Title Insurance and Trust Co., as Trustee of the Robert Tollin Greenspan Trust v. United States

This appeal presents the question whether a redemption of stock by a corporation is, as to the shareholder, subject to capital-gain treatment or is to be treated as a dividend.

Section 302 of the Internal Revenue Code, 26 U.S.C. § 302 , governs. Section 302(a) provides that if conditions set forth in § 302(d) apply, a redemption of stock shall “be treated as a distribution in part or full of payment in exchange for stock.” The only condition arguably applicable is that provided by § 302(b)(1): “Subsection (a) shall apply if the redemption is not essentially equivalent to a dividend.” The question thus presented here is whether the redemption was “essentially equivalent to a dividend.” Section 302(c)(1) provides that “section 318(a) shall apply in determining the ownership of stock for purposes of this section.” The applicable provisions of § 318(a) referred to here as the “attribution rules,” are set forth in the margin. The question arises on the following facts.

Sidney and Helen Greenspan were the sole owners of the common stock of Rob-illwayne Corporation [the corporation]. On October 17, 1957, they created trusts for each of their three children. The corpus of each trust…