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 25 income of $19,877 because of the new shares; and an appeal to the Commissioner of Internal Revenue having been disallowed, she brought action against the collector to recover the tax. In her complaint she alleged the above facts, and contended that in imposing such a tax the revenue act of 1916 violated Article I, § 2, clause 3, and Article I, § 9, clause 4, of the Constitution ofthe United States, requiring direct taxes to be apportioned according to population, and that the stock dividend was not income within the meaning of the sixteenth amendment. A general demurrer to the complaint was overruled upon the authority of Towne ». Eisner (245 U. 8S. 418); and, defendant having failed to plead further, final judgment went against him. To review it, the present writ of error is prosecuted. The case was argued at the last term, and reargued at the present term, both orally and by additional briefs. We are constrained to hold that the judgment of the District Court must be affirmed: First, because the question at issue is controlled by Towne ». Eisner, supra; secondly, because a reexamination of the question, with the additional light thrown upon it by elaborate arguments, has confirmed the view that the underlying ground of that decision is sound, that it disposes of the question here presented, and that other fundamental considerations lead to the same result. In Towne ». Eisner, the question was whether a stock dividend made in 1914 against surplus earned prior to January 1, 1913, was taxable against the stock- holder under the act of October 3, 1913 (eh. 16, 38 Stat. 114, 166), which provided (§ B, p. 167) that net income should include “dividends,” and also “gains or profits and income derived from any source whatever.” Suit having been brought by a stockholder to recover the tax assessed against him by reason of the dividend, the District Court sustained a demurrer to the complaint. (242 Fed. Rep. 702.) The court treated the construction of the act as inseparable from the interpretation of the sixteenth amendment; and, having referred to Pollock ». Farmers’ Loan & Trust Co. (158 U. 8. 601), and quoted the amendment, proceeded very properly to say (p. 704): “It is manifest that the stock dividend in question can not be reached by the income tax act, and ould not even though Congress expressly declared it to be taxable as income, unless it is in fact income.” [t declined, however, to accede to the contention that in Gibbons ». Mahon (136 U. 8. 549), “stock dividends” had received a definition sufficiently clear to be controlling, treated the language of this court in that case as obiter dictum in respect of the matter then before it (p. 706), and examined the question as res nova, with the result stated. When the case came here, after overruling a motion to dismiss made by the Government upon the ground that the only question involved was the construction of the statute and not its constitutionality, we dealt upon the merits with the question of construction only, but disposed of it upon consideration of the essential nature of a stock dividend, disregarding the fact that the one in question was based upon surplus earnings that accrued before the sixteenth amendment took effect. Not only so, but we rejected the reason- ing of the District Court, saying (245 U. S. 426): “Notwithstanding the thought- ful discussion that the case received below we ean not doubt that the dividend was capital as well for the purposes of the income tax law as for distribution between tenant for life and remainderman. What was said by this court upon the latter question is equally true for the former. ‘A stock dividend really takes nothing from the property of the corporation, and adds nothing to the interests of the shareholders. Its property is not diminished, and their interests are not increased. * * * The proportional interest of each shareholder remains the same. The only change is in the evidence which represents that interest, the new shares and the original shares together representing the same proportional in- terest. that the original shares represented before the issue of the new ones.’ Gibbons ». Mahon (136 U. S. 549, 559, 560). In short, the corporation is no poorer and the stockholder is no richer than they were before. Logan County v. United States (169 U. S. 255, 261). If the plaintiff gained any small advantage by the change, it certainly was not an advantage of $417,450, the sum upon which he was taxed. * * * What has happened is that the plaintiff's old certificates have been split up in effect and have diminished in value to the extent of the value of the new.” # This language aptly answered not only the reasoning of the district court but the argument of the solicitor general in this court, which discussed the essential nature of a stock dividend. And if, for the reasons thus expressed, such a divi- dend is not to be regarded as “income” or ‘dividends’ within the meaning of the act of 1913, we are unable to see how it can be brought within the meaning 80601—S. Doe. 26, 70-1——p

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