Smart Farm Company, Petitioner, v. Commissioner of Internal Revenue, Respondent

Smart Farm Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Docket No. 42845. Promulgated February 29, 1932. J. Marvin Haynes, Esq., and G. J. McGuire, Esq., for the petitioner. Stanley B. Anderson, Esq., for the respondent. [MAJORITY — Love :] OPINION. Love : Petitioner contends that the question involved in this proceeding is controlled by our decision in Virginia Beach Golf Course Annex Corporation, 23 B. T. A. 1169. We agree with that contention. The respondent contends that the facts in the instant proceeding differ from those in the case relied upon by petitioner in that the dividend in the Virginia Beach case was stipulated to have been an unliquidated dividend in hind, whereas the dividend in the instant proceeding was for a definite amount, namely, $80 per share; that by the declaration of such dividend the petitioner created an indebtedness of $400,000 in favor of its stockholders; and that when it liquidated such indebtedness with $2,729.23 of cash and $397,270.77 of land contracts, it realized the profit of $254,631.62 contained in such contracts, on the ground that what it did was just the same as if it had sold the land contracts for $397,270.77 and taken the proceeds therefrom to pay its indebtedness to its stockholders. We think the dividend in the instant proceeding is as much a dividend in kind as was the dividend in the Virginia Beach case, supra. The resolution of the stock holders specifically authorized the directors “ to distribute cash and assets of the Company to the stockholders ” and in accordance with such resolution the directors resolved “ That a dividend in the amount of Eighty ($80.00) Dollars per share be and the same hereby is declared in partial liquidation of the capital stock * * * payable in cash and in land contracts receivable taken at the book value thereof.” At that time petitioner had only $9,357.32 of cash in its treasury, whereas it had land contracts on its books in the amount of $575,059.98. We think this fact, together with the action taken by the stockholders and directors, clearly shows that the dividend to the extent of $397,270.77 was one in kind, namely, “in land contracts receivable taken at the book value thereof.” It follows that our decision here must be the same as it was in Virginia Beach Golf Course Annex Corporation, supra, and that the respondent erred in including the amount of $254,631.62 in petitioner’s net income. See particularly point 1 of our opinion in the Virginia Beach case, at page 1112. Reviewed by the board. Judgment will l>e entered for the petitioner.