Babson v. Commissioner

HENRY B. BABSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. GUSTAVUS BABSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. FRED K. BABSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Babson v. Commissioner Docket Nos. 52222-52224. United States Board of Tax Appeals 27 B.T.A. 859; 1933 BTA LEXIS 1286; March 7, 1933, Promulgated *1286 1. Section 201(g), Revenue Act of 1926, does not apply to a distribution made before January 1, 1926, in cancellation and redemption of corporate stock, not issued as a stock dividend. Section 201(f), Revenue Act of 1924, remained in effect until January 1, 1926, with respect to such transaction. 2. Where there is no relation between the issuance of corporate stock and a subsequent cancellation and redemption evidencing a continuing plan to effect by that means a distribution of corporate earnings, freed from the usual incident of tax upon ordinary dividend distributions, and where no such intent can be inferred from the circumstances of the time and manner of the distribution coupled with the cancellation and redemption, the distribution is not essentially equivalent to the distribution of a taxable dividend and falls without the provisions of sections 201(g), 1926 Act, and 201(f), 1924 Act. George K. Bowden, Esq., and V. J. Heffernan, Esq., for the petitioners. F. R. Shearer, Esq., and Newton Montgomery, Esq., for the respondent. GOODRICH *860 In these proceedings, which were consolidated for hearing, petitioners, contending*1287 that their respective liabilities for the years before us are already overpaid, assail deficiencies in income taxes determined by respondent as follows: [1926] Henry B. Babson $24,185.83 Gustavus Babson $20,808.89 23,835.49 Fred K. Babson 20,834.00 20,799.00 The issue is as to the character and taxability of distributions received by petitioners in these years from Babson Bros., a corporation. FINDINGS OF FACT. Fred K. and Henry Babson are residents of Riverside, Illinois; Gustavus Babson is a resident of Oak Park, Illinois. All are stockholders and directors of Babson Bros., a corporation, engaged in the mail order merchandise business, having its principal office at Chicago, Illinois. Most of the sales made by the company are on the installment basis and, consequently, a large amount of its capital is required in its deferred accounts receivable. The corporation never has issued stock other than common. On March 1, 1913, it had outstanding 500 shares of common stock having a par value of $100 per share but a fair market value of $1,400 per share. This stock was owned in equal portions by the three petitioners herein and this ratio*1288 of ownership continued thereafter through the year 1926. Subsequent to March 1, 1913, the outstanding stock of the corporation was issued as follows: Year Amount of increase Additional shares issued Method of increase [1914] From $50,000 to $250,000 2,000 Cash paid in by petitioners; $100 per share. January, 1919 From $250,000 to $500,000 2,500 Cash paid in by petitioners; $100 per share. August, 1919 From $500,000 to $1,000,000 5,000 Cash paid in by petitioners; $100 per share. December, 1920 From $1,000,000 to $2,000,000 10,000 100% stock dividend. December, 1923 From $2,000,000 to $2,500,000 5,000 25% stock dividend. From December 19, 1923, until May 29, 1925, the company had outstanding 25,000 shares, of which each of the petitioners herein owned 8,333 1/3 shares. Prior to 1914 the company's business was limited almost wholly to the mail order, installment-payment sale of phonographs. By 1917 it had developed business in similar sales of tailored clothing and cream separators. From 1919 to 1924 the company was engaged in a *861 definite program of expansion, although its phonograph business had been nearly destroyed by advent*1289 of the radio. Many new lines of merchandise had been added to its stock and it was planned to bring in new executives of experience in the field in an effort to increase volume of sales. It was planned also to permit the new executives to acquire an interest in the business by purchase of stock. The necessity of financing the expansion program was the reason for the issue of additional stock in 1919, and the stock dividends of December 1920, and December 1923, were authorized for the purposes of strengthening the credit position of the company, thus aiding its expansion, and of decreasing the book value of the outstanding stock, thus facilitating its acquisition by the new executives. Before the first mentioned stock dividend, the company had an accumulation of surplus and undivided profits in excess of $1,000,000, and before the second stock dividend an accumulation in excess of $500,000. Its capital was then invested as follows: Dec. 31, 1920 Dec. 31, 1923 Cash on hand and Liberty Bonds $31,415.43 $52,505.69 Accounts and notes receivable 1,645,414.04 1,393,881.27 Inventories 358,224.63 401,715.36 Investment in affiliates 460,464.58 1,569,299.00 Total 2,495,518.68 3,417,401.32 *1290 Cash dividends were distributed by the company (during the years of which we have evidence) as follows: [1913] $343,041.93 [1915] 400,000.00 [1916] 200,000.00 [1920] 50,000.00 [1923] $150,000.00 [1924] 150,000.00 [1925] 200,000.00 [1926] 200,000.00 The corporation's surplus and undivided profits accounts showed a balance of $266.78 on January 1, 1925, and $11,823.51 on January 12, 1926, after payment of a cash dividend. The efforts of Babson Bros. to expand its business were not entirely successful. Throughout the period