Hercules Gasoline Co., Inc. v. Commissioner, 326 U.S. 425 (1945)

Hercules Gasoline Co., Inc. v. Commissioner

No. 93

Argued December 6, 1945
Decided December 17, 1945
326 U.S. 425

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Syllabus

1. The Revenue Act of 1936 imposed a tax on undistributed profits, but § 26(c)(1) allowed credit, in the computation of the tax, for such undistributed earnings as the corporation could not distribute

without violating a provision of a written contract executed by the corporation . . . which provision expressly deals with the payment of dividends.

Held: that the credit was not allowable where restrictions on the payment of dividends were contained in provisions of preferred stock certificates incorporating by reference terms of the corporation’s charter. P. 428.

2. Section 26(c)(1) of the Revenue Act of 1936 is limited to contracts involving ordinary obligations to creditors (Helvering v. Northwest Steel Mills, 311 U.S. 46), and does not apply to obligations to preferred stockholders, since they are not creditors. P. 428.

147 F.2d 972 affirmed.

Certiorari, post, p. 701, to review the affirmance of a judgment of the Tax Court sustaining the Commissioner’s action in rejecting claims for certain credits under § 26(c)(1) of the Revenue Act of 1936 against the tax on undistributed profits imposed by that Act.