*781 The decedent owned the stock of the Midland Realty Co., which in turn owned certain real estate. His will contained a bequest to his daughter which permitted her to receive an amount in cash, one half of the stock of the Midland Realty Co., or the right as executrix of his estate to vote the stock of the company so as to receive a distribution of certain described parcels of its real estate. If she elected to so vote the stock the estate was to be relieved of payment of the cash bequest and the stock of the company was to go to the decedent's brothers and sisters. She elected to receive the real estate and under a resolution adopted at a stockholders' meeting the real estate was transferred to her. Held, that the distribution of the real estate constituted a dividend to the estate to the extent of the corporate earnings accumulated after February 28, 1913; held, further, the transfer of the real estate to the daughter was not a distribution of income within the meaning of section 162(c) of the Revenue Act of 1928 and the estate is not entitled to the deduction claimed in determining its net income.
*1120 The petitioners are executors of the estate of Dr. William E. Minor, deceased, against which the respondent has determined a deficiency in income tax for the year 1929, in the amount of $34,543.16. The petitioners contend that the respondent erred in holding that the estate was the recipient of a dividend by reason of the distribution of real estate by a corporation, of which the decedent was the owner of the stock, to decedent's daughter. In the alternative they contend that if the transfer of the real estate did constitute a dividend to the estate, the dividend was immediately paid *1121 over to the said daughter, in accordance with the terms of the will, and under those circumstances the estate is entitled, under section 162(c) of the Revenue Act of 1928, to deduct the amount of the dividend so paid in determining the net income of the estate for the taxable year.
FINDINGS OF FACT.
In 1904 the decedent organized the Midland Realty Co., a Missouri corporation, and acquired all of its capital stock in exchange for real estate. From that time*783 until his death the decedent owned all of the capital stock of the corporation and held in his name all of the stock except qualifying shares. The stock was divided into 50 shares, having a par value of $100 each. At the date of decedent's death, December 15, 1928, the 50 shares of stock in the Midland Realty Co. had a fair market value of $710,000 and were included in the Federal estate tax return at that value. On February 13, 1929, the earned surplus of the Midland Realty Co. undistributed and accumulated from and after February 28, 1913, was $212,200.79.
By the third paragraph of his will the decedent devised to his daughter, Marie Minor Sanborn, certain real estate standing in his name at the date of his death. He also described certain real estate which on that date belonged to the Midland Realty Co., with reference to which he provided that it was his desire that the said real estate should ultimately be vested in his daughter, Marie Minor Sanborn, and prescribed procedure whereby a distribution of this property might be made to her. It was provided in the will that she, as executrix, should have full power to vote the decedent's stock in the Midland Realty Co. for the*784 purpose of directing such a transfer of the said real estate.
Under the terms of the will, however, Marie Minor Sanborn was given the right to elect whether or not she should receive the real estate then belonging to the Midland Realty Co., a sum of money equal to the fair market value of said property, or one half of the 48 shares of Midland Realty Co. stock outstanding in the decedent's name. As a means of bringing about an election by his daughter, the decedent bequeathed to her a sum of money equal to the value of the said real estate and provided that this bequest should be a charge upon the 48 shares of stock in the Midland Realty Co., but that the stock should be released from the charge if the real estate should be transferred to her. It was provided, however, that if she refused the transfer of said real estate she should receive as her own one half of the 48 shares of Midland Realty Co. stock. It was further provided that if neither of these events took place within a certain time, the said 48 shares of stock, or so much thereof as *1122 might be necessary, should be sold and out of the proceeds the daughter should be paid a sum of money equal to the value of*785 the property previously described. In the event the real estate was transferred to his daughter in the manner previously outlined, it was provided that the entire 48 shares of the Midland Realty Co. stock should go to decedent's brothers and sisters named in the ninth clause of the will.
Subsequently Marie Minor Sanborn filed with the Probate Court of Jackson County, Missouri, a written notice of her election to take the necessary steps, under the will, to the end that the real estate described therein and belonging to the Midland Realty Co. should be transferred to her and received by her in lieu of all other alternatives previously described in connection with the said real estate. The real estate in question was later transferred by the Midland Realty Co. to Marie Minor Sanborn, in accordance with resolutions adopted at a special meeting of the stockholders of the company on February 13, 1929, at which Marie Minor Sanborn voted the entire 48 shares of stock, in accordance with the terms of her father's will. The stockholders' meeting was followed on the same day by a meeting of the directors, at which the directors authorized and directed the officers of the company to execute*786 the necessary deeds for the purpose of carrying out the resolution adopted at the stockholders' meeting. The real estate in question was deeded to Marie Minor Sanborn by the Midland Realty Co. on February 13, 1929, and on that date had a fair market value in excess of $212,200.79.
OPINION.
TURNER: The respondent has determined that the action taken at the meeting of the stockholders of the Midland Realty Co. on February 13, 1929, constituted the declaration of a dividend to the extent of the surplus accumulated and undistributed from and after February 28, 1913, and to that extent constitutes taxable income to the decedent's estate. The petitioners take issue with this determination on two grounds: First, that the transfer of the real estate direct to Marie Minor Sanborn from the Midland Realty Co. was not a dividend received by the estate, and second, that if it was a dividend received by the estate, it was immediately distributed, and under the provisions of section 162(c) 1 of the Revenue Act of 1928, is an allowable deduction in determining net income.
