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Helvering v. National Grocery Co., 304 U.S. 282 (1938)

Helvering v. National Grocery Co.

No. 723

Argued April 8, 11, 1938

Decided May 16, 1938

304 U.S. 282


Section 104 of the Revenue Act of 1928 provides that, if any corporation, however created or organized, is formed or availed of for the purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting its gains and profits to accumulate instead of being divided or distributed, there shall be levied, collected, and paid for each taxable year upon the net income of such corporation an additional tax equal to 50 percentum of the amount of such income, and that the fact that the gains or profits are permitted to accumulate beyond the reasonable needs of the business shall be prima facie evidence of a purpose to escape the surtax. From the evidence before it, the Board of Tax Appeals found that the respondent's accumulations in a taxable year were beyond such needs; that the evidence did not overcome the presumption, and that the corporation was availed of for the interdicted purpose. The corporation had but one stockholder, so that rights of minority stockholders were not involved.


(1) The Act does not violate the Tenth Amendment by interfering with the right of the corporation to declare or withhold dividends. It merely lays the tax upon corporations that use their powers to prevent imposition upon their stockholders of the federal surtaxes. P. 304 U. S. 286.

(2) The Act is not unconstitutional as imposing, not a tax upon income, but a penalty to force distribution of corporate earnings in order to create a basis for taxation against stockholders. P. 304 U. S. 288.

Congress may impose penalties in protection of the revenue. Helvering v. Mitchell, 303 U. S. 391.

(3) The tax is not objectionable as a direct tax on a mere purpose -- a state of mind. P. 304 U. S. 289.

It is a tax on the income of the corporation. The existence of the defined purpose merely determines the incidence of the tax.

(4) The standard prescribed to guide the Commissioner in assessing, or the corporate directors in avoiding, the additional tax, is not too vague. P. 304 U. S. 289.

(5) The retroactive assessment is not constitutionally objectionable. P. 304 U. S. 290.

Page 304 U. S. 283

(6) The statute doe not delegate legislative power to the Commissioner. P. 304 U. S. 290.

(7) Depreciation in any of the assets is evidence to be considered by the Commissioner and the Board of Tax Appeals in determining the issue of fact whether the accumulation of profits was in excess of the reasonable needs of the business. But depreciation in the market value of securities which the corporation continues to hold does not, as matter of law, preclude a finding that the accumulation of the year's profits was in excess of the reasonable needs of the business. P. 304 U. S. 291.

(8) The evidence in this case supports the findings of the Board of Tax Appeals that the accumulation of a huge surplus by the taxpayer -- a chain grocery company -- was not with a purpose of providing for the expansion of the business, but to enable the sole stockholder to escape surtaxes. P. 304 U. S. 291.

(9) To weigh the evidence, draw inferences from it, and declare the result is a function of the Board of Tax Appeals not subject to review by the Circuit Court of Appeals. P. 304 U. S. 294.

92 F.2d 931 reversed.

Certiorari, 303 U.S. 630, to review a judgment of the Circuit Court of Appeals which overruled a decision of the Board of Tax Appeals, 35 B.T.A. 163, sustaining a deficiency income tax assessment.

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