49 T.C. 108">*108 The respondent determined a deficiency in estate tax in the amount of $ 127,176.42. The petitioners having conceded certain issues and having apparently abandoned others, the issues remaining are: 1967 U.S. Tax Ct. LEXIS 18">*20 (1) The value of the common stock of Bowser, Inc., owned by the decedent; (2) whether the respondent erred in disallowing a deduction of $ 630 claimed in the estate tax return for commissions paid for subleasing the decedent's apartment; and (3) whether the respondent erred in not allowing a credit for Illinois inheritance taxes.

49 T.C. 108">*109 FINDINGS OF FACT

Some of the facts have been stipulated and are incorporated herein by this reference.

The decedent died testate on January 16, 1960, a resident of Chicago, Ill. Thelma Elinor Buddington, who was the wife of the decedent at the date of his death, Robert J. C. Damon, the decedent's son (hereinafter referred to as Damon, Jr.), and Leslie W. Damon, the decedent's brother, were appointed and are acting as executors of the decedent's estate under letters testamentary.

The executors timely filed (pursuant to extensions granted by the district director) a Federal estate tax return with the district director of internal revenue at Chicago, Ill., and therein elected to value the estate using the alternate valuation dates provided for in section 2032 of the Internal Revenue Code of 1954. Pursuant to that election, the date for valuation 1967 U.S. Tax Ct. LEXIS 18">*21 of the common stock of Bowser, Inc., that was owned by the decedent at the date of his death is January 16, 1961.

Bowser, Inc. (hereinafter called Bowser), is an Indiana corporation organized in 1884. Its principal office during the years involved herein was in Chicago, Ill., and it was engaged in the manufacture and sale of electrical-electronic components, building hardware, industrial fasteners, coin-handling machines, parking lot control systems, lubrication products, and devices for handling a wide variety of liquids, including liquids used to fire rockets into space.

At the date of his death the decedent owned, and at the alternative valuation date his estate owned, 240,801 1/2 shares of Bowser common stock out of a total of 721,765 shares issued and outstanding, and 100 shares of Bowser cumulative preferred stock out of a total of 194,062 shares issued and outstanding. ¹ In addition, other members of the Damon family owned 25,000 shares of common stock. At both dates Johnson Fare Box Co., a subsidiary of Bowser, held 87,614 1/2 shares of Bowser's common stock. Of the 240,801 1/2 shares of Bowser common stock held by the decedent's estate, 212,710 1/2 shares were not registered1967 U.S. Tax Ct. LEXIS 18">*22 with the Securities and Exchange Commission, and therefore could be sold only to a purchaser who would furnish a statement representing that the purchase was made for investment and not with a view to distribution.

At the time of his death on January 16, 1960, the decedent was the chairman of Bowser's board of directors and its president. Damon, 49 T.C. 108">*110 Jr., was neither1967 U.S. Tax Ct. LEXIS 18">*23 an officer nor director of Bowser, but was president of Johnson Fare Box Co.

On January 27, 1960, a meeting of Bowser's board of directors was held at which time J. M. Barrett, Jr., was elected chairman of the board, Damon, Jr., was elected to the board to fill the vacancy created by the decedent's death, and A. D. Martin was elected to fill another vacancy. At such meeting Barrett took the position that 24,591 shares of Bowser common stock for which Bowser held decedent's unpaid promissory notes should not be voted at any meeting for the election of directors. He also took the position that the 87,614 1/2 shares of Bowser common stock held by Johnson Fare Box Co. should not be voted in any such election. Damon, Jr., took the position that the 24,591 shares of Bowser were purchased by the decedent and that the estate could vote such stock, and that the Johnson Fare Box Co. was entitled to vote the 87,614 1/2 shares held by it. The board of directors adopted a motion that neither of such blocks of stock be voted at any meeting for the election of directors until the right to vote such stock had been determined by a court of law. This was the first indication that there was friction1967 U.S. Tax Ct. LEXIS 18">*24 existing between the Damon family and certain members of Bowser's board of directors. Five of the 11 directors present at this meeting were supporters of the Damon interest, while 6 were not. In March of 1960 a proxy contest for control of Bowser was engaged in by the Damon interests and those opposed to the Damon interest, led by Barrett. In order to muster a majority the Damon interests relied upon, and solicited the proxies of, stockholders comprising a so-called inner circle friendly to them which consisted principally of persons employed by Bowser, but also included two neighbors of the Damons. In the latter part of May 1960, the proxy contest concluded with a victory for the Damon group, and a slate of directors proposed by Damon, Jr., was elected.

