MILES V. SAFE DEPOSIT & TRUST CO., 259 U. S. 247 (1922)

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U.S. Supreme Court

Miles v. Safe Deposit & Trust Co., 259 U.S. 247 (1922)

Miles v. Safe Deposit & Trust Company

No. 416

Argued December 16, 1921

Decided May 29, 1922

259 U.S. 247


1. A preferential right accorded pro rata to the stockholders of a corporation to subscribe at a stated price for a new issue of shares is not a fruit of stock ownership in the nature of a profit, nor a division of any part of the corporate assets. P. 259 U. S. 251 chanrobles.com-red

Page 259 U. S. 248

2. Such a right to subscribe for new stock is but a right to participate, in preference to strangers and on equal terms with other stockholders, in the privilege of contributing new capital called for by the corporation -- an equity which inheres in stock ownership as a quality inseparable from the capital interest represented by the old stock. P. 259 U. S. 252.

3. Therefore the stockholder's right to take his part of the new shares -- assuming their intrinsic value in excess of the issuing price -- is analogous to a stock dividend, and of itself constitutes no gain, profit or income taxable without apportionment under the Sixteenth Amendment. P. 259 U. S. 252.

4. But where the stockholder sells and assigns his subscription right, so much of the proceeds as represents a realized profit over the cost to the stockholder of what was sold is taxable income. P. 259 U. S. 253.

5. Where a corporation doubled its capital stock and offered the new stock share for share to its stockholders at a stated price per share, and a stockholder sold its preference rights, held that the taxable gain and income was properly computed by adding the subscription price so fixed for each new share to the market value of each old share as it was before the increase was authorized, taking one-half of the sum as the cost of each new share, and deducting this from the sum of the subscription price and the amount received for each subscription right, the result being the taxable gain or profit. P. 259 U. S. 253.

273 F.8d 2 affirmed.

Error to a judgment of the district court which sustained in part the claim of the defendant in error in its action to recover money exacted as an income tax and paid under protest. chanrobles.com-red

Page 259 U. S. 249


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