The only question presented for decision is whether the corporation's "distributions" to the 1970 U.S. Tax Ct. LEXIS 93">*117 Callans on March 27, 1968, may be deducted by it as deficiency dividends under section 547. There is no dispute relating to petitioners' liability as transferees of the corporation's assets; the parties have stipulated that petitioners are liable for any deficiency in personal holding company tax found by this Court, together with statutory interest. ^{71970 U.S. Tax Ct. LEXIS 93">*118} The controversy turns ultimately on whether the 54 T.C. 1514">*1523 corporation's 1968 "distributions" are treated as dividends by section 316(b)(2). Petitioners concede that the "distributions" do not qualify as "distributions of property" under subparagraph (B) of section 316(b)(2) and hence do not qualify as dividends under subparagraph (A) of that section by virtue of subparagraph (B). ⁸ However, they urge that the "distributions" do qualify as dividends directly under the more general provisions of subparagraph (A) and that therefore they may be taken into account in computing the deficiency dividends deduction under section 547.

The Commissioner, on the other hand, contends that subparagraph (B) of section 316(b)(2) is the only provision in that section applicable to the so-called distributions in question and that the failure of such distributions to qualify under it precludes allowance of the claimed deduction. In the alternative, even if subparagraph (A) is applicable, the Commissioner urges that as of March 27, 1968, the corporation no longer served a nontax business purpose, that as of March 27, the corporation in fact had no undistributed personal holding company income to distribute, and that the payments in question were simply a return of the Callans' own funds and not a "dividend" within the meaning of section 316(b)(2)(A). We consider 1970 U.S. Tax Ct. LEXIS 93">*119 these points in inverse order.

1. We think it evident that the so-called "distributions" made on March 27, 1968, were not genuine distributions at all. As of March 27, 1968, the corporation had not held assets or engaged in any business activity whatever for over 3 years. It thus had no assets of any kind, and certainly no earnings and profits, to distribute. The establishment of a bank account in the corporation's name, the deposit of the Callans' checks in that account, and the redistribution of nearly all of the very same funds to the Callans on the same day, was simply an attempt by the Callans to undo what they had done in 1965 and to recast the liquidating distributions made then as deficiency dividends in 1968. The Callans' funds were merely sent on a "planned excursion," cf. Weyl-Zuckerman & Co., 23 T.C. 841">23 T.C. 841, 23 T.C. 841">849, affirmed 232 F.2d 214 (C.A. 9), or a "round-trip," cf. David L. Lieb, 40 T.C. 161">40 T.C. 161, 40 T.C. 161">164, to the corporation and back for the purpose of qualifying the distributions for the desired deduction. Cf. Nicholson v. Commissioner, 90 F.2d 978 (C.A. 8), affirming 32 B.T.A. 977">32 B.T.A. 977; Shoenberg v. Commissioner, 77 F.2d 446 (C.A. 8), affirming 30 B.T.A. 659">30 B.T.A. 659, certiorari denied 1970 U.S. Tax Ct. LEXIS 93">*120 296 U.S. 586">296 U.S. 586; William H. Perry, 54 T.C. 1293">54 T.C. 1293 (1970); Frederick R. Horne, 5 T.C. 250">5 T.C. 250; Pierre S. Du Pont, 37 B.T.A. 1198">37 B.T.A. 1198, affirmed 118 F.2d 544 (C.A. 3), certiorari denied 314 U.S. 623">314 U.S. 623; Joseph W. Powell, 54 T.C. 1514">*1524 34 B.T.A. 655">34 B.T.A. 655, affirmed 94 F.2d 483 (C.A. 1); Hamlen v. United States, 31 F. Supp. 309">31 F. Supp. 309 (D. Mass.). The dormant status of the corporation remained substantially unchanged. We conclude that the "distributions" of March 27, 1968, were not distributions at all for purposes of section 316(b)(2) and that the claimed deficiency dividends deduction may not be allowed.

