Estate of Cook v. United States

Howard Winston Cook (plaintiff) was one of the main owners of Central Bancompany, Inc., a Missouri banking institution. On December 24, 1976, Cook transferred 1,725 shares of common stock of Central Bancompany, Inc., to an irrevocable trust, of which his children were the beneficiaries. In 1977, Cook filed a gift-tax return, which indicated a gift-tax liability of $2,250. That figure was based on a valuation of $40 per share of the stock in question. Cook died on May 8, 1978, and in 1982, the government (defendant) sent his estate a notice of gift-tax deficiency for $84,063, based on a valuation of $257 per share. The estate paid that assessment and then filed a claim for refund. Both the estate and the government presented expert opinions on the value of the stock, but the court found neither to be persuasive and thus engaged in its own valuation. In December 1976, Central Bancompany was the seventh largest bank holding company in Missouri and controlled the dominant bank in central Missouri. In 1976, Central Bancompany had $421 million assets and $41 million in stockholder equity. Its shares had a book value of $211.38, with a net income per share of $18.54 and dividends of $1.80 per share. While shares of the company had sold between 1973 and 1982 for prices ranging from $36 per share to $68.18 per share, the court noted that the sales were sporadic and that Central Bancompany owners and managers set those prices. The court noted that among publicly traded Missouri bank holding companies, the bid price to book value ratios ranged from 51 to 92 percent, while the $40 valuation would place Central Bancompany at 19 percent. In order to be comparable to the average publicly traded Missouri bank holding company, the stock would have to sell for $141.62 per share. Similarly, the price-to-earnings ratio for Central Bancompany was well below that of the average publicly traded Missouri bank holding company. To be comparable to the average of that group, the stock would have to sell for $122.36 per share. Data for share price based on divided yield likewise suggested similar results.