dissenting: The facts show, and the respondent concedes, that the stock distribution involved did not affect the voting power of any of the shareholders and that had there been a liquidation immediately after the distribution each shareholder would have received the same amount he would have received had there been a liquidation immediately before the distribution. Thus the distribution involved effected no immediate change in the proportionate interests of the shareholders in the net assets or value of the corporation.
The respondent contends that a shift in the proportionate interests of shareholders in future dividends or distributions in liquidation renders a stock dividend taxable.
Similar contentions were made by the Commissioner in Sprouse v. Commissioner (CCA-9), 122 Fed. (2d) 973, involving a 1936 distribution of a 10 per cent stock dividend in nonvoting common stock on outstanding voting and nonvoting common stock, and in Strassburger v. Commissioner (CCA-2), 124 Fed. (2d) 315, involving a distribution in nonvoting cumulative preferred stock on common stock, which was the only stock outstanding and all owned by one person.
The Circuit Court of Appeals in the Strassburger case held the stock dividend involved to be taxable income, stating, in part, that “the rearrangement of corporate capitalization so that the petitioner held preferred as well as common stock did change the character of his corporate ownership” since the “preferred stock had the prior right to dividends and a preference on liquidation of the corporation,” which “rights could be disposed of without affecting the voting control residing in the common stock.” The Court in the Sprouse case stated in its opinion that the test proposed by the Commissioner to determine whether the recipient of a stock dividend derived taxable income based upon “differences in such characteristics as preference in interest in the assets and in dividends, and the right to vote” resulted from a misconception of the decisions of the Supreme Court and held that where both nonvoting and voting stocks participated in a stock dividend, the shareholder derived no taxable income if the dividend was distributed in proportion to the value of classes of stock outstanding. In other words, the tést to be applied in determining whether a recipient of a stock dividend derived taxable income is whether the distribution effected a change in the proportionate interests of the shareholders in the net value of the corporation.
The Strassburger and Sprouse cases were considered by the Supreme Court at the same time and disposed of in one opinion. It reversed the Strassburger case, stating that the “distribution brought about no change whatever in his interest in the corporation. Both before and after the event he owned exactly the same interest in the net value of the corporation as before.” The Court affirmed the Sprouse case, wherein the Appellate Court had rejected contentions of the Commissioner similar to those made herein.
It is clearly implicit in the above decisions that the question of tax-ability in the instant type of cases is to be decided by the facts obtaining at the date of the distribution of dividends, i. e., on the basis of facts as they were, not on facts hypothetically postulated as of some future date. See Helvering v. Griffiths, 318 U. S. 371.
In my opinion, the stock dividend involved did not constitute tax- ■ able income to the recipients thereof, since the distribution thereof brought about no change in the proportionate interests of the stockholders in the “net value of the corporation.” The new certificates merely increased the number of shares of each class outstanding, with consequent dilution of the value of each share.
I respectfully note my dissent.