United States v. Anderson, Clayton & Company

PETITIONER: United States
RESPONDENT: Anderson, Clayton & Company

DECIDED BY: Warren Court (1955-1956)

ARGUED: Oct 20, 1955
DECIDED: Nov 07, 1955

Facts of the case


Media for United States v. Anderson, Clayton & Company

Audio Transcription for Oral Argument - October 20, 1955 in United States v. Anderson, Clayton & Company

Earl Warren:

Number 26, United States versus Anderson, Clayton and Company.

Mr. Holland.

H. Brian Holland:

If the Court please.

This -- this case comes here on a writ of certiorari to the Court of Claims like the Glenshaw Glass and the Goldman Theatres cases decided at the last term.

This case involves the scope or a particular application of the question of the scope of the concept of taxable income under in the Internal Revenue Code.

In those cases, the question was whether punitive damages were taxable income.

In the instant case, the question is whether the respondent corporation having purchased certain shares of its own stock realized taxable income when a few years later, it resold some of those shares at a prize in excess of the prize that they've had paid for them.

The facts are these.

The respondent corporation was incorporated under the laws of the State of Delaware in the year 1929.

Had his principal place of business in Houston, Texas.

It was engaged in the cotton merchandising business which according to the findings of fact of the court below is primarily a management business, dependent for it's success upon the skill and experience of it's principal executives who are called upon to make difficult day-to-day decisions as to purchases and sales of spot cotton and dealings in cotton futures both domestic and foreign.

The corporation was capitalized at the outset with $26,000,000 of preferred stock representing the value of the assets of a prior business which it took over in 1929 and 100,000 shares of common stock which was issued to and held exclusively by its executives.

The common stock was no per stock with a stated value of $1 a share and was designed according to the findings below to provide a vehicle for the distribution of future earnings among those who were responsible for the success of the corporation business.

It was understood from the outset that the common stock should be held exclusively by the management that no outsider should be permitted to own any and that the holdings of common stock should be adjusted from time to time in accordance with the varying capacity and responsibilities of the several members of the management group.

-- corporate requirements?

H. Brian Holland:

I beg your pardon sir?

-- corporation?

H. Brian Holland:


That was a -- that was at first a general understanding and then in 1931, that understanding was incorporated in a written agreement to which the corporation and the then common stockholders were parties.

At the time their agreement was executed, the holders of the common stock deposited their stock with a trustee, retaining the right to the dividends and the right to vote and executed this formal agreement which contained a number of previsions, all of which were designed to keep the stock closely held.

For example, the agreement provided that no common stock should be sold that is by any of the holders without the approval of holders of 75% of the common stock.

The agreement provided that on the death of any common stockholder, the corporation should purchase his shares.

It provided that a common stockholder could withdraw at anytime, withdraw from the stock holding group involving his resignation as an officer of the corporation and that the corporation would purchase his shares from him.

It also provided that the holders of 75% of the common stock could at anytime require a holder of that stock to sell any product of his holdings.

There were provisions in this agreement for the fixing of the price at which purchases and sales where to be made.

In the case of the death of a stockholder, the price was based -- the price to be paid his estate by the corporation under the agreement, was to be based on the balance sheet of the corporation as of the end of the preceding fiscal year adjusted to reflect unrealized appreciation and depreciation in it's assets, all as determined by the executive committee of the corporation.

And after that basic prize had been determined based on the balance sheet then there was to be added interest of 4% from evaluation date to the date of the stockholders death.

Similarly, there were provisions made with which were not immediately concern now for the termination of the price in the case of purchases and sales arising on the other circumstances then for the death of the stockholder.

The agreement also provided expressly, that any stock purchased by the corporation in accordance with the terms of the agreement might be resold at anytime on -- on such terms as should be determined by the holders of not less than 75% of the common stock.

Now, in 1939, one of the principal stockholders of the corporation died and in accordance with the terms of the agreement, the corporation purchased his shares which at that time numbered 18,574.