Commissioner of Internal Revenue v. Phipps (336 U.S. 410)
U.S. Supreme Court · decided March 14, 1949 · Supreme Court Database (Spaeth)
- Citation
- 336 U.S. 410 · 69 S. Ct. 616
- Decided
- March 14, 1949
- Term
- October Term 1948
- Vote
- 9–0
- Majority author
- Justice Murphy
- Issue area
- Federal Taxation
- Disposition
- Reversed
- Outcome
- Petitioning party won
- Ideological direction
- Liberal
Opinion excerpt
Mr. Justice Murphy delivered the opinion of the Court. This case involves a tax-free liquidation by a parent corporation of some of its subsidiaries. At the time of the liquidation the parent had earnings and profits available for distribution, and the subsidiaries had an aggregate net deficit. The issue now before us is whether the rule of Commissioner v. Sansome, 60 F. 2d 931, requires the subtraction of the subsidiaries’ deficit from the parent’s earnings and profits, in determining whether a subsequent distribution by the parent constituted dividends or a return of capital to its stockholders. The Sansome case, supra, arose from a tax-free reorganization in which the transferor corporation had a surplus in earnings and profits available for distribution. It was there held that those earnings and profits, for purposes of a subsequent distribution by the transferee corporation to its stockholders, retain their status as earnings or profits and are taxable to the recipients as dividends. The rule has been held to include liquidations of a subsidiary by its parent. Robinette v. Commissioner, 148 F. 2d 513; U. S. Treas. Reg. 101, Art. 115-11, promulgated under the Revenue Act of 1938 and made retroactive, 52 Stat 447. The facts were stipulated, and so found by the Tax Court. So far as relevant, they are as follows: In December, 1936, Nevada-California Electric Corporation…
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