1. Under the Revenue Act of 1918, amounts distributed to the
stockholders of a liquidating corporation out of earnings and
profits accumulated by the corporation since February 28, 1913, are
not to be treated as "dividends," which, under § 201(a), are exempt
from normal tax, but as payments made by the corporation in
exchange for its stock, which are taxable "as other gains or
profits." § 201(c). P.
276 U. S.
236.
Page 276 U. S. 234
2. The objection that this result in double taxation cannot
prevail over the clearly expressed intention of the statute. P.
276 U. S.
237.
18 F.2d 239, 244 reversed.
Certiorari, 275 U.S. 513, to review two judgments of the circuit
court of appeals sustaining recoveries of money paid under protest
as income taxes.
MR. JUSTICE SANFORD delivered the opinion of the Court.
The two Hellmans brought these suits against the Collector to
recover additional income taxes assessed against them for the year
1919 under Title II of the Revenue Act of 1918, [
Footnote 1] and paid under protest. They
recovered judgments in the district court, which were affirmed by
the circuit court of appeals. 18 F.2d 239 and 244.
The question here is whether the gains realized by stockholders
from the amounts distributed in the liquidation of the assets of a
dissolved corporation, out of its earnings or profits accumulated
since February 28, 1913, were taxable to them as other "gains or
profits," or whether the amounts so distributed were "dividends"
exempt from the normal tax.
Section 201(a) of the Act defined the term "dividend" as
"any distribution made by a corporation . . . to its
shareholders . . . , whether in cash or in other property, . . .
out of its earnings or profits accumulated since February 28, 1913.
. . ."
Section 201(c) provided that:
"Amounts distributed
Page 276 U. S. 235
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."
Section 216(a) provided that, for the purpose of determining the
"normal tax upon the net income of an individual" (§ 210), there
should be allowed as a credit the "amount received as dividends
from a corporation which is taxable . . . upon its net income."
Treasury Regulations 45, which were promulgated under the Act,
stated, on the one hand, in Art. 1541, that, for the purpose of the
statute, "dividends" comprise distributions made by a corporation
to its stockholders "in the ordinary course of business, even
though extraordinary in amount." and, on the other hand, in Art.
1548, that:
"So-called liquidation or dissolution dividends are not
dividends within the meaning of the statute, and amounts so
distributed, whether or not including any surplus earned since
February 28, 1913, are to be regarded as payments for the stock of
the dissolved corporation. Any excess so received over the cost of
his stock to the stockholder, or over its fair market value as of
March 1, 1913, if acquired prior thereto, is a taxable profit. A
distribution in liquidation of the assets and business of a
corporation, which is a return to the stockholder of the value of
his stock upon a surrender of his interest in the corporation, is
distinguishable from a dividend paid by a going corporation out of
current earnings or accumulated surplus when declared by the
directors in their discretion, which is in the nature of a
recurrent return upon the stock. [
Footnote 2]"
These Regulations, with a change made in 1921 as to the second
sentence of Art. 1548, [
Footnote
3] are still in effect so far as distributions in liquidation
under the Act are concerned.
Page 276 U. S. 236
Each of the Hellmans owned one-half of the capital stock of a
corporation which had a net surplus of $46,466.27, of which at
least $31,545.58 consisted of earnings and profits accumulated
since February 28, 1913. In 1919, the corporation was dissolved and
liquidated, and its assets were distributed to the stockholders. In
this liquidation, each of the Hellmans realized a gain of
$15,004.55 in the distribution made out of the earnings and profits
accumulated since February 28, 1913. Each in his income tax return
claimed that this was a "dividend," which under § 216(a), was to be
credited on his net income for the purpose of the normal tax. The
Commissioner of Internal Revenue, ruling these were gains subject
to the normal tax, disallowed the claims and made the additional
assessments here involved.
The decision of the circuit court of appeals in this case is in
direct conflict with that of the Circuit Court of Appeals for the
Sixth Circuit in
Langstaff v. Lucas, 13 F.2d 1022.
The controlling question is whether the amounts distributed to
the stockholders out of the earnings and profits accumulated by the
corporation since February 28, 1913, were to be treated under §
201(a) as "dividends," which were exempt from the normal tax, or,
under § 201(c) as payments made by the corporation in exchange for
its stock, which were taxable "as other gains or profits."
It is true that, if § 201(a) stood alone, its broad definition
of the term "dividend" would apparently include distributions made
to stockholders in the liquidation of a
Page 276 U. S. 237
corporation -- although this term, as generally understood and
used, refers to the recurrent return upon stock paid to
stockholders by a going corporation in the ordinary course of
business, which does not reduce their stock holdings and leaves
them in a position to enjoy future returns upon the same stock.
See Lynch v. Hornby, 247 U. S. 339,
247 U. S.
344-346, and
Langstaff v. Lucas, 9 F.2d 691,
694.
However, when § 201(a) and § 201(c) are read together, under the
long established rule that the intention of the lawmaker is to be
deduced from a view of every material part of the statute,
Kohlsaat v. Murphy, 96 U. S. 153,
96 U. S. 159,
we think it clear that the general definition of a dividend in §
201(a) was not intended to apply to distributions made to
stockholders in the liquidation of a corporation, but that it was
intended that such distributions should be governed by § 201(c),
which, dealing specifically with such liquidation, provided that
the amounts distributed should "be treated as payments in exchange
for stock," and that any gain realized thereby should be taxed to
the stockholders "as other gains or profits." This brings the two
sections into entire harmony, and gives to each its natural meaning
and due effect. The Treasury Regulations correctly interpreted the
Act as making § 201(a) applicable to a distribution made by a going
corporation to its stockholders in the ordinary course of business,
and § 201(c) applicable to a distribution made to stockholders in
liquidation of the corporation. And this is in accord with the
rulings of the Board of Tax Appeals. Appeal of Greenwood, 1 B.T.A.
291, 295; Appeal of Chandler, 3 B.T.A. 146, 149.
The gains realized by the stockholders from the distribution of
the assets in liquidation were subject to the normal tax in like
manner as if they had sold their stock to third persons. The
objection that this results in double taxation of the accumulated
earnings and profits is no more
Page 276 U. S. 238
available in the one case than it would have been in the other.
See Merchants' L. & T. Co. v. Smietanki, 255 U.
S. 509;
Goodrich v. Edwards, 255 U.
S. 527. When, as here, Congress has clearly expressed
its intention, the statute must be sustained even though double
taxation results.
See Patton v. Brady, 184 U.
S. 608;
Cream of Wheat Co. v. Grand Forks,
253 U. S. 325,
253 U. S. 330.
The decree is
Reversed.
[
Footnote 1]
40 Stat. 1057, 1058, c. 18.
[
Footnote 2]
Regulations 45 (1919 ed.) 237, 240.
[
Footnote 3]
By Treas.Dec. 3206, the following sentences were substituted for
the second sentence:
"Any excess so received over the cost of his stock to the
stockholder constitutes income to such stockholder. However, if
such stock was acquired prior to March 1, 1913, and the fair market
value as of such date was greater than the cost but less than the
amount so distributed, the taxable income is the excess over such
fair market value of the amount received, but no gain is recognized
if the amount received, although more than cost, is less than the
fair market value of the stock on March 1, 1913."
23 Treas.Dec.Int.Rev. 763, 769.