## Facts

- Archer-Daniels Midland Company (ADM) was a Delaware corporation with issued and outstanding common stock represented by existing share certificates.
- On June 20, 1949, ADM’s board of directors adopted a resolution transferring $1,269,706.49 from the capital-surplus account and $21,688,254.55 from the earned-surplus account to ADM’s capital-stock account, resulting in a capital-stock account balance of $32,694,960.
- The transfer did not result in the issuance of any additional shares or stock certificates to shareholders, did not change the number of outstanding shares, and did not change the rights associated with the existing shares or certificates.
- On or about August 29, 1951, the Commissioner of Internal Revenue assessed a federal documentary stamp tax of $34,436.91 against ADM under § 1802(a) of the Internal Revenue Code of 1939, treating the transfer as a taxable “original issue.”
- ADM paid the tax under protest, filed an administrative claim for refund, and the claim was disallowed.
- ADM sued the United States for a refund in federal district court on stipulated facts; the district court entered judgment for ADM, and the United States appealed to the Eighth Circuit.

## Issues

1. Whether ADM’s internal transfer of amounts from capital surplus and earned surplus to the capital-stock account—without issuing any new shares or certificates and without changing shareholder rights—was a taxable “original issue” under IRC § 1802(a) (1939).

## Decision

- The Eighth Circuit affirmed the district court’s judgment for ADM.
- The court held the transaction was not an “original issue” of shares, certificates of stock, profits, or interests in property or accumulations within the meaning of § 1802(a) because no stock (or equivalent shareholder interest) was issued or created.
- ADM was entitled to recover the documentary stamp tax paid on the assessment.

## Legal Principles

- A documentary stamp tax under IRC § 1802(a) applies to an “original issue” and centers on an actual issuance of stock or other taxable indicia of ownership (such as shares issued without certificates), not a mere internal reclassification of corporate accounts.
- Treasury Regulations interpreting § 1802(a) focus on issuance events (for example, stock is treated as issued when it is subscribed for and the subscription is accepted), supporting the view that an accounting transfer alone is not an “issue.”
- For a corporation’s internal capital actions, state law governing the corporation may be consulted to identify what the transaction legally accomplished; Delaware law permitted the board to transfer surplus to capital by resolution, characterizing the act as an internal capital adjustment rather than a distribution or issuance to shareholders.
- The ability under Delaware law to restore the transferred amount from capital back to surplus (with required approvals) supported the conclusion that the transfer did not create a fixed new shareholder interest of the type taxed as an “original issue.”
- In applying federal stamp-tax provisions, courts look to the practical legal effect of the transaction—here, no new shares, no new certificates, and no change in shareholder rights—rather than treating bookkeeping entries as taxable events.

## Conclusion

Because ADM’s surplus-to-capital transfer did not involve any issuance of additional shares or certificates and did not create or change shareholder rights, it was not an “original issue” taxable under IRC § 1802(a), and the Eighth Circuit affirmed the refund judgment for ADM.


United States v. Archer-Daniels Midland Co., 243 F.2d 130 (1957)