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Gokey Properties Inc. v. Commissioner of Internal Revenue

U.S. COURT OF APPEALS, 2ND CIRCUIT


June 1, 1961

GOKEY PROPERTIES, INC., PETITIONER-APPELLANT
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Before Friendly and Smith, Circuit Judges, and Watkins, District Judge.*fn*

Per Curiam: The Tax Court held that payments by the taxpayer corporation to its stockholders on the corporation's bonds were non-deductible dividend distributions rather than deductible interest on an indebtedness. We agree with the result reached by the Tax Court and the reasons given in Judge Bruce's opinion. Gregg Co. of Delaware v. Commissioner, 239 F.2d 498, 2 Cir. 1956. We note a minor error in the Tax Court opinion, 34 T.C. 829 at p. 837, where the statement is made that the record discloses no dividend payments on petitioner's stock. There were in fact payments of dividends in the amount of $700 in each of two of the years in question, as shown by the balance sheets of the corporate tax returns. Even in those two years by far the greater portion of petitioner's earnings were distributed, by vote of the directors, to its stockholders in the guise of bond interest. These token payments of dividends, in the light of the entire earning and dividend history, strengthen rather than weaken the Tax Court's ultimate conclusion as to the nature of the so-called bonds.

Decision and order of the Tax Court affirmed.


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