Overton v. Commissioner

162 F.2d 155 (2nd Cir 1947)

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Nature of the Case

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Facts

The corporation created a new class of stock and basically doubled the amount of outstanding shares in the corporation. There were now Class A and Class B stock. The old stock was exchanged for the new and the stockholders each took the Class A stock, and each gave their wives the Class B stock. The B stock had a liquidating value of $1 per share. Everything else on liquidation belonged to Class A holders. Class A also had all the voting rights on all ordinary matters. The wives were precluded from realizing more than one dollar per share by selling their shares. The A stock was to get noncumulative dividends at the rate of $10 per share before any payment of dividends on the B stock. If dividends exceeded $10 per share, then the two classes would share what was left in the ratio of 1/5th for the A and 4/5ths for the B. Dividends on the B stock totaled $150.40 per share and $77.60 per share for the A during the six-year period in question. The stock had a book value of $155 per share in 1941. The tax court determined that although the stock was made in gift form, it was essentially an assignment of future dividends.