Source: https://caselaw.findlaw.com/us-supreme-court/276/233.html
Timestamp: 2019-04-24 22:55:17+00:00

Document:
[276 U.S. 233, 234] The Attorney General and Mrs. Mabel Walker Willebrandt, Asst. Atty. Gen., for petitioner.
Mr. Henry H. Furth, of St. Louis, Mo., for respondent.
The two Hellmans brought these suits against the Collector to recover additional income taxes assessed against them for the year 1919, under Title 2 of the Revenue Act of 1918,1 and paid under protest. They recovered judgments in the District Court, which were affirmed by the Circuit Court of Appeals. 18 F.(2d) 239 and 244.
The question here is whether the gains realized by stockholders from the amounts distributed in the liquidation of the assets of a dissolved corporation, out of its earnings or profits accumulated since February 28, 1913, were taxable to them as other 'gains or profits,' or whether the amounts so distributed were 'dividends' exempt from the normal tax.
These Regulations, with a change made in 1921 as to the second sentence of article 1548,3 are still in effect so far as distributions in liquidation under the act are concerned. [276 U.S. 233, 236] Each of the Hellmans owned one-half of the capital stock of a corporation which had a net surplus of $46,466.27, of which at least $31, 545.58 consisted of earnings and profits accumulated since February 28, 1913. In 1919, the corporation was dissolved and liquidated and its assets were distributed to the stockholders. In this liquidation each of the Hellmans realized a gain of $15,004.55 in the distribution made out of the earnings and profits accumulated since February 28, 1913. Each in his income tax return claimed that this was a 'dividend' which under section 216(a) being Comp. St. 6336 1/8 h was to be credited on his net income for the purpose of the normal tax. The Commissioner of Internal Revenue, ruling these were gains subject to the normal tax, disallowed the claims and made the additional assessments here involved.
It is true that if section 201(a) stood alone its broad definition of the term 'dividend' would apparently include distributions made to stockholders in the liquidation of a [276 U.S. 233, 237] corporation-although this term, as generally understood and used, refers to the recurrent return upon stock paid to stockholders by a going corporation in the ordinary course of business, which does not reduce their stock holdings and leaves them in a position to enjoy future returns upon the same stock. See Lynch v. Hornby, 247 U.S. 339 , 344-346, 38 S. Ct. 543, and Langstaff v. Lucas (D. C.) 9 F.(2d) 691, 694.
However, when section 201(a) and section 201(c) are read together, under the long-established rule that the intention of the lawmaker is to be deduced from a view of every material part of the statute, Kohlsaat v. Murphy, 96 U.S. 153 , 159, we think it clear that the general definition of a dividend in section 201(a) was not intended to apply to distributions made to stockholders in the liquidation of a corporation, but that it was intended that such distributions should be governed by section 201(c), which, dealing specifically with such liquidation provided that the amounts distributed should 'be treated as payments in exchange for stock' and that any gain realized thereby should be taxed to the stockholders 'as other gains or profits.' This brings the two sections into entire harmony, and gives to each its natural meaning and due effect. The Treasury Regulations correctly interpreted the act as making section 201(a) applicable to a distribution made by a going corporation to its stockholders in the ordinary course of business, and section 201(c) applicable to a distribution made to stockholders in liquidation of the corporation. And this is in accord with the rulings of the Board of Tax Appeals. Appeal of Greenwood, 1 B. T. A. 291, 295; Appeal of Chandler, 3 B. T. A. 146, 149.
The gains realized by the stockholders from the distribution of the assets in liquidation were subject to the normal tax in like manner as if they had sold their stock to third persons. The objection that this results in double taxation of the accumulated earnings and profits is no more [276 U.S. 233, 238] available in the one case than it would have been in the other. See Merchants' L. & T. Co. v. Smietanki, 255 U.S. 509 , 41 S. Ct. 386, 15 A. L. R. 1305; Goodrich v. Edwards, 255 U.S. 527 , 41 S. Ct. 390. When, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results. See Patton v. Brady, 184 U.S. 608 , 22 S. Ct. 493; Cream of Wheat Co. v. Grand Forks, 253 U.S. 325, 330 , 40 S. Ct. 558.
[ Footnote 1 ] 40 Stat. 1057, 1058, c. 18 (Comp. St. 6336 1/8 a et seq.).
[ Footnote 2 ] Regulations 45 (1919 Ed.) 237, 240.
[ Footnote 3 ] By Treas. Dec. 3206, the following sentences were substituted for the second sentence: 'Any excess so received over the cost of his stock to the stockholder constitutes income to such stockholder. However, if such stock was acquired prior to March 1, 1913, and the fair market value as of such date was greater than the cost but less than the amount so distributed, the taxable income is the excess over such fair market value of the amount received, but no gain is recognized if the amount received, although more than cost, is less than the fair market value of the stock on March 1, 1913.' 23 Treas. Dec. Int. Rev. 763, 769.

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