Court Opinion

ID: 9650810
Source: CourtListenerOpinion
Date Created: 2023-08-23 15:52:35.972054+00
Date Added: 2024-06-11T18:12:26.185381
License: Public Domain

WOODROUGH, Circuit Judge
(dissenting) .
Congress provided for the personal holding company surtax involved in this case for the purpose of meeting prevalent tax avoidance through splitting up anticipated large incomes among multiplied holding companies, often called pocketbook corporations. The characteristics common to such corporations are that they are closely owned and get income by passively receiving it, rather than by working for it. Congress accordingly directed its definition of personal holding companies to those features and laid the surtax against those closely held corporations which derive their gross income from royalties, dividends, interest, annuities and gains from the sale of stock and securities. It excepted gains from the sale of stock in the case of regular dealers in stocks. It gave no definition of “sale” but disclosed its intent as to the kind of “sale” by exception covering the case of sales of regular dealers. The context leaves no doubt in my mind that any of the innumerable modes of extinguishing the ownership of one and vesting it in another for a price falls within the broad scope of the word “sale” in the definition so long as the case of regular dealers in stocks is not present.
There was no specific mention in the definition of disposal of stock by complete liquidation of the corporation issuing it, but that particular mode of extinguishing the ownership of one and vesting it in another for a price had already been treated as a sale in the computation of tax in White v. United States, 305 U.S. 281, 59 S.Ct. 179, 83 L.Ed. 172, and Hellmich v. Hellman, 276 U.S. 233, 48 S.Ct. 244, 72 L.Ed. 544, 56 A.L.R. 379, and Congress doubtless assumed the courts would do the same here.
It is necessary to do so in order to uphold the intent of Congress in respect to the taxation of incomes in the upper brackets. Unless gains derived by pocketbook corporations from complete liquidation of stocks owned by them are treated as gains derived from sale of the stock, the income Congress intends to tax may be passed by such liquidations from one pocketbook corporation to another and the very tax avoidance which Congress expressed its intention to prevent is facilitated. I would sustain the tax.