of expansion the volume of sales constantly increased, but profits did not increase accordingly. Generally, the new lines of merchandise proved so unprofitable that throughout the period of expansion, except in 1923, the profits from sales of cream separators exceeded the combined profits from all other lines. After consideration of the situation, it was decided that after 1924 the company would discontinue certain lines of merchandise; stop its purchases in those lines, and close them out as fast as possible. As a result, volume of sales decreased, but profits increased, and cash began to accumulate. The disposition of these accumulating*1291 funds was a matter of concern to the directors and stockholders *862 and was much discussed. It was recognized that expansion of the business was ended, that contraction had begun, and that the corporation could not control the business its officers had desired. Consideration of the matter culminated in a meeting of the stockholders on May 29, 1925, when a resolution was adopted decreasing the capital stock of the corporation from $2,500,000 to $2,000,000, and also providing that "certificates representing $500,000 in par value of the capital stock are at this time surrendered for cancellation and are cancelled, and shall not be reissued." This resolution was certified to and filed in the office of the Secretary of State of Illinois, who issued a certificate under date of June 2, 1925, decreasing the authorized capital stock. At the same meeting the petitioners took informal action, not recorded in the minute book and not certified to the Secretary of State. As stockholders and directors of the corporation, they each agreed to sell, and the corporation to buy, 1,666 2/3 shares (a total of 5,000) of stock at par, the book value and par value then being practically the same. *1292 The assistant secretary and auditor of the company, in accordance with instructions then received, obtained certificates of stock representing 1,666 2/3 shares from each petitioner, canceled them in the stock book, and credited each of the petitioners on the books of the company with the amount of money due from the corporation as a result of this transaction. The amounts so credited to the petitioners' accounts were paid to them in varying amounts from June 1, 1925, to October 30, 1925, the payments being made to each petitioner in equal amounts at the same time. The certificates of stock surrendered for cancellation by each petitioner evidenced ownership of stock which had been purchased previously at par and were the identical certificates issued at the time of purchase. In 1926 the corporation was again confronted with the same situation as in 1925. Its merchandise lines were closing up; its installment money was coming in; it was unwilling to branch out again into an enlarged business; and some disposition of the accumulating cash was necessary. Accordingly, as before, the outstanding stock was again reduced by resolution at a meeting of February 27, 1926, the decrease*1293 being from $2,000,000 to $1,500,000. The minutes further provided that "certificates representing $500,000 in par value of the capital stock are at this time surrendered for cancellation and are cancelled and shall not be reissued. Said shares are not at this time issued or outstanding." This resolution was certified to and filed in the office of the Secretary of State of the State of Illinois, who issued a certificate under date of March 11, 1926, decreasing the authorized capital stock. *863 As before, informal action, not recorded in the minute book nor certified to the Secretary of State, was taken. Each of the petitioners agreed to sell, and the corporation to buy, 1,666 2/3 shares (a total of 5,000) at par, the book value and par value being practically the same. The assistant secretary and auditor, following instructions received at the meeting, obtained certificates of stock representing 1,666 2/3 shares from each petitioner, canceled them in the stock book, and credited each of the petitioners on the books of the company with the amount of money due from the corporation as a result of this transaction. The amounts so credited to the petitioners' accounts were*1294 paid to them pro rata during the year 1926 in varying amounts. The stock certificates surrendered for cancellation by Henry Babson evidenced the ownership of shares which had been acquired by him in exchange for cash paid in to the corporation at par in August, 1919. Those surrendered by Gustavus Babson and by Fred Babson, respectively, evidenced the ownership of shares which had been issued to them in a stock dividend distributed by Babson Bros. on December 19, 1923. Petitioners Gustavus and Fred K. Babson in their returns for 1925, and all three petitioners in their returns for 1926, reported capital net gain resulting from the receipt of $166,666.66 from the sale of 1,666 2/3 shares of stock of Babson Bros. Respondent, in arriving at the deficiency determinations here in issue eliminated the items so reported as capital net gain and included the amounts so received by each of the petitioners in income as taxable dividends received from a domestic corporation. OPINION. GOODRICH: As disclosed by his notices of the deficiency, respondent determined that the amounts received by each of petitioners in 1925 and 1926 from the corporation should be treated, under the provisions*1295 of section 201(g), Revenue Act of 1926, as taxable dividends. By amended answer he avers that, regardless of the applicability