Palmer v. Commissioner
302 U.S. 63 (1937)

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U.S. Supreme Court

Palmer v. Commissioner, 302 U.S. 63 (1937)

Palmer v. Commissioner

No. 19

Argued October 19, 1937

Decided November 8, 1937*

302 U.S. 63

Syllabus

1. By §§ 111, 112, 113 of the Revenue Act of 1928, profits derived from the purchase of property, as distinguished from exchanges of property, are ascertained and taxed as of the date of its sale or other disposition by the purchaser. Profit, if any, accrues to him only upon sale or disposition, and the taxable income is the difference between the amount thus realized and its cost, less allowed deductions. P. 302 U. S. 68.

2. A sale by a corporation to its shareholders of part of its property which does not result in any diminution of its net worth cannot result in a distribution of profits, and is not a "dividend" within the meaning of § 115 of the Revenue Act of 1928. P. 302 U. S. 69.

The bare fact that a transaction, on its face a sale, has resulted in a distribution of some of the corporate assets to stockholders

Page 302 U. S. 64

gives rise to no inference that the distribution was of property worth more than the price received, and was therefore, to that extent, a dividend within the meaning of § 115.

3. Mere issue by a corporation to its shareholders of "rights" to subscribe for stock which it owns in another corporation, and their receipt by shareholders, is not a dividend as defined in § 115. P. 302 U. S. 71.

4. Where a corporation, through resolution of its board of directors, offers to its shareholders rights to subscribe, within a time limited, for shares which it owns in another company, intending a bona fide sale and fixing the price at the fair value of the shares at the time of the offer, the fact that, between the time of the offer and the exercise of the option by a shareholder, the rights were bought and sold at substantial prices on the exchange, or that the stock itself sold at price substantially above the stipulated purchase price, did not convert the sale, pro tanto, into a dividend. P. 302 U. S. 71.

5. Findings of the Board of Tax Appeals based on permissible inferences from the record are not to be set aside by a court even if, upon examination of the evidence, it might draw a different inference. P. 302 U. S. 70.

88 F.2d 559 reversed.

Review by certiorari, 301 U.S. 676, , of a judgment reversing the Board of Tax Appeals and sustaining a deficiency income tax assessment.

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