Commissioner of Internal Revenue v. Midland Electric Coal Corp.

Under Sec. 26(c) (1) it is settled that a credit in an income tax return may not be allowed where under the terms of the contract a dividend may have been legally distributed. In the instant case the taxpayer could have distributed a preferred stock dividend (or even a common stock dividend). It could have declared such a dividend out of its large accumulated surplus.1

The contractual restriction in the case before us, as I construe it, merely denied taxpayer the right to declare a cash dividend out of net earnings, in excess of half thereof.

A taxpayer seeking a tax credit has the burden of…