declared and paid makes the situation different from an ordinary stock split and should be treated the same as a cash dividend. We do not agree with this contention.

In Estate of Delia Crawford McGehee, 28 T.C. 412">28 T.C. 412, we had before us a case where the decedent in her lifetime had in 1947, 1948, and 1949 transferred a total of 774 shares of stock of the Jacksonville Paper Company in contemplation of death. There was no controversy but that these shares had been transferred in contemplation of death. Later, certain stock dividends were paid on these shares of stock to the transferees prior to decedent's death and the question was whether the value of these stock dividend shares should be included in decedent's gross estate along with the 774 shares which the estate 32 T.C. 262">*268 conceded should be included in the gross estate. The Commissioner had included them in his determination of an estate tax deficiency and we sustained the Commissioner. In sustaining him, we said:

At the time of transfer each share of stock represented to the decedent a corresponding interest in the corporation proportionate to the whole of the corporate1959 U.S. Tax Ct. LEXIS 175">*188 business. Stock dividends on those shares would in no way change the stockholder's interest in the corporation. And it would make no difference whether the stock dividend represented a "capitalization of earnings" or a "stock split." (The petitioner here seeks to draw such a distinction.) Eisner v. Macomber, 252 U.S. 189">252 U.S. 189. True it is that after the stock dividend each share represented a smaller proportionate interest, but, in toto, they still represented the original interest in the corporation which the decedent owned and had transferred. That interest had simply been further splintered or atomized. In no way had it been increased or diminished and if we look to its value as of the time of death, the value of all the shares represents the value of the interest transferred.

We were reversed by the Fifth Circuit in that case, see McGehee v. Commissioner, 260 F.2d 818. Petitioner in its brief strongly relies for its support of its contention here upon the court's opinion in reversing us in the McGehee case. The question in the McGehee case is not the same as the question we have before us here. Here, 1959 U.S. Tax Ct. LEXIS 175">*189 we have a specific statute prescribing the general method of valuation which shall be used on the alternate valuation date and a comprehensive Treasury regulation covering methods to be used when the estate has elected to value 1 year subsequent to decedent's death.

Section 81.11 of Regs. 105 is printed in the margin. ⁴ It is under 32 T.C. 262">*269 these regulations that the Commissioner has determined that the 831 shares which petitioner received December 15, 1953, as a stock dividend on the 10,394 shares which decedent owned at the time of his death were "included property" within the meaning of the foregoing regulation. In discussing the foregoing regulation respondent says in his brief:

It is the contention of the respondent that unless the stock dividend in the instant case is included in the decedent's gross estate as of the optional valuation date, the shares of stock will not reasonably represent the "included property" at the death of the decedent. * * *

1959 U.S. Tax Ct. LEXIS 175">*190 In Rev. Rul. 58-576, I.R.B. 1958-47, 14-16, a ruling is made with respect to: "Valuation to be used where the executors of an estate elect the alternate valuation method under section 2032 of the Internal Revenue Code of 1954 in certain factual situations involving stock rights, stock dividends, insurance proceeds, and interest bearing obligations received or disposed of within the year following the decedent's death." It should be pointed out here that section 2032, I.R.C. 1954, referred to above is substantially the same as section 811(j). In the ruling which we are now discussing it is stated, among other things, as follows:

Property which is "included property" as of the date of the decedent's death remains "included property" for the purpose of valuing the gross estate under the optional valuation method even though it is changed in form during the optional valuation period by being actually received, or disposed of, in whole or in part, by the estate. However, property earned or accrued (whether received or not) after the decedent's death and during the alternate valuation period with respect to any property interest existing at the date of death, 1959 U.S. Tax Ct. LEXIS 175">*191 which does not represent a form of "included property" itself or the receipt thereof, is to be excluded in valuing the gross estate at the subsequent valuation date and is referred to as "excluded property."

The factual situations with respect to which advice is requested are as follows:

* * * *

Situation No. 3.

Additional stock received as a result of a stock dividend before the year expires, but after the death of the decedent.

32 T.C. 262">*270 Answer.

A stock dividend which is not income within the meaning of the Sixteenth Amendment to the Constitution received subsequent to the decedent's death must be included in the gross estate where the alternate valuation method has been elected. The declaration of the stock dividend after the decedent's death directly affects the value of the shares of stock at the subsequent valuation date so that the decedent's shares of stock in the corporation at the subsequent valuation date no longer reasonably represent the same property interest in the corporation possessed by the decedent at the time of his death. Such a dividend is "included property" as that term is defined in section 20.2032-1 of the regulations.

While it is, of course, 1959 U.S. Tax Ct. LEXIS 175">*192 true that a revenue ruling such as the one from which we have just quoted is not binding upon us in the interpretation of the statute to which it pertains, nevertheless in the instant case, after a careful examination of the statutes and the Treasury regulations involved, we think the foregoing ruling as to how a stock dividend shall be treated under the alternate valuation method is correct.

We, therefore, sustain the Commissioner in his determination. The decision hereunder should be entered under Rule 50 since administrative adjustments of the deficiency will be necessary as pointed out in the stipulation.

Decision will be entered under Rule 50.