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6. Roebling v. Commissioner
In Roebling v. Commissioner, 77 T.C. 30 (1981), a taxpayer
owned approximately 90 percent of the class B preferred stock and
approximately 45 percent of the common stock of Trenton Trust Co.
(Trenton Trust). In 1958, Trenton Trust adopted a plan of
recapitalization to simplify and strengthen its capital structure
which, among other things, called for the redemption of a
specified amount of the class B preferred stock each year and
required Trenton Trust to establish a sinking fund for that
purpose. During each of the years 1965-69, part of the
taxpayer’s class B preferred stock was redeemed, and in 1965 and
1966, the taxpayer sold some shares. Among the issues presented
to this Court was whether the redemption of the taxpayer’s class
B preferred shares was not essentially equivalent to a dividend
within the meaning of section 302(b)(1) of the Internal Revenue
Code of 1954.
Each year, Trenton Trust set aside funds and decided how
much of those funds it would use to retire the class B preferred
shares. Each retirement of shares required action of Trenton
Trust’s board of directors and the consent and approval of the
FDIC and the Department of Banking and Insurance of the State of
New Jersey. Each year, Trenton Trust’s board of directors
adopted a resolution to apply for the necessary regulatory
approvals, and Trenton Trust then filed its applications. For
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