Rev. Rul. 59-183

Advice has been requested concerning the applicability of the documentary stamp tax to the transfer of shares of stock under the circumstances described below.

A resident of California, a community property state, died testate. By his will, the decedent devised and bequeathed all of his estate to his wife for life, with remainder over to his three children in equal shares. Included in the estate were 2,000 shares of stock which were registered in the names of the decedent and the surviving wife as joint tenants with right of survivorship.

By court decree, it was held that the 2,000 shares of stock was community property. Therefore, the court, in its decree of distribution, decreed that one-half of all of the community property be set aside to the surviving wife of the decedent as her share of the community property and that the remaining one-half of the community property be distributed to the surviving wife for her life, and upon her death to the three children of the decedent in equal shares, share and share alike. Also, the court decreed that the surviving wife should have a certificate for her one-half of the stock and that a second certificate should be issued to her in her capacity as life tenant.

Section 4321 of the Internal Revenue Code of 1954 imposes a tax on each sale or transfer of shares or certificates of stock, or of rights to subscribe for or to receive such shares or certificates, issued by a corporation.

The title to real and personal property of a California decedent vests immediately upon the death of the decedent in the heirs or beneficiaries named in the will and does not first vest in the personal representative pursuant to the Probate Code of California. Therefore, there is an immediate passing of title to those entitled to receive the decedent's property. Moreover, in California, a husband and wife have undivided one-half interests in all of the community property. See Rev. Rul. 56-55, C.B. 1956-1, 682.

Hence, in the instant case, when the decedent died, his undivided one-half interest in the community property vested immediately in his surviving wife as life tenant with remainder over to the decedent's three children. The undivided one-half interest of the wife in the community property was not distributed by the death of her husband. Therefore, after the death of the husband, the surviving wife owned a one-half undivided interest in the community property in her individual right and held the other one-half interest in her capacity as life tenant under the will of her deceased husband.

Accordingly, it is held that liability for the documentary stamp tax is incurred as follows:

1. The passing of title to the surviving wife of the decedent's one-half undivided unterest in the community property upon the decedent's death is subject to the transfer tax imposed by section 4321 of the Code. Since this undivided interest is in respect to each of the 2,000 shares, the transfer tax is based on the entire number of shares involved (2,000).

2. The transfer of 1,000 shares from the undivided total number of shares (2,000) held by the surviving wife, individually, and as life tenant, into the name of the surviving wife as her sole and individual property is subject to the transfer tax.

3. Also, the transfer of 1,000 shares to the surviving wife as life tenant, under the decree of distribution, is subject to the transfer tax.