*787 *1123 In support of the contention that the estate received no dividend from the Midland Realty Co., the petitioners argue that the real estate in question was transferred direct to Marie Minor Sanborn for good and valuable consideration, or to use the words of the brief, "In consideration of one dollar and in compliance with the terms of decedent's will the property was conveyed to her by warranty deed." The recital of the one dollar consideration is obviously a matter of form, nothing more. There was nothing resembling a purchase of the property from the Midland Realty Co., and the resolutions of the stockholders indicate that no payment therefor was expected. With reference to the statement that the property was transferred in compliance with the terms of decedent's will, the same statement would be equally applicable if the will had provided that the dividends to be paid on certain stock owned by the decedent were to go to Marie Minor Sanborn and arrangements had been made for the dividends to be paid to her direct. In such a case we doubt that it would be seriously contended that the distributions so made on such stock were not dividends merely because made under specific*788 direction of the will and because for convenience they were paid direct to the beneficiary designated by the will to receive them.
In section 115(a) and (b) of the Revenue Act of 1928, the term "dividend" is defined "as any distribution made by a corporation to its shareholders, whether in money or other property, out of its earning or profits accumulated after February 28, 1913;" and further, it is provided that "every distribution is made out of earnings or profits to the extent thereof, and from the most recently accumulated earnings or profits." In our opinion the facts show the distribution of a dividend to the extent of $212,200.79. Security First National Bank of Los Angeles, Executor,28 B.T.A. 289">28 B.T.A. 289. In so far as the issue here under consideration is concerned, facts in that case parallel the facts in the instant case. The distribution was made to a third party, was a distribution in kind, and was not designated as a dividend. As we there pointed out, a dividend may be paid in kind, Peabody v. Eisner,247 U.S. 347">247 U.S. 347, and it need not be called a dividend, *789 Phelps v. Commissioner, 54 Fed.(2d) 289, affirming, 20 B.T.A. 866">20 B.T.A. 866; certiorari denied, 285 U.S. 558">285 U.S. 558. With reference to payment to a third party, we pointed out that the transfer was so made solely to accommodate the stockholder. Such was situation here. The estate was the stockholder and the transfer of the real estate to Marie Minor Sanborn was for its accommodation and benefit. It was relieved of the payment of a cash bequest and the stock was made available for other purposes. We accordingly hold that the distribution to the extent of $212,200.79, the surplus earned and accumulated from and after February 28, 1913, constituted a dividend to the estate within the meaning of the act.
*1124 Our next consideration is the alternative contention of the petitioners that they are entitled to deduct the amount of the dividend under the terms of section 162(c), supra.In that section it is provided that "there shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust * * * which is properly paid or credited during such year to any legatee, heir, *790 or beneficiary." The facts show that the entire amount of the dividend was paid to one of the beneficiaries of the estate, and from this it is argued that the estate is entitled under section 162(c) to the deduction claimed. The Supreme Court has held, however, that it is not enough that income to an estate or trust is actually used in making a distribution to beneficiaries, but that the payment must be paid out of income as such, Burnet v. Whitehouse,283 U.S. 148">283 U.S. 148, and that a distribution is not a distribution of income as such, if the distribution is payable in any event and is not dependent upon the receipt of the income by the estate. Helvering v. Pardee,290 U.S. 365">290 U.S. 365. Cf. Irwin v. Gavit,268 U.S. 161">268 U.S. 161.
The instant case, in our opinion, falls within the rule laid down in Burnet v. Whitehouse and Helvering v. Pardee, supra. The decedent made alternate bequests leaving it to the beneficiary to elect to receive money, real estate, or stock, and in neither case was the payment of the bequest to be dependent upon the receipt of income by the estate. The will did not provide that Marie Minor Sanborn, as*791 executrix, could vote the distribution of the real estate only if the surplus of the Midland Realty Co. was sufficient to vote a dividend equal in value to the said real estate. Furthermore, the facts show that the value of the real estate distributed was in excess of the surplus available for dividend distribution. The daughter, as executrix, had the right to vote the distribution, even though the corporation had no surplus, and if such a distribution was voted, the entire property distributed thereby was, by the terms of the will, to be transferred to Marie Minor Sanborn, regardless of the receipt of income by the estate.
We accordingly hold that even though a portion of the real estate so transferred to Marie Minor Sanborn was income to the estate, it was not distributed to her as income and, within the meaning of section 162(c), supra, is not deductible in determining the net income of the estate.
Reviewed by the Board.
Decision will be entered for the respondent.
Footnotes
1. SEC. 162. (c) In the case of income received by estates of deceased persons during the period of administration or settlement of the estate, and in the case of income which, in the discretion of the fiduciary, may be either distributed to the beneficiary or accumulated, there shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust for its taxable year which is properly paid or credited during such year to any legatee, heir, or beneficiary, but the amount so allowed as a deduction shall be included in computing the net income of the legatee, heir, or beneficiary. ↩