Case Name: Caroline Mills, Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1941-05-01
Citations: 44 B.T.A. 379
Docket Number: Docket No. 100343
Parties: Caroline Mills, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: ARuNdell, Muepock, Black, Leech, and HaRkon agree with this dissent.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 44
Pages: 379–384

Head Matter:
Caroline Mills, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 100343.
Promulgated May 1, 1941.
W. A. Sutherland, Esq., and B. F. Boyldn, Esq., for the petitioner.
J. Mamin Kelley, Esq., for the respondent.

Opinion:
OPINION.
Yan Fossan :
The only issue for our determination is whether or not petitioner is entitled to a credit under section 26 (c) (1) of the Revenue Act of 1936 for purposes of the surtax on undistributed profits. Petitioner contends that it was restricted in payment of dividends in the taxable year because of limitations imposed by its charter and by the agreement set forth in the minutes of the shareholders' meeting held January 19, 1934. It maintains that the shareholders' resolution was a written contract executed by petitioner within the purview of the statute. Respondent's position is that the minutes of the shareholders' meeting indicate a mere authorization to the elected trustees to carry into effect the oral agreement which had been reached by the committee representing the bondholders and the shareholders.
Since the date of hearing of this proceeding the Supreme Court handed down its decisions in Helvering v. Northwest Steel Rolling Mills, Inc., 311 U. S. 46, and Crane-Johnson Co. v. Helvering, 311 U. S. 54. In those cases the Supreme Court held that a corporate charter was not a contract within the meaning of section 26 (c) (1) of the Revenue Act of 1936. Petitioner's charter, therefore, is not a contract restricting payment of dividends and does not entitle petitioner to the credit granted by the statute. It thus becomes necessary that we consider petitioner's contention that the resolution adopted by the shareholders on January 19, 1934, was a written contract executed by petitioner.
In Davison-Joseph Campau Realty Co., 41 B. T. A. 675, we held that a corporate bylaw is not a "written contract executed by the corporation" within the meaning of section 26 (c) (1). We reiterated our position in that case in Atlas Supply Co., 43 B. T. A. 324. Recently, we held that an agreement between preferred and common stockholders which was recorded in the minutes of a shareholders' meeting was not a contract executed by the corporation. Henry Mill & Timber Co., 43 B. T. A. 1073.
We are of the opinion that the agreement among stockholders, bondholders, and trustees which is recited in the corporate minutes of the shareholders' meeting of January 19, 1934, is not a written contract executed by petitioner. It does not appear that there was any intention that a contract be executed by petitioner at that time. The embodiment of the agreement in the minutes seems a mere recitation for the purpose of corporate records. Moreover, although petitioner's contracts were customarily signed by its president and secretary, these minutes were signed by the secretary and by the chairman of the meeting.
Nor does the fact that petitioner's board of directors, on February 8, 1934, approved the minutes of the shareholders' meeting of January 19, 1934, make the agreement a written contract executed by petitioner. The directors approved the minutes of the meeting which included the resolution here under consideration, but that approval can not transmute an oral agreement into a written one. Tire agreement among the bondholders, shareholders, and trustees was not a written contract.
We hold that the facts do not show a written contract executed by petitioner which restricted payment of dividends in the taxable year.
Reviewed by the Board.
Decision will be entered for the respondent.
SEC. 26. CREDITS OF CORPORATIONS.
In the case of a corporation the following credits shall be allowed to the extent provided in the various sections imposing tax—
‡ •
(c) Contracts Restricting Payment op Dividends.—
(1) Prohibition on payment op dividends.—An amount equal to the excess of the adjusted net income over the aggregate of the amounts which can be distributed within the taxable year as dividends without violating a provision of a written contract executed by the corporation prior to May 1, 1936, which provision expressly deals with the payment of dividends. »