Stock dividends

Bibliographic data

Monograph

Identifikator:: 175754061X

URN:: urn:nbn:de:zbw-retromon-136496

Document type:: Monograph

Title:: Stock dividends

Place of publication:: Washington

Publisher:: U.S. Gov. Print. Off.

Year of publication:: 1927

Scope:: vii, 273 S.

Digitisation:: 2021

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: [Appendix]

Collection:: Economics Books

STOCK DIVIDENDS 37 tax only those dividends which represented profits earned during the year in which the dividend was paid or in the year preceding. But this court, eon- struing liberally not only the constitutional grant of power but also the revenue act of 1913, held that Congress might tax, and had taxed, to the stockholder dividends received during the year, although earned by the company long before; and even prior to the adoption of the sixteenth amendment. (Lynch ». Hornby, 247 U. 8. 339.5 That rule, if indiscriminatingly applied to all stock dividends representing, profits earned, might, in view of corporate practice, have worked sonsiderable hardship and have raised serious questions. Many corporations, without legally capitalizing any part of their profits, had assigned definitely some part or all of the annual balances remaining after paying the usual eash divi- dends, to the uses to which permanent eapital is ordinarily applied. Some of the corporations doing this, transferred such balances on their books to ‘surplus’ aceount—distinguishing between sueh permanent “surplus” and the “undivided profits” account. Other corporations, without this formality, had assumed that the annual accumulating balances carried as undistributed profits were to be treated as capital permanently invested in the business. And still others, with- out definite assumption of any kind, had so used undivided profits for capital purposes. To have made the revenue law apply retroactively so as to: reach such aceumulated profits, if and whenever it should be deemed desirable to capitalize them legally by the issue of additional stoek distributed as a dividend to stockholders, would have worked great injustice. Congress endeavored in the revenue act of 1916 to guard against any serious hardship which might otherwise have arisen from making taxable. stock dividends representing ae- cumulated profits. It did not limit the taxability to stock dividends represent- ing profits earned within the tax year or in the year preceding; but it did limit baxability to such dividends representing profits earned sinee March 1, 1913. Thereby stockholders were given notice that their share also in undistributed profits accumulating thereafter was at some time to be taxed as income. And Congress sought by paragraph 3 to discourage the postponement of distribution for the illegitimate purpose of evading liability to surtaxes. Fifth. The decision of this court, that earnings made before the adoption: of the sixteenth amendment but paid out in cash dividend after its adoption were taxable as income of the stockholder, involved a very liberal construction of the amendment. To hold now that earnings both made and paid out after the adoption of the sixteenth amendment can not be taxed as income of the stock- holder, if paid in the form of a stoek dividend, involves an exceeding narrow construction of it. As said by Mx. Chief Justice Marshall in Brown ». Maryland (12 Wheat, 419, 446): “To construe the power so as to impair its efficacy, would tend to defeat an object, in the attainment of which the American public took, and justly took, that strong interest which arose from a full conviction of its necessity.” No decision heretofore rendered by this eourt requires us to hold that Congress, in providing for the taxation of stock dividends, exceeded the power conferred upon it by the sixteenth amendment. The two cases mainly relied upon to show that this was beyond the power of Congress are Towne ». Eisner (245 U. S. 418), which involved a question not of constitutional power but of statutory construetion, and Gibbons ». Mahon (136 U. 8. 549), which involved a. question arising between life tenant and remainderman. So far as coneerns Towne v. Eisner, we have only to bear in mind what was there said (p. 425): “But it is not neeessarily true that income means the same thing in the Constitution and the (am) act.” 7 Gibbons v. Mahon is even less an authority for a narrow construc- tion of the power to tax incomes conferred by the sixteenth amendment. In that case the court was required to determine how, in the'administration of an estate in the District of Columbia, a stock dividend, representing profits, received after the decedent’s death, should be disposed of as between: life tenant and remainderman. The question wag in essence: What shall the intention of the testator be presumed to have been? On this question there was great diversity of opinion and practice in the courts of English-speaking countries. Three well-defined rules were then competing for acceptance: two of these involve an PO WE WP ¢ The hardship supposed to have resulted from such a decision has been removed in the revenue act of 1916, as amended, by providing in § 31 (b) that such cash dividends shall thereafter be exempt from taxation, if before they are made, all earnings made since February 28, 1913, shall have been distributed. (Act of Oct. 3, 1917, c. 63, § 1211, 40 Stat. 338; act of Feb. 24, 1919, c. 18, § 201 (b), 40 Stat. 1059.) ? Compare Rugg, C. Ji, in Tax Commissioner ». Putnam (227 Mass. 522, 533): ‘However strong such an argument might be when urged as to the interpretation of a statute, it is not of prevailing force as to the broad considerations involved in the interpretation of an amendment to the Constitution adopted under the conditions preceding and attendant upon the ratification of the fortv-fourth amendment.’’

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