STOOK DIVIDENDS 35: 
which the particular thing distributed as a dividend was procured. If the 
dividend is declared payable in cash, the money with which to pay it is ordinarily 
taken from surplus cash in the treasury. But (if there are profits legally avail- 
able for distribution and the law under which the company was incorporated so 
permits) the company may raise the money by discounting negotiable paper; or 
by selling bonds, serip, or stock of another corporation then in the treasury; or 
by selling its own bonds, scrip, or stock then in the treasury; or by selling its 
own bonds, serip, or stock issued expressly for that purpose. How the money. 
shall be raised is wholly a matter of financial management. The manner in 
which it is raised in no way affects the question whether the dividend received 
by the stockholder is income or capital; nor can it conceivably affect the question 
whether it is taxable as income. . 
Likewise whether a dividend declared payable from profits shall be paid in: 
cash or in some other medium is also wholly a matter of financial management 
If some other medium is decided upon, it is also wholly a question of financial 
management whether the distribution shall be, for instance, in bonds, scrip, or 
stock of another corporation or in issues of its own. And if the dividend is 
paid in its own issues, why should there be a difference in result dependent upon 
whether the distribution was made from such securities then in the treasury or 
from others to be created and issued by the company expressly for that purpose? 
So far as the distribution may be made from its own issues of bonds, or preferred 
stock created expressly for the purpose, it clearly would make no difference in 
the decision of the question whether the dividend was a distribution of profits, 
that the securities had to be created expressly for the purpose of distribution. 
If a dividend paid in securities of that nature represents a distribution of profits, 
Congress may, of course, tax it as income of the stockholder. Is the result dif- 
ferent where the security distributed is common stock? 
Suppose that a corporation having power to buy and sell its own stock, pur- 
chases, in the interval between its regular dividend dates, with moneys derived 
from current profits, some of its own common stock as a temporary investment, 
intending at the time of purchase to sell it before the next dividend date and 
to use the proceeds in paying dividends, but later, deeming it inadvisable either 
to sell this stock or to raise by borrowing the money necessary to pay the 
regular dividend in cash, declares a dividend payable in this stock: Can anyone 
doubt that in such a case the dividend in common stock would be income 
of the stockholder and constitutionally taxable as such? (See Green ». Bissell, 
79 Conn., 547; Leland ». Hayden, 102 Mass., 542.) And would it not like- 
wise be income of the stockholder subject to taxation if the purpose of the 
company in buying the stock so distributed had been from the beginning 
to take it off the market and distribute it among the stockholders as a dividend, 
and the company actually did so? And proceeding a short step further: Sup- 
pose that a corporation decided to capitalize some of its accumulated profits 
by creating additional common stock and selling the same to raise working 
capital, but after the stock has been issued and certificates therefor are delivered 
to the bankers for sale, general financial conditions make it undesirable to market 
the stock and the company concludes that it is wiser to husband, for working 
capital, the cash which it had intended to use in paying stockholders a dividend, 
and, instead, to pay the dividend in the common stock which it had planned to 
sell: Would not the stock so distributed be a distribution of profits—and, hence, 
when received, be income of the stockholder and taxable as such? If this be 
conceded, why should it not be equally income of the stockholder, and taxable 
as such, if the common stock created by capitalizing profits, had been originally: 
created for the express purpose of being distributed as a dividend to the stock- 
holder who afterwards received it? 
Second. It has been said that a dividend payable in bonds or preferred stock 
created for the purpose of distributing profits may be income and taxable as 
such, but that the case is different where the distribution is in common stock 
created for that purpose. Various reasons are assigned for making this dig- 
tinction. One is that the proportion of the stockholder’s ownership to the aggre- 
gate number of the shares of the company is not changed by the distribution, 
But that is equally true where the dividend is paid in its bond or in its preferred 
stock. Furthermore, neither maintenance nor change in the proportionate 
ownership of a stockholder in a corporation has any bearing upon the question 
here involved. Another reason assigned is that the value of the old stock held ig 
reduced approximately by the value of the new stock received, so that the stock- 
holder after receipt of the stock dividend has no more than he had before it was 
paid. That is equally true whether the dividend be paid in cash or in other