Helvering v. Gowran
United States Supreme Court
302 U.S. 238 (1937)
- Written by Heather Ryfa, JD
Facts
Gowran (plaintiff) owned common stock in the Hamilton Manufacturing Company (corporation). On July 1, 1929, the corporation announced a dividend of $14 a share on the common stock, payable in preferred stock with $100 par value. Gowran received slightly over 533 shares, which the corporation redeemed at par value in October 1929. Gowran reported the income as capital gains. The commissioner of the Internal Revenue Service (defendant) assessed additional taxes, claiming that this amount was taxable as a dividend at ordinary income tax rates. Gowran appealed to the Board of Tax Appeals, which ruled in favor of the commissioner. Gowran appealed to the United States Court of Appeals for the Seventh Circuit, which ruled in favor of Gowran, holding that a stock dividend was not subject to tax under § 115(f) of the Internal Revenue Code and that the stock was a tax-free gift that Gowran received with the same basis as held by the corporation, $100. The commissioner appealed to the United States Supreme Court, contending that § 115(f) did not apply to the receipt of a different type of stock from a dividend, and, in the alternative, that Gowran’s basis in the preferred stock was zero and the sale did not qualify for capital-gains treatment.
Rule of Law
Issue
Holding and Reasoning (Brandeis, J.)
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