X corporation had two classes of stock outstanding. The Class A stock was a preferred stock entitled to cumulative dividends and a liquidation preference. The Class B stock was a non-voting stock, entitled to an annual $2 dividend after payment of the dividend on the preferred. Both classes were entitled to participate equally (on a pro rata basis) in any dividends in excess of the two mentioned above. The corporation declared a stock dividend, entitling each Class A holder to one-half share of Class A stock for each share presently held, and each Class B holder to one-half share of Class B stock for each share presently held. Petitioner held both Class A and Class B shares. Held, the dividend constituted income as to both the Class A and Class shares received. If the issuance of a stock dividend affects a change in the proprietary interests of the holders of the stock of the other class, then the dividend is income. Weigand v. Commissioner, 14 T.C. 136 (1950.)
Joseph G. Egan S.Ed.,
TAXATION-STOCK DIVIDENDS AS INCOME,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol49/iss2/23