Southern Pacific Co. v. Lowe

Citations

• 247 U.S. 330
• 38 S. Ct. 540
• 62 L. Ed. 1142
• 1918 U.S. LEXIS 1914

Syllabus

<p>Accumulations that accrued to a corporation through surplus earnings or appreciation in property value, before the adoption of the Sixteenth Amendment (February, 1913), and the effective date (March, 1913), of the Income Tax Act of 1913 (Act October 3,1913, c. 16, 38 Stat. 166),.are to be regarded as its capital, not as its income for the purposes of that act.</p> <p>Although, in general, the Income Tax Act of 1913, unlike that of June 30,1864, treated corporate earnings as not accruing to the shareholders until the time when a dividend was paid (Lynch v. Hornby, post, 339), and although in ordinary cases the mere accumulation of adequate surplus does not entitle a shareholder to dividends until the directors, in their discretion, declare them, yet, where the shares of a corporation were all owned, and its property and funds possessed, and its operations and affairs completely dominated, by another corporation, so that the two were in substance but one, and where dividends from the one to the other were consummated, after the Act of 1913 became effective, by a mere paper transaction — formal vote of the directors of the first company and entries on the books of the two — and represented merely what the second company was entitled to have as shareholder before January 1, 1913, from a surplus theretofore accumulated, held, that such dividends were not taxable as income of the shareholding company within the true intent and meaning of the Income Tax Act of 1913,</p>