In the early part of May 1960, Damon, Jr., signed an option giving three members of Bowser's board of directors the right to purchase all of the estate's common stock for $ 10 per share. Two of such directors had been members of Bowser's board of directors since 1958. This option was not exercised.

After the conclusion of the proxy contest, efforts were made to sell some of the Bowser stock held by the estate because the estate1967 U.S. Tax Ct. LEXIS 18">*25 needed funds to pay taxes and Mrs. Buddington also was in need of funds. In July of 1960 the executors and their attorneys met with Sol Rothberg, chairman of Bowser's board of directors, and discussed the possibility of the purchase by him and some associates of about 50,000 to 60,000 shares of the estate's Bowser common stock. The price asked was $ 6 per share, but Rothberg made no offer or bid. Thereafter negotiations continued until January or February 1961, but then terminated 49 T.C. 108">*111 when Rothberg was advised that a sale of stock would be made to other parties.

During the summer and fall of 1960, while negotiations were going on with Rothberg, the estate was carrying on negotiations with representatives of Equity Corp. (hereinafter referred to as Equity), an investment company located in New York. In initial discussions had by Damon, Jr., with a representative of Equity, Damon, Jr., offered to sell the entire block of Bowser common stock held by the estate for $ 10 a share. This offer was not accepted. Subsequently, Damon, Jr., offered to sell about 50,000 or 60,000 shares for $ 6 a share. At January 16, 1961, there was no commitment to buy or sell. In March or April1967 U.S. Tax Ct. LEXIS 18">*26 1961, the offer to sell was increased to 75,000 shares at $ 6 per share.

At a meeting of Equity's board of directors on March 14, 1961, Equity's officers were authorized to purchase 30,000 shares of Bowser at $ 6 per share; the board referred the matter to its executive committee, giving it full authority to negotiate and consummate the transaction. On April 12, 1961, the executive committee directed Equity's officers to execute the authorized purchase and to place the shares purchased in a voting trust. Sometime in March or April 1961, the negotiating parties reached agreement as to the number of shares to be sold, the price, and the terms of a voting trust, but execution of the sales agreement was delayed until a controversy between Mrs. Buddington and other beneficiaries under the will could be settled by a family agreement.

On April 24, 1961, the executors and the beneficiaries entitled to the stock under the decedent's will, including Mrs. Buddington, executed an agreement selling 30,000 shares of Bowser common stock to Equity and 45,000 shares to Oscar Dane, all at a price of $ 6 per share. ² Therein the purchasers represented that they were purchasing the stock for investment1967 U.S. Tax Ct. LEXIS 18">*27 and not with a view to distribution thereof. Simultaneously, pursuant to the terms of the agreement, a voting trust agreement was executed by the sellers and buyers placing the 75,000 shares of stock purchased by Equity and Dane in a voting trust comprised of 237,710 1/2 shares of Bowser common stock, some of such stock being deposited in the trust by the decedent's estate and some being deposited by the beneficiaries of the estate. The voting trustees were Damon, Jr., Mrs. Buddington, Leslie Damon, Bernard Hoban (attorney for the estate), and J. Russell Duncan. The stock held in the trust was to be voted in accordance with the will of a majority of the trustees, except that the trustees were required to vote for two persons nominated as directors by Oscar Dane or his successor and to vote 49 T.C. 108">*112 according to the direction of each beneficiary of the trust with regard to any merger, consolidation, reorganization, or dissolution (exclusive of intercompany mergers, consolidations, reorganizations, or dissolutions involving only Bowser and its subsidiaries).

1967 U.S. Tax Ct. LEXIS 18">*28 On January 16, 1961, the alternate valuation date, Bowser's outstanding common stock was owned by 1,568 shareholders residing in 42 States and 2 foreign countries; 104,408 shares of such stock were registered in the names of 44 brokers. Since at least 1944 Bowser's common stock has been traded in the over-the-counter market. During the period December 14, 1960, through January 17, 1961, over 14,000 shares of such stock were traded in about 60 transactions (in lots ranging from 10 to 1,000 shares), participated in by 33 brokers, at prices ranging from 3 1/8 to 4 per share. On January 16, 1961, there was a sale of 100 shares of such stock at 3 3/4.

The National Daily Quotation Service, a publication which reports prices bid and asked by security dealers and brokers in the over-the-counter market showed, in its eastern and western sections, bid and asked prices for Bowser common stock in the period January 11 through January 17, 1961, ranging from 3 to 3 3/8 bid and from 3 1/2 to 4 asked. On January 16, 1961, Bowser common stock was quoted in such publication at a range of from 3 3/8 to 3 1/2 bid to 3 3/4 to 4 asked. The above sections of such publication are circulated among approximately1967 U.S. Tax Ct. LEXIS 18">*29 1,800 investment dealers.

