Court Cases Cited Within This Web Site
Eisner v. Macomber, 252 U.S. 189 (1920)
 

A case whereby the Supreme Court was asked to decide whether stock dividends were considered income and therefore subject to an income tax.

The Court also discussed the Sixteenth Amendment and whether Congress, through this amendment, had authority to tax stock dividends.

While discussing this case, the Court had to determine exactly what “income” was. The Court stated:

After examining dictionaries in common use (Bouv. L. D.; Standard Dict.; Webster’s Internat. Dict.; Century Dict.), we find little to add to the succinct definition adopted in two cases arising under the Corporation Tax Act of 1909 (Stratton’s Independence v. Howbert, 231 U.S. 399, 415, 34 S. Sup. Ct. 136, 140 [58 L. Ed. 285]; Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185, 38 S. Sup. Ct. 467, 469 [62 L. Ed. 1054]), ‘Income may be defined as the gain derived from capital, from labor, or from both combined,’ provided it be understood to include profit gained through a sale or conversion of capital assets, to which it was applied in the Doyle Case, 247 U.S. 183, 185, 38 S. Sup. Ct. 467, 469 (62 L. Ed. 1054).

Regarding the definition of income, Justice Mahlon Pitney declared that “Congress cannot by any definition it may adopt conclude the matter, since it cannot by legislation alter the Constitution, from which alone it derives its power to legislate, and within whose limitations alone that power can be lawfully exercised.”

The Court decided that stock dividends, unlike a cash dividends, were not subject to an income tax. The Court decided that issuing stock dividends neither made the corporation poorer, nor the stockholder richer. Stock dividends were not gain, and thus, could not be considered income.

Full Text: Eisner v. Macomber, 252 U.S. 189 (1920)