United States v. Ogilvie Hardware Co., Inc., 330 U.S. 709 (1947)

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United States v. Ogilvie Hardware Co., Inc.

No. 430

Argued March 5, 1947
Decided April 7, 1947
330 U.S. 709

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Syllabus

A corporation, organized with a paid-in capital of $100,000, increased its capitalization in 1924 to $200,000 by declaration of a $100,000 stock dividend out of past earnings. Thereafter, operating losses created a deficit in total capitalization, the deficit being about $71,000 in 1937, but being reduced to about 61,000 by 1938. With this deficit, the corporation was forbidden by state law to pay any dividends, and it refrained from doing so. The Commissioner of Internal Revenue assessed, and the Company paid, undistributed profits taxes under § 14 of the Revenue Act of 1936 for its fiscal years ending in 1937 and 1938. The corporation sued for a refund of these taxes under § 26(c)(3) of the Revenue Act of 1936, as added by § 501(a)(3) of the Revenue Act of 1942, claiming to be a corporation having "a deficit in accumulated earnings and profits" within the meaning of that section.

Held: the corporation is entitled to the refund. Pp. 713-719.

(a) The 1942 amendment was deigned to grant corporations a refund on account of payments of undistributed profits taxes for tax years in which they had an accumulated deficit, and where, for that reason, state law, federal law, or public regulatory orders of either prohibited distribution of dividends. P. 713.

(b) It was an extraordinary relief measure, and its language, the circumstances which prompted its passage, and the very mechanics of the amendment itself require that determination of rights to refund under it be based on consideration of something other than the established meaning under federal tax law of the word "deficit" and the phrase "accumulated earnings and profits." Pp. 714-719.

(c) Congress at least intended to refund taxes imposed on corporations which had failed to distribute dividends when distribution, in violation of state law, would have impaired long existing state-approved corporate capitalizations. P. 719.

155 F.2d 577 affirmed.

A District Court awarded a judgment under § 501(a)(3) of the Revenue Act of 1942, 56 Stat. 798, to a corporation for refund of undistributed profits taxes paid while the corporation’s capital was impaired, although half the capital had resulted from a stock dividend paid out of past earnings. 62 F.Supp. 338. The Circuit Court of Appeals affirmed. 155 F.2d 577. This Court granted certiorari. 329 U.S. 699. Affirmed, p. 719.