[925]*925OPINIOH.
Littleton:
The following contentions are advanced by the executor:
1. That he should be allowed as a deduction in establishing the net taxable estate the sum oí $501,690.14 expended for items deductible under section 403 (a) (1) and (3) of the Revenue Act of 1921 and that no part of said sum was paid with the proceeds of the sale of prior-taxed property as claimed by the Commissioner.
2. That securities aggregating $237,432.31 in value at the date of the decedent’s death, and bought with the proceeds of the sale of prior-taxed property, should be deducted as acquired in exchange for prior-taxed property in establishing the net taxable estate, pursuant to the provisions of section 403 (a) (2) of the Revenue Act of 1921.
3. That he is entitled to deduct in establishing the net taxable estate herein, not only the value of shares of stock received by the decedent herein from the prior decedent, and upon which stock the estate of the prior decedent had paid a Federal estate tax, but, also, and as a part of such prior-taxed property, stock dividends received by the decedent on such stock.
4. That since the decedent or the prior decedent’s estate exercised the right to subscribe to certain shares of stock accorded by corporations which had issued shares owned by the prior decedent, and upon which original stock his estate had paid a tax, the petitioner is entitled to deduct as prior-taxed property and as a part of the prior-taxed property the value of shares so acquired less the subscription price.
The first point arises under section 403 (a) (1), (2), and (3) which reads as follows:
That for the purpose of the tax the value of the net estate shall be determined—
(a) In the case of a resident, by deducting from the value of the gross estate—
[926]*926(1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property (except, in the case of a resident decedent, where such property is not situated in the United States), losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes;
(2) An amount equal to the value of any property forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent where such property can be identified as having been received by the decedent from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received: Provided,, That this deduction shall be allowed only where an estate tax under this or any prior Act of Congress was paid by or on behalf of the estate of such prior decedent, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent’s gross estate and not deducted under paragraphs (1) or (3) of subdivision (a) of this section. This deduction shall be made in the case of the estates of all decedents who have died since September 8, 1916;
(3) The amount of all bequests, legacies, devises, or transfers, except bona fide sales for a fair consideration in money or money’s worth, in contemplation of or intended to take effect in possession or enjoyment at or after the decedent’s death, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees exclusively for such religious, charitable, scientific, literary, or educational purposes. This deduction shall be made in case of the estates of all decedents who have died since December 31, 1917; and * * *
The prior-taxed property was found by the Commissioner to have a value of $3,153,290.89 in the estate of the second decedent, but this amount was reduced by the Commissioner to $2,811,817.29 on the theory that it had not been shown that the difference was not in effect being allowed once as a deduction under section 403 (a) (1) and (3) and that, therefore, to allow the total of the prior-taxed property as exempt might allow a double deduction.
The facts as to this issue are not in dispute. Decedent’s executor maintained one bank account in which were deposited funds received from sources other than the sale of prior-taxed property and also funds received from the sale of prior-taxed property. The former [927]*927amount aggregated $880,662.46 over the period in question and the latter, $851,473.65 ($341,473.65 being erroneously used by the Commissioner). The expenditures from this account which are accepted as deductions by the Commissioner under section 403 (a) (1) and (3) amounted to $501,690.14 and the balance in the account from sources other than from prior-taxed property was at all times sufficient to pay these expenses without using funds received from the sale of prior-taxed' property. However, funds derived from taxed property, and from other sources, were not segregated in this account and when payments by check were made out of this account there was no way of knowing whether such payments were made from specific funds of prior-taxed property or funds derived from other sources.
The respondent contends if we should allow the deductions allowable under section 403 (a) (1) and (3) which arise by payments out of this account and at the same time allow the total prior-taxed property as a deduction, a double deduction would result to the extent that the deductible expenses were paid by the use of funds received from the sale of prior-taxed property. This would be true if such a situation should exist. For example, if prior-taxed property, which is allowable as a deduction under section 403 (a) (2), is sold by the executors of the second decedent and the funds used to make payments which are deductible under section 403 (a) (1) and (3) the allowance of the value of the prior-taxed property as a deduction and at the same time the allowance of the payments made as deductions would result in a double deduction. See Appeal of Fidelity Union Trust Co., Executor, 6 B. T. A. 125.
