435 F.2d 1257 (4th Cir. 1971), 14351, Johnson v. United States

Docket Nº:14351.
Citation:435 F.2d 1257
Party Name:W. Taylor JOHNSON and Foye K. Johnson, Appellees, v. UNITED STATES of America, Appellant.
Case Date:January 06, 1971
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 1257

435 F.2d 1257 (4th Cir. 1971)

W. Taylor JOHNSON and Foye K. Johnson, Appellees,


UNITED STATES of America, Appellant.

No. 14351.

United States Court of Appeals, Fourth Circuit.

January 6, 1971

Argued Nov. 9, 1970.

Page 1258

Stephen H. Hutzelman, Atty., Dept. of Justice (Johnnie M. Walters, Asst. Atty. Gen., Lee A. Jackson and Thomas L. Stapleton, Attys., Dept. of Justice, and Brian P. Gettings, U.S. Atty., on brief) for appellant.

Francis N. Crenshaw and Robert C. Nusbaum, Norfolk, Va. (Crenshaw, Ware & Johnson, and Hofheimer, Nusbaum & McPhaul, Norfolk, Va., on brief) for appellees.

Before BRYAN and WINTER, Circuit Judges, and MARTIN, Chief District judge.

ALBERT V. BRYAN, Circuit Judge:

Income taxes paid by W. Taylor Johnson and his wife, Foye K. Johnson--taxapayer-- were recouped by a September 1969 judgment of the Federal Court for the Eastern District of Virginia. Decision hinged on the appropriate tax treatment of a corporate distribution of moneyes held in a depreciation account. The United States appeals, and successfully, we hold.

The facts, bared of simultaneous tax incidents, are these as taken from the Court's unquestioned findings:

'The Mayflower Corporation owned a high-rise apartment building at Virginia Beach, Virginia, * * *. The taxpayers acquired fifty-two percent of the corporation's stock in 1949 at a cost of $1,040. The remaining forty-eight percent of the stock was purchased in 1954 * * * by the taxpayers at a cost of $144,500.

'From 1949 until 1963 on distributions were made to stockholders. There was, however, a substantial accumulation which counsel stated at the time of trial was a 'depreciation reserve' for equipment in the corporate account entitled 'Appreciation of Land and Building.' On June 19, 1963, the taxpayers' attorney wrote Johnson recommending a distribution which, in his opinion, could be affected as a tax-free return of capital under section 301 of the Internal Revenue Code. Subsequently, on June 21, 1963, a Board of Directors meeting was held and a resolution was adopted calling for the distribution of $169,000 to be paid June 26, 1963.

'In preparing the minutes of the stockholders' meeting, taxpayers' attorney did not specify whether the distribution was to be made on a 'pro rata' or 'non-pro rata' basis. It is contended by plaintiff, however, that since the...

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