*1285OPINION.
Phillips :It is the contention of petitioners that they contributed $100,000 to the capital of the Weaver Co., that this contribution of capita] was returned, that they received nothing more than they contributed, and that therefore there is nothing on which they may be taxed. They cite the definition of income made by the Supreme Court in Eisner v. Macomber, 252 U. S. 189, and it may be admitted fo rthe purposes of this decision that if, as a matter of law, what the petitioners received was a return of their investment, there was no income.
Section 201 of the Revenue Act of 1921 provides, so far as pertinent, as follows:
(a) Tbe term “ dividend ” when used in this title * * * means any distribution made by a corporation to its stockholders or members whether in cash or in other property out of its earnings or profits accumulated since February 28, 1913 * * *
(b) For the purpose of this Act, every distribution is made out of earnings or profits, and from the most recently accumulated earnings or profits to the extent of such earnings or profits accumulated since February 28, 1913; but any earnings or profits accumulated or increase in value of property accrued prior to March 1, 1913, may be distributed exempt from the tax after the earnings and profits accumulated since February 28, 1913, have been distributed. * * *
The section then proceeds to set out the effect of tax-free distributions upon the computation of gain or loss from the subsequent sale of the stock. In Douglas v. Edwards, 298 Fed. 229, the court was called upon to pass upon the meaning of the word “ deemed ” as used in a provision of the Revenue Act of 1917 similar to that we are now considering. There the court said:
If it had been intended that this word should mean a rebuttable and not a conclusive presumption, the word “presumed” could readily have been used, and that is a word which is very familiar in many statutes. “ Deemed,” and its synonym, “regarded,” according to definitions in cases and dictionaries, is the equivalent of “considered” or “adjudged.” Leonard v. Grant (C. C.) 5 Fed. 11, 16; U. S. v. Doherty (D. C.) 27 Fed. 730, 734; Michel v. Nunn, (C. C.) 101 Fed. 423; Cardinel v. Smith, 5 Fed. Cas. 45, 47; Walton v. Cavin, 16 Q. B. 48, 81.
*1286We think it was the purpose of the statute that any distribution made to shareholders should be conclusively presumed to have been made from the most recently accumulated undivided profits or surplus, and that it was intended that the corporation should not be permitted, to determine to what year or period or to what fund it would allocate such distribution. Any other construction might well have led to confusion and inequalities.
That case went to the Supreme Court- and was reversed upon another ground. Neither party questioned this portion of the Circuit Court’s decision.
In Hellmich v. Hellman, 276 U. S. 233, the court, commenting upon a similar provision in the Revenue Act of 1918, said:
It is true that if section 201(a) stood alone in its broad definition of the term “ dividend ” would apparently include distributions made to stockholders in the liquidation of a corporation — although this term, as generally understood and used, refers to the recurrent return upon stock paid to stockholders by a going corporation in the ordinary course of business, which does not reduce their stock holdings and leaves them in a position to enjoy future returns upon the same stock. See Lynch v. Hornby, 247 U. S. 339, 344-346, 38 S. Ct. 543, 62 L. Ed. 1149, and Langstaff v. Lucas (D. C.) 9 F. (2d.) 691, 694.
In the 1918 Act there was express provision made for the treatment to be accorded liquidating dividends and it was held that this provision took all such dividends from the operation of section 201 (a) of the Act. This provision respecting liquidating dividends was omitted from the 1921 Act, which renders the comment of the court in the Hellmioh case entirely in point.
We are of the opinion that regardless of the effort of the corporation to make this distribution out of paid-in or “ contributed ” surplus, the statute required that the distribution be treated as paid out of the most recently accumulated earnings or profits to the extent of such earnings or profits accumulated since February 28, 1913. Since the corporation was organized in 1914 and had earned surplus of $225,000, the entire amount distributed was taxable as a dividend. McCaughn v. McCahan, 39 Fed. (2d) 3; See Frank D. Darrow, 8 B. T. A. 276; Philetus W. Gates, 9 B. T. A. 1133; Eric A. Pearson, 16 B. T. A. 1405; Hamilton Woolen Co., 21 B. T. A. 334.
It may be pointed out that the contention of the petitioners, if sound, would permit a corporation, by retaining its earnings and redeeming its capital stock in an amount equal to its earnings, to make distributions to its stockholders which would escape tax. This was the very thing at which the statute was aimed.
There is nothing unconstitutional in such a statute. It imposes no tax upon the repayment of a capital investment; it simply provides that for tax purposes earnings upon the capital must be distributed before the capital can be returned. After such earnings are distributed, but not until then, the capital investment may be recovered without liability to taxation.
*1287No argument is advanced that the amounts ' distributed to the stockholders were repayments of loans nor could such argument be validly urged. It is evident that in 1919, for some reason which does not appear, it was found advisable to reduce the amounts due to the stockholders upon their individual accounts and to increase the capital of the corporation by a like amount. The brief of counsel for the petitioners assigns as reason a temporary need of more working capital. This seems reasonable, but-whatever the reason it is clear that if the transaction was a loan, no reason existed for disturbing the accounts with the stockholders. The corporation already had the use of these funds, but as a debtor. It was because the capital was to be increased and the debts decreased that the stockholders changed their position with respect to this $100,000 from creditors to investors. After this had been done their position was the same as that of any stockholder. The amount invested could be returned only by way of a distribution of property to stockholders ; not by way of a payment of corporate indebtedness, for the relationship of debtor and creditor had ceased to exist.
There was, it is stipulated, a verbal understanding among the stockholders that at some future, apparently indefinite and undetermined, date the contributed sum would be returned to them. In the circumstances of the case this amounted to no more than an understanding that at a future date the stockholders would take steps to secure a distribution of corporate assets equal to the amount then contributed. The understanding between the stockholders was clearly insufficient to create a debt and could not serve to alter the legal effect of such a distribution of the corporate assets.
The facts stipulated negative any thought that the agreement was that there should be a delay in the payment of - an indebtedness of the corporation to its stockholders, existing or to be incurred, as in Southport Mill, Ltd., 6 B. T. A. 1073, and William H. Davidow Sons Co., 1 B. T. A. 1215. The stipulation requires that the amount paid in to the corporation to increase its working capital be treated as a part of the stockholders’ investment. This appears to be conceded, the petitioners not contending that the indebtedness to the stockholders continued after their accounts were charged with the additions to capital, but talcing the position that no distribution of earnings takes place when amounts originally contributed to the capital of a corporation are returned to the stockholders.'
We ^regard it as immaterial that no additional stock was issued. While for some corporate purposes there is a distinction between amounts paid in for capital stock and amounts paid in as surplus, both are amounts which are placed at risk in the business which, for the purpose of computing tax under the law governing this case, may *1288not be deemed to have been returned until profits accrued subsequent to February 28, 1913, have been distributed.
Reviewed by the Board.
Decision will he entered under Bule 50.