The opinion
ALLEN, Circuit Judge
(dissenting).
I am unable to agree with the judgment of my colleagues for the reason (1) that the taxpayer has not sustained the burden of proof that amounts actually designated on its books as dividends and declared by it as dividends were in fact interest, and (2) that the conclusion reached by the majority appears to me to be based in effect on a premise that does not exist, namely, that the trial court found as a fact that the preferred stock issued to the Toledo Mortgage Company and to the Central Securities Corporation by the taxpayer was intended by the parties to be issued as evidence of a loan.
The burden is upon the taxpayer to establish its right to a deduction. Rugel v. Commissioner, 8 Cir., 127 F.2d 393 ; Rowan v. Commissioner, 5 Cir., 120 F.2d 515 ; Chicago & North Western Ry. Co. v. Commissioner, 7 Cir., 114 F.2d 882 , certiorari denied 312 U.S. 692 , 61 S.Ct. 711 , 85 L.Ed. 1128 . The District Court seems to have misapplied the rule. In its opinion it states in effect that it was the Government’s contention that payments for which deductions were, claimed and which were made because of obligations under the preferred stock issue, were by way of dividends and therefore were not deductible. The court continues: “In my opinion the evidence does not support this contention.” But the burden was not upon the Government to establish that the payments made were div *997 idends. A prima facie case that they were dividends was established by the fact shown by the court’s formal findings that the taxpayer denominated the payments as dividends on its books. The burden was upon the taxpayer to show that the payments actually were intended to constitute interest on a loan. This burden it did not sustain.
Upon the second point, the District Court made no finding as to the intention of the parties. Its findings as to what was done with reference to this question support the contention of the Government. While the opinion states that the evidence does not support the contention that the dividends declared on the stock were in fact dividends, the opinion makes no mention of the intention of the parties. It relies for the conclusion that the payments constitute interest upon the fact that the certificates matured in the year 1949, that the holders thereof were not entitled to participate in the management of the corporation and that the payments were cumulative. The court was in error with reference to the non-participation of the holders of preferred stock in the management, for in case dividends were unpaid for four quarterly periods, the contract specifically provided that the holders of the preferred shares should be entitled to exercise “the total and exclusive voting power of all the corporation’s shares.” The provision that the dividends should be cumulative is usual with reference to dividends on preferred stock, and implies that they were to be paid from earnings. A provision that payments be cumulative is never inserted with reference to interest payments, which are payable in any event.
The circumstance that the stock matures at a definite date has been held - by this court not to be controlling. Kentucky River Coal Corp. v. Lucas, 6 Cir., 63 F.2d 1007 , affirming D.C., 51 F.2d 586 ; Mathews v. Bradford, 6 Cir., 70 F.2d 77 ; Vanden Bosch v. Michigan Trust Co., 6 Cir., 35 F.2d 643 .
In the findings of fact the District Court includes no statement that the parties intended that this transaction should result in a loan. The finding that the officers of the Toledo Mortgage Company requested a note and that the taxpayer’s president objected to such a method of payment for the reason that the company’s obligation would be set up on the liability side of the company’s balance sheet and that an agreement was finally reached as to the issue of the preferred stock protected, as set forth in the agreement, by a cumulative dividend provision, by a definite date of maturity, and by the right of total and exclusive voting power in case dividends were unpaid for a certain period, supports the conclusion that the parties intended to accept this particular stock not as a note, but as a capital investment
In my judgment the opinion and the findings of fact demonstrate that the taxpayer did not sustain the burden of showing that these payments were regarded by the parties as interest upon a debt. The contention of the Government that the findings of fact do not support the court’s conclusions of law should therefore be sustained.