of section 201(g) his determinations were without error for the reason that the amounts so received by petitioners were, in fact and in law, ordinary dividends within the meaning of section 201(a) of the 1926 Act 1, and taxable as such. Petitioners contend that the amounts they received were not ordinary dividends, and that the distributions made by the corporation in 1925 and 1926 do not fall within the terms of section 201(g). They *864 contend that the distributions were made in partial liquidation of the corporation under section 201(h) and that the amounts received were liquidating dividends under section 201(c), or, in the alternative, that the transactions were in fact a purchase by the corporation from petitioners of its own stock and the amounts received were in payment of the purchase price thereof. *1296 They contend further that, no matter what the character of the distributions, section 201(g) can not be applied to the amounts received in 1925 because the shares then redeemed had been issued, not as a stock dividend, but as the result of purchases thereof for cash and at par by petitioners. Although in making his determinations of deficiencies respondent assumed that the payments were made in redemption of a part of the stock of the corporation, this he now denies. To found his new view, he divides the transactions into two parts, first, the distribution, and then a surrender of the stock. We find in this record no reason adequate to impel such a division; on the contrary, the weight of the evidence is that the distribution and the stock surrender were planned to be and were effected as connected and dependent, one upon the other, and, in our opinion, they accomplished a redemption of stock for a cash consideration. But respondent goes further. Even conceding a redemption of a part of the stock of Babson Bros. so that, as defined in this section 2 the amounts here in issue apparently are "amounts distributed in partial liquidation" and are to be treated as in payment in*1297 exchange for the stock as provided in paragraph (c), he still contends these amounts are dividends as defined in paragraph (a). He urges that it was not intended that payments such as those in the case at bar be regarded as distributions in liquidation and that, therefore, they fall outside paragraph (h), despite the clear language of that provision. To bottom his claim that these distributions are not truly in liquidation, he argues, first, that there was in fact no liquidation of this corporation; it continued as a going concern. Next, he says the redemption here was not a true stock redemption, but merely a pro rata cancellation of certificates evidencing stock ownership which effected no change in the relation of the stockholders in respect to the capital of the company. Finally, he argues, the issuance of the dividend stock left unchanged the accumulated earnings of the company, and the subsequent stock redemption was merely a distribution of those earnings. Respondent's case may be summed up as advancing the proposition that where corporate *865 accumulated earnings have been offset by stock dividends, a distribution in connection with a cancellation or redemption*1298 of stock (the company continuing as a going concern) is not a distribution in liquidation within the meaning of the statute, but is a distribution of earnings and a dividend. With that we disagree. It is difficult to conceive of any corporate distribution which would not be a dividend within the definition of section 201(a), reading that paragraph alone. However, it is well settled that this provision does not stand alone, but must be taken along with the other provisions having a bearing upon it and the section read as a whole. . When that is done it seems clear that the intention of Congress was to include, under the general definition, ordinary dividends, as that term is judicially defined and generally understood, and distributions of capital unaccompanied by a reduction in stock, recognizing and preserving the distinction*1299 between them, on the one hand, and, on the other, liquidating dividends, and distributions accompanied by a reduction in stock. ;; ; ; affd., . It seems clear also that, as finally expressed in the revenue acts applicable to the instant case, it was intended that a distribution accompanied by a reduction in stock, accomplished by one of the means specifically prescribed in the statute, is to be regarded as a distribution in liquidation and tax imposed upon it as upon a liquidating dividend, unless the circumstances surrounding the stock reduction indicate that the distribution is "essentially equivalent" to an ordinary dividend and should be taxed as such. A review of the legislative history of section 201, or its counterpart, reveals various changes made by the Congress in its efforts to impose a tax upon corporate distributions. Under the earlier acts stock dividends and amounts distributed in liquidation were treated as taxable dividends, although, clearly, they are*1300 not ordinary dividends as the term is judicially defined in , and . The Revenue Act of 1918, section 201, imposed a tax upon stock dividends to the extent of earnings accumulated subsequent to February 28, 1913, at surtax rates, but subjected to tax, as other gains, any profit upon liquidation of corporate stock and treated the amounts so distributed as payments in exchange for the stock. But the decision in , held that stock dividends did not represent income to the stockholder and the decision in , held that