Rev. Rul. 56-55

Advice has been requested concerning the applicability of the documentary stamp tax, imposed by section 1802(b) of the Internal Revenue Code of 1939, to the transfer of shares of stock, acquired after July 28, 1927, pursuant to the will of a decedent who had been domiciled in California, a community property state.

A California resident, who is survived by his widow, died testate in 1952 leaving his part of the community property to his heirs. Included in the corpus of the estate were shares of stock which were acquired during the existence of the marital relationship and after July 28, 1927, the effective date of section 161a of the Civil Code of California. That section provides that the respective interests of the husband and wife in community property during continuance of the marriage relationship are present, existing, and equal interests under the management and control of the husband. Section 161a gave the wife a vested interest in her one-half share of any community property acquired after July 28, 1927.

Section 1802(b) of the Code imposes a stamp tax on all sales and transfers of legal title to any shares or certificates of corporate stock.

Section 113.33 of Regulations 71 provides that transfers of stock from persons holding legal title as tenants in common to the same persons separately to effect a partition are subject to tax.

Accordingly, where a California resident dies testate leaving his part of the community property (acquired after July 28, 1927) to his heirs, the wife's undivided interest in her share of the community property is vested during coverture and is not disturbed by the death of the husband. However, the heirs, being vested immediately upon the death of the testator with the latter's undivided interest in the community property, hold their undivided interest as tenants in common with the surviving widow. The transfer of the decedent's undivided interest to his heirs is taxable and, since such interest is an undivided one in each share of stock included in the community property, the tax on the transfer is based on the entire number of shares involved. If the shares thus held by the widow and the heirs as tenants in common are divided among such persons, a further transfer tax will be incurred based on the number of shares transferred to the widow and to each of the several heirs.

See Revenue Ruling 55-686, C.B. 1955-2, 644, dealing with the transfer of stock under the will of a decedent where the stock was acquired prior to July 29, 1927.