*2548 1. Petitioner has not submitted sufficient evidence to show the amount of current profits of a corporation available on the date of payment of dividends during the year 1917, and, in the absence of such evidence, the method used by the Commissioner in determining the current profits available by prorating the net earnings for the entire year 1917 to the dates of payment of the several dividends is approved.
2. Under section 31(b) of the Revenue Act of 1916, as amended by the Revenue Act of 1917, "a distribution made to a shareholder" takes place on the date of payment rather than on the date of declaration.
*632 The Commissioner determined a deficiency of $2,889.88 for the calendar year 1917. It is claimed that the Commissioner erred in holding that dividends declared by the F. W. Woolworth Co. in January, February, and April, 1917, and paid in March, April, and June, respectively, were out of 1917 profits of the company and taxable to the petitioner at the rates imposed by the Revenue Act of 1917.
Petitioner*2549 claims these dividends were distributions out of 1916 surplus and undivided profits and were taxable at the rates imposed by the Revenue Act of 1916.
This proceeding was held upon the Board's reserve calendar, upon application of petitioner's counsel, to await a decision of the Court of Claims in a case in which counsel for petitioner were interested, involving the same question. This proceeding was heard on April 11, 1927.
FINDINGS OF FACT.
Petitioner is a resident of Pulaski, N.Y. Prior to and during the year 1917, he owned certain preferred and common stock of the F. W. Woolworth Co. During the year 1917, the directors of the F. W. Woolworth Co. declared and paid, and petitioner received, dividends as follows:
| Date of declaration | Date of payment | Total dividends | Amounts due to and received by petitioner |
| January 10, 1917 | March 1, 1917 | $1,000,000 | $5,010.00 |
| February 14, 1917 | April 1, 1917 | 227,500 | 1,102.50 |
| April 11, 1917 | June 1, 1917 | 1,000,000 | 5,010.00 |
The business of F. W. Woolworth Co., a New York corporation, consists of the selling at retail, in approximately 1,000 stores, of articles at 5, 10, and 15 cents each.
The business*2550 from the accumulated profits of which the dividends in question were declared and paid consisted in keeping the operating about one thousand separate stores scattered throughout the United States and Canada. The managers of these different stores *633 would throughout the year order goods direct from various manufacturers from lists sent out by the F. W. Woolworth Co. buyers. Inventories were taken at the end of the year. No intermediate inventories of the corporate business were taken, but occasionally an inventory was taken in some one particular store. The business of the corporation was at its lowest ebb during the first part of each year, increased around Easter, and reached its full volume in the late fall and during the Christmas holidays. The heavy expense of the business, such as store managers' commissions, taxes, light, and heating, were not determinable until the end of the year.
The net income of the F. W. Woolworth Co. for 1917 amounted to $8,188,579.08. The net earnings for the entire year 1917, apportioned by months, as was done by the Commissioner, shows that on March 1, 1917, there were current earnings of $1,364,763.18. The dividend paid on March 1, 1917, amounted*2551 to $1,000,000. Deducting this amount from the sum of $1,364,763.18, leaves undistributed earnings for January and February, after the payment of this dividend, in the sum of $364,763.18. On this same basis the net earnings from March 1, 1917, to April 1, 1917, amounted to $682,381.59, which, added to $364,763.18, shows that there were on hand earnings from January 1, 1917, to April 1, 1917, of $1,047,144.77. The dividend paid on April 1, 1917, amounted to $227,500. After the payment of this dividend there were left earnings amounting to $819,644.77, to which should be added the earnings from April 1, to June 1, 1917, amounting to $1,364,763.18, making a total of $2,184,407.95, out of which to pay the dividend of $1,000,000 paid June 1, 1917.
It is necessary for the board of directors of F. W. Woolworth Co. in order accurately to determine its profits, (1) to take an inventory to ascertain the cost of the goods sold and (2) to determine the expense of the company's operations, including the salaries of the store managers and managing officers, who are paid mainly on a commission basis dependent upon the profits of the company, and, for that reason, such commissions can be accurately*2552 determined only at the end of the year. At the time of the meeting on January 10, 1917, the directors of F. W. Woolworth Co. had no reports or statements showing sales or profits for the nine days of the year 1917, which preceded the meeting at which they declared a dividend.
At the time of the declaration of the dividend on February 14, 1917, the directors had before them a summary report of the sales of goods made by the company during the month of January, 1917, but no list showing any calculation or summary of liabilities.
At the time of the declaration of a dividend on April 11, 1917, the directors had before them a summary of the sales of goods for *634 the months of January, February, and March, 1917, but nothing showing liabilities or any calculation of liabilities.
There was a surplus existing at each of the dates when dividends were declared and paid from business done by the F. W. Woolworth Co. in 1916. The company determined profits in each month during the period covered by the payments hereinbefore set forth. The business of the F. W. Woolworth Co. always operated at a profit during each year.
