ESTATE OF MIGIEL JOHN ULINE, DECEASED, ET AL., PETITIONERS,

v.

DISTRICT OF COLUMBIA, RESPONDENT

DANAHER, Circuit Judge:

The petitioners filed a District of Columbia income tax return in behalf of the Estate of Migiel John Uline for the year ending December 31, 1960, reporting the receipt of 1960 “dividend” income in the amount of $32,764.47. The Estate paid a tax of $1,031.06. The District tax authorities assessed a deficiency of $588,-355.82 with a resulting deficiency in tax of $31,805.03, plus interest. The District of Columbia Tax Court on September 30, 1963 upheld the District, and these review proceedings followed. The facts are not in dispute.

Until the death of the decedent Uline on February 22, 1958 he owned all outstanding shares1 *of M. J. Uline Company, an Ohio corporation. The company as of December 31, 1959, consummated a sale of its business and all of its tangible assets to a new corporation for $725,000, payable partly in cash, and partly in notes having a stipulated value equal to the balance due on the notes. From the proceeds of that sale, M. J. Uline Company made a partial liquidating distribution on May 3, 1960, and a final distribution on December 14, 1960. The Estate thereupon, as sole stockholder, delivered its stock certificates to the corporation for cancellation. On December 28, 1960 a certificate of dissolution of M. J. Uline Company was filed in Ohio. The petitioners had alleged in the Tax Court that prior to the liquidating distributions, “the capital account and the earned surplus account on the books of M. J. Uline Company as of December 14, I960 * * * were as follows:

Capital $105,300.00

Earned Surplus 588,355.82

Total $693,655.82”

After certain adjustments of $3,819.35, not in issue, the net capital account representing the amount originally paid in by the decedent was seen to be $101,480.-65. That figure was then deducted by the District tax authorities from the total net distribution of $689,836.47 to arrive at the earned surplus of $588,355.82. That amount when distributed to the Estate constituted a dividend and was income subject to tax, the District asserted.2 The Tax Court agreed.

The petitioners in 1960 income tax return reported as ordinary dividend income to the Estate subject to tax only $32,764.47, arrived at by deducting from the total net distribution of $689,836.47, the amount of their claimed “basis” of $657,072.3 The Estate argues here that the statute4 does not tax dividends, per se, but only income, and the Estate could have no income by way of gains or profits until or unless the Estate recouped the “basis” of the stock which it had surrendered for cancellation. But the statute relied upon does not in the circumstances of this case involve gains or profits; rather, it specifies that “gross income” shall include income derived from dividends. And the term “dividend” clearly is defined to mean

“any distribution made by a corporation * * * to its stockholders * * out of its earnings, profits, or surplus (other than paid-in surplus), whenever earned by the corporation * * * whether distributed prior to, during, upon, or after liquidation or dissolution of the corporation.” 5 (Emphasis added.)

Over and above the capital which the decedent had paid in, an amount which was not taxed at all, the company’s books showed the entire remaining account to be “earned surplus.”6 Thus, when that earned surplus was distributed to the Estate, it became a dividend, and hence was income subject to tax. Such “a distribution is not a payment in exchange for or in extinguishment of the stock upon which it is declared.”

That is another way of saying that the Estate should be entitled somehow to achieve a stepped-up basis. This court has held that unrealized appreciation in the value of the assets of a corporation will not become a dividend when the corporation on dissolution distributes those assets to its stockholders.11 But that principle has no application here for M. J. Uline Company received full value upon the sale of its assets. When that realized value was distributed as earned surplus upon dissolution of the corporation, the Estate as sole stockhold er received a taxable dividend. The decedent Uline had invested his capital of $101,480.65. On that investment, his Estate received a return of $588,355.82. There was no loss.12 That is all there is to it.

Affirmed.

. For federal estate and inheritance tax purposes, it was determined that those shares had a fair market value of $624 per share, or a total of $657,072. The petitioners herein have contended that this figure represents the Estate's “basis.”

. The District relied upon Berliner v. District of Columbia, 103 U.S.App.D.C. 351, 258 F. 2d 651, cert. denied, 357 U.S. 937, 78 S.Ct. 1384, 2 L.Ed.2d 1551 (1958).

. See note 1, supra.

. D.C.Code § 47-1557a(a) (1961).

. D.C.Code § 47-1551c(m) (1961).

. There was no suggestion that any part of that surplus had not been “earned.”

. Snow v. District of Columbia, 124 U.S. App.D.C. -, 361 F. 2d 523 (No. 19232, Nov. 22, 1965), slip op. 6, rehearing en banc denied, February 1, 1966.

. Berliner v. District of Columbia, supra note 2, 103 U.S.App.D.C. at 354, 355, 258 F. 2d at 654, 655.

. Cf. Verkouteren v. District of Columbia, 120 U.S.App.D.C. 361, 363 n. 2, 346 F. 2d 842, 844 (1965); General Utilities & Operating Co. v. Helvering, 296 U.S. 200, 206, 207, 56 S.Ct. 185, 80 L.Ed. 154 (1935).

. The Estate points to D.C.Code § 47-1557a (b) (3) (1961) as excluding from gross income the “value of property acquired by gift, devise, or inheritance.” For its “basis,” the Estate also points to D.C.Code § 47-1583 (b) (3) (1961) which provides in the case of property “acquired by gift or inheritance” a taxpayer is entitled to claim the highest valuation placed upon the transfer by the United States since the transfer to the taxpayer had been subject to tax by the Government.

But this case does not involve a sale of the Uline stock by some legatee who acquired it by “inheritance.” The M. J. Uline Company’s assets had been sold by the corporation itself.

. District of Columbia v. Oppenheimer, 112 U.S.App.D.C. 239, 301 F. 2d 563 (1962).

. Moreover the Estate had received the stock as of the date of the death of its decedent on February 22, 1958. More than two years had elapsed before the first partial liquidating distribution occurred on May 3, 1960, with final payment following on December 14, 1960. Of. Snow v. District of Columbia, supra note 7.