2. In any event, even if the so-called "distributions" are deemed genuine for purposes of section 316(b)(2), we think that they nevertheless fail to qualify for the deficiency dividends deduction. The 1968 distributions, like the 1965 distributions, were liquidating in nature. After the 1965 distributions were made, the corporation held no assets and engaged in no business of any kind. The 1968 distributions thus did not alter the corporation's dormant status.

Petitioners urge that section 5400 of the California Corporations Code⁹ authorized both the continued existence of the corporation in 1968 and the actions taken in 1970 U.S. Tax Ct. LEXIS 93">*121 executing the determination of personal holding company tax liability and in engaging in the transactions of March 27, 1968. We do not suggest otherwise. However, we do note that section 5400 expressly withholds authority for the continued existence of a corporation "for the purpose of continuing business except so far as necessary for the winding up thereof." This provision thus lends further support to our conclusion that the 1968 distributions were liquidating in nature.

Once the 1968 distributions are characterized as liquidating distributions, the question before us becomes whether a liquidating distribution may qualify as a "dividend" directly under subparagraph (A) 1970 U.S. Tax Ct. LEXIS 93">*122 of section 316(b)(2). The legislative history of sections 316(b) (2) and 562(b) makes it clear that it may not, and that a liquidating distribution must qualify under subparagraph (B) in order to be considered a dividend for purposes of the deficiency dividends deduction.

Prior to 1964, section 562(b) treated a liquidating distribution (to the extent of accumulated earnings and profits) made by a personal holding company as a dividend for purposes of computing the dividends paid deduction under section 561:

SEC. 562. RULES APPLICABLE IN DETERMINING DIVIDENDS ELIGIBLE FOR DIVIDENDS PAID DEDUCTION.

(b) Distributions in Liquidation. -- In the case of amounts distributed in liquidation, the part of such distribution which is properly chargeable to earnings and profits accumulated after February 28, 1913, shall be treated as a dividend 54 T.C. 1514">*1525 for purposes of computing the dividends paid deduction. In the case of a complete liquidation occurring within 24 months after the adoption of a plan of liquidation any distribution within such period pursuant to such plan shall, to the exent of the earnings and profits (computed without regard to capital losses) of the corporation for the taxable year in 1970 U.S. Tax Ct. LEXIS 93">*123 which such distribution is made, be treated as a dividend for purposes of computing the dividends paid deduction.

A liquidating distribution was thus deducted (to the extent of accumulated earnings and profits) when computing the liquidating corporation's undistributed personal holding income and consequently reduced its personal holding company tax liability.

Moreover, prior to 1964, section 316(b)(2) provided as follows:

SEC. 316. DIVIDEND DEFINED.

(b) Special Rules. --

* * * *

(2) Distributions by personal holding companies. -- In the case of a corporation which --

the term "dividend" also means any distribution of property (whether or not a dividend as defined in subsection (a)) made by the corporation to its shareholders, 1970 U.S. Tax Ct. LEXIS 93">*124 to the extent of its undistributed personal holding company income (determined under section 545 without regard to distributions under this paragraph) for such year. [Emphasis supplied.]

The amendments made by this section provide that any distribution to shareholders (not in complete or partial liquidation) made on or after the date of enactment of this act by a corporation which, for the taxable year in which such a distribution is made or for the taxable year in respect of which it is made * * *, was under the applicable law a personal holding company, will now constitute a taxable dividend even if not paid out of accumulated or current earnings or profits. [Emphasis supplied.]

