Cranston v. Wells Fargo Bank

McCOMB, J. The State Controller has appealed from an order upholding the executor’s objections to the valuation placed upon United States treasury bonds by the California inheritance tax appraiser.

Facts: The decedent owned United States treasury bonds with a total par value of $2,200,000. On the date of her death, these bonds were worth in the over-the-counter market $1,872,-185.63.

The federal government, through the Internal Revenue Code or by the terms of the bonds, permits their value to be accelerated to par value by the death of the owner to the extent that the bonds are used to pay federal estate taxes. All the bonds were used by the executor for this purpose.

The California inheritance tax appraiser appraised the bonds at their par value, and the executor filed an objection, claiming that the over-the-counter figure was the correct valuation.

Question: Should United States treasury bonds that are redeemable at par value by an executor in payment of federal estate taxes be appraised, for the purpose of determining the California inheritance tax, at par value or at the price quoted in the over-the-counter bond market on the date of the decedent’s death?

For the purposes of the inheritance tax imposed by California, bonds of this type should be appraised at par value to the extent they can be used to pay federal estate taxes. (Bankers Trust Co. v. United States, 284 F.2d 537, 538, cert. denied, 366 U.S. 903 [81 S.Ct. 1047, 6 L.Ed.2d 204]; In re Behm’s Estate, 19 App.Div.2d 234 [241 N.Y.S.2d 264, 266].)

Section 13951 of the Revenue and Taxation Code requires that property subject to the inheritance tax be appraised at its market value as of the date of death; and regulations prescribed by the State Controller provide that in the case of stocks or bonds which have a market on a stock exchange, [434]in an over-the-counter market, or otherwise, the market value per share or bond will be deemed to be the mean between the highest and lowest quoted selling prices on the date of the transferor’s death, or-if actual sales are not available during a reasonable period beginning before, and ending after, the date of death, the mean between the bona fide bid and asked prices on such date. (Cal. Admin. Code, tit. 18, § 13951(e).)

The regulations further provide, however: “In any case in which it is established that the value per share or bond on the basis of selling or bid and asked prices does not reflect the market value of a security, other relevant facts and elements of value will also be considered in determining its market value.” (Cal. Admin. Code, tit. 18, § 13951(f).)