The problem, however, which we are considering is not the one presented above, but may be said to be analogous to the situation to which the Board referred to in the foregoing opinion in these words:
We are not attempting to decide what the proper deductions under this section would he had it been shown that there was money or property of the decedent available to pay this bequest to charity, exclusive of any money received from the estate of the prior decedent, and exclusive of any property required to satisfy the specific bequests under the will.
It may be that some of the funds which were received from the sale of prior-taxed property were used to make payments which gave rise to the deductions which are being allowed under section 403 (a) (1) and (3), but should this be sufficient to defeat the petitioner’s right to the exemption to which he is otherwise entitled when there were always sufficient other funds on hand in the same account from which the payments might have been made? In effect, the controversy arises merely because the petitioner failed to keep two accounts in which the funds were deposited separately. Had this been done, the estate would have been neither richer nor poorer at the end of the [928]*928period of administration, and the executor would always have had sufficient funds, exclusive of the funds received from prior-taxed property, to meet the administrative expenses, etc., in question. In other words, the Commissioner’s viewpoint renders an absolute identification of the specific money a prerequisite to the allowance under the circumstances of the case at bar.
Upon a consideration of the statute in question and its applicability to the situation here presented, we are not convinced that an identification of the funds is here called for. In Appeal of Elmer E. Rodenbough, Executor, 1 B. T. A. 477, the Board said:
This argument leads to the necessity of earmarking the funds, else there can be no way of showing they were identical. We do not think the statute goes to the length of such a requirement.
We regard the method employed and interpretation given to the statute by the Commissioner as too technical under the circumstances. We are not dealing with adverse claimants to a fund such as was the case in Clayton's case, 1 Mer. 572, where the theory that the first money in was the first drawn out was applied. Here we are attempting to apply a taxing statute which allows certain classes of expenditures as deductions to an estate before subjecting the transfer of the net estate to tax and at the same time prevents any part of the same estate from being subjected to the same kind of tax within a five-year period. We are of the opinion that either one, or part of both of the foregoing objects are being defeated by the strict and unnecessarily technical interpretation of the statute by the Commissioner, and that a more reasonable interpretation should be given in order to carry out the intent of Congress that administrative expenses should be allowed as deductions and that prior-taxed property should not again be included in the net estate of the second decedent. It is only by resolving doubts against the estate that the deduction in question is excluded. Taxing statutes should be interpreted from a reasonable viewpoint. Gould v. Gould, 245 U. S. 151. In the case of United States v. Davison, 1 Fed. (2d) 465, later affirmed in 9 Fed. (2d) 1022, it was held that:
In determining whether a particular transaction is subject to tax, the decisions hold that the substance, and not the form, is to be regarded. In United States v. Phellis, 257 U. S. 156, 42 Sup. Ct. 63, 66 L. Ed. 180, the Supreme Court said: “ We recognize the importance of regarding matters of substance and disregarding forms in applying the provisions of the Sixteenth Amendment and income tax laws enacted thereunder. In a number of cases besides those just cited we have under varying conditions followed the rule. Lynch v. Turrish, 247 U. S. 221; Southern Pacific Co. v. Lowe, 247 U. S. 330; Gulf Oil Corporation v. Lewellyn, 248 U. S. 71.” This has been the rule from the time of the decision in Bailey v. Railroad, 106 U. S. 109, 1 Sup. Ct. 62, 27 L. Ed. 81, to the present time.
[929]*929Accordingly, we sustain the contention of the petitioner for a deduction of prior-taxed property in the amount of $3,153,290.89 and for deductions on account of administrative expenses, debts, charitable bequests, etc., in the amount of $501,690.14.
The second point involves the question of whether the value of property purchased by decedent through the investment of the proceeds of the sale of securities acquired by decedent from a prior decedent who died within five years and on whose estate an estate tax was paid may be deducted from the gross estate under section 403 (a) (2), Revenue Act of 1921. The same question was before the Board in the Appeal of Elmer E. Rodenbough, Executor, supra, and there decided in favor of an allowance of such property as a deduction. In the Rodenbough case we were concerned with a corresponding provision of the statute under the Revenue Act of 1918, but the reasoning there advanced would be equally applicable under the Revenue Act of 1921.
