*3290 A corporation in which petitioner was a stockholder issued rights to subscribe to stock of another corporation. Held, the rights so received by petitioner constitute taxable dividends.
*236 Deficiency in income tax for the calendar year 1921 in the amount of $8,010.71. The deficiency arises from the inclusion by the Commissioner in income of the proceeds received by the estate from the sale of the rights to subscribe for stock of the Pacific Oil Co. issued by the Southern Pacific Co. to its stockholders.
FINDINGS OF FACT.
The decedent at the time of his death in 1915 was the owner of 1,000 shares of stock in the Southern Pacific Co., the fair market value of which at the date of death was $102.50 per share. The estate continued to own this property in the year 1921. Under date of December 1, 1920, the board of directors of the Southern Pacific Co. informed its stockholders of a plan for the separation of its California oil properties. Under date of December 1, 1920, the board of directors of the Southern Pacific Co. informed its stockholders*3291 of a plan whereby a new corporation was to be organized for the purpose of taking over oil properties of the Southern Pacific Co. which at that time were held by the Southern Pacific Land Co., all of whose stock was owned by the Southern Pacific Co. The new corporation was to be known as the Pacific Oil Co. and was to have capital stock of 3,500,000 shares. This made available sufficient shares of stock of the new company to allocate one share thereof to each share of stock of the Southern Pacific Co. The Southern Pacific Co. subscribed for the stock of the new company at $15 a share, and the new company used the funds thus received, except for an amount *237 retained for working capital, to purchase the oil properties then held by the Southern Pacific Land Co. The Southern Pacific Co. then issued to each of its stockholders of record on January 14, 1921, the right per share to subscribe to one share of the capital stock of the Pacific Oil Co., the subscription price being $15 per share.
The stock of the Southern Pacific Co. and the stock of the Pacific Oil Co. were listed on the New York Stock Exchange and there actively dealt in. Until the close of business on February 7, 1921, the*3292 Southern Pacific Co. stock was dealt in upon the New York Stock Exchange "with rights" and upon February 8, 1921, it became "ex-rights." The range of prices of Southern Pacific stock on the New York Stock Exchange on the two last-mentioned dates was:
| February 7 | Low96 | High 97 1/8 |
| February 8 | Low 78 1/4 | High 79 7/8 |
On February 8th, the range of prices on the New York Stock Exchange of Pacific Oil Co. stock was:
Low 33 5/8 High 34 1/4
The rights when received by petitioner had a market value of $18 each.
The estate, within the year 1921, sold its subscription rights at the rate of $18 per share, receiving therefor the net sum upon such sale of $17,805. The respondent has included in petitioner's gross income the entire amount received by it from the sale of the stock rights, viz, $17,805.
OPINION.
ARUNDELL: In 1921 the Southern Pacific Co. was the owner of all the capital stock of the Pacific Oil Co. In that year it paid a dividend in the form of a right to purchase stock of the Pacific Oil Co. at the price of $15 per share, which right had a fair market value on the date of its receipt of $18 per share. The value of the rights received by the*3293 petitioner should have been returned as an ordinary dividend taxable only at surtax rates. . The subsequent sale or other disposition of the property received by way of a dividend would give rise to gain or loss, dependent upon the amount received therefor. In this case petitioner is entitled to deduction of the difference between $18,000 and $17,805. The tax for 1921 should accordingly be recomputed by including the $18,000 dividends in income as subject to surtax only, and by the allowance of the deduction of $195.
Petitioner seeks to bring the case within the principle laid down in . But the stock rights there in question were rights in the company of which petitioner was a stockholder and not in an independent company. It is true, as contended, *238 that the effect of the issuance of the dividend in the instant case served to reduce the surplus of the Southern Pacific Co. and the value of petitioner's stock therein. But this is very generally true and shares of stock selling "ex-dividend" usually reflect this fact. *3294 ; .
Judgment will be entered under Rule 50.