OPINION.
LITTLETON: The petitioner insists that dividends*2553 declared by the F. W. Woolworth Co. on January 10, February 14, and April 11, 1917, and received by him on March 1, April 1, and June 1, respectively, were distributions made by the company of the surplus and undivided profits for 1916, and should be taxed at the rates imposed by the Revenue Act of 1916. He further claims that the distributions were made by the company on the dates on which the dividends were declared and not on the dates of payment. He therefore insists that by adopting the Commissioner's method of prorating the earnings for the entire year to the respective dates of declaration the current earnings were not sufficient to cover the entire dividends.
The Commissioner held that the dividends were distributed within the meaning of the statute on the date of payment and, by prorating the net earnings for the entire year 1917 to the dates of payment, he determined that there were more than sufficient earnings out of which the dividends were paid. He held further that the dividends were distributed out of earnings for the year 1917 and taxable at the rates imposed by that Act.
The petitioner has not submitted sufficient evidence to convince the Board that the company*2554 did not have sufficient current profits for the year 1917 on the dates when the dividends were paid out of which to pay them. The company made no attempt to determine its current earnings on the several dates and nothing has been proved in this proceeding which would indicate what the profits for 1917 on these dates were or that the earnings available were less than the amount determined by the Commissioner. In the absence of proof of a better method of determining the available current profits the Commissioner's method must be accepted by the Board. . . The case of , decided November 21, 1927, involved the determination by the Commissioner that dividends, some of which were declared in 1916 and some in 1917 but all paid in 1917, were taxable at the rates imposed by the *635 Revenue Act of 1917 for the reason that by prorating the net earnings for the entire year 1917, to the dates of payments of the dividends sufficient current earnings were found to have been available for payment. It was admitted by all concerned in that case*2555 that the B. F. Goodrich Co., the corporation paying the dividends, had earned no profits in 1917 prior to the payment of the dividends there in question. The Supreme Court said:
The District Court held that, despite the fact that the profits for 1917 were in excess of all dividends paid in that year, the distribution must be deemed to have been made out of profits accumulated in 1916; and entered judgment for the full amount. Thereafter, and before this case was heard in the Court of Appeals, Edwards v. Douglas was decided by this Court. The Court of Appeals recognized that Edwards v. Douglas differed in its facts from the case at bar. But it concluded that, under the reasoning of the opinion in that case, the taxing year should be treated as a unit; and it believed that it was required to hold that, if the net profits of a whole year prove sufficient to meet all the dividends paid within it, those must be deemed to have been paid from such profits, even if it affirmatively appears that none had been earned before the date when the latest dividend was paid.
The Solicitor General concedes that Edwards v. Douglas does not so decide; that the case is authority*2556 only for the proposition that a pro rata share of the entire year's earnings may be treated as approximating the actual earnings for the fraction of the year prior to the payment of the dividend in the absence of circumstances showing that there were no earnings actually accumulated during the fractional period; that the amount actually available for payment of dividends out of the current year's earnings prior to the date of payment may always be shown; that such had been the practice of the Treasury Department from the time the Revenue Act of 1917 took effect until the date of the Court of Appeals' decision; and that this rule was embodied in its regulations.
We see no good reason for disturbing the long settled practice of the Treasury Department. Its contemporary interpretation is consistent with the language of the Act; and its practice was, in substance, embodied in the Revenue Act of 1918, February 24, 1919, c. 18, § 201(e), 40 Stat. 1057, 1060. We conclude that the Circuit Court of Appeals placed an erroneous construction on § 31(b).
Since two of the dividends paid in 1917 were declared in 1916, it becomes necessary for us to consider whether these also are to be*2557 deemed distributions made in 1917, as it is only to such that the section applies. It declares that the dividend is income of the shareholders in the year in which it is "received." We think it clear that, for this purpose, the date of payment, not the date of the declaration of the dividend, is the date of distribution; and as all the dividends here in question were paid in 1917, the provision as to the rate is applicable to all. As there were no earnings in 1917, prior to the dates of the payments, and as there were confessedly ample accumulated earnings of 1916 prior to the declaration of the several dividends, we have no occasion to consider other questions which were argued. The judgment of the Circuit Court of Appeals is reversed; that of the District Court is affirmed.
In view of the decision of the court in , and the evidence in this proceeding, the Commissioner's determination in respect of the dividends paid by F. W. Woolworth Co. is sustained.
*636 Petitioner in its petition claimed that the Commissioner erred in his determination in respect of the dividends received by him during the taxable year from certain*2558 other corporations. No evidence was submitted concerning these dividends.
Reviewed by the Board.
Judgment will be entered for the respondent.