Court Opinion

ID: 8883972
Source: CourtListenerOpinion
Date Created: 2022-11-26 21:21:24.110645+00
Date Added: 2024-06-11T17:06:49.009086
License: Public Domain

LEVENTHAL, Circuit Judge
(dissenting):
We are again confronted with the task of applying the skeletal provisions constituting the District of Columbia income tax law to determine the liability of a shareholder whose close corporation has liquidated and has distributed to its stockholders all of the corporate assets.
This problem has been the focus, one way or another, of more cases, decided cases and pending cases, both at the administrative stage and in litigation, than any other issue under the D.C. tax law. The problem is generated by the sketchiness of the D.C. tax provisions, the need for applying them to business transactions which are in large measure responsive to the Federal tax laws, and the difficulty of discerning any meaningful reason for giving the D.C. and Federal laws different consequences.
The legal problems have been exacerbated by a lack of consistent analysis by the D.C. assessors; instead they have lurched from one theory to another depending on how they could hope to collect taxes in a case. In turn there have been differences in approach by different panels of this court. I can quite understand why the D.C. Tax Court has stated1 that it has found our opinions irreconcilable. (It cited Berliner 2 and Snow3)
I am inclined to agree with the observation of the Oppenheimer II panel that the *470confusion plaguing taxpayer and collector alike, as well as the courts, is inherent in the anomaly of simultaneous application to the same taxpayer by the same legislature of two different sets of statutory provisions.
It is hard to understand why the D.C. tax authorities do not recommend to the Congress a termination of this disparity, especially since we are at a time when states — with the quality of independent sovereignty- — are seeking to simplify income tax assessment and collection by incorporating the provisions of the Federal tax laws.
But what is the court to do meanwhile ? It seemed to me that the court’s function is best served by articulating an approach that preserves the differences between the D.C. and Federal tax laws that are ineradicable, in view of their text, but that finds a dominant intention of Congress in the approach of the Federal laws wherever the text of the D.C. law does not interpose an insurmountable barrier. I found no such barrier in this case, and I was able to discern an approach for the D.C. tax laws that harmonizes most, and perhaps all, of the various precedents of this court with each other.
I regret that my colleagues declined to join in my approach. It is not compelled by, but it is consistent with that wording of the D.C. laws. My colleagues say otherwise, but I take due and wry note of how they found themselves able to adopt a construction of “cost” in D.C. Code § 47-1583 (1967) that is flatly at odds with its wording because they deemed that construction fully consistent with legislative goals.
The difference between us, I think, is that they put a lower value than I on the goal of harmonizing the D.C. and Federal tax approach. For me that goal should be dispositive of Congressional intent, to avoid finding duality of Congressional intent, unless such duality is clear beyond doubt.
I. Corporate Distribution Out of Earned Surplus is Expressly Taxable as a Dividend.
I pass over the facts of the particular case, which are stipulated.4 The central question is whether and to what extent petitioners were subject to taxation in 1960, when the stock they held since 1948 yielded them a return in the form of property received in liquidation, which three days afterward they sold for $234,-000.5
My approach to the tax consequences flowing from the 1960 distribution by Capitol of its unearned surplus can best be begun by reference to the part of the taxpayer’s receipts in 1960 ascribable to Capitol's earned surplus of $99,821.306 at the time of the liquidating distribution. The taxing authority determined that petitioners were liable for a tax for “dividends” in the amount of $59,892.-78, their 60:%- of earned surplus.
Petitioners did not protest this re-determination, which was clearly required by our 1958 opinion in Berliner v. District of Columbia, 103 U.S.App.D.C. 351, 258 F.2d 651, cert. denied, 357 U.S. 937, 78 S.Ct. 1384, 2 L.Ed.2d 1551 (1958). But it will be helpful to revert to the decision in Berliner to review the setting of the present decision.
In Berliner the taxpayer urged that Congress intended corporate liquidations under D.C. tax law to be governed by the same principle as that used in the Federal tax law.
The basic approach (with refinements) to complete liquidations under the Federal statute is, and has long been, to treat the *471transaction as an “exchange” of stock by the shareholder for assets from the corporation.7 Under this total exchange theory the shareholder receives capital gain or loss depending upon his cost for the stock and the fair market value of the assets distributed, and the holding period, that determines whether he is entitled to the special benefits attaching to long term capital gains, is reckoned by the length of time the shareholder owned the underlying stock.
