Gallatin Farmers Co. v. Commissioner

Petitioner, a farmers’ cooperative corporation created under Chapter 38 of the Revised Codes of Montana, seeks a review of a decision and ordpr of the Tax Court of the United States disallowing deductions (a) from petitioner’s income for the calendar tax years 1938 and 1939 of moneys paid to its preferred stockholders, which petitioner claimed to be deductible as interest, and (b) from its income for the calendar year 1939 of moneys paid, as so-called patronage dividends out of its earnings, to purchasers from it of farmers’ commodities.

*707 (A) Dividends on preferred stock. Petitioner as first organized had common stock only. At a meeting of its common shareholders they voted the amendment of its articles of incorporation to provide for preferred shares of a par value of $10 per share, pursuant to provision of the Montana Code for such associations.

The resolution amending the articles of incorporation provided in part as follows;

The preferred stock was issued and its certificates were in the usual form showing their par value, and not even mentioning the percentage of the preferred dividends. They contained no reference to the matter emphasized above. Petitioner claims…