Court Opinion

ID: 4479122
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:13:28.925804+00
Date Added: 2024-06-11T14:53:57.130705
License: Public Domain

Forrester, J., dissenting: I must dissent from the holding of the majority that the payment of the $116,000 here involved was a taxable dividend to seller. I believe it was a part of the purchase price to seller and therefore a dividend to buyer. An analysis of the cases dealing with this problem, and they are cited by the majority, indicates to me that the disputed dividend is properly taxable to the party, be it seller or purchaser, who has the beneficial ownership of the stock when the right to the dividend becomes fixed. Otherwise stated, such dividend is properly taxable to the party who then bears the operating risks of the business and stands to benefit from profits or suffer detriment from losses. In the instant case I think it clear that buyer was in this position on April 15, 1954, when the right to this $116,000 dividend became fixed; indeed, the parties have stipulated that at this time “the Petitioner [seller] remained in control of the operations and affairs of Canadian Steel, subject only, however, after April 6, 1951, to ttie terms and conditions of HawJcer Siddley's offer of April 3, 1951, accepted by the Petitioner.'1'1 (Emphasis supplied.) Petitioner’s position then, was that of a trustee for purchaser, managing the property for purchaser’s benefit. I consider our holding in Sam E. Wilson, Jr., 27 T.C. 976 (1957), affirmed per curiam 255 F. 2d 702 (C.A. 5, 1958), as direct support for my position in the instant case. There the sales price of petitioner’s stock was fixed by the agreement at $4 million less net liabilities (excess of total liabilities over current assets) on the closing date which was in the future. The dividend payment in question (a cancellation of the seller-petitioner’s indebtedness to the corporation) was made after the agreement date and prior to the closing date; thus it was tantamount to a payment to the party who had a substantial interest in the continued success of the business venture because earnings up to the closing date enhanced his selling price (by decreasing net liabilities). What we said in Wilson is equally pertinent here (pp. 982-983) : The dividend [voluntary cancellation of stockholder’s debt to the corporation] is “inexorably someone’s income.” DeGuire v. Higgins, 159 F. 2d 921, 923 (C.A. 2, 1947) ; and that “someone” is the beneficial owner of the shares upon which the dividend was paid. Moore v. Commissioner, 124 F. 2d 991 (C.A. 7, 1941). * * * [Emphasis supplied.] I look upon the form of the transaction used by the parties, buyer and seller in the instant case, as relatively unimportant, for the true substance and effect of their agreement was that purchaser would pay so much for all of the assets, rights, and liabilities (except the $116,000 of designated surplus) represented by the stock of Canadian Steel, the agreement to be consummated by the transfer of such stock. It is less than realistic to suppose that the amount agreed to be paid as purchase price under this arrangement was not lessened because seller took the designated surplus or conversely, that purchaser would not have paid more if seller had not done so. Thus the disputed dividend in the instant case affected the quantum of the purchase price to be paid just as surely as did the voluntary cancellation of stockholder’s debt to the corporation in Sam E. Wilson, Jr., supra. True, the adjustment in the instant case was a prospective one made by the parties in anticipation of the designated surplus going to seller while the adjustment in Wilson, although probably anticipated by buyer and seller, was not actually effected until the stockholder’s debt was voluntarily canceled, but this difference does not distinguish or alter the principle upon which I rely. In each case the purchase price is changed because of the later action. Since I would hold that the $116,000 is taxable to petitioner as a part of the purchase price paid for the shares of Canadian Steel I would not reach the second and third points discussed by the majority. As to the third point however, I feel that the deemed-paid credit should be allowed under the facts of this case since petitioner had no interest in or control over Canadian Steel at the date of the refund and obtained no economic benefit therefrom.