*31OPINION.
Teussell :In Doerschuck v. United States, 274 Fed. 739, the court had before it a situation in which it found the essential facts to be:
* * * The directors of said corporation had voted an issue of $738,000 of debenture bonds from a surplus or undivided profits amounting to $840,368.09, which had accrued between 1906 and July 1, 1916. The portion of the bonds representing surplus earned before March 1, 1913, was not taxed and hence is not involved in these actions. The balance, viz. $262,334.44, was assessed as income for the year 1916, during which year each of the plaintiffs had received his one-quarter part of said funds.
Commenting upon these facts the court cited and discussed a number of authorities relating to the nature and kind of dividends such as stock, bond, and scrip dividends, and 'then said:
It is apparent, therefore, in the present case, that the plaintiffs received an actual payment (in the form of securities available for disposition in the market, and entirely severed or distinguished from their control of the property as stockholders) of profits which the company, wished to distribute as earnings to its stockholders. It' did this by distribution of obligations which,, like a promissory note, called for the payment of cash, and did not invest the holder with merely a different form of holding of stock.
*32There is no question here between the persons receiving this dividend and creditors as to priority of payment. Evidently, so far as these debenture bonds are concerned, the corporation was solvent, and to whatever extent they might be of value this value was separated from any stockholders’ control of the corporation. As stated in Eisner v. Macomber, supra, 252 U. S. at page 212, 40 Sup. Ct. at page 195, 64 L. Ed. 521, 9 A. L. R. 1570:
“ It is said that a stockholder may sell the new shares acquired in the stock dividend; and so he may, if he can find a buyer. It is equally true that, if he does sell, and in doing so realizes a profit, such profit, like any other, is income, and, so far as it may have arisen since the Sixteenth Amendment, is taxable by Congress without apportionment.”
The debenture bonds in the suit at bar fall into the class of stock sold rather than stock held in a continued status of shareholder.
Petitioner’s counsel in bis brief, appears to admit that income may be realized from bond dividends as in the case above cited, but urges that under the peculiar circumstances of the instant case the petitioner should not be charged with having received taxable income. Counsel has cited some authorities which we have examined but which to our mind do not lend any compelling force to his argument. It will be observed that in the Doerschuck case supra, the court did not hold that taxable income was realized from the issue and receipt of the bond dividend but that taxable income was received from the sale of such dividend and that is the case which we have here under consideration. The petitioner received bonds representing $600,000 of the surplus and undivided profits of his corporation. That portion of the bond issue representing the $320,330.48 of surplus and undivided profits accumulated since February 28, 1913, should be added to the petitioner’s gross income as dividend subject to surtax. The loss, in the amount of $132,000 sustained in the sale of the bond issue should be treated as a deduction from the petitioner’s gross income and his income-tax liability for the year recomputed a fter such changes have been made.
The deficiency may be redetermined m accordance with the foregoing opinion upon 15 days' notice, pursua/nt to Rule 50, and judgment will be entered in due course.