1932 BTA LEXIS 1264">*1264 Held that dividends were constructively received and should be reported as income by taxpayer during the taxable year.
26 B.T.A. 716">*716 This proceeding was brought to redetermine a deficiency in the income taxes of the petitioner for the year 1928 in the sum of $2,057.36.
The petitioner alleges that the respondent erred in adding to her income for the year 1928 dividends aggregating $10,500 on certain stock of W. R. Grace & Company received by her on or about January 2, 1929. She asserts that such dividends were chargeable to her income for the year 1929.
The facts were stipulated and are substantially as follows:
FINDINGS OF FACT.
The petitioner is an individual residing at Manhassett, Long Island, New York, with her business address at 7 Hanover Square, New York, New York.
The petitioner reported her income to the Commissioner of Internal Revenue for Federal income tax for the years 1928 and 1929, and at all times material to this case, on the cash receipts and disbursements basis.
During the year 1928, and at all times material to1932 BTA LEXIS 1264">*1265 this case, the petitioner was the owner of 4,500 shares of common stock of W. R. 26 B.T.A. 716">*717 Grace & Company, a corporation having its office at 7 Hanover Square, New York, New York, and the owner of 350 shares of class A preferred stock and 1,150 shares of class B preferred stock of the said W. R. Grace & Company.
At a meeting of the board of directors of W. R. Grace & Company, duly called and held at its office on the 7th day of March, 1928, the following resolutions relative to the payment of dividends on the class A and class B preferred stock of the said corporation were duly adopted:
RESOLVED that a dividend of 8% be and the same hereby is declared on the Class A Preferred Stock of the Company, payable 4% on June 30th, 1928, to Class A Preferred stockholders of record at the close of business on June 29, 1928, and 4% on December 31, 1928, to Class A Preferred Stockholders of record at the close of business on that day and that the amount necessary to pay the same be set aside.
RESOLVED that a dividend of $8.00 per share be and the same hereby is declared on the Class B Preferred Stock of the Company for the year 1928, payable $4.00 on June 30, 1928 to Class B. Preferred1932 BTA LEXIS 1264">*1266 Stockholders of record at the close of business on June 29, 1928, and $4.00 on December 31, 1928, to Class B. Preferred Stockholders of record at the close of business on that day and the amount necessary to pay the same be set aside.
At a meeting of the board of directors of W. R. Grace & Company, duly called and held at its office on the 12th day of December, 1928, the following resolution relative to the payment of dividends on its common stock was duly adopted:
RESOLVED that a dividend of $1.00 per share on the Common Stock of the Company be and the same hereby is declared payable December 31, 1928, to common stockholders of record at the close of business on that day out of surplus and undivided profits remaining after having set aside the amounts necessary for payment of the dividends on the preferred, Class A Preferred and Class B. Preferred Stocks.
Pursuant to and in accordance with the above mentioned resolutions, checks in the amounts of $1,400 representing a dividend of $4 per share on 350 shares of class A preferred stock, $4,600 representing a dividend of $4 per share on 1,150 shares of class B preferred stock, and $4,500 representing a dividend of $1 per share1932 BTA LEXIS 1264">*1267 on 4,500 shares of common stock, each dated December 31, 1928, were mailed to the petitioner by W. R. Grace & Company on December 31, 1928, in the usual course of business and after the stock transfer books of W. R. Grace & Company were closed for the day on December 31, 1928. These three dividend checks were received by the petitioner by mail on January 2, 1929. They were accompanied by undated form notices issued by W. R. Grace & Company.
The said dividend checks of W. R. Grace & Company in the amounts of $1,400, $4,600 and $4,500, respectively, were deposited 26 B.T.A. 716">*718 by the petitioner in her account with the Grace National Bank on January 2, 1929. On the same day corresponding credit notices were mailed to her and her account was credited with such deposits.
In the statement accompanying the respondent's deficiency notice of February 11, 1931, from which the petitioner's appeal was taken, the respondent included these three dividend checks hereinbefore referred to in the petitioner's taxable income for the calendar year 1928, whereas the petitioner contends that said dividend checks did not become taxable income to the petitioner until the calendar year 1929.
OPINION.
1932 BTA LEXIS 1264">*1268 VAN FOSSAN: Section 42 of the Revenue Act of 1928 provides:
The amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under section 41, any such amounts are to be properly accounted for as of a different period.
Article 33 of Regulations 74 contains the following statement:
Dividends on corporate stock are subject to tax when unqualifiedly made subject to the demand of the shareholder.
The petitioner contends that the doctrine of constructive receipt should not be applied and cites ; affirming our decision in . She asserts that the dividends from W. R. Grace & Company were not actually received by her until January 2, 1929, and that inasmuch as her return was made by the cash receipts and disbursements basis, section 42 of the Revenue Act of 1928 is controlling. Whether or not there has been constructive receipt depends on the facts. In the Adams case the facts led us to hold that there was not such receipt, while in 1932 BTA LEXIS 1264">*1269 , we held that dividends were constructively received and should be included in gross income. The cases are entirely reconcilable. Section 42 applies to income both actually and constructively received during the taxable year.
The petitioner further claims that even if the Board should follow its decision in the Braxton case, supra, the dividends received by her from W. R. Grace & Company were not unqualifiedly made subject to her demand in 1928. .she contends that she could not have received dividends from W. R. Grace & Company until after its close of business on December 31, 1928, by virtue of the resolutions of that corporation adopted on March 7, and December 12, 1928. A careful scrutiny of those resolutions, however, discloses that its dividends were payable on December 31, 1928, to stockholders of26 B.T.A. 716">*719 record at the close of business on that day. No specific method of payment was directed. The stipulated facts also show that the dividend checks were mailed to the petitioner by W. R. Grace & Company "on December 31, in the usual course of business and after the stock transfer books of W. R. Grace1932 BTA LEXIS 1264">*1270 & Company were closed for the day on December 31, 1928." It does not appear that time of day the corporation closed its stock transfer books or ceased business, but it is unnecessary for us to inquire as to that fact. The mailing of the dividend checks was an act done "in the usual course of business" on December 31, 1928, and after the close of the stock transfer books. The petitioner could have made a personal demand for and received her dividend payments from the corporation at the close of business on December 31, 1928.
On the facts here present we are of opinion that the dividends in question were unqualifiedly made subject to the petitioner's demand during 1928 and are subject to tax for that year.
Judgment will be entered for the respondent.