That the amended section 115(a) did not govern liquidating distributions was also emphasized in 1956 by the Third Circuit in St. Louis Co. v. United States, 237 F.2d 151, 154-155 (C.A. 3), certiorari denied 352 U.S. 1001">352 U.S. 1001:

That Section 115(a) is 1970 U.S. Tax Ct. LEXIS 93">*125 inapplicable to this distribution is made clear by the legislative history of the "Distributions by Corporations" provisions of Sec. 115. The problem of distinguishing the ordinary dividend distribution from a distribution in liquidation was one inherent in the wording of the early Revenue Acts. See James Dobson, 1925, 1 B.T.A. 1082">1 B.T.A. 1082. The structure of the later Code provisions was established in the Revenue Act of 1924 [n4] where the definition of "dividend" was distinguished from the treatment of the distribution in liquidation. The provisions of Sec. 115 here in issue are the result of amendments by the various Revenue Acts which emphasized the difference in treatment to be 54 T.C. 1514">*1526 accorded the two types of distribution, and it is clear that the distinguishing factor in these corporate distribution provisions is the difference between a distribution made by a going corporation and one made by a corporation in liquidation. Hellmich v. Hellman, 1928, 276 U.S. 233">276 U.S. 233, 48 S. Ct. 244, 72 L. Ed. 544. Thus under Sec. 115(c) a distribution in complete liquidation is treated as a sale or exchange with a resultant capital gain or loss in the hands of the distributees despite the existence of a surplus 1970 U.S. Tax Ct. LEXIS 93">*126 out of which dividends might have been declared. On the other hand, dividend distributions under Sec. 115(a) are treated and taxed as ordinary income in the hands of the stockholder distributees.

* * * *

Taxpayer urges that Sec. 27(g) [the predecessor of the original 1954 Code section 562(b)] is of general application since it does not deal specifically with personal holding companies whereas Sec. 115(a) does deal directly with personal holding companies and specifically states that a different and broader definition of "dividend" is to be used in the case of a personal holding company than in the case of an ordinary business corporation. We need only refer to the dominating distinction discussed above. In broadening the definition of dividend to include "any distribution" by a personal holding company to its stockholders, [n7] the legislative committees were explicit that the distributions by a personal holding company to stockholders did not encompass distributions in liquidation. H.R. Rep. No. 2333, 77th Cong., 2d Sess. 130-131 (1942-2 Cum. Bull. 372, 473); [n8] S. Rep. No. 1631, 77th Cong., 2d Sess. 177 (1942-2 Cum. Bull. 504, 634).

[Footnotes omitted.]

Accord, Brooklyn Nat'l Corp., 5 T.C. 892">5 T.C. 892, 5 T.C. 892">894-895, 1970 U.S. Tax Ct. LEXIS 93">*127 affirmed 157 F.2d 450 (C.A. 2), certiorari denied 329 U.S. 733">329 U.S. 733. See Hellmich v. Hellman, 276 U.S. 233">276 U.S. 233, 276 U.S. 233">236-237 (holding section 201(a) of the Revenue Act of 1918 inapplicable to a liquidating distribution); Foster v. United States, 303 U.S. 118">303 U.S. 118, 303 U.S. 118">120-121 (holding that a distribution made in partial liquidation was not governed by section 115(a) of the Revenue Act of 1928); Shellabarger Grain Products Co., 2 T.C. 75">2 T.C. 75, 2 T.C. 75">82-83, affirmed 146 F.2d 177 (C.A. 7) (holding that a distribution made in partial liquidation was not governed by section 115(a) of the Revenue Act of 1936). See also Atlantic City Elec. Co. v. United States, 161 F. Supp. 811">161 F. Supp. 811 (Ct. Cl.), certiorari denied 358 U.S. 834">358 U.S. 834; Central & South West Corporation v. Brown, 249 F. Supp. 787">249 F. Supp. 787, 249 F. Supp. 787">794-795 (D. Del.).

Thus, since, prior to 1964, section 316(b)(2) did not govern liquidating distributions, stockholders receiving such a distribution from a personal holding company were taxed on it at favorable capital gain rates. Consequently, in the year of liquidation, a personal holding company could escape liability for the personal holding company tax by virtue of a liquidating distribution, while its stockholders avoided taxation on the 1970 U.S. Tax Ct. LEXIS 93">*128 distribution at ordinary-income rates.

