Forres v. Commissioner of Internal Revenue

25 B.T.A. 154 (1932)

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Forres v. Commissioner of Internal Revenue

United States Board of Tax Appeals
25 B.T.A. 154 (1932)

Facts

Olympic Portland Cement Company, Ltd. (Olympic) was incorporated in the United Kingdom. Olympic owned properties in the United States. Earnings from the United States were sent to the United Kingdom and commingled with Olympic’s other funds. Olympic’s only offices were in London, where its officers conducted the firm’s business. Following meetings in England, Olympic paid dividends to United Kingdom stockholders (stockholders) (plaintiffs) by checks that were drawn on bank accounts in the United Kingdom and cashed by the stockholders in the United Kingdom. Under United States law, the stockholders were nonresident aliens. The proportion of the dividends attributable to properties in the United States was not segregated from that attributable to other sources. The United States commissioner of Internal Revenue (commissioner) (defendant) levied a tax on the dividends under the Revenue Acts of 1921 and 1924, §§ 213 and 217(a)(2)(B). These sections provided that a nonresident alien had to include dividends paid from a foreign corporation in gross income if 50 percent of the corporation’s gross income three years before the dividends’ declaration date came from United States sources. The stockholders argued that application of the law to dividends distributed entirely in the United Kingdom by a United Kingdom firm using United Kingdom property to non-United States resident aliens violated the Due Process Clause of the Fifth Amendment. The stockholders noted that when Olympic’s United States earnings were sent to the United Kingdom and mixed with Olympic’s United Kingdom funds, the accounts involved were all Olympic’s property, not the stockholders’ property. When the stockholders were paid, it was entirely out of Olympic’s property in the United Kingdom, and the source of the funds was thus in the United Kingdom. The stockholders also argued that the tax violated principles of comity and could cause jurisdictional problems.

Rule of Law

Issue

Holding and Reasoning (Goodrich, J.)

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