Rev. Rul. 69-130

On March 10, 1968, a corporation declared out of its current earnings a regular quarterly dividend on its outstanding preferred stock payable to shareholders of record as of March 31, 1968. On March 25, 1968, the board of directors decided to call the outstanding preferred stock for redemption as of March 31, 1968, and offered to pay to the preferred shareholders the par value of the stock plus the dividend already declared, in exchange for the stock.

Held, the amount paid to the shareholders to the extent of the dividend already declared prior to the call of the stock for redemption will be a dividend distribution within the meaning of section 301 of the Internal Revenue Code of 1954. When a dividend has been declared the shareholders have an immediate vested right against the corporation in the capacity of creditors. Therefore, a dividend when declared becomes the separate property of a shareholder entirely disconnected from the stock. Thus, since the dividend was declared prior to any action toward redemption of the preferred stock, amounts paid to satisfy the dividend obligation created by the declaration could not be said to be paid in cancellation or redemption of the stock.

G.C.M. 5180, C.B. VII-2, 110 (1928), is hereby superseded, since the position stated therein is set forth under the current statute and regulations in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.