This court ruled in Berliner that the history of the Federal law, and the language of the District law, would not support such a result, despite the logical appeal the pattern possessed. This ruling-has been consistently followed.8 I hasten to interject that this is an instance where the D.C. law is so clear on its face that it simply does not permit supposing that the intent of Congress was the same as that underlying the Federal law.
In Berliner the liquidating corporation distributed its accumulated earnings and the taxpayer-distributee argued that what he received was not dividends but gain derived from the exchange of his stock. The court held that the D.C. tax law specifically provides for full taxation of such earnings as a dividend, and failed to contain the express provision whereby the Federal law conferred special capital gains treatment. It was pointed out that the District of Columbia statute expressly provides for taxation of dividends, a term defined as meaning “any distribution made by a corporation * * * to its stockholders * * * out of its earnings, profits, or surplus (other than paid-in surplus), whenever earned by the corporation * * * whether distributed prior to, during, upon, or after liquidation or dissolution of the corporation.” 9 The court noted that the more favorable “exchange” treatment for distribution of the earnings was introduced into Federal law by express provision of the 1918 Revenue Act.10 It was observed that prior to and in the absence of this provision, Federal law had required distribution from corporate earnings to be taxed as “dividends” even for corporate distributions in liquidation.
II. Corporate Distribution op Unrealized Appreciation Is Not Taxable As a Dividend.
The question arises as to the tax consequences under the D.C.Code to the recipient of a corporate distribution of a non-inventory asset which has a current value higher than cost to the corporation, reflecting unrealized appreciation.
In District of Columbia v. Oppenheimer, 112 U.S.App.D.C. 239, 301 F.2d 563 (1962) — Oppenheimer I — the District attempted to tax as a dividend the full value of property which the corporation distributed in kind to shareholders. There, as here, the distribution consisted of property that had undergone great appreciation in value and there, as here, the corporation had never realized the gain on this increase by selling the property itself. The District argued that the act of distribution resulted in the corporation’s “constructively” realizing a gain on the appreciated value of the assets. This court rejected the District’s theory stepping up earned surplus.
The court held that unrealized appreciation was not “earned” income which is taxable under statutory definition of *472“dividend.” It said: “Since the corporation never realized the appreciation, by sale or otherwise, it was never a part of the corporation’s income or earnings.”11 Berliner was distinguished as a case of realized appreciation, where the corporation had sold its assets before making a distribution.
Notwithstanding Oppenheimer I, the District sought to defend the tax deficiency asserted against petitioners in the case at bar on the ground that the distribution by Capitol to its stockholders represented a realization of income and hence a dividend to the stockholders to the extent of current market value. The District’s contention was that ultimate sale of the Chastleton stock had been engineered by Capitol prior to its dissolution so that it was Capitol and not the stockholders who should be taken as having made the sale. This court rejected that argument as inconsistent with the stipulation which limited earned surplus to the amount of $99,821.30. Verkouteren v. District of Columbia, 120 U.S.App.D.C. 361, 346 F.2d 842 (1965).
III. The Corporate Distribution of Assets Reflecting Unearned Appreciation Should Be Held Taxable as a Return of Capital — First, Reducing Basis of Stock; Then, Resulting in Taxable Gain as to any Excess, Except as to Stock Held More Than Two Years.
On the remand after our 1965 decision, the District Government and the Tax Court assumed that the corporate distribution on January 29,1960, was devoid of significance under the D.C. tax law insofar as value of assets distributed reflected unrealized appreciation. (A tax deficiency against petitioners was upheld on the ground that a taxable gain occurred later when the stockholders sold the assets.)
A. Applicable Doctrine and Analysis of Basic Tax Concepts
Although the stockholder’s receipt of a distribution of corporate assets reflecting unearned appreciation is not taxable as receipt of a dividend, that does not necessarily mean that the stockholder realizes no income, no gain or loss.