the Congress was without power to impose a tax without apportionment, upon stock dividends for the reason that such a dividend distributes no income to the stockholder, but, on the contrary, *866 serves to capitalize the earnings accumulated and to make them unavailable for distribution. (See also ) However, such a capitalization of earnings does not serve to "earmark" them. *1301 ;; . Thereafter, the provisions subjecting distributions in liquidation to tax at both normal and surtax rates were upheld by the decision in , the court pointing out the distinction between ordinary and liquidating dividends, and the intention of Congress to preserve it. (See also ;; ) So, when Congress came to consider the Revenue Bill of 1921 3 it had been denied the power to tax stock dividends, but not the power to tax distributions in liquidation. As adopted, the 1921 Act omitted stock dividends from the definition of dividends (section 201(a)) and provided (c) that distributions made otherwise than out of earnings, whenever accumulated, should be applied against the cost basis of stock "for the purpose of ascertaining the gain derived or the loss sustained from the sale or other disposition of the stock or shares by the distributee." Thus, being*1302 aware of the decision in , and knowing that stock dividends served to capitalize accumulated earnings and make them unavailable for distribution, the Congress enlarged the provisions relating to distributions in liquidation, apparently for the purpose of imposing a tax, at both normal and surtax rates, upon the profit derived from distribution by means of stock reduction, of earnings capitalized through stock dividends. And it went further, to the end that, if the circumstances justified, it might impose a tax upon the whole of the amount distributed - not merely upon the gain - for this act contained the forerunner of the statutory provisions under which the instant case arises, reading as follows: SEC. 201. (d) A stock dividend shall not be subject to tax, but if after the distribution of any such dividend the corporation proceeds to cancel or redeem its stock at such time and in such manner as to make the distribution and cancellation or redemption essentially equivalent to the distribution of a taxable dividend, the amount received in redemption or cancellation of the stock shall be treated as a taxable dividend to the extent of*1303 the earnings or profits accumulated by such corporation after February 28, 1913. In the 1924 Act, section 201(d) above quoted was extended and became section 201(f). Also, the provisions relating to distributions in complete liquidation were extended to include those made in partial liquidation, because the Treasury had construed the existing *867 law as taxing them, not as capital gains, but as dividends. Part of the explanation of the report 4 follows: The theory of liquidating dividends is extended to distributions in partial liquidation. If a corporation retires a portion of its capital stock, the transaction is treated, from the point of view of the stockholder, as a sale of his stock. If the corporation distributes an amount in partial retirement of its capital stock, the amount thereof is to be considered as a return of capital, and taxable only if, as, and to the extent that it exceeds the basis of the stock. *1304 So paragraph (c) came into the act, and with it paragraph (g), defining the term "amounts distributed in partial liquidation," and both these provisions were carried over into the Act of 1926. The chief change made to section 201 by the 1926 Act was to divide paragraph (f) into two subdivisions and to extend the provisions to cases not involving stock dividends, deemed necessary because: Under existing law the corporation could buy from the stockholders, for each, one-half of the stock held by them and cancel it without making the stockholders subject to any tax. Yet this action, in all essentials, would be the equivalent of a distribution through cash dividends of the earned surplus. The amendment proposed to this subdivision is intended to make clear that such a transaction is taxable. 5 Thus opportunity was afforded, if the circumstances justified it, to tax the whole of amounts distributed in a reduction of stock, whether the stock had been bought and paid for, or was received as a dividend. It is quite apparent that the Congress was aware of the effect of the decision in*1305 , and also that, by enlarging the provisions relating to treatment of distributions in liquidation and in laying the definitions thereof, it was making possible, by means of cancellation or redemption of a part of the stock of a corporation, a distribution of earnings previously accumulated and capitalized by stock dividends. That fact is reflected by the progressive changes in the revenue acts and the discussions of problems which they were designed to meet. It lay within the power of the Congress to deal with this matter of distribution as it saw fit. It might have provided that all distributions made in connection with stock cancellations or redemptions from corporate funds in excess of paid-in capital, acquired after February 28, 1913, no matter how dealt with, should be treated as dividends. This it did not choose to do. Instead, it framed the definition of distributions in liquidation in paragraph (h) to include those accompanied by a reduction in *868 stock (leaving under the definition of dividends in paragraph (a), ordinary dividends and distributions not so accompanied; see *1306 ), and then