Court Opinion

ID: 9424212
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:10:49.863175+00
Date Added: 2024-06-11T17:22:48.930201
License: Public Domain

Me. Justice Douglas,
with whom The Chief Justice and Mr. Justice Brennan concur,
dissenting.
I agree with the District Court, 274 F. Supp. 466, and with the Court of Appeals, 408 F. 2d 1139, that respondent’s contribution of working capital in the amount of $25,000 in exchange for 1,000 shares of preferred stock with a par value of $25 was made in order for the corporation to obtain a loan from the RFC and that the preferred stock was to be redeemed when the loan was *314repaid. For the reasons stated by the two lower courts, this redemption was not “essentially equivalent to a dividend,” for the bona fide business purpose of the redemption belies the payment of a dividend. As stated by the Court of Appeals:
“Although closely-held corporations call for close scrutiny under the tax law, we will not, under the facts and circumstances of this case, allow mechanical attribution rules to transform a legitimate corporate transaction into a tax avoidance scheme.” 408 F. 2d, at 1143-1144.
When the Court holds it was a dividend, it effectively cancels § 302 (b)(1) from the Code. This result is not a matter of conjecture, for the Court says that in the case of closely held or one-man corporations a redemption of stock is “always” equivalent to a dividend. I would leave such revision to the Congress.