
    THOMAS M. ADAMS v. THE UNITED STATES
    
    [No. B-212.
    Decided February 9, 1925]
    
      On the Proofs
    
    
      Income tax; revenue act of 1919; dividends. — Section 201 of the revenue act of 1919, providing that any distribution made during the first sixty days of any taxable year shall be deemed to have been made from earnings or profits accumulated during preceding taxable year, applies exclusively to returns by corporations of their fiscal affairs, and has po application to the returns of individual recipients of dividends.
    
      The Reporter's statement of the case:
    
      Messrs. J. B. Adamson and H. R. Dysard for the plaintiff.
    
      Messrs. Fred. K. Dyar, Nelson T. Hartson, and Chester A. Gwinn, with whom was Mr. Assistant Attorney General Robert H. Lovett, for the defendant.
    
      The following are the facts as found by the court:
    I.During the first 60 days of the year 1918 the plaintiff received cash dividends from the corporations listed below, the. amount of each such dividend, and the date on which paid being set opposite the name of the payer thereof:
    Amount of Date paid dividend
    Jan. 10, 1918, Second National Bank, Ironton, Ohio_ $777’
    Jan. 22, 1918, Beliefonte Iron Works, Ashland, Ky_ 810
    Jan. 21, 1918, Hotel Lincoln, Columbus, Ohio_ 1, 800
    Feb. 11, 1918, Means & Bussell Iron Co., Ashland, Ky_ 900
    Feb. 15, 1918, Norton Iron Works, Ashland, Ky_79,150
    Jan. 2, 1918 Ashland National Bank, Ashland, Ky_ 210
    Total_83,647
    II. During the year 1918,‘but subsequent to the first 60 days thereof, plaintiff received dividends from corporations in the amount of $51,097. There were received during the year 1918, therefore, dividends in the total sum of $134,744
    III. The individual income tax return-of the plaintiff for the calendar year 1918 showed a total net income on which normal tax was to be calculated at the rates jirescribed in the revenue act of 1918, in the amount of $4,252.96; dividends on stock of corporations organized or doing business in the United States (received directly) in the amount of $51,097; and cash dividends received directly during the year 1918, declared from earnings of domestic or resident corporations accumulated in the year 1917, in the amount of $83,647.
    IY. Plaintiff calculated the tax due for the year 1918 as follows:
    Normal tax of 6 per cent on $2,252.96 (net income of $4,252.96, less personal exemption of $2,000)_j._ $135.18
    Surtax of 1918 rates on $51,097 (dividends received during last 10 months of-1918) plus $4,252.96 (net income), a total of $55,349.96_ 6,840.99
    Surtax at 1917 rates on $83,647 (dividends received during first 60 days of 1918)_ 8,702.34
    Total_ 15,678.51
    
      V. Thereafter the plaintiff’s said tax return for the year 1918 was reviewed by the Commissioner of Internal Revenue, who found an additional tax due in the amount of $28,245.10, on the ground that the taxpayer was in error in computing tax on the amount of $83,641, representing dividends received during the first 60 days of 1918, at the rates prescribed by the revenue act of 1917, and that said amount of $83,647 was taxable instead at the rates prescribed by the revenue act of 1918, as they were dividends received during the year 1918.
    The Commissioner of Internal Revenue, therefore, determined and found that the total income of the plaintiff, subject to surtax at the rates prescribed by the revenue act of 1918, was as follows:
    Net income subject to normal tax-— $4,252.96
    Dividends ($51,097 plus $83,647)_ 134,744.00
    Total income subject to surtax_ 138, 996. 96
    The additional tax determined and found by the Commissioner of Internal Revenue to be due from the plaintiff for the year 1918 in the amount of $28,245.10 was calculated as follows:
    Normal tax (6 per cent of $4,252.96 less $2,000)_ $135.18
    Surtax on $138,996.96 at 1918 rates_ 43,788.43
    Total tax_ 43, 923. 61
    Tax previously assessed and paid- 15, 678. 51
    Additional tax_ 28, 245.10
    VI. The said additional tax of $28,245.10 determined and found by the commissioner to be due was assessed in December, 1919, and, after deducting a credit of $11.45 for the year 1916, the balance, $28,233.65, was paid under protest by the plaintiff on January 13, 1920.
    YII. Thereafter, on February 6, 1920, a claim for refund of the said amount, $28,233.65, was filed by the plaintiff, and was rejected by the Commissioner of Internal Revenue on or about March 11, 1921.
    VIII. On October 9, 1922, the plaintiff filed his petition in this court.
    
      The court decided that plaintiff was not entitled to recover.
    
      
       Appealed.
    
   DowNet, Judge,

delivered the opinion of the court:

The plaintiff made an income-tax return for the year 1918 in which he segregated dividends to the amount of $83,647, received during the first 60 days of 1918, from $51,097, of dividends received during that year, but subsequent to the first 60 days, and computed his income tax on the basis of the application to the first named amount of the rates provided by law for the year 1917. The Commissioner of Internal Revenue, holding that the entire income from dividends received during 1918 was subject to the prescribed rates for that year, levied an additional tax to the amount of $28,245.10,.which plaintiff paid under protest and seeks to recover here, having first duly presented to the commissioner a claim for refund.

Plaintiff’s reliance is upon paragraph (e) of section 201 of the revenue act of February 24,1919 (40 Stat. 1057 at 1060), which, in part, is as follows:

“ (e) Any distribution made during the first sixty days of any taxable year shall be deemed to have been made from earnings or profits accumulated during preceding taxable year”; etc., and the contention is that the surtax on the dividends received by the plaintiff during the first 60 days of 1918 should have been taxed at the 1917 rate. The question is purely one of statutory construction without complications otherwise arising.

Section 201, subhead “Dividends,” appears, like the preceding section, under the head “ General provisions ” and, while section 200 bears the subhead “ Definitions,” it is apparent that section 201 is also definitive in character and does not attempt to deal with applicable rates.

We are mindful of the established rules cited by counsel as to the construction of taxing statutes and if there were no room for the application of paragraph (e) otherwise than to the matter of applicable individual rates thejr would perhaps be of some force in determining construction, but that condition certainly does not prevail.

There is abundant application for the paragraph in question under the various provisions of the revenue act having' to do with the returns by corporations of their fiscal affairs, so evident that a review seems wholly unnecessary, to which it may be added that the language of the paragraph applies itself naturally to the fiscal affairs of the corporation paying: the dividends and not to the individual receiving them. The provision must certainly mean that “ any distribution,” referring necessarily to a distribution made by the corporation as dividends, within the first 60 days of any taxable year, shall be deemed, so far as the corporation is concerned, to have been made from the earnings or accumulated profits of a preceding year, and we find no room for its application to the individual income-tax return of the recipient of those dividends. Extended discussion seems unnecessary.

We conclude that the plaintiff is not entitled to recover and have accordingly ordered that his petition be dismissed.

Geaham, Judge; Hat, Judge; Booth, Judge; and Campbell, Ghief Justice, concur.  