Raymond J. Paige and Patricia C. Paige, His Wife v. United States

Plaintiff-taxpayers appeal from the denial of their claim for a tax refund. The issue involved is whether taxpayers’ corporation qualified for the subchapter S election provided in 26 U.S.C. § 1371 (1954). We hold that it did not. We affirm.

Tackmer made the subchapter S election in 1965. The government now contends that Tackmer Corporation had more than one class of stock.

Tackmer is a small California company that was first incorporated in 1965. When Tackmer first issued stock, it received two different kinds of consideration. Plaintiffs and another party assigned their rights to an exclusive license agreement in exchange for Tackmer stock (“property shareholders”). Eight other parties paid cash (“cash shareholders”).

The Articles of Incorporation state that “No distinction shall exist between the shares of the corporation [or] the holders thereof.” (R. p. 206). The applicable California Corporation Code, § 304 (West 1949), stated that there could be no distinction between shares unless specified in the Articles.

Before Tackmer could issue any stock, it was required to obtain a permit from the California Department of Corporations. The California Corporation Code gave the…