Knapp Monarch Co. v. Commissioner
United States Tax Court
In 1936 petitioner's capital stock consisted of common stock and $ 3.25 cumulative preferred stock, the dividends on the preferred stock being in arrears to the extent of approximately $ 7.65 per share. In August 1936 the stockholders perfected a plan of recapitalization which provided for the exchange of old common stock for new on a share per share basis and a similar exchange of the old preferred for new $ 2.50 cumulative preferred stock.
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In 1936 petitioner's capital stock consisted of common stock and $ 3.25 cumulative preferred stock, the dividends on the preferred stock being in arrears to the extent of approximately $ 7.65 per share. In August 1936 the stockholders perfected a plan of recapitalization which provided for the exchange of old common stock for new on a share per share basis and a similar exchange of the old preferred for new $ 2.50 cumulative preferred stock. As an inducement to preferred stockholders to make the exchange, it was provided that one half share of new common stock should be issued to the…
1Opinion of the Court
OPINION.
TueneR, Judge:
The question here is whether cash paid and common stock issued to preferred stockholders' as a part of the consideration for the exchange by them of $3.25 preferred stock for $2.50 preferred stock constituted a taxable dividend in the hands of petitioner’s stockholders. If so, the petitioner is entitled, under section 27 (a) 1 and (e)2 of the Revenue Act of 1936, to a dividends paid credit to the extent of cash plus the fair market value of the common stock so issued. If not, petitioner’s claim of credit must be denied. Sec. 27 (h).3
It is the claim of the respondent that…
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