The correct analysis is aided, I think, by first approaching the situation without the special complications of a corporation in dissolution and a distribution of property in kind.
Suppose an on-going corporation makes a cash distribution that is not taxable as a “dividend” — because the corporation has no earnings. This is a commonplace, everyday occurrence in the case of a real estate corporation that has large accruals in depreciation reserves that result in losses in the financial statements, yet has large cash flow that it distributes to the stockholders. Such distributions, sometimes called “non-taxable dividends” in business circles, are not devoid of consequence under the D.C. tax law. Their proper significance is that they are a return of capital, which serves to reduce the basis of the shares held by the stockholder. If these non-taxable dividends reach an amount that exceeds the cost (or other tax basis) of the shareholder’s stock, the difference constitutes taxable gross income, under 47 D.C.Code § 1557a12 (1967), in my opinion, because he got back more than he invested. This income is fully taxed if within two years after a shareholder buys stock he receives distributions (other than taxable “dividends”) exceeding the cost of the stock. However, if his stock is a “capital asset" under the D.C.Code because it is *473not an item of inventory or stock in trade and it has been held by the stockholder for more than two years,13 the amounts received thereon as return of capital are neither includible in gross income as gains14 nor deductible from gross income as losses.15 This is the holding in District of Columbia v. Goldman, 117 U.S.App.D.C. 219, 328 F.2d 520 (1963), a holding to which I would adhere.16
The same tax consequences flow when the distribution by a corporation without earned surplus is not of cash but of property with a fair market value.
The same consequences likewise flow whether the distribution (in cash or property) is by a corporation that is on-going or in liquidation. As Berliner makes clear, the D.C.Code makes no distinction, for purposes of income tax liability of stockholder-distributees, between an ongoing or liquidating corporation.
B. Consideration of Our Precedents
The foregoing analysis of the tax significance of corporate distribution of capital assets, on-going or in liquidation, is not only expressly responsive to doctrine set forth in precedents -such as the 1963 Goldman ruling, but also establishes a line of harmony that makes mean-, ingful our entire string of applicable precedents — including 1958 Berliner and its progeny (see supra note 8); the 1962 ruling in Oppenheimer I; and the 1965 ruling in Snow.
In Snow the taxpayer purchased all of the stock of a corporation and shortly thereafter liquidated it, receiving all of the assets. The cost of the stock was $1,000,000. The corporation’s earned surplus at distribution was $300,000. The value of the assets distributed was $1,000,000. Accordingly, the taxpayer became liable for taxes on a “dividend” of $300,000, but he received non-inventory assets in kind with a fair market value of $1,000,000, leaving $700,000 of distribution unaccounted for. We held that this $700,000 was to be treated as a return on taxpayer’s investment, to be treated as gain or loss on the basis of the cost of the stock ($1,000,000). Thus, the taxpayer suffered a loss on his investment which was fully realized at the time of the distribution. This loss — of $300,000 —was fully deductible (although the assets were in kind) since the property *474out of which the loss grew was held for less than two year by the taxpayer.
As the court observed in Snow,
If Snow had paid only $500,000 for the stock, surely the District would urge that when he received $700,000 [less than two years later] for that stock he owed a tax on $200,000. Indeed its counsel admitted as much in oral argument. (Emphasis supplied.)
124 U.S.App.D.C. at 73, 361 F.2d at 527.
My approach would establish a line of consistency with Snow, and also Berliner and Oppenheimer I. The point is, simply, that part of the liquidating distribution is taxable as a “dividend” included in ordinary income (by virtue of the express provision relied on in Berliner) and the rest of the distribution is taxable like any other return of capital.
Conversely, the ruling of Oppenheimer I, that distribution of an asset reflecting unrealized appreciation does not permit taxation of that appreciation in value as ordinary income as a dividend,17 is consistent with recognition that distributions on stock (not held for inventory) are taxable like any other return of capital. Under District of Columbia law return of capital is taxable in full if the stock has been held two years or less, but is exempt, as appears from Goldman, if the stock is long term. In Oppenheimer I, the liquidating distribution came on stock held more than two years. The court properly rejected the inclusion of the value of the distribution in income.
For convenience in presentation, our depreciation rulings, notably Oppenheimer II, will be discussed separately below. I interject that I think they are also consistent with my approach.
