Court Opinion

ID: 9448444
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:36:22.977652+00
Date Added: 2024-06-11T17:31:26.291029
License: Public Domain

DARR, Senior District Judge,
sitting by designation (concurring in the .dissent) .
As I see the case the only applicable statutory provisions are:
Section 302 of the Internal Revenue Code of 1954, 26 U.S.C. § 302.—
“(a) General rule. — If a corporation redeems its stock (within the meaning of section 317(b)), and if paragraphs (1), (2), (3), or (4) of subsection (b) applies, such redemption shall be treated as a distribution in part or full payment in exchange for the stock.
“(b) Redemptions treated as exchanges.—
“(1) Redemptions not equivalent to dividends. — Subsection (a) shall apply if the redemption is not essentially equivalent to a dividend. * * *
“(5) Application of paragraphs.— In determining whether a redemption meets the requirements of paragraph (1), the fact that such redemption fails to meet the requirements of paragraphs (2), (3), or
(4) shall not be taken into account. * * * ”
*335The case will not turn upon the ratio between the number of shares of stock owned by Mr. Neff before the redemption and the number owned thereafter, and also there is out of consideration the language “immediately after the redemption.”
The sole question, as I see it, is a factual inquiry as to whether by redemption of the shares of stock Mr. Neff’s ownership in the corporation remained the same or was enhanced. This question will turn on whether his remaining shares of stock after the completion of the redemption plan were worth as much or more than the 99 shares of stock were worth before the redemption.
As stated in the majority opinion, immediately before the redemption the corporation needed additional operating capital; could not borrow money from the banks; and no purchaser would buy stock from Mr. Neff. Obviously the stock had no market value before the redemption. The amount paid to Mr. Neff for the stock would not fix the market value. Therefore, the only criterion for the value of the stock is the book value, which was said to be $852.47 per share. However, this includes the $19,035.00 received by Mr. Neff as an asset. Assuming that this amount was a dividend, the book value of each share of the corporation’s stock was $662.12. This latter is the proper figure to use in the calculations.
Five months after the redemption, the corporation sold 20 shares of this stock for $2874.00 per share. Between March 21, 1955 and January 11, 1956, 18 more shares were sold as follow:
9 shares ........ $3569.00 per share
3 shares ........ 3925.00 per share
4000.00 per share 4 shares
4250.00 per share 2 shares
This makes a total of $125,876 new money coming into the corporation’s treasury.
It will not be fair to say that the sale by the corporation set up a market value for the stock, the method would properly be the book value. Before the redemption, the corporation was worth $66,-212.00 as reflected by the book value of $662.12 per share. It received $125,-876.00 new money from the sale of the stock by the corporation, making the total assets of the corporation $192,088.00 and the book value of the 91 outstanding shares $2103.58 per share.
Before the redemption Mr. Neff’s 99 shares, at book value, were worth $65,-549.88 and after the completion of the redemption plan his 52 shares, at book value, were worth $109,386.16. The result is that Mr. Neff’s remaining 52 shares of stock after the redemption plan was completed were worth $43,836.-28 more than his 99 shares of stock before the redemption.1 It might also be noted that after the redemption plan, Mr. Neff still remained in control of the corporation.
After the redemption plan was completed Mr. Neff’s remaining stock was worth substantially more and he was, in addition, $19,035.00 to the good.
Under these facts it seems plain to me that the enrichment of Mr. Neff by the redemption transactions would definitely place the $19,035.00 he received as being essentially equivalent to a dividend.

. The calculations do not include the 9 shares of stock in the treasury of the corporation as an asset. If included as an asset in the calculations, Mr. Neff’s enrichment was more,