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HELVERING V. SPROUSE, 318 U. S. 604 (1943)

U.S. Supreme Court

Helvering v. Sprouse, 318 U.S. 604 (1943)

Helvering v. Sprouse

No. 22

Argued November 10, 12, 1942

Decided April 5, 1943*

318 U.S. 604


1. Where a corporation having but two classes of stock, voting common and nonvoting common, distributes to all the shareholders of both classes, in proportion to their respective holdings, a dividend of nonvoting common, the fair market value of which is its par value, and which is backed by earnings and profits available for distribution in excess of its total value, neither the voting rights of the voting common nor its right to share in dividends or in liquidation being altered by the distribution, so that the relations previously existing between all the shareholders, or between the particular shareholder and the corporation, are in no wise disturbed by the distribution, the dividend is not subject to income tax. Const., Amendment XVI; Revenue Act of 1936, § 115(f)(1). P. 318 U. S. 606.

2. Where the sole owner of the common stock of a corporation which had common stock only, received a dividend of nonvoting preferred stock authorized by a charter amendment and the value of which

Page 318 U. S. 605

was exceeded by earnings of the corporation available for dividend without changing the shareholder's interest in the corporation or in its net value, the dividend is not taxable income. Const., Amendment XVI; Revenue Act of 1936, § 115(f)(1). P. 318 U. S. 606.

No. 22, 122 F.2d 973, affirmed.

No. 66, 124 F.2d 315, reversed.

Review by certiorari, 316 U.S. 656, of two judgments, the one reversing a ruling which sustained a deficiency assessment of income, 42 B.T.A. 484, and the other affirming the like ruling in another case.

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