
    J. R. POSTE v. THE UNITED STATES
    [No. D-788.
    Decided April 2, 1928]
    
      On the Proofs
    
    
      Income tax; dividends; date of declaration; date of payment. — Under the income-tax laws dividends become income to the stock- ■ holders at date of their payment and not at the date of declaration.
    
      The Reporter's statement of the case:
    
      Mr. Spencer Gordon for the plaintiff. Covington, Bulling <£• RvMee were on the brief.
    
      Mr. McClure Kelley, with whom ivas Mr. Assistant Attorney General Hermcm J. Galloway, for the defendant. Mr. Alexander H. McCormick was on the briefs.
    The court made special findings of fact, as follows:
    I. The plaintiff, J. E. Poste, is now and was during all of the times herein involved, a citizen of the United States, residing in the city of Columbus, in the State of Ohio.
    II. The Columbus Bolt Works Company is now and was during all of the times mentioned in these findings a corporation organized and existing under and by virtue of the laws of the State of Ohio.
    III. During the years 1916 and 1917 the issued and outstanding capital stock of the Columbus Bolt Works Company consisted of 1,500 shares of the par value of one hundred dollars each of the preferred stock entitled to a dividend at the rate of 7% per annum, payable semiannually, and 3,300 shares of common stock of the par value of one hundred dollars per share. The par value of the preferred and common stock of said company during said years was $480,000.
    IV. On December 31, 1916, the undistributed surplus of the Columbus Bolt Works Company was $637,687.48. The fiscal year of said company corresponded with the calendar year ending on the 31st day of December of each year.
    
      V. The net earnings of the Columbus Bolt Works Company available for dividends in the year 1917 were $383,986.59.
    VI. At a meeting of the board of directors of said company held on the loth day of January, 1917, a resolution was passed declaring a dividend of 3y2 per cent on the outstanding preferred stock out of the surplus earnings and made payable not later than February 19,1917, to the stockholders of record as of February 10, 1917.
    J. R. Poste, plaintiff herein, at that time owned thirty-four shares of the preferred stock, and pursuant to said resolution there was paid to him by the Columbus Bolt "Works Company the sum of $119.00.
    At a meeting of the board of directors of the Columbus Bolt Works Company, held on the 20th day of February, 1917, a resolution was passed declaring a dividend of 90% on the outstanding common stock of the company, to be paid out of surplus earnings and made payable on February 27, 1917, to the stockholders of record as of February 24, 1917.
    J. R. Poste, plaintiff herein, at that time owned 3,090 shares of the common stock of said company, and pursuant to said resolution there was paid to him the sum of $278,-100.00, being a dividend of 90% upon the 3.090 shares of the common stock of said company held and owned by plaintiff.
    VII. On June 19,1917, at a meeting of the board of directors of said company, a resolution was passed ordering that a dividend of 3y2% be declared on the outstanding preferred capital stock payable on June 30, 1917, out of the surplus earnings, to the stockholders of record as of June 20, 1917.
    Pursuant to said resolution there was paid to J. R. Poste the sum of $119.00, representing a dividend of 3%% upon the thirty-four shares of preferred stock of said company held and owned by plaintiff.
    VIII. On the 18th day of December, 1917, a resolution was passed by the board of directors of said company declaring a dividend of 90% on the outstanding common stock of the company, to be paid out of the surplus and made payable on December 18, 1917, to the stockholders of record as of December 18, 1917.
    
