## Facts

- A corporation undertook a recapitalization qualifying as a “reorganization” under § 112(g) of the Revenue Act of 1936.
- Shareholders exchanged existing preferred stock for new preferred stock and received cash in the transaction.
- The cash distribution was paid out of the corporation’s accumulated earnings and profits.
- The Commissioner treated the cash as a dividend-equivalent distribution taxable in full under § 112(c)(2), and asserted an income-tax deficiency.
- The Tax Court sustained the deficiency; the court of appeals reversed, treating the cash as boot taxable only to the extent of recognized gain under § 112(c)(1).
- A timeliness objection was raised to Supreme Court review because the certiorari petition was filed more than three months after the court of appeals’ opinion but within three months after its order for mandate.

## Issues

1. For purposes of the certiorari filing period, whether “entry” of the court of appeals’ judgment occurred on issuance of the opinion or on issuance of the order for mandate.
2. Whether cash distributed from earnings and profits in a recapitalization reorganization “has the effect of the distribution of a taxable dividend” under § 112(c)(2), making it taxable in full as a dividend rather than as capital gain under § 112(c)(1).

## Decision

- The Supreme Court held the certiorari petition timely because the relevant “judgment” in the court of appeals was its order for mandate, and the petition was filed within three months of that order.
- The Court reversed the court of appeals and reinstated the Tax Court’s deficiency determination.
- The Court held that the cash distribution, paid out of earnings and profits during the recapitalization, had the effect of a taxable dividend within § 112(c)(2) and was taxable in full as a dividend, not as capital gain under § 112(c)(1).
- The Court stated the result was the same whether treated as statutory construction reviewed independently or under the then-prevailing approach to reviewing Tax Court determinations.

## Legal Principles

- For Supreme Court review timing, the operative “judgment” may be determined by the established procedural practice of the court of appeals; in the Second Circuit, the order for mandate functioned as the judgment for the certiorari period.
- In a reorganization exchange otherwise covered by § 112, receipt of cash may be treated under § 112(c)(2) as dividend income to the extent it is dividend-equivalent and sourced from corporate earnings and profits.
- A cash distribution made in connection with a recapitalization reorganization is dividend-equivalent when it operates like a dividend distribution from earnings and profits, including where shareholders’ proportionate interests are not meaningfully altered by the exchange.

## Conclusion

The Court upheld jurisdiction and held that cash paid from corporate earnings and profits during a recapitalization reorganization was dividend-equivalent boot taxable in full under § 112(c)(2), rejecting capital-gain treatment under § 112(c)(1).


Commissioner v. Estate of Bedford, 325 U.S. 283 (1945)