C. Further Probing of Intent of Congress, as Indicated in Language of D.C.Code and Further Illuminated by Federal Tax Legislation
My analysis is fully supported, I think by a careful probing of the language of the D.C.Code and the policy or intention of Congress as reflected therein and as illuminated by the relevant concepts that have been identified in regard to Federal tax legislation.
Perhaps a fair note to strike at this juncture is one of caution against exaggerating the significance of the difference between the provisions of the D.C. and Federal tax laws. Where these differences expressly or by fair implication signal a difference in policy they must be respected, as Berliner makes clear. But where a question of interpretation arises under the D.C. law because it is skeletal or silent, it is not inadmissible to take as an assumption, in the absence of contrary indicia, that filling in the gaps of the D.C. law with a doctrine reflecting working concepts of tax theory and analysis of a kind approved by Congress for Federal tax purposes is not so destructive of legislative policy as to be contrary to sound construction of the D. C. tax provisions.18
My analysis is supported, however, by more than a general presumption of harmony. It is supported by close examination of what Congress has done in fashioning tax policy and tax wording for the kind of fact situation under consideration.
It is first appropriate to recall and emphasize how Congress excluded distributions of assets reflecting unrealized appreciation from the scope of ordinary income. In the original 1913 Federal income tax law the word “dividend” was *475used broadly enough to include all corporate • distributions to shareholders (with exceptions, e. g., distributions from paid-in capital). Use of the term “dividend” without qualification was apparently broad enough to include distributions reflecting the unrealized increment in the value of property owned by the corporation.19
The 1916 Federal act defined dividends in a more restricted way “to mean any distribution made or ordered to be made by a corporation * * * out of its earnings or profits accrued since * * * [1913] and payable to its shareholders, whether in cash or in stock of the corporation * * * to the amount of its cash value.” 20
This provision of the 1916 Federal law is obviously similar to the current D.C. Code definition of dividends. The similarity between the two statutes becomes more complete with the 1921 Federal law. Prior to 1921 the Federal law taxed gains from the sale of capital property in the same way as other income. In 1921 Congress responded to the problem raised concerning those realizations of income that were not fruit from the tree, but really represented . conversions of the form and nature of the capital tree, where the gain realized was often a large gain that had accrued over a long period of time, rather than a share of the annual crop of earnings, and the inclusion of the gain resulted in high surtaxes. These considerations led Congress to the familiar Federal capital gain tax provisions, which provided lower rates for gains on capital-type assets held more than two years. Burnet v. Harmel, 287 U.S. 103, 106, 53 S.Ct. 74, 77 L.Ed. 199 (1932).
The D.C. tax law gives the separation of speculators from investors somewhat different characteristics from those in the Federal law. Under the D.C. law long term gains and losses are excluded from tax entirely and not merely in part. Also Congress has amended the Federal law, but not the D.C. law, to make six months the dividing line rather than two years. These are differences of detail. The broad policy enlivening both D.C. and Federal statutes since 1921 is a deliberate removal of any disincentive or deterrence to conversion of the form of capital wealth that might result from taxing the transaction as a realization of income to be treated in the same way as ordinary income.
Section 202 of the 1921 Federal Revenue Act, ch. 136, 42 Stat. 229, defined basis for determining gain or loss on the sale of property. In § 201(c) Congress provided that distributions to stockholders made other than out of earnings or profits “shall be applied against and reduce the basis provided in section 202 for the purpose of ascertaining the gain derived or the loss sustained from the sale or other disposition of the stock or shares by the distributee.” 21
This provision applied where “increase in value of property” was a source of distribution to the stockholder. But it did not expressly set forth the rule applicable where the stock was not sold, so *476that the “basis” provision of section 202 had no applicability. The Senate Committee Report reflected the applicable underlying doctrine of tax law, stating that where such distributions return to the stockholder more than the cost price “he is taxable * * * with respect to the excess in the same manner as though such stock had been sold.” 22 (Emphasis supplied.)
