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Commissioner v. Phipps, 336 U.S. 410 (1949)
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General SummaryThis case is from a collection containing the full text of over 16,000 Supreme Court cases from 1793 to the present. The body of Supreme Court decisions are, effectively, the final interpretation of the Constitution. Only an amendment to the Constitution can permanently overturn an interpretation and this has happened only four times in American history.
Commissioner v. Phipps, 336 U.S. 410 (1949)
Commissioner v. Phipps No. 83 Argued December 10, 1948 Decided March 14, 1949 336 U.S. 410
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
Syllabus
In 1936, a parent corporation made a tax free liquidation of five of its wholly owned subsidiaries by distributing to itself all of their assets, subject to their liabilities, and redeeming and cancelling all of their stock. At that time, one subsidiary had earnings and profits of $90,362 accumulated since February 28, 1913, and the other four had deficits aggregating $3,147,803. Not counting the earnings or deficits of its subsidiaries, the parent had at the end of that year earnings and profits of $2,129,957 accumulated after February 28, 1913. In 1937, it had earnings of $390,387. During 1937, the parent made a pro rata cash distribution of $802,284 to its preferred stockholders.
Held: this distribution in its entirety was a dividend under § 115 of the Revenue Act of 1936, and constituted ordinary income. Pp. 411-421.
1. The rule of Commissioner v. Sansome, 60 F.2d 931, is grounded not on a theory of continuity of the corporate enterprise, but on the necessity to prevent escape of earnings and profits from taxation. Pp. 414-417.
2. Harter v. Helvering, 79 F.2d 12, distinguished. Pp. 417-418.
3. Under the Sansome rule, explicitly ratified by Congress, tax-free reorganizations do not disturb the status of earnings and profits otherwise available for distribution. Pp. 418-421.
4. In this case, to allow deduction of the subsidiaries’ deficits from the parent’s earnings would, in effect, recognize losses the tax effects of which Congress has explicitly provided should be deferred. P. 421.
167 F.2d 117, reversed.
The Tax Court held that part of a cash distribution to stockholders by a parent corporation which had absorbed five subsidiaries in a tax free liquidation was not a dividend taxable as income under § 115 of the Revenue Act of 1936, because the accumulated earnings and profits of the parent corporation, plus those of one of the subsidiaries, were erased by the aggregate deficits of the other four subsidiaries. 8 T.C.190. The Court of Appeals affirmed. 167 F.2d 117. This Court granted certiorari. 335 U.S. 807. Reversed, p. 421.
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Chicago: U.S. Supreme Court, "Syllabus," Commissioner v. Phipps, 336 U.S. 410 (1949) in 336 U.S. 410 336 U.S. 411. Original Sources, accessed November 22, 2024, http://originalsources.com/Document.aspx?DocID=9TKVWGVSS3QSIDR.
MLA: U.S. Supreme Court. "Syllabus." Commissioner v. Phipps, 336 U.S. 410 (1949), in 336 U.S. 410, page 336 U.S. 411. Original Sources. 22 Nov. 2024. http://originalsources.com/Document.aspx?DocID=9TKVWGVSS3QSIDR.
Harvard: U.S. Supreme Court, 'Syllabus' in Commissioner v. Phipps, 336 U.S. 410 (1949). cited in 1949, 336 U.S. 410, pp.336 U.S. 411. Original Sources, retrieved 22 November 2024, from http://originalsources.com/Document.aspx?DocID=9TKVWGVSS3QSIDR.
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