provided (paragraph (f), 1924 Act, paragraph (g), 1926 Act) that such distributions should be treated as dividends if the time and manner of the stock reduction indicated that the distribution was "essentially equivalent to the distribution of a taxable dividend." Thus, the Congress left to the Commissioner, in the first instance, and to this Board and the courts, the duty of scrutinizing such transactions and determining what circumstances surrounding the cancellation or redemption of stock shall constitute "such time" and "such manner" as to make those acts and the distributions "essentially equivalent to a taxable dividend." . It seems clear that these provisions were designed to cover transactions such as those occurring in the case now at bar, and therefore we find no merit in respondent's contention that the distributions here were dividends as defined in paragraph (a). Plainly, they were not "ordinary dividends" as that term is judicially defined (*1307 ; ). There was a reduction in stock (see ) - "a complete cancellation or redemption of a part of its stock" - and in such case the statute provides, in terms which admit of no ambiguity, that the payments made in connection therewith are "amounts distributed in partial liquidation" and shall be treated in the manner prescribed in paragraph (c). Moreover, the corporation was liquidating a considerable part of its assets and was contracting its business, though it did not dissolve. We conclude, therefore, that the transactions here in issue constituted a partial liquidation of the corporation and that the distributions were made in connection therewith. Consequently, it remains only to determine whether paragraph (f) in the 1924 Act, or paragraph (g) in the 1926 Act, section 201, or both, are applicable to these distributions. At the onset of our consideration as to the applicability of these provisions we are met by petitioners' contention that the distributions of 1925, because of the facts surrounding them, are specifically freed from the*1308 provisions of the section applied to them by respondent by the very language of that section. Section 201(g) of the 1926 Act differs in effect from paragraph (f) of the same section of the 1924 Act only in that the first named contains a parenthetical clause, not found in the earlier act, expressly applying its provisions to stock not issued as a stock dividend, but then (by the last sentence) only if the cancellation or redemption is made after January 1, 1926. This limitation, argue petitioners, makes the section inapplicable to the 1925 distributions because the shares redeemed in that year had not been issued as a stock dividend, but had been *869 purchased by them, and were canceled and redeemed prior to January 1, 1926. But, asuming the facts to be as petitioners contend, that sentence upon which they rely makes inoperative the whole of this subdivision of the 1926 Act as to the distributions in the year 1925. Section 1200(a) of the 1926 Act repeals, excepting certain sections not material here, Title II (called Income Tax) of the 1924 Act, which includes section 201. Section 286, Revenue Act of 1926, provides that Title II of that act, again with certain exceptions, *1309 shall take effect as of January 1, 1925. So, unless a specific contrary provision appears in an individual subdivision, the Revenue Act of 1926, at least that part of it with which we are concerned here, was in force during the year 1925. But, under the facts here as petitioners claim them to be, the last sentence of section 201(g) is such a specific contrary provision. It is as follows: In the case of the cancellation or redemption of stock not issued as a stock dividend this subdivision shall apply only if the cancellation or redemption is made after January 1, 1926. The effect of the limitation in the sentence, then, is to postpone to January 1, 1926, the application of this provision of the Act of 1926 to a transaction occurring under the facts as we have them here and, consequently, the contention that the 1925 distributions can not be treated as essentially equivalent to the distribution of a taxable dividend because of the terms of the very subdivision providing for such treatment, is unsound. However, the fact that the limitation of paragraph (g) makes inoperative the 1926 Act to the distributions occurring in 1925 does not mean that there was no statutory authority*1310 for respondent's determination. Section 1200(b), Revenue Act of 1926 (last sentence), continues in effect any provision of the 1924 Act imposing a tax and repealed by the later act until the tax imposed by the 1926 Act takes effect. It is clear, therefore, that section 201(f), Revenue Act of 1924, was in force and effect during 1925 with respect to the distributions made to petitioners in that year and was sufficient statutory authority for respondent's determination. 