Such result was at odds with the original purpose of the personal holding company provisions, which was to encourage distribution of accumulated income into the hands of individual stockholders where it would be subjected to individual income tax rates, and the 1964 54 T.C. 1514">*1527 legislation was designed to remedy the problem. See H. Rept. No. 749, 88th Cong., 1st Sess., pp. 82, A104 (1963); S. Rept. No. 830, 88th Cong., 2d Sess., p. 112 (1964). In its report on the 1964 Code amendments, the House Ways and Means Committee again specifically noted (H. Rept. No. 749, 88th Cong., 1st Sess., p. A104 (1963)):

This special definition of a dividend in section 316(b)(2) does not apply to distributions in partial or complete liquidation of a personal holding company.

Under the 1964 legislation, the introductory clause of current Code section 562(b)(1) was added (sec. 225(f)(3), Revenue Act of 1964, 78 Stat. 88) in order to exclude personal holding companies from the coverage of the provisions which had previously treated a liquidating distribution by a personal holding company as a dividend for purposes of the dividends paid deduction. ^{101970 U.S. Tax Ct. LEXIS 93">*129}

However, at the same time, section 316(b)(2)(B) was also added to the Code in order to permit certain liquidating distributions made by personal holding companies to noncorporate stockholders to qualify for the dividends paid deduction, but only under conditions designed to ensure that the recipient stockholders would be taxed on such distributions at ordinary-income rates. Sec. 225(f)(1), Revenue Act of 1964, 78 Stat. 87-88. The House and Senate reports summarized the effect of these provisions as follows (H. Rept. No. 749, 88th Cong., 1st Sess., p. 82 (1963); S. Rept. No. 830, 88th Cong., 2d Sess., p. 112 (1964)):

it is provided in section 316(b) that in the case of a complete liquidation of a personal holding company within a 24-month period after the adoption of the plan of liquidation, that the term "dividend" is to include any amounts distributed in this liquidation to other than corporate shareholders to the extent of 1970 U.S. Tax Ct. LEXIS 93">*130 its undistributed income (before any deduction for this amount) only if the corporation involved designates amounts as dividends (and so notifies the distributee). If the corporation does so designate the distributions as dividends the individuals receiving a liquidating distribution from the personal holding company must report the amount so distributed as a dividend in the year of receipt. * * *

The pre-1964 version of section 316(b)(2), however, was preserved unchanged in section 316(b)(2)(A).

Thus, the purpose of the 1964 amendments to sections 316(b)(2) and 562(b)(1) was to prevent a result caused by the fact that a liquidating distribution by a personal holding company was not covered by pre-1964 section 316(b)(2) and consequently was not taxed in the hands of recipient stockholders at ordinary-income rates. Subparagraph (B) of section 316(b)(2) was therefore added in order to 54 T.C. 1514">*1528 ensure that when such a distribution was treated as a dividend for purposes of the dividends paid deduction, the distribution would be taxed to the stockholders at ordinary rates. Section 316(b)(2)(A) preserved the language of the pre-1964 section, and, like its pre-1964 forerunner, it remained completely 1970 U.S. Tax Ct. LEXIS 93">*131 inapplicable to liquidating distributions by personal holding companies. Regulations section 1.316-1 (b)(1), amended in 1968 to reflect the 1964 Code amendments, makes this absolutely clear:

This subparagraph does not apply to distributions in partial or complete liquidation of a personal holding company. In the case of certain complete liquidations of a personal holding company see subparagraph (2) of this paragraph [relating to subparagraph (B) of Code sec. 316(b)(2)].

We conclude that the distributions in issue are not governed directly by section 316(b)(2)(A). See Libin, "Personal Holding Companies and the Revenue Act of 1964," 63 Mich. L. Rev. 421">63 Mich. L. Rev. 421, 63 Mich. L. Rev. 421">443 & fn. 74 (1965).

