Source: https://caselaw.findlaw.com/us-supreme-court/303/118.html
Timestamp: 2019-04-20 13:33:38+00:00

Document:
Messrs. Wm. P. McCool, of New York City, and Hugh C. Bickford, of Washington, D.C., for petitioners.
Arnold Raum, of Washington, D.C., for the United States.
The Foster Lumber Company was a family corporation, organized in 1896 with a capital stock of $200,000. March 1, 1913, when the federal income tax became effective, the increased value of the company's property and its undistributed profits were more than $3,725,000. Petitioners insist that a distribution of $1,025,000 on October 10, 1929, completely exhausted the $330,578.98 total undistributed profits which had accumulated since March 1, 1913. This 1929 distribution, however, was not a dividend. It was paid by the company to cancel and liquidate five hundred shares of its own $100 par value stock and represented payment of $ 2,050 per share, the agreed value as of March, 1913. February 11, 1930, the company declared a $225,000 dividend and this refund is sought for the tax paid upon a shareholder's part of this dividend. Between October 10, 1929 (the date of the $1,025,000 stock purchase) and February 11, 1930 ( the date of the $225,000 dividend) the company's earnings amounted to only $ 82,758.17. Petitioners take the position that only $82,758.17 of this $225, 000 dividend of 1930 can be taxed, urging that the balance is tax exempt because it must be treated as representing pre-1913 accumulations.
We have previously said that subsections (a) and (b), supra, construed together, disclose legislative purpose that pre-1913 accumulations shall not be distributed 'in such a fashion as to permit profits accumulated after that date to escape taxation.' 4 Petitioners ask that we now construe these provisions in a way which would facilitate the escape of such profits from taxation and thereby defeat the undoubted purpose of Congress. We are urged so to expand and broaden an exemption granted by Congress as a 'concession to the equity of stockholders'5 that such concession would in reality serve to nullify and defeat the tax on corporate profits earned after 1913. Courts should construe laws in harmony with the legislative intent and seek to carry out legislative purpose. With respect to the tax provisions under consideration, there is no uncertainty as to the legislative purpose to [303 U.S. 118, 121] tax post-1913 corporate earnings. We must not give effect to any contrivance which would defeat a tax Congress plainly intended to impose. The use of bookkeeping terms and accounting forms and devices cannot be permitted to devitalize valid tax laws.
Acceptance of petitioners' contention would permit corporate profits accumulated since March, 1913, to escape taxation, contrary to the provisions and purpose of the 1928 Revenue Act. The bookkeeping mingling of corporate earnings and profits made before and after March 1, 1913, does not alter the act nor can such action render taxable profits non- taxable. In this case, the distribution of $1,025,000 was 'properly chargeable to capital account' and was not paid out of profits earned since March 1, 1913.
The $1,025,000, paid for the company's stock, cannot, therefore, be considered 'for the purpose of determining the taxability of subsequent distributions by the corporation' and this purchase of stock did not exhaust any part of the $330,578.98 profits accumulated since 1913. It follows that the total dividend of 1930 received by petitioners' decedent is taxable and the judgment of the Court of Claims is affirmed.
[ Footnote 1 ] Chapter 852, 45 Stat. 791.
[ Footnote 2 ] 17 F.Supp. 191; (supplemental opinion) 18 F.Supp. 790, certiorari granted 302 U.S. 667 , 58 S.Ct. 27, 82 L.Ed. --.
[ Footnote 3 ] Revenue Act of 1928, c. 852, 45 Stat. 791, 822, 26 U.S.C.A. 115 and note.
[ Footnote 4 ] Helvering v. Canfield, 291 U.S. 163, 168 , 54 S.Ct. 368, 370.
[ Footnote 5 ] Lynch v. Hornby, 247 U.S. 339, 346 , 38 S.Ct. 543.
[ Footnote 6 ] Cf. Hellmich v. Hellman, 276 U.S. 233, 237 , 48 S.Ct. 244, 245, 56 A.L.R. 379.
[ Footnote 8 ] Section 201(c), c. 234, 43 Stat. 253, 255.
[ Footnote 9 ] '... We are bound to consider accumulations that accrued to a corporation prior to January 1, 1913, as ... capital,' Southern Pac. Co. v. Lowe, 1917, 247 U.S. 330, 335 , 38 S.Ct. 540, 542. Also, see Lynch v. Turrish, 247 U.S. 221 , 38 S.Ct. 537; Doyle v. Mitchell Bros. Co., 1917, 247 U.S. 179 , 38 S.Ct. 467; 'what is called the stockholder's share in the accumulated profits of the company is capital,' Eisner v. Macomber, 1919, 252 U.S. 189, 219 , 40 S.Ct. 189, 197, 9 A.L.R. 1570. Cf.: 'Income (received) ... prior to the adoption of the Sixteenth Amendment ... had become capital prior to the adoption of the amendment.' Old Colony R. Co. v. Com'r, 284 U.S. 552, 557 , 52 S.Ct. 211, 212, and 'the accumulated profits as they stood on March 1, 1913, constituted capital of the company.' Helvering v. Canfield, 291 U.S. 163, 167 , 54 S.Ct. 368, 370.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.