Rev. Rul. 58-228

Advice has been requested concerning the applicability of the documentary stamp tax, imposed by section 4321 of the Internal Revenue Code of 1954, under the circumstances described below.

A testator, a resident of California, bequeathed the residue of his estate, which consisted of shares of stock, to each of four named legatees equally, share and share alike. The will provides that should any of the named beneficiaries die before becoming entitled to receive distribution of his or her share, then such share shall be distributed to the survivors of them in the proportions which the survivors' shares bear to each other, or all to the survivor if only one of them is then surviving. All the legatees survived. Pursuant to a `Transfer of Interests Agreement' executed by the named legatees and ratified by the Probate Court as equitably partitioning their interests in common, specific certificates of stock were distributed to each legatee individually and not in common. The question is whether a single transfer tax applies on the transfer of the shares of stock to them as individuals or whether two transfer taxes were incurred, one on the transfer of the shares of stock to the beneficiaries upon the death of the testator, and the other on the transfer of the shares of stock to the beneficiaries individually when a partition of their interests in common under the will was affected.

Section 4321 of the Code 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.

Section 113.33(e) of Regulation 71, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, includes, among several examples of taxable transactions, transfers of stock from persons holding legal title as tenants in common to the same persons separately to effect a partition.

Since the decedent died a resident of the State of California, the estate must be distributed in accordance with California law. The Probate Code of the State of California provides that the title to real and personal property of a California decedent vests immedately upon the death of the decedent in the heirs or beneficiaries named in the will. However, where a bequest is made to a group of individuals subject to the condition of surviving distribution, title vests in them as a class; and, after the period of administration, those surviving take the bequest as tenants in common. See In re Moore's Estate, 286 P.(2d) 939; In re Backesto's Estate, 235 Pac. 670.

Accordingly, in the instant case, a tax is due upon the transfer of title to the beneficiaries as a class and again when their undivided interests in the stock are partitioned at the time of distribution.