This question was before the United States District Court for the Western District of New York in the case of George Cary v. United States, 22 Fed. (2d) 298, and, in its opinion rendered August 11, 1927, the court said:
A rehearing was subsequently granted, it being urged by the Government that another question was involved, which had not been presented or passed upon, viz: whether any of the securities owned by plaintiff’s intestate at the time of her death, can, under see. 403(a) (2) of the Revenue Act of 1921, be identified as securities received from her father by bequest, or whether they were acquired by her by exchange for property so received and upon which an estate tax had been paid by the testator, her father, within five years before his death. The Government claims that, since it is shown that the securities, in the main, were acquired by plaintiff’s intestate, in her lifetime, through purchase with securities or money received by her in lieu of the bequest, and in some instances were sold by her, the proceeds being used for purchase of other securities, they can not, as stated in the Act, “be identified as having been acquired in exchange for property so received,” and, hence, that they were subject to the tax imposed.
A different conclusion, however, has been reached. The undisputed evidence fully shows that the securities bought by her, after the payment of the bequest, were acquired in exchange for property, securities, or money paid to her by the executors of her father’s will. The findings of fact and conclusions of law approved by me make it unnecessary to set forth the details of the various purchases and sales. The law is well settled that in matters of taxation the subject of the transactions must be considered, that substance and not form is to be regarded, and, accordingly, the Revenue Act of 1921 must be given a reasonable construction. U. S. v. Phellis, 257 U. S. 156; U. S. v. Davison, 1 Fed. (2d) 465. Its purpose manifestly was to prevent collecting a double tax on property of deceased persons within five years. That such was the intent of Congress is fairly shown by the report of the Ways and Means Committee on the revenue bill of 1918, which had a similar exemption clause, together with the ensuing discussions.
[930]*930The crucial point in this case turns upon whether the wording of the statute “ as having been acquired in exchange for property so received ” implies a limitation to a single transaction or an exchange of property for property. I am unable to adopt this view. It is true that by Art. 44 of the internal Revenue Regulations, a narrow construction is given the quoted phrase, but I nevertheless think that the Revenue Act in question cannot in reason be accorded such a restricted meaning. The evidence shows that the property’ bequeathed or devised, and paid by the executors in satisfaction of the bequest, was shortly thereafter invested by the legatee, during her lifetime, in other property, stocks and bonds. I am of opinion that these later securities can fairly be traced and identified to the securities and money acquired under the will, and that it constituted substantially an exchange thereof. True enough, the word “ exchange ” ordinarily implies the giving of one thing for another, which, ordinarily is régarded as an equivalent, but the statute in its use of the word “ exchange ” must be considered and given effect with the terms of the provision which are consistent with each other. Such was the ruling in U. S. v. 99 Diamonds, 139 Fed. 961. And in the Rodenbouffh appeal decided by the United States Board of Tax Appeals, Vol. 1, Board of Tax Appeals, 477, wherein a similar question arose, it was substantially held that if the property of a deceased was identified or traced to purchases of other properties, it was not subject to taxation under the Revenue Act. In that case, as here, the proceeds of the property bequeathed was invested in other securities and the Government contended that, under the provisions of the Act, only one exchange was presumable, and a reinvestment of securities or of moneys received under the will of a testator was not a single exchange.
There is nothing contained in the Act, however, as heretofore indicated, to form a reasonable basis for holding that merely a single exchange was intended. Upon this point it was ruled in the Rodenbough case by tile Board of Tax Appeals that the intendment of Congress was not to limit the meaning of the word “ exchange ” to a single transaction, but “ That a reinvestment of money realized from property received from a prior decedent was an exchange within the terms of the Act”. This ruling, the Government insists, was obviously erroneous in that it ignored the real meaning of the word “ exchange ” and confused purchases, sales and investments with an exchange. However, I have carefully considered the opinion of the Board, and I am unconvinced of its asserted error.
On August 15, 1927, the U. S. District Court for the Eastern District of Pennsylvania in United States v. Rodenbough, 21 Fed. (2d) 781, held that the conclusions reached by the Board in Appeal of Elmer E. Rodenbough, 1 B. T. A. 477, that property acquired by the decedent ivith the proceeds from the disposition of property which had been included in the estate of the prior decedent and used as the measure of the estate tax paid by such prior estate should be excluded from the net estate of the second decedent was erroneous, and held that the word “ exchange ” in the phrase “ or which can be identified as having been acquired by the decedent in exchange for property so received ” (from the prior decedent) should be strictly construed.