The records of Bowser's two transfer agents show that during the period January 1, 1960, through January 17, 1961, a total of 502,848 shares of Bowser common stock was transferred in 1,321 transactions. Included therein, in an undetermined amount, might be gifts, transfers from brokers to principals, and reissuance of new certificates to replace soiled or lost certificates or previously issued certificates voided due to clerical errors.

In the estate tax return, which was filed on May 12, 1961, the 240,801 1/2 shares of Bowser common stock held by the estate on January 16, 1961, the alternative valuation date, were included in the gross estate at a value of $ 3 per share. This value was determined by the executors Damon, Jr., and Leslie Damon. However, Mrs. Buddington (then Mrs. Thelma Elinor Damon), stated in the return that she did not concur in such valuation and that in her opinion the fair value of the stock on January 16, 1961, was $ 6 per share.

On April 22, 1960, the executors paid $ 630 to a rental agency as a commission for the subleasing of an apartment which the decedent held under lease at the time of his death. This amount was not claimed1967 U.S. Tax Ct. LEXIS 18">*30 as a deduction in the fiduciary income tax return, Form 1041, filed by 49 T.C. 108">*113 the estate. In the estate tax return the executors deducted the $ 630 as an administration expense.

In the estate tax return the executors claimed a credit of $ 3,328.39 on account of State death taxes. On July 10, 1961, the estate paid an inheritance tax deposit of $ 10,038.89 to the Office of County Treasurer, Cook County, Ill.

In the notice of deficiency the respondent determined that the 240,801 1/2 shares of Bowser common stock had a value on January 16, 1961, of $ 6 per share, and accordingly increased the gross estate by $ 722,404.50. He disallowed the claimed deduction of $ 630, stating that "Since this item was deducted on the income tax return, it therefore cannot be deducted for Federal estate tax." He also disallowed in full the claimed credit for State death taxes.

At January 16, 1961, the 240,801 1/2 shares of common stock of Bowser held by the estate had a fair market value of $ 3.75 per share or $ 903,005.63.

OPINION

The principal issue involved concerns the valuation as of January 16, 1961, the alternate valuation date elected by the executors of the estate under section 2032 of the1967 U.S. Tax Ct. LEXIS 18">*31 Internal Revenue Code of 1954, of the common stock of Bowser owned by the decedent at the time of his death and which continued to be owned by his estate at the alternate valuation date. This consisted of 240,801 1/2 shares out of a total of 721,765 shares of Bowser common stock outstanding (of which a subsidiary of Bowser owned 87,614 1/2 shares). The stock was included in the estate tax return at a value of $ 3 per share. Respondent determined that the value of the stock was $ 6 per share. ³

1967 U.S. Tax Ct. LEXIS 18">*32 The estate's contention is that the Bowser common stock was actively traded in the over-the-counter market, that the value of the stock for estate tax purposes must be fixed by reference to sales in such market, and that such value should be fixed at $ 3 per share or at most $ 3.45 per share, which it contends was the average price at which Bowser common stock was sold in the market over the period December 29, 1960, through January 16, 1961. It relies upon section 49 T.C. 108">*114 2031(b) of the Internal Revenue Code of 1954⁴1967 U.S. Tax Ct. LEXIS 18">*33 and section 20.2031-2(b) of the Estate Tax Regulations. ⁵

1967 U.S. Tax Ct. LEXIS 18">*34 The respondent, on the other hand, contends that this block of stock represented effective control of Bowser; that accordingly, under the provisions of section 20.2031-2(e) of the regulations, the price at 49 T.C. 108">*115 which the stock sold in the over-the-counter market did not reflect the true value of this block of stock; and that the block should be valued at $ 6 per share. He refers, for corroboration of his valuation of $ 6 per share, to the sale on April 24, 1961, by the estate and two of its beneficiaries, of 75,000 shares of Bowser common stock at $ 6 per share.

It will be noted that the Estate Tax Regulations provide that if there is a market, including an over-the-counter market, for a particular stock, the average quoted selling price on the valuation date is the fair market value per share and is the basis for the determination of the value of the stock to be included in the gross estate, unless it is established that such selling price does not reflect the fair market value of the stock to be valued, as where sales at or near the date of death are few or of a sporadic nature, or where the block of stock is so large in relation to the actual sales on the existing market 1967 U.S. Tax Ct. LEXIS 18">*35 that it could not be liquidated in a reasonable time without depressing the market, or where the block of stock represents either an actual or effective controlling interest in a going business.

