Vernon Edler, Jr. v. Commissioner of Internal Revenue

The Internal Revenue Service issued to Vernon Edler, Jr. (hereafter Edler) a Notice of Deficiency for the taxable year 1976 finding in pertinent part that Edler realized a constructive dividend in the amount of $283,500.00 resulting from the redemption of stock owned by his former spouse. Edler filed a Petition with the United States Tax Court. The sole issue tried was whether Edler received dividend income when Edler Industries, Inc. (hereafter Industries) redeemed the stock owned by Edler’s former spouse. The matter was tried on fully stipulated facts.

Industries began business in 1950. During the years in issue, Industries manufactured missile nose cones and related items. At all times herein relevant, Edler was president of Industries. In 1971, Edler and his wife at that time, Annette Edler (hereafter Mrs. Edler or Edler’s former wife), became owners of 100 percent of the 141.11 outstanding shares of Industries. In 1973, Edler and Mrs. Edler separated and filed for divorce. On August 1,1975, the Superi- or Court of California, County of Orange, after a six-day nonjury trial, entered an interlocutory judgment of dissolution of marriage. That interlocutory judgment provided, in…