Cullinan v. Walker

• Decision Date: 30 April 1923
• Docket Number: No. 301,301
• Citation: 67 L.Ed. 906,43 S.Ct. 495,262 U.S. 134
• Parties: CULLINAN v. WALKER, Collector of Internal Revenue
• Court: U.S. Supreme Court

262 U.S. 134

43 S.Ct. 495

67 L.Ed. 906

CULLINAN

v WALKER, Collector of Internal Revenue.

No. 301.

Argued March 9, 1923.

Decided April 30, 1923.

Mr. John Walsh, of Washington, D. C., for plaintiff in error.

Mr. Solicitor General Beck, of Washington, D. C., for defendant in error.

Mr. Justice BRANDEIS delivered the opinion of the Court.

A tax of $156,212.66 was laid upon Cullinan, under the Act of September 8, 1916, c. 463, tit. 1, §§ 1 and 2, 39 Stat. 756, 757 (Comp. St. §§ 6336a, 6336b), for additional gain or income of that year, assessed at $1,571,760. He paid the tax, under protest, and brought, in the federal court for Southern Texas, this action against the local collector of internal revenue to recover the amount. The question was whether certain securities received by Cullinan in that year should be deemed gain or income. The case was tried by the court without a jury, upon agreed facts, and judgment was entered for defendant. Cullinan contends that sec rities issued to him, which the collector treated as gain or income, were, in legal effect, like a stock dividend, and that, under Eisner v. Macomber, 252 U. S. 189, 40 Sup. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570, he was not taxable thereon. The government insists that the securities so distributed were gains or income within the rule laid down in United States v. Phellis, 257 U. S. 156, 42 Sup. Ct. 63, 66 L. Ed. 180, and Rockefeller v. United States, 257 U. S. 176, 42 Sup. Ct. 68, 66 L. Ed. 186. This issue, presented on the facts hereinafter stated, is the only matter for decision. The case is here on writ of error under section 238 of the Judicial Code, because of the constitutional question involved. Towne v. Eisner, 245 U. S. 418, 38 Sup. Ct. 158, 62 L. Ed. 372, L. R. A. 1918D, 254.

Farmers' Petroleum Company was, in 1915, a Texas corporation, with a capital stock of $100,000. Cullinan owned 26.64 per cent. of its stock, for which he had paid (in that and the preceding year) $26,640 in cash. Later in 1915, the company was dissolved under the Texas law, and Cullinan became one of the trustees in liquidation. In 1916 the trustees organized two Texas corporations, Republic Production Company, a producing concern, and American Petroleum Company, a pipe line concern. To these corporations the trustees transferred the assets held by them, one-half in value to each. From each they received $1,500,000 par value of its stock and $1,500,000 par value of its bonds, being the total issues. The trustees also organized under the laws of Delaware a third company, American Republics Corporation, a holding company. To this company the trustees transferred all the $1,500,000 stock of each of the new Texas corporations; from it they received $3,000,000 of its stock. They thus held in 1916 the $3,000,000 stock of the Delaware corporation and the $1,500,000 bonds of each of the new Texas corporations. All these securities the trustees then distributed pro rata among the persons who had been stockholders in Farmers' Petroleum Company.

Farmers' Petroleum Company had been dissolved solely for the purpose of effecting a reorganization. The reorganization was undertaken, partly, in order to separate the pipe lines from the producing properties, which counsel advised was necessary, and, partly, in order to procure credit required for the developing business. The two new Texas corporations had,...