Skinner v. Union Pac Coal Co.

• Decision Date: 23 February 1918
• Docket Number: 4957.
• Citation: 249 F. 152
• Parties: SKINNER, Collector of Internal Revenue, v. UNION PAC. COAL CO.
• Court: U.S. Court of Appeals — Eighth Circuit

249 F. 152

SKINNER, Collector of Internal Revenue, v. UNION PAC. COAL CO.

No. 4957.

United States Court of Appeals, Eighth Circuit.

February 23, 1918

In Error to the District Court of the United States for the District of Colorado; Robert E. Lewis, Judge.

Action by the Union Pacific Coal Company against Mark A. Skinner Collector of Internal Revenue. Judgment for plaintiff, and defendant brings error. Reversed, with directions to dismiss complaint.

John A Gordon, Asst. U.S. Atty., of Denver, Colo. (Harry B. Tedrow U.S. Atty., of Denver, Colo., on the brief), for plaintiff in error.

John Q Dier, of Denver, Colo. (N. H. Loomis, of Omaha, Neb., C. C. Dorsey, of Denver, Colo., and Henry W. Clark, of New York City, on the brief), for defendant in error.

Before CARLAND, Circuit Judge, and AMIDON and MUNGER, District Judges.

AMIDON District Judge.

The Union Pacific Coal Company brought this suit against the defendant, Skinner, as collector, to recover a tax collected upon its income for the year 1913, and paid by it under protest.

The Union Pacific Coal Company is the owner of all the capital stock of the Superior Coal Company. The latter, on June 18, 1913, declared, and on June 19 paid to plaintiff, a dividend arising out of the profits of its business for the fiscal year extending from June 30, 1912, to June 30, 1913, of 50 per cent., amounting to $500,000. In March, 1914, plaintiff made its return under the Income Tax Law for the calendar year 1913, but instead of including in its income the entire dividend, included only one half, or $250,000, stating that the other half was not income of the calendar year 1913, for the reason that it was earned by the Superior Coal Company during the latter half of the calendar year 1912. The Commissioner of Internal Revenue amended plaintiff's return, so as to include the $250,000, and levied a tax of 1 per cent. thereon. Plaintiff paid the tax under protest, and brought this action to recover it back. Defendant demurred to the complaint setting up the above facts. The court overruled the demurrer, and, the defendant declining to answer, judgment was entered against him in the sum of $3,052.30, to reverse which he brings error.

The case must be determined by deciding whether the dividend constituted income of the Union Pacific Coal Company 'arising or accruing' within the calendar year ending December 31, 1913. The argument of plaintiff really comes to this: That the dividend did not accrue to it in 1913, because the profits of the Superior Coal Company, out of which it was paid, did not all accrue to that company from its business during the calendar year 1913, but half of it accrued in 1912. This statement of the question indicates its decision. The Income Tax Law does not deal with the period during which a corporation which pays a dividend accumulates the profits out of which the dividend is paid. It is concerned with the income of the corporation receiving the dividend. Viewed in that light, the dividend accrued to the Union Pacific Coal Company in the year 1913, and all of it was taxable. We think annual dividends, paid out of the profits of the business of a corporation declaring the same, do not accrue to a stockholder until they are declared and paid by the paying corporation. Until that is done they represent mere profits of the corporation earning the same, and that corporation may, in the exercise of a proper discretion, apply the same as it sees fit. The stockholder does not acquire any interest in the fund until the dividend is paid.

Subdivision (a) of subsection G of section 2 of the act (38 Stat. 172) provides that the tax shall be levied 'upon the entire net income arising or accruing from all sources during the preceding calendar year. ' Counsel urges that the words 'arising or accruing' do not mean the same as 'received.' The statute itself shows the contrary for subdivision (b) of subsection G provides that the 'net income shall be ascertained by deducting from the gross amount of the income of such corporation * * * received within the year from all sources '...