Anglim

In an action brought against the Collector of Internal Revenue to obtain a refund of income taxes representing surtax on undistributed profits, the district court gave judgment in favor of taxpayer. The Collector appeals.

Since 1934 the common stock of taxpayer “Acme Brewing Co.,” a California corporation (formerly California Brewing Association of Southern California), has been owned by two corporations as follows: “Acme Breweries,” formerly Cereal Products Refining Corporation, 80% and Bohemian Distributing Co., 20% thereof.

The two stockholder corporations entered into a contract with each other in December, 1934, in which each agreed to purchase an additional 10,000 shares of taxpayer’s stock; Cereal Products agreed to accept 15,000 shares in satisfaction of a $150,000 indebtedness existing from taxpayer to it and to sell taxpayer cooperage, bottles and cases of the value of $100,000, and to lend taxpayer $350,000 and accept taxpayer’s secured promissory note payable in five annual installments. In case taxpayer lacked sufficient surplus to pay any installment of the promissory note, Cereal Products and Bohemian Company were bound to advance an amount sufficient to meet the…