Overton v. Commissioner
United States Court of Appeals for the Second Circuit
162 F.2d 155 (1947)
Castle & Overton, Inc. created a new class of low-value Class B stock, transferred to the original shareholders' wives, alongside the original shareholders' own Class A stock, structured so that dividends above $10 per share were split with Class B shareholders receiving four-fifths despite Class B stock being capped at only $1,000 in corporate assets — meaning the large dividends the wives received (averaging $150.40 per share versus $77.60 for Class A) actually derived from value generated by the husbands' Class A stock. The Commissioner (defendant) determined Overton and Oliphant (plaintiffs), who held the Class A stock, remained taxable on the dividends their wives received on Class B stock, and the Tax Court agreed.
Whether shareholders remain taxable on dividend income generated by their retained stock when they structure a disproportionate dividend arrangement to direct that income to family members holding a separate, minimally capitalized class of stock.