Court Opinion

ID: 4499045
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:16.072209+00
Date Added: 2024-06-11T15:04:06.435602
License: Public Domain

KeRN,
dissenting: I respectfully dissent, for the reason that m my opinion the circumstances present in this case require the application of the principle stated by the Board in the case of J. Natwick, 36 B. T. A. 866.
Meiaott,
dissenting: I agree with the views expressed by Mr. Kern in his dissent. The two families, each of which owned 50 percent of the stock of the corporation, have collectively received more than a quarter of a million dollars of its earnings and profits. If the Commissioner had attempted to treat the withdrawals by the stockholders in the earlier years as dividends they would have successfully resisted. See Irving T. Bush, 45 B. T. A. 609. Shall this substantial portion of the earnings go wholly untaxed? If “actualities” are considered the whole transaction was nothing more than a reciprocal cancellation of the indebtedness of the two families to their wholly owned corporation.
But if the holding of the majority that section 115 (g) is not applicable is correct, then I have considerable doubt as to the holding that section 115 (c) is not applicable. That is premised upon the assumption the stock, under the rationale of William A. Smith and W. C. Robinson, cited in the majority opinion, was treasury stock. The provision contained in the minutes of the special meeting making the stock not subject to withdrawal or sale except “upon the unanimous vote of the stockholders” prevents it being true treasury stock; for “Treasury stock is an asset in the company’s treasury and may be resold at any time as suits the corporate owner’s purpose * * Cohen Trust v. Commissioner, 121 Fed. (2d) 689. (For the general effect of a restrictive covenant see Tex-Penn Oil Co. v. Commissioner, 83 Fed. (2d) 518, and 300 U. S. 481.)
The majority place great reliance upon the testimony of the interested parties to the effect that all were anxious to reduce the indebtedness of the two principal stockholders. They collectively — ignoring in this connection the stock owned by other members of their families— owned 57% percent of the stock and the corporation had an earned surplus of more than two-thirds of a million dollars. There was no real reason for the corporation to fear that the indebtedness would never be paid or for the stockholders to fear that they would be unable to make payment. A portion of their stock could have been retired and their indebtedness liquidated at any time. Perhaps all were conscious of the fact that this would make the amounts previously withdrawn then taxable to them. This may well have been the reason they undertook to make it appear that the stock, though effectively retired, was «till outstanding.
Opper agrees with this dissent.