As stated, the respondent's position that the trading on the over-the-counter market did not represent the true value of the estate's block of Bowser common stock is based upon his contention that such block of stock represented control of Bowser.

Obviously the 240,801 1/2 shares of Bowser common stock owned by the estate did not represent actual control of the corporation, since it was substantially less than 50 percent of the total number of shares outstanding, 721,765 shares (or 634,150 1/2 shares, if the shares owned by a subsidiary are considered as not outstanding). Furthermore, we think the evidence is sufficient to establish that the block of 240,801 1/2 shares did not, in itself, constitute effective control of the corporation. At the time of the directors meeting held on January 27, 1960, the Damon interests did not possess control of the corporation, even though they owned, in addition to the 240,801 1/2 shares in question, 25,000 others shares. The respondent relies heavily1967 U.S. Tax Ct. LEXIS 18">*36 upon 49 T.C. 108">*116 the fact that the Damon interests were able by the latter part of May 1960 to obtain effective control of the corporation. But, of course, we are not concerned with the control which the Damon interests were able to muster, but with the question whether the block of stock in question itself represented control. Actually, the Damons were able to obtain effective control only by obtaining proxies of other stockholders. The respondent states that the fact that when the 75,000 shares of stock of the estate and two of its beneficiaries were sold at $ 6 per share a voting trust agreement was executed to keep the block intact demonstrates that the block carried with it effective control. He argues that the purchasers would not otherwise have paid $ 6 per share. We are not persuaded by this argument. As pointed out, the Damons obtained effective control through the voting power of not only the estate's block of stock, but also the voting power of other stock which they owned and of stock owned by other persons. Under the voting trust agreement the shares sold and the remaining shares owned by the trust were to be voted as a block for two directors to be named by the 1967 U.S. Tax Ct. LEXIS 18">*37 purchasers. Apparently the purchasers were willing to pay $ 6 per share on the prospect that the Damon interests would continue, with the aid of other stockholders, to maintain effective control. Nor does the fact that representatives of the estate, in negotiations with prospective purchasers, were asking $ 10 per share for a sale of the whole block of 240,801 1/2 shares and $ 6 per share for a sale of a portion thereof establish that the block of stock in question itself represented effective control.

The respondent's position that the trading in the over-the-counter market did not reflect the true value of the estate's block of Bowser common stock is not based upon a contention that there was an absence of sales in the over-the-counter market or that the sales were few or of a sporadic nature. Indeed, the records of the transfer agents of Bowser show that over the period from January 1, 1960, through January 17, 1961, a total of about 1,320 holders of Bowser common stock transferred over 500,000 shares of stock (although these transfers could have included, to an extent not shown, gifts, transfers from brokers to principals, and reissues of new certificates for various reasons). 1967 U.S. Tax Ct. LEXIS 18">*38 And during the period December 14, 1960, through January 17, 1961, over 14,000 shares of stock were traded in about 60 transactions in the over-the-counter market. It is our opinion that this volume of sales is sufficient to establish that such market may reasonably be relied upon to establish the fair market value of Bowser common stock. See Estate of Caroline McCulloch Spencer, 5 T.C. 904">5 T.C. 904. On the valuation date, January 16, 1961, there was a sale of Bowser common stock in the over-the-counter market at $ 3.75 per share. While there was only one sale on such date, it appears that the selling price was generally consistent with the prices at which the Bowser 49 T.C. 108">*117 stock had been traded during the preceding period of approximately 1 month. See 5 T.C. 904">Estate of Caroline McCulloch Spencer, supra.Under the circumstances, we are of the opinion that the value of the estate's block of stock on January 16, 1961, was $ 3.75 per share, and we have so found as a fact. ⁶ In this connection it is to be observed that the sale by the estate and two of its beneficiaries of 75,000 shares of Bowser common stock in a transaction outside1967 U.S. Tax Ct. LEXIS 18">*39 the over-the-counter market did not occur until April 24, 1961, which was more than 3 months after the valuation date with which we are concerned. At such valuation date the purchasers had made no commitment to purchase at $ 6 per share. We think, therefore, particularly in view of the provisions of the regulations, that such sale is not a factor to be considered in establishing the value of the estate's stock at the valuation date.

