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eBook details

• Title: Skenandoa Rayon Corp. v. Commissioner of Internal Revenue.
• Author : United States Court of Appeals for the Second Circuit
• Release Date : January 31, 1941
• Genre: Law,Books,Professional & Technical,
• Pages : * pages
• Size : 69 KB

Description

The main question presented by this appeal is whether the taxpayer is entitled to a dividends paid credit under section 27 of the Revenue Act of 1936, 26 U.S.C.A. Int. Rev. Acts, page 837. The facts are not in dispute. The taxpayer had outstanding 5,632 shares of 7% cumulative preferred stock (without par value) upon which dividends of $45.50 per share were in arrears on July 1, 1937.During the year 1937 the corporation made net profits of more than enough to pay the arrears of dividends on its preferred stock, but it desired to retain funds for expansion of the business. Pursuant to votes of its stockholders and directors a "Plan of Recapitalization" was proposed by the terms of which it offered $5.50 cash and 1.4 shares new 5% preferred stock of the par value of $100 in exchange for one share of old preferred stock on the understanding that the shareholders right to accumulated unpaid and undeclared dividends thereon would thereby be released. The offer was accepted by holders of all but 79 shares of the old preferred. The holders of such 79 shares received $45.50 cash per share. The Board allowed the corporation a dividends paid credit for the cash payments made to old preferred stockholders, that is, $45.50 per share on the non-exchanged shares and $5.50 per share on the exchanged shares. The taxpayer contends that it should have received a dividends paid credit of $40 more on each of the exchanged shares, a difference in the aggregate of $222,120. On the books of the corporation this sum was transferred from earned surplus to capital account and treated as the consideration received for the issuance of 2221.2 shares of the new preferred stock out of the total of 7774.2 shares distributed to holders of 5553 shares of the old preferred.

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