*1451 Petitioner owned 600 shares of corporate stock on which a dividend of $20 a share, or $12,000, was declared November 18, 1937, payable in cash on December 18, 1937. In order to establish a capital gain to offset capital losses sustained by petitioner during 1937, he assigned and sold on November 29, 1937, his right to receive the dividend and instructed the corporation to pay the dividend to one Patton, who, on December 7, 1937, paid petitioner therefor $11,925 in cash. The dividend was paid by the corporation to Patton on December 18, 1937. Held, that the exercise of his power to assign and sell his right to receive the declared dividend constituted a realization of income by petitioner taxable to him as ordinary income.
*780 This proceeding involves a deficiency in income tax for the year 1937 in the amount of $3,444.05. It is alleged that the respondent erred in determining petitioner's tax liability in adding to taxable net income dividends in the amount of $12,000 and in disallowing as an offset to capital losses sustained by the petitioner*1452 during 1937 a reported capital gain of $12,000, claimed to have been realized from the sale by petitioner of a right to dividens of $12,000.
*781 FINDINGS OF FACT.
The petitioner is a resident of Memphis, Tennessee. During 1937 he was president, treasurer, director, and stockholder of the Carroll Furniture Co. of Atlanta, Georgia. He owned 600 of the 1,000 shares of the outstanding common stock of that company. At a meeting of the board of directors of the company held on November 18, 1937, a resolution declaring a dividend was adopted as follows:
RESOLVED, That there be and hereby is declared from the surplus and net profits of the Corporation a dividend of $20.00 per share on the common stock of the Corporation, payable Dec. 18, 1937 to holders of record of said stock at 12 o'clock Noon on Nov. 26, 1937, and for this purpose the sum of $20,000.00 is hereby set aside as "DIVIDENDS PAYABLE" and the Treasurer is hereby authorized to cause the above named dividend to be paid as specified.
Toward the close of the taxable year the secretary of various corporations engaged in the furniture business with which the petitioner was connected, who had prepared petitioner's*1453 income tax returns since 1934, checked over the personal financial affairs of petitioner to ascertain his tax liability. He found that the petitioner had or would have substantial capital losses which would be deductible from gross income to the extent of only $2,000 in the absence of capital gains. He informed the petitioner of the situation and suggested to him that he sell his dividend rights on his 600 shares of Carroll Furniture Co. stock so as to establish a capital gain to offset his capital losses as a means to reduce his tax liability. Upon the instructions of petitioner the secretary consulted with petitioner's attorney and corresponded with two tax services with respect to the legality of the suggested sale of petitioner's dividend right.
Thereafter the petitioner offered to sell his dividend right for $11,925 to C. H. Patton, an insurance broker, of Memphis, Tennessee, who had known the petitioner for about 25 years, which offer was accepted by Patton.
On November 29, 1937, the petitioner in writing sold and assigned his right to receive dividends of $20 per share, or a total of $12,000, on December 18, 1937, as owner of the 600 shares of Carroll Furniture Co. *1454 stock, in consideration of the unsecured promissory note in the amount of $12,000 dated November 29, 1937, payable on or before 15 days from date with interest at 6 percent from maturity until paid. Patton executed and delivered his note to petitioner accordingly. On the same date both petitioner and Patton, respectively, by letter notified the Carroll Furniture Co. of the assignment and requested payment of the $12,000 dividend to Patton. Under date of December 1, 1937, the Carroll Furniture Co. in writing accepted the assignment and agreed to pay the dividend on December 18, 1937, to Patton.
