UNITED STATES of America, Appellant, v. Gerald and Gladys CAREY, Appellees, 289 F.2d 531

Summary

Taxpayers were owners of a corporation. There was a pro-rata redemption of the taxpayers' stock as consideration for the sale of the corporation's property. The government argued that this was a distribution equivalent to a dividend and was not taxable as a capital gain. The court affirmed the trial court's order holding that it committed no error in ruling that the redemption of the taxpayers' stock was not substantially equivalent to the payment of a dividend. The taxpayers and co-owner's plan was designed to bring about the complete redemption of the co-owner's stock. The net effect of the redemption upon the taxpayers and the co-owner was very different from the distribution of a dividend. Instead of each retaining a pro rata interest in the corporation in the case of the usual dividend, the co-owner's interest in the corporation was completely terminated.