General Utilities & Operating Co. v. Helvering

General Utilities & Operating Company (General Utilities) (plaintiff) paid $2,000 for 20,000 shares of stock in Islands Edison Company. By the following year, those shares were valued at $1 million. Another company, Southern Cities Utilities Company, sought to acquire all Islands Edison stock. The president of that company met with the president of General Utilities and agreed that General Utilities would avoid making an outright sale of all its 2,000 shares, which would be a taxable event. Instead, General Utilities declared a dividend and distributed 19,090 of the shares to its 33 shareholders, who then conveyed them to Southern Cities Utilities. General Utilities sold the remaining 910 shares to Southern Cities Utilities, reporting a profit only on those shares. Commissioner of Internal Revenue Guy Helvering (defendant) assessed a deficiency, finding General Utilities also liable for the much larger profit made on the 19,090 shares. General Utilities sought a redetermination from the Board of Tax Appeals, which found that the dividend distribution was not a taxable event. Helvering appealed. The United States Court of Appeals for the Sixth Circuit reversed, holding that General Utilities and Southern Cities Utilities had devised an obvious scheme to evade tax liability. General Utilities appealed. The United States Supreme Court granted certiorari.