Jacobs v. C.I.R., 81-1376

Decision Date02 February 1983
Docket NumberNo. 81-1376,81-1376
Citation698 F.2d 850
Parties83-1 USTC P 9193 Daniel JACOBS, et al., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

Stephen M. Hester (argued), Millikin & Fitton, Hamilton, Ohio, for petitioners-appellants.

Jerome D. Sebastian, Acting Chief Counsel, I.R.S., Kenneth Greene (argued), John F. Murray, Michael L. Paup, Tax Div., Dept. of Justice, Washington, D.C., for respondent-appellee.

Before LIVELY and KRUPANSKY, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.


This is an appeal by Daniel Jacobs (Jacobs) and Paul Schurger (Schurger) (collectively referred to infra as "the taxpayers") from a decision of the United States Tax Court, entered on February 25, 1981, which upheld determinations by the Commissioner of Internal Revenue (IRS, or the Service) that deficiencies existed in the appellants' 1975 federal personal income tax returns as the result of a constructive dividend. Margaret Jacobs and Ann Schurger are listed here as appellants solely by virtue of having filed joint returns with their husbands.

All the facts but the ultimate fact at issue are either stipulated or not contested. In early 1975, one Michael Davis (Davis) sold 49 shares of the total 100 shares of Central Forwarding Co. (Central), all of which shares were then owned by Davis, to Jacobs, Schurger and Peter DePascale (DePascale), a third party not involved herein. Each vendee received 16 1/3 shares of Central and each utilized personal funds for the purchase. On April 4, 1975, Jacobs, Schurger and DePascale entered into a written agreement with Davis whereby the taxpayers and DePascale each purchased an additional 11 2/3 shares of Central and further agreed to purchase the final remaining 16 shares from Davis within one year.

Sometime between April 4 and May 9, 1975, Jacobs, Schurger and DePascale, at that time the controlling stockholders in Central, proposed that the company, rather than the individual shareholders, purchase the remaining 16 shares held by Davis. Davis testified before the Tax Court that he was indifferent as to whether his shares were bought out with corporate funds or with the personal funds of the investors. Davis, however, never executed any writing releasing Jacobs, Schurger and DePascale from their personal obligation contained in the April 4 agreement to purchase Davis' interest in the company within one year. Accordingly, on May 9, 1975, all of Central's shareholders authorized the expenditure of corporate funds to redeem Davis' shares and to retain them as treasury stock for future reissuance. The company thereupon immediately purchased six shares and proposed to enter into a contract for the remaining ten; however, no written agreement so obligating Central was ever executed.

By October 1, 1975, Central had purchased the last of the ten shares still held by Davis at the price set by the April 4 agreement among the individual shareholders, but the purchase was completed exclusively employing corporate funds. On January 20, 1976, this treasury stock held by Central was reissued to Jacobs, Schurger and DePascale in certificates of 5 1/3 shares each.

The IRS found that Jacobs, Schurger and DePascale each received a constructive dividend when Central...

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5 cases
  • Hayes v. Comm'r of Internal Revenue
    • United States
    • U.S. Tax Court
    • December 29, 1993
    ...has satisfied a shareholder's obligation, thus giving rise to a constructive dividend, is a question of fact. Jacobs v. Commissioner, 698 F.2d 850, 852 (6th Cir.1983), affg. per curiam T.C.Memo. 1981–81; Priester v. Commissioner, 38 T.C. 316, 324–325 (1962). It is well settled that a shareh......
  • Estate of Shafer v. C.I.R.
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • December 11, 1984
    ...property. This conclusion is a finding of fact and we are unable to hold that it is clearly erroneous. E.g., Jacobs v. Commissioner, 698 F.2d 850, 852 (6th Cir.1983) (per curiam). The finding that Arthur alone paid for the lot permitted the Tax Court to consider whether Arthur had made a "t......
  • State Pipe & Nipple Corp. v. Commissioner
    • United States
    • U.S. Tax Court
    • June 9, 1983
    ...the redemption of the latter's stock produces a constructive dividend to the former. See Jacobs v. Commissioner 83-1 USTC ¶ 9193, 698 F. 2d 850 (6th Cir. 1983), affg. per curiam a Memorandum Opinion of this Court Dec. 37,709(M), Television Industries, Inc. v. Commissioner 60-2 USTC ¶ 9795, ......
  • Gerson v. Commissioner, Docket No. 33955-84.
    • United States
    • U.S. Tax Court
    • February 6, 1989
    ...was personally and unconditionally obligated to purchase the stock that was redeemed. Jacobs v. Commissioner 83-1 USTC ¶ 9193, 698 F.2d 850, 852 (6th Cir. 1983), affg. per curiam a Memorandum Opinion of this Court Dec. 37,709(M); Holsey v. Commissioner 58-2 USTC ¶ 9816, 258 F.2d 865, 868 (3......
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