Crellin's Estate v. Commissioner of Internal Revenue

Petitioners are stockholders in a California personal holding corporation. During the year 1946 the directors of the holding company declared a dividend of an amount about equal to a capital gain it had realized on the sale of certain of its securities. The directors, in declaring the dividend, were actuated by a belief that the gains, unless distributed, would be subject to the personal holding company surtax. This -belief was based upon the advice of a certified public accountant. Each petitioner received the amount of dividend to which it or she was entitled and deposited the respective amounts in separate bank accounts. Later in the same year the directors learned that the advice they had received from the accountant was erroneous and, being of the opinion that a recall of the dividends and the return to it of the amounts paid to stockholders would decrease the taxable income of the stockholders and permit an advantageous investment of the said amounts, the holding company passed a resolution purporting to rescind the dividend and directing that a demand be made upon the stockholders for the return of the amounts paid pursuant thereto. The demands were made and the…