290 F2d 870 Gokey Properties Inc v. Commissioner of Internal Revenue

290 F.2d 870

61-2 USTC P 9493

GOKEY PROPERTIES, INC., Petitioner-Appellant,

No. 327, Docket 26733.

United States Court of Appeals Second Circuit.

Argued May 10, 1961.
Decided June 1, 1961.

J. Russell Rogerson, Jamestown, N.Y., for petitioner-appellant.

William A. Friedlander, Atty., Dept. of Justice, Washington, D.C. (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, and Harry Baum, Attys., Dept. of Justice, Washington, D.C., on the brief), for respondent.

Before FRIENDLY and SMITH, Circuit Judges, and WATKINS, District judge.1


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The Tax Court held that payments by the taxpayer corporation to its stockholders on the corporation's bonds were nondeductible dividend distributions rather than deductible interest on an indebtedness. We agree with the result reached by the Tax Court and the reasons given in Judge Bruce's opinion. Gregg Co. of Delaware v. Commissioner, 2 Cir., 1956, 239 F.2d 498. We note a minor error in the Tax Court opinion, 34 T.C. 829, at page 837, where the statement is made that the record discloses no dividend payments on petitioner's stock. There were in fact payments of dividends in the amount of $700 in each of two of the years in question, as shown by the balance sheets of the corporate tax returns. Even in those two years by far the greater portion of petitioner's earnings were distributed, by vote of the directors, to its stockholders in the guise of bond interest. These token payments of dividends, in the light of the entire earning and dividend history, strengthen rather than weaken the Tax Court's ultimate conclusion as to the nature of the socalled bonds.


Decision and order of the Tax Court affirmed.


Sitting by designation, U.S. District Judge for the Northern and Southern District of West Virginia