Court Opinion

ID: 8588971
Source: CourtListenerOpinion
Date Created: 2022-11-23 15:42:25.416594+00
Date Added: 2024-06-11T16:54:22.034874
License: Public Domain

MaddeN, Judge,
dissenting.
The question is whether a $1,239,166.79 profit received on May 15, 1934, by Devonian Oil Company from the sale of three leases, and distributed to its stockholders in a special dividend on June 11, 1934, should be treated as having been earned by Devonian before, or after, June 11. The mere statement of the question would seem to answer it. It was in fact earned and received on May 15.
Plaintiff argues that we should treat the profit as if it had been received a little at a time throughout the entire year 1934, one three hundred and sixty-fifths of it on each day. The effect of our indulging in this fiction would be to make more than half of this sum nontaxable to the stock-
*194holders, including plaintiff, who received the profit by way of a special dividend, since, upon our assumption, we would have to regard more than half of the distribution of this profit as a distribution of capital.
The statutes are plain. Dividends paid to a stockholder constitute income in his hands for income tax purposes, if they are paid out of earnings or profits of the corporation and not out of its capital. The Bevenue Act of 1934, c. 277, Sec. 115, 18 Stat. 680, provides as follows:
(b) Source of distributions. For the purposes of this Act every distribution is made out of earnings or profits to the extent thereof, and from the most recently accumulated earnings or profits. * * *
By this statute the Commissioner of Internal Bevenue was, I think, required to treat this distribution on June 11 as having been made from the May 15 profit.
Plaintiff urges that because the Commissioner had, in other years, and in 1934, apportioned the Devonian Company’s ordinary profits over its fiscal year in determining what proportion of its regular quarterly dividends came from income and not from capital, he must do. the same with this special distribution of an extraordinary profit. The process of apportioning the earnings over the year is in the ordinary case a convenience to the corporation, the taxpayer-stockholder, and the Government. It saves the corporation the expense and trouble of making accountings at the several times in the year at which it pays its dividends, and permits it instead to have one accounting' to show how its affairs stood for the entire year. It saves the Government the expense and trouble of checking and verifying four accounts per year instead of one. Hence the practice seems to have been put into, effect by the Commissioner by common consent and in the interest of efficient administration.
The practice of apportionment would have served no purpose of convenience in the case before us. Both the profit and the distribution were so extraordinary, in comparison with the regular business of the Devonian Company, that a single look at the books shows where the money that was distributed came from, and when.
*195In Edwards v. Douglas, 269 U. S. 204, the Supreme Court of the United States approved the practice of apportionment, when there was no showing that the practice operated to the prejudice of the taxpayer. In Mason v. Boutzahn, 275 U. S. 175, that Court refused to sanction apportionment when its effect was to impose the higher tax rates of a later year upon income that had in fact been earned before that year. I think we should not require the Commissioner to use apportionment when it is demonstrable that it deprives the Government of revenue due it under the plain terms of the statute. I would dismiss plaintiff’s petition.