Court Opinion

ID: 9788571
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:01:02.880124+00
Date Added: 2024-06-11T07:37:13.283824
License: Public Domain

WHITAKER, Judge,
dissenting.
The inclusion in plaintiff’s income of the entire amount received by her for the redemption of her preferred stock in the Puro corporation was proper only if “the distribution and cancellation or redemption in whole or in part [was] essentially equivalent to the distribution of a taxable dividend.” The majority opinion holds that it was. I do not think so.
Plaintiff and other holders of the preferred stock paid cash for it. They received their common stock in consideration of the transfer to the corporation of their option to purchase the stock of the Chicago Water Purifying Company. At the time they bought the preferred stock it was agreed that it would be redeemed at the discretion of the Board of Directors. It was redeemed pursuant to this agreement.
In the opinion and in the findings it is said that it was redeemed from earnings and profits. This is a conclusion that I do not think is justified. Whether or not it was redeemed from earnings or profits or with the money which these people originally paid for the stock, it is impossible to say.
Moreover, at the time it was redeemed some of the holders held only the preferred stock. They did not own any common stock, and when their preferred stock was redeemed, their interest in the company ceased. Nor is it true that the preferred stock was redeemed pro rata until after the corporation called it and required all holders of it to permit its redemption. Before this some of the holders of it preferred to keep the stock and declined to allow it to be redeemed.
For the distribution to have been essentially equivalent to the payment of a dividend, the distribution must have been out of earnings and profits, it must have been pro rata, and it must have been to persons who remained stockholders after the redemption. It did not fulfil these requirements and, therefore, I cannot agree that it was proper to include within the plaintiff’s income the entire amount she received upon the redemption of her stock.
LITTLETON, Judge, concurs in the foregoing opinion.