      Pursuant to said resolution there was paid to J. R. Poste, plaintiff herein, on December 18,1917, the sum of $278,100.00, representing a dividend of 90% on the 3,090 shares of common stock held and owned by plaintiff.
    On the same date, to wit, the 18th day of December, 1917, a resolution was passed ordering that a dividend of Sy2% on the outstanding preferred capital stock of the company be declared out of the surplus of said company and made payable on December 18, 1917, to the stockholders of record, as of December 18, 1917.
    Pursuant to said resolution there was paid by said company to J. It. Poste, plaintiff herein, on the 18th day of December, 1917, the sum of $5,250.00, being a dividend of 3y2 % on 1,500 shares of, the preferred stock of said company held and owned by the plaintiff at said time.
    On February 10, 1917, and on June 20, 1917, plaintiff, J. R. Poste, owned thirty-four shares of the preferred stock of the Columbus Bolt Works Company, and on December 18, 1917, plaintiff owned 1,500 shares of the preferred stock of said company. During the year 1917 plaintiff owned 3,090 shares of the common stock of said company.
    IX. Plaintiff caused to be prepared and filed with the collector of internal .revenue a tax return for the year 1917, and in this return he allocated the entire amount of the dividends received by him during 1917 from the Columbus Bolt Works Company as though declared on earnings of said company of the year 1916. Plaintiff paid income taxes to the United States on that basis in the sum of $52,901.98, This return was audited by the collector of internal revenue, and as a result of such audit an additional tax due for the year 1917 in the sum of $95,504.60 was assessed. The Bureau of Internal Revenue acted on the theory that the dividends received by the plaintiff from the Columjous Bolt Works Company during the year 1917 was attributable to 1917 earnings of that company to the extent that there were net earnings by the company up to the dates of payment of such dividends, and determined the amount of net earnings of the company to the dates in question by taking the total net income of the company for the year available for dividends and prorating it to the date of payment. On this basis the bureau allocated the dividends in question to earnings of the year 1917, except the dividend on the common stock declared February 20, 1917, and paid February 27, 1917, from which the plaintiff received $278,100.00 as set out in Finding VI herein. The bureau found that the company’s net earnings from January 1, 1917, to February 26, 1917, available for dividends, were $56,461.94, and that to the extent of said amount the total dividend paid by the company February 27, 1917, should be considered as declared out of 1917 earnings. Said sum of $56,461.94 was 19% of the total dividend paid by the company February 27, 1917; 19% of the $278,100.00 received by the plaintiff from said dividend was $52,839.00, and to the extent of said sum the dividend paid to the plaintiff February 27, 1917, was considered by the bureau as declared out of 1917 earnings and the remainder of said dividend was considered as declared out of 1916 earnings.
    X. On October 13, 1919, plaintiff paid the additional tax for the year 1917 in the sum of $95,504.60. No protest of any kind was made by plaintiff at the time he made the payment of said tax, but said payment was made to avoid the imposition of penalties and the seizure and sale of property belonging to plaintiff.
    Immediately thereafter plaintiff filed with the collector of internal revenue a claim, for refund of said $95,504.60, claiming that the dividends had been erroneously allocated, which claim for refund was denied by the commissioner by letter dated July 23, 1921, as follows:
    WASHINGTON, D. C., July 23,1921.
    
    Mr. J. E. Poste,
    
      286 East llfth Street, Oobmlbus, Ohio.
    
    SiR: Your claim for the refunding of $95,504.60, individual income tax for 1917, has been examined.
    The claim is based on the statement that the assessment of this amount was the result of erroneous allocation of dividends by the examining officer in an investigation of your income-tax liability for 1917, as shown in the report of the internal revenue agent in charge at Cincinnati, Ohio, dated May 15, 1919.
    After careful consideration of the information submitted in the above report it appears that the allocations recommended by the examining officer are in accordance with the provisions of article 107, Regulations 33..
    The additional information embodied in your claim is not deemed sufficient to justify a change in the allocation of dividends recommended in the report of the examining officer.
    Therefore your claim is rejected.
    Respectfully,
    (Signed) D. H. Blair,
    
      Cormwissioner.
    
    XI. The prorated net earnings of the Columbus Bolt Works Company from January 1, 1917, to February 19, 1917, and available for dividends February 20, 1917, were $47,351.00. This amount represents 15.94% of the total dividend declared by the company February 20, 1917, and paid February 27, 1917. If that dividend was paid out of the 1917 earnings only to the date of its declaration, February 20, 1917, the amount of the dividend received by the plaintiff paid out of the 1917 earnings was 15.94% of the total dividend of $278,100.00 received by the plaintiff or $44,329.14. On this basis the total tax due from plaintiff for the year 1917 would be $145,257.93.
    The court decided that plaintiff was not entitled to recover.
   GRAham, Judge,

delivered the opinion of the court:

The facts in this case are not disputed. The report of the commissioner was accepted by both parties.

The original brief of defendant was filed upon an erroneous construction of the statute involved. In its supplemental brief it changed its position, due to the decision in Mason v. Routzahn, decided by the Supreme Court on November 21, 1927, 275 U. S. 175, and the Bemis cases, 64 C. Cls. 457, 467, decided on January 16, 1928. Under .these decisions the tax paid by the plaintiff in accordance with the assessment by the Commissioner of Internal Revenue was the tax due, and therefore plaintiff was not entitled to a refund on the ground of an erroneous assessment; and there seems to be no dispute about this feature of the case. The one question is whether the tax should be paid on the dividend earned during the period from January 1, 1917, to the date of declaration of the dividend or the date of payment thereof, the plaintiff contending that it should be paid as of the date of declaration. It is unnecessary to enter Hito a discussion of this question, which has been several times decided by the courts. The date of payment is the controlling date, it being the time at which the dividend was received. See Edwards v. Douglas, 269 U. S. 204; Mason v. Routsahn, supra; Dodge and Bloomer v. United States, 64 C. Cls. 178; and Bemis cases, supra. The petition should be dismissed, and it is so ordered.

Moss, Judge; Booth, Judge; and Campbell, OMef Justice, concur.  