*1139 A corporation is not entitled to a dividends paid credit where the facts show that no dividend was declared or paid or credited in the taxable year.
*331 Respondent determined a deficiency of $725.36 in the income tax liability of petitioner for the year 1936 consequent on his disallowance of a claimed credit for dividends paid. Petitioner filed its income tax return for the year 1936 with the collector of internal revenue for the Pittsburgh district of Pennsylvania.
FINDINGS OF FACT.
The facts were stipulated and are hereby adopted as our findings of fact.
The petitioner is a personal holding company under the meaning of section 351 of the Revenue Act of 1936.
Out of the total of 5,000 shares of authorized common capital stock, no par, there were issued and outstanding on December 31, 1936, a total of 4,180 shares.
At no time during the calendar year 1936 were there any stockholders other than Evelyn F. Evans II, 1452 Beechwood Boulevard, Pittsburgh, Pennsylvania, who on December 31, 1936, owned 2,600 shares outright, and Laura*1140 E. Ford, 144 Provencal Road, Grosse Pointe, Detroit, Michigan, who on December 31, 1936, owned 1,580 shares.
Evelyn F. Evans II and Laura E. Ford filed personal income tax returns in their respective districts and, in conformity with section 351(d) of the Revenue Act of 1936, included as income for the calendar year 1936 their proportionate shares of the total earnings reported in the return filed by the petitioner for the year 1936, which reported earnings were $6,850.75, and which proportionate shares were as follows:
| Evelyn F. Evans II, 62.2 percent | $4,261.17 |
| Laura E. Ford, 37.8 percent | 2,589.58 |
As a result of the allocation referred to in the preceding paragraph the petitioner was relieved of any and all tax assessments under section 351 of the Revenue Act of 1936 relating to surtax on personal holding companies.
The earnings of the petitioner for the calendar year, as corrected by the examiner, were $7,056.52.
The petitioner was well able to pay either from cash or from negotiable securities on hand on December 31, 1936, or prior thereto, a dividend of the full amount of its earnings for the calendar year 1936.
No dividend was declared or paid*1141 by the petitioner during the calendar year 1936, and no portion of the corporation's earnings was credited to the individual stockholders of the petitioner during the calendar year 1936.
*332 The allocation of the petitioner's total earnings to the two stockholders was duly authorized at a special meeting of the stockholders of the company held December 29, 1936, at which all of the stockholders were present either in person or by proxy. The resolution was as follows:
RESOLVED that the auditor of the Company, Mr. Henry P. McCrory, be notified to pro rate the total net income of this Corporation between the two stockholders in accordance with their respective interests and to notify each of the two stockholders of the share of the income applicable to the said shareholder as soon as he has completed his analysis of the year's operations so that the amounts can be taken into each stockholder's income for tax purposes. Upon motion duly made and seconded the resolution was unanimously adopted.
OPINION.
VAN FOSSAN: On the facts as stipulated we sustain the respondent. The parties agree that no dividend was declared or paid by the petitioner during the taxable year, *1142 and that no portion of the corporation's earnings was credited to the individual stockholders. It can scarcely be argued in the face of these facts that there was a constructive declaration or payment or any other action sufficient to satisfy the statute. 1 The fact that the stockholders returned for taxation their proportionate shares of the earnings of the corporation and were not held liable for surtax under section 351 is not enough. The corporation, and not the stockholders, is the taxpayer presently before us. The statement in section 351(d) that "any amount so included in the gross income of a shareholder shall be treated as a dividend received" does not carry the corollary that the corporation shall be entitled to a dividends paid credit.
The resolution authorizing the auditor to prorate the net income between the two stockholders did not purport to authorize payment of a dividend and in fact no payment was made. The fact that the petitioner was able*1143 to pay a dividend is, in these circumstances, immaterial.
The case of , on which petitioner relies, is very different in its facts. There the dividends were declared and credited and, though not withdrawn, were subject to the demand and control of the stockholders. See , where dividends paid credit was denied under facts much more favorable to petitioner than those here present.
Decision will be entered for the respondent.
Footnotes
1. SEC. 27. CORPORATION CREDIT FOR DIVIDENDS PAID.
(a) DIVIDENDS PAID CREDIT IN GENERAL. - For the purposes of this title, the dividends paid credit shall be the amount of dividends paid during the taxable year. ↩