Case Name: Spokane Dry Goods Company, Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1941-02-28
Citations: 43 B.T.A. 793
Docket Number: Docket No. 103916
Parties: Spokane Dry Goods Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: ,Black and Haeeon agree with this dissent.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 43
Pages: 793–799

Head Matter:
Spokane Dry Goods Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 103916.
Promulgated February 28, 1941.
Boger L. Shidler, Esq., for the petitioner.
E. O. Adams, Esq., for the respondent.

Opinion:
OPINION.
Opper: Respondent determined a deficiency of $479.75 in petitioner's income tax for the calendar year 1938. Only $236.19 of such deficiency is in controversy in this proceeding and represents that part of the deficiency which, results from the disallowance of a dividends paid credit in the amount of $35,830.30. This disallowance is the only error assigned by petitioner. The facts are stipulated and are hereby found accordingly.
The petitioner, Spokane Dry Goods Co., is a Washington corporation, with its principal place of business at Spokane, Washington, and its income tax return for the calendar year ended December 31, 1938, was filed in the district of Washington. The par value of the common stock of the Spokane Dry Goods Co. outstanding at all times herein mentioned was $1,000,000.
During the calendar year 1938 the petitioner kept its books on the accrual basis, and made its income tax return for that year on the accrual basis.
The board of directors of petitioner, at a meeting held on December 22, 1936, declared a dividend on petitioner's common stock in the total sum of $120,000, by adoption of the following resolution:
Whebeas this Corporation has a substantial surplus from earnings and is able to pay a dividend;
Therefoke Be It Resolved that a dividend of twelve per cent of the capital stock of the corporation be paid to stockholders of record December 28, 1936, which dividend shall be paid before December 31, 1936, either in cash or at the option of such stockholders in notes of the Corporation, which notes shall be payable on December 31, 1937, or before at the option of the Company, and bear interest at five per cent per annum until paid.
Of the total dividend declared in the amount of $120,000, $94,826 was paid with promissory notes of petitioner, pursuant to election by stockholders.
The promissory notes in the total sum of $94,826 delivered to stockholders on account of such dividend had an actual value at the time of delivery equal to their face value.
The petitioner in its income tax return for the calendar year 1936 claimed a dividends paid credit because of the above mentioned dividend in the sum of $120,000 declared on its common stock, of which the sum of $94,826 was on account of such promissory notes delivered to the common stockholders.
In the calendar year 1938 the petitioner paid to the holders of such promissory notes received by stockholders in payment of dividends the sum of $35,830.30, which sum represented the remaining principal balance of the notes issued in 1936.
The only question involved is whether petitioner is entitled to a "dividends paid credit" in the year 1938 on account of the payment of $35,830.30 to its stockholders to redeem its promissory notes delivered to such stockholders in 1936 in payment of dividends. Petitioner contends that it is entitled to the credit in question under the provisions of section 27 (a) (4) of the Revenue Act of 1938, notwithstanding it took a dividends paid credit in its income tax return for 1936 on account of dividends paid in that year in its obligations, the payment of the remaining principal of which in 1938 is the basis of the credit now claimed.
Although the present situation would fall within the language of section 27 (a) (4), if that were all there was to the matter, it is also described by section 27 (e) , which so far as material here is the same as section 27 (d) of the Revenue Act of 1936. In such circumstances the general provision must give way to the particular. Missouri v. Ross, 299 U. S. 72; Ginsburg & Sons, Inc. v. Popkin, 285 U. S. 204; United States v. Chase, 135 U. S. 255; McKee v. United States, 164 U. S. 287; Townsend v. Little, 109 U. S. 504, 512. Thus, section 27 (e), dealing specifically with the redemption of obligations issued in payment of dividends, prevails over the provisions of section 27 (a) (4), which deals with the whole class of corporate obligations. The apparently applicable sections do not need to be in conflict for this rule to apply. McKee v. United States, supra. Where Congress sets up a specific method of dealing with a narrow class of cases, as it has here, we think that treatment must be regarded as exclusive and that in the absence of indications to the contrary the general language of section 27 (a) (4), "although broad enough to include it, will not be held to apply to a matter specifically dealt with in another part of the same enactment." Ginsburg & Sons, Inc. v. Popkin, supra.
When to this it is added that we should not presume without unmistakable and definitive language that Congress intended to grant a double deduction for the same transaction, Ilfeld Co. v. Hernandez, 292 U. S. 62, and that no reason is apparent in the legislative history or suggested by petitioner why a particular class of taxpayers should have been singled out by Congress for this especially favorable treatment, we are unable to reach the conclusion that the credit to which petitioner lays claim is available to it.
Reviewed by the Board.
Decision will be entered for the respondent.
SEC. 27. CORPORATION DIVIDENDS PAID CREDIT.
(a) Definition in General. — As used in this title with respect to any taxable year the term "dividends paid credit" means the sum of :
*
(4) Amounts used or irrevocably set aside to pay or to retire indebtedness of any kind, if such amounts are reasonable with respect to the size and terms of such indebtedness. As used in this paragraph the term "indebtedness" means only an indebtedness of the corporation existing at the close of business on December 31, 1937, and evidenced by a bond, note, debenture, certificate of indebtedness, mortgage, or deed of trust, issued by the corporation and in existence at the close of business on December 31, 1937, or by a bill of exchange accepted by the corporation prior to, and in existence at, the close of business on such date. Where the indebtedness is for a principal sum, with interest, no credit shall be allowed under this paragraph for amounts used or set aside to pay such interest.
(e) Dividends in Obligations of the Corporation. — If a dividend is paid in obligations of the corporation, the amount with respect thereto which shall be used in computing the basic surtax credit shall be the face value of the obligations, or their fair market value at the time of the payment, whichever is the lower. If the fair market value of any such dividend paid in any taxable year of the corporation beginning after December 31, 1935, is lower than the face value, then when the obligation is redeemed by the corporation in a taxable year of the corporation beginning after December 31, 1937, the excess of the amount for which redeemed over the fair market value at the time of the dividend payment (to the extent not allowable as a deduction in computing net income for any taxable year) shall be treated as a dividend paid in the taxable year in which the redemption occurs.