John Kelley Co. v. Commissioner
United States Tax Court
Petitioner in 1937 issued "20 year 8% income debentures," having a maturity date, bearing interest to be paid out of earnings and not cumulative, subordinate to the claims of all creditors, superior to the rights of stockholders, subject to certain procedure for collection in event of designated defaults as specified in the trust agreement, and holders having no right to participate in management of corporation.
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Petitioner in 1937 issued "20 year 8% income debentures," having a maturity date, bearing interest to be paid out of earnings and not cumulative, subordinate to the claims of all creditors, superior to the rights of stockholders, subject to certain procedure for collection in event of designated defaults as specified in the trust agreement, and holders having no right to participate in management of corporation. Part of the "debentures" was issued on subscription and the balance was issued in exchange for all of petitioner's outstanding preferred stock, which was retired. Held, payments made…
1Opinion of the Court
OPINION.
Tukner, Judge:
If the debentures have created an indebtedness the payments to the holders thereof are interest and deductible as expense, but if they are in fact capital stock the payments are dividends and not deductible.
Similar questions have been before this tribunal and other courts, and with each one it was necessary to consider all of the facts and circumstances in the particular case in order to determine if the relationship was that of a stock ownership or of debtor and creditor. In some cases the determining characteristic has been one factor, while in other cases it has been…
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- Sabine Royalty Corp. v. CommissionerUnited States Tax Court · 1951
- 250 Hudson St. Corp. v. CommissionerUnited States Tax Court · 1946
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