Court Opinion

ID: 4500035
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:44.46384+00
Date Added: 2024-06-11T15:04:07.970029
License: Public Domain

*164OPINION.
Littleton :
The only question for consideration in this case is whether the dividend which the petitioner received on July 10, 1922, was paid by the Turner Oil Co. out of earnings accumulated prior to March 1,1913, and was therefore exempt from tax under the provisions of section 201 (b) of the Revenue Act of 1921, the pertinent part of which is as follows:
For the purposes of this Act every distribution is made out of earnings or profits, and from the most recently accumulated earnings or profits, to the extent of such earnings or profits accumulated since February 28, 1913; but any earnings or profits accumulated or increase in value of property accrued prior to March 1, 1913, may be distributed exempt from the tax, after the earnings and profits accumulated since ^February 28, 1913, have been distributed. * * *
We have found as a fact that all earnings which accrued from operations from March 1, 1913, to the date of the dividend here, sufficient to make the petitioner subject to surtax, had disappeared either through dividend payments or losses from operations, and we are also of the opinion that no profit was realized through the liquidation of the Refining Company by the Oil Company. The only question which remains is whether the earnings of the Refining Company which were accumulated prior to March 1, 1913, and which came to the Oil Company through liquidation of the Refining Company in 1916 would be exempt from tax when distributed to the stockholders of the Oil Company in 1922.
*165In the first place it should be noted that the statute here in question says “ any earnings or profits accumulated or increase in value of property accrued prior to March 1, 1913, may be distributed exempt from the tax after the earnings and profits accumulated since February 28, 1913, have been distributed.” Prior to March 1, 1913, the earnings of the Refining Cpmpany, which came to the Oil Company through liquidation in 1916, had accumulated in the hands of the Refining Company, but this was not true with respect to such earnings to the Oil Company. Prior to 1916 the Oil Company was merely a stockholder of the Refining Company and had no right to the earnings of the Refining Company until they came to it through liquidation in 1916, and therefore can not be said to have accumulated in the hands of the Oil Company until 1916.
By the liquidation, the Oil Company came into ownership of these earnings and they then became a part of its surplus, but this was not true prior to this time. True, the Oil Company owned stock of the Refining Company which did not have a greater value in 1916 than it had on March 1, 1913, but by the exchange of this stock for the assets of the Refining Company in 1916, a closed and completed transaction was effected on which a gain or loss might have been computed. It was then that the earnings of the Refining Company were accumulated to the Oil Company and not before, and consequently would not be exempt from tax under the provisions of section 201 (b) of the Revenue Act of 1921.
What part of the entire dividend here in question was paid from earnings of the Oil Company which had accumulated prior to March 1, 1913, and what part from the earnings of the Refining Company which came to the Oil Company in 1916, the evidence in the case is insufficient to determine.
The action of the Commissioner must, therefore, be affirmed.

Judgment will be entered for the resfondent.