6 Since paragraph (f) may be applied where, either before or after a distribution in connection with a cancellation or redemption of stock, a stock dividend has been issued and, since, in the case at bar, stock dividends were issued, it appears that the terms of the statute offer no basis upon which to rest a distinction between the transactions in 1925 and those occurring in 1926 and we pass to the general consideration of respondent's determination *870 that these distributions fall within that subdivision and should be treated as taxable dividends in the hands of petitioners. *1311 Beyond our previous comment herein, we see no necessity for enlarging the discussion found in the earlier decisions of the purpose and effect of section 201(f), 1924 Act, and the corresponding provisions of other revenue acts. See ; ; ; ; These cases lay as one test for determining whether a distribution in cancellation or redemption of stock falls within the provisions of the statute, the existence of a relation between the issuance and redemption of the stock which evidences a continuing plan to effect by this means a distribution of corporate earnings, freed from the usual incident of tax upon ordinary dividend distributions. In the case at bar we have no evidence of such a relation; indeed, respondent, in his deficiency notices, states: The two transactions (issuance and redemption) were widely separated in point of time and unless shown to have been connected in their plan or purpose they should be treated separately. There appears to be*1312 no evidence of any connection between the declaring of the stock dividend in 1922 and the redemption of the preferred stock in 1925, and these transactions must be considered as separate and distinct. 7 Nor does the record before us contain evidence from which we might reasonably infer the existence of a continuing plan to distribute corporate earnings by means of distributions made in connection with cancellation or redemption of stock, rather than by the declaration of ordinary dividends. Cash dividends in substantial amounts were paid in eight of the fifteen years since 1912 of which we have evidence; in one year when cash dividends were omitted the company sustained a loss from its operations, and in another made but a small profit. And from the facts concerning the company's plans for expansion into new lines of merchandise and into new policies of operation and ownership, necessitating*1313 an increase in capital structure, we can not but conclude that the stock dividends were issued to meet legitimate business demands existing at that time and not for the ends sought to be prevented by the statute. But, as another test of the applicability oq the statute to transcations such as these before us, we must scrutinize the redemption and distribution with respect to the time and manner when they occur, and the circumstances surrounding them at that time. Such scrutiny here reveals nothing to indicate *871 that the distributions, coupled with the redemptions, were "essentially equivalent to the distribution of a taxable dividend." They were made at a time when the company, having found that its program of expansion resulted in increased business with decreased profit, had decided to contract sharply, discontinue many of its merchandise lines and return to its old policies of operation on a smaller scale. The reasons assigned for the redemptions seem to us sufficient and compelling and in nowise related to an attempt to distribute corporate earings by an artifice to escape the usual tax thereon. *1314 Therefore, under the tests laid by the decisions (and no other is suggested) we conclude that the distributions received by petitioners in 1925 and 1926 in connection with the cancellation and redemption of their stock of Babson Bros. fall without the terms of sections 201(f), Revenue Act of 1924, and 201(g), Revenue Act of 1926, and that respondent erred in including the amounts so distributed in the incomes of these petitioners as taxable dividends. The parties, by counsel, have stipulated that, if we find these distributions are taxable as distributions in partial liquidation of the corporation and not as dividends subject only to surtax rates, we may enter orders of redetermination to the effect that the several petitioners have overpaid their respective income tax liabilities for the years before us as follows: [1926] Henry B. Babson $2,064.17 Gustavus Babson $5,416.66 2,414.51 Fred K. Babson 5,416.00 5,451.00 Since we have so concluded, we need not consider petitioners' alternative contention. Reviewed by the Board. Judgment will be entered for petitioners as above set out. Footnotes 1. SEC. 201. (a) The term "dividend" when used in this title * * * means any distribution made by a corporation to its shareholders, whether in money or in other property, out of its earnings or profits accumulated after February 28, 1913. ↩ 2. SEC. 201. (h) As used in this section the term "amounts distributed in partial liquidation means a distribution by a corporation in complete cancellation or redemption of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock. ↩ 3. Report No. 350, 67th Cong., 1st sess., House Committee on Ways and Means, p. 8. Report No. 275, 67th Cong., 1st sess., Senate Committee on Finance, p. 9. ↩ 4. Report No. 179, 68th Cong., 1st sess., House Committee on Ways and Means, p. 11. Report No. 389, 68th Cong., 1st sess., Senate Committee on Ways and Means, p. 11. ↩ 5. Report No. 1, 69th Cong., 1st sess., House Committee on Ways and Means, p. 5. ↩ 6. That this result was intended by the Congress is disclosed by the following excerpt from Senate Report No. 52, 69th Cong., 1st sess., p. 15: "The committee recommends that the provisions of the 1924 act in this respect remain in effect during the calendar year 1925 and that the change in the law should become effective only as of January 1, 1926." ↩ 7. The deficiency notices contain no explanation for the erroneous statements that the stock dividend was declared in 1922 and preferred stock was redeemed in 1925. The facts are that stock dividends were declared in 1920 and in 1923, and no preferred stock ever was issued by this company. ↩