1967 U.S. Tax Ct. LEXIS 18">*40 On brief the estate contends that on the valuation date the stock had a value of $ 3, or at most $ 3.45 per share. It refers, among other things, to the average price at which Bowser common stock was sold in the over-the-counter market over a period prior to the valuation date. We think such prior sales are not determinative in view of the fact that there was a sale in the over-the-counter market on the valuation date at $ 3.75 per share. The same is true, for the same reason, with respect to certain evidence relating to the financial condition and history of Bowser. The estate relies, among other things, upon the so-called "blockage" theory which is to the effect that a block of stock to be valued may be so large in relation to the actual sales on the existing market that it could not be liquidated in a reasonable time without depressing the market. However, as we stated in Safe Deposit & Trust Co. of Baltimore, Executor, 35 B.T.A. 259">35 B.T.A. 259, affd. (C.A. 4) 95 F.2d 806, blockage is not a principle of law or a rule of evidence, and evidence must be adduced to justify the application of the theory. The estate has not shown 1967 U.S. Tax Ct. LEXIS 18">*41 that the registered stock could not have been liquidated on the over-the-counter market within a reasonable time without depressing the market, or that the unregistered stock could not have been sold outside the over-the-counter market at a price equal to the price at which the registered shares sold on such market on the valuation date.

The second issue relates to the deduction of $ 630 claimed by the estate in its estate tax return as an administration expense. Such amount was paid by the executors to a rental agency as a commission 49 T.C. 108">*118 for the subleasing of an apartment which the decedent held under lease at the time of his death. In the notice of deficiency the respondent stated that since this item was deducted on the income tax return it could not be deducted for Federal estate tax purposes. From statements made by counsel for the respondent at the hearing it appears that the respondent had reference to a deduction taken on an income tax return, Form 1040, filed on behalf of the decedent for the period prior to his death. The petitioner argues that the fact that the amount in question may have been deducted on such return would not itself preclude the deduction in the1967 U.S. Tax Ct. LEXIS 18">*42 estate return. We agree that this is so, but it must be shown that it is a proper deduction from the gross estate. It is well established that a taxpayer seeking a deduction must be able to point to an applicable statute and show that he comes within its terms. New Colonial Co. v. Helvering, 292 U.S. 435">292 U.S. 435. Section 2053 of the Code provides generally for the deduction of administration expenses. The evidence with respect to this item is meager. There is no proof as to the terms of the lease and sublease or other details, except that Mrs. Buddington testified that the apartment was subleased for $ 200 per month more than the rent called for under the decedent's lease and that such difference was received by the estate, and that she did not deduct it on her individual income tax return for 1960. The amount of $ 630 might properly be deductible from income of the estate earned after the decedent's death, but that issue is not before us. Suffice it to say that it has not been established that it constitutes a proper deduction for estate tax purposes.

The estate contends that, since it paid to Illinois authorities an amount of $ 10,038.89 on account1967 U.S. Tax Ct. LEXIS 18">*43 of Illinois inheritance tax, it is entitled to a credit in that amount under section 2011 of the Code against the Federal estate tax paid. ⁷ The respondent contends that the payment represented merely a deposit rather than Illinois inheritance taxes "actually paid" within the contemplation of section 2011. Illinois law in effect during the period involved herein provided that Illinois death taxes shall be:

due and payable, at the death of the decedent, and interest at the rate of seven per cent per annum shall be charged and collected thereon for such time 49 T.C. 108">*119 as said taxes are not paid: * * * provided further, that where prior to the final determination of the amount of the tax a sum of money is deposited with the county treasurer to be applied to the payment of the tax when finally determined, if such deposit be made within said eighteen month period, interest shall be charged only on the excess, if any, of the tax over the deposit not paid or deposited within said eighteen month period * * *

* * * the amount whereby any such deposit shall exceed the tax as finally determined shall be promptly refunded to the depositor * * *

Ill. Ann. Stat., ch. 120, sec. 377 (Smith-Hurd). 1967 U.S. Tax Ct. LEXIS 18">*44

We think that the amount paid represented only a deposit to be applied in payment of the tax when determined1967 U.S. Tax Ct. LEXIS 18">*45 and therefore did not represent a tax "actually paid" for purposes of the credit provided for by section 2011. See Edward C. Moore, Jr., et al., Executors, 21 B.T.A. 279">21 B.T.A. 279. However, in the Rule 50 computation effect will be given to the credit for Illinois death taxes actually paid. Attention is also called to section 2011(c)(1) which provides that the credit may be claimed at any time before the expiration of 60 days after the decision of this Court becomes final.

Decision will be entered under Rule 50.