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corporation
willrespondent

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Bonsall v. C.I.R., T.C. Memo. 1962-151, 1962 WL 391, 21 T.C.M. (CCH) 820, T.C.M. (P-H) P 62,151, 1962 PH TC Memo 62,151

Facts

Henry H. Bonsall, Jr. and Martha G. Bonsall, along with C. Jordan Vail and Nancy B. Vail, filed joint Federal income tax returns for 1956. Albany Linoleum and Carpet Co., Inc., controlled by the Bonsalls, decided to form a new corporation, Abon, Inc., to acquire real estate. On July 30, 1956, a resolution was passed to issue shares of Abon stock to Albany Linoleum shareholders. The stock was issued in connection with the transfer of property to Abon, which occurred on September 13, 1956. The petitioners did not report the value of the Abon stock on their tax returns for 1956, leading to the IRS's determination of a deficiency.

On September 13, 1956, title to the realty located at 64 Northern Boulevard and 231 Elk Street was conveyed to Abon in accordance with the terms submitted by Albany Linoleum on August 2, 1956, and accepted on that date by the board of directors of Abon.

Issue

Did the petitioners receive a taxable distribution of stock of Abon, Inc. in the year 1956?

The issue for decision is whether petitioners received a taxable distribution of stock of Abon, Inc., in the year 1956.

Rule

Under section 301 of the Internal Revenue Code, a distribution of stock is taxable as a dividend if it is received by shareholders in a given tax year.

It is determined that distribution of 932 shares of stock of Abon, Inc. to you by Albany Linoleum & Carpet Co., Inc. is taxable as a dividend in the amount of $7,418.72 in accordance with Section 301 of the Internal Revenue Code of 1954.

Analysis

The court found that the petitioners were indeed stockholders of Abon as of September 13, 1956, when the property was transferred. The court distinguished between stock ownership and the issuance of stock certificates, noting that ownership existed even if certificates were not issued until later. The court also rejected the petitioners' argument that the distribution was not taxable because it was not received until 1957.

Under the facts in the instant case we hold that petitioner were the stockholders of Abon as of September 13, 1956, when the property of Albany Linoleum was transferred to Abon and that they had ownership at that time proportionate to their ownership in Albany Linoleum.

Conclusion

The court concluded that the petitioners received a taxable distribution of stock in 1956 and upheld the IRS's determination of a deficiency in their income tax.

Decision will be entered for respondent.

Who won?

The Commissioner of Internal Revenue prevailed in the case because the court found that the petitioners had received a taxable distribution of stock in 1956.

The court concluded that the petitioners received a taxable distribution of stock in 1956 and upheld the IRS's determination of a deficiency in their income tax.

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