*782 On December 7, 1937, Patton borrowed $12,000 from the Union Planters National Bank & Trust Co., of Memphis, Tennessee, upon his promissory note in that amount, to which was attached as collateral the assignment of dividend rights of November 29, 1937. Patton deposited in his account as receiver of a bankrupt flour concern of which he had been appointed receiver with the Manhattan Savings Bank, a branch of Union Planters National Bank & Trust Co., the amount of $11,985.33, being the amount borrowed less interest of $14.67. He used this account because it was the only commercial*1455 account he had at the time. On the same day he issued his check against the above account in the amount of $11,925, payable to petitioner and delivered the same to petitioner, who acknowledged in writing on the back of Patton's note of November 29, 1937, payment in full, stating that a discount of $75 was allowed for payment prior to December 14, 1937. At the time the sale was made it was understood that Patton would be allowed the discount of $75. On the same date Patton requested and authorized the Carroll Furniture. Co. by letter to make payable its dividend check for $12,000, to which he was entitled by reason of the assignment above referred to, to the Union Planters National Bank & Trust Co. marked for his account. On the same date Patton withdrew from his account $60.33 which represented the profit he had made on the transaction ($12,000-($14.67+$11,925)=$60.33). He reported the amount of $60.33 as taxable income in his income tax return.
On December 18, 1937, the Carroll Furniture Co. issued its check signed by petitioner, as president, in the amount of $12,000, payable to the order of the Union Planters National Bank & Trust Co. for the account of Patton in payment*1456 of the dividend of $20 per share on 600 shares of its common stock in the name of the petitioner. The check was endorsed by Patton. His note of December 7, 1937, was stamped paid on December 18, 1937.
In his return for 1937 (Form 1040), made on the cash basis, the petitioner reported the above transaction in schedule F, "Gains and Losses from Sales or Exchanges of Property" as follows:
| Description | Date Acquired | Date Sold | Time Held | Gross sales Price | Cost | Gain or Loss |
| Right to dividend on 600 shares of Carroll Furniture Co., Atlanta, Ga | 11-18-37 | 11-29-37 | Under 1 yr. | $12,000.00 | G $12,000.00 |
His reported capital losses of assets held under one year amounted to $15,270.48 and the reported capital gains, including the $12,000 on the sale of his dividend rights, aggregated $12,125, so that all the capital losses were offset by capital gains exceping $3,145.48 *783 thereof. However, other capital losses and capital gains arising from the sale of assets held over one year resulted in a net capital gain of $4,091.75, which was included in gross income.
The petitioner reported a taxable net income of $83,844.90 and paid a tax thereon*1457 in the amount of $22,800,48.
The respondent adjusted the rep0rted taxable net income by deducting the reported capital gain of $4,091.75 and by adding thereto a dividend of $12,000 and three items aggregating $353.68 which are not in controversy herein. The elimination of the $12,000 capital gain from the reported capital gains and losses resulted in a net capital loss of $7,908.25 instead of a capital gain of $4,091.75, which capital loss the respondent allowed to the extent of $2,000. These adjustments increased petitioner's taxable net income to $90,106.83.
OPINION.
ARNOLD: The petitioner contends that the declaration of the dividend by the corporation created a debt of the corporation in his favor; that the right to receive such dividend constituted personal property, which he had a legal right to sell and assign, ; that his right to receive the declared dividend was a capital asset within section 117 of Revenue Act of 1936; and that, by reason of the sale to Patton of his right to receive the dividend and the payment of the dividend to Patton, it was not taxable as such to petitioner, who never received it. *1458
The respondent contends that a transaction entered into with no other purpose than that of tax avoidance is not a legitimate business transaction and should not be recognized, , and that the dividend was taxable to petitioner, because he remained the owner of the stock upon which the dividend was declared. ; ; ; ; ; affd., .
We agree with the petitioner that his motive in making the assignment and sale is immaterial and that it is not unlawful or unethical for a taxpayer to avoid by legal means some portion of his tax. ; ; certiorari denied, ; *1459 Nor do we question his right to assign or sell his right to receive the dividend or that such right constituted personal property. Nevertheless, we must approve the action of the respondent in treating the dividend of $12,000 as taxable to him as ordinary income. , reversing , which had reversed . The reasoning of the Supreme *784 Court in that case is controlling herein. It follows that the exercise of his power to sell or assign his right to receive the declared dividend constituted a realization of income by petitioner taxable to him as ordinary income. See also ; ; Fremont C. peck et al., ; affd., ; certiorari denied, .
Decision will be entered for the respondent.