The opinion
Opper, ./., concurring: The suggestion which I find implicit in the present opinion that the actual, rather than potential, sale of the preferred stock is what made this a taxable dividend and distinguishes it from Strassburger 1 seems to me to impose additional difficulties in a field already overburdened with problems. 2
The decision in Strassburger being apparently the result of a chronological accident in the presentation of cases, and constituting what would otherwise presumably have been the view of a minority of the justices then composing the Supreme Court 3 should, it seems to me, be limited rigorously to its precise facts. Among other distinctions, the taxpayer there was the sole stockholder of the declaring corporation so that any discussion of a change in proportionate interests flowing from that dividend is unwarranted. Cf., e. g., Higgins v. Smith, 308 U. S. 473 .
But as long ago as 1938 it was held by us in a reviewed opinion without dissent that, in just such a case as this, a dividend of preferred on common where only common had been outstanding was taxable to the several shareholders of the corporation there concerned. Franh J. and Hubert Kelly Trust, 38 B. T. A. 1014. 4 This was the result in essence of considering the attributes of the rights of common stockholders as among each other and against the corporation; and the effect of a dividend upon those rights in “that their interest after the dividend became to some extent transferable in parts where before it could be disposed of only as a whole.” We went on to say in language that seems to me still peculiarly applicable to such situations as this (p. 1017) : “Petitioner’s donors, by transferring the preferred stock, as in fact they did, could then dispose of a part of their interest in the earnings and assets of the corporation without in any way disturbing the distribution of voting control.” See also Helms Bakeries, 46 B. T. A. 308. 5
It would be my conclusion that not the fact but the possibility of such a sale as took place here is what made this dividend taxable, and that the significance of the sale here is not that it occurred, and certainly not that the taxability of the dividend depended upon it; but that it is cogent and in fact inescapable evidence of the critical proposition that such a sale could take place and that its effect could be precisely that described in the Kelly Trust case, supra.
I accordingly concur in the conclusion presently being reached but would arrive at the same one even though the stock in question were not actually the subject of a sale.
Strassburger v. Commissioner, 318 U. S. 604 .
See, e. g., Edwin L. Wiegand, 14 T. C. 136 , reversed sub nom. Tourtelot v. Commissioner (C. A. 7), 189 F. 2d 167 , affd. (C. A. 3), 51-5 C. C. H. ¶ 9365 (June 26, 1951), 51-4 PH ¶ 72484, reversed on rebearing (C. A. 3), 194 F. 2d 479 .
Of tbe eight justices participating in the Griffiths case (Helvering v. Griffiths, 318 U. S. 371 ), three dissented on the ground that after the 1936 amendment all stock dividends -were taxable. Of the same eight justices participating in the Strassburger case these three apparently felt themselves committed by the Griffiths decision, but three different ones dissented on the ground that, although some stock dividends were not taxable, that case was ruled by Koshland v. Helvering, 298 U. S. 441 — which of course was the basis for the decision in Kelly Trust, infra — that preferred on common had always been a taxable dividend even before the amendment. Thus, six out of the- eight participating justices would presumably have held the Strassburger dividend taxable had that case been presented before the Griffiths case. See DeWind, “Preferred Stock ‘Bail-Outs’ and the Income Tax,” 62 Harv. Law Rev. 1126, 1145; Darrell, “Recent Developments in Nontaxable Reorganizations and Stock Dividends,” 61 Harv. Law Rev. 958.
TMs decision was at first affirmed on the same theory as that adopted in the opinion below (C. A. 8), 39-4 C. C. H. ¶ 9624 (July 19, 1939). Due, however, to the retroactive amendment to the basis provisions of section 113, that opinion was withdrawn and the case remanded for disposition in accordance with the subsequently enacted legislation, 106 F. 2d 1002 .
“* * ♦ It is obvious the preferred stockholders received property rights of actual and exchangeable value which changed the proportionate interest in the net assets of the corporation as between the preferred and the common stockholders.” (p. 321.)