Spokane Dry Goods Co. v. Commissioner of Internal Revenue

This proceeding is upon petition to review a decision of the United States Board of Tax Appeals. The Commissioner of Internal Revenue determined against petitioner a deficiency in its income tax return for the calendar year 1938, in the amount of $479.75. The Board upheld the Commissioner and petitioner appeals.

Petitioner is a corporation of the State of Washington. In 1936 its board of directors declared a dividend on its common stock, payable in cash or in notes of the corporation at the election of the stockholders. A total dividend of $120,000 was declared and of this amount $94,026 was paid in promissory notes having an actual value at the time of delivery equal to their face value. In its income tax return for the calendar year 1936, petitioner claimed and was allowed a dividends-paid credit of $120,000 as against net income in the computation of the surtax on undistributed profits. This credit was taken pursuant to section 27(d) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 837.

*867 In the calendar year 1938, petitioner paid to the holders of its promissory notes the sum of $35,830.30, which sum represented the remaining principal balance of the notes…