We have carefully considered the opinion of the learned court in United States v. Rodenbough, supra, but notwithstanding our great respect for and deference to the opinion of the Court, we are unable [931]*931to agree with the conclusion reached and we still adhere to our construction of the statute in Elmer E. Rodenbough, 1 B. T. A. 477, and in Honoro Gibson Pelton, Executrix, v. Commissioner, 7 B. T. A. 1144, decided August 22, 1927.
Section 403 (a) (2) of the Revenue Act of 1921 provides—
That for the purpose of the tax the value of the net estate shall be determined—
(a) In the case of a resident, by deducting from the value of the gross estate—
* * * * # 4: *
(2) An amount equal to the value of any property forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent where such property can be identified as having been received by the decedent from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received: Provided, That this deduction shall be allowed only where an estate tax under this or any prior Act of Congress was paid by or on behalf of the %state of such prior decedent, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent’s gross estate and not deducted under paragraphs (1) or (3) of subdivision (a) of this section. This deduction shall be made in case of the estates of all decedents who have died since September 8, 1916.
We think when the nature of the estate tax and the entire provisions of Section 403, of the Revenue Act of 1921 are considered, it is evident that the underlying intent of Congress was that an amount equal to the value placed upon the property of a decedent for the purpose of the estate tax should not again be used as the measure of the tax within five years, and that the word “ exchange ” used in the phrase “ or which can be identified as having been acquired in exchange for property” received from the prior decedent, was not intended to be given a technical interpretation.
The property in issue under this point was stipulated by the parties as having a value in the estate of the second decedent as follows:
$20,000 first Liberty Loan bonds_:_$18, 082.00
365 shares Southern Pacific Oo- 27,010.00
$212,500 first Liberty Loan bonds_192, 340. 31
Total_ 237, 432.31
Since these amounts are less than the amounts at which the property sold was valued in the estate of the prior decedent, deductions should be allowed in the foregoing amounts.
The third question is, Shall stock dividends on stock, which is properly includable as a deduction from the gross estate as prior taxed property under section 403 (a) (2) and where the dividends were declared within the five-year period mentioned under the foregoing section, be considered as prior-taxed property which may be [932]*932deducted from the gross estate? In other words, is the value of the original stock which was received from the prior decedent the value which the second decedent is entitled to deduct or is it the value of the original stock plus the value of the stock dividends declared thereon, subject always to the limitations under section 403 (a) (2) ?
A review of court decisions involving stock dividends and a consideration of the inherent nature of such dividends lead us to the conclusion that stock dividends are as much a part of the prior-taxed property as the original stock on which declared and, therefore, its value should be considered, along with the value of the original stock, in determining the deduction allowable for prior-taxed property. From the very nature of such a dividend the foregoing answer follows. The receipt of stock dividends by the decedent on stock which she held did not mean any increase in the property which she formerly held; it means a division of the property which she already held and whose value in her estate was entitled to be deducted as prior-taxed property. For example, if A holds 500 shares of stock in corporation B which has a capital stock of 1,000 shares, and a 50 per cent stock dividend is declared, thereby giving A 750 shares and increasing the capital stock to 1,500 shares, A’s relative holdings in corporation B are not thereby increased. Both before and after the receipt of the stock dividend, A would be entitled to the same amount of cash dividends when declared and would share to the same extent in dividends upon final liquidation of the company. As the court said in Gibbons v. Mahon, 136 U. S. 549:
A stock dividend really takes notliing from the property of the corporation, and adds nothing to the interests of the shareholders. Its property is not diminished, and their interests are not increased.
After such a dividend, as before, the corporation has the title in all the corporate property; the aggregate interests therein of all the shareholders are represented by the whole number of shares; and the proportional interest of each shareholder remains the same.
The only change is in the evidence which represents that .interest, the new shares and the original shares together representing the same proportional interest that the original shares represented before the issue of new ones.
And likewise, Eisner v. Macomber, 252 U. S. 189, wherein this statement is made:
The essential and controlling fact is that the stockholder has received nothing out of the company’s assets for his separate use and benefit; on the contrary, every dollar of his original investment, together with whatever accretions and accumulations have resulted from employment of Ms money and that of the other stockholders in the business of the company, still remains the property of the company, and subject to business risks which may result in wiping out the entire investment.
Having regard to the very truth of the matter, to substance and not to form, he has received nothing that answers the definition of income within the meaning of the Sixteenth Amendment.
