STOCK DIVIDENDS 
fe SE 
So 
43 
Western Union Telegraph Co., 93 N. Y. 162, 189.) The stock in question was 
based on earnings which had been accumulated by the corporation prior to 
January 1, 1913—that is, prior to the adoption of the sixteenth amendment— 
and neither this stock nor the accumulated surplus which it represented was 
subject to taxation without apportionment as being income within the meaning 
of that amendment. It is the decided weight of authority even in those juris- 
dictions which have established a doctrine of apportionment between the tenant 
for life and remainderman, that a “stock dividend” does not go to the life bene- 
ficiary of the income, in case the stock, where it is issued after the creation of 
the life tenancy, is based on surplus accumulated before the life tenancy began. 
(Matter of Osborne, 209 N. Y., 450; Lang ». Lang’s Executor, 57 N. J. Eq. 325; 
Day ». Faulks, 79 N. J. Eq. 66; 81 id. 173; Will of Pabst, 146 Wisconsin, 330.) 
The courts upon whose decisions the Government has relied look through the 
“stock dividend’ to the fund upon which it is based. This is a limitation incon- 
sistent with the position that the “stock dividend” should be regarded as income 
per se. And when, in this case, we look through the stock dividend to the fund 
upon which it rests, we find a surplus invested in plant and property, all of which 
had been accumulated prior to January 1, 1913. The sixteenth amendment had 
no application to income or earnings accumulated prior to its adoption. It was 
not the purpose to endow the Congress with power to reach, without apportion- 
ment, accumulations of property already effected. (Shreveport v. Colo, 129 
U. S. 36, 43; Brushaber ». Union Pacific R. R. Co., 240 U. S. 1, 20.) 
“Income” in an income tax law, unless it is otherwise specified, means cash 
or its equivalent. It does not mean choses in action or unrealized increments 
in the value of property. United States v. Schillinger, 14 Blatchf, 71; Gray v. 
Darlington, 15 Wall. 63, 66; Baldwin Locomotive Works ». McCoach, 221 Fed. 
Rep. 59. The stock in question was not a “dividend” within the meaning of the 
word “dividends” used in the act of 1913. If Congress had intended to embrace 
“stock dividends” based on surplus accumulations capitalized, Congress would 
have said so. (Hyatt ». Allen, 56 N. Y. 553, 556; Gibbons ». Mahon, 136 U. 8S. 
549, 569; Income tax act of 1913, sec. II, subd. 2-B, 38 Stat. 166.) The tax for 
which the act of 1913 provides is an annual tax upon the entire net income 
arising or accruing in the preceding calendar year. For the year 1913 the 
tax was to be computed on the net income accuring after March 1. (Sec. II, 
A, subd. 2, D; Gray ». Darlington, supra; Merchants’ Ins. Co., o. MeCartney, 
1 Lowell, 447; Bailey v. Railroad Co., 106 U. S. 109; People ». Albany Ins. Co., 
92 N. Y. 458, 462; Gauley Mountain Coal Co. v. Hays, 230 Fed. Rep. 110; Doyle 
v. Mitchell, 235 Fed. Rep. 686; C. C. C. & St. L. Ry. Co. v. United States, 242 
Fed. Rep. 18; Lynch ». Turrish, 236 Fed. Rep. 653.) When Congress under- 
took to tax “stock dividends” it. provided for the tax in express terms and 
excluded “stock dividends’ based on surplus accumulations existing prior to 
March 1, 1913. (Act of Sept. 8, 1916, 39 Stat. 756, § 2, (a), (c); Kori v. 
United States, 152 U. 8. 570, 577; war revenue act of October 3, 1917, § 1211, 
40 Stat. 336, adding to income tax act, § 31.) i 
The Solicitor General, with whom Mr. William, C. Herron was on the brief, 
for defendant in error: 
=¥ Ag the case does not involve the constitutionality, but merely the construction, 
of a law of the United States—the income-tax section of the act of October 3, 
1913—the writ of error should be dismissed. (American Sugar Refining Co. ». 
United States, 211 U. S. 155, 161, 162; Arbuckle ». Blackburn, 191 OB. 
405, 415; Cosmopolitan Mining Co. ». Walsh, 193 U. S. 460, 471, 472; 
Lamar ». United States, 240 U. S. 60, 65; Shaw v. United States, 212 U. S. 559; 
Sloan v. United States, 193 U. S. 614, 620.) The question is whether the stock 
dividend was a mere readjustment of capital or whether it constituted income 
to the plaintiff. This is a question to be determined by a construction of the 
statute and does not involve the Constitution. The constitutionality of the act 
is settled by Brushaber ». Union Pacific R. R. Co. (240 U. 8. 1). 
The claim that the act is unconstitutional if construed to cover dividends, 
whether in stock or in cash, derived from earnings prior to the sixteenth amend- 
ment, is denied in Brushaber». Union Pacific R. R. Co., supra; Stanton ». Baltic 
Mining Co. (240 U. S. 103); Edwards ». Keith (231 Fed. Rep. 110; certiorari 
denied, 243 U. S. 638). See also Memphis &e. R. R. Co. v. United States (108 
U. S. 228, 234.) 
«Stocks dividends’ are taxable under the provisions of the act of 1913. The 
term “dividends” denotes merely a species falling within the genus “income,” 
and the question is whether “stock dividends” are included within the term 
“income arising or accruing from all sources.” “Capital” represents the wealth