While the Code does permit a personal holding company to designate a liquidating distribution as a "dividend" for the purposes of section 316, the procedure outlined in subparagraph (B) of section 316 is the only authorized method for such designation. Subparagraph (B) was added to the Code precisely because liquidating distributions by personal holding companies had not been governed by the forerunner of subparagraph (A) and because compliance with the requirements of subparagraph (B) would ensure that, when properly 1970 U.S. Tax Ct. LEXIS 93">*132 designated as a dividend, such a distribution would be taxed to the recipients at ordinary rates. Allowing a liquidating distribution to qualify as a dividend directly under subparagraph (A) would thus defeat the purpose of subparagraph (B). ¹¹ Compare sec. 1.316-1(b) (5), Income Tax Regs.¹²

Petitioners urge that if a liquidating distribution must qualify under subparagraph (B), or not at all, an unfair 1970 U.S. Tax Ct. LEXIS 93">*133 distinction is made between a distribution by a liquidating personal holding company, which must qualify under subparagraph (B), and a distribution by a personal holding company continuing in business, which may qualify directly under subparagraph (A) and thereby avoid the requirements of subparagraph (B). As explained above, however, subparagraph 54 T.C. 1514">*1529 (B) was designed to make just such a distinction, in order to ensure that a liquidating distribution which was treated as a dividend for purposes of the dividends paid deduction would be taxed to the recipients at ordinary rates.

We recognize that our reading of the statute may work a harsh result upon the petitioners. The corporation was not determined to be liable for the personal holding company tax until nearly 4 years after the plan of liquidation was adopted, and by that time it was precluded from making a distribution which qualified under subparagraph (B), since such distribution must be made within 24 months after the adoption of a plan of liquidation. However, we think that the statute leaves us with no other choice, and the claimed deduction must be disallowed. As was stated in St. Louis Co. v. United States, 237 F.2d 151, 1571970 U.S. Tax Ct. LEXIS 93">*134 (C.A. 3), certiorari denied 352 U.S. 1001">352 U.S. 1001:

It is recognized that Congress imposed the prohibitive surtax on personal holding companies to destroy the tax advantages accruing to such companies, and to drive them out of business. Since complete liquidation accomplished the desired result in this case, taxpayer urges that imposition of the tax would be contrary to the intent of Congress and destructive of the purpose of the personal holding company provisions. The District Court points out the inequity of imposing the surtax on taxpayer in this situation in 134 F. Supp. 411">134 F. Supp. 411, at page 415:

"The overriding intent of Congress, it would seem, was, that insofar as personal holding companies are concerned, to compel such companies to distribute the funds on hand and to prevent their accumulation or to compel substantial surtaxes on such accumulation. There seems no discernible intent to discriminate against a company unsuccessful in past years as against one which had had some measure of success, when in both cases the overriding purpose of Congress, viz., the distribution of all funds, is accomplished."

See also Pembroke Realty & Securities Corp v. Commissioner, supra, 122 F. 2d at page 254, 1970 U.S. Tax Ct. LEXIS 93">*135 and Piper v. United States, supra, 50 F. Supp. at page 365.

However, arguments based upon inequity are beyond judicial cognizance where the statute does not remedy the inequity, nor can we extend the meaning of the statute to embrace matters for which no provision has been made. The Supreme Court has affirmed this principle in United States v. Olympic Radio & Television, Inc., 1955, 349 U.S. 232">349 U.S. 232, 349 U.S. 232">236, 75 S. Ct. 733, 736, 99 L.Ed 1024, where it said:

"This taxpayer argues the inequity of the results which would follow from our construction of the Code. But as we have said before, 'general equitable considerations' do not control the question of what deductions are permissible. Deputy v. du 37 B.T.A. 1198">Pont, supra, [308 U.S.] at page 493 [60 S. Ct. 366]. It may be that Congress granted less than some thought or less than was originally intended. We can only take the Code as we find it and give it as great an internal symmetry and consistency as its words permit."

See also Brooklyn Nat'l Corp., 5 T.C. 892">5 T.C. 892, 5 T.C. 892">894, affirmed 157 F.2d 450 (C.A. 2), certiorari denied 329 U.S. 733">329 U.S. 733, and cases cited therein.

Decisions will be entered for the respondent.