Court Opinion

ID: 4485913
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:04.781416+00
Date Added: 2024-06-11T15:03:47.811638
License: Public Domain

Hill, J., dissenting: I disagree with the conclusion of the majority in respect of the year 1938. The result reached by the majority as to that year is, in my opinion, not within the intendment of Congress. It is certainly harsh. So harsh, I think, as to be almost, if not quite, unconscionably discriminatory against petitioner in the administration of the dividends paid credit provisions of the statute. Also, I think, under a proper interpretation of the literal provisions of the statute the result reached by the majority is erroneous. In 1938 dividends were declared and the dividend accounts of the several stockholders were credited therewith. Petitioner had ample earnings and ready funds for the payment of the dividends. In fact, the dividends to Cora had actually been handed over to her in 1938. The money in payment of dividends to the other stockholders would also have been handed over to them in 1938 but for an order of the Superior Court of California restraining such action. The stockholders reported these dividends as income for 1938 and paid taxes thereon. Under the facts here, I think they were legally bound to do so. Petitioner took the necessary steps to make the stockholders taxable in 1938 on the dividends credited. The purpose of the tax on the undistributed income of personal holding companies was to prevent the avoidance or postponement of taxes and to encourage current distribution of income so that the recipient stockholders would pay taxes on such income. This purpose has been fully served in the instant case. Under these circumstances, to deprive petitioner of a dividends paid credit is, I think, unjust and purposeless. The majority considers that “logic” forbids the allowance of the credit. I do not agree. When the directors resolved to dissolve petitioner in 1938 they thereupon became trustees for the stockholders and creditors. Fletcher, Cyclopedia Corporations, §8174; Hanson v. Choynski, 180 Cal. 275; 180 Pac. 816. When the dividends in question were declared and credited they became a fund held by the trustees for the stockholders. The stockholders thereby received such dividends through their agents, the trustees. The fact that the trustees, as agents, were temporarily enjoined by local law from delivering actual physical possession of the dividends is no bar to constructive receipt. H. L. Carnahan, 21 B. T. A. 893; Sara Twohy, 34 B. T. A. 444; Heiner v. Gwinner, 114 Fed. (2d) 723; Bonham v. Commissioner, 89 Fed. (2d) 725. See also I. T. 3415, C. B. 1940-2, p. 88, and I. T. 3802, 1946 I. R. B. No. 11, p. 5. There was no dispute or question as to the amount or the ownership of the dividends. That ownership was in the stockholders and not in petitioner. The dividends were temporarily impounded to assure their application toward discharge of the individual obligations of the stockholder-defendants to petitioner in the event the court in the pending action against them should decree that such obligations exist. The action of the court in modifying its restraining order to enjoin only the payment of the dividends was a recognition of the right of petitioner to declare and credit the dividends to the stockholders. ' The impoundment of the monej^s representing the dividends' declared and credited was a recognition of their ownership in the stockholders. The order of the court restraining petitioner or the trustees of the liquidating corporation from handing over the dividend moneys to the stockholders operated only as an attachment or garnishment of the stockholders’ dividend money to secure payments oí their obligations if and when it should be determined by the court that there were such obligations. In impounding the dividend moneys in the coffers of petitioner the court was dealing not with the petitioner’s funds, but with the moneys and obligations of the stockholders. Thus. I feel that logic not only does not support the majority view herein, but supports my individual views herein expressed. ARNOLD and Harlan, JJ., agree with this dissent.