The opinion
Mellott, /., dissenting: The corporation is a personal holding company. In 1986 petitioner owned all of its preferred stock (which, had full voting rights) and one-fourth of its common, her three children owning the remainder of the common. The corporation’s net income for 1936 was approximately double the amount of “cumulative” dividends on the preferred stock and its earned surplus was ample to pay all of them. Petitioner, by reason of her voting power, was in a position where she could have collected the accumulated dividends if she had chosen to do so. She elected to waive them. Whether she did so because she intended to equalize the ownership of the stock of the corporation through gifts of three-fourths of the preferred stock to her children during the next year, as actually eventuated, or whether she desired to make three-fourths of the earnings of the corporation available to her children as the owners of the common stock, it is clear that her waiver benefited them. The net result as to the dividends was no different than it would have been if, retaining the stock, she had collected the dividends and given them to her children; or if she had delivered the stock to them and they had collected the dividends; or if she had retained both and passed them to her children at death.
* * * The gift tax was supplementary to the estate tax. The two are in pari materia and must he construed together. * * * An important, if not the main purpose of the gift tax was to prevent or compensate for avoidance of death taxes by taxing the gifts of property inter vivos which, but for the gifts, would be subject in its original or converted form to the tax laid upon transfers at death. [Sanford’s Estate v. Commissioner, 308 U. S. 39 .]
This tribunal has previously recognized that a gift to a corporation “would benefit proportionately” shareholders other than the one making the gift. “As to them, particularly members of the transferor’s family, there is no reason to disregard the gift theory.” Robert H. Scanlon, 42 B. T. A. 997, 999. Congress may well have had in mind such a situation as is shown in the presently stipulated facts when it included, as one example of the sort of transactions it intended to tax, “(2) a transfer by A to a corporation owned by his children,” which, it said, “would constitute a gift to the children.” (H. Rept. No. 708, 72d Cong., 1st sess., pp. 27-28; S. Rept. No. 665, 72d Cong., 1st sess., pp. 39-40.) Since petitioner can not be said to have made a gift to herself under the rationale of the Scanlon case, I would hold — looking at realities — that she made gifts to her three children equivalent to 75 percent of the amount of the dividends waived. She, of course, would be entitled to three exclusions of $5,000, Helvering v. Hutchings, supra, and to elect whether she would claim any statutory exemption for 1936. Cf. Lunsford Richardson, 39 B. T. A. 927; affirmed on this point, 126 Fed. (2d) 562; Lawrence G. Phipps, 43 B. T. A. 1010; affd., 127 Fed. (2d) 214.
Opper, /., agrees with this dissent.