[933]*933Also see McDonald v. Maxwell, 274 U. S. 91. This involved a case where the executors had filed an account in which they had claimed commissions on the receipt by them of stock dividends. In denying the claim of the executors that these stock dividends represented an increase in the principal of the estate and that accordingly they were entitled to commissions, the court said:
After their issuance, which necessarily “ diluted ” the value of the original shares, the dividend shares and the original shares together represented the same proportional interest in the corporate properties that had previously been represented by the original shares alone; no more and no less. Clearly, therefore, the dividend shares themselves represented no increase in the value of the estate; and they could not properly be taken as the basis for the allowance of a commission to the executors on the theory that their receipt, in and of itself, constituted an increase in its capital.
In the shares of stock here in issue a deduction is not being asked of a value of the original shares plus the shares received as a stock dividend in an amount greater than the value at which the transfer of the original shares was taxed in the estate of the prior decedent, and in four out of six classes of the stock the deduction claimed is less than the value allowed in the estate of the prior decedent. Where no stock dividend has been declared and a deduction is being claimed on account of shares of stock whose transfer was taxed in the estate of a prior decedent, the deduction allowable to the second decedent is an amount which is no greater than the value allowed in the estate of the prior decedent, though the value may be equal to or less than that previously allowed in the estate of the prior decedent. Since the shares of stock held at the death of the second decedent (original shares plus shares received as a stock dividend) represent the same proportional interest that the original shares represented before the issue of the new ones, we fail to see why the deduction allowable to the second decedent is not to be based upon a valuation of the original shares plus the value of the shares received as a stock dividend on these shares in the same manner and with same limitations as if we were dealing with the original shares where no stock dividend has been declared. The contention of the petitioner for an additional deduction on this account of $355,039.50 is, therefore, sustained.
The final contention advanced by the petitioner is that shares of stock owned by the prior decedent, and with respect to which his estate had paid a Federal estate tax, were represented in the second decedent’s estate by the value of the shares owned originally by the prior decedent and inherited by the second decedent, plus the value of the shares acquired through the exercise of subscription rights, [934]*934and less the amount paid to acquire the additional shares. On the petitioner’s theory, the amount claimed would not exceed the value of the shares owned by the prior decedent at the time of his death or the value of those shares, plus the additional shares acquired by subscription, at the time of the death of the decedent herein after subtracting in the latter instance the subscription price.
In advancing the foregoing contention, the petitioner relies principally on Miles v. Safe Deposit & Trust Co., 259 U. S. 247, wherein the court stated that “ The stockholder’s right to take his part of the new shares therefore — assuming their intrinsic value to have exceeded the issuing price — -was essentially analogous to a stock dividend” and argues that the result contended for there necessarily followed from the argument on the preceding point as to stock dividends. The case referred to involved a determination of the gain derived from the sale of certain subscription rights, and the court held that the entire amount received from such a sale was not to be considered gain, but that there must be taken into consideration both the cost of the original shares and the price at which the additional shares were offered to the stockholders in a computation which would produce the cost of that which was sold. The method followed is essentially that followed by the Commissioner in the determination of gain or loss derived from the sale of stock received as a dividend. (Article 1547, Regulations 45 (1920 Edition).)
In the opinion of the Board the problem presented in the instant case is essentially different from the foregoing case. Here we are seeking to determine the value of property which may be identified as having been received from a prior decedent within five years prior to the death of the second decedent and where a Federal estate tax has been paid thereon. Upon the death of the prior decedent, the decedent received certain shares of stock which were taxed in the estate of such prior decedent. Beyond the fact that the right to subscribe to the new stock is an equity that inheres in stock ownership (Miles v. Safe Deposit & Trust Co., supra), the subscription rights had not yet come into existence upon the death of the prior decedent. An act was necessary on the part of the second decedent in order to gain any benefit from the option offered to subscribe for the new stock. This was accomplished in the case at bar by subscribing for the new stock when offered, using for the payment of the subscription price either the personal funds of second decedent or funds of the estate of the prior decedent which it has not been shown were taxed in the estate of the prior decedent. To say that the advantage derived from the subscription to such stock is property which may be identified as having been received from the estate of the prior dece[935]*935dent on which a Federal estate tax was paid, is going further than we feel an interpretation of the statute warrants. The contention of the petitioner on this point is, therefore, denied.
Reviewed by the Board.
Judgment mil be entered on %0 days’ notice, wnder Rule 50.
TRAmmell and Green dissent.