Court Opinion

ID: 4498599
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:02.106032+00
Date Added: 2024-06-11T14:54:16.427566
License: Public Domain

Muedock,
dissenting: The purpose of Congress, in imposing the surtax upon undistributed profits, as indicated by the legislative history, was to force corporations to distribute their profits or suffer the high rates imposed in section 14. Here the section is being applied in the case of a corporation which dissolved during the taxable year and, in dissolving, distributed everything which it had, including both capital and accumulated profits. This seems like an unwarranted application of the act beyond its purpose.
The prevailing opinion, in order to reach this result, holds that the special provision of section 27 (f) is modified by section 115 (h), a general provision of the act. The Board, in the case of Credit Alliance Corporation, 42 B. T. A. 1020, held that section 27 (f) was not modified by section 27 (h), even though the latter related specifically to surtax on undistributed profits and seemed on its face to apply. Here, we go much farther than we were asked and refused to go in the Credit Alliance case. • ■
■ Section 115 (h) appeared for the first time in the Revenue'Act of 1934. It was there entitled “Disteibtttion of Stock on Reoeganization—Effect on Futuee Disteibutions.” It provided that a distribution of stock or securities by a corporation, pursuant to a plan of reorganization, where no gain or loss to the distributee was recognized, should not be considered a distribution of earnings or profits within the meaning of section 115 “for the purpose of determining the taxa-bility of subsequent distributions by the corporation.” Thus, the whole purpose was to make sure that future distributions by the corporation would be from earnings or profits accumulated after February 28,1918, in so far as the corporation had any such earnings. Clearly, the section was not intended to apply in the case of the complete liquidation of a corporation where there could be no subsequent distributions by the corporation. Congress could not have had in mind the provisions of the undistributed profits tax because those provisions were not enacted until a later revenue act. The changes made in section 115 (h) of the Revenue Act of 1936 were merely for the purpose of clarification. Furthermore, it seems to me that Congress did not have section 115 (h) in mind when it enacted section 27 (f) of the Revenue Act of 1936, and it did not intend that reference should be made to section 115 (h) (which has no purpose in the case of a complete liquidation), in order to determine what part of the *581amount distributed in complete liquidation of a corporation might properly be chargeable to the earnings or profits accumulated after February 28,1913.
The meaning of the phrase “properly chargeable to the earnings or profits accumulated after February 28,1913”, as used in section 27 (f), was determined in the Credit Alliance case. We pointed out that cases like Commissioner v. Sansome, 60 Fed. (2d) 931; certiorari denied, 287 U. S. 667, had no application. We said that the quoted words merely make a distinction between a charge to capital and a charge to earnings, so that no credit may be allowed for any distribution which should be charged to earnings or profits accumulated prior to March 1, 1913, or as a return of capital, and a'dividends paid credit is allowed only for that portion of a distribution which is properly allocable to earnings or profits accumulated after February 28,1913. “The intent, in our opinion, went no farther.” The regulation of the Commissioner and the legislative history of the provision were cited in support of the above conclusions. Obviously, the accounting for a complete liquidation requires that charges be made wiping out both capital and all accumulated profits, and under such circumstances, the amount properly chargeable to the earnings or profits accumulated after February 28, 1913, is the entire amount of those earnings or profits.
Disney agrees with this dissent.