Let me pause for emphasis and reiterate this point: The tax authorities and Congressional committees all understood, and regarded as fully conforming to underlying legislative intent,, a situation whereby — notwithstanding the absence of specific statutory language — a return of capital (on stock) is treated as income realized “as though such stock had been sold.” And it is given “favorable” capital gain treatment!
In 1924 Congress did add to the Federal tax laws an express paragraph that such returns of capital, to the extent of excess remaining after reducing basis of the stock to zero, “shall be taxable in the same manner as a gain from the sale or exchange of property.” 23 This was not put forward as a change. It is explained in Committee Reports as merely a crystallization, in express language, of the Treasury practice under the 1921 act.24
This historical background reenforces the holding of Goldman that the D.C. law exempts from taxation corporate distributions, other than distributions out of earnings, even though they return to stockholders an amount exceeding the cost of stock, where such receipt comes more than two years after purchase of the stock.
The matter is not expressly covered by the D.C.Code in the same way as it has been in the Federal law since 1924. But there is a framework of basic tax concepts relating to capital gain as well as to ordinary income. The materials relating to the state of the Federal tax law under the 1921 act show that these basic concepts provided consensus for the application of favored capital treatment to the case where there are distributions (not out of earnings) reflecting gain on the holding of a stock investment — even in the absence of and prior to the addition of express provision that such distributions are to be taxed “in the same manner as though such stock had been sold.”
To recapitulate my view, the stockholder who receives for his own dominion and disposition property in which he previously held only a beneficial interest, dependent on the management and disposition decided on by the corporate directors, has a realization on his stock that is included in his gross income, to the extent of fair market value of the property. If his stock holding is “short term” he is fully taxable on any gain — excess over cost of stock — as ordinary income. But if his holding is “long term,” the favored tax treatment provided by Congress, different only in details under the D.C. and Federal laws, extends to this kind of change in the form of the capital-type asset (stock plus property instead of mere stock) as constituting a return of capital, treated in the same way as the realization of gain upon a sale of the stock.
D. Consistency with Depreciation Rulings
I now consider, and on reconsideration reject, the possibility of a contention that my approach is subject to challenge on the ground of inconsistency with our depreciation rulings, notably Oppenheimer II.
Oppenheimer II establishes that when property with an unrealized increment in value is distributed in liquidation of a close corporation to a stockholder its basis in the hands of the stockholder for purposes of depreciation is no greater than the basis in the hands of the corporation plus allocable earned surplus. *477That case, as both majority and concurring opinions recognize, turns on the peculiar depreciation provisions of the D.C. law.
Since depreciation involves only a deduction reducing tax payable, which essentially is a matter of legislative grace, it is subject to a narrow reading, as requiring an actual “sale” or “exchange” of property in order to increase basis. This deduction stands in contrast to the provisions relating to gain or loss on non-inventory assets, since, as was pointed out in Snow, holding these provisions applicable may result in increase as well as decrease of taxes payable.
Oppenheimer II did not disapprove the Tax Court’s conclusion that the depreciation deduction provided by Congress permitted a “reasonable” step up to the extent of taxable income realized in distribution. Such reasonable step up would presumably apply not only in the case of taxable income realized by way of dividend, but also taxable income by way of return of capital exceeding the cost of stock held two years or less. Oppenheimer II refused to apply the “reasonable” depreciation provision to step up basis in the case of a close corporation stockholder owning the stock for a long term, and who thus realized no taxable gain. Such a taxpayer was not permitted to avail himself of all the benefits of the depreciation deductions and basis utilized by the corporation, and then claim the benefit of an increase in basis for depreciation even though there had been neither a change in beneficial ownership, nor a taxable gain. To the extent that there was some exposure to taxation (for the liquidating “dividend” paid out of earned surplus) the Tax Court permitted a step up in basis as “reasonable,” in a ruling that was neither contested by the District nor criticized in the majority opinion.
Snow (supra, note 3), thought a different rule was “reasonable” in the case of a newcomer who had to lay out considerable cash in order to acquire the depreciable asset owned by a stranger corporation. There, a change in basis for depreciation was held to accompany a change in beneficial ownership. Whether or not this depreciation ruling of Snow is retained or redefined,25 it is manifestly consistent with a ruling that the short-term stockholders realize gain if the asset received in liquidation exceeds cost of the stock.
IV. Tax Significance of Subsequent Sale of the Assets Received in Liquidating Distribution.
In my view the liquidating distribution by Capitol to petitioners resulted in (1) a taxable dividend of $59,892.78; (a) a return of capital of $720, the cost (adjusted basis) of the Capitol stock; and (2) an additional return of capital, constituting $221,712.00 on the stock of petitioners which is excluded under the District of Columbia Code since at the time of the distribution to them petitioners had owned the stock for more than two years.
I now consider the tax consequences attaching to the subsequent sale by the stockholders of the property received in the corporate distribution.
Respondent District contends that taxable gain was realized by petitioners when they sold their property at fair market value three days after distribution. The District would determine the amount of gain by ascribing a basis to the Chastleton stock of $12,288, computed by adding the “dividend” portion of the 1960 distribution of the Chastleton stock, to the cost basis of the Capitol stock in petitioner’s hands. The District’s brief in support of this calculation adds the qualification that it was made “[w]ithout regard to the de minimis amount of capital investment included in the book value of the [Capitol] stock.” 26
If the District really believed in its analysis it would tax the entire proceeds *478of the sale, to the extent exceeding cost of the Capitol stock, since the statute is explicit that basis equals cost, and provides no justification for increasing basis to the extent of dividends received. This provision does not contain the latitude for “reasonable” adjustments provided in the provision for a depreciation deduction.
The District argues that its approach is justified in order that the “gain” to the stockholder be caught and taxed. I have already discussed the means by which such gains are caught at the time of distribution (if realized by a short-term speculator), and if they are not taxed at that time, it is because of countervailing sections of the statute (applicable when the gain is realized by a long term investor).
The sound analysis pertaining to property distributed by a corporation to its stockholders is that it has a basis in the hands of a stockholder equal to the fair market value at the time of distribution. The Code is explicit as to property constituting a “dividend.” As to property constituting a return of capital, we are remitted to the general doctrine that the fundamental basis of property is “cost.” Basic tax law concepts, expressly confirmed by both D.C. and Federal statutes, makes it clear that the cost concept translates in the case of property acquired on exchange to the fair market value of the property received at the time of receipt. The same rule applies when a distribution of property is not an exchange but a return of capital, constituting “gross income,” whether by an on-going corporation (like the distribution considered in Goldman) or by a corporation in dissolution (cf. Berliner v. District of Columbia, supra note 2).
In terms of tax concepts the property received has a “cost” equal to its fair market value because that amount is forthwith and instantaneously applied in reduction of the cost basis of the stock. That reduction of cost basis exposes a shareholder to increase in present or future tax liability.27
This analysis is in accordance with the history of the construction of the Federal statute. At the present time, pursuant to a 1954 amendment, the Federal Internal Revenue Code expressly provides that fair market value is “the basis of property received in a distribution” without differentiation between distributions to shareholders constituting dividends or return of capital.28 But the same result was reached even in the absence of express language, as a corollary of the core “cost” concept of basis.29
Accordingly, the property distributed to Capitol’s stockholders had a basis in their hands of fair market value at time of distribution. Since petitioners sold that property within two years after receipt, gain or loss would have been recognized in full if the property had increased or decreased in value between the date of receipt as a corporate distribution and the date of subsequent disposition. Here, of course, there was no change in value in that three-day period, and accordingly, in my view, no gain or loss was realized at the time of disposition.
For the foregoing reasons I would have granted the petition for review, and reversed the determination of the Tax Court.

. See Lenkin v. District of Columbia, CCH D.C.Tax Rep. ¶ 200-113, at 10378 (D.C. Tax Ct. October 11, 1967).

. Berliner v. District of Columbia, 103 U.S.App.D.C. 351, 258 F.2d 651, cert. denied, 357 U.S. 937, 78 S.Ct. 1384, 2 L.Ed.2d 1551 (1958).

. Snow v. District of Columbia, 124 U.S.App.D.C. 69, 361 F.2d 523 (November 22, 1965), rehearing en banc denied (February 1, 1966). Oppenheimer v. District of Columbia, 124 U.S.App.D.C. 221, 363 F.2d 708 (June 17, 1966), rehearing en banc denied (August 17, 1966) (so-called Oppenheimer II or Second Oppenheimer), decided after Snow, does not mention Snow, but cites Berliner with approval.

. See Verkouteren. v. District of Columbia, 120 U.S.App.D.C. 361, 346 F.2d 842 (1965).

. The record does not indicate who negotiated the sale, Capitol or petitioners. See Verkouteren v. District of Columbia, supra note 4.

. This figure is stipulated to be correct. See Verkouteren v. District of Columbia, supra note 4, where respondent unsuccessfully attempted to enlarge this amount in the teeth of a stipulation.

. Int.Rev.Code of 1954, § 331.

. See Doyle v. District of Columbia, 124 U.S.App.D.C. 207, 363 F.2d 694 (1966) ; Estate of Uline v. District of Columbia, 124 U.S.App.D.C. 5, 360 F.2d 820 (1966) ; Snow v. District of Columbia, 124 U.S.App.D.C. 69, 361 F.2d 523 (1965) ; District of Columbia v. Oppenheimer, 112 U.S.App.D.C. 239, 301 F.2d 563 (1962)

. 47 D.C.Code § 1551c (m) (1967).

. That law provided: “Amounts distributed in the liquidation of a corporation shall be treated as payments in exchange for stock or shares, and any gain or profit realized thereby shall be taxed to the distributee as other gains or profits.” Rev.Act of 1918, ch. 18, § 201(c), 40 Stat. 1059 (now Int.Rev.Code of 1954, § 331).

. See 112 U.S.App.D.C. at 240, 301 F.2d at 564.

. This section taxes:
“gains, profits, and income derived from salaries, wages, or compensation for personal services of whatever kind and in whatever form paid * * * or income derived from any trade or business or sales or dealings in property, whether real or personal * * * also from rent, royalties, interest, dividends, securities or transactions of any trade or business carried on for gain or profit, * * * and income derived from any source whatever.”

. D.C.Code § 1551c(l) :
“The words ‘capital assets’ mean any property, whether real or personal, tangible or intangible, held by the taxpayer for more than two years (whether or not connected with his trade or business), but do not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the end of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.”

. See 47 D.C.Code § 1557a (1967) : “(b) The words ‘gross income’ shall not include the following: * * * (11) Capital Gains. — Gains from the sale or exchange of any capital assets as defined in this subehapter.”

. See 47-1557b (1967) : “(b) Deductions not allowed — In computing net income, no deductions shall be allowed in any case for_* * *
(6) Capital losses. — Losses from the sale or exchange of any capital asset as defined in this subchapter.”

. The ruling in Goldman is that distributions out of capital (depreciation reserves) are not taxable when received by stockholders who have held their stock for more than two years. The court relied on the provisions of Sections 1557a, 1557a (b) (11), 1551c ((), defining gross income as including income from sales or dealings in property other than capital assets (property, other than inventory, held for more than two years), and pointed out that the exemption of capital income held by investors, rather than short term speculators, afforded “encouragement of an investor in the economic life of the District.”
The court did not expressly focus on the taxability of distributions out of capital within two years or less. Nor did it advert to the tax significance of such distributions as first reducing basis and then constituting income (taxable if short term). However this analysis was set forth in precedents quoted by the D.C. Tax Court and the treatment and opinion of that court, as well as the result, were expressly approved by this court (see 117 U.S.App.D.C. at 220, 328 F.2d at 521).

. Distribution to stockholders does not of itself effect realization of income to the corporation, and hence is not taxable as a dividend. See also General Util. & Operating Co. v. Helvering, 296 U.S. 200, 56 S.Ct. 185, 80 L.Ed. 154 (1935) ; , cf. 8. Rep. No. 2114, 76th Cong., 3d Sess. 25 (1940): “Of course, mere increase or decrease in value (after February 28, 1913) of property owned by a corporation does not increase its earnings profits.”

. Broadcasting Publications, Inc. v. District of Columbia, 114 U.S.App.D.C. 163, 166, 313 F.2d 554, 557 (1962).

. See Lynch v. Hornby, 247 U.S. 339, 344, 38 S.Ct. 543, 545, 62 L.Ed. 1149 (1918) :
“Dividends are the appropriate fruit of stock ownership, are commonly reckoned as income, and are expended as such by the stockholder without regard to whether they are declared from the most recent earnings, or from a surplus accumulated from the earnings of the past, or are based upon the increased value of the property of the corporation.’’ (Emphasis added.)

. See Rev.Act of 1916, ch. 463, § 2(a), 39 Stat. 757.

. Rev.Act of 1921, ch. 136, § 201(c), 42 Stat. 228.
Any distribution (whether in cash or other property) made by a corporation to its shareholders or members otherwise than out of (1) earnings or profits accumulated since February 28, 1913, or (2) earnings or profits accumulated or increase in value of property accrued prior to March 1, 1913, shall be applied against and reduce the basis provided in section 202 for the purpose of ascertaining the gain derived or the loss sustained from the sale or other disposition of the stock or shares by the distributee.

. S.Rep. No. 275, 67th Cong., 1st Sess. 9-10 (1921).

. Rev.Act of 1924, ch. 234, § 201(d), 43 Stat. 255. ;

. S.Rep. No. 398, 68th Cong., 1st Sess. 12 (1924); H.R.Rep. No. 179, 68th Cong., 1st Sess. 12 (1924).

. I am not called upon to reconsider Snow or indicate its limitations. It suffices here to say that the depreciation ruling in Snow is not inconsistent on its facts with the depreciation ruling in Oppenheimer II.

. Brief for Respondent p. 3, n. 2.

. A short-term holder has this exposure under present provisions of D.C. law— either at time of distribution, if the return of capital exceeds the cost of the stock, or at the time the stock is sold. A long-term holder currently has the benefit of an exemption under D.C. law, unless before the stock is sold legislation causes this exemption to be modified, say to provide only the partial benefit of lower rates of taxation for long-term capital gains, or even removed.

. Xnt.Rev.Code of 1954, § 301(d) (1). A special provision is inserted where the shareholder is a corporation.

. See Merten, Law of Federal Income Taxation, Commentary § 301(d) (1968), citing Estate of Isadore L. Myers, I.T.C. 100 (1942). There was no express provision prior to 1954 in the. case, e. g., of a distribution of property that operated in the stockholder’s hands as a partial reduction in the cost basis of his stock.