Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 65-68

1965-1 C.B. 246

Full Text

Rev. Rul. 65-68 /1/

The Revenue Service will not follow part of the decision of the United States District Court for Nebraska in the case of Harry A. Koch Co. v. Vinal , 228 Fed.Supp. 782 (1964).

That decision will not be followed to the extent the court held that the amount transferred from the surplus account to the capital account to cover a nontaxable stock dividend need not be added back to the surplus account when computing the accumulated earnings tax under section 531 of the Internal Revenue Code of 1954. Under applicable provisions of the Code, a nontaxable stock dividend does not diminish the earnings and profits and, in such cases, the earnings and profits remain intact and available for distribution as dividends.

Although the decision was not appealed, it will not be followed as a precedent in the disposition of similar cases.

/1/ Based on